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Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Third Quarter 2025 Conference Call. [Operator Instructions]. I'd now like to turn the call over to Mr. Wayne Wasechek, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed. Wayne Wasechek: Good morning, and welcome to PotlatchDeltic's Third Quarter 2025 Earnings Conference Call. Joining me on the call is Eric Cremers, PotlatchDeltic's President and Chief Executive Officer. This call will contain forward-looking statements. Please review the cautionary statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found in the appendix to the presentation slides and on our website at potlatchdeltic.com. I'll turn the call over to Eric for some comments, and then I will review our third quarter results and our outlook. Eric Cremers: Well, thank you, Wayne. Good morning, everyone. Thanks for joining us. Yesterday, we announced third quarter total adjusted EBITDA of $89 million. Our overall results were driven by a strong performance in our real estate business from both the rural and the development part of the business. Additionally, I'm pleased with the strong operational performance delivered across all segments this quarter, especially given the challenging market backdrop we continue to navigate through. Before I discuss each of our business segments, I wanted to briefly comment on our recent joint announcement with Rayonier on our proposed merger of equals transaction. As we highlighted on the call a couple of weeks ago announcing the transaction, we believe that the merger between our 2 companies will result in significant strategic and financial benefits beyond what either of us could achieve independently. PotlatchDeltic and Rayonier share complementary business models, similar cultures and capital allocation philosophies and a long-standing commitment to sustainability. This merger will significantly increase the scale of both companies as the combined company will own nearly 4.2 million acres of timberlands across 11 states. The combined company will also continue to operate our efficient and scalable wood products manufacturing business with 1.2 billion board feet of lumber capacity and 150 million square feet of plywood capacity. In addition, the combination will result in a diverse real estate portfolio, including 3 active real estate development projects and robust opportunities to provide land-based and natural climate solutions. From a financial perspective, the combined company will have a strong pro forma balance sheet as well as an enhanced capital markets presence. Through this combination, there is also a significant opportunity to create value through synergies, operational efficiencies and the sharing of best practices. We estimate synergies of $40 million, which will be primarily driven by corporate and operational cost optimization. We expect to close the transaction in late the first quarter or early the second quarter of 2026, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and the approval of PotlatchDeltic's and Rayonier's shareholders. Now shifting to our third quarter operations, starting with Timberlands. The division delivered on its Q3 planned harvest volume of 1.9 million tons with Idaho producing its highest quarterly volume so far this year, which follows typical seasonal patterns. Indexed sawlog prices in Idaho softened in line with broader lumber price declines, while cedar sawlog prices remained elevated, supported by strong regional demand. Across the South, underlying sawlog and pulpwood prices held relatively stable during the quarter despite the seasonal increase in log supply and elevated mill log inventories throughout the region. Moving on to our Wood Products business. The segment reported an EBITDA loss of $2 million in the third quarter. This decline was driven by historically weak lumber prices as muted demand and persistent oversupply continued to plague lumber markets. From an operational standpoint, however, our performance was quite strong. The division delivered 333 million board feet in shipments and produced its lowest average manufacturing cost per thousand board feet since Q2 of 2021, which was prior to the onset of inflationary cost pressures we have experienced over the last few years. We believe these operational results position us well to capture upside when market conditions eventually improve. The downward lumber pricing trend during Q3 ran counter to our expectations, especially given the significant increase in Canadian antidumping and countervailing duties implemented during the quarter. Beyond relatively soft lumber demand, we believe several other factors contributed to the price decline, including Canadian mills accelerating shipments into the U.S. ahead of the higher duties, along with the financial support pledged by the Canadian government to its lumber industry. Despite scattered mill curtailments and production cutbacks across the industry and the recent implementation of 10% Section 232 tariffs for lumber imports from all regions, these measures have yet to generate any meaningful upward momentum in lumber prices. Unfortunately, we are also in a seasonally weak period for lumber demand. Now that said, we believe prices have now stabilized as we head through the remainder of the year, supported by a more balanced supply-demand dynamic and a more normalized level of inventories across the industry. Moving to real estate. The division delivered another robust quarter, driven by strong contributions from both rural and development sales activity. For rural real estate, highlights include 2 larger transactions in Georgia totaling $39 million in revenue, each at attractive multiples to timberland value. We also experienced solid take-up on our residential lot offerings and completed a commercial land sale to a local church in Chenal Valley. Demand for rural real estate remains strong, supported by its appeal as a stable long-term investment. Buyers have been also motivated by additional factors, including conservation, recreation, home sites and adding property that is adjacent to their land ownership. Looking at our natural climate solutions opportunities, we continue to make progress across our various initiatives. Starting with solar, developers are actively evaluating recent adjustments to green energy incentives within the tax bill and assessing how to navigate under the current regulatory environment. While these factors present some potential headwinds, interest from well-established solar developers remain solid. We currently maintain 34,000 acres under solar option -- solar option agreements and expect this to grow to 40,000 to 45,000 acres by year-end, reinforcing our confidence in the long-term opportunity. Additionally, the Smackover formation in Southwest Arkansas continues to attract significant interest from major lithium developers. Since last quarter, we signed a new mineral lease agreement with Saltwerx LLC, a subsidiary of ExxonMobil Corporation, covering approximately 4,200 surface acres for lithium development in the region. With this agreement, our total surface acres under mineral leases in the Smackover formation now stands at over 5,000 acres, underscoring the growing strategic value of our holdings in the emerging market for lithium. We remain excited about the unique optionality that timberland ownership provides and are committed to expanding our natural climate solutions portfolio. This includes opportunities in forest carbon offsets, carbon capture and storage and other emerging initiatives that position us to create long-term value. Shifting to capital allocation. In the first half of the year, we repurchased $60 million of common stock through our 10b5-1 program. Due to our pending merger with Rayonier, our ability to repurchase shares has been and will be limited prior to closing. That said, we continue to maintain a solid financial position, providing flexibility to navigate the current macroeconomic environment while staying focused on executing on our strategic plan, including our 2025 CapEx program. Now moving to the U.S. housing market. Overall demand remains constrained by weaker consumer confidence and affordability challenges with many prospective homebuyers waiting for mortgage rates to move lower. Encouragingly, rates, in fact, are trending lower. The 30-year fixed rate mortgage fell to 6.1% in October and home affordability reached its best level in 2.5 years. Combined with anticipated further easing of interest rates by the Fed, these developments could point to a more favorable housing environment ahead. Furthermore, the long-term fundamentals of housing demand remain intact, including a persistent housing shortage and demographic tailwinds for millennial household formation. As affordability improves, these structural drivers should reassert themselves, supporting future growth in housing activity. Shifting to the repair and remodel market. Activity has been muted as economic uncertainty and elevated borrowing costs weigh on discretionary spending, particularly for large-scale remodeling projects. However, leading indicators, including the Joint Center for Housing Studies and the National Association of Homebuilders suggest that demand for home improvement will remain stable in the near term, followed by more modest but positive growth in 2026. Looking at our own business, demand from our home center customers started the quarter seasonally slower but strengthened as the quarter progressed. This momentum has continued as we move toward the end of the year. The long-term fundamentals of this segment remain compelling, driven by an aging housing stock, historically high home equity levels and the persistence of hybrid and remote work, which continues to fuel demand for functional improvement and aesthetic home upgrades. To wrap up my comments, while near-term headwinds persist, we maintain a positive view of the long-term fundamentals that drive demand in our industry. Looking forward, we believe lumber prices have reached their low point for the year and have generally stabilized. We are optimistic that the combined impact of higher Canadian softwood lumber duties, the 10% Section 232 tariffs and supply reductions from an increasing number of mill curtailments will gain traction to support improved domestic lumber pricing as we move through the remainder of the year. Finally, we remain focused and disciplined in operating our businesses efficiently and effectively while advancing the key work streams necessary to complete our proposed merger with Rayonier, a transformative transaction that positions the combined company for growth and delivering long-term shareholder value. I will now turn it over to Wayne to discuss our third quarter results and our outlook. Wayne Wasechek: Thank you, Eric. Starting from Page 4 of the slides. Total adjusted EBITDA was $89 million in the third quarter compared to $52 million in the second quarter. This sequential quarter-over-quarter increase in adjusted EBITDA is mainly attributed to strong real estate activity in both our rural and development real estate businesses. I will now review each of our operating segments and provide more color on our third quarter results. Starting with our Timberlands segment, which is presented on Slides 5 through 7. The segment's adjusted EBITDA increased from $40 million in the second quarter to $41 million in the third quarter. Our sawlog harvest in Idaho increased from 360,000 tons in the second quarter to 411,000 tons in the third quarter. Our quarterly harvest volume is typically the highest in the third quarter as dry weather results in more favorable logging conditions. Sawlog prices in Idaho declined by 5% per ton compared to the second quarter. This decrease was driven by lower index sawlog prices, partially offset by seasonally lighter sawlogs. Log and haul costs were higher compared to the second quarter due to a greater seasonal mix of steep terrain logging operations in Idaho, along with longer haul distances. In the South, we harvested 1.5 million tons in the third quarter, consistent with harvest volumes in the second quarter. Average Southern sawlog prices were up by just over 1% from the second quarter. This increase in price primarily reflects a higher mix of larger diameter pine sawlogs and a seasonal increase in hardwood volumes, both within our Gulf South region. Turning to Wood Products, shown on Slides 8 and 9. Adjusted EBITDA was a loss of $2 million in the third quarter compared to a positive $2 million in the second quarter. This decline was primarily driven by lower lumber prices despite strong operational execution demonstrated by lower average cash processing costs and higher shipment volume. Our average lumber price realization decreased $54 per thousand board feet or 12% from $450 per thousand board feet in the second quarter to $396 per thousand board feet in the third quarter. Comparatively, the random lengths framing lumber composite average price was approximately 10% lower in the third quarter compared to the second quarter. Note that our regional mix and product mix differs from the composite, and there's also a timing difference between our sales and the composite. Lumber shipments increased by 30 million board feet, rising from 303 million board feet in the second quarter to 333 million board feet in the third quarter. Transitioning to Real Estate on Slides 10 and 11. The segment generated adjusted EBITDA of $63 million in the third quarter compared to $23 million in the second quarter. During the third quarter, our rural real estate business sold approximately 15,600 acres at an average price of nearly $3,300 per acre. Notably, sales included 2 large transactions in Georgia, the conservation land sale generating over $21 million in proceeds and a nearly $18 million recreation sale to a landowner with adjacent property. In the Chenal Valley development side of our real estate business, 55 residential lots were sold at an average price of $139,000 per lot in the third quarter. Sales reflected a balanced mix of premium and more affordable lots, supporting diverse buyer demand. The division also completed a nearly $7 million commercial land sale in the quarter for $533,000 per acre. Turning to our capital structure summarized on Slide 12. We finished the quarter with $388 million in liquidity, including $89 million of cash on our balance sheet as well as availability on our undrawn revolver. Additionally, we successfully refinanced $100 million of debt that matured in August and utilized our final forward starting interest rate swap. This refinancing approach resulted in only a $50,000 annual increase in our cash interest costs and maintains our weighted average cost of debt at approximately 2.3%. Capital expenditures were $16 million in the third quarter. This amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement, and it excludes timberland acquisitions. For the full year, we continue to anticipate CapEx spend of $60 million to $65 million, which excludes the final closeout payment of $6 million for the Waldo sawmill project that we made in Q1 and any additional potential timberland acquisitions. I will now provide some high-level outlook comments. The details are presented on Slide 13. Within our Timberlands segment, we anticipate harvesting between 1.7 million and 1.8 million tons in the fourth quarter, with approximately 80% of this volume sourced from the South. In Idaho, harvest volumes are anticipated to be just above Q1 and Q2 levels. Additionally, sawlog prices in Idaho are expected to decline approximately 13% in the fourth quarter, driven mainly by lower prices on index volume. As a reminder, our index volume reflects a 1-month lag. Consequently, Q4 index pricing is based on September through November lumber prices with both September and October experiencing relatively low lumber prices. In the southern region, we anticipate harvesting approximately 1.3 million to 1.4 million tons during the fourth quarter, and we expect that our average sawlog prices will decline slightly based on sawlog mix and mills wanting to maintain log inventory levels that are in balance with current lumber market demand. We plan to ship 290 million to 300 million board feet of lumber in the fourth quarter. Our average lumber price thus far in the fourth quarter is $397 per thousand board feet, which is near our average lumber price for the third quarter. This is based on shipments of approximately 120 million board feet of lumber. Turning to our Real Estate segment. We expect to sell approximately 5,000 acres of rural land at an average price of $3,200 per acre in Q4. For our Chenal Valley development, we expect to close on approximately 46 residential lots at an average of $95,000 per lot. Further details regarding real estate can be found on Slide 13. We expect total adjusted EBITDA in the fourth quarter to be lower than third quarter results. The anticipated decline is mainly driven by fewer rural real estate acres sold, reduced residential and commercial development activity and within Timberlands, seasonally lower harvest volumes, combined with softer index pricing on Idaho sawlogs. That concludes our prepared remarks. Rob, I would now like to open the call to questions. Operator: [Operator Instructions]. Your first question today comes from the line of Ketan Mamtora from BMO. Ketan Mamtora: Maybe to start with, Eric, can you talk a little bit about what you are seeing on the -- in the pulpwood markets in the U.S. South. We've seen a pretty big erosion here in prices over the last few years. We've also seen a lot of pulp and paper mill closures here recently. So even if we assume that sort of overall demand picks up, that's a lot of lost tonnage. Can you sort of talk about what you're seeing in the pulpwood market? Wayne Wasechek: Yes. Ketan, this is Wayne. I'll take that. Yes, you're right. Unfortunately, we have seen mill closures and capacity coming out of the market. This has been a trend. I mean, even recently, we've seen some various mill closures. But I would say for us, nonetheless, given our size, our scale and the relationships that we have with customers, we find a home for our volume. And I think we tend to have more options than others may have. So our log takeaway has really been pretty steady. Our team does a great job of navigating these markets. And I think the other advantage we have is just the scale and diversification. So for us, I think that's what it really comes down to. But certainly, where the mills are, that does put pressure on pricing for pulpwood. But I think the other thing that I would highlight is just when we -- Eric made some comments on the pending merger with Rayonier. And we look at -- from that, we look at many strategic and financial benefits of the merger, and this is just one area where the combined company, we have greater scale and diversification, which mitigates the exposure to any one market that we can have. Eric Cremers: Yes. And don't forget, Ketan, this is Eric. You've got -- every market is different. And I think -- and Rayonier can talk about this on their call. But you think about where the hurricane went through some of their properties, I don't know, a year ago, maybe a little bit more, knocked down a bunch of trees that really depressed prices for a period of time. But now those trees are, by and large, those salvage logs are gone, and there's, if you will, a shortage of green logs to feed the mills. So different regions are going to react differently to different events. And you can't say that everything is the same in the South because it varies dramatically from wood basket to wood basket. Operator: Your next question comes from the line of George Staphos from Bank of America. George Staphos: The question I had, I think at one point in time, when you were guiding for the quarter, you're guiding maybe for about 310 million to 320 million board feet of lumber. You obviously ran better. Obviously, in a market that was somewhat depressed. So I was just curious, help us understand sort of the commercial strategy as you're running more of that capacity in what was a tough market. And Wayne and Eric, as we look out to fourth quarter, holding price aside, should we expect a relatively consistent level of cash margin out of the Wood Products business versus 3Q? And I had a quick follow-up. Eric Cremers: Yes. So George, to answer the first question, we're always trying to lower our per unit costs in our mills. And it is true of most first quartile mills that, that last stick of lumber coming out the door, coming out the manufacturing process is going to be your lowest cost stick of lumber. So yes, we lost a little bit of money in Wood Products in the quarter, but don't forget there's overhead associated with running the mills. And so it might look as though that last stick of lumber was negative, had negative margin, but the reality is it probably had positive margin. We have got principally a set of first quartile mills. And while the mills may be profitable because of overhead, it might flip them to negative. So I think you got to keep that in mind as you think about how we run our mills, how we operate our mills. We generally run them as hard as we can to leverage and absorb overhead costs in each stick of lumber. George Staphos: Let me just wanted to hear. Go ahead. I'm sorry. Eric Cremers: Yes. Yes. So that's the first one. The second one, yes, I do think prices are going to move a little bit higher as we move through the fourth quarter here. And when we talked -- I think our supplemental slides show pricing being flat. I think they could be up 2%, 3%, 4%, something like that. So I don't expect a lot of movement. I think if you look across the different -- the waterfall chart for Wood Products going from Q3 to Q4, I think you might see log costs could be a little bit negative. If we have higher lumber prices, that's going to hurt our St. Maries mill, for example. We might have log costs get a little bit more -- processing costs a little bit more expensive because we're getting into a slower production period with colder weather. But I think generally, you would expect flat performance, excluding price, but I do expect prices to move up a little bit in the quarter. George Staphos: Okay. I appreciate that. And then just give us a bit more detail in terms of some of the very good performance in real estate in the quarter. It was a bit ahead of our expectations. It was, I think, ahead of your initial guidance. Kind of I recognize these are episodic, right? It's hard to predict timing at times, but was there anything else that drove the better-than-expected performance in real estate and why some of those sales occurred in the third quarter? Wayne Wasechek: Yes, George. Again, like you said, it can be -- sales are rather lumpy, and we're always looking at the pipeline that we've developed and based on timing, can shift from quarter-to-quarter. I think for this quarter for us, though, we had a couple of larger sales as we noted. The bigger one is on conservation. That one, we had a large conservation sale come through. So that really showed the outperformance in the quarter relative to guidance. But overall, what we've seen throughout this year is there's been strong demand for rural real estate for recreation to adjacent landowners. We've seen it all come through. But I think the real difference for us has been on the conservation side. And this year, we've had, I would say, about 10,000 acres sold under conservation transactions. And we're guiding to 35,000 acres for the full year. Well, those conservations are kind of more onetime type transactions. So you take that out of the mix, that gets us to about 25,000 acres, which really is in line with what we've talked about. Generally, market demand for us is, say, around 1% of our portfolio, which would put us at around 20,000 to 25,000 acres. And excluding these conservation sales, I think really that lines up with our full year expectation. George Staphos: Appreciate it, Wayne. Last one for me, Eric, if you could talk, are there any sort of green shoots, if you will, no pun intended in terms of what's happening on the supply side relative to tariffs, relative to duties. I mean it's -- we've talked about in our research it's been kind of a weak -- too weak of a supply-demand environment for any of these sort of constraints, tariffs and do to have an effect on pricing. Are you seeing anything on the ground now where you are finally starting to see some supply constraint and boding well for kind of a spring building season? What are your customers saying in terms of the building season, recognizing it's not the spring time, it's November? [indiscernible]. Eric Cremers: Yes, George, I am hearing mildly favorable things about the outlook for next year. I mean, you're right. This year is kind of -- we're writing the rest of the year off. They're just -- we're entering a slow period, gets cold outside, construction activity slows. So I don't have much in the way of hope for higher log prices as we move through the fourth quarter, although I do expect them to move up a little bit. And why do I expect them to move up a little bit is because we are seeing more and more curtailments. It almost seems like every other day, there's a new announcement. Certainly, you saw Weyerhaeuser's results are taking down production, I think, 10% in Q4 -- we've had [indiscernible] , Western Forest Products, Interfor, Domtar, company after company has been announcing curtailments. So I do think it has been coming and it will continue to come. These curtailments given the duties and the tariffs that are now in place. And I do think -- if you had to ask me, gee, what do you think is going to happen in lumber prices in '26 versus '25, we're just now getting into the budgeting cycle. But I'd guess prices could be up $30 to $40 full year over full year. It's still not where I think they ought to be longer term for the industry to be healthy. But I do think it is positive, and it's moving in the right direction. And these curtailments, somebody announces them today, but they don't take full effect for who knows, 2, 3 months as they work down their log decks. So it just takes a while for it to really have an impact. So I do think next year is going to be better. I do think we have bottomed here in the fourth quarter. I do feel like prices are moving in the right direction. But again, it's a slow time of the year. So I don't think we're going to see a lot of price action before the end of the year. Operator: Your next question comes from the line of Mark Weintraub from Seaport Research Partners. Mark Weintraub: First, just a little bit on the real estate side. So how much in total revenue with the conservation sales? And maybe what were the type of price per acre in the quarter or in the year have contributed? Wayne Wasechek: I think for the forecast, we're looking at maybe about 25% of our total rural revenue is associated with those 10,000 acres. Mark Weintraub: Got you. And what type of pricing is that relative to sort of the other? And I guess the part of the question is I'm trying to get a sense as to, are you seeing any changes in what you might consider apples-to-apples pricing in your real estate sales? Has there been upward bias? Or has it been pretty flat? Wayne Wasechek: No. I think, Mark, demand is strong. And because of that, we've been able to increase our prices, I think, fairly significantly. I mean if you look on a kind of a consistent mix basis, year-over-year, I think we would say maybe prices are up about 10%. Mark Weintraub: That's helpful. And shifting gears on the lumber side, it's kind of interesting one of your large competitor had talked about its pricing being down, I think it's like $20 or something quarter-to-date and you are flat. Is there -- any thoughts -- and if you look at random lengths, I think it probably is down somewhat. So is there some mix? Or what might be kind of any thoughts as to why your pricing is better? -- quarter-to-date? Eric Cremers: Yes. Mark, there could be a number of factors at play. I suspect it's more mix than anything else. We've got a great stub program with some home centers that could be part of it. It could be that we produce a lot of wides in the South. We're not heavy to 2x4s in the South. Wides have been weak all year long in the South. They've finally started to improve. I suspect that's having a part of the explanation here. But it's going to be mixed at the end of the day. Mark Weintraub: Great. And just for identification, wides, that would primarily go into what end use? Eric Cremers: Well, it be home construction, but it's like 2x12s, 2x10s, things like that. We normally -- in the spring, wides tend to take a nice run in price because it's wet weather and bigger trees are hard to get to. They tend to be underwater. And that didn't happen this year. This year, it was pretty dry. Access to the larger trees was there, and so prices never really, really ran. And I think we're now getting back to a more normal kind of a price environment where we do get a better premium for wide versus 2x4s. Mark Weintraub: Okay. Great. And last, maybe on the lithium that's back over 5,000 acres now, can you kind of help us understand potential economics on that part of the business? Wayne Wasechek: Yes. From a P&L standpoint, there's really kind of a wide range of potential outcomes due to various factors. I think at this time, we're not providing any sort of guidance related to that. And there are a couple of large variables that will drive the opportunity ultimately. One, it depends on what is the price of lithium. And then two, the ultimate concentration and the amount of lithium that is extracted. So those factors really drive what our kind of lease and royalty rates will be from the opportunity. So at this time, it's too early to provide any detailed insight into P&L opportunity. Eric Cremers: We kind of need Exxon to build that processing plant first, Mark, and it's going to take a few years, you can imagine. Mark Weintraub: Sure. I mean, do you have a perspective on what the timing of that plant might be? Wayne Wasechek: Yes, we don't at this time. Mark Weintraub: Okay. Okay. Fair enough. And then lastly, probably also something you can't really answer, but is there any more color you can share with us on the process that led to the merger transaction with Rayonier at this point? Eric Cremers: Yes. I think you're going to have to wait until the proxy is filed on that one, Mark, and there'll be a lot of detail in there. Operator: Your next question comes from the line of Mike Roxland from Truist Securities. Michael Roxland: Congrats again on the deal and all the progress. I just wanted to confirm if I heard correctly, lumber inventories in the channel, it sounds like -- one question is where do they stand? Because I think I heard you said they're lean right now or certainly down from where they were, but I just want to confirm that. Eric Cremers: Yes. I think they are lean, Michael. If you're a dealer out there somewhere, you don't need to speculate. You can get just-in-time deliveries. There's plenty of capacity out there. So I think they're pretty lean. Michael Roxland: Got it. And then on Natural Climate Solutions, any -- it sounds like things are pretty good in terms of your pipeline, maybe a couple of issues potentially in solar, but it doesn't really sound like it looks like your order book is going to be pretty full by the end of the year. But just wondering if you have any concerns regarding government funding cuts. Obviously, the government is pretty aggressive with wind from the outset. They become more aggressive with solar recently. So I'm wondering if that's giving you any pause in terms of the growth potential near term for some of those NCS initiatives. Wayne Wasechek: Yes. I don't -- we don't think so, Mark. I think some of the concerns may be overstated. I mean I think where we get that is just from what we're hearing from solar developers. We're continuing to have active discussions and interest. And like we've said, we expect to grow acres under solar option by the end of the year. So those factors point us in the direction that, yes, we're still very bullish on solar. And we're also dealing with more sophisticated solar developers. They know how to build a successful project. They've done this before. They've been through various cycles and they also have the financial wherewithal to execute these projects. I mean we've done a couple of solar deals even pre-IRA funding, and that just proves that deals can be done without these incentives. So you just look at the overall energy environment, I mean, the issue remains there's still a need to keep pace with energy demand, and we certainly believe that this is part of the solution. So... Michael Roxland: Got it. And one final question. Just I wanted to follow up on with respect to real estate sales. Is there anything in your pipeline that has the potential to maybe close earlier this year than, let's say, in 2026? So maybe you're working on some things that have a January or early February type -- anticipated closing date, but could potentially -- is there anything that maybe has the type of time frame that could be accelerated into this year before you some additional upside as you had in 3Q? Wayne Wasechek: Yes. At this time, we're just sticking with the guidance that we've given, the 5,000 acres for Q4. That's what we have insight to, and we believe. But again, yes, there can be timing of both good and bad. So I think we kind of play it where we think it will come through. Operator: At this time, I'm showing there are no more questions. I'll now turn the call back over to Wayne Wasechek. Wayne Wasechek: Thank you, everyone, for joining us this morning. Just please contact me with any follow-up questions. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: " Greg Mann: " Thomas Doyle: " Troy Wilson: " Mollie Leoni: " Brian Powl: " Unknown Analyst: " Li Wang Watsek: " Cantor Fitzgerald & Co., Research Division Jason Zemansky: " BofA Securities, Research Division Yue-Wen Zhu: " LifeSci Capital, LLC, Research Division Operator: Good day, everybody. My name is Danny, and I will be your conference operator today. At this time, I would like to welcome you to the Kura Oncology Third Quarter 2025 Conference Call. [Operator Instructions]. At this time, I would like to turn the call over to Greg Mann from Kura Oncology. Greg Mann: Thank you. Thank you, Danny. Good morning, and welcome to Kura Oncology's Third Quarter 2025 Conference Call. Joining the call today are Dr. Troy Wilson, President and Chief Executive Officer; Tom Doyle, Senior Vice President, Finance and Accounting. Dr. Mollie Leone, Chief Medical Officer; and Brian Powl, Chief Commercial Officer, are also on the call and available to answer questions. Before I turn the call over to Dr. Wilson, we remind you that today's call will include forward-looking statements based on current expectations. Such statements represent management's judgment as of today and may involve risks and uncertainties that cause actual results to differ materially from expected results. Please refer to Kura's filings with the SEC, which are available from the SEC or on the Kura Oncology website for information concerning risk factors that could affect the company. With that, I'll turn the call over to Troy. Troy Wilson: Thank you, Greg. Good morning, and thank you all for joining our third quarter financial results conference call. Over the past quarter, we've continued to significantly advance both our clinical pipeline as well as preparations for the anticipated commercial launch of ziftomenib, our once-daily investigational menin inhibitor for acute myeloid leukemia. I'll begin with an update on zifto, followed by brief remarks on our commercial readiness and our farnesyl transferase inhibitor program. The FDA review of ziftomenib for treatment of patients with relapsed and refractory NPM1-mutated AML remains on track with a PDUFA target action date of November 30, 2025. Communication with FDA continues to be open and constructive, and we remain focused on achieving a successful review outcome. Based on clinical data from the KOMET-001 study, which has been presented at a major medical meetings and published in the Journal of Clinical Oncology in September, we're confident ziftomenib has a differentiated and favorable benefit risk profile. And if approved, ziftomenib could potentially reset the commercial landscape and become the menin inhibitor of choice for eligible patients. Although while the regulatory review process for ziftomenib progresses, our clinical team continues to execute on a strategic development plan targeted at addressing the large unmet need beyond the relapsed/refractory setting where we believe ziftomenib's benefit risk profile will be even more competitive and more impactful for patients. At EHA earlier this year, we reported updated combination data for ziftomenib with 7+3 intensive chemotherapy in newly diagnosed NPM1 mutant and KMT2A rearranged AML. These data were very encouraging, showing high rates of complete remission and MRD negativity in over 70 patients across the combination cohorts with a safety profile consistent with what is expected in patients treated with 7+3 alone. These results highlight ziftomenib's potential as an early intervention, offering a meaningful opportunity to improve patient outcomes. Yesterday, we announced acceptance of 2 oral presentations at ASH, which will feature data on ziftomenib in combination with venetoclax and azacitidine chemotherapy. Both abstracts, one in the newly diagnosed setting and the second in the relapsed/refractory setting reported high response rates and MRD negativity with a safety profile consistent with previous reports. The abstracts used data cutoff of June 20, 2025, and updated results reflecting additional follow-up will be reported in the oral presentations next month. We plan to host a virtual investor and analyst event to discuss these ASH presentations on Monday, December 8, at 12:30 p.m. Eastern Time. Details will be available on our website. Encouraged by these positive results, we've advanced rapidly into our KOMET-017 frontline Phase III trials. KOMET-017 comprises 2 randomized, double-blind, placebo-controlled trials to evaluate ziftomenib in combination with both intensive 7+3 and non-intensive ven/aza chemotherapy regimens in patients with newly diagnosed NPM1 mutant or KMT2A rearranged AML. The program aims to advance ziftomenib to the frontline setting with potential to treat patients earlier in their disease course when the opportunity to alter its trajectory is greatest. We're targeting enrollment at over 150 global sites with a large proportion in the U.S. Each KOMET-017 trial includes dual primary endpoints to support potential U.S. accelerated and full approvals. The intensive chemotherapy combination study evaluates MRD-negative complete response, or CR, and event-free survival. The nonintensive chemotherapy combination study assesses CR and overall survival. Site activation is accelerating in each of these company-sponsored registrational trials and patient enrollment is progressing well. Continuing this momentum, last month, we opened a trial cohort to assess ziftomenib combined with 7+3 induction chemotherapy and quizartinib, an approved FLT3 inhibitor in patients with newly diagnosed AML harboring FLT3-ITD NPM1 mutant co-mutations. FLT3 mutations represent one of the most common and challenging genetic mutations in AML with limited durable treatment options. Our preclinical studies suggest ziftomenib and quizartinib synergize to enhance activity without undue toxicity. Note, this effort also builds on our clinical experience with the combination of ziftomenib and gilteritinib in the relapsed/refractory NPM1 mutant setting. Enrollment in that trial has been robust, and we intend to present preliminary Phase I data at a major medical meeting next year. With these studies now underway, ziftomenib development is active in all 3 major frontline settings, collectively representing up to 50% of incident AML cases in the U.S. Turning now to commercial preparations. Our teams are launch ready and confident in our execution plan across the commercial organization from marketing, market access as well as patient support and sales analytics, field operations and sales, our teams are fully mobilized and prepared to execute as soon as ziftomenib is approved. Our disease awareness campaigns have exceeded their targets. Our preapproval information exchanges with key payers and other market decision-makers are complete, offering us confidence that we will facilitate rapid access and uptake. Our limited distribution network is fully aligned and ready to support product upon approval. And our team of experienced oncology account managers is already engaged in profiling target accounts. In early October, we and our partner, Kyowa Kirin, held a joint launch readiness meeting where our 2 field teams of Kura and Kyowa Kirin what we finally call 1K completed their training and precertification. The excitement and alignment across both organizations is palpable, and the 1K team stands ready to deliver upon approval. Turning now to our farnesyl transferase inhibitor portfolio. Last month, we presented new clinical data, highlighting the potential of FTIs to safely combine with major classes of targeted therapies, including PI3-kinase alpha inhibitors, KRAS inhibitors and anti-angiogenic tyrosine kinase to overcome resistance pathways and enhance antitumor activity. In our FIT-001 Phase I trial evaluating darlafarnib, our next-generation FTI in combination with cabozantinib in patients with renal cell carcinoma, we observed a manageable safety profile across multiple dose levels of each agent, including at the full label dose of cabozantinib. Antitumor activity was seen across all dose combinations, including in patients with prior exposure to cabozantinib. The objective response rate or ORR was 33% to 50% in clear cell renal cell carcinoma and 17% to 50% in patients with prior cabozantinib exposure. The KURRENT-HN trial evaluates tipifarnib, our first-generation FTI with alpelisib in patients with PIK3CA-dependent head and neck squamous cell carcinoma. This combination also demonstrated a manageable safety profile and robust antitumor activity in a heavily pretreated patient population, where meaningful benefit would not be expected from either agent alone. An ORR of 47% was observed at a dose of tipifarnib of 1,200 milligrams per day and alpelisib at 250 milligrams per day. We see tremendous promise in darlafarnib and the broader potential of farnesyl transferase inhibition as a differentiated mechanism to extend the reach of precision oncology with the potential to enhance activity of PI3-kinase alpha inhibitors, KRAS inhibitors and TKIs, darlaifarnib represents a very substantial commercial opportunity with the potential to address more than 200,000 incident patients annually in the U.S. alone. We view our FTI platform as a strategically important pillar of growth that complements our leadership in menin inhibition. Our dual pipeline strategy positions Kura with 2 clinically validated mechanisms that address some of the most pressing needs in precision oncology. We expect to have more to share regarding our FTI clinical development plans and business development strategy in 2026, supported by a steady cadence of data presentations at medical meetings throughout the year. Kura remains in a strong financial position to execute across our pipeline, advance the development of ziftomenib and support our commercialization activities. Our partnership with Kyowa Kirin has enabled us to invest in a robust, expansive and accelerated development plan for ziftomenib. We recently received 2 $30 million milestone payments payable for the first patients dosed in the 2 KOMET-017 Phase III trials, which brings the total milestones received this year to $105 million. We expect approximately $315 million more in near-term milestone payments, including a substantial milestone payment associated with commercial launch of ziftomenib. This is consistent with the $420 million in near-term milestones we announced at the inception of the partnership with Kyowa Kirin last November. We reported pro forma cash of $609.7 million for the period. This figure includes milestone payments received in October and November 2025 and reflects a strong capital position to advance our pipeline through key clinical and regulatory milestones. I'll now turn it over to Tom, who will review the third quarter financial results. Thomas Doyle: Thank you, Troy. Collaboration revenue from our Kyowa Kirin partnership for the third quarter of 2025 was $20.8 million compared to no revenue for the third quarter of 2024. Research and development expenses for the third quarter of 2025 were $67.9 million compared to $41.7 million for the third quarter of 2024. General and administrative expenses for the third quarter of 2025 were $32.8 million compared to $18.2 million for the same period of 2024. Net loss for the third quarter of 2025 was $74.1 million compared to a net loss of $54.4 million for the third quarter of 2024. This included noncash share-based compensation expense of $11 million compared to $8.3 million for the same period in 2024. As of September 30, 2025, Cura had cash, cash equivalents and short-term investments of $549.7 million compared to $727.4 million as of December 31, 2024. As adjusted for the $60 million in KOMET-017 milestone payments under our collaboration agreement with Kyowa Kirin, Kura had on a pro forma basis, $609.7 million in cash, cash equivalents and short-term investments as of September 30, 2025. Based on our current operating plans, we believe that our cash, cash equivalents and short-term investments as of the end of the third quarter will be sufficient to fund our current operating expenses in 2027. And if we include anticipated collaboration funding under the Kyowa Kirin agreement, Kura's financial resources should support advancement of our ziftomenib AML program through top line results in our frontline combination program. With that, I'll turn the call back over to Troy. Troy Wilson: Thank you, Tom. Before we open the call for questions, let me just briefly highlight the key milestones we expect over the coming months and into next year. For ziftomenib and our menin inhibitor programs, we look forward to continued engagement with FDA reviewers as we approach our PDUFA target action date of November 30 for ziftomenib as a monotherapy for patients with relapsed/refractory NPM1 mutant AML, present preliminary clinical data in newly diagnosed NPM1 mutant AML and updated clinical data in relapsed/refractory NPM1 mutant and KMT2A rearranged AML from our KOMET-007 cohorts evaluating ziftomenib in combination with ven/aza at the ASH Annual Meeting to be held next month in Orlando. And finally, presenting preliminary clinical data from the KOMET-008 cohort evaluating ziftomenib in combination with the FLT3 inhibitor gilteritinib in patients with relapsed/refractory NPM1 mutant AML in 2026. For our farnesyl transferase inhibitor programs, we expect to initiate one or more expansion cohorts of darlafarnib and cabozantinib in patients with advanced renal cell carcinoma in the first half of 2026, to present updated dose escalation data from the combination of darlafarnib and cabozantinib in advanced renal cell carcinoma in 2026, to present clinical data from the combination of darlafarnib and adagrasib in patients with KRAS G12C mutated solid tumor indications in 2026. With that, Danny, we're ready to begin the question-and-answer session. Operator: [Operator Instructions] Our first question today comes from [ Jonathan Chang ] at Leerink Partners. Unknown Analyst: This is [ Albert Agustin ] on for [ Jonathan Chang ]. What do you foresee will be the makeup of account types that you are trying to penetrate for zifto launch? Are there any particular account types that you are focusing on? And also, are there any plans to include zifto in the NCCN guideline? Troy Wilson: Sure. Thanks, [ Albert ]. In general, we're going to try to limit it to one question. The second one is easy, but please, if folks can limit it to one question so we can get everybody. Brian, let me ask you if you can take Albert's 2 questions in turn. Brian Powl: Sure, absolutely. Thanks, Albert, for the questions. So our expected account types here are typically going to be the specialty hematologists. We anticipate a mix of academic -- large academic institutions as well as in some of the larger community oncology practices. It's going to be similar. Well, I think we get into our overall targeting strategy. We have probably about 4,000 HCPs that we're targeting. Within that range, I'd say, probably 78% of that is going to be in the academic setting, and then we'll have -- the rest of the focus will be on the community oncology practices that are treating those AML patients and particularly the relapsed/refractory patients. To your second question, just quickly to answer, yes, our plans are to submit the KOMET-01 data on the basis of our approval soon after approval. You can't submit to the NCCN for a listing until you have FDA approval. So our plans are to submit that within days of approval. Operator: Our next question comes from Li Watsek at Cantor Fitzgerald. Li Wang Watsek: On the progress. Maybe just one on the ASH update. Can you just talk about what we should expect for the actual oral presentations versus what's in the abstract release yesterday? Yes. Troy Wilson: Thanks, Li, for the question. Mollie, do you want to take that one? Mollie Leoni: Sure. As Troy pointed out, the data cut was back in June for what was submitted to ASH. So obviously, we've got many months more worth of data. So you'll see not only more evaluable patients being able to be reported and the evolution of responses across the whole patient population. You'll also see new information about MRD negativity as well as just longer follow-up and safety information in general. Operator: Our next question comes from Salim Syed of Mizuho Securities. Salim Syed: I love the revised format of the call. I appreciate it. I guess one for us, Troy, maybe just on the new label that we got from Syndax, which includes Tsad now and the black box. Just curious, there seems to be varying views on if this actually matters or not. Just what does it mean for you? What does it mean for the space as you think about your own NPM1 launch and also as you progress here towards first line in particular, which I guess there's a view out there that it doesn't matter because first line maybe is -- you wouldn't see Tad as much. But curious to just get your view as the space evolves here. Troy Wilson: Yes. Salim, thanks for the question, and glad you're appreciating the new format. This is -- there's a lot that I think we can talk about here. We'll have more to say if and when we get approval of ziftomenib here coming up very quickly on our PDUFA action date. A few thoughts. And I'm going to give my comments, and I'm going to ask Mollie for her because she really needs to speak to this from a clinical perspective. But first of all, Salim, maybe the magnitude of the risk. This is a box warning. So a box warning is as serious as one can have as far as warnings and precautions. It isn't so much the frequency, it is the severity, particularly tors, right? Tors for everyone on the call, I mean, we're talking about a risk of sudden cardiac death. There are numbers that are getting bantied around that it's 1 in 1,000, it's not. You don't typically see this as much in younger patients. So you really need to focus on the NPM1 population. And we're looking at maybe somewhere between 1 in 100 or perhaps even more frequent than that. And I guess I would just put it to anyone, right? If you have 2 agents, both of which are efficacious, but one of which has a 1 in 100 or more chance of sudden cardiac death, what are you going to I think that's where we feel increasingly confident based on the clinical data that's been presented at major medical meetings that's published in JCO, we're going to have a differentiated and favorable benefit risk profile. And I think that will start in the relapsed/refractory setting. But to the comment about it's less relevant in the front line, the risk doesn't go away. In fact, what you're dealing with is those patients are healthier, therefore -- and they're presumably going to stay on therapy for much longer. So if anything, you want a more favorable benefit risk profile in that population, which means I think you -- your -- the ability to differentiate on a favo. Let's see. I would -- the last thing I'll say before I turn it over to Mollie is the ASH abstract, there was a giant data dump. Despite comments from some others that there's really no room for another menin inhibitor, there's a lot of activity in the menin space from us and from other competitors. You can go -- you can parse through the abstracts. What I think you'll see is that the benefit risk profiles of the difUFnt agents are continuing to be defined as we go. And I would draw your attention not only to the activity and all of these agents are very active, and that's good for patients. But the safety and tolerability is also coming much more into focus, and I would invite you to look at the various combinations. But Mollie, let me invite you to add any thoughts or comments maybe to build on mine. Mollie Leoni: Absolutely. As Troy said, it's not the black box warning that in and of itself is something to focus on. It's what it means the data has shown. And one of the best ways of understanding that is to look at the FDA's actual guidance document on the topic. It is very clear that once a drug causes at least a 20-millisecond change in the QTC prolongation, it is now considered to be significantly more likely to cause sudden cardiac death. It's not just torsades we're looking at. It's any ventricular arrhythmia. And so the risk just becomes so much more increased, that is why they put the black box. So it's understanding what data requires a black box warning that becomes really important in this situation and to patients who are trying to decide between options of what risks they are willing to take on and what risks they would rather avoid if they have the option to do so. And as Troy pointed out, while something like differentiation syndrome is very well mitigated in earlier lines with combination therapy, you would actually potentially expect more issues with the ability to handle or at least equal issues with the ability to handle QTC prolongation just because of the various medications that are going to be given as concurrent therapies and as additional oncology therapies for these patients' treatment. And it becomes more complex when deciding how to administer a drug with QTC black box warning with other drugs that have QTC prolongation. And so dosing and monitoring become extraordinarily important versus if you're going to administer it as a monotherapy in the relapsed/refractory setting. And again, as Troy said, the right denominator for looking at this is really your elderly patients, where in some of our competitors, we see almost a 50% rate of QTC prolongation. That is going to be your NPM1 mutant patient population. So your NPM1 mutant patient population becomes a denominator that really is more appropriate for looking at these more severe QTc prolongations and episodes of tors and sudden cardiac death. Operator: Our next question comes from Charles Zhu at LifeSci Capital. Yue-Wen Zhu: So I guess with all of that in mind for one, what kind of level of penetration or market share would you either expect or hope to achieve relative to your first-mover competitor in the space, at least in the near term in the relapsed/refractory setting? And can you also perhaps give a little bit more color around the ongoing points of FDA regulatory engagement that seem to be continuing on as you head close to your PDUFA date? Troy Wilson: So Charles, I don't want scold you. You asked 2 questions. And so we're going to -- we'll answer the first one. And then if there's time after others, we'll come back and get the second one. So Brian, could you please speak to Charles' first question relating to penetration and sort of how we're going to compete with our competitor, who is out there with a first-mover advantage? Brian Powl: Yes. Thanks, Charles, for that question. So we haven't guided on our market share penetration expectations quite yet. But what I can do is kind of just share some of the feedback and expectations we have. So we've conducted extensive engagements with treating physicians, KOLs, community practitioners, academics. And tested our profile relative to others. And I think that the benefit risk balance and between a strong efficacy, safety -- efficacy profile with good safety and tolerability that allows patients to be able to be well managed, along with the combinability and even the convenience of a once-daily oral medication, all come out to factors that suggest that ziftomenib has a best-in-class profile and that we'll be confident we'll be able to communicate on that best-in-class profile coming into the market. So without really guiding on any share calls quite yet, we anticipate -- well, we give credit that our competitor is already in the market, but we recognize that we anticipate both the skill of our team that we've hired that are ready to go and are ready to launch this product and the profile of the product are really going to help us to capture a majority share in this space. Operator: [Operator Instructions] Our next question comes from Roger Song at Jefferies. Philip Nadeau: This is Na Phil on for Roger. As we -- just a quick one on the ASH data. So the early data look pretty encouraging with the CR rates and MRD negativity. As we head into the meeting, what other analyses or long-term outcomes are we expecting to see like durability? Will we have also subgroup insights? Troy Wilson: Yes. Thanks, Na Phil, for the question. Mollie, do you want to... Take Na Phil's question? Mollie Leoni: Sure. As I said, the biggest thing you'll see is much longer follow-up. You'll see more granularity around the MRD negativity, breaking it down so that you have maybe some comparisons that you can make to previous ven/aza data to understand if there is additional impact with a targeted agent added on. And you'll see more durability, et cetera. And yes, we can -- we will be breaking it down by subgroups. You'll understand what our FLT3 patients look like that were in the trial, what our IDH patients look like that were in the trial. So it should just be a much more even comprehensive view of the data that we have seen thus far in our rather large patient pool that we'll be able to present in both the relapsed/refractory and the frontline setting where you're going to see 30 to 70 patients, which is extremely robust and able to really show you more maybe the truth of what these patient populations look like. So we're excited to share it with you. Operator: Our next question comes from Jason Zemansky at Bank of America. Jason Zemansky: Congrats on the great progress. Troy, I wanted to ask a follow-up regarding the commercial launch in NPM1. But is having a differentiated label enough to overcome the second mover advantage when you think about sort of prescriber inertia? Is it more so that just, I guess, getting drug to patients? I mean, how do you overcome some of the hurdles here just given kind of the time lines? Troy Wilson: Sure. Maybe I'll just make a quick comment, and then I'll let Brian take it because he's really the one who should speak to this. These physicians, I mean, you all talk to them, right? They are very sophisticated, constantly taking in new data and looking for options that offer the best benefit risk for their patients. The patients are also extremely sophisticated. They have all sorts of access to information. And they are -- again, others might say it's efficacy, efficacy, efficacy. Yes, that's important. All of these agents are right? That's the great thing for patients. And we should all celebrate the fact that patients have multiple options. But these docs are now having conversations with their patients about the risk benefit. And there's a striking difference between the relapsed/refractory setting where a number of these patients are inpatient versus the frontline setting, where our hope is that we send them home and they're able to stay on continuation therapy for months or even years. So Jason, I don't -- I mean, I'm not going to deny there is an advantage to an incumbent. But I think when you're coming forward as we believe we are with a superior benefit risk profile in a very competitive space, I think we will see the market reach its equilibrium. Brian, any -- what thoughts would you like to add to my comments? Brian Powl: Thanks, Troy. I think -- I mean, you captured it well, I think, but what I'd maybe just add just a couple of points that -- the advantage, I think, right now that you're seeing -- there's a 1-year advantage in the market potentially, but it's a few weeks, 5 weeks at most advantage in the NPM1 space. Our teams are out there, as I mentioned, we've been engaging. We've been spending the last year working with payers to ensure that there is not going to be any kind of blocking available. And the profile of ziftomenib, I think, really has resonated where payers wouldn't see a need to do something like that. So from an access perspective, we think that we'll have kind of a very powerful strong position in that space. Our goal is to build a distribution model that is seamless and easy for physicians and their practices to prescribe ziftomenib. One of the things that might be even more simplistic as we talked about the simplicity is that we'll have one SKU. We're not going to have multiple SKUs of different products that they have to worry about inventory and dosing challenges, things like that. So there may be some advantages we think that we'll be able to capitalize on in the near term. But I would just go back finally to say that the field team that we've hired has extensive experience with these practices. They are itching to be out there speak about ziftomenib and they're ready to go. And I feel like that if you give us the time for launch, I think you'll see that the profile that Troy outlined and our ability to execute is going to be on par or better than anyone in the industry. So I'm very confident we'll have an opportunity to really overcome any second move or disadvantage that may be perceived. Troy Wilson: And let me -- thank you, Brian. That was great. Let me just add just a couple more thoughts, Jason, to your question. We are going to be promoting on label. The label is going to be relapsed/refractory NPM1 mutant AML, clearly, the adult population. But as we indicated in the prepared remarks and as you've seen, I think we have now the most comprehensive, and I would argue the most aggressive overall development program. We have 2 Phase IIIs underway in intensive and nonintensive. We're combining with both FLT3 inhibitors. We have combinations with LDAC, with FLAGIDA. And as Molly said, we're coming forward not with a handful of patients. We're coming forward with 20, 30, 40, 70, 100 patients at a time. So we're really giving -- and which is why I think we have -- our 2 presentations at ASH are both orals. We have a massive development and medical affairs effort supporting our commercial launch. We won't be able to promote in those. We'll be publishing, we'll be educating, we'll be collaborating. But everyone is looking forward to combinations. Everyone is looking forward to earlier lines of therapy. This is not -- we're not looking at 1 quarter or even 2 quarters. Our goal is how do we make ziftomenib the cornerstone therapy throughout the treatment continuum. And I think we have the right strategy to do that. As Brian said, a few weeks coming behind isn't really going to make much of a difference at all. So I appreciate the question. Operator: [Operator Instructions] Our next question comes from Reni Benjamin at JMP Securities. Reni Benjamin: Congrats on all the progress. I guess, Troy, you had mentioned in your prepared remarks regarding the joint launch meetings. I'd love to -- can you provide any sort of color in kind of what goes on in these meetings? How many people kind of what's the split between you and KK? Do you wait for the -- do you hit the ground running as soon as you get approval? Do you wait until next year? Just any sort of color as to how this will move forward. Troy Wilson: Yes, Ren, thanks for the question. This was the best launch meeting I've ever attended. It was electrifying. It really was. I mean people are so excited to bring this therapy forward. But let me turn it over to Brian, who can maybe give you a bit more specificity about what the goals of the launch meeting were and how the 2 teams came together as 1K to really move this forward. Brian? Brian Powl: Yes, sure. Thanks, Ty. Yes, Reni so this launch meeting and typically what you will do as you prepare is to bring the field teams together so that they're well trained and ensured that they're ready to go in case we have an approval. Timing of a launch meeting, you can do them after you get approval, you can do them before. We tried to build a bit of a buffer where we thought October gives us an opportunity for the teams to be ready as close as possible to a potential approval. And essentially, this is a team where we had all of the field members that are both from Kyowa Kirin and from Kura that not just for our sales organizations that are going to be working together. We'll have the 2 field forces are going to be putting their efforts towards raising awareness and selling ziftomenib to the target physicians, but they're basically we put that group together as well as our field market access teams, our field medical teams. And we spent several days just working through understanding the role of menin in AML, the challenges for patients with relapsed/refractory AML, did some certifications, precertifications for the team, so they're ready to go and are prepared. As soon as we get to an anticipated FDA approval, the teams will then recertify on that final prescribing information, and we'll be able to get out in the field immediately. We've been planning our organizational readiness in case of an early approval. So the teams have -- I can say have been ready to go for -- at least since that meeting in October and probably even before that, we had all the rest of our organizational readiness put together. So we've been trying to pull together that full team. And as Troy said, it was a really well-executed meeting between both companies, and there's a tremendous amount of energy and readiness for that anticipated approval as soon as by end of November is our target PDUFA date, we'll be ready to go. Operator: Our next question comes from Peter Lawson at Barclays. Alexandre Bouilloux: It's Alex on for Peter. Just a quick one for me on the -- what the label could look like. I guess, is there any potential for the monitoring requirements, the differentiation syndrome to be different from other AML drugs? Troy Wilson: Alex, you're asking is -- let me make sure I'm reading your question back. Are you asking is there going to be potentially a difference in the monitoring requirements for DS in the label? Is that your question? Alexandre Bouilloux: Yes. Troy Wilson: Mollie, do you want to... Mollie Leoni: Yes, for how to address it just versus prior drugs. Yes. No, absolutely. So I -- obviously, I don't want to comment on ongoing discussions. We're still nearing our PDUFA date. And so obviously, things are still evolving. However, our differentiation syndrome guidance has been laid out in our protocols and in our IB for years now, and it is unchanged. I don't think that it is any additional monitoring that would be unexpected for this patient population in general who is regularly getting labs tested, et cetera. So -- but let's wait and see and have a more fulsome discussion once we actually have hopefully the approval in hand. Operator: Our next question comes from David Ruch at UBS. David Ruch: And I just want to kind of come back to that sort of the market dynamics between you and your competitors. So I'm wondering based on your prelaunch work you and have been doing, could you maybe share some initial feedback from physicians on how they're efficacy and tolerability versus competitor inhibitors in the space, the IPM1 space? Troy Wilson: Yes, David. I'm going to ask Brian to speak to that. As you can imagine, we've done kind of a lot of market research and sought the opinions of KOLs and practicing physicians. But Brian, maybe you can speak to the lessons learned thus far about our ziftomenib's profile relative to our competitors. Brian Powl: Sure. Thank you, David, for that question. So the -- I'll speak to the feedback we've received and really kind of align it around 4 key parameters or pillars, you could call them. First is the efficacy. We've tested the profiles of ziftomenib relative to other potential menin inhibitor competition. And it seems that the view is that the efficacy is kind of the table stakes to get in. You'll see that the CR/CRh, duration of response, things like that are seem to be relatively similar. Safety and tolerability is something that did stand out as a differentiator between ziftomenib and other products, which that alone, as Troy said, is not -- safety is not something that wins on a product, but it's that balance of benefit and risk and the tolerability of that really things can hit the scales. The other 2 pillars around -- that we found really help to differentiate ziftomenib is one around the combinability with current -- with current concomitant medications. As Troy mentioned, we're going to be focusing on our on-label use promotionally, which is going to be in that relapsed/refractory monotherapy space. But those patients typically get concomitant meds like azoles and others to manage the challenges of being a relapsed/refractory AML patient. And the combinability and the simplicity of a dose where you don't have to do a lot of modifications seems to be meaningful for physicians as well because -- and for patients because it's more straightforward. And then finally, the third was around simplicity. Once a day, daily dosing, there's one dose that each -- most patients or all patients really need at that 600-milligram dose is very straightforward. And imagine for an NPM1 relapsed/refractory patient who is typically in the elderly population, the simplicity of having that once-daily dose is also meaningful. So that's really kind of what we've heard is that there are -- of course, we've also heard, as Troy said, anything -- any therapies for these patients are really going to be important that can deliver some efficacy. But when you have choices, that's when you start to parse out what those differences may be. And that's where we feel pretty confident in the profile of ziftomenib as a differentiated agent coming into the market. Operator: Our first follow-up question is from Li Watsek at Cantor Fitzgerald. Li Wang Watsek: And I guess just given the recent disruptions at FDA, including within CEDAR, just curious, have you noticed or anticipate any changes in terms of cadence and discussions with the agency? Troy Wilson: Short answer, Lee, we haven't noticed any difference. We don't anticipate any difference. We're on track for our November 30 PDUFA date. I think we characterize the interactions with the agency as open and constructive. We don't know what we don't know. But I think at this point, we're -- we feel like we're in good shape, and we're tracking toward a positive review outcome. The path to approval in AML is much more -- much better precedented than some of these other instances. The fact that we have a competitor who was just approved in the same indication just a few weeks before, I think, gives us good confidence that we're on track. But obviously, we'll continue to stay vigilant and Mollie and her regulatory team are doing a terrific job. But so far, it's all systems are go. Operator: There are no further questions at this time. So I would now like to turn the call back over to Troy Wilson for our closing remarks. Thank you. Troy Wilson: Thank you, Danny. Thank you all once again for joining the call today and for your questions and the discussion. We'll be participating at the Jefferies Investor Conference in London later this month. And just as a reminder, we'll also be hosting a virtual analyst and investor event on December 8 from -- at the ASH Annual Meeting in Orlando. So we'll look forward to speaking with many of you at these events. As we move forward, our focus remains on executing with discipline, investing wisely and advancing a pipeline designed to make a real difference for patients. With our pipeline, our experience, passionate team and a strong balance sheet, we think we're well positioned to deliver long-term value for both our patients and our shareholders. Until our next update, if you have any additional questions, you know how to find us. Please reach out. Thank you all once again, and we hope you all have an enjoyable Tuesday morning and a productive day. With that, we'll adjourn the call. Thanks, everyone.
Ana Fuentes: Good evening, and thank you very much all of you for taking the time to attend Gestamp Nine Months 2025 Results Presentation. I'm Ana Fuentes, M&A and IR Director. Before proceeding, let me refer you to the disclaimer of Slide #2 of this presentation that has been posted in our website and will set out the legal framework under which this presentation must be considered. The conference call will be led by our Executive Chairman, Mr. Francisco Riberas; and our CFO, Mr. Ignacio Mosquera. As usual, at the end of the conference call, we will open up for a Q&A session. Now let me turn the call to our Executive Chairman. Francisco Jose Riberas de Mera: Okay. Good evening. Thanks for attending this call in which we will be presenting Gestamp results for the first 9 months of the year. So far, this year remained very challenging with adverse FX impact for us and also negative volumes in our core markets. But even in this negative context, Gestamp is performing quite well year-to-date, with revenues very close to EUR 8.5 billion, which means a minus 0.8% auto business sales at FX cost and compared with the previous year. But even if lower sales, our EBITDA margin has grown to 11%, up 38 basis points versus 2024. In terms of Phoenix Plan, I think we are running quite well, improving already 96 basis points EBITDA margin versus 2024. And moving forward to ensure our balance sheet strength, ending this period with a leverage of 1.6x debt to LTM EBITDA. So solid results year-to-date and providing a good visibility for the full year. In terms of the market, light vehicle manufacturing in the first 9 months of the year is up by 4.3% compared with 2024, reaching already 62.2 million units. However, there are big differences in geographical areas, mainly in Asia is where we have all the growth, growth by 8.1% compared with previous year and especially in China with a growth of 12% increase year-to-date. And in rest of the areas and especially in Western Europe with some additional decrease in volumes in line with previous years. Moving to Slide 6 to talk on Gestamp revenues versus the market. The market has grown as stated by 4.3% up to September, while Gestamp sales, auto sales at FX constant has decreased by 0.8%. So that means an underperformance of 5.1%, underperformance, which is mainly due to China. In fact, without considering China, Gestamp could have had a slight outperformance to the market. If we go to the analysis for different regions, we see in Europe that we have some underperforming in Western Europe, but it is fully offset by our continuous growth in Eastern Europe. We have also some slight underperformance in North America and Mercosur, and we had a huge underperformance in Asia of 12%, mainly due to China because without China, we are outperforming the growth of the market, especially due to the growth that we had in our Indian operations. In China, in fact, we are growing very quickly our business with Chinese OEMs. We have, for instance, a growth of more than 45% in the Q3 compared with Q3 2024, especially in EVs. And also, we are working in different projects with Chinese OEMs all around the world. We had a negative impact of the ForEx. In fact, we had a revaluation of the euro versus most of the currencies, which is impacting Gestamp revenues and also impacted our EBITDA. In fact, out of the decrease of our revenues year-to-date of 4.9% in euros, 3.7% comes from negative ForEx impact, 0.5% from the decline of scrap revenues due to the scrap prices decline and only 0.7% is a negative organic growth year-to-date. But even if we are not able to control in the short term what is going on with the market and the FX, we have been able to improve our EBITDA margin year-to-date with lower sales. And in fact, in terms of our auto sales, we have decreased our sales compared with 9 months of 2024 by EUR 400 million. And at that time, in this period of time, we have decreased our EBITDA only by EUR 9 million. So that means that we have increased our EBITDA margin by 42 basis points. And we have been able to do that with very important measures all around the organization. In terms of cost reduction, we have also implemented very important flexibility measures, especially in our European operations. We have some constructive customer negotiations, especially around volume deviations and also, of course, delivering in the Phoenix Plan. So we are delivering on the upper range of our full year target. And in fact, if we go to Phoenix, we are performing well. We are performing well in a market which is worse than expected with 1% decrease in volumes year-to-date and still with uncertainty around tariffs, and that's why we are adapting the speed of our actions and the impact in the profit and loss account and the CapEx. But altogether, in Q3, we have increased our EBITDA in North America from EUR 31 million to EUR 44 million, reaching a 7.6% EBITDA margin from 5.5% in Q3 2024. And year-to-date, with sales moving down, we have increased our EBITDA margin by 96 basis points, already reaching a 7.2% and clearly committed to reach our target of 8% EBITDA in full year 2024, again, with lower sales. And in scrap, even if in terms of tons, our volumes are okay. Due to the decrease of scrap prices, our revenues year-to-date is down 9% below the one we had in 2024, with scrap prices moving down in Europe, in China and -- but quite steady in U.S. And due to this declining trend in scrap prices, we have reduced our EBIT margin to 5.8%, lower than the one we had in 2024 of 6.9%. But we are expecting clearly to improve back our margin as soon as scrap prices stabilize. So now I hand it over to Ignacio Mosquera. Ignacio Vazquez: Thank you, Paco, and good evening to everyone. If we move on to Slide 12, we can have a closer look to our financial performance in the first 9 months of 2025. As Paco has already explained, Phoenix Plan aimed at restructuring our NAFTA operations has had a EUR 12.2 million impact on P&L and a EUR 10.2 million impact on CapEx for the first 9 months in 2025. And as a reminder, in the same period of 2024, we had an impact of EUR 16.8 million in P&L and a EUR 3.8 million impact on CapEx. We have included comparable figures for both periods excluding Phoenix. For the first 9 months of 2025, we have reached revenues of EUR 8.486 billion, which entails a 4.9% decrease when compared to the EUR 8.927 billion from 9 months 2024, mainly due to the strong negative ForEx impact that we carried over from the first half and which has remained in Q3 2025 in all key geographies. Revenues for the auto business, excluding scrap at FX constant, have been almost flat with a 0.8% decrease year-on-year in 9 months 2025 as FX has negatively impacted results by EUR 334 million. In terms of EBITDA, we have generated EUR 925 million in the first 9 months of 2025, meaning a 10.9% reported EBITDA margin. Excluding Phoenix impact, EBITDA in absolute terms would amount to EUR 937 million, with an EBITDA margin of 11%, improving the first 9 months of 2024 profitability in almost 40 bps and providing visibility to reach the full year 2025 EBITDA margin target. Reported EBIT is almost flat in the period, decreasing by 1.7% year-on-year to EUR 399 million with an EBIT margin of 4.7%, improving profitability in the period in almost 20 bps. Excluding Phoenix impact, it would amount to EUR 411 million, reaching a 4.8% margin. Net income in the first 9 months has been EUR 104 million. That compares to the EUR 127 million reported in the first 9 months of 2024. This lower net income is explained mainly by the negative financial result performance, which has been strongly impacted by ForEx evolution in the first 9 months of 2025 and a comparable 9 months 2024, which was positively impacted by one-off hyperinflation impact. Net debt has closed in EUR 2.107 billion, reducing net debt in EUR 330 million compared to the first 9 months of 2024. The positive net debt evolution in absolute terms is driven by our partnership with Santander announced in the previous quarter and due to the comparable free cash flow figures with last year, where we had some extraordinary working capital negative items in the third quarter of 2024. As for free cash flow in the first 9 months of 2025, we had a negative free cash flow generation in the third quarter mainly due to Q3 normal business seasonality, offsetting first half 2025 positive free cash flow generation. To sum up, a solid set of results despite continuing to be strongly impacted by the negative ForEx evolution and a complex and volatile environment. Despite that, we have been able to improve our profitability levels and strengthen our financial profile that provides good visibility for full year guidance in terms of margin, leverage and free cash flow. If we now turn to Slide 13, we can see the performance by region on a year-on-year basis. Looking at each region in detail, revenues in Western Europe have decreased by 5% year-on-year in the first 9 months of 2025 to EUR 3,001 million. Revenues evolution in the region has been affected mainly by volume pressure in the period, and to a lesser extent, the continuous fall in raw material prices. In terms of EBITDA, it reached almost EUR 298 million and EBITDA margin that stood at 9.9% in the period, down from the 10.8% reported in the first 9 months of 2024. Profitability in the period has been impacted mainly by volume drop with still limited operating leverage despite productivity measures being taken. Results of these measures will still take some time with no tangible results in the very short term. In Eastern Europe, the performance in the first 9 months of 2025 have been very solid, proving once again our strong positioning in the region. On a reported basis, during the 9 months of 2025, revenues have grown year-on-year by 6%, up to levels of EUR 1.418 billion, despite the strong impact of ForEx evolution in the region. EBITDA levels have increased by 25.6% to EUR 216 million with an EBITDA margin of 15.2% in the first 9 months of 2025, beating the 12.8% margin reported last year 9-month period. The profitability improvement is mainly attributed to a better product mix, highlighting the strong project ramp-up, among others in Turkey and the good evolution of the business in the remaining countries. In Europe, overall, considering both regions as a whole, we have managed to improve our profitability, partly due to the shift in the mix to Eastern Europe. In NAFTA, Phoenix Plan continues to show its signs of improvements in the year with good underlying operations despite complex market evolution. Our revenues have decreased by 7.2% year-on-year mainly due to negative volume production performance in the first 9 months and further more the negative ForEx impact in Mexico and the U.S. However, on the other hand, EBITDA has increased by 7% if we exclude Phoenix impact of EUR 16.8 million in the first 9 months of 2024 and EUR 12.2 million in the first 9 months of 2025. We have succeeded in continuing to deliver the plan in the context of limited visibility. The good evolution of our Phoenix Plan leads to an EBITDA margin of 7.2%, improving versus last year profitability in almost 100 bps and setting the pace to achieve the target of around 8% EBITDA margin range for 2025. As you all know, turning around the operations in NAFTA to improve our market positioning and profitability is a key priority for Gestamp. In Mercosur, the first 9 months of 2025 have been marked by the ForEx evolution in Brazil and Argentina, leading to lower revenues in the period, decreasing by 10.4%. At FX constant, we grow in the region 3.4%, slightly below the market. In the other hand, reported EBITDA levels have remained flat in the period, leading to an EBITDA margin of 12.2%. Despite the decline in revenues in the period, we have been able to maintain EBITDA levels in absolute terms and improved profitability in 127 bps, thanks to the flexibility measures were implemented in the region and a favorable comparative with last year due to the floods suffered in the first 9 months of 2024. In Asia, reported revenues have decreased by 8.3% year-on-year in the first 9 months of 2025 to EUR 1.338 billion within a complex and very competitive market. Our negative performance in the period is partially explained by the ForEx evolution in China and extraordinary revenue growth in the first 9 months of 2024, almost 8% in the same period. Despite negative revenue evolution in the period, we have managed to maintain similar levels of profitability with an EBITDA margin of 14.5% for the first 9 months, which places Asia as the second most profitable region in the group. Our approach continues to be focusing on premium products in the region. We keep on working to gain positioning in this region, maintaining the strong levels of profitability. Asian region remains a great opportunity for us, not only in China, where we continue to develop high value-added products, but also India, where we're undertaking new projects with a strong performance. Finally, the scrap has seen revenues decreasing by 9.4% to EUR 395 million and an EBITDA in absolute terms by 16.1% year-on-year, reaching EUR 31 million in the period. This situation is mainly by the sustained decline in scrap prices during the period due to weaker demand, as Paco mentioned before. This negative evolution has led to an EBITDA margin of 7.9%, slightly lower than the first 9 months 2024, although above the reported profitability in 2023, which was circa 7.5% EBITDA margin. Overall, we have seen that our unique business model and geographic and global diversification has driven our profitability improvement in the first 9 months of 2025. Turning to Slide 14. We see that we have ended the first 9 months of 2025 with a net debt of EUR 2.107 billion, which is EUR 10 million above the EUR 2.97 billion reported in December 2024. This net debt increase considers mainly dividend payment of EUR 79 million and EUR 220 million of minorities acquisitions and M&A, due to the partial real estate asset sale agreement of EUR 246 million closed in September. During the 9 months of the year, the company has generated a negative free cash flow of EUR 41 million, excluding EUR 22 million extraordinary Phoenix cost. We have experienced a negative evolution in the 9-month period due to EBITDA decrease in nominal terms in the third quarter and a deterioration of working capital related to business seasonality and temporary one-off impact. We expect significant improvement in cash flow in the next quarter to meet full year guidance, generating positive free cash flow in the 2024 range. As a result of this, I'm moving to Slide #15. We ended up the first 9 months of 2025 with a reported net financial debt of EUR 2.107 billion, which implies the lowest reported net debt in the 9-month period since IPO. This lower net debt in absolute terms leads to a leverage of 1.6x, well below the 9 months 2024 figure, which was impacted by extraordinary negative impacts of last year's third quarter. While this quarter, we have benefited from the cash inflow from the partial real estate asset sale agreement of EUR 246 million. This leverage ratio provides us with a strong visibility to be below full year 2025 guidance as we are already in the 2024 range. Furthermore, as we commented in the previous slide, we expect to generate positive free cash flow in Q4 to keep on improving our leverage ratio for full year. Our priority is to preserve our financial strength, and we remain disciplined over leverage in absolute and relative terms. As we turn to Page 16, we are proud to share our latest actions which we have carried out in recent months and that have been key to provide a strong balance sheet flexibility. Firstly, and as a reminder, in September, we closed our partial real estate sale and leaseback agreement for our assets located in Spain strengthening our balance sheet. And secondly, the new senior bond issuance that we recently closed as of 6th of October that will contribute to extend our debt maturity structure. The new bonds have allowed us to increase pro forma average debt life from 2.6 years to 3.4 years by replacing the bond that was due to maturing the Q2 2026. Furthermore, Gestamp's new 500 million senior secured bond issuance represent the tightest price callable bond by an auto parts issuer since September 2021 with a coupon of 4.375%. We'll continue to actively manage our balance sheet structure to strength and flexibilize our financial profile. Thank you all, and now I hand over the presentation back to Paco for the outlook and final remarks. Francisco Jose Riberas de Mera: Okay. Thank you, Ignacio. And so moving forward, in terms of the market with the latest forecast, now we are assuming that the total global manufacturing of light vehicles is going to reach this year 91.4 million, which means an increase of 2% comparing with the 89.6 million of 2024. So it's a total increase in terms of units of 1.9 million units, and it's basically the increase that we see right now in Asia. So all the growth is basically coming from Asia. It's still positive evolution in Mercosur and still with a decrease in terms of manufacturing volumes in Western Europe of 3.6% and also in NAFTA around 2%, even if we have a good performance in terms of the Q3. So -- in this complex environment in terms of volumes, in Gestamp, we are taking all kind of actions in order to ensure profitability and to preserve our cash flow generation and also the strength of our balance sheet. As already commented, in terms of preserving our profitability, we are not counting with volumes. What we are counting is to implement as soon as possible all kind of strategies around the flexibilization of our footprint, of course, all kind of cost-cutting measures, especially impacting the fixed cost expense -- the fixed expenses, trying to improve our -- the efficiency of our operations and of course, with a clear focus in North America in delivering in the Phoenix Plan. Also with a clear commitment in the positive cash flow generation, basically by being very selective in our CapEx strategy and with a strategy very focused in our return on investment and of course, preserving our focus in the management of the working capital. And in terms of balance sheet, as Ignacio has already commented, we have been able to increase our flexibility. We have been able to crystallize some value through some partial asset disposals. We had a quite strong liquidity level. And of course, now after these bonds issuance, we have a more balanced maturities distribution. So with all this, moving to the Slide 20, in terms of guidance, we guided at the beginning of the year in terms of sales, in terms of revenues to be able to outperform versus the market in a low single-digit range. But as it was already stated in July, now we see that we are going to be below the performance of the market in terms of revenues. But even that, we guided in terms of profitability to be in line or to a slight improvement in terms of profitability of EBITDA margin. Now we are -- we believe we are going to be in the upper range. In terms of scrap, we guided to be basically in line with the previous year, but due to the decline of scrap prices, we see now that we are going to be below the results we get in 2024. And in terms of leverage and free cash flow, we guided to be in the range of 2024. And now we are expecting to end up the year with a better leverage than the one we had in 2024, and we are confirming the free cash flow in the range of the one we had in 2024. So just to wrap up, we consider our results in the year-to-date 2025 to be very positive and proving our resiliency of our business case. And of course, that is helping us to be very comfortable with the visibility we have for full year 2025. Clearly focused in delivering the Phoenix Plan. We are committed to be able to get this year 8% and also to be able to reach a double-digit margin as soon as possible. And in the case of balance sheet, we are, of course, moving to have this kind of a strong balance sheet and flexible financial profile. So now with this, now I hand it over to your questions. Ana Fuentes: Sorry, is the operator there to start the Q&A session? Operator: [Operator Instructions] The first question comes from Enrique Yáguez from Bestinver Securities. Enrique Yáguez Avilés: I have 4 questions, if I may. The first one is regarding the market outperformance. I don't know if you are feeling confident to recover next year the traditional path of growth of the company? Or for the contrary, we should see more normalized market outperformance broadly in line with the market taking into consideration your objective of focus on profitability? The second question is regarding the Phoenix Plan implementation. I know that the turnaround of NAFTA is performing quite well, but it seems there are some delays versus the original schedule. I don't know if we should see some savings from this schedule, potentially coming from a reduction in the measures implemented or just a question of the time frame. Third, regarding the sale and leaseback with Banco Santander. Could you provide a guidance of the annual cash outflow expected from this sale and leaseback? And fourth is regarding the potential measures on the steel sector. I know that you have the pass-through mechanism, but I would like to know your views about how these tariffs in euros and import tariffs might affect the European OEMs? Francisco Jose Riberas de Mera: Okay. Thank you very much for your questions. Concerning the first one, it's true that traditionally in Gestamp, we have been able to outperform the market for years. And it's true that today, right now, we are suffering for the growth in China, where we do have a very important operation where we are growing with the Chinese OEMs, but still our penetration level in that market is not the same one we have in other geographies. For the future, we are expecting to recover what we are doing, but I think we have stated that our focus is now to be clear in profitability and also to strengthen our balance sheet. So we are not running in order to be able to grow. We have invested. We have a very good position with all the customers. So the idea is that we will probably recover, say, our position in terms of performance with the market, but the focus is on profitability. Concerning the Phoenix Plan, we are in line. We are committed. We will get this double digit probably by end of next year. So everything is more as planned. We have some difficulties with some plans. We have some delays in implementing some investments. And of course, we have this kind of changes in the idea with the tariffs. That's why we have decided to postpone some kind of the actions in order to wait and see what could be some implications. But overall, we are satisfied with the plan, and I think we should be able to implement all the measures that we expected in the beginning of the plan. So in any case, positive news. I can -- the third question maybe will be for you, Ignacio. But if we go to the steel, in Europe, we had this announcement of the tariffs, still it's unknown whether it's going to be starting from the 1st of July or maybe it could be starting a little bit before. That could create a barrier in terms of the volumes of tons coming out from Asia, especially. But we are not expecting a big increase on steel prices for the auto market for the year 2026. In any case, these tariffs are relevant and also we have in 2026 expected an impact from the mechanism called [indiscernible], which is related to the CO2 emissions. So that could also have some kind of impact. It's not a tariff, but it's going to be similar to that. So overall, we are -- we expect to have less imports coming out from Asia but we are not expecting a big increase in the prices for the auto this year. Maybe we will have more increase in steel prices for sport but not for the auto qualities. And maybe Ignacio around Santander. Ignacio Vazquez: Sure. So maybe let me recap a little bit of the transaction that we did with Banco Santander, where we sold a minority participation in 4 companies which are the owners of our real estate assets in Spain. And basically, those real estate assets include the land, the building, but they don't include productive assets. With that in mind, those companies are -- have signed agreements with our operative companies where they get a lease agreement, and their revenue income is based on that lease agreement. Upon the results of those companies, there will be a shareholder discussion and each shareholder would be entitled to dividends. Those dividends would go through the minority participation in our P&L. Right now, as since closing, that was based in September -- at the beginning of September, we booked around EUR 0.7 million of minorities right up to Q3. If you extrapolate that number, that's the estimate that we have foreseen has normal impact in our minorities for the full year, a little bit north of that. I hope that answers your question, Enrique. Operator: [Operator Instructions] The next question comes from Francisco Ruiz from BNP Paribas. Francisco Ruiz: I have 3 questions. First one, and these first 2 are related. I hear you Paco saying that, well, you are mainly focused on profitability and leverage and trying to have a more, let's say, healthy balance sheet. But when I look at your leverage ratio, the leverage ratio are already at very low levels, and it's going to be lower in Q4 after a good free cash flow Q4 -- free cash flow in Q4. So what's the aim of Gestamp in terms of leverage for the future? And once you're getting to below 1.5x, what's your target for the future in terms of leverage? What's the use of cash that the company will do with this? The second one is despite you talk about flexibility and the CapEx continues to be above previous levels. I mean we talked about an 8% CapEx versus a 7% last year. So I don't know if this is something which is temporary and we should expect lower CapEx in the future? Or this is something that we should expect for the coming years? And last but not least is mainly a modeling question about the factoring, if you could give us the level of factoring at the end of the quarter. Francisco Jose Riberas de Mera: Okay. Thank you. So thank you, Francisco. So let me go to the first one. It's true that we have decided to focus on profitability because in terms of volumes, there is a lot of uncertainty, so I think it's time and it's the right time to focus in profitability and to preserve our financial health. So it's true that our leverage is not high, and it's true that we are intending to reduce even this leverage because we believe that this is going to be very healthy to be in a position, maybe even lower than 1.5x in terms of leverage for the next months and years to come. I don't know exactly what could happen. But today, as you see, there are many things going on in the auto sectors. There are many companies suffering. So I think for us, we believe that we have already done a very important effort in terms of CapEx in the last year. We have a very good footprint. We have a very good technology. We are focused on improving our position in Asia and India. But coming to your second question, we believe that we can really go and strengthen our position with a CapEx to revenues level much lower than the one we had in the previous year. It's true that in 2025 and the beginning of 2026, we still have some tail from the investment decided already 2 years ago. But in all the decisions that we are doing already for many months, we are clearly moving down in this CapEx ratio. So we are going to see in the near future that our CapEx and our debt, of course, and our free cash flow generation is going to be improved. And in terms of factoring? Ignacio Vazquez: Yes. With regards to factoring, Francisco, we are now at this quarter with close at EUR 849 million, which represents roughly 7.3% of our sales. So within the bank that we've stated as our commitment, which was between 6% and 8% of sales. Ana Fuentes: The next question comes from Christoph Laskawi, but I'm going to make it because he's in a train and he's unable to make it, okay? The first one is on free cash flow, and he's asking if the improvement in Q4 is going to be mainly driven by working capital. And he's also asking about the payment patterns from OEMs, if we are currently at a normal level or not. And his second question is on supply chain. And he's asking if costs doing -- more recently have been adjusted downwards in Europe and North America, to lower cost and if the situation is more stable now. And any comments on the current situation on the demand side is also appreciated. Francisco Jose Riberas de Mera: Okay. Good. I think in terms of the free cash flow improvement, you can talk about it, Ignacio, but regarding the payment conditions by our customers, it's true that, of course, we have like always a fight in order to collect some payments around the tooling like usual. But for us, I think what we are really committed is in order to be able to manage properly our working capital. But we don't see so far a kind of special pressure from customers due to financial restrictions. It's true that there is also a focus in their side in order to be able to preserve the supply chain. There are risks in the supply chain. And I think for them, it's very important to keep moving. So in terms of the supply chain, I don't see there is a kind of big topics already clear in the market. We see the demand stable, quite flat as stated. We have seen some problems in the supply chain. For instance, as you know, some noise around chips, also some noise around some raw materials. So of course, there are going to be things like that, and we need to react to these kind of things. But today, for us, we don't see anything which is really impacting at least we don't have a visibility or clear visibility by customers or any stops of their production plans. But maybe to elaborate a little bit more on working capital... Ignacio Vazquez: Yes, sure. I mean, I think that the behavior of working capital in Q4 for this year, you should take into account the turnaround of working capital that we experienced also in 2024. And I think that we should see a similar pattern, which is pretty much our seasonality to a certain extent. So part of the levers of the free cash flow for the following quarter will be based on that working capital turnaround. And as happened last year, we also are experiencing and as Paco referred to, we're fighting for some tooling collection, which we expect that to also come in into Q4. Operator: The next question comes from Juan Cánovas from Alantra Equities. Juan Cánovas: I wanted to know if you could provide more details about your plans to increase the penetration with the Chinese OEMs that you mentioned before. I think in your recent document, you also pointed that you were expecting to increase penetration in all the new EV OEMs by 2027. So I wonder whether you could provide details and color on that subject. Francisco Jose Riberas de Mera: Okay. Thanks for the question. Usually, I don't like to provide too many specific details on our nominations with the customers. It's true that we are increasing our sales a lot with Chinese OEMs so far, especially in China because the total manufacturing of Chinese OEMs right now outside from China is still quite limited. We are working with them in all the different expansion plans that they have in Europe and America and also in other areas of Asia. But still, these plans are not moving forward very aggressively. In terms of what we do in China, from the beginning, we have some position in China trying to be allocated in the upper segment in terms of prices and quality and margins. So what we basically do in China, not our full range of products and technologies, but we are focusing hot-stamping and high-quality products like in the case of the door rings. We are also specialists in the area of chassis, special chassis, and we do a lot of chassis for EVs. And also we do a lot in the area of hinges and checks and power systems in the range of Edscha. For instance, I can tell you that today, in Edscha, it's more than 30% of our sales are in China, and more than 50% of the sales of Edscha in China are to pure domestic Chinese OEMs. We are growing right now with many, many, many customers, many Chinese customers. And the increases that we have from one day -- from one year to another is sometimes very, very aggressive. Again, I don't want to provide more details, but you can read our sales in Asia as going down slightly in China, going up a lot in India. And in the case of China, our sales to, let's say, European players are going down, and we are able to offset and compensate part of it what we are doing now with pure Chinese OEMs. So we see a good trend. We have a very good position with them in their research and development centers. And as far as they go to more sophisticated EV vehicles, we have much more chances to be quite -- very more suitable with our technology. Chassis for EVs, we are very much advanced and we're one of the leaders in terms of chassis for EV solutions. And in the areas of door rings, we are clearly one of the players over there with our technologies. We have our overlap patch technology. So I think we are doing a very good job, and we are very well positioned for that. So still, it will take some time to recover and to move all the business we have from 2 European players to Chinese, but we are in the right path. And of course, we are expecting very good news for the expansion of the Chinese OEMs outside from China. Operator: The last question comes from Anthony Dick from to ODDO. Anthony Dick: My question was regarding the outperformance or the underperformance rather. I heard your comment about China. And obviously, I think you're not the only one in that situation for sure. But I was actually looking at Western Europe, where the underperformance has accelerated throughout 2025. And I also heard your comments about prioritizing profitability, but I was just keen to understand whether there was something specific in the Western European region that was causing this increased underperformance maybe with some clients or another or something like that? Francisco Jose Riberas de Mera: Okay. Thank you. Yes, it's true what I mentioned, I think the most important part of our underperformance is coming from China and also especially from the Chinese OEMs. In Europe, I think we do have an underperformance in Western Europe, not only in this quarter but also in 2024. But it's true that we have offset the part of this underperformance with a very healthy growth that we have in different countries or around Eastern Europe. We have been increasing our investments and our operations in countries like Poland, Czech Republic, Slovakia, Hungary, Romania, also in Bulgaria and also in Turkey. So this is offsetting part of that. It's true that as far as we are leaders in this market, the decline that we have in Western Europe compared with the market sometimes is linked to some specific programs that we have a very good position out of them. I can tell you that, for instance, there have been countries like Spain that have been impacted to some specific programs. This year, we are impacted by a specific program that happened in U.K. So there are always a lot of questions all around. But concerning what we have doing the analysis, are we losing market share in Europe? The question -- the answer is no. We are doing well with them. We are -- in most of the new programs, we are doing a very good renewal of the programs, a carryover of many programs. So we are doing well in Western Europe and growing a lot in Eastern Europe. Ana Fuentes: Okay. Thank you. Thank you very much for taking the time to join us today. And as usual, the IR team remains at your disposal for any further doubts. Thank you again. Francisco Jose Riberas de Mera: Okay. Thank you very much. Ignacio Vazquez: Thank you.
Operator: Good day, and welcome to the Innovative Industrial Properties, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Eli Kanter. Thank you, and over to you. Eli Kanter: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, normalized FFO and AFFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan. Alan? Alan Gold: Thanks, Eli. Good morning, and thank you for joining our call. In the third quarter, we completed our initial investment into IQHQ, a premier life science real estate platform that enhanced the diversification of the company and is expected to provide significant earnings accretion for the benefit of IIP shareholders. The total investment was $105 million, including $100 million into a revolving credit facility and $5 million in preferred stock. Our remaining commitment of $165 million in preferred stock is expected to be funded in multiple tranches through the second quarter of 2027. In conjunction with this investment, we successfully closed on a new $100 million secured revolving credit facility to support our investment into IQHQ and further strengthen our balance sheet. We were very pleased with the support of our largest lender in providing this facility, which we believe reflects continued confidence in our platform, balance sheet and disciplined approach to growth and capital allocation. These transactions mark a significant step in our evolution and our return to growth as we diversify our portfolio beyond cannabis into the dynamic life science sector. We have strong conviction in the long-term fundamentals driving this industry, and we believe this strategic investment at this entry point positions us to deliver highly accretive returns to our shareholders. We believe in the value of our diversified portfolio across both cannabis and life science and the ability of our team to strengthen our platform and create long-term value for our shareholders. Now with that, I'll turn the call over to Paul. Paul? Paul Smithers: Thanks, Alan, and welcome, everyone. Our investment in IQHQ, together with the new credit facility, marks a meaningful step forward in executing on our strategy to return to growth while further diversifying and strengthening our portfolio. Expanding into life sciences positions us to capture long-term secular growth while complementing our established leadership in the regulated cannabis real estate market. We continue to actively maximize the value of our assets to drive growth and optimize performance, while at the same time, our investment in IQHQ provides an additional avenue for future growth. We believe this dual-track strategy will significantly enhance shareholder value and position IIP for sustained success across both industries. I'd like to provide a few specific updates on our progress within our portfolio. Receivership proceedings for 4Front Ventures are ongoing. We are engaged with the U.S. receiver and bankruptcy trustee regarding the properties and related claims and are working closely with outside counsel to protect our legal interest and pursue our rights under the leases. Gold Flora remains in receivership. We remain in ongoing discussions with the receiver regarding the receivership and sale process. We will continue to monitor developments and provide updates as appropriate. With respect to PharmaCann, we are pleased to report that the judge in Illinois ruled in our favor in our dispute with PharmaCann, and we expect to regain possession of our Illinois property by year-end. Our efforts to also regain control of the properties located in New York, Ohio and Pennsylvania remain a top priority. We continue to work closely with local counsel to pursue our rights and remedies under the leases and related guarantees, including monetary claims. Because timing varies by state and depends on local jurisdictions, we are unable to provide a specific time line at the moment. We remain focused on advancing these processes as efficiently as possible, and we'll provide updates as developments occur. In September, we took back possession and control of the 4 California properties previously securing a loan totaled at $16.1 million, which we declared in default and are evaluating options to maximize the value of these assets. Turning to federal developments impacting the cannabis industry. Recent commentary from President Trump has reaffirmed that cannabis reform remains a priority at the federal level. His endorsement of medical cannabinoids, particularly for senior citizens, alongside references to the potential $64 billion in health care savings signals growing political momentum for rescheduling cannabis to Schedule III, eliminating the burdensome 280 tax for operators. We believe this shift will be a positive catalyst for the industry, unlocking broader access to capital and accelerating institutional participation that we remain cautious on the likelihood and timing. We also see compelling demographic trends that reinforce the long-term opportunity in cannabis. Seniors by currently underrepresented among cannabis users are the fastest-growing consumer segment with usage growing at a 9% 5-year compounded annual growth rate, triple the rate of the broader adult population. Importantly, this cohort is more likely to rely on physician recommendations and rescheduling could ease barriers for doctors to prescribe cannabis for conditions like pain, arthritis and sleep disorders. Accounting for 35% of total drug spending, we believe increased adoption by seniors could drive meaningful incremental revenue for the industry and further validate cannabis as a mainstream therapeutic option. Finally, we are also pleased to share a significant legal update. Last month, the U.S. Court of Appeals for the Third Circuit unanimously affirmed the District Court's dismissal of the federal securities class action brought against IIP and certain of our officers and directors. While we disagreed with the arguments of this class action since the very beginning, it is great to see our views validated by the courts. This outcome allows us to continue focusing on executing our strategy and delivering long-term value to our shareholders. I'd like to now turn the call over to Ben to discuss our leasing, disposition and investment activity. Ben? Ben Regin: Thanks, Paul. Within our cannabis portfolio, we've executed leases totaling 281,000 square feet year-to-date across properties located in California and Michigan and taking advantage of capital recycling opportunities by selling 2 assets. We are also closely monitoring the situations with our tenants that Paul described and are encouraged by the strong demand for our real estate and look forward to sharing additional updates in the future. Turning to IQHQ, we're very excited about our return to growth. We closed on our initial $105 million investment with additional commitments of $165 million expected to be funded over time. We expect this investment to be highly accretive and positions us to capitalize on secular tailwinds. Just last month, Lila Sciences, an AI biotech company, leased 244,000 square feet across 2 buildings at IQHQ's Alewife Park asset in Cambridge, Massachusetts. The transaction represents one of the largest leases in the region since the beginning of the year and underscores the improving leasing momentum for IQHQ and continued demand for premier real estate assets. Overall, global spending on AI and pharma and biotech is projected to reach $3 billion in 2025 and $16.5 billion by 2034, reflecting a 27% CAGR. The use of AI can accelerate drug discovery and innovation, resulting in an associated increase in real estate needs according to Cushman & Wakefield. We believe the IQHQ portfolio located in key AI and life science hubs in San Diego, San Francisco and Boston is well positioned to capitalize on these trends. And within our investment pipeline, we will continue to selectively pursue assets in the cannabis and life science industries, focusing on the highest quality investments with the most attractive risk-adjusted returns for our shareholders. I'll now turn the call over to David. David Smith: Thank you, Ben. For the third quarter, we generated total revenues of $64.7 million, a 3% increase compared to the prior quarter. This increase was primarily due to a payment of $0.8 million we received from the Gold Flora receivership, along with annual rent escalations in our portfolio. Adjusted funds from operations for the quarter totaled $48.3 million or $1.71 per share, representing no change from the second quarter results. Our balance sheet remains strong, supported by $2.7 billion in primarily unencumbered gross assets and a low leverage capital structure. We ended the quarter with nearly $80 million in liquidity, including cash on hand and availability under our credit facility. As Paul and Alan noted earlier, subsequent to quarter end, we secured a second revolver with a federally regulated bank for $100 million, reflecting our view that as we diversify into a new sector, it should increase IIP's access to attractively priced bank financing. The new revolving credit facility secured by our IQHQ investment was structured at favorable terms of SOFR plus 200 basis points or 6.1% on the closing date of the facility and includes an accordion feature that could expand capacity to $135 million, subject to additional bank commitments. This facility, combined with our low leverage capital structure and strong liquidity ensures we have ample flexibility to fund future growth. Our investment in IQHQ is expected to be highly accretive with a blended interest rate exceeding 14% or roughly 800 basis points higher than the current pricing on the new credit facility and aligns with our commitment to delivering strong risk-adjusted returns for our shareholders. As always, we remain focused on maintaining a conservative financial profile while pursuing strategic opportunities that drive long-term value, highlighted by a low debt to gross assets ratio of 13% and a robust debt service coverage ratio exceeding 11x. On the capital markets front, during the quarter, we opportunistically issued 246,000 shares of our preferred stock for total net proceeds of $5.9 million. Looking ahead, we are actively evaluating our capital structure and having ongoing discussions regarding our bonds maturing next year to proactively address this maturity in the near term. We will continue to explore a range of strategic financing alternatives that align with our long-term growth objectives and conservative financial philosophy. With that, we thank you for joining the call and would like to open up the call for questions. Operator, could you please open up the call for questions? Operator: [Operator Instructions] We have the first question from the line of Tom Catherwood from BTIG. William Catherwood: I wanted to start with the dividend question, but from a different perspective. So the way we see it, there are 2 near-term catalysts that can help bridge the gap from the $1.71 per share of AFFO that you did in Q3 to the $1.90 of quarterly dividend. The first is, as you guys have spoken about, the IQHQ investment, which we think kind of conservatively can contribute, let's call it, $0.11 per share on a cash basis when it's fully deployed. And the second is your signed but not commenced backfill leases. And we think those can contribute something in the range of $0.11 to $0.15 a share per quarter. So regarding that second bucket, what are your expectations for the timing of rent commencements at your re-leased assets? And how does that timing factor into the company's dividend policy? Alan Gold: Well, I mean -- so I'm not sure that I follow your math exactly. I mean I think we might be a little bit -- have a little bit different perspective on the IQHQ investment, but we'll take that offline and deal with that separately. As to the timing of the rent commencements on unleased assets or assets that are -- we're going to be getting back, keeping in mind that the Gold Flora assets is going through a receivership in which the receiver, as Paul has mentioned, has awarded the opportunity to an entity that would be closing on the transaction and then paying rent on the facilities that it intends to use, leaving the remaining -- if there are any remaining assets for us available to re-lease, and we believe the timing on receiving income on that would be rather quickly given the level of interest that we've seen from those or that portfolio. As to Gold or as to 4Front, once again, going through receivership and with an intent of seeking a buyer to purchase the entity and then continue forward. We think once that is completed, the revenue would be immediate or very quickly after the completion of the receivership, which could be another, Paul, what you estimate? Paul Smithers: On 4Front, it could be another 3 to 9 months. Alan Gold: And then on PharmaCann, we -- which is, I think, just a positive statement on the industry in general, we're seeing continued interest and increasing interest on those specific assets and in the individual states. And while we're pleased to be getting through the legal side of the Illinois transaction, we believe that there is interest from interested parties to take over that facility. We've just been stymy because of the courts to be engaging with those players. And now with the positive reaction from the court to our pleadings, we believe that we'll have significant interest and be able to get revenue starting in the 6- to 9-month time frame. So I'm sorry, let me let Paul finish with that. Paul Smithers: Yes. Just some additional thoughts, Tom. I think as far as the litigation, I think we're in the fourth quarter of getting some resolution. It takes a long time in these various jurisdictions to get a trial date. And as we reported, we had a favorable outcome in Illinois. I think Pennsylvania and Ohio will be next in line by either a trial or summary judgment and at some point in New York after that. So we are getting close -- much closer to a resolution of those matters. And I also want to add that in the bankruptcy cases involving 4Front and Gold Flora, our back rent and rent owed to us is considered an administrative claim in the receivership process. So once the receivership is concluded, we should receive significant funds by way of administrative claim. And again, that is -- Gold Flora is sooner than 4Front, but we'll continue to report on the timing on those. William Catherwood: That's great. That was really helpful. And just kind of to add to that, there's a couple of other leases that you signed since the end of 2023. So these are like the re-leasing you did with Mitten Extracts or Lume Cannabis, Tri-Mountain Pure and Berry Green, all the backfills that were already done. For that run rate that you had this quarter, that $171 million, how many of those leases have commenced in that run rate this quarter? And how many are still left to commence kind of near term? Ben Regin: Tom, this is Ben. Yes, I think it's pretty minimal for the third quarter. I think just as a general statement, when we sign a lease, there's sometimes a licensing process, ramp-up of operations and kind of various things that impact when that revenue starts. But just to echo what Alan and Paul said, I think we've been very pleased with the leasing success. We're very optimistic about the demand we're seeing really across all assets that are going through the various kind of legal processes. So timing is a little more difficult to peg, but again, very encouraged by the demand that we're seeing really across the portfolio. William Catherwood: Okay. But just to clarify, Ben, so those ones that I mentioned, the ones that you had backfilled over the past 2 years, those -- you said it was a de minimis contribution to 3Q. So there's still more of that to roll in. Is that correct? Ben Regin: Yes. I mean, Tom, on that side, there was a slight benefit, but I would say de minimis this quarter as those leases come online and ramp up. Alan Gold: And to wrap up in the fourth quarter and beyond. William Catherwood: Perfect. Perfect. All right. And then the last one for me in terms of the balance sheet, as we think through sources and uses over the next 6 months, you obviously mentioned in the prepared remarks the new $100 million revolver, which kind of can continue to support your ongoing investment in IQHQ. For the unsecured bonds that mature in May, what are the specific options or kind of avenues that you're currently pursuing? And what is your expectation in terms of timing and getting to a resolution on those? Alan Gold: Well, I mean, I think the options are very clear. We're either going to refinance them or we're going to refinance them. I think that's what we're -- that's our options right now. We believe that we have the -- a very strong and affirmed rating from Egan-Jones and continue to believe that we have a very, very strong balance sheet, one of the strongest in REIT land. And we believe that investors will recognize the strength of our balance sheet and the fact that we have executed on our promise to pay on the bonds for the last 4.5 or 4.3 years. And we believe we have sufficient time to work through the refinancing as they become due next year. And the earliest that they become repayable, I believe, is in the first quarter. Paul Smithers: Correct. Yes. William Catherwood: Okay. So that's perfect, Alan. So timing-wise, we should just kind of expect to see -- get to the end of that process in first quarter of '26, correct? Alan Gold: That is the plan that we have on the table today. Operator: We have the next question from the line of Aaron Grey from Alliance Global Partners. Aaron Grey: So first one for me, just on potential impact of reschedule. I know it's been talked about in the past. I just wanted to revisit it again because, in terms of direct impact, it would seem better cash and stabilizing your existing base of tenants, so maybe less worry of incremental defaults. But how do you think about potential opportunities for growth and more uses for acquisitions and new tenants? Is it less so dependent on rescheduling and more so dependent on additional states coming online? Just want to give your broader outlook on cannabis, given the supply/demand that we've seen in a lot of the existing states, the appetite that you're seeing for potential additional cultivation or if that's more so dependent on new states versus rescheduling there. Alan Gold: No, I think as we alluded to earlier in our comments that we're really seeing some really positive interest in our facilities that we have in the states when we do have facilities. So we're seeing continued interest by the existing growers in those states who have maybe survived or as you want to say, we think the consolidation phase of this market, of the cannabis, industry seems to have worked. It's worked through the majority of that consolidation and that the most efficient and the efficient growers and companies in that industry have survived and are continuing to look to consolidate, but grow their focus in the individual states that they're in. So we're seeing that positive green shoot there without the rescheduling occurring. And we believe that, that will continue to build over time. And as it builds over time, we are absolutely best positioned to take advantage of any new demand for the sale-leaseback program that we continue to offer to the market and to use our capital for the benefit of IIP, our shareholders. Now Paul, I mean, do you want to add anything to -- with regards to the rescheduling and what you think how the impact might be for our tenants? Paul Smithers: Sure. So I think we've, Aaron, in the past, discussed what rescheduling would look like and how that helps. And I think you identified it that I think the first real impact is really improving the credit of the operators. They have just much more free cash to use. So that improves the credit as far as our tenant base, but also gives them the opportunity to use that cash to expand. And so much of our development is our operators expanding the existing facilities coming to us for additional investments. So we think that's certainly a possibility or likelihood, I think, with rescheduling. And as we noted in our remarks that there is this kind of up and down enthusiasm about rescheduling. We're -- now we're in a place where some really positive comments have come out of the White House, both by the President and the President's staff that said we expect a resolution on the rescheduling by the end of this year, which means, what, 2 months now. So we are anxiously awaiting that. We do believe that it makes sense for the President to get ahead of this issue politically, and he is motivated that way. And his comments about CBD usage with -- for the elderly and things of that nature that he's posted really give a lot of momentum to having some resolution. We think it would be a positive resolution on rescheduling, hopefully by the end of the year. Aaron Grey: Really appreciate that color. That was helpful there. So then in the near term, right? So before we see rescheduling, you talked about potential opportunities for both life sciences and as well as cannabis. How should we think about prioritizing in the near term and your current -- given your current liquidity position? Does the life science offer more near-term opportunities given what we just saw with IQHQ and the rate on the revolver? Assuming that's related to -- obviously, it's related to IQHQ and a much better rate than you have from the other revolver related to the cannabis. So absent rescheduling, do you see more opportunities in the life sciences for the near term? Or do you still see even as and rescheduling equal opportunity within both? Alan Gold: Yes. No, I think we are highly focused on the cannabis industry and making sure that we are supporting our tenant partners as best we can. And we believe that, that's our primary focus. Secondarily, do I think that there are more double-digit plus yield opportunities in the life science industry. We are constantly looking at that. But I think that, that was a very unique opportunity that we were able to capitalize based on our expertise and knowledge. And we will continue to look at that, but I think our primary focus will remain in the cannabis industry. Operator: We have the next question from the line of Bill Kirk from ROTH Capital Partners. William Kirk: So the press release mentioned, I think, a few new names where you're collecting security deposits. One was named, the other is unnamed in Sacramento. Can you give us a sense for size on those? What do you expect the outcome to be? And were those 2 identified when you went through that tenant health work that you did earlier in the year? Alan Gold: Yes, we're less than 1% of our revenue. And we're monitoring all of our tenants, and we spent time with those tenants and understood what was going on in with them. Ben, do you have any color associated with those 2 tenants or anything you want to add to that? Ben Regin: Yes, I would just add. So those were 2 tenants in California. And I think this is a theme maybe we've seen in many markets where the growth and expansion of the efficient operators and the demand that we're seeing for these facilities, along with some of the other vacancies that we've taken back, really reflects the consolidation that we're seeing play out in the industry and the less efficient operators moving out and the more efficient operators continuing to grow their platforms within these individual markets. I feel very good about the quality of those assets, along with the rest of our portfolio, which I think is reflected again in the amount of interest that we're seeing really across the board. William Kirk: And with the additional square footage leased at IQHQ with biosciences, what does that take occupancy to at IQHQ? And ultimately, kind of where do you expect occupancy to go? Maybe how long does it take to get there? And what capital do you think is required to get that occupancy rate up further? Alan Gold: Well, I mean, I think that's -- IQHQ is a private organization, that's really there for them. From our perspective, what we can say is that the occupancy level approaches that 24%, 25% level and that we certainly hope that they can take occupancy up to the 90-plus percent range in the next I guess, 18 to 24 months. Operator: We have the next question from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: So just big picture, I think at the end of last year, you had like 27% of ABR that was in default. It sounds like you signed some new -- it sounds like you signed some backfills. You're working on some resolution and receivership, but there were some new tenants, including the $16 million loan that went bad. So net, as a percent of ABR, where do we now stand as far as percent of ABR that's not rent paying? I'm not saying occupying space, but not rent. I'm talking how much ABR is still not rent paying. Where do we stand now? Alan Gold: Alex, obviously, since we announced that last December, I mean, some things have moved around too. We've taken some properties back from PharmaCann, but from kind of an overall ABR collection, there's roughly 20%. Alexander Goldfarb: Okay. So David, so we're now at -- we were 27%, we're now 20% and that 20% includes the impact of the latest tenants in the third quarter and the $16 million loan. David Smith: That's correct. Keep in mind, as Alan mentioned before, those 2 tenants during the quarter were very small, 1%, so kind of immaterial to the overall portfolio. But you're roughly correct. Alexander Goldfarb: Okay. That's cool. That's cool. And then on the -- obviously, we all appreciate your background in life science. Alan, you cofounded and were there through December at IQHQ, and there's a deep history. But you look at both industries, cannabis, there's still issues going on, tenants having struggles. The Alexandria, the only pure-play REIT out there, life science still has issues. BXP talks about life science issues. So we understand the quality of the balance sheet now, but it definitely seems like there are capital -- potential capital needs for both cannabis and if something happens senior to you at IQHQ and you have to defend your position there to defend your stake. So how -- like I still -- it's still unclear like the risk of going into IQHQ, just given life science is not out of the woods. Like I would get it if things were blowing and going and a lot of activity was going on in that space, but it still seems like it's pretty troubled. So just how do we balance the capital needs of both industries when even in cannabis, you're still having some tenant issues? Alan Gold: Yes. I mean I think, first of all, we didn't make the investments so that we would have to defend the investment. We made the investment such that we are in a very strong credit position. And the only -- it's the common shareholders at IQHQ and/or the other investors who have to really defend and really are focused on defending that business. So that's not our role or our responsibility, number one. Number two is we maintain a very strong balance sheet, a very conservative balance sheet that allows us as we've just proven that to be able to get additional credit from our bank group and at a very attractive yield. So we think we still have that and continue to have great access to a variety of capital sources. Number three is that I know you guys want to -- you want the companies to only invest when it's absolutely clear that the gold ring is right in front of them and they can easily grab it. But our job is to do -- is to try to look around the corner, to try to look for unique investment opportunity that provide attractive, accretive returns to our shareholders. And we've done just that. And if you -- if in 3 years or 4 years, you come back on the call and you want to ask about how IQHQ and that investment went, I'll be happy to report exactly how that investment went. Alexander Goldfarb: Okay. And just the final question is, Paul, over the years, there have been a lot of hopeful things happening in cannabis that this measure, this state legalizing or this rescheduling and that would almost be like the panacea like now the sector would catch traction. Obviously, I appreciate your comments on giving us an update of what's going on with the rescheduling, the eagerness of seniors to adopt cannabis. But every time that we've heard positive stuff before, it hasn't jump-started the industry. So is your view that these positives could jumpstart the industry? Or your view is, hey, these are positives that are out there, but there's still the issue of the gray market, there's still the issue of the black market. There's still all those other -- I guess I'm just trying to understand, should we get excited that there's good stuff coming or it's like, hey, these are positives, but there's still a lot of negatives that the industry is still dealing with, namely the gray market and the black market? Paul Smithers: Yes, Alex, obviously, rescheduling doesn't make the black market go away. Those are 2 separate things that need to be separately addressed. With rescheduling, I think that will be a huge shot in the arm to the industry for the reasons we've discussed in great detail. At the same time, I think we've seen some real positive movement on state-by-state combating black market. It's not fixed by any means, but it's getting much more attention, I think, in the larger states. You've seen in California and Massachusetts and Michigan, especially some really significant -- and New York, I think about it, some real significant movement in curtailing the black market grows, but also the gray market retail. And I know you and I have discussed this in New York, the actual physical blackouts of the retail. So going in the right direction on that. Operator: This concludes our question-and-answer session. I would now like to turn the conference back to Alan Gold for any closing remarks. Alan Gold: Thank you. And I thank you all for joining today. Again, I'd like to thank our team for the hard and good work that they've done. And with that, we conclude the call. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the James River Group Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bob Zimardo with Investor Relations. Please go ahead. Bob Zimardo: Thank you, operator, and good morning, everybody, and welcome to the James River Group Third Quarter 2025 Earnings Conference Call. During the call, we will be making forward-looking statements. These statements are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. For a discussion of such risks and uncertainties, please see the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and other reports and filings we have made with the SEC. We do not undertake any duty to update any forward-looking statements. In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website. Lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers. I will now turn the call over to Frank D’Orazio, Chief Executive Officer of James River Group. Frank D’Orazio: Thank you for that introduction, Bob. Good morning, everyone, and welcome to James River's Third Quarter 2025 Earnings Call. I'm pleased to be joining you today on this election day morning and would like to start by emphasizing the fact that we feel a focus on profitability above all else, is a critical North Star for success in a transitioning property and casualty marketplace. We believe the underwriting and derisking actions that we've taken throughout James River demonstrate that commitment and the fruits of our labor are beginning to show up in our operating results, specifically in the company's bottom line performance that we'll discuss today. As usual, I'll start the conversation, and we'll turn it over to Sarah before we open up the discussion for questions. We ended the third quarter with an annualized adjusted net operating return on tangible common equity of 19.3%, well above our mid-teens return target and with $0.32 per share of adjusted net operating income. Notably, tangible common book value per share has grown 23.4% year-to-date. Our group combined ratio of 94% is down over 40 percentage points from the 135.5% reported in the third quarter of 2024 and also down more than 4 percentage points compared to the 98.6% we reported in the second quarter of this year. We're very proud of our deliberate efforts to significantly reduce our expense ratio now at 28.3%, reflecting a decrease of more than 3 percentage points compared to the prior year quarter and 2 percentage points lower than our second quarter this year. Since the start of the year, we have taken actions to make lasting changes and increase efficiency across our organization with savings largely attributed to headcount and professional fee reductions. These savings, coupled with the impact of our anticipated redomicile have created material and tangible efficiencies for the company going forward. In a few minutes, Sarah will provide additional context and detail regarding these actions. As alluded to, James River continues to build a resilient E&S business that prioritizes profitability. This focus is extremely relevant in today's transitioning market where competition continues to increase, particularly in larger accounts and across property risks where rate pressures persist. While our portfolio is not immune to these headwinds, we remain constructive on the market opportunity ahead given our positioning, which emphasizes small- to medium-sized casualty risks and specialty third-party lines with limited property exposure. As we have previously discussed, we continue to be intentional in our shift to smaller accounts with lower average premiums, which we believe have historically proven to be more profitable than larger account segments of the market. Our segment leadership reorganization now complete has created a more agile structure focused on improving speed while driving execution and accountability. Underwriting teams have leaned into smaller accounts and delivered strong performance in our specialty divisions. Empowered by technology and data, our underwriters are acting decisively and efficiently with continued overwhelming support from our wholesale broker partners. While our innovation journey continues, we're focused on streamlining our workflows with the benefit of technology and greater efficiency in our underwriting operations. In our E&S segment, we remain focused on profitable underwriting production, business mix improvements and appropriate underwriting governance. Year-to-date, rates are up 11% across casualty lines in the aggregate, moderating since last quarter, but still comfortably in excess of our view of loss cost trends. For the quarter, casualty rates increased 6.1% with notable gains in commercial auto at plus 29.8%, energy at plus 19%, excess casualty at plus 10% and general casualty at plus 7.9%. Submission volumes, which rose 3% over the prior year quarter, are up nearly 5% year-to-date, while our average renewal premium size is down 12.7%, also year-to-date. Over the past several years, we've worked diligently to refine our underwriting appetite, institute tools for better performance monitoring and further embed the culture of enterprise risk management throughout the organization. These efforts are paying off, particularly in the most recent accident years. After 33 months, the reported loss ratio for the 2023 accident year reflects a 21% improvement compared to 2020 despite a significant increase in earned premium. Claim count decreases for the same period are in the low to mid-teen percentages as well. This performance gave us the confidence to modestly increase our net retention at our midyear reinsurance treaty renewal. This quarter, the E&S net retention on the portfolio exceeded 58% for the first time in over 2 years, up from 56% in the same quarter last year. From a production standpoint, gross written premiums declined 8.9% compared to the prior year quarter. However, production dynamics were not uniform in the segment. 6 of our 15 underwriting departments showed growth led by our Specialty division, which grew by 4% in aggregate compared to the prior year quarter and includes Allied Health, Energy, Environmental, Life Sciences, management liability and professional liability. Within Specialty, Allied Health has now grown 20-plus percent for a second consecutive quarter, while Energy and Life Sciences grew at 16% and 10%, respectively. These departments are delivering strong performance with what we believe are attractive margins, and we're encouraged by the continued opportunity these divisions hold. Our Excess Casualty and general casualty portfolios were down 4% and 2%, respectively, reflecting increased competition as well as our intentional focus on smaller accounts and in Nexus Casualty specifically, our more conservative positioning on large commercial auto fleets, acknowledging many of the same unattractive dynamics that market competitors continue to report. Although a small line of business for us, rates were down 19.6% and subsequently, gross premiums decreased by 38.2% in our excess property unit, where for the second year in a row, we continue to see greater market pressures than anywhere else in our portfolio due to a significant increase in market appetite and capacity. However, the biggest driver of decreased production for the segment in the quarter was in our Manufacturers and Contractors division, which decreased its gross premium writings by 30% or $13.5 million. While we have seen increased competition in certain pockets of the market, this is an area where we have taken direct underwriting response to an increased frequency of low severity claims over the last several quarters despite frequency being down across our other 14 underwriting departments. While we believe some of the increased frequency may be attributable to the Florida statute change introduced last year, we've taken deliberate actions to reduce our exposure to subcontractors serving the tracked home building space as we believe this subclass has been a driver of the uptick we've experienced in low severity frequency. As mentioned, while E&S gross premiums declined by 8.9% in the quarter, net earned premium grew 1%, which helped to drive $16.4 million in underwriting income and a much improved 88.3% combined ratio. Our accident year loss ratio of 63.5% was 1.2 points lower than the prior year quarter simply due to business mix, but consistent on a year-to-date basis. As our press release highlighted, during the quarter, we completed our annual detailed valuation review or DVR process. As a reminder, the DVR is the first principles ground-up review of all assumptions and selections underpinning our E&S segment's reserve base. By definition, our actuaries complete this in-depth study once a year during the third quarter. This review of our entire E&S reserve balance provides a detailed analysis of the assumptions underlying reserves, adding additional rigor to our internal quarterly actuarial processes. While the company has long completed its DVR parameter process during the third quarter, this is the third annual review of what has evolved into a much deeper and more granular process. The outcome of our DVR process is a $51 million charge in accident years 2022 and prior, which we ceded to the legacy covers that we purchased last year. The largest portion of the charge is driven by other liability occurrence and product completed operations related to accident years 2020 to 2022. In essence, we feel the legacy covers are serving their purpose as intended, responding to any development from older years as they reach maturity or allowing for the company's more recent years to age favorably given the numerous underwriting actions and positive indicators reflected in those years. I should point out that while it varies by line of business for the majority of our portfolio, our tail continues to be characterized as 75% developed at about 5 years, meaning that the underwriting years of concern, 2022 and prior are largely already at that vintage or older. we continue to see a stark contrast in the indicators and performance of the portfolio between the 2022 and prior years and the positive performance trends of the more recent accident years of 2023 forward. Claims frequency is meaningfully down in those most recent years as our incurred losses despite meaningful portfolio growth since 2020. Importantly, we have not experienced any adverse development for the period of 2023 through the current accident year, and our diagnostics continue to substantiate our favorable view of those years. Moving on from E&S. As discussed in prior quarters, we are actively managing our specialty admitted fronting business with a focus on expense management and significantly reduced net retentions as we take meaningful underwriting actions based on our view of the sector's dynamics and a decisive shift away from commercial auto. As a result, segment expenses have declined 44% year-to-date as we've continued to manage expenses aggressively while also reducing our net premium retention to below 5% this quarter. Despite the reductions in both gross premiums and net retentions, we continue to renew programs that meet our underwriting criteria while selectively reviewing new opportunities. Looking ahead, our strategy remains sharply focused on profitability. We expect to maintain discipline, continue our deliberate mix shift towards smaller, more profitable accounts and uphold underwriting guardrails in challenging areas. We are closely monitoring casualty pricing trends, submission velocity and quote-to-bind efficiency to ensure we remain data-driven and responsive to market signals. Expense management will remain a core area of focus as we seek to improve operational leverage without compromising the quality of our underwriting or claim service. Now I'll turn the call over to Sarah to expand on several of the areas that we referenced this morning before we open up the call to questions. Sarah Doran: Thanks very much, Frank. Good morning, everyone, and thanks for joining us today. We continue to make notable progress on our strategic goals through 2025 in our efforts to increase lasting operating efficiency while demonstrating the stability of our balance sheet. This quarter, we're reporting a small net loss from continuing operations available to common shareholders of $376,000 or about $0.01 per diluted share. On an adjusted net operating basis, we're reporting $17.4 million or $0.32 of income per share. As Frank mentioned, our annualized operating return on tangible common equity for the quarter was 19.3% and tangible common book value per share increased 23.4% from the start of the year to $8.24 a share as we've made meaningful strides to grow our capital base. Strong investment results and a meaningful improvement in AOCI from market interest rate reductions this quarter provided some uplift. Our third quarter combined ratio of 94% consists of a 65.7% loss ratio and a 28.3% expense ratio much improved from the 135.5% we reported in the prior year quarter, and that's really driven by strong performance across our E&S segment. On a year-to-date basis, we reported an expense ratio of 30.5%, which is below our full year 31% target. Just as a reminder, we started the year with an expense ratio of 32.7%. Year-to-date, we've recorded lasting savings of about $8 million coming out of all 3 of our reportable segments, E&S, Specialty Admitted and Corporate. The largest area of reduction has come from reduced compensation expense across the group. And notably, we began the year with 640 full-time employees and had 590 or 50 fewer by the end of the third quarter. We've also reduced costs meaningfully in areas like rent and professional fees. The 28.3% group expense ratio this quarter is more notable given the decline in gross written and net earned premium quarter-over-quarter, up 28% and 7%, respectively. Reviewing by segment, quarter-over-quarter, E&S had a $3 million G&A reduction, Specialty admitted about $2.5 million; and corporate, a little over $1 million. Year-to-date, corporate expenses have declined 7.5% compared to the same period in 2024, well within the 5% to 10% decline in corporate expenses we're working towards for the full year. And finally, on expenses, our planned redomicile to bring our holding company from Bermuda to Delaware is expected to be complete this coming Friday, November 7. That will bring significantly more expense benefits via a more efficient structure and a lower expected effective tax rate. We expect that this transition will be meaningfully accretive to our fourth quarter earnings and going forward, bring our effective tax rate closer in line with the U.S. statutory rate. As mentioned previously, the redomicile is expected to bring a onetime tax savings of $10 million to $13 million during the fourth quarter of 2025 and ongoing quarterly expense savings of between $3 million and $6 million going forward. Let me quickly wrap up my comments with investments. We reported $21.9 million of net investment income, up from $20.5 million in the previous quarter. The portfolio remains conservatively positioned with an average credit rating of A+ and a duration of 3.4 years. We've been strategically reducing our allocation to cash and short-term investments during the year taking advantage of strong relative value opportunities across our fixed income allocation, where we've been putting money to work at an average book yield of 5.2%, which is well above our current book yield of 4.5%. And we've been doing this while not sacrificing credit quality. I do expect a more favorable quarter-over-quarter comparison of NII next quarter, given the impact from the payment of the retroactive structures that we purchased in the second half of 2024. With all that, I'd like to turn the call back over to the operator and open the line for questions. Operator: [Operator Instructions] Your first question will come from Mark Hughes with Truist Securities. Mark Hughes: Frank, you had spoken about the recent accident years, 2023 and forward, you're seeing a much more favorable loss experience. Any way to distinguish how much of that might be just your underwriting actions versus the broader market trends perhaps in the last couple of years? Frank D’Orazio: Thanks, Mark. I think our view is it's heavily tied to the underwriting actions that we took. It's such a dichotomy in terms of experience. We kind of went through the number just relative to the decrease in claim counts as well as the reduction in incurred losses. So if you remember, we instituted a number of sublimits and exclusions. We exited certain classes. We really, at the same time, also improved our performance monitoring and the rate in which we do that and some of the processes relative to feedback loops within the organization. So I would say it is directly tied to the underwriting actions we've taken as well as the rate environment. So we have been able to produce rate in excess of our view of loss trends. So that obviously helps as well. Mark Hughes: Yes, very good. Sarah, did you provide any sort of expense ratio target? I think you may have commented on that in the past. But with the improvement this quarter, it sounds like more expense savings flowing through the P&L. Is there a particular target you've got in mind? Sarah Doran: Yes. Thanks, Mark. I think our full year target is consistent with what we've said a couple of quarters ago, and that's 31%, which would be certainly down from where we started the year at 32% and change. So I still feel very good about that. I'm obviously hesitating a little bit because we're doing this while we're making the underwriting changes, which has pushed down net earned. So I'm much more focused on the dollars we've taken out of the organization because I think those dollars have permanently left the organization than the ratio because I think the ratio also is going to miss the tax savings and the additional benefits that we're getting through the red. But a long way of saying, I still feel good about 31%, but I think there are other levers there that tell the story in a more effective way as well. Mark Hughes: And then excess property, I know it's small in your book. Rates are down, business is down. What's your judgment about where that stands now? It was obviously a light storm season. Is that business continuing to see further declines and not your book necessarily, but just kind of your judgment of market conditions? Is it softening further here in the fourth quarter? Or is that maybe stabilized? Frank D’Orazio: Yes, Mark. Well, I think you kind of alluded to it. I mean the industry U.S. property losses, the experience this year is certainly well within most carriers' plans. So my expectation would be from a rate environment perspective, I would expect more of the same, so double-digit rate decreases. We're also seeing some loosening up of terms and conditions. So just plenty of capacity out there, whether it's carrier, MGA and MGU. So I guess the wildcard would be that if something significant, very significant, like $50 billion event type significant happen between now and year-end, that could be perhaps a game changer to kind of slow down the rate of the aggression in the property marketplace. But right now, that's what we see. We're kind of thinking more of the same. Operator: Your next question will come from Brian Meredith with UBS. Brian Meredith: A couple of questions here for you. First, I'm just curious, the reserve charge that took that went to the ADC cover, the lines of business that, that was involved in, how much of that business are you still writing today? And was anything kind of learned through that study that maybe affected your kind of thoughts on what you're underwriting today and how you're booking stuff? Frank D’Orazio: Yes. Sure, Brian. Let me take a crack at that. So we're talking about primarily the charge being driven by other liability occurrence and product completed operations from 2020 to 2022. The other liability occurrence primarily was non [indiscernible] space. These are lines of business that we're still in, so that would include energy, sports and entertainment, some elements of general casualty and then the product completed operations charts clearly coming out of MC. I'll draw a direct kind of parallel to the actions that we're taking first in MC. We've done a pretty deep analysis of what we see as an increase in low severity claims over the last, call it, 1.5 years or so and have made the decision to take some significant underwriting actions relative to tracked homebuilding in a number of different states. So we're not necessarily exiting the class, but we've got certain prohibited applications that we're paying attention to and a number of guidelines relative to the class. So I would say that's already in process. And I would say relative to the OLO, the other liability occurrence, those are changes that have been kind of, I think, already recognized and built into the organization over the last couple of years of underwriting changes that we've really started commencing at the end of '22. Brian Meredith: Great. And then the second question, I'm just curious, maybe you can provide some outlook and what you think the ultimate happens with your Specialty Admitted segment. I mean it looks like it's shrunk pretty meaningfully. Frank D’Orazio: It has, Brian. And so we developed a view that we wanted to significantly reduce the commercial auto exposure in the portfolio based on our view of the behavior in the sector as well as the rated reinsurance market appetite, and we wanted to take less risk there. So we've greatly reduced our net retentions, and that view has not changed. You kind of see that playing through from quarter-to-quarter. We have -- I would say we've kind of picked our horses, so to speak, and have a handful of active programs today, mostly fully fronted. We feel like they're on a very solid footing and stable with low net retentions. We're now less than 5% in terms of retention. It's a far cry from where we've been in the past and certainly, I would say, a fraction of where probably the rest of the sector is. And we're continuing to focus on expense management. So as you know, the segment capital contributes fairly meaningfully to net investment income, circa, call it, 20% or so. And so we've shown and stated in the past that we'll continue to manage the business to take advantage of what we view as profitable opportunities that meet our criteria. Brian Meredith: Got you. I was just wondering, it's getting so small, just the relevance of that business in the marketplace? And does it make sense in even being in it? Sarah Doran: I think we're tag teaming on the question, Brian. I think we're -- the way that we thought about managing the segment, we're certainly still in it. We're getting inquiries into it. We've got active programs, but we're managing it for profitability. So to Frank's point, getting the retention is actually at 3.7% this quarter, managing the expenses. We've taken over 1/3 of the expenses out of it. I think that there's very little that we're able to or have to continue to invest in it to keep it online. I would also say is that the last thing I'd say is I think those profitability ratios that you're probably looking at as well, they've become, I think, less important indicators of the health of the business when you see net written premium drop 94% quarter-over-quarter. So as we look at this to manage net investment income and to focus on the rest of our business, it's not much of an effort as we've continued to move forward there. Frank D’Orazio: Yes. And I guess if I just one final word on it, Brian. Our track record, I think, has demonstrated that we regularly evaluate all of our businesses and underwriting units to make sure they fit our corporate goals and objectives and it's just good stewardship, and we'll continue to do that. Operator: There are no further questions at this time. And I'll turn the call back over to management for any closing remarks. Frank D’Orazio: Thank you, operator. As we approach the end of 2025, it's worth reflecting on the transformation this company has undergone. Our experienced and reenergized leadership team continues to build and improve James River, distinguished by underwriting profitability while flexibly reallocating capital to the most attractive opportunities as market dynamics evolve. I'm pleased with our continued progress as an organization. With every passing quarter, we're seeing the demarcation between the company's legacy performance and the more recent accident years characterized by significant underwriting changes and marked improvement in performance. Our primary goal remains to enhance shareholder value through consistent and deliberate execution over the years ahead. Thank you to all for listening to the call today. We look forward to speaking to you again in a few months. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Heron Therapeutics Q3 2025 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 first speaker today, Melissa Jarel, Executive Director of Legal. Please go ahead. Melissa Jarel: Thank you, operator, and hello, everyone. Thank you for joining us on the Heron Therapeutics conference call today to discuss the company's financial results for the quarter ended September 30, 2025. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President and Chief Financial Officer; Bill Forbes, Executive Vice President, Chief Development Officer; Mark Hensley, Chief Operating Officer; and Kevin Warner, Senior Vice President, Medical Affairs, Strategy and Engagement. For those of you participating via conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of our website following the conclusion of today's call. Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and future performance, all of which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the safe harbor statement in today's press release and in Heron's public periodic filings with the SEC. Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron. Craig Collard: Thanks, Melissa. Hello, everyone, and welcome to Heron Therapeutics Third Quarter 2025 Earnings Call. Today, we're thrilled to share our third quarter results and provide insight into how product sales are trending. I'd like to begin by highlighting several key accomplishments from the quarter. One of the most significant milestones was the successful completion of our financing. This has been an overhang on the company since I joined, and we're glad to have it behind us. With this resolved, management can now fully focus on commercial execution and product growth. Beyond the successful financing, team Heron delivered strong operational and financial performance in the third quarter. We generated total net revenues of $38.2 million for the quarter and $114.3 million year-to-date. This performance resulted in adjusted EBITDA of $1.5 million for the quarter and $9.5 million year-to-date. Our gross margin was 68.8%, which is slightly down from previous quarters, primarily due to a onetime write-off of SUSTOL polymer inventory. SUSTOL has been trending downward over the past several months due to increased market competition, and we expect this trend to continue for the foreseeable future. CINVANTI, on the other hand, continues to exceed our expectations. We've maintained a conservative outlook this year, anticipating a potential slight decline in CINVANTI performance as we move into Q3 and Q4. So far, that decline has not materialized. Despite ongoing competitive pressure that has historically impacted our average selling price, we're pleased that net sales are remaining fairly consistent. We believe this positive trend will continue through Q4 and into next year. Turning to our acute care portfolio, we implemented several new initiatives in Q3, including the CrossLink Ignite program, an incentive-based initiative to improve distributor engagement, the launch of the 200-milligram vial access needle or VAN and the creation of the IBM team, a dedicated sales force focused on APONVIE only. All of these initiatives were rolled out at different times during the quarter and are beginning to have a meaningful impact. That's why we've consistently stated our belief that the acute products will begin to inflect more prominently as we move into late Q3 and Q4 of 2025. ZYNRELEF net sales grew 49% in Q3 2025 as compared to Q3 2024, and APONVIE net sales grew 173% in that same time period. More importantly, we're finally seeing real momentum in the acute care. While quarterly net revenues and unit demand were solid, weekly unit demand from late September through October has been the highest we've ever seen, clearly indicating a possible trend break. Mark will provide more detail on this in his prepared remarks. Lastly, our J-code for ZYNRELEF went into effect on October 1. This is a significant win for Heron and for the providers who rely on ZYNRELEF in their practices. The J-code will streamline reimbursement and reduce administrative burden, especially as the NOPAIN Act continues to gain traction. We believe this change will improve access and coverage across both government and commercial payers, ultimately supporting broader adoption and better patient outcomes. Also, our prefilled syringe continues to advance with a time line to possible approval in late 2027. Bill Forbes, our Head of Development, will address any questions regarding PFS and other development initiatives in the Q&A. This quarter has been both busy and successful for Heron. With increasing demand for ZYNRELEF, APONVIE and even CINVANTI, we're extremely excited about the trajectory of the business moving forward. I'd now like to turn the call over to Mark Hensley, our Chief Operating Officer. Go ahead, Mark. Mark Hensley: Thanks, Craig. In acute care, ZYNRELEF kept its momentum in the third quarter. This is a site-by-site, case-by-case adoption curve. Access enables OR-proved converts, protocols make it stick. We focused on removing friction and tightening execution. The VAN made prep in the OR easier, the Ignite program kept distributors focused on accounts we can win. Our education and medical support teams help standardize technique and support protocol adoption. And as of October 1, ZYNRELEF has a permanent product-specific J-code, which makes billing conversations clearer. Stepping back, the theme is friction removal and focus. Those same disciplines translated to both APONVIE and CINVANTI as well. In oncology supportive care, CINVANTI remains a steady anchor. As APONVIE expands and deepens our relationships with anesthesia and pharmacy, we see CINVANTI ordering rise in those hospitals. Let me show you how this progress shows up in the revenue numbers on Slide 6. For our acute care franchise, net sales were $12.3 million in the third quarter, up from $10.7 million in the second quarter. ZYNRELEF net sales were $9.3 million. That is a 49% growth year-over-year versus $6.2 million in the third quarter of last year and up from $8.2 million in the second quarter. The drivers are consistent, the VAN, the Ignite program focusing distributors on winnable accounts, support from our education and medical support teams and now permanent J-code clarity. APONVIE net sales were $3 million. That is 173% growth year-over-year versus $1.1 million last year and up from $2.5 million in the second quarter. Third quarter APONVIE growth occurred before the dedicated team was fully active. The team finished training in October and entered the field in early Q4 to support momentum. Now let me show how this demand shows up in ZYNRELEF operating metrics on Slide 7. Our installed base continues to expand as sites move from first case to protocolized use. Average daily units increased from 882 in the third quarter last year to 1,127 in the third quarter this year, an increase of about 28%. Ordering accounts rose from 705 to 833 over the same period. This comes from friction removal and focus, the VAN, Ignite program, our education and support teams and permanent J-code clarity streamlining reimbursement. You will also see October plotted on the line, significantly above September. It is a preliminary single month and not a proxy for the fourth quarter. We will stay disciplined and let the quarter play out. With that context, let's turn to Slide 8 and APONVIE. APONVIE's trajectory is strong. Demand units grew 142% year-over-year. Average daily units increased from 418 to 998 and ordering accounts increased from 299 to 405. We launched the dedicated APONVIE team on July 1, 6 representatives focused on high-potential hospitals. The team completed full training in October, so Q3 reflects partial deployment. Full activation supports momentum going forward. In addition, the 2025 PONV prophylaxis consensus guidelines are expected to be published in Q4. APONVIE is anticipated to be part of the guidelines, which should significantly increase awareness of its availability and clinical profile. We look forward to aligning our education and disseminating the information with our recently expanded field sales and medical teams. Now turning to the oncology care franchise on Slide 9. Oncology franchise net sales were $25.9 million in the third quarter. CINVANTI net sales were approximately $24 million, up about 6% year-over-year and stable sequentially. As APONVIE broadens anesthesia and pharmacy relationships, we are beginning to see CINVANTI pull-through in those same institutions. SUSTOL net sales were $1.9 million, down about 32% year-over-year. We plan to wind down commercialization over the next 12 months while we evaluate potential product updates with a possible late 2027 reintroduction subject to development and regulatory progress. We will continue to support customers and manage the transition responsibly. To wrap up, we are seeing structural progress. The VAN, the Ignite program, clinical education and permanent J-code clarity are turning ZYNRELEF first cases into durable protocols. APONVIE's hospital curve continues to strengthen, supported by a fully trained and strategically aligned team positioned ahead of the imminent release of the updated 2025 PONV prophylaxis consensus guidelines. CINVANTI remains a stable anchor and as APONVIE expands hospital relationships, we believe CINVANTI will benefit. October stepped up for ZYNRELEF, but it is a preliminary single month. We will stay disciplined and let the quarter play out. Thanks, and I'll now turn it over to Ira. Ira Duarte: Thanks, Mark. Our product gross profit for the 3 months ended September 30, 2025, was $26.3 million or 68.8%, which decreased from 71.2% for the same period in 2024. This decrease is due to an increase of $1.4 million of inventory reserves and write-offs recorded and an increase of $1.3 million in the cost of units sold, primarily due to supplier mix. For the 9 months ended September 30, 2025, our product gross profit was $84.1 million or 73.6%, which increased from 72.5% for the same period in 2024. This increase is due to an increase in units sold and a lower cost per unit due to the supplier mix. SG&A expenses for the 3 months ended September 30, 2025, was $26.9 million compared to $23.3 million for the same period in 2024. The increase is primarily due to higher personnel and related expenses due to new hires and increased generalized marketing costs. SG&A expense for the 9 months ended September 30, 2025, was $78 million compared to $77.3 million for the same period in 2024. The increase is primarily due to increased marketing costs related to ZYNRELEF, offset by a decrease in personnel and related costs due to terminations and a onetime stock compensation expense in 2024, which did not reoccur in 2025 and a decrease in legal expenses due to timing of litigation. Research and development expenses were $3.5 million for the 3 months ended September 30, 2025, compared to $4.5 million for the comparable period in 2024. The decrease is primarily due to timing of expenses. Research and development expenses were $8.7 million for the 9 months ended September 30, 2025, compared to $13.5 million for the comparable period in 2024. The decrease is due to a decrease in personnel and related expenses due to terminations and a decrease in write-offs of property and equipment and other assets. For the 3 months ended September 30, 2025, we incurred a net loss of $17.5 million compared to a net loss of $4.8 million for the same period in 2024. The increase in net loss is primarily due to the $11.3 million loss on debt extinguishment recognized in the quarter. For the 9 months ended September 30, 2025 and 2024, we incurred a net loss of $17.2 million. The net loss for the 9 months ended September 30, 2025, included a onetime charge of $11.3 million related to our recent debt extinguishment. Cash and short-term investments at September 30, 2025, was $55.5 million. As a result of the debt and equity transactions completed in the 3 months ended September 30, 2025, $13.1 million was added to cash and short-term investments. If we had exclude depreciation, stock-based compensation and inventory reserves and write-offs, our adjusted EBITDA results would have been a positive $1.5 million operating income for the 3 months ended September 30, 2025, compared to a loss of $400,000 for the same period in 2024. For the 9 months ended September 30, 2025, our adjusted EBITDA is $9.5 million operating income compared to a loss of $700,000 for the same period in 2024. We are reaffirming our previously given guidance for net revenue of $153 million to $163 million and adjusted EBITDA of $9 million to $13 million. And now we'd like to open the call for any questions. Operator: [Operator Instructions] Our first question comes from Carl Byrnes from Northland Capital Markets. Carl Byrnes: Congratulations on the quarter. Just turning back to the slide with respect to ZYNRELEF in the first few weeks of October, it looks like you're pushing 18% in terms of increase. And that's on a month-over-month basis. Is that correct? Mark Hensley: Yes, Carl, that's -- it's roughly correct. Yes, it's 17%, 18% right in there. Carl Byrnes: Excellent. Fantastic. And then a financial question. If we look at gross profit margin and back out the onetime stocking charge, which I think is around $2.2 million, you end up with approximately an adjusted gross profit margin, which would be around 74.5%. Does that sound correct? Ira Duarte: That is correct, Carl. Craig Collard: Yes, that's accurate. Ira Duarte: Which is in line what we've been for the last few quarters. Carl Byrnes: Okay. And then one further adjustment, which is the extinguishment of debt. What would the net interest income line be backing that out? Would that be somewhere in the $2.1 million vicinity? Or what number should we use there? Ira Duarte: Going forward, yes, probably about $2.5 million would be going forward. Carl Byrnes: Yes. Okay. So $2.1 million for the quarter, but sort of adjusted for the quarter period... Ira Duarte: For it was a full quarter, yes. Carl Byrnes: $2.5 million plus. Got it. Congrats again. Operator: Our next question comes from Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congratulations on the quarter. Maybe just from me, understanding it's very early days on the internal sales team. Can you just talk about though how you're viewing those on ZYNRELEF and APONVIE, and how are you thinking about potentially adding to those teams in 2026 or sort of the measure of success to potentially add to those teams in 2026? And then any additional investments you're thinking on the commercial side behind the 2 products in 2026? Mark Hensley: Thanks for the question, Brandon. This is Mark Hensley. I'll start, and then we'll let Craig kind of finish it up. So internally, we're very pleased with the kind of structural changes we made at the beginning of Q3. Just as a reminder, we now have a dedicated ZYNRELEF team, a dedicated APONVIE team. That APONVIE team is also beginning to do some work with CINVANTI. And so we think there's a lot of synergy there on both sides. And so the increased focus, we believe, has -- is a partial impact on the results we're seeing in the quarter and certainly as we go forward into next year. In addition to that, we have better alignment with our distributor partners. And so certainly, we think all of those things being put together will result in increased sales as we go forward. Craig Collard: Yes. Brandon, I would sort of add to that. As we think about the product going forward or the products going forward, I think we've been pretty consistent in saying when we see sort of pockets in the country take off when we have, let's call it, conducive events like access into an account, we have good cross-link participation, and we have certainly personnel in that area. Once we see that type of success, we would like to obviously mimic that where we can. So I think going forward, we continue to look for those pockets, and we're beginning -- as the data suggests, we're beginning to see that. And so we're in the process of going through our budgeting process for the year. And I think we'll be looking at where we can add in specific pockets and again, staying within profitability and so forth. But I think you're going to see more to come on that because, again, we're beginning to see a little bit of a different trend. And so if we can expand that, we would certainly like to do that. Brandon Folkes: Fantastic. And maybe just one follow-up from me. Just on ZYNRELEF, granted the demand curves look really, really good, I appreciate you sharing those. Just given the VAN came online pretty significantly in the quarter, any inventory stocking benefit in the revenue -- in the reported revenue line in 3Q on ZYNRELEF? Mark Hensley: We didn't see -- we had that kind of similar bump when we launched the 400 VAN. Because the 200 VAN is really only about 35% of the total sales, there was a minimal, let's say, bump, I guess, but not to the degree that we saw with the 400. So the inventory remained relatively stable compared to prior quarters. Brandon Folkes: Congrats on the quarter. Operator: Our next question comes from Serge Belanger from Needham. Serge Belanger: First question regarding the NOPAIN Act, can you just give us an update on its implementation and what you're seeing from commercial plans, whether they are following in the footsteps of Medicare? And then secondly, on the oncology care franchise, maybe just provide a little bit more color on your long-term outlook for that franchise. It sounds like you expect SUSTOL to remain under pressure for the foreseeable future. And then on CINVANTI, do you expect competitive pressures to come back despite the ones that didn't materialize in the third or fourth quarter? Craig Collard: Yes. Serge, I'll take the CINVANTI question, then I'll pass the other over to Kevin on the NOPAIN Act. But again, we've been saying all year long and even in my prepared remarks about CINVANTI, we felt that with the competition out there that we could see a little bit of a dip in Q3 and Q4. We have yet to see that. We've been fairly consistent in being able to keep accounts and that type of thing. But to your point, there are -- it is a very competitive space, and we will continue to have pressure. And we could lose an account from time to time or we could be forced to take our price down to keep an account. So I mean that's just sort of the market we're in. We're going to continue to sort of look at this pretty conservatively. What I can say on the upside, though, with the IBM team that we have, we're beginning to promote CINVANTI a bit more from a rep standpoint within hospital accounts. And again, we're thinking that will have or could have a positive impact. So again, still facing the same competition, but the fact that we have a little bit of a larger voice out there, we've actually -- we had an account we won about 3 weeks ago that was fairly significant. So again, if we can keep doing that, we think we can keep things fairly stable as we move forward. So we'll continue to update quarterly, but I think our outlook remains fairly consistent as with things we've said before. Kevin Warner: Serge, it's Kevin Warner. So in regards to the NOPAIN Act and the impact we're seeing out in the field, it's definitely starting to build momentum. As we said previously, as expected, it would take 6, 9 months and be tail half of the year once providers and systems got educated on the fact that you could reimburse outside the bundle, and it's not typical as we know. So we're seeing education happen across all segments from some of our competitors, obviously, other companies that are included in the NOPAIN Act. They're standing at platform presentations like at ASA and delivering the message out there. So we're continuing to educate around it, provide the systems in place and educational materials of how to actually bill separately. Commercial payers, to your point on that question, we are seeing some momentum there also. We believe it would take them time to reassess and do a rearview take on it and see what's happening with implementation. But you have providers like Aetna and Cigna that are providing separate reimbursement, and it varies state by state with individual commercial plans that we see out there. Overall, as an estimate, we see about 75% of all ZYNRELEF indicated procedures, especially our target procedures, have some form of coverage, whether it's be a Medicare or a commercial plan. We have a few other things from the economic perspective that are tailwinds coming into 2025 for us when you look at the teams model by CMS, which is a value-based care model. So you're looking at things like patient-reported outcomes and satisfaction. So do you feel pain? Do you have PONV? That's going to be a significant tailwind. Also the dissolution of the inpatient-only list specifically about 285 orthopedic procedures are coming off that inpatient-only list. So that will make them outpatient eligible procedures now and thus reimbursable under things like the NOPAIN Act. So a lot of value and impact is coming to our patients and really changing the model to a value-based care, looking for these advances in our health care system, long-acting advances like ZYNRELEF and APONVIE that can help facilitate this transition as we're moving our phases of care. Craig Collard: Yes, Serge, just to maybe address the second part of your question regarding SUSTOL, similar scenario as we faced with CINVANTI, although it's just been a little bit more competitive on that side. And again, we have fewer accounts. And so what we've seen over the last few years, we've had a continual decline and a -- continual decline in -- on our ASP. And so what we've decided to do is wind this product down over the next -- into next year. And again, our plan is to look at possibly improving the delivery of that product, whether that be a lighter gauge needle or what have you. But we would like to bring that out possibly late '27 back into '28 as a relaunch product. And again, there's things we can do there from our selling price and that type of thing that would possibly bring this product back to market. And so we'll talk more about that as we move forward and ideas that we have. But the plan now is to wind this down as we move to really to the end of next year. Operator: Our next question comes from Sierra Dong from Jefferies. Unknown Analyst: This is [indiscernible] on for Clara. Congrats on the quarter. So my question is about the ZYNRELEF prefilled syringe program. So you said if successful, it's expected to be approved in 2027. And based on your feedback from physicians on VAN and how do you expect the prefilled syringe program to help on the franchise on the long-term? And how can we think of the momentum there? William Forbes: Thank you for your question. This is Bill Forbes. I'll just give a little bit of an update on this. We've recently just manufactured our registration batches and with that have initiated our stability program. As you know, every new product has to undergo at least 1 year of real-time stability. So we've got that clock ticking. So we're glad we've crossed that milestone, and that's why we're looking -- obviously, once we've completed that stability program, we'll go ahead and file and it will be approved, hopefully, in 2027. The impact, I think, is one, as you can see from the VAN, we've had a bit of an uptick. And I think as far as simplifying and speeding the application and use of ZYNRELEF, the VAN has been a big step forward. But the prefilled syringe takes it to another level. Obviously, in that -- in this scenario, we're just going to go ahead and open up the prefilled syringe packaging and place it in the surgeon's hands so that they can -- it can go ahead and install the product. So I think when it comes to receiving the product, it simplifies things even to a much greater extent and obviously, will speed, I believe, the conversion of accounts into use of ZYNRELEF. I don't know if Mark has any other comments on it. Mark Hensley: No, I think that's good. Craig Collard: Yes. I would just add, I think Bill is spot on it. When you think about simplicity, we still have the scenario where when we go into onboard an account, there is a training even though the VAN has improved dramatically and being able to draw the product out of the vial. And so if you think about really being able to simplify your product and now you go in and you open a tray and you dump the product in the sterile field and basically, it's ready to go, it just takes one step out of the process. So again, we certainly think this is going to have a positive impact. And again, as things are moving forward, we think this just makes the product that much better and has another benefit so. Unknown Analyst: Okay. I do have a follow-up. So for the J-code for ZYNRELEF, it's also applicable to the prefilled syringe and also for the VAN, right? William Forbes: It would be once the prefilled syringe is launched. Yes, that's correct. Operator: Thank you. This concludes the question-and-answer session. I will now turn it over to Craig Collard, CEO, for closing remarks. Craig Collard: Thank you, operator, and thank you, everyone, for joining the call today, and we look forward to speaking to you all next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the Ocular Therapeutix Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay on the Investor Relations section of the Ocular Therapeutix website. I would now like to turn the call over to Ocular's Vice President of Investor Relations, Bill Slattery, Jr. Please go ahead, Mr. Slattery. William Slattery: Good morning, everyone, and thank you for joining us today. Earlier this morning, we issued a press release and filed our quarterly report on Form 10-Q, outlining our financial results and business updates for the third quarter of 2025, along with several updates to our registrational programs for AXPAXLI, also referred to as OTX-TKI in wet AMD and non-proliferative diabetic retinopathy. Ocular's Executive Chairman, President and CEO, Dr. Pravin Dugel, will summarize recent business highlights before we move to our question-and-answer session. Joining Dr. Dugle for the Q&A portion of the call will be Donald Notman, Chief Financial Officer and Chief Operating Officer; Sanjay Nayak, Chief Strategy Officer; and Steve Meyers, Chief Commercial Officer. We refer everyone to this morning's press release and our Form 10-Q for a comprehensive update of third quarter 2025 financial and business results. During today's call, certain statements we will be making constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially as a result of a variety of factors, including risks and uncertainties identified in the Risk Factors section of our annual report on Form 10-K and our other SEC filings. With that, I'd like to hand the call over to Dr. Pravin Dugel to review our recent updates. Pravin? Pravin Dugel: Good morning, everyone, and thank you for joining us today. At Ocular Therapeutix, we are courageous, bold and opportunistic. We make decisions from a position of confidence. We refuse to accept the status quo, not in how we develop drugs, not in how we design trials, and not in how we think about the retina market. Our purpose is clear: To redefine the retina experience for patients, physicians and payers around the world. 2025 has been a transformative year for Ocular Therapeutix. We've advanced 2 registrational studies in wet AMD, SOL-1 and SOL-R, each designed to answer distinct clinically relevant questions. As our momentum continues, we are thrilled to announce today that SOL-R has reached its target randomization of 555 subjects, an important milestone that reflects exceptional execution and strong investigator enthusiasm for AXPAXLI. In addition to SOL-1 and SOL-R, we designed a long-term extension trial, SOL-X, which goes well beyond simply providing long-term safety data and may provide further evidence that AXPAXLI treatment should be started early to obtain the greatest visual benefits. Equally important, we've unveiled our registrational HELIOS program in diabetic retinopathy, which we believe represents the next frontier in our mission to deliver long-lasting, clinically impactful and genuinely sustainable therapies for retinal diseases. This is a bold initiative to pursue a single broad superiority label that captures the entire spectrum of diabetic retinal disease, including non-proliferative diabetic retinopathy, NPDR and diabetic macular edema, DME. With 2 complementary strategically designed studies, HELIOS-2 and HELIOS-3, we intend to address both populations within a one unified program. If the HELIOS trials are successful, we expect that we would not need any additional studies to market AXPAXLI for use across the spectrum of diabetic retinal disease. At our recent Investor Day, I described how Ocular is now positioned to redefine this field through a strategic triad: #1, the potential for a superiority label that may set AXPAXLI apart from all other anti-VEGFs in both wet AMD and diabetic retinal disease; #2, expanding the market to potentially capture the vast untapped opportunity across wet AMD and diabetic retinal disease; and #3, potential for immediate adoptability made possible by a product profile that seamlessly integrates into today's retina practice. Today, I'd like to elaborate on each of these pillars, how they define our strategy, guide our execution, and position Ocular to lead a potential generational shift in retinal therapy. Let's start with superiority. To date, no approved therapy in wet AMD has demonstrated superiority to an anti-VEGF. Each successive entry has only been incrementally longer lasting. This has led to an increasingly commoditized landscape, a market where differentiation has eroded and pricing pressures have intensified. More recently, biosimilars have turned what was once a breakthrough in the field into one defined by step therapy restrictions and rapid discounting that encourages a pricing race to the bottom. We believe AXPAXLI has the potential to break this cycle. SOL-1, our Phase III superiority trial in wet AMD was designed under a SPA agreement with the FDA and remains on track for top line data in the first quarter of 2026. If successful, we expect AXPAXLI could be the first and only therapy with a superiority label compared to a single dose of anti-VEGF. This superiority label extends beyond wet AMD and now includes diabetic retinopathy, where we will initiate two superiority trials, HELIOS-2 and HELIOS-3. Achieving a superiority label would put us in a category of one. Why does this matter? Because a superiority label not only defines a clinically differentiated asset but it also fundamentally changes market dynamics. It can potentially insulate us from the pricing compression and formulary step therapy that plague ME-2 agents. When a product demonstrates superiority and is approved by the FDA, it can become a premium drug chosen first by the physician, not forced to be a later line option by the payer. We believe this is the holy grail of retina, superior outcomes, improved durability and a pricing model that rewards innovation. We are proud that both SOL-1 and HELIOS-2 in wet AMD and NPDR, respectively, are designed under formal FDA agreements and anchored in superiority endpoints. These are not marketing terms. They have substantive statistical meaning, as agreed by a regulatory body, giving us a path to pursuing claims that no other company currently possesses. The second pillar of our triad is market expansion. Today, the global annual anti-VEGF market is estimated at roughly $15 billion. That figure tells only a fraction of the story. It reflects patients who are currently treated, not those who should be. In wet AMD, up to 40% of patients discontinue therapy within just the first year, often due to the burden of monthly or bimonthly injections. In diabetic retinopathy, the situation is even more staggering. Fewer than 1% of the 6.4 million NPDR patients in the U.S. received treatment, even though anti-VEGF drugs have been shown to work in this indication. The gap between what's possible and what's practiced represents what we believe is the largest expansion opportunity in retinal medicine. Our goal with AXPAXLI is not simply to compete for share within today's treated population but also to expand that population by reducing burden, increasing adherence and improving long-term outcomes. We believe we can achieve this through three key drivers. First, durability. AXPAXLI is designed to deliver sustained suppression of VEGF for up to 12 months following a single injection. This could allow physicians to see their patients less often while maintaining disease control. Second, flexibility. The ability to tailor dosing intervals between 6 and 12 months, providing real-world adaptability across diverse heterogeneous patient needs. Third, confidence. Data from both SOL and HELIOS programs, combined with FDA-aligned trial designs and our planned long-term open-label extension in wet AMD may provide the evidence base physicians and the payers need to support early consistent use. Even modest improvements in adherence could translate into hundreds of thousands of additional patients retaining vision, and a market opportunity significantly larger than what is measured today. At our Investor Day, we showed analysis demonstrating how we plan to move the current treatment discontinuation spiral towards a treatment retention cycle with AXPAXLI in wet AMD. Expanding treatment into diabetic retinal disease accelerates that market expansion even further. This includes NPDR, a disease 3x as prevalent as wet AMD with no standard of care in use today and DME. This is not hypothetical incremental growth; this is redefining the market. The third pillar of our triad is the potential for immediate adaptability. When we talk to retina specialists, one theme is clear, workflow matters. They want innovations that improve outcomes without requiring alterations to practice dynamics. AXPAXLI was designed precisely with that in mind. It requires no surgery. There is no need for concomitant steroids, and we believe no additional monitoring is needed. AXPAXLI will be administered by retina specialists who are familiar with intravitreal injections and perform these tasks every day with EYLEA, VABYSMO, or Lucentis. The experience itself will also be familiar. We are conducting all our registrational trials and expect to launch with a prefilled injector, just like the prefilled syringes used with most commercial anti-VEGF injections today. Moreover, the single hydrogel is designed to be fully bioresorbable, intended to leave no remnants behind without active drug. The procedure and the post-injection experience are similar to current anti-VEGF injections, except that AXPAXLI could last up to 12 months. This makes AXPAXLI not just innovative but also easily adaptable. Patients may benefit from fewer visits and longer durability. Physicians benefit from a potentially better drug with the same workflow and payers benefit from reduced utilization, predictability, fewer patient dropouts, and potentially better long-term outcomes. AXPAXLI can allow retina specialists to see more patients less frequently. It can enable a more predictable schedule for patients. And even if patients need to reschedule a visit, there should be enough drug on board to cover them until they can get in to see their physician. Ultimately, AXPAXLI may help alleviate the burden that often leads to treatment discontinuations or problems with adherence. The bottom line is that we believe AXPAXLI can simplify, optimize and even scale modern retinal practices. And importantly, this view isn't just ours. It is shared by the stakeholders who matter most when it comes to patient access and value. Over the past several months, we've spent significant time engaging with payers representing more than 75% of U.S. commercial lives and over 25% of Medicare Advantage lives to walk them through our clinical strategy, study designs and endpoints. We have been extraordinarily pleased with the feedback we have gotten from these conversations. On superiority, one payer described the potential of a product with AXPAXLI's expected durability as game-changing while another noted that it could be clinically preferred ahead of the entire anti-VEGF class. On market expansion, one comment captured it best; avoiding blindness is invaluable and less costly. And on adaptability, another payer noted, there is value in consistent, sustained and uninterrupted therapy. These conversations affirm what we already believe. Payers can see the potential of a product with AXPAXLI's target profile to deliver meaningful clinical differentiation, expand access, and redefine value in retina by improving outcomes while potentially reducing the overall burden of care. Turning to our SOL registrational program for AXPAXLI in wet AMD. Our success to date is built on outstanding execution. In SOL-1, I could not be more pleased with how the study is running, including retention, trial conduct, and safety monitoring. As it relates to retention to date, more than 95% of patients remain on study. That's almost every participant staying engaged over the course of the study, which is unheard of for retina trials. As it relates to rescues, to date, per our mask review, over 95% of rescue events have met the prespecified protocol-defined criteria. Let me repeat that. Over 95% of all rescue events have occurred exactly as designed. That level of compliance under masking is exceptional. Simply put, patients are staying in the trial and physicians are waiting until patients meet the predefined thresholds before administering rescue treatment in the vast majority of cases. This speaks to the discipline of our sites and the clarity of our protocol, which is likely to yield a robust data set when we receive top line data in the first quarter of 2026. These details matter. Protocol adherence ensures that when we unmask data, we will be looking at a clean, reliable data set that can withstand the highest level of regulatory scrutiny. Just as importantly, the SOL-1 trial is washed over by an independent data safety monitoring committee, and there have been no safety signals to date. This is also worth repeating clearly, there have been no safety signals to date as observed by an independent data safety monitoring committee. SOL-R continues to progress in parallel with its 6-month screening and loading phase, serving as an innovative patient enrichment strategy designed to derisk the study population. SOL-R is the first trial of its kind to include an extensive 6-month screening and loading phase, specifically designed to exclude patients with early persistent fluid or significant retinal fluid fluctuations, which can otherwise introduce variability and disrupt non-inferiority trials. I am thrilled to share this morning that SOL-R has now reached its target randomization of 555 subjects. This marks yet another significant milestone for Ocular and reflects the remarkable speed and execution of our clinical team, along with the overwhelming enthusiasm and engagement from investigators across the world. The exceptional pace and scale of recruitment across the SOL program underscore the strong demand among retina specialists and patients for more durable therapies like AXPAXLI that can potentially deliver better long-term outcomes while reducing the treatment burden. To maintain our commitment to both patients and investigators, we will continue to allow randomization of previously enrolled subjects currently in the loading phase of the trial. We continue to expect top line data for SOL-R in the first half of 2027, and we will refine our guidance at the appropriate time. Taken together, the SOL program has been designed to generate a comprehensive efficacy and safety package that addresses the most important questions retina specialists will have, giving them the confidence to use AXPAXLI immediately upon launch if approved. After subjects have completed 2-year follow-up in either SOL-1 or SOL-R, they will have an opportunity to enroll in our SOL-X study for additional 3 years. In this open-label extension, all enrolled subjects will transition to every 6-month treatment with AXPAXLI. To be clear, this study is a strategic initiative, not a regulatory requirement. We believe SOL-X could generate valuable insights into the potential long-term benefits of using a non-pulsatile treatment like AXPAXLI, in addition to providing long-term safety data. The study is designed to assess key outcomes, such as vision preservation, antifibrotic activity and most importantly, the potential consequences of delaying AXPAXLI treatment in the control arm patients. SOL-X outcomes may further expand AXPAXLI's potential by highlighting the need to start AXPAXLI treatment early or risk worse long-term visual outcomes. By reducing the treatment burden and potentially improving long-term outcomes, we believe the data from SOL-X could increase both short-term and long-term patient retention significantly. Let's now turn to diabetic retinal disease, which we define as both diabetic retinopathy and DME or diabetic macular edema, where our innovation extends to how we think about trial design, endpoints and label strategy. Our HELIOS program represents a bold differentiated approach to this disease. We are pursuing a broad diabetic retinopathy label that also encompasses DME, a complication within the diabetic retinopathy continuum. We believe this strategy allows us to capture the full spectrum of diabetic eye disease with a single registrational program. The unmet need here is staggering. Diabetic eye disease affects more than 100 million people globally, yet the majority remain undertreated. Even among NPDR patients without DME, disease progression leads to irreversible vision loss if left unmanaged. Current treatment paradigms are largely reactive, waiting until vision-threatening complications occur prior to intervention. We believe that must change. Our HELIOS-2 and HELIOS-3 Phase III trials are designed as superiority studies to demonstrate that early infrequent treatment with AXPAXLI can meaningfully alter the course of disease. HELIOS-2 is being conducted under a SPA agreement with the FDA, underscoring our continued commitment to regulatory alignment and scientific rigor. Together, these 2 trials will evaluate 6 and 12-month dosing intervals, providing flexibility to address diverse patient needs. A key innovation in these studies is our primary endpoint, an ordinal 2-step DRSS endpoint at week 52. Historically, Phase III DR trials have relied on binary diabetic retinopathy severity score or DRSS endpoints, counting only the percentage of patients who achieve a greater than or equal to 2-step improvement, or those who achieve a greater than or equal to 2-step worsening, not both. While straightforward, this method discards valuable clinically relevant data. Our ordinal analysis by contrast captures the entire spectrum of patient responses: improvement, stability, and worsening, allowing every participant to contribute data to the statistical analysis. This approach offers several distinct advantages. It reflects real-world treatment goals to both improve disease and prevent worsening. It increases statistical powering, allowing more efficient studies with a smaller sample size. It potentially provides a higher probability of success compared to other endpoints considered, and it aligns fully with FDA guidance as confirmed in our SPA for HELIOS-2. We evaluated other endpoints such as vision-threatening complications or VTCs, but those present major limitations. VTCs are binary and event-driven, which require much larger sample sizes and longer durations to reach statistical power. They also reflect late-stage disease progression rather than early therapeutic benefit. In short, ordinal DRSS is not only more clinically relevant with a potentially higher probability of success but it is also agreed to with the FDA from a regulatory standpoint. It's the right endpoint to demonstrate AXPAXLI's disease-modifying potential in DR. Since announcing this endpoint at our Investor Day, the feedback from both investigators and the broader retina community has been outstanding. We believe this approach represents the future of diabetic retinopathy trial design, and we expect this ordinal endpoint will become the new gold standard for the field moving forward. Unlike our wet AMD program, the HELIOS-3 trial employs sham injections and there are important regulatory reasons for that distinction. DR trials have very different regulatory requirements compared to the 2023 FDA draft guidance for wet AMD. Sham should not be used in wet AMD or even in center involving DME studies because they require subjective visual acuity primary endpoints where sham injections may not provide adequate masking and could influence outcomes. In DR, however, outcomes are based on objective retinal photographs, not subjective patient responses. Moreover, since there is no universal standard of care for NPDR, sham control is not only acceptable but necessary to ensure global regulatory alignment, particularly in countries without approved therapies for this population. Finally, our design strategy enables us to pursue a single unified DR label that encompasses both NPDR and DME. Because DME is a complication affecting a subset of DR patients, all patients with DME inherently have underlying retinopathy. In HELIOS-2 and HELIOS-3, we plan to include patients with non-center involved DME. Subjects with non-center involved DME demonstrated improvement with AXPAXLI in our HELIOS Phase I study. We believe this approach eliminates the need for separate DME trials and may position us to address the full diabetic eye disease spectrum with a single registrational program. By focusing on a superiority-driven DR label that captures the entire continuum of disease, we believe AXPAXLI can unlock a market opportunity that is not just incremental but transformative for patients, physicians, and payers worldwide. We ended the third quarter of 2025, with approximately $345 million in cash, which does not reflect approximately $445 million in net proceeds from our October equity financing. We were thrilled to see the enthusiasm for participation in our recent financing, validating the bold opportunistic decisions we have made to date. Every decision that is made in this company is made from a position of confidence in our drug, AXPAXLI, and in our clinical strategy, and in our market potential. Our confidence is compounded by consistently positive feedback we are hearing externally, including from payers who represent the vast majority of covered lives in the U.S. These discussions have reinforced the excitement we have seen from investors and further validated our triad-based strategy. These perspectives underscore that the market is already preparing for a future potentially defined by AXPAXLI, one where potentially better outcomes, lower burden and cost efficiency converge. Following our recent financing, we are now in an enviable position with an expected cash runway into 2028, and the financial flexibility for top line data from both SOL and HELIOS registrational programs, advance SOL-X, our long-term extension trial, invest in manufacturing capacity and infrastructure, and prepare for commercial launch and global expansion in anticipation of a potential AXPAXLI approval. We are operating from a position of increased strength. Every capital decision we make is proactive, not reactive, made from conviction, not constraint. When you put it all together, our science, our trial design, our execution and our strategic vision, the path forward is clear. We are building Ocular Therapeutix around the triad that defines how we intend to redefine the retina experience: potential superiority label, setting a new standard of durability that transcends incremental improvements, creating lasting competitive differentiation and potential insulation from pricing and step therapy pressures; market expansion, transforming a $15 billion treated market into a much larger addressable opportunity by reducing burden, improving adherence and reaching millions of untreated patients with wet AMD and DR; immediate adaptability, delivering a product that fits seamlessly into existing practice; no surgery, no concomitant steroids, no change in workflow, simply a better, longer-lasting treatment that aligns with how retina specialists already work. This Triad isn't a marketing pitch. It's the blueprint of how we intend to redefine retina, period. To summarize today's key points: #1, SOL-1 remains on track for top line data in the first quarter of 2026, with exceptional retention and trial integrity, reaching statistical significance and SOL-1 has the potential to enable a superiority claim on the AXPAXLI label in wet AMD; #2, SOL-R has now reached its target randomization of 555 subjects and is rapidly progressing toward top line data in the first half of 2027, built on a real-world design with a derisking patient enrichment strategy; #3, our HELIOS program will initiate imminently, leveraging a novel ordinal endpoint established per the SPA agreement for HELIOS-2 with the FDA -- we believe this is the optimal endpoint that increases statistical power and provides us a greater probability of success compared to other endpoints; #4, we continue to pursue a broad diabetic retinal disease label, including DME that could significantly expand AXPAXLI's reach; #5, our financial strength gives us the flexibility to obtain top line data from each of our SOL-1, SOL-R and HELIOS programs, pursue our SOL-X open-label extension study and prepare for commercialization with confidence; #6, and finally, through the triad of superiority, market expansion and immediate adaptability, we're building a company positioned not just to participate in the retina market but to redefine it. At Ocular Therapeutix, we are bold in our science, courageous in our strategy, and relentless in our pursuit of excellence. Thank you for your time and your continued support. Operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Tazeen Ahmed with Bank of America. Tazeen Ahmad: Thanks for the very detailed update. I maybe wanted to get a sense of how you're thinking the initial label for wet AMD could look like? Because you're doing a lot of work among SOL-1, SOL-R and SOL-X. So what would the initial label look like and what do you think would be attributes of the label that you would think would be competitive that may need to be added on later as more data comes in? Pravin Dugel: Thank you, Tazeen. Thanks for the question, a very appropriate great question. And I'll start out by saying, of course, we're not in labeling discussions with the FDA as yet. But you can see that this company has strategically placed the clinical trials in such a way as we get, we believe, the best label in the history of our field. We expect our label to be a superiority label based on SOL-1. We believe that we'll have the flexibility of dosing every 6 months to every 12 months based on SOL-R and SOL-1. And we'll also have flexibility, obviously, of repeat dosing. That's what we expect from the initial label. Again, we're not in discussions with the FDA, as you can imagine. However, the other thing also that I'd like to note is that although this will not be in the label, remember that in the masking arm of SOL-R, we are going up against high-dose EYLEA. So although the randomization is 2:2:1, and although this is not for statistical analysis, we certainly will have the numeric data. So we believe that we'll have a great competitive advantage versus the second generation of anti-VEGFs with high-dose EYLEA as well. Tazeen, thank you again for the question. Operator: Our next question comes from Tara Bancroft with TD Cowen. Tara Bancroft: So my question is on NPDR. So one really quickly, for the expected patient populations in the HELIOS trials. Can you tell us what percentage of the enrolled that you would expect to have that are non-center involved DME? And then the real question is, if you could maybe describe in a little more detail for us, what is it that underlies your confidence in having a very broad DME inclusive label beyond only the non-center involved, especially compared to a different approach of running separate DME trials altogether? Because in that, I think it would be helpful if you could also discuss whether the inverse could be true that successful DME trials could be inclusive of NPDR at all or not? Pravin Dugel: Tara, thank you for the question. Great question again. So as far as the first question is concerned, really a quick answer. The fact of it is that we don't know. And when the time is appropriate, we certainly will guide you as to the stratification of our baseline patients that we have enrolled. In regards to the second question, the first thing to look at is the data from the HELIOS-1 study. Recall that with a single injection of AXPAXLI, a single injection at week 48, every single patient with non-center involving diabetic macular edema improved. Again, every single patient with diabetic macular edema improved with a single injection. We've looked at these patients in every which way that was presented in our Investor Day, including in terms of total volume, et cetera, et cetera. And Peter Kaiser showed you every single patient and every single patient with a single injection improved. On the other hand, every single patient who was not treated in the control group got worse. So we have great confidence based on the HELIOS-1 data that patients with non-center involving diabetic macular edema will improve. Now again, we're not in labeling discussions, obviously, with the FDA. But what I can tell you is that historically, the FDA has given label based on the disease itself. If you recall in my last company with IVERIC Bio, we studied only patients with extrafoveal geographic atrophy. There wasn't a single patient that we studied with center-involving geographic atrophy. And yet, when you see the label of that drug you will see that it's a broad label encompassing all of geographic atrophy. The same can be said of previous studies for diabetic retinopathy such as PANORAMA. The same thing could be said for visual limitations in clinical trials that have not extended to the label, such as going all the way going back to ANCHOR and MARINA. So we have great confidence that we will have a broad label that will encompass all of diabetic eye disease and that we will not need to do another study for diabetic macular edema. Recall also that it doesn't work the other way around, because every single patient with diabetic macular edema will have diabetic retinopathy, but not every single patient with diabetic retinopathy will have diabetic macular edema. So again, we have great confidence that we will never need to do another diabetic eye disease trial again for retina. We believe that we will obtain a broad label that will encompass not only diabetic retinopathy but all of diabetic macular edema. Thank you, Tara, for that question. Tara Bancroft: That's fantastic proxy to IVERIC. Operator: Biren, are you there? Biren Amin: Can you guys hear me? Pravin Dugel: Yes, please go ahead with your question. Biren Amin: Maybe, Pravin, on the SOL-R study, could you just talk about what percentage of patients were randomized from the screening phase? And for SOL-X, I understand on the open-label extension, you're going to enroll patients from SOL-1. But are SOL-R patients also going to be eligible to participate in SOL-X? Pravin Dugel: Biren, thank you again and thanks for the question. So as far as SOL-R is concerned, recall that what we have is a very thoughtful and long ramp. Recall also that if you look at every single study that's ever been done with an anti-VEGF, whether it'd be Lucentis, EYLEA, Avastin, Beovu, anything. But what you see is a curve when you plot the visual acuity with a number of injection that looks identical, which is that after 2 injections, the visual acuity improves and then it stabilizes. Now what we could have done is simply to say after 2 or 3 injections, we'll go ahead and randomize patients in SOL-R, because we'll have a certain degree of confidence in regards to the stability. We didn't do that. We went way above and beyond. What we did was to say, okay, we will do 3 loading doses and we'll have a unique period, 2 observation periods, not 1 but 2, in order to weed out any patient who would be unstable with any fluctuations in the OCT of 35 microns or greater. And after that, we went ahead and give 2 more loading doses and only then do we randomize. So it's a very long ramp. As far as the screen failures are concerned, Biren, that was your question, we haven't guided you to that as yet. We will when the time is appropriate in terms of giving you the baseline details. But as of yet, I'm just absolutely thrilled to report as we did this morning that we reached our target randomization of 555 patients. This is a credit not only to our clinical team, which has been just absolutely outstanding in terms of execution throughout this entire process with SOL-1 with SOL-R, and you'll see very soon with the HELIOS studies, but it's also a credit to the patients and to the PIs. And we're incredibly grateful to both that we've reached this point of target randomization. In regards to the open-label study, both studies, SOL-1 and SOL-R will funnel patients into the open-label extension. Again, we will have a lot of data that we will have in that open-label extension. I think one of the most important things that we will have is what the crossover patients will do. Now remember, the crossover patients will cross over after 2 years of pulsatile therapy. We don't believe that those patients will ever catch up. And the reason for that is that we know that fibrosis can be detected as early as 90 days after pulsatile therapy. And we believe that with 2 years of pulsatile therapy that will limit the patient's vision improvement. And we will have data showing that for the best long-term outcomes, it is necessary to start AXPAXLI from the very beginning. We believe that data will be very important. The other part related to this also is that in all studies, starting with the 7 UP study, for instance, long-term outcome has shown a gradual decline in visual acuity based on fibrosis and atrophy. And we believe that with constant suppression that AXPAXLI will provide, we will see continued visual acuity improvement and stabilization, which will also add to the long-term outcomes that will benefit from immediate treatment with AXPAXLI and continuation of AXPAXLI with long-term constant suppression of VEGF. Thank you, Biren, for your question. Operator: Our next question comes from Colleen Kusy with Baird. Colleen Hanley: Congrats on all the progress. Just as we're getting a little bit closer now to the SOL-1 data, just what details would you expect to share in the SOL-1 top line? Specifically, would you include 6-month BCVA? And what do you think will be the most important data points from SOL-1 that will help give us confidence in the read-through to SOL-R? Pravin Dugel: Colleen, thank you for your question. A great question, which I'm sure is on everybody's mind. Here's what I would say. Look, what we have done and what we have said is that we are very strategic in terms of planning these studies and our expectations of what the goal of these studies are. The sole purpose of SOL-1 is a superiority label, that's what we're pursuing. The purpose of SOL-R is clinical relevance. And the purpose of SOL-X is to provide long-term data to support both of these things. We also recognize what the challenge of SOL-1 is. We've recognized the challenge there is to go ahead and show you data in our secondary and exploratory analyses that will give you even more confidence in the success of SOL-R. We understand that challenge. We will absolutely meet that challenge. We have not guided you as to what we will show you as yet, but we certainly understand what we need to do with the card turn in terms of the narrative of a positive SOL-1 study. But let me also say that while we will provide you even more confidence in the success of SOL-R there should already be a great deal of confidence that SOL-R will succeed based on several factors. First is the derisked patient randomization that I've already spoken to, which has really the longest ramp, the most thoughtful derisking that I've ever seen of any study. And the second one is pertaining to the trial design is the endpoint. It's a 56-week endpoint. It's a singular endpoint that we believe is absolutely optimal for us. Again, it's a singular 56-week endpoint. But to summarize, Colleen, what I would say is we understand the challenge. We will absolutely meet the challenge. We will provide you even more confidence based on the SOL-1 card turn that there will be a positive SOL-R study. Thank you for the question. Operator: Our next question comes from Sean McCutcheon with Raymond James. Sean McCutcheon: Maybe a quick one for me. Can you speak to the progress of getting the NPDR studies up and running? I know you're using a similar site footprint to the wet AMD program? And how do you anticipate that accelerating those studies? Pravin Dugel: Sean, thank you for the question. Look, the process started immediately after the race for NPDR, and we are very fortunate that we have fantastic sites all over the world. You've seen the results of that based on the execution of SOL-1 and SOL-R. And yes, many of the same sites are being used. There're additional sites as well that we are very, very fortunate that we have people in this company, as you know, with an enormous amount of expertise. Many of the folks here have trained many of the people that run these sites and certainly know pretty much everybody around the world. So we're in an envious position of being able to strategically pick the very best sites. And you've seen that. Again, look, it's easy to forget where we were, Sean, not long ago. We had a trial that everybody said was not recruitable. We recruited way ahead of schedule in record time. And then people said, well, even if you did recruit that trial, there's no way that, that -- the execution is going to be good. Doctors are going to do whatever they want, patients aren't going to stay. We've provided you data in our Investor Day and today, real numbers to show you how well the execution is taking place that 95 -- we have a 95% on protocol rate, over 95% on protocol rate and over a 95% retention rate. Those things are absolutely unheard of for any trial in retina, let alone a trial that supposedly was impossible to recruit. And oftentimes, we forget that. We forget the level of execution that this team has provided. And that's not only thanks to the clinical team but that's also thanks to the sites that they've selected and the personal relationship that all of the team has with not only the PI but the entire site. So the answer to your question is we will give you guidance to the HELIOS progression. We're very pleased with the way that it's going, and you'll hear more details to follow. Thank you, Sean, for the question. Operator: Our next question comes from Jon Wolleben with Citizens JMP. Catherine Okoukoni: This is Catherine on for Jon. I just have another quick one for the DR program. I'm just wondering if there's any risks associated with using the ordinate 2-step DRSS endpoint, especially since you're considering using a smaller patient population. Is there any concerns regarding a higher placebo effect given kind of patient variability? I wonder if you could speak to that? And how do these risks compare to traditional endpoint? Pravin Dugel: Catherine, thank you for the question. It's a very appropriate and fair question, and it's something that we've looked into quite a bit. And what I can tell you without hesitation whatsoever is that we have great, great, great confidence with the ordinal endpoint. Now if you look at the talk that was given by Peter Kaiser in our Investor Day, you'll see that there're all kinds of scenarios that were put in, including the data that we have with the HELIOS-1 study. And as you can see, the level of success achieved by the data on the HELIOS study was overwhelming. So in this particular case, given the drug that we have and given the data that we have, we are very confident that with the ordinal endpoint that we will succeed. Again, if you look back at the HELIOS-1 study, what I would say as a clinician who's practiced for over 30 years and also with all the other clinicians that we have in this company, is that we've really never seen a situation where a single injection of a drug, again, a single injection of a drug after week 48 has results where every single parameter is in favor of the drug. And remember, this was just the drug. This was not a combination of agent. EYLEA wasn't combined with this. This was simply AXPAXLI and nothing else, completely transparent. And what you will see there is not only in terms of the diabetic retinopathy score but also in terms of diabetic macular edema. And then we've looked at it in every single which way possible, including the total fluid volume, including perfusion and every single parameter favored the drug with a single injection after week 48. So we have great confidence in the endpoint, and we have great confidence in the success of both HELIOS-2 and HELIOS-3. And remember also that HELIOS-2 has an FDA-approved SPA going with it as well to validate that study and validate the study design. Again, I also want to repeat that both HELIOS-2 and HELIOS-3 are superiority studies. Catherine, again, thank you for the question. Operator: Our next question comes from Yi Chen with H.C. Wainwright. Yi Chen: For the HELIOS-2 trial, once started, how long do you think it will take to complete enrollment of 432 patients? Do you think NPDR patients would be relatively difficult to enroll because they are reluctant to get treatment in the first place? Pravin Dugel: Yi, thank you for your question. So we have already seen a great deal of inertia to enroll these patients. In fact, we saw that before we even announced the trials. As I was asked earlier on by Jon, whether we're using the same sites or not, I said, yes, there was a great deal of overlap, including other sites. The sites have already been demanding for this -- demanding the study. There is such a need out there for these patients. And remember, what we're enrolling is we're enrolling advanced severe -- moderate to severe -- advanced non-proliferative diabetic retinopathy. So a lot of these patients are symptomatic. They may not have lost vision but they certainly have blurry vision, et cetera. They certainly are knowledgeable that there are -- there's a threat to their vision. So there's a great deal of need out there and a great deal of enthusiasm to have something that is absolutely sustainable, both by both patients as well as the PIs. And this is completely sustainable. As you know, it's a single injection if it does what we expect it to do, that will last for a year. This is -- we know that this is a target that's derisked, that's validated in other studies. So we believe that this is a relatively derisked study. And especially given what I just said about HELIOS-1, we're very, very confident in the results. So to answer your question, we don't think that there's going to be any issue whatsoever in completing these trials in a very efficient manner. This is already underway and we will guide you when appropriate. Again, thank you, Yi, for the question. Operator: We've reached the end of our question-and-answer session. There are no further questions at this time. I would now like to turn the floor back over to Dr. Dugel for closing comments. Pravin Dugel: Thank you very much. I'd like to thank all of you for your time today. I'd like to thank all of you for your diligence and for joining us. We look forward to updating you on our progress. If you have any follow-up questions whatsoever, please reach out to Bill Slattery, our Vice President of Investor Relations, and have a great day, everybody, and thank you again for your time. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello. My name is Didi, and I will be your conference operator today. Welcome to the Silicon Labs Third Quarter Fiscal 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead. Giovanni Pacelli: Thank you, Didi, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs' President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, Dean Butler. They will discuss our third quarter financial performance and review recent business activities. We will take questions after our prepared comments, and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of our website. I'd now like to turn the call over to Silicon Labs' Chief Executive Officer, Matt Johnson. Matt? Robert Johnson: Thanks, Giovanni, and good morning, everyone. Silicon Labs delivered third quarter results consistent with our outlook, demonstrating strong sales and profitability growth driven by disciplined execution throughout the company. Based on our Q3 results and Q4 outlook, we expect full year revenue growth of 34% compared to 2024. Even more exciting is the continued growth ahead with many customers at various stages of qualification and new production ramps leading into 2026 and beyond. Our industrial and commercial business continued its strong performance in the quarter, extending the momentum we have seen throughout the year. Demand for commercial applications such as building safety, lighting and access points experienced strong quarter-over-quarter sales growth, while normal variation in electronic shelf label shipments drove softened quarter-over-quarter results. In industrial, smart meter demand continues to build as utilities worldwide deploy near real-time tracking of critical infrastructure and resource usage. The rapid rise of artificial intelligence is driving new growth in energy demand, increasing the need for intelligent load balancing across the world's electrical grids. In response, many regions, including the United States, India and Japan are expanding, upgrading or installing new monitoring infrastructure to strengthen grid resilience. This trend reinforces the importance of connected solutions that enable efficient data-driven management of energy systems. As the global leader in smart metering, we are well positioned to benefit from this trend. Our Home & Life business grew as expected with smart home applications delivering another consecutive quarter of sequential growth with medical customers up nearly 60% year-over-year as we ramp new programs and continue to expand our market share in this area. Our strong customer engagements with high win rates in this space validate our conviction that Silicon Labs wireless solutions are setting the benchmark for continuous glucose monitoring and remote outpatient care. Markets where reliability, performance and security are critical. As connected health and smart living ecosystems mature, our differentiated portfolio positions us to capture substantial new design wins across next-generation monitoring, diagnostics and wellness devices. At this year's Works with Austin Summit, we were joined on stage by senior leaders from Amazon and Cisco as we introduced 2 groundbreaking design tools that are redefining how customers develop and deploy connected solutions. The first, Studio 6 is a fully revamped enablement platform that streamlines development, integration and debugging, reducing complexity for engineers across product lines. It offers a powerful suite of tools that have become the hallmark of Silicon Labs' success and a key differentiator valued by our channel partners and broad base. The second, the Simplicity AI software development kit, or SDK, is a new platform we believe will become the de facto standard for IoT developers. It enables customers to leverage Agentic AI train directly on Silicon Labs software design rules and frameworks, delivering a step function increase in the speed, quality and efficiency of customers' code creation and testing. While currently available to select customers, we believe this first-mover advantage demonstrates our continued innovation and leadership in this space. The combined impact of these tools is powerful, easier wireless adoption, faster development cycles and over time, entirely new applications created through human AI collaboration. Another emerging trend we see as a significant future growth opportunity is accelerating demand for active wireless asset tracking. Customers increasingly want to monitor high-value assets in real time, moving beyond today's passive RFID tags and costly cellular solutions that limit scalability in battery life. Silicon Labs' latest solutions make this possible with advanced radio location features that deliver real-time beaconing with high accuracy and ultra-long battery life. This enables real-time GPS-like precision at a fraction of the cost, which is an ideal for an increasing set of emerging applications. As supply chains and operations become more data-driven, secure and accurate asset tracking will become increasingly essential across logistics, shipping, retail, manufacturing and so many other environments. Looking ahead, we believe our technology leadership and scale in IoT uniquely position us to enable a new wave of IoT growth. Consistent with our existing plans to strengthen our supply chain resilience, this past week, we announced the expansion of our partnership with GlobalFoundries to manufacture industry-leading Series 2 wireless SoCs at its Malta, New York facility. This long-term partnership will add needed U.S. capacity for competitive IoT wireless solutions for the next decade and beyond and production will ramp over the next several years. Finally, the continued strength of our Series 2 platform, combined with the ramp of Series 3 that will be even more impactful, extends our leadership position in ultra-low power performance with next-generation compute, connectivity and security to bring more secure, interoperable IoT devices to market faster. The Silicon Labs team continues developing and deploying the next wave of IoT innovation, I'm proud of their consistent execution and remain confident in our strategic direction. Looking forward to next year, we expect continued momentum from our share gains converting into revenue, gross margin expansion and the benefits of disciplined operational management, all of which will support our commitment to delivering sustained earnings growth. With that, I'll turn it over to Dean for a closer look at the financials. Dean? Dean Butler: Thanks, Matt, and good morning to everyone. I'll first review the financial results for our recently completed quarter, followed by a discussion of our current outlook. Revenue for the September quarter was $206 million, up 7% sequentially and in line with the midpoint of our prior guidance. Year-over-year, consolidated revenue was up 24%, which is twice the performance of our most comparable peer. The industrial and commercial side of the business was $118 million or 57% of consolidated revenue, up 7% sequentially and up 22% from the same period last year. Sequentially, the growth was driven by a diverse set of industrial applications like building automation, commercial lighting and access points. Strong demand from smart metering customers also contributed. Home & Life September revenue was $88 million or 43% of consolidated revenue, up 6% sequentially and up 26% from the same period a year ago. Sequential growth was driven by strength in smart home automation customers and year-over-year growth is dominated by new ramps in continuous blood glucose monitors and other medical applications. During the quarter, distribution made up approximately 74% of our revenue mix, channel inventory ended at 61 days and channel point of sale saw a sequential increase in the September quarter as some of the stocking activity is anticipation of customer production plans. September gross margins saw another positive progression driven by strength from our product mix and increasing sales through our distribution channel. GAAP gross margin was 57.8%. Non-GAAP gross margin was 58%, which was above the midpoint of our guidance and up 170 basis points from the prior quarter and better than the same quarter a year ago by 350 basis points. GAAP operating expenses were $131 million, which includes share-based compensation of $20 million and intangible asset amortization of $2 million. Non-GAAP operating expenses of $109 million was consistent with our expectations. GAAP operating loss was $12 million and non-GAAP operating income was approximately $11 million. Our non-GAAP tax rate remained 20%. GAAP loss per share was $0.30 and non-GAAP earnings of $0.32 per share beat the midpoint of our guidance by $0.02, driven by our better-than-expected gross margins in the quarter. Turning to the balance sheet. We ended the quarter with $439 million of cash, cash equivalents and short-term investments. Our days of sales outstanding was approximately 30 days. Balance sheet inventory remained essentially flat, ending the quarter at $82 million of net inventory. Days of inventory on hand was also relatively unchanged at 85 days at quarter end. Our normal survey of end customers shows further decreasing of customer inventory and is now at the lowest levels since we began tracking this data point. Turning to our current outlook. We anticipate the revenue in the December quarter to be in the range of $200 million to $215 million, which at the midpoint would imply a 25% year-over-year growth and continued sequential growth. Q4 sequential revenue factors in seasonality effects, which is historically flat to slightly down sequentially. Product mix continues to support a further expansion of our gross margins into the September -- December quarter with both GAAP and non-GAAP gross margins expected in the range of 62% to 64%. At the midpoint of this guidance, it implies an 840 basis point non-GAAP improvement year-over-year. Q4 also includes an expected onetime benefit to gross margins, which adds approximately 200 basis points to our current forecast. Given our improvement in profitability and our fiscal year-end, the variable portion of compensation will add approximately $2 million sequentially. resulting in expected non-GAAP operating expense in the range of $110 million to $112 million and a GAAP operating expense between $134 million and $136 million. As a reminder of our stated plans, we expect to limit our operating expense growth going forward and increasingly focus on driving earnings per share accretion faster than our top line revenue growth. The company has reached a level of technical capability where the need for further expansion of spending is reduced, and our shareholders should expect to see this accelerated earnings growth going forward. December earnings per share on a GAAP basis is expected to be in the range of $0.22 loss to a profit of $0.08 per share on a basic share count of 32.9 million shares. Non-GAAP earnings per share is expected to be in the range of $0.40 to $0.70 on an expected diluted share count of 33.2 million shares. This wraps up our prepared remarks. I'd like to now hand the call over to the operator to start the Q&A session. Didi? Operator: [Operator Instructions] And our first question comes from Tore Svanberg of Stifel. Tore Svanberg: Congrats on the progress here. My first question is on the gross margin guidance for Q4, Dean. So you talked about the onetime benefit. Maybe you could clarify exactly what that is. Even without that benefit, gross margin is up pretty significantly. I think you mentioned mix was the main reason. Just wondering how we should think about that dynamic, especially going into 2026, just given how much higher the gross margin guidance was? Dean Butler: Yes, Tore, good question on gross margins. This is an area I think the company has done really well for the past year is continue to improve our gross margins. Last quarter, we ended at the high end of our long-term stable rate. Now we're pressing up above that. You're right to have cut about 200 basis points is a onetime benefit that we'll get in the December quarter. It's a credit that we're receiving and the way to recognize the credit is it has to be recorded all in one period. That's not expected to continue on a go-forward basis, which means at the midpoint, 63%, backing out 200 basis points, we're sort of at a stabilized 61%. When I look into 2026, I think where we are at sort of this normalized 61%, we're probably going to be able to maintain that from what I can kind of see in mix and production ramps and over the next couple of quarters, we'll kind of be in the 60% to 61%. Eventually, it will go back toward our long-term range. But for now, at least for the next few quarters, I think we stay in this 60% range, Tore, if that's helpful. Tore Svanberg: That's very helpful. And just my follow-up is for Matt. Matt, you talked about the Works with conference and you introduced those 2 new tools. And particularly interested in the SDK-based Studio AI that you announced. I'm just trying to understand what that means for you financially over time because obviously, this is going to really accelerate the way third-party developers design a new product. So sort of any financial impact you could talk about from that new tool would be really interesting. Robert Johnson: Yes, absolutely. So just a reminder for everyone, what this is, is an agentic AI development environment for our customers. And what we showed them is using this environment, it absolutely streamlines the steps, it accelerates the time and really eases the development. So what I would expect Tore to be very direct is for experienced developers, this will allow them to be more efficient. For new entrants, it will allow them to lower the bar in terms of what they need to know in terms of entering the IoT space and developing with a wireless solution. So what this should do over time is allow us to scale faster because one of the toughest things in the wireless domain is for someone who doesn't know how to use wireless technology to adopt wireless technology. So this essentially makes it easier and opens the door to more people being more efficient, faster time to market with their IoT wireless development. So for us, it should result in scalability and more efficiency in terms of acquiring customers' designs and scaling. Not going to happen overnight, but we're already working with our first customers there. And as you've all seen, this space is moving fast. So we're pretty excited about this, and our customers are excited about it now, too. Operator: And our next question comes from Christopher Rolland of Susquehanna. Christopher Rolland: I guess mine are around both channel and customer inventories, which you did address in the prepared remarks. I guess, first of all, good job on filling the disti channel a little bit more here. I was wondering what your expectations are there? Could we eventually get to the 70, 75 target? And how long might that take? And on the customer side, you guys talked about kind of the lowest days ever. Perhaps if you could -- I know this isn't a perfect science, but if you could talk about a range, and obviously, we're at the bottom of the range, but your expectations for customer replenishment as well over the next few quarters? Robert Johnson: Yes. So Chris, this is Matt. So quick answer. Customer side, I'd say any excess inventory effects at end customers are effectively gone now. I think we can say that with confidence. And we're now operating with the market again and those inventory effects are gone. So that's an important milestone, and that's been something that we've been dealing with for a pretty long time as part of this cycle. So that's one. I think, two, on the disti side, we've been running on the lower end of our DSI closer to 50 with a target of 70 to 75 days and a goal of working that up each quarter if we can, on average, around 5 days. And this quarter, we went up around 10. And it's important, we saw strong POS growth, but we did make progress on those 5 days we wanted to make. And in addition to that, we had another 5 days that was around strategic stocking agreement with a customer in anticipation of their ramp. So that's the combination of those is how we got to the 10 days. Moving forward, we're going to keep trying to push around 5 days until we get to our target. That hasn't been linear. It's been lumpy. So I wouldn't expect it's perfect each quarter, but that's our goal, and we're continuing to push in that direction. And we'll get there over the coming quarters. Christopher Rolland: Excellent. And without being too specific, maybe broad strokes for next year for '26, how you guys see that setting up, I guess, starting in March, I think you guys are you seasonally buck some of the other guys that are down in March. Perhaps if you could give us the setup for that year and which products are you kind of most excited about or do you think are going to carry growth the best through '26? Robert Johnson: Okay. Sure. So obviously, we're not calling '26, and I think it's a difficult time to call the broad market or macro with the uncertainty that's out there. But what we can say with confidence is just like this year, I think this year -- full year with this guide for Q4, Chris, we'll be at around 34% year-over-year for '25 versus '24, which I think is really strong. And at the same time, we've seen really good progress on gross margin and EPS. Next year, not calling the market, but whatever the market ends up being, we see a path to doing better than the market and taking continued market share. And as Dean was indicating, we see strong gross margin in there as well and solid EPS progress over that time frame. In terms of what's driving that, it's the same stuff. So we've been talking about the strength of Series 2 and increasing strength of Series 3 mixing in. And we have our metering space that's continuing to drive strength, ESL and CGM. We like what we see in each of those areas. We also shared that we're seeing increasing strength in asset tracking as a category that will mix into our growth over time. And I'd also add one other kind of tailwind is we've been talking about matter for a long time. I think next year, you're going to start to see matter revenue feathering in as well, which all of these serve as a foundation for continued growth for the years beyond that. So we're excited for 2026. And maybe easy takeaway, we have a positive bias right now, all things considered. Operator: And our next question comes from Cody Acree of the Benchmark Company. Cody Grant Acree: Congrats on the great numbers. Dean, if you can maybe talk a bit about the gross margin incremental for Q4, even with the onetime and just the sequential bump is much more than I would think just normal mix shift would entail. So can you just talk about the details of the drivers sequentially? Dean Butler: Yes, Cody, there is -- within the mix, there are a couple of specific parts that have much better margins than the rest of the profile, which is actually incrementing it up. We don't want to get into too much detail on which specific part that is that way we -- customers don't get upset at us that might be buying that. The other element that we've also returned back into is above 70% of distribution is coming our sales. We just ended Q3 at 74%. That continues to sort of move margin up. But I would say within the mix, probably there's a couple of specific parts that's driving it incrementally higher. Throughout the year, just sort of as a macro trend for the last kind of 4 quarters or so, industrial has been performing extremely well for the company. That tends to come a little bit better gross margins for us as well. And that's sort of been kind of the yearly march as we've gone forward these last 4 quarters. And so hopefully, that helps give you a little bit more color, Cody. Cody Grant Acree: Sure. And then I guess just any directional color on your different segments, Home, Life and I&C? Dean Butler: This one, we -- you've gotten this wrong a couple of times so I hesitate to give you sort of a formal guide. Look, I will say it the way I said it last quarter, which is knowing no real differences, probably we're looking at a similar mix sort of quarter-on-quarter. Kind of the hesitation around that really is just around visibility of short order lead times. So turns are coming in right now inside of lead time. So we never really know how the total backlog is going to shape out for the entire quarter, and that's really our only hesitation. Operator: And our next question comes from [ Trip Smith ] of Barclays. Kyle Bleustein: This is Kyle Bleustein on for Tom O'Malley. I wanted to dig into the gross margin commentary a little bit more. I was just kind of curious like what has changed since the Analyst Day? Like has the product mix surprised you at all? And then when you're talking about it being stable for the next few quarters and coming back down, is that again on the mix side? Or is there anything to do with pricing? Just kind of your thoughts there? Dean Butler: Yes. Nothing's really changed, Kyle, just to give you a little context from Analyst Day, that's intended to be our long-term sort of sustainable range that we think we run in, and that's 56% to 58%. Throughout the year, we've been pressing into that range and then at the high end of that range is where we landed at the end of the September quarter. Now piercing above 60%, sort of mid of our guidance 63%. That's really a relatively short-term phenomenon. We'll probably see that for the next few quarters, and Cody asked on his question on sort of specific product mix. That specific product mix probably is not a long-term multiyear sort of sustainable mix. I do think as we come up into the 60s, it takes a few quarters, but we'll gradually start moving back towards kind of the stated long-term range. But at least from what we can tell right now, that's not a fast movement back down. I think it's a fairly gradual movement back down. So I wouldn't say anything has really changed other than a couple of product-specific things that have done better. And of course, I also gave Cody some additional color on industrial throughout the year has done better as well. Distribution, we're making progress. So all those things sort of help. So I hope that answers your question, Kyle. Kyle Bleustein: Okay. That's helpful. And then just for my follow-up, can you kind of give an update on how the Series 3 rollout is going, either like expected percent of the mix? And then just overall, as that kind of ramps into your product portfolio, how we should think about overall pricing trends? Robert Johnson: Yes, sure. This is Matt, Kyle. I'll take that. So the easy setup to remember is Series 2, we've stated even in our Analyst Day, we have not even ramped -- we've ramped a small portion of what we've won there in the current platform, and we're still winning in Series 2. So Series 2, we're looking at many years of growth before we see that peaking. And as, I think, data point or testament to that, we just announced a partnership with GlobalFoundries to bring Series 2 to the U.S. as a U.S. manufacturing option because given the life we see there, that's going to be needed. So Series 2, think of that as ultra-successful de facto standard in the market today as we see it. Then bring in Series 3, which our expectation based on what we've done there will be even more impactful than Series 2. It's early days. We're just ramping our first product, and we're going to start -- you're going to start seeing a series of products come out at an increasing acceleration. So each year, more products coming off of that base platform and IP, and it will start feathering into our design wins and revenue over time. But just like Series 2, these things take time. So I wouldn't over-index on the revenue impact this year, next year. I think you're looking after that before material impact come. But why that matters is it's all about setting ourselves up for the future. And Series 3 is set up for the future, just like Series 2 was, and that's why it's so successful now. And that's important because I can say here, and I'm proud of this, we have the largest opportunity funnel as a company we've ever had because of now the combined strength of these 2 platforms. And remember, they're software compatible, which is an awesome strength. And we're on track to record design wins once again. So the combination of all those things really sets us up good for the next few years and beyond, and we're excited and proud of that. And that's why I think we can say we have a positive bias sitting here today. Operator: And our next question comes from Quinn Bolton of Needham & Company. Quinn Bolton: Congratulations on the nice outlook, especially on the margin side. I wanted to just come back to the active asset tracking, Matt, that you talked about in the prepared comments. It sounds like it could be a pretty meaningful opportunity. In the past, you guys have talked about CGM, smart meters, ESL as 3 of your more company-specific product ramps that can drive outsized growth. Wondering, would you start thinking about active asset tracking as maybe a fourth company-specific driver? Or would you not put it in the same sort of magnitude as the other 3 that you've previously talked about? Robert Johnson: So we're being intentional and deliberate, Quinn, about introducing this as a concept. And that means we believe it has a lot of growth potential as an end market. And we believe that we have a lot of potential for strength in that market. We don't want to be talking to you all about a space that's not growing long term, and we don't have a very strong position. So we think it has that potential. That being said, it's early days. We're just introducing it as a concept for you all, but it does have that recipe. And we do see an acceleration in our engagement and position in that space. What we have as a company is very attractive to customers, just a great fit for us in terms of what we can do in technology. We're the largest company in this space. That's something our customers want to see. And we have the ability to turn products really quick to address the needs of this marketplace. So yes, it has potential, and we're excited about it. Don't want to over-index on it. It's early. But I think over time, it has really exciting potential. Quinn Bolton: And Matt, just maybe a quick follow-up there. Was that the Bluetooth-6, I think it's channel sounding technology that's the basis for that active asset tracking? Or is that another wireless technology? Robert Johnson: Yes. BLE with channel sounding is and can be used in those applications and is interesting to a lot of those customers because not only can they kind of figure out where the things are, but they can figure out where they are relative to each other, which is really important in some applications. So that is one of the things that is driving interest. Quinn Bolton: Okay. Great. And then a follow-up question, just I think in the past, you thought the CGM could get to 10% of revenue by Q4 of '25 to the second quarter of 2026. Is that time line still sort of in the cards for the continuous glucose monitors? Robert Johnson: So the last thing I remember is us believe there's a path to being 10% in the first half of next year, and we still see that path. Operator: And our next question comes from Joe Moore of Morgan Stanley. Joseph Moore: Congrats on the good margin performance here. I wonder if you could talk about sort of inorganic opportunities at the Analyst Day, you said that you were open to that. Is that still something that you're contemplating? It seems like you have a lot of organic growth here. Just how are you thinking about M&A opportunities? Dean Butler: Yes, Joe, if you recall at the Analyst Day, we said we are open to M&A opportunities, but we have a pretty tight filter. And I think that hasn't changed, which means we're looking for things that can help accelerate our growth level, which is a tough filter to find these days sort of with Silicon Labs just posting a 34% year-on-year. And that growth doesn't look like it's changing anytime soon. We also don't want to add on technology or end markets that are not in our wheelhouse. So it has to be in our wheelhouse, accretive to our growth, which really means that there are not a whole lot of assets that are going to fit that stage. We also have a lot of the technology that we need. And so while we're open, I think the reality, what ends up meaning is M&A is probably something we're open to, but the more likely is to flow that excess cash flow back in terms of buyback. I think with the increasing profitability that we see now and as gross margins sort of keep going up and our operating expenses are starting to be held flat, that looks like increasing excess cash flow, and that's likely to lead us more down the path of buybacks going forward, just given that tight narrow lens on M&A. Joseph Moore: That's very helpful. And then with regards to your customers kind of drawing down inventory to these lower levels, I guess, just do you have conversations about some of the geopolitics of the situation? And I just -- I know you're not impacted by stuff like Nexperia, but it seems like that's creating line down situations. Like did the customers sort of feel like, okay, given these geopolitical uncertainties, I need to hold more inventory? Or just -- I don't think we've seen a lot of that activity, and I'm a little surprised that we haven't. Robert Johnson: Yes. We're not seeing customers building inventory around this. In fact, broadly, it's come down, not up. So -- and we're watching that very closely. I do think that the uncertainty, Joe, is just not helping anything. And I think that's worth saying that when you talk to customers, they're trying to navigate all this and they don't have as much clarity and visibility as they'd like. So I do think that, that weighs on their -- the way they talk about the future. But big picture, we're not seeing inventory builds around this. There might be a pocket here and there, but broadly, it's going the other way. Operator: And our next question comes from Peter Peng of JPMorgan. Peter Peng: Just a follow-up to that point. So you guys are above $200 million in revenue levels and your end customers' inventories are decreasing. Do you still -- do you believe you're still kind of undershipping to end demand? And if so, how much? Robert Johnson: No, we don't, Peter. We think we're as aligned with consumption and consumption as we've been in a very long time. Peter Peng: Got it. Okay. And then my follow-up is just on your Wi-Fi. Can you probably share some updates on that and some program ramps? And maybe how you're thinking about that trajectory over the next year or 2? Robert Johnson: Great. Thank you for asking. I should have mentioned that more proactively. So Wi-Fi this year, strong growth. I can't remember the exact numbers, but 30% to 40% year-on-year. That's an area that is our newest of our 4 major technology cornerstones. And it's growing and winning share. And we have our existing products out there, but also we started hinting and teasing as part of our Series 3 platform, you're going to see a lot more from us in Wi-Fi, and that's coming soon. So I think the combination of that sets us up really well for -- simply said, relatively small compared to our other areas, but accelerated growth. And maybe easy framing, right now, BLE is our fastest growing. Wi-Fi is our second fastest growing, even though we have leadership positions in the other 2 areas, 15.4 and -- yes, sorry, I just lost my train of thought, guys. 15.4 and subgig. So 15.4 subgig, leadership positions, strong growth, but the new areas, the newest areas for us are the fastest growing, and we're making really fast progress there. So an easy way to frame it, big funnel for Wi-Fi, strong design win momentum should set us up for continued growth and share gains in Wi-Fi for a long time to come, but it is still our smallest of the 4 areas. Operator: Thank you. I will now hand the call back to Giovanni Pacelli. Giovanni Pacelli: Thank you, Didi, and thank you all for joining this morning and for your interest in the company. Before concluding today's call, I would like to announce our upcoming participation in RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference on November 19 in New York City. This now concludes today's call. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Urban One 2025 Third Quarter Earnings Call. As a reminder, this conference is being recorded. We will begin this call with the following safe harbor statement. During this conference call, Urban One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance. Urban One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission could cause the company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of November 4, 2025. Please note that Urban One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Urban One may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course or this call or in this company's press release, which can be found on its website at www.urban1.com. A replay of the conference call will be available from 2:00 p.m. Eastern Standard Time, November 4, 2025, until 11:59 p.m. Eastern Standard Time, November 14, 2025. Callers may access the replay by calling 1 (800) 770-2030. International callers may dial direct +1 609-800-9909. The replay access code is 7822067. Access to live audio and a replay of the conference will also be available on Urban One's corporate website at www.urban1.com. The replay will be made available on the website for 7 days after the call. No other recordings or copies of this call are authorized or may be relied upon. I will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins, please go ahead. Alfred Liggins: Thank you very much, operator, and welcome, everybody. And as usual, we're joined by other team members here, Jody Drewer, our Chief Financial Officer for TV One and CLEO, in case we've got any questions on the cable business, Karen Wishart, our Chief Administrative Officer; Chris Simpson, our Chief Legal Officer; and also Veronika Takacs, who is our Chief Accounting Officer. And so thank you very much again for joining us this quarter. You've seen the press release, hopefully, that we put out. Business came in a bit softer for the quarter than we had projected across the board. Our core radio pacings going forward are facing big political headwinds. So looking at about minus 30% right now. However, ex political, we're down to almost mid-single digits, 6.4%, which is better. It's an improvement. But because the revenues have come in lighter with Q3, we are adjusting our guide for the year. Last quarter, we guided to a $60 million EBITDA number. We generally usually give a range. We gave a hard number last quarter. We're adjusting that guide down to $56 million to $58 million of EBITDA for the full year as we come to the close. Within our third quarter and last quarter, I said that we were going to look to do another round of cost saves, and we actually did that in Q3, which resulted in about $3 million of annualized expense savings. This is in addition to the $5 million that we had done earlier in the year. Peter is going to talk about the impact on the numbers in Q3 of that in terms of severance. And so with that, I'm going to turn it over to Peter, so he can go into the details of the numbers, and then we'll come back for Q&A. Peter Thompson: Thank you, Alfred. So consolidated net revenue was approximately $92.7 million, which is down 16% year-over-year. Revenue for the Radio Broadcasting segment was $34.7 million, a decrease of 12.6% year-over-year. Excluding political, net radio revenues were down 8.1% year-over-year. And according to Miller Kaplan, our local ad sales were down 6.5% against the market that was down 10.1%. So we outperformed on local. And on national ad sales, we were down 29.1% against the market was down 21.5%. So we underperformed on national. Our largest ad category was services, which was up 22.9%, driven by legal services. Financial was up 17.9%, but all of the other major categories were down, including government, health, retail, entertainment, auto, telecoms, food and beverage. Net revenue for the Reach Media segment was $6.1 million in the third quarter, down 40% from the prior year. And adjusted EBITDA at Reach was a loss of approximately $200,000 for the quarter. And that was really a lower overall network audio market, lower national sales renewals and probably a drying up of DEI that drove the decline at Reach. Net revenues for the Digital segment were down 30.6% in Q3 at $12.7 million. Direct and indirect digital sales were down by approximately $4.4 million. The decline was the result of decreases in DEI money, back-to-school, political and overall softer client demand. Audio streaming was down by $1.3 million year-over-year. Adjusted EBITDA was approximately $0.8 million compared to $5.3 million last year. We recognized approximately $39.8 million of revenue from our cable television segment during the quarter, a decrease of 7%. Cable TV advertising revenue was down by 5.4%. Total day delivery declined by 29.4%, P25-54, which was partially offset by an increase in CTV and third-party platform revenue share. Cable TV affiliate revenue was down by 9.1% driven by subscriber churn. Cable subscribers for TV One, as measured by Nielsen, finished Q3 at 34.1 million compared to 34.3 million at the end of Q2. CLEO TV had 33.5 million Nielsen subs. Operating expenses, excluding depreciation and amortization, stock-based compensation and impairment of goodwill and intangible assets decreased to approximately $83.7 million for the quarter, a decrease of 4.2% from the prior year. There was some noise in the expenses. We had a notable expense decrease in corporate and professional fees and overall payroll expenses, also cable television content amortization was down, but we had the August RMLC settlement with ASCAP and BMI that resulted in an average royalty rate increase of 20% retroactive to January of 2022. And so we recorded approximately $3.1 million of retroactive royalties in Q3, and you see that in the programming and technical expense in the radio segment. We did add that back to adjusted EBITDA. The company, as Alfred said, completed a second reduction in force in October as part of the ongoing cost reduction efforts. And as a result, we had $1.6 million of employee severance costs, which we recorded in third quarter, but we also added that back to the adjusted EBITDA for the quarter. Radio operating expenses were down 5% or $1.7 million, driven by lower employee compensation, sales commissions and a favorable change in the bad debt reserve compared to prior year. Reach operating expenses were up by 8%, and that was due to a favorable change in the bad debt reserve that we took in the prior year. Operating expenses in the digital segment were down 2.6%, and that was driven by lower employee compensation. Operating expenses in the Cable TV segment were down 2.4% year-over-year, driven by lower programming content amortization due to fewer premier hours compared to last year. Operating expenses in corporate were down by approximately $1.5 million. The third-party finance and accounting professional fees were down significantly year-over-year. Consolidated adjusted EBITDA was $14.2 million for the third quarter, down 44.1% and consolidated broadcast and digital operating income was approximately $20 million, a decrease of 43.6%. Interest and investment income was approximately $0.5 million in the third quarter compared to $1.1 million last year. Decrease was due to lower cash balance -- lower cash balances in interest-bearing investment accounts. Interest expense decreased to approximately $9.4 million in Q3, down from $11.6 million last year due to lower overall debt balances as a result of the company's debt repurchase efforts. The company made cash interest payments of approximately $18.2 million in the quarter. And during the quarter, the company repurchased $4.5 million of its 2028 notes at an average price of 52% bringing down the gross balance on the debt to $487.8 million as of September 30, 2025. Our depreciation and amortization expense increased $4.9 million as a result of the company's change to the useful life of TV One trade names and our FCC licenses, which we moved from indefinite lives to finite lives. Benefit from income taxes was approximately $1.1 million for the third quarter, and the company paid cash income taxes net of refunds in the amount of $0.1 million. Capital expenditures were approximately $3.1 million. Our net loss was approximately $2.8 million or $0.06 per share compared to net loss of $31.8 million or $0.68 per share for the third quarter of 2024. During the 3 months ended September 30, 2025, the company repurchased 176,591 shares of Class A common stock in the amount of approximately $0.3 million at an average price of $1.75 per share. And the company also repurchased 592,822 shares of Class D common stock in the amount of approximately $0.4 million at an average price of $0.73 a share. As of September 30, 2025, total gross debt was approximately $487.8 million. Our ending unrestricted cash balance was $79.3 million, resulting in net debt of approximately $408.5 million. which we compared to $67.9 million of LTM reported adjusted EBITDA, given a total net leverage ratio of 6.02x. And with that, I'll hand back to Alfred. Alfred Liggins: Thank you very much, Peter. Operator, can we go to the lines for questions, please? Operator: [Operator Instructions] Our first question comes from the line of Ben Briggs with StoneX Financial. Ben Briggs: I have a couple of questions here. So first of all, and I know we're looking forward a little ways, but -- and we're only part of the way through the fourth quarter. How are you guys thinking about 2026 and what demand looks like there and what listenership may be and kind of how the pieces of the puzzle are going to fit together then? Alfred Liggins: Yes. We feel good about 2026 for a number of reasons. One, obviously, we're going into a political year. But two, a number of the places that we've had challenges this year, we have changed our operating strategy to address that. I would say most notably, where Reach Media has had a very tough year because we got caught flat-footed with a big, big decline in our largest advertiser in the company, unexpected cancellations, and these were cancellations across the board. When I say across the board, across the whole audio sector. And quite frankly, we weren't able to replace those ad dollars once we had committed that inventory. So we're able to get ahead of that. We saw Reach Media and iOne had contributed probably -- excuse me, had benefited the most from the rise in DEI advertising, and we just got way too concentrated at Reach Media with 2 particular advertisers, one of those actually stood out more than the other. So we'll be more prepared for that going forward. This is also our first year navigating Reach without our former President of the Audio division, David Kantor, who actually founded and created Reach. So trying to make that transition was also -- was difficult even though we knew it was coming and we prepared for it. And so I think we're better positioned there. Also, there have been a number of things that we're doing in our radio markets, where we think that we will perform better in particular in Washington, D.C., we just rearranged some of our formats there, and we launched a new format targeting the Hispanic community, which has become a very, very large segment in the D.C. area. It's almost close to 20% of the marketplace. I mean it's like 18.5% of the marketplace. And we positioned ourselves recently as a major player there, which is going to broaden our offering in the D.C. market in addition to some changes that we've made in terms of management and beefing up our sales staff, et cetera. And so we've got a few other changes that we in some of the markets where we think it's going to improve performance in a meaningful way as well. And TV One has been holding in there this year. And so we think that given those things I just outlined, we're feeling good about a rebound in 2026. Ben Briggs: Okay. Okay. That's good to hear, and that's great color. Next thing for me, I guess this is kind of focused on post fourth quarter plans as well. But are you thinking of any kind of M&A activity or larger than usual kind of -- I know you guys swap radio stations here and there on a pretty regular basis. But are you thinking about anything more transformative in the future? I know every now and then things get kicked around. I'm just curious if there's anything else. Alfred Liggins: I think everybody in the industry is focused on dereg and what's going to happen. You've seen a number of deals that have been filed already in the radio space looking for waivers to exceed the current ownership caps. The FCC has signaled that they think the ownership rules are antiquated and people in TV and in radio have submitted deals to be approved for waivers. There is also a notice for proposed rule-making out that I know that the industry is going to comment on if they haven't already about dereg. And I think everybody in the industry is going to be pro-dereg when I say everybody, I'm sure it's not necessarily going to be 100%. But that's going to create some opportunities for people to align assets in markets in a much more efficient manner. And yes, we're looking at that. There's nothing that is large and transformative that we're working on now because this is all very new. But we tend to try to think ahead and be intellectually creative in what the next move is. And so all along, we've had conversations and thoughts and conversations with people about the art of the possible because historically, we haven't been up against the ownership cap. So we've probably had the ability to grow or do M&A that others haven't, even though in a dereg environment, that will be enhanced. But what is a governor is leverage. And is any transaction going to be delevering, right? And even when you look at these transactions, you've got to think about it against a backdrop just because you have dereg, doesn't solve necessarily your top line secular trajectory, right? So you just got to be careful about how you underwrite and M&A transaction. But with that said, I do think it's going to create some significant opportunities to build stability in these businesses. At the end of the day, these are -- the radio business is largely a local business. So you've got the opportunity to provide more different demographic targets to advertisers, local advertisers, I think that makes you a stronger player. We've seen that in our Indianapolis market, our Houston market. our Charlotte market where we've spread out in different format demographics. And that's one of the things that we just did, like I articulated earlier in D.C. that I think is going to [indiscernible] significantly. So there's no M&A deal that we are currently working on that's transformative as we speak, but I'm sure that we will explore opportunities to be able to rearrange the debt shares in order to make us a stronger entity. Ben Briggs: Okay. Okay. That's all very, very helpful. And then next thing I want to ask about is, I think, at the top of a lot of investors' minds, is your debt buyback activity. Obviously, you stated in the press release this morning that you did a little bit of buybacks in the third quarter. Are you expecting to continue to execute on those buybacks? Alfred Liggins: Yes. Look, I thought I figured we would get that question because -- yes, yes, because we've been more acquisitive in the past. But because of this heat up in potential dereg and stuff moving around, we decided to sit pat and build a little liquidity as we get to the end of the year, see how that all shapes up and figure out also how that is going to play out. We are always and have been focused on delevering and the best way to delever. So we -- one way to delever is buy back debt at a discount. Another way to delever, and we've done it a number of times, including in Houston is through delevering M&A activity. So we've decided to keep our powder dry a little bit here to see what opportunities are going to present themselves in the near term. Operator: And there are no further questions at this time. I'd like to hand the call back over to Alfred Liggins. Alfred Liggins: Thank you very much, operator. And again, as always, Peter and I are available for calls afterwards e-mails or calls directed to us. Thank you for your support, and we'll talk to you next quarter. Operator: This concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the Helios Technologies Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tania Almond, Vice President of Investor Relations and Corporate Communications. Thank you. You may begin. Tania Almond: Thank you, operator, and good day, everyone. Welcome to the Helios Technologies Third Quarter 2025 Financial Results Conference Call. We issued a press release announcing our results yesterday afternoon. If you do not have that release, it is available on our website at hlio.com. You will also find the slides that will accompany our conversation today as well as our prepared remarks. Here with me today are Sean Bagan, President and Chief Executive Officer; Michael Connaway, our Chief Financial Officer; and Jeremy Evans, our Chief Accounting Officer. Please join us in welcoming Michael for his first earnings call with Helios. He joined the Helios' team just 3 weeks ago. Sean will start the call with highlights from the third quarter, then hand it over to Michael for a brief introduction. Jeremy will then review our third quarter financial results in detail. Sean will conclude our prepared remarks with expectations for the remainder of 2025. We will then open the call to your questions. If you turn to Slide 2, you will find our safe harbor statement. As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from those presented today. These risks and uncertainties and other factors can be found in our annual report on Form 10-K for 2024, along with upcoming 10-Q to be filed with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I'll also point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides. Please reference Slides 3 and 4 now. With that, it's my pleasure to turn the call over to Sean. Sean Bagan: Thanks, Tania, and welcome, everyone. We appreciate you joining us today. Our third quarter delivered positive measurable results, analogous to the current changing autumn season. Since I joined Helios 9 quarters ago, our business has persevered through various market down cycles. I am pleased to finally report that the third quarter was a harvest season for Helios as we returned to growth and delivered above 20% adjusted EBITDA margin. After planting strategic initiatives and weathering challenges, we're now seeing results in the same way that farmers do after spending months planting, nurturing and waiting, often through unpredictable weather before finally harvesting in the fall. Helios Technologies is evolving through restructuring, innovating and expanding and the core remains incredibly strong. Growth often requires visible change, and now the progress is coming through in our financial results. We believe the third quarter marks a turning point for Helios. We delivered a 13% sales increase with growth across all 3 of our regions and both business segments. This growth was driven by a strong performance from our Electronics business. In fact, it was a record quarter for Enovation Controls with strong demand returning in the recreational industry. That's not to discount the growth in hydraulics, which was achieved in what continues to be a soft marketplace. Our focus on our go-to-market strategy and accelerated pace of innovation is winning back customers and taking market share. Of note, over the last 5 months, our weekly average order volume has outperformed the same period in the last 3 years. Our customer centricity and high level of customer engagement is capturing new business wins and growing our sales funnel. Our new products across both segments have had great reception, where we have been showcasing them at major trade shows such as IBEX, Utility Expo, the Battery Show, iVT Expo, bauma ConExpo India, and the International Pool Spa Patio Expo. In addition to our customer-focused initiatives, our teams also dedicated time to strengthening our culture and giving back to the communities in which we work. We are doing this work with purpose as we strive to be the employer of choice in the communities we live. It is getting noticed with numerous external awards and accolades. Among other examples, we continued our annual sponsorship of the Clyde Nixon Business Leadership Award, named after a former Sun Hydraulics Chairman and CEO. This award is presented at the Sarasota County's Economic Development Corporation's Annual Meeting and honors the Sarasota County's business leader who exemplifies the personal integrity, business excellence and community commitment of the late Clyde Nixon. Additionally, during our recent Helios Leadership Summit, our team prepared books filled with inspirational messages for the children served by Easterseals Southwest Florida chapter. These servant leadership qualities go back to our founders, specifically Bob Koski's unique approach to his [ infamous ] horizontal management style and his philanthropic mindset. Moving to our results. As expected, our higher sales in the third quarter contributed to margin expansion. This shows through in our operating model when you look at the sequential sales step-up from 2Q'25 to 3Q'25 of $8 million and the associated incremental margins at the gross profit line all the way through to the adjusted EBITDA and earnings per share. We are continuing to invest in engineering resources to drive our future product pipeline and are upgrading production capabilities, which will have a productivity payoff in the future. We also continue to generate positive cash flow and reduce debt. After our ninth consecutive quarter of paying down debt, our net debt-to-adjusted EBITDA leverage ratio has improved to 2.4x. During the quarter, we closed the sale of Custom Fluidpower and recorded a gain of $21 million. We are excited to have CFP remain in the Sun family as a continued hydraulics distributor in Australia, under an exclusive distribution agreement for the region. This followed the action to close our HCEE operation and put engineering resources back into our core businesses, another example of our evaluation of the footprint realignment. This is a continuous focus as we evaluate how best we optimize our operations to serve our customers where we can command strong market positions. Also, as part of our ongoing portfolio evaluation, this quarter we wrote down $25.9 million of goodwill related to i3 product development, a company we acquired in May 2023. We have refocused i3PD engineers on projects aligned with Helios's core business and strategic goals, including the No Roads and Cygnus Reach software platforms, supported by a leadership change that has added more software sales expertise. We have reforecast sales for i3PD and adjusted our expectations for the rate of adoption of new software capabilities. Overall, for Helios, we remain focused on profitably growing the business, driving EBITDA margins back into the 20s and improving our return on invested capital. Our capital priorities remain to invest in organic growth, reduce debt, maintain our long dividend history and opportunistically repurchase shares. With continued margin expansion, we expect to lower our leverage ratio to around 2x by year-end with the fourth quarter cash flow generated from operations combined with utilizing the cash received on October 1st from the sale of CFP. As we continue to strengthen our balance sheet, we will have more optionality to make strategic investments as we advance into 2026. Finally, I would like to take this opportunity to welcome Michael Connaway as our new CFO. Our employees, partners and shareholders will find his insightfulness, strong grasp of finance and breadth of experience a nice addition for Helios. We now have our full leadership team in place to harness our collective energy and create the momentum to drive us forward. Let me turn the call over to Michael now to introduce himself. Michael Connaway: Thanks, Sean. These are certainly exciting times at Helios, and I'm very excited and honored to be here. I joined Helios because I see great potential for this business. I know that we have businesses that have strong cores with well-respected histories, great market positions with global brand recognition, deep customer relationships and quality products that serve critical needs within the applications they are used. With the progress under Sean's leadership, it is evident there is tremendous value that we can create going forward. I believe that my experience can be well applied here and look forward to contributing to company growth, driving cash and earnings improvements and helping the team create increasing shareholder value over time. With that, let me pass it over to Jeremy to cover the details of the solid third quarter results. Jeremy Evans: Thanks, Michael. It's great to have you join us, and good morning, everyone. As I review our third quarter results, please reference Slides 5 through 8. Sales in the quarter were $220 million, up 13% year-over-year and exceeding the top end of our guidance range, which was $215 million. This reflects strong performance in the Electronics segment, which grew 21%, while Hydraulics increased 9%. Encouragingly, we saw the mobile, recreational and agriculture markets turn green this quarter relative to year-over-year comparables. There were some orders from the fourth quarter that customers pulled forward, a contribution to the outperformance. Sequentially, sales were up 4% or $8 million as demand continued to improve across multiple end markets. Regionally, year-over-year sales increased double-digits across all 3 geographies. Sequentially, we had 10% growth in APAC and 6% growth in the Americas, offsetting the typical seasonal decline in EMEA, which was down 6%. Note, foreign exchange favorably impacted sales by $1.8 million compared with the year ago period. Gross profit increased 21% year-over-year to $73 million, with gross margin expanding 200 basis points to 33.1%, driven primarily by better capacity utilization from higher volumes, favorable mix and operational efficiency improvements, which more than offset tariff headwinds. Sequentially, gross margin improved 130 basis points, reflecting incremental leverage from higher volume, primarily in the Electronics segment. We continue to look for ways to improve gross margin through efficiency and capacity utilization while focusing on our core business. Our initiatives to restructure HCEE, leverage our low-cost Tijuana facility, divest CFP and refocus i3PD resources, are examples of decisions taken in the past year. Operating income was down in the quarter compared to the prior year, primarily due to goodwill impairment related to i3PD. The CFP divestiture gained mostly offset the goodwill charge. On an adjusted basis, operating margin came in at 16.6%, the third quarter in a row of expansion, while adjusted EBITDA margin declined 40 basis points year-over-year. Last year's operating profit had a $5.5 million benefit due to stock compensation reversal from the CEO termination. Our effective tax rate in the third quarter was 19.8% compared with 14.2% in the year ago period, reflecting the mix of business and applicable statutory tax rates and the impact of both the goodwill impairment charge and the gain on the sale of CFP. The 2024 period included an overall increase in discrete tax benefits driven by the CEO termination in July of 2024. Diluted EPS was $0.31 in the quarter, down 9% over last year. Diluted non-GAAP EPS was $0.72 in the quarter, up 22% over last year, primarily from the sales growth and business improvements we have discussed. The sequential increase demonstrates the strong operating leverage of the business. Turning to Slide 9. Hydraulics delivered 9% higher sales year-over-year, supported by improving demand from our customers in the mobile end market and early signs of improvement in agriculture. Foreign exchange had a favorable $1.8 million impact on the segment compared with the prior year period. Hydraulics gross profit and gross margin grew year-over-year 12% and 90 basis points, respectively, supported by operational efficiencies from improving lead times and continued volume strength at Faster. SEA expenses were up $5 million or 30% over the prior year period, mainly due to the $3.7 million reversal of unvested stock compensation in connection with the CEO termination in July 2024, in addition to higher wages and benefits reflecting investments made in our core operations. Moving to Slide 10. Electronics sales grew 21% year-over-year, driven by record performance in innovation. We saw growth from our customers in the recreational, mobile and industrial end markets, while our demand in the health and wellness market was relatively flat. Gross profit and gross margin expanded 38% and 420 basis points, respectively, from the prior year, primarily due to higher volumes and more favorable mix. Operating income of negative $13.7 million reflects the i3PD goodwill impairment. Prior to the goodwill impairment charge, operating income as a percentage of sales increased to 15.3%, up 490 basis points compared to the prior year period due to the higher gross margin and lower SEA expenses as a percentage of sales. The prior year period included a $1.8 million reversal of unvested stock compensation in connection with the CEO termination. Slide 11 shows the trailing 12-month free cash flow conversion rate of 223%. We generated $18.5 million in free cash flow during the quarter, down from $28.8 million in the prior year. This quarter's cash from operations was impacted by an increased accounts receivable balance as a result of the higher sales. CapEx of $6.7 million or 3% of sales was consistent with our focus on maintenance and productivity enhancements that deliver clear and measurable returns on investment. Turning to Slide 12. At the end of the third quarter, cash and equivalents were $55 million, which did not include all of the proceeds from the sale of CFP, and we had $360 million available on our revolving lines of credit. Our balance sheet is strong and provides us with great flexibility. With that, I will now turn the call back over to Sean. Sean Bagan: Thanks, Jeremy. Turning to Slides 13 and 14. We have met our commitments over the last 8 consecutive quarters as we have instilled a stronger financial discipline and processes for accountability and predictability. We have also outperformed our expectations for the first 9 months of this fiscal year while navigating the tariff landscape and expect to end 2025 well-positioned for further growth carrying into 2026. As we mentioned last quarter, we expected an acceleration from recreational customers based on our order book and other market factors such as improved channel inventories. With mobile also starting to show positive indicators, the broader macro and customer sentiment is turning upward. Key industrial indicators are stabilizing and early cycle demand patterns are improving, signals that support the beginning of an up cycle across some of our end markets. At the same time, Helios's own self-help initiatives are taking hold. We've strengthened our operating discipline, streamlined our portfolio and invested in capabilities that expand our addressable markets. Building on 2 years of disciplined strategic planning and execution, we are well-positioned to capture the next phase of growth with greater agility and profitability with our streamlined operations. We expect fourth quarter sales to be in the range of $192 million to $202 million, up 10% over the prior year period at the midpoint of the range. This would be a 20% growth rate at the midpoint, adjusting for $15.6 million in CFP sales in the prior year comparable period. For the full year, sales at the midpoint of the guidance, adjusting for CFP, would be 4% growth over fiscal 2024. We expect fourth quarter adjusted EBITDA margin to be in the range of 20% to 21%, keeping us at the 20% plus level. For the full year, we expect adjusted EBITDA margin to be in the range of 19.1% to 19.4%, with the midpoint about 25 basis points above the midpoint of our original guidance range from February this year. We expect fourth quarter diluted non-GAAP earnings per share to be in the range of $0.67 to $0.74, which more than doubles over last year at the midpoint. For the full year, we expect diluted non-GAAP EPS of $2.43 to $2.50, with the midpoint 12% above the high end of our original guidance from February. We entered the year with a clear plan and stronger discipline. And today we're operating with greater precision, accountability and focus, defining a new standard for Helios, one we intend to keep refining and elevating with every step forward. I am incredibly proud of the progress made this year by the Helios team, and we are committed to capitalizing on our momentum as we continue to stack up wins. Turning to Slide 15 to 17. We remain focused on organic growth driven by innovation. The team has done a great job launching new products this year that provide incremental sales streams and allow us to attack adjacent markets. Our focus on investing in R&D and innovation through the down cycle has positioned us well for when the cycle starts to turn. As you look at both our financial priorities as well as our key focus areas we established for the year, I am pleased with how we are performing. We returned to growth this quarter and expect to end the year with sales above 2024 levels with improved margins, a lower cash conversion cycle and reduced debt, laying a strong foundation for 2026. We are targeting to host our next Investor Day on the morning of March 20, 2026, in Sarasota, Florida. There will be more information provided as we get closer to the event. As I conclude our prepared remarks, I want to revisit what I shared on last quarter's call, our renewed energy and determination to deliver a strong comeback in the second half of the year. Today, I'm proud to say we are doing just that. Our execution and progress reflect the unwavering dedication of every Helios employee around the world. We are fortunate to have an extraordinary group of companies within the Helios family, many celebrating their own remarkable milestones alongside our founding company, Sun Hydraulics, as it marks its 55th anniversary in 2025. As we honor that legacy, our focus remains squarely on the future, driving innovation, serving our customers with excellence and creating lasting value for our shareholders. The actions we're taking today are designed to strengthen our foundation and amplify our momentum. I'm more confident than ever in my belief that the future is very bright for Helios. Thank you for being part of today's call and for your ongoing engagement with and support of Helios Technologies. With that, let's open the line for Q&A, please. Operator: [Operator Instructions] Our first question comes from the line of Chris Moore with CJS Securities. Christopher Moore: Congrats on a nice quarter and the momentum. Maybe just talk about -- provide a little color on some of your recent commercial wins, how much visibility that gives you into '26? Sean Bagan: Chris, thanks. I appreciate the kind words. And, yes, as you know, when we entered this year, we prioritized our go-to-market as our top initiative. We were coming off -- well, we are now coming off 12 quarters of sales decline. So it feels really good to put up a green number of positive growth and certainly would attribute that to our refocus on go-to-market. We really started with standing up new sales processes, reporting and most importantly, with the team across all of our businesses. And I certainly can give a few recent examples as we're seeing that. But ultimately, the success is going to be judged by our sales and order levels, which we have some really solid metrics that we'll share throughout the Q&A session here. So, across kind of all 4 businesses, we like to talk about them. A perfect example, recent win is with our Faster team. As you know, we're proud to celebrate our 55th anniversary here at Sun Hydraulics, but Faster actually will be celebrating their 75th anniversary next year and speaks to the deep, long customer relationships they have. And deep into the AG industry, AGCO is a long-term customer of ours. And a recent nice win for the Faster team that will start to stack in 2026, where our customer across kind of their 3 European brands, Fendt, Valtra and Massey Ferguson, decided to really commonize the back end of the hydraulic attachments. And so they chose us for our performance quality and price, frankly, of our coupling. So that's just an example, but there's many of that within the Faster team. The Sun team is really all about distribution and partnering with our long-term distributors and just stacking up wins, as I like to say, within the organization, whether recent wins in the wind power, alternative energy, AWP earthmoving, a leading OEM there through one of our distributors, the light compact construction equipment leader, specialized AG harvesting equipment. These are all small wins that are stacking and adding up. And then you go over to the Electronics segment and just at the International Pool Patio Spa Show in Vegas last week and a great win-back example, one of the higher premium hot tub spa brands, Bullfrog is a customer win back, and they had one of our displays on display at the show that we're very excited to win some of that business back. And then as I highlighted in our prepared remarks, Enovation had a record quarter. They are on the gas and driving innovation and growth for us across all of Helios. I would like to speak to one win that we've had recently that we haven't been able to announce yet, but it's in a new space, and it shows our ability to really target through our go-to-market approach, these adjacent opportunities. So this is in the neighborhood electric vehicle space. That will take some time to ramp and grow as we displace [ their ] competitor, but it shows, again, our focus on go-to-market, very targeted on where we're searching. And I couldn't be more prouder of what the Enovation team has done. I would put off our engineers against any of our competitors, whether that's software, mechanical application, that's allowing us to go get these win backs and is key to supporting our product strategy. Christopher Moore: Wow, good stuff. I appreciate that. Maybe just my follow-up. Obviously, margin progression is happening here. Fiscal '21 was an unusual year driven by Balboa. Adjusted EBITDA was 24.6%. What would it take over the next 2 or 3 years to get back to that level? Sean Bagan: Yes. I'm glad you highlighted Balboa because I've highlighted that before that, that was about double what it currently is in terms of its revenue size during that year. And given that low-cost manufacturing, that was very accretive from an overall Helios mix perspective. But in addition, we were coming off also highs with innovation in the recreational products when everyone was buying outdoor equipment at that time. So I think what we're showing now is the demonstration of the operating leverage we have embedded within our business. And whether you look at kind of sequential step-ups or year-over-year, we showed a 200 basis points improvement in our gross profit margins here in the third quarter. But even sequentially, you look every quarter this year up. So it's going to come down to volume, and we highlight that, and I will tie that back to why it's so important that we go create growth in this go-to-market. It's no secret the markets we're operating in are not healthy. They're still recovering. Now we're seeing signs of growth, but really in order to get that EBITDA margin back into those mid-20s, we need more volume. The other piece that I would highlight there is we've been very focused on the rest of the value drivers within the company. And certainly, the operating expense of the company has been very well managed. We did want to continue to call out that last year and the compare has about a $5.5 million pickup that was due to the prior CEO's termination. But absent that, we've managed our costs below 2024 levels, and we're growing our sales. So on a year-to-date basis, we're up. So you can see the operating expense leverage we're also getting out of the business. Christopher Moore: Very helpful, Sean. I'll jump back in line. Operator: Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe just start on recreational vehicle. That seems like a market, maybe you touched on it, [ truck ] markets are still choppy. But is that -- what you're seeing, destocking ending? Is there a program win share gains? Or is there a real kind of demand recovery there? And maybe same for mobile, which again, seems pretty choppy, but you're kind of pointing the green arrow? Sean Bagan: Yes. So starting with the recreational. We have -- what we've seen is the market has -- from a retail perspective has not rebounded. But what has changed is that the dealer channel inventory levels are in a much healthier spot. Our largest customer has been on the gas from an innovation perspective and has taken a lot of share, and we've benefited from that. And honestly, the other piece here is with interest rates, and I've talked about this on prior calls, that this is an industry where a lot of that product is financed. And with the lowering of interest rate environment, that certainly could help. When we look at it just in North America, I mean, even Canada is outperforming the U.S. from that perspective because their benchmark rates about 2.25% that they just reduced [ too ] in October. While our U.S. Fed is still in that 3.75% to 4% targeted range, but came down. And so I expect that to likely help. But when you look at those channel inventory levels, they're absolutely in a much healthier space. The non-currents are finally clearing through with the OEMs running their factory authorized clearance and types of things to pull that through. And dealer sentiment then gets a little bit better there. I don't expect dealers are going to go restock back up to prior levels, and that's not a bad thing. Leaner inventories and healthier turns are good for that industry. And finally, I would say, our largest customer is -- has very steady optimism that I frankly see it grounded in realism and the worst of the channel cleanups are behind us. And so, that gives us confidence. And then secondly, yes, we are on the gas from a go-to-market perspective. Looking for new wins. I highlighted the NEB, one. And I would tell you, we're looking at others within that space, whether that's both with just the off-road type vehicles or marine, which is really excited about our No Roads application that we have now launched the No Roads Marine, and we expect that to help us get some new wins there in that segment as well. Jeffrey Hammond: Okay. Great. So appreciate -- the CFP looks like a good divestiture and done i3 moves, I think we understand. Any more portfolio reshaping you think needs to happen from here? Or is this kind of where we're set? And then you mentioned as you get leverage down, you want to -- it should allow you to lean in on strategic investments. And I'm just wondering maybe how you're thinking the same or differently than the prior management team about M&A? Sean Bagan: Yes, Jeff. So I would say from a portfolio perspective, nothing else imminent. I would say, for me, this is just standard work that we're always evaluating the portfolio and the performances of the different businesses. But at this point, we're strongly committed to all of our businesses. It's no secret that our Balboa business has deteriorated from those COVID highs that certainly weren't sustainable. But we feel really good about the trajectory of that business and have a multipronged approach plan to improve their profitability as that volume returns. Coming off of that recent show that I referenced in Vegas, we demonstrated in a kind of a side room. So we had our typical booth, but we had a side room where we brought in all our key OEM customers to really show them our vision for our product pipeline. And I will tell you that we have more product coming in the next 18 months than we have launched in the last 10 years, and we've started some of that. Purezone is one example. So, we're excited and believe that the existing portfolio is strong, but we're always going to evaluate that. Jeremy Evans: Yes. And this is Jeremy. I'll touch on the M&A question. As we've said in prior calls, our focus has been on paying down debt. Our leverage ratio is down to 2.4x at the end of Q3. We think we could get that around 2 by the end of the year. And when you look at our cash flow -- free cash flow last 12 months, very high, near record high cash flow. So we do expect as we get into 2026 that we will have maybe a different priority around capital allocation. But as we said on prior call, M&A is not going to be driven at the corporate level. It needs to make sense with what we have down in our operating segments, and it needs to get the right return. So we will obviously be aware, be looking. If there's an opportunistic opportunity, for sure, we'll look at it. But it's got to make sense. It's got to fit the portfolio, and it's got to have the right return. Operator: Our next question comes from the line of Mircea Dobre with Baird. Joseph Grabowski: This is Joe Grabowski on for Mircea this morning. Welcome aboard, Michael. Michael Connaway: Thankyou. Joseph Grabowski: Okay. So I guess I'd start in Electronics, and I know we've talked about it already, but the sales there were the strongest in the last 3 years, as you mentioned, Enovation Controls had a record quarter. Maybe just talk about any unusual items in the quarter, any perhaps pull forwards into the quarter? And then I know there's seasonality, but how do you kind of think about the sequential sales progression in Electronics from Q3 into Q4? Sean Bagan: Yes. So Joe, on the Electronics performance in the third quarter, we had in our prepared remarks, there was a little bit of pull-through from the fourth quarter, and that really was concentrated to that -- to the Electronics segment, and it was more in that recreational marine space. I think absent that $3 million, we were just above the top end of our guide by about a point once you take that $3 million out. And when you look at the Hydraulics segment, although I understand your question is electronics related, it was a very similar trend. We're about a point above our top end of our guide with some things hitting a little bit more favorably across both segments. Michael Connaway: Just the numerics quick on that one, on the sequential. So you kind of alluded to some of the sales pull-ins. But off of that $79 million number in Q3, call it, $3 million or $4 million on sales pull-ins driven by customer ordering patterns. And then if you look at Q4 at the mid on Electronics, which is [ $73 million ], you would kind of add that back and you get a flat sequential on electronics. But embedded within that flat sequential is 2 quarters in a row of 20% plus year-over-year view. So the Electronics segment, in particular, Enovation is continuing to show really good sales progression. Joseph Grabowski: Great. Okay. Great. That's very helpful. And then maybe my follow-up, switching to Hydraulics. I thought it was interesting that you highlighted that AG was up for the first time in 6 quarters. Maybe kind of talk about where the growth is coming from there and maybe any geographical strength in AG for Hydraulics? Sean Bagan: Yes. The AG strength comes from our Faster business, which is predominantly direct to OEM and AG is their -- largest market they serve. I'll acknowledge that the OEMs are not putting up really strong numbers for our large customers, whether that's Deere and AGCO or CNH, but even as you get into some of the European and Chinese OEMs or some of the kind of in between construction and AG and you think Kubota's and getting into hardcore construction with Caterpillar. Now they had a more upbeat recent earnings release. But the rest of the AG is challenged, but that dynamic I shared on recreational products is exactly what is we've seen playing out in AG as well, where retail demand actually in the U.S. finally put up a positive number here last month in terms of registrations. But that's coming off 4 years of declines in registrations. And so the comps are easier. But what has changed is the dealer inventory and channel levels are at much healthier spots. And so we look at where kind of indications are signaling for 2026, all of the OEMs are suggesting things may begin to recover. But what we clearly see is in our incoming orders and indicative orders from them year-over-year, that's a positive increase as we're going to feel that earlier as a supplier into them. So we're optimistic that's 2 quarters in a row for our Faster team that has grown year-over-year and continue to expect that to trend favorably in the fourth quarter and as we enter 2026. Operator: [Operator Instructions] Our next question comes from the line of Nathan Jones with Stifel. Nathan Jones: I'll follow up on some of these destocking questions because I think it's -- I mean, it's probably an important distinction to make because we get questions about this from investors on Helios. You guys don't actually need to see the John Deeres and the Caterpillars of the world selling more wheel loaders and tractors in order to see revenue growth for Helios in 2026. What you need is the first signal of the bottom of the cycle, which is then stopping destocking inventory and actually producing more machines even if they're not actually selling more machines, correct? Sean Bagan: That's fair. Yes. Nathan Jones: And so -- and that's what you're seeing in the market. You've talked about -- I think I just want to make it clear for people in recreation and mobile and in AG, that's the kind of market dynamics that you're seeing, which is indicative of a bottoming cycle for you guys to begin with, yes? Sean Bagan: Yes, I would agree. The only caveat I'm going to put, because we talked deeply already about recreational and AG, when you go over to more of the end markets that Sun is exposed to area work platforms, type of -- there's big macro signs, obviously, with PMI that's been mixed. But geographically, it had been stronger in China and Asia, and we've seen that in our sales as well. But beyond that, it's the piece of us and our partnering from a go-to-market with our distributors to do that targeted account planning. And you look at industrial production and the Big, Beautiful Bill and what that will create in terms of infrastructure, we feel well-positioned despite that our NFPA data telling us these markets have been down. And so with us now growing, we think we're taking share, but you're absolutely right on the AG and rec. Nathan Jones: So I think then -- I mean, you talked about being well-positioned for growth in 2026 and without needing to forecast what Caterpillar sales are going to be or what Deere sales are going to be, you should have some decent visibility to growth just against the destocking comps that you had in '25. So I'm wondering if you're prepared to offer any color on what you're thinking about 2026 at this point? Sean Bagan: Yes. So not in terms of full guidance and such, but I feel with conviction that we will enter the year in 2026 with growth. Now I will also highlight that we will have easier comps in the first half of the year than the second half as we enter 2026. But why I have conviction is what we're seeing in our demand trends. We haven't seen the level of order increases for multiple years. And even October came in, in double-digits just as the prior 5 months had done from a year-over-year perspective. The other thing I want to make sure is clear is that CFP revenues coming out, that was a roughly $60 million a year business. Last year in the fourth quarter, it was $15.6 million. So we just got to keep that in mind that we're not anchoring on 2025 guidance at the midpoint of $825 million and growth off of that. Our really jumping off point is closer to $780 million. Nathan Jones: Yes, I think we're organic. You should get a little bit of a tailwind from -- to gross margins from the CFP divestiture, yes? Sean Bagan: Correct. Yes. particularly -- well, obviously, that's in our Hydraulics segment. So it will be more visible there. But certainly, at the Helios level, it helps as well. Operator: Our next question comes from the line of John Braatz with Kansas City Capital. Jon Braatz: Sean, you took the charge-off on i3 this quarter. What are you doing specifically to turn that operation around and get it to make a contribution to the bottom line? What kind of changes are you making there? Jeremy Evans: John, this is Jeremy. I'll field that one. I want to first highlight that with that acquisition, we gained access to a team of highly talented engineers. And as we've been integrating them into the rest of the Helios portfolio, we've actually been consulting with them and having them help with some of the new product innovations that we've been coming out with, and others that we have in the pipeline. And as we evaluated that, we believe it makes a lot more sense to have those resources focus on projects that can benefit the broader Helios portfolio. And so, just to remind everyone, they were a third-party engineering design service firm that basically work project by project. We didn't retain any of the IEP for those projects. And then we also had some software, that's where that Cygnus Reach platform came. And we just think it's not a turnaround play, but it makes much more sense to refocus those resources on customers and projects that will benefit the broader Helios portfolio. So that's the main reason. The other piece I would say is rather than try to sell the software platforms on a stand-alone basis, which requires a lot of customization kind of a long runway, we want to embed that software onto the products that we are launching. And we are doing that with some of the next-generation displays, both in our electronics and then also having them help out on the hydraulics side as well. So it's really less of a turnaround situation and more of leveraging those resources as to best add value to the broader Helios portfolio. But as a result of that, some of that third-party revenue projections, we've dialed that back as well as we've adjusted the, call it, the adoption rate on the software where it's going to be tied now into some of those product releases. And so, a result of that math came out and we said we can't support the goodwill that we had on the balance sheet for that under the new strategy. And that's really what led to the write-off this quarter. Sean Bagan: And John, if I can just accentuate because Jeremy explained that really well. But at the end of the day, this is just an example of overpaying for an acquisition that was pre-revenue and didn't scale. And at the end of the day, then it's a mathematical equation based upon current business circumstances. But that said, I want to reiterate how important that the i3 team is to our overall strategy. We acquired, as Jeremy said, some very talented engineers that have been cornerstones in some of the new products we've announced already and released recently, but also further stuff in the pipeline. And at the end of the day, I couldn't be more proud of those engineers and the way they are pumping out products and our sales teams now with our go-to-market approach are kicking down doors. Our customer excitement is very high. And in this fierce competitive world, our Helios team doesn't back down and we take on these challenges, and we love being the underdog. Jon Braatz: Okay. Sean, I'm looking forward at the new product pipeline. Obviously, in the past, there was some emphasis placed on big OEM wins that would be quite sizable. When you look at the lineup, are there any singular new products that really move the needle? Or are they sort of one-off in isolation? Sean Bagan: Well, that's the plan is to always launch products that catch the attention of OEMs and they want to buy them. But we, at the end of the day, are truly an extension of many of those OEM customers of ours. So we are designing and developing products years in advance with them. But even the most recent one we announced, the new multi-Faster from Faster. And just a reminder, I mean, that is a piece of equipment that goes on mini-AG and construction vehicles to allow the operator to quickly attach and detach hydraulic applications. And at the end of the day, I'd like to highlight that multi-Faster is kind of a term in the industry that others have copied and tried to compete with us. But with our new multi-Faster, we bring out features like higher flow rates and more applications that it can go on or different deviations of that product, like earlier in the year, the multi-slide that went downstream in the market to the compact excavation equipment and such. And so, we're always trying to innovate. But at the end of the day, the multi-Faster is the multi-connection that others have copied. I would say it's like the Kleenex. It's created its own brand that others have copied. Operator: We have no further questions at this time. I'd like to turn the floor back over to management for closing comments. Tania Almond: Great. Thank you very much, everyone, for joining us today. We will be attending some different conferences between now and the end of the year, both in person and virtually. So we look forward to catching up with you in person. If you have any follow-up questions, feel free to reach out to me directly. Thank you, and have a great day. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Operator: " Kyle Turlington: " John Turner: " Blake McCarthy: " Ben Brigham: " James Rollyson: " Raymond James & Associates, Inc., Research Division Derek Podhaizer: " Piper Sandler & Co., Research Division Tim Ondrak: " Stephen Gengaro: " Stifel, Nicolaus & Company, Incorporated, Research Division Doug Becker: " Capital One Securities, Inc., Research Division Keith MacKey: " RBC Capital Markets, Research Division Sean Mitchell: " Daniel Energy Partners, LLC Edward Kim: " Barclays Bank PLC, Research Division Bud Brigham: " Lee Cooperman: " Omega Family Office Operator: Greetings, and welcome to the Atlas Energy Solutions Third Quarter 2025 Financial and Operational Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Kyle Turlington. Please go ahead. Kyle Turlington: Hello, and welcome to the Atlas Energy Solutions Conference Call and Webcast for the Third Quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, Executive Vice President and CFO; and Bud Brigham, Executive Chair. We will be sharing their comments on the company's operational and financial performance for the third quarter of 2025, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in the annual report on Form 10-K we filed with the SEC on February 25, 2025, our quarterly reports on Form 10-Q for the first quarter and second quarter, our other quarterly reports on Form 10-Q, and current reports on Form 8-K, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as adjusted EBITDA, adjusted free cash flow, and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I will turn the call over to John Turner. John Turner: Thank you, Kyle. Before we begin our prepared remarks, I'd like to extend our deepest condolences to David Smith's family and our friends at Pickering Energy Partners. Dave was more than a respected analyst. He was a true friend. His kindness, humor, and generosity touched everyone fortunate enough to know him. We are deeply saddened by his loss. Godspeed, David. For the quarter, Atlas generated $40.2 million of adjusted EBITDA on $260 million of revenue, delivering a 15% adjusted EBITDA margin. Despite an exceptionally weak West Texas completions market, we generated meaningful adjusted free cash flow, a clear statement of the strength of our competitive moat with our cost-advantaged mines and integrated logistics network. Our third-quarter volumes came in at 5.25 million tons, a slight sequential decline from the second quarter, but a significant deviation from our expectations, which were based on completion schedules communicated to us by our customers. As more of our customers shift to fixed percentage contracts, we're increasingly dependent on tight alignment and transparency with their plans. During the quarter, several key customers made the tough but prudent call to slow or pause completion activity into 2026 to preserve 2025 capital budgets. We expect fourth-quarter volumes to step down again sequentially due to typical seasonality and a continuation of customer intention to slow capital spend on completions, thus pushing those expected volumes into 2026. However, encouragingly, we have seen some customers who paused all completions activity earlier in the year resume operations in October. Our current estimate for our fourth quarter sand volumes is approximately 4.8 million tons, which we forecast to be our low point during the cycle. Customers have already begun communicating their early 2026 plans, which imply improving volumes early in the calendar. OpEx per ton, including royalties, rose to $13.52, driven primarily by challenges with the dredge feed and wet shed at Kermit. These issues triggered elevated third-party service costs and downtime that inflated Kermit's operating costs, particularly in September. While we continue to deal with these issues in October, the plant is returning to a more normal state of operations, and we expect these cost pressures to ease as the quarter progresses. Importantly, we remain on track to take delivery and commission 2 new dredges early in the second quarter of 2026, which we expect to unlock significant capacity and cost efficiencies. Our logistics business delivered 5.3 million tons, a modest decline from the second quarter. The well-documented slowdown in Permian completions activity has driven trucking rates to below even COVID-era levels. We're actively optimizing costs and efficiencies, but we're also intentionally carrying some extra capacity into the fourth quarter to ensure that we're ready to meet anticipated 2026 demand. The Permian frac crew count, which averaged more than 90 in 2024 and peaked at approximately 95 in March of this year, dropped to around 80 crews entering the third quarter and has likely declined further in the fourth quarter. With WTI prices trading around $60 and a little incentive for operators to ramp activity, we remain cautious about a broad recovery in early 2026. But we are increasingly optimistic about our progress in gaining market share through this downturn. That's why owning the lowest cost to produce sand reserves, pairing them with an extensive logistics network, and amplifying it with the Dune Express was central to the strategy. Downturns are where you grind out the hard yards; up cycles are where you reap the rewards. That's the oil and gas business, and specifically oilfield services for you. So we're focused on what we can control. We have launched a company-wide initiative to maximize efficiencies with an initial target of $20 million in annual cost savings. Using our scale and cost advantage, we're attacking the market while competitors pull back. While we will have a more concrete grasp of total wides in the coming weeks, we are well-positioned for our core plants to be highly utilized in 2026, and we are growing more confident by the day that the Dune Express will exceed 10 million tons next year, a major ramp from 2025. Atlas has now achieved scale in the sand and logistics business, where additional investments currently yield more risk due to the inherent cyclicality of the oil and gas industry. It has been a tough oil and gas market in the Permian, and incremental growth investments in sand and logistics are not currently justified by the returns available in this pricing environment. 9 months ago, we entered the power business on the thesis that the tailwinds were very broad, deep, and durable. Today, that thesis has proven true, well beyond our original expectations. The world turns to the oil and gas industry to solve complex energy problems in times of turmoil. Now it's turning into firms with oilfield DNA to close the massive gap in power generation. Electrification, the resurgence of domestic manufacturing, and now the explosive power demands of AI and computing have turned a capacity-constrained grid into a crisis. For years, power was a line item, often an afterthought. Today, it's the most critical assumption in any growth model. Relying on the grid now carries unacceptable risk of delays, cost escalation, or outright failure. For large capital projects, dedicated behind-the-meter power is quickly becoming a must-have. When we entered the power space, we saw this trend coming. Our legacy business generates strong through-cycle cash flows, but it's volatile. Power offers decades-plus contracts uncorrelated to oilfield swings, delivering a level of stability and sustainability that fundamentally changes Atlas' cash flow profile. The Moser acquisition wasn't about additional EBITDA. It was about the addition of a base platform on which to build and grow this business. We've since added significant industry talent and expertise from outside oil and gas, and it's paying off fast. Our opportunity pipeline is now approaching 2 gigawatts in potential projects, and we're in active commercial dialogue for large load, long-term power solutions. These are customers looking for fully integrated permanent power solutions to power their own significant investments, which are otherwise at risk due to the lack of access to reliable grid power. Atlas is ready to be their solution. We are targeting having more than 400 megawatts deployed across our power business by early 2027, with the majority under long-term contracts. In order to achieve this target and indicative of our growing confidence in the pace of negotiations, we have placed an order for more than 240 megawatts of new, more power generation assets with a blue-chip equipment provider. Meanwhile, our legacy motor fleet, while not high-density, excels at delivering flexible near-term bridge power. In a market starving for generation assets, this capability opens doors. It lets us solve immediate pain points, builds trust, and pivots the conversations to permanent contracted power, exactly what the market demands and what we're built to deliver. We have been relatively quiet about the evolution of our power platform for the past several quarters, but the combination of the major platform, the talent we have brought into the organization, the strong macro tailwinds and our opportunity set becoming more concrete has made it apparent this transformation is changing the complexion of Atlas at a pace that is gaining speed faster than we imagined. This brings me to the subject of the dividend. As announced last night, we have made the difficult but necessary decision to temporarily suspend the dividend. Returning capital to shareholders has always been a core part of Atlas' DNA. Management is fully aligned with investors. But our mandate is to maximize long-term value creation for Atlas shareholders. That means protecting our balance sheet and optimizing growth above all else. While Atlas's base business continues to generate cash in what we believe is our cyclical low for our sand and logistics business, our current level of profitability does not cover the entirety of the dividend. Additionally, and importantly, the opportunities being presented in the power market are potentially game-changing for Atlas, but they do require capital. The size of the dividend represents a potential roadblock to our ability to pursue these opportunities and secure optimal financing. The project should bring stable, financeable cash flows and high-quality counterparties, enhancing our ability to resume and sustain shareholder returns, and maximizing long-term value creation for our shareholders is management's core mission. Importantly, we chose the word suspension deliberately. We expect this pause and return of capital to be temporary. The steps we are taking today are making Atlas stronger, not just to survive through the cycles, but to power through them. I'll turn the call over to our CFO, Blake McCarthy. Blake McCarthy: Thanks, John. In Q3 2025, Atlas generated revenues of $259.6 million and adjusted EBITDA of $40.2 million, a 15% margin. EBITDA fell more than forecast due to the aforementioned fall in customer demand, elevated operating expenses at our Kermit facility, and margin pressure in our logistics business. OpEx per ton, including royalties, was $13.52 and higher than anticipated. Cash SG&A was elevated during the quarter due to litigation expenses. Excluding litigation expense, cash SG&A was in line. We expect fourth quarter volumes to decline sequentially to approximately 4.8 million tons. While we do expect some degree of seasonality during the quarter, it will be partially offset by new customer additions and a resumption of completion activity from current customers. Our average proppant sales price is expected to be slightly under $20 per ton for the fourth quarter. OpEx per ton is expected to be up slightly from third-quarter levels due to lower sequential volumes and the elevated expenses related to resolving the wet shed issues at Kermit. OpEx per ton is expected to normalize in the first quarter of 2026 due to an increase in scheduled customer volumes and a return to more normal operations at Kermit, with further improvement expected in the second quarter with the commissioning of the new dredges. Logistics margins are expected to decline sequentially with seasonality and planned customer crew rings. We expect our power business to be up slightly, driven by increased unit deployments. Breaking down revenue for the third quarter, profit sales totaled $106.8 million, logistics contributed $135.7 million, and power rentals added $17.1 million. Proppant volumes were 5.25 million tons, slightly lower than the second quarter. Average revenue per ton was $20.34. We did not record any shortfall in revenue this quarter. Total cost of sales, excluding DD&A, was $195.2 million, comprised of $66.3 million in plant operating costs, $117.8 million in service costs, $6.4 million in rental costs, and $4.7 million in royalties. Cash SG&A for the quarter was $25.5 million, which included cash transaction expenses and other nonrecurring items of $1.3 million. SG&A is expected to remain around third-quarter levels due to the aforementioned litigation expenses. DD&A was $40.6 million. Net loss was $23.7 million, and net loss per share was $0.19. Adjusted free cash flow, defined as adjusted EBITDA less maintenance CapEx, was $22 million or 8% of revenue. Total accrued CapEx during the third quarter was $30.5 million, consisting of $12.3 million in growth CapEx and $18.2 million in maintenance CapEx, bringing total accrued CapEx for the first 9 months to approximately $100.1 million. We continue to budget $115 million of total CapEx for 2025. Fourth quarter adjusted EBITDA is expected to be down sequentially, driven primarily by lower sales volumes and logistics margins related to end-of-year seasonality. Before I hand the call over to Ben, I'd like to give a little detail on our efficiency initiative and the goals we have set internally and expect to hold ourselves to for investors. As John mentioned, Atlas's core strategy is based around being the most efficient supplier of sand and logistics in the Permian Basin, and having our overall cost structure optimized is key to the execution of that strategy. Thus, we have set a near-term cost savings target of $20 million annualized for the organization. These savings are expected to be realized through rightsizing of our corporate G&A, the fixed cost structure of our operations, and a heightened focus on procurement savings. We expect to begin realizing some of these savings as early as this quarter, with the full impact flowing through our financials by mid-2026. This is simply good corporate hygiene and necessary following 3 successful acquisitions since the beginning of 2024. Atlas is designed to generate cash through the cycle, and exercises like this ensure that we will maximize cash flow generation through the cycle. I'll now turn the call over to our Executive Chairman, Ben Brigham, for some closing remarks. Ben Brigham: Thank you, Blake. While our operations are logistically located in the field, our corporate headquarters are right here in Austin, Texas, home to Circuit of the Americas, where the U.S. Formula 1 Grand Prix debuted in 2012. Just over a decade ago, in 2014, F1 went hybrid, introducing a revolutionary dual power architecture that paired the traditional engine with advanced energy recovery systems. The impact was profound. Last time fell by 3 to 5 seconds, a monumental gain in a sport decided by 10 of a second. With dual power sources, F1 became faster, more efficient, and more sustainable than ever, fueling record profitability, global viewership, and enduring relevance. That's the perfect metaphor for Atlas today. We've gone hybrid. With the acquisition of Moser Energy Systems, we've layered a stable, high-growth power generation platform on top of our industry-leading oilfield foundation. This isn't mere diversification. It's strategic synergy engineered to: one, smooth volatility in oil and gas cycles; two, accelerate growth in high-demand, high-margin power markets; and three, deliver predictable, resilient cash flows for shareholders. The tailwinds are unlike anything I've seen in my career. We now see the convergence of explosive growth in AI infrastructure, advanced manufacturing, grid reliability, and next-generation energy systems. Markets where distributed, efficient, always-on power is mission-critical. Regarding our core proppant and logistics business, we estimate our Permian market share has grown during this down cycle to about 35%, and early RFP season signals suggest it will grow further next year. That's a direct result of our unmatched advantages and performance. As Blake and John noted, a key driver will be a meaningful ramp in Dune Express utilization beginning in 2026. Finally, on the dividend. I don't take this decision lightly. Dividends are a vital signal of value creation and transparency. However, to optimize capital allocation and maximize long-term shareholder value, especially given the transformative opportunities in power, a temporary suspension is the right move. And as one of the largest shareholders and your Executive Chairman, returning capital to owners remains a top priority. This is a strategic pause, not a retreat. That concludes our prepared remarks for the third quarter. I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] And our first question will come from Jim Rollyson with Raymond James. James Rollyson: I don't know if it's John or Bud, but you guys have obviously historically been quiet on the power business. And obviously, that changed with your release last night. And plan to deploy more than 400 megawatts in a new strategic order. Can you maybe just back up and spend a minute on how your thought process has changed? What's your updated power strategy, and how Moser fits into that, given the equipment differences, please? John Turner: Yes. Jim, this is John. I'll take that question. We've been intentionally tight-lipped until now about our power business because we wanted to share targets that were backed by a clear line of sight execution. Our power strategy really hasn't changed. We're simply advanced to the next phase of the next quarter. From the start, we knew success required an established platform with deep power expertise far beyond just ordering generators. The acquisition of Moser delivered exactly that: a seasoned team in engineering controls and manufacturing. We've since bolstered that with talent, experience in large-scale permanent projects, EPC partnerships, and negotiating long-term power purchase agreements to support our major investments. The secular tailwinds here are explosive, comparable to the oil and gas business in the mid-2000s when China became a super consumer. But with far broader customer depth, power is now the critical bottleneck across revolutionary U.S. growth areas from AI to electrification, solving that offers high equity returns and stability. Unlike the whipsaw of the oil and gas business, power delivers predictable long-term cash flows, making it far easier to justify sustained investments. Strategically, it's a straightforward position ourselves as an integrated power producer, behind-the-meter power provider of choice for building, owning, and operating bespoke solutions. To scale, we're augmenting our assets with higher density generation as evidenced by today, our 400-plus megawatt deployment target by early 2027, and the large equipment order we've actually placed. Now, as far as where Moser plays into that, our legacy business is mission-critical to our power charge strategy. It solves the current real-world data crisis, I mean, crisis right now, data centers and industrial projects are being built without assured power. Counterparties have invested billions in facilities at risk, staying dark and grid connections delayed 3 to 5 years. Our existing assets deliver immediate bridge power. We deploy proven in-place generation to projects operational now. These solutions aren't space-optimal, but they're vastly better than 0 output. Customers aren't waiting for perfect. They're choosing to stay in business. This positions power as a strategic enabler, not just a legacy unit. It generates stable cash flow, derisks customer commitments, and buys time to scale permanent power solutions. In short, the legacy Moser business isn't just fitting into the strategy; it's unlocking it. James Rollyson: And as a follow-up, sticking to that same topic, I presume you have contracts or a line of sight to contracts to justify ordering the 240 megawatts of new capacity? And if so, do you guys plan, like some of the others in this business, to use those contracts to finance the equipment, kind of generally externally, other than deposits? John Turner: Yes. I mean, the answer to that question, as far as line of sight to contracts, the answer to that is yes, we wouldn't have ordered the equipment unless we had line of sight on contracts, and those negotiations are currently ongoing. I'll let Blake talk about the financing piece of it. Blake McCarthy: Yes. I mean, with respect to the financing, like we're thinking through the lens of more like project financing, ask where, as John said, these are permanent power solutions. That's one of the key things about the equipment we're ordering. They're built to go into place and be stationary, and operate under very, very long-term contracts. And as such, that type of cash flow is very financeable. So, certainly thinking about it long-term financing there. And the capital providers see the same market trends that we all see. And so, it's something that is very accessible right now. James Rollyson: Our next question comes from Derek Podhaizer with Piper Sandler. Derek Podhaizer: Maybe just sticking to the power theme. Can you help us understand the equipment that you ordered, the 240 megawatts from the third party? If you can provide us who the third party? I think you said there are 4-megawatt units. Are these turbines or these natural gas reciprocating engines? Maybe just a little bit more color on the actual equipment would be helpful. Tim Ondrak: Yes. Derek, this is Tim Ondrak, and I'll take that question. So, we're not going to disclose the OEM on the equipment, but these are resi units. We like resi units for a couple of different reasons. And those come down to efficiencies and redundancies. So, these are higher density. They're a 4-megawatt gross output. And again, we like them because of the responsiveness of the redundancy. Blake McCarthy: Yes. As we mentioned that these are designed to be put in place and not moved. So these aren't trailer-mounted or anything like that. These are effectively creating many power plants, or not even many, but power plants that go in place, and they stay there under a long-term contract. James Rollyson: Then maybe just on the CapEx related to the orders, maybe on a cost per megawatt basis. And does this include the balance of plant or any sort of battery that you'll need to support some of the high transient loads for some of these projects? Blake McCarthy: Yes. So the order includes the balance of plant, and I think, looking at it, we're in line with what others in the market have reported on a cost per megawatt. Until we have all of our contracts negotiated on the EPC side, I don't think we're ready to give a full cost per megawatt on the entire package. Operator: Moving on to Stephen Gengaro with Stifel. Stephen Gengaro: You mentioned some of the higher operating costs at Kermit in the quarter. Can you talk about what caused those costs and how we should think about them when they normalize? John Turner: Yes. So the issue at Kermit was really at Kermit was related to tailings in the pond where those tailings are kept. Our tailings are the waste product that remains after we extract the sand. We deposit tailings in the ponds where reserves have already been removed. And so every so often, a tailings pond fills up, and we have to go build a new pond. And this is all done in accordance with our 10-year mining plan. And so in August, we noticed that our current pond, which we were using, was near full. We began to build a new pond, but we were not able to build the new pond in time. So we had to put tailings into the pond where we were mining sand. The introduction of tailings to that pond led to inefficiencies in our wet plant and the Canyon process. So we ended up having to rerun all the wet sand that we had washed through the wash process the second time, which significantly increased our cost and also impacted the time it took for the sand to dry, and also led to elevated costs in the drying process. We have a new tailings pond that has been built. It was really the last pond we were mining reserves from. And the current dredges have been moved to their next reserve pond. And when the new dredges arrive in 2026, we'll open up another reserve pond. So we're also installing equipment to monitor the flow of tailings in the pond, so we'll be better informed and can better plan in the future. I would suspect that we're going to continue to see some elevated costs here as we begin the fourth quarter, but those costs are going to decline as we continue. And then once we bring those new dredges on next year, you're going to continue to see cost efficiencies and costs go down. Stephen Gengaro: The other one I just had was as we think about the balance sheet, maybe, Blake, on '26 capital spending, do you have an early read and maybe even the split between power and the sand business? Blake McCarthy: Yes, yes. We're still definitely in the middle of the '26 budgeting process. But I don't think it's going out on a limb, I want to say that CapEx in '26 is going to be down from '25 levels and likely very close to the maintenance levels we've always talked about, and I'm talking cash CapEx. With current conditions in the oil and gas market, the current price of sand, and incremental growth investments just aren't justified by the returns you can obtain in the market right now. So we're going to spend enough to keep the plants in good working condition and keep the Dune Express humming, but it's going to be significantly near year. With respect to the power CapEx, like I said, we're looking at the first large order through the lens of more project financing capital. And this initial order will have a minimal impact on '26 cash CapEx. That being said, the pace at which these projects are progressing, they're moving at a speed that we need to ensure that we're positioned to act. At times, this may require us to make down payments with cash before financing is fully secured, and we need cash on hand to do that. So that was currently a key part of the calculus of suspending the dividend so that we continue to build cash so that we're armed to take advantage of the opportunities down there. Operator: Our next question comes from Doug Becker with Capital One. Doug Becker: You're targeting to have more than 400 megawatts deployed by early '27. Just want to get a sense for how that reconciles with having about 225 megawatts of capacity in August and the old target of increasing 310 megawatts by the end of 2026. And just simplistically thinking about it, this would imply more capacity deployed than 400 megawatts. Blake McCarthy: Doug, it was a little garbled in the beginning, but I think what your question was is that with the target, the 400-plus target, how does that fit with the initial targets we gave when we announced the Moser acquisition? Is that correct? Doug Becker: Exactly. John Turner: I'll start, and others can add. When we originally announced our Moser acquisition, we talked about 2 numbers. We talked about our total fleet, and then we also talked about the deployed. So let's go look at what nameplate capacity was when we acquired Moser. It was 212 megawatts is which was in the presentation, what we announced. By the end of 2026, on the legacy fleet, that number is going to grow to 262 around 260. And then by the end of 2026, that number is going to be around 280 megawatts. You add so then on top of that, so that's total deployed. Then, if you add what we're adding to new, that's going to be another 240 megawatts. So your total deployable or nameplate capacity of our plant is going to be 500-plus megawatts. Now, if we go back, when we're talking about 400 megawatts, we're talking about what's deployed. That's not our nameplate capacity. That's what deployed. So when we bought Moser and announced it, our total deployed at that time was around 130 megawatts. That number will be around 160 by the end of 2025, and that number will grow to 180 to 200 by the end of 2026. So we continue to grow the Moser fleet. But then, if you add on top of that, you add with the new order of 240, you get 400-plus megawatts of deployed power. So we continue to grow that legacy business. And with the addition of these new assets, that's just an addition to that. Nothing's really changed. Blake McCarthy: Yes. And I think to distill it down to probably what matters most to you guys is that at the time of the acquisition, we talked about, hey, we're going to grow the fleet to 310 megawatts, and that's going to translate to an exit EBITDA run rate at the end of '26 to approximately $8 million. With this new target, the power EBITDA target is revised up. And so think about it as we're allocating incremental capital to a very high-return investment opportunity. John Turner: Yes. And I think just add a little more color to the fleet. So when we guided to -- I think it was 310 megawatts, which was based on our production capacity. So we have actually done some things to increase our production capacity, but we also want to be opportunistic with a portion of our fleet. We've got a portion that's out today working with oil and gas. We've got the new equipment that we've ordered that we expect to be deployed late 2026, early '27. And then we've got a portion of our fleet that allows us to be opportunistic to provide these bridge power solutions that end up leading to our team developing a bespoke, permanently installed solution. And so that flexibility and manufacturing capacity allow us to do that, and we'll continue to be opportunistic as we look to grow those megawatt numbers. Blake McCarthy: Yes. And I think that's a really key point, Doug, is that with respect to the Moser assets, they provide a vital link for a lot of these permanent power opportunities. These are customers that are coming to us in a bit of a state of panic, where they're like, hey, we've made hundreds of millions, billion-dollar investments in these facilities. And now we're being told, like, hey, like, yes, you can connect to the grid and you're going to get a fraction of what you actually need to run the facility. And they're like, well, hey, like we need to get into Phase 1 immediately, we need power now. And the thing is with these assets that actually, for the equipment you need for the permanent solutions, there are lead times on this. So there's a gap there. And most are assets, while not ideal from a footprint standpoint, that's a heck of a lot better than the lights not being on. And so it pulls forward the revenue opportunity for us, but more importantly, it allows them to operate their facilities. And we think, a key advantage in terms of these conversations where, hey, like we can be the problem solver for you. John Turner: Yes. As we said earlier, the legacy business is a critical part of our business, and it's unlocking the permanent power business for us. Doug Becker: Maybe just thinking about the market for reciprocating engines, a number of other players have announced orders without contracts signed. I think they probably have a good line of sight. But how do you assess just the supply of uncontracted recip capacity and how that plays into contracting for Atlas over the next several months? Ben Brigham: So I think the market for any type of natural gas-fired generation equipment is incredibly tight right now. And so when you go back to the press release we put out on the 240 megawatts of power that we bought, I think it was critical for us to get a hold of those assets. And that allows us to end up deploying them. I think when you look at the rest of the market, there are only so many engine blocks that are manufactured every year. And so we will continue to be opportunistic when assets become available if they fit solutions for customers that we're talking to. And the comments that John and Blake made about the motor platform opening doors for us, we expect the same thing out of these equipment orders, that they continue to open doors. And while we're in active negotiations for placing that 240 megawatts, we expect that that will bring more folks to the table. And when you go back to retaining capital in the business, we're doing that so we can act on all these opportunities. Blake McCarthy: Yes. I think it's really hard to understate the rate of growth that we're seeing in the opportunity set. Like, just over the last 3 months, we talked about that tangible opportunity set approaching 2 gigawatts. That was a heck of a lot smaller just 3 months ago. And it's increasing at a pace. And we drafted that number 2 weeks ago. And since then, the number of phone calls we've gotten, I think we updated that number, it's probably moving up. So the demand growth, I think Bud said, like he hasn't seen anything like this in his entire career, it's pretty wild. And I think we're all just trying to sprint to keep up with it. Operator: We'll go next to Keith MacKey with RBC Capital Markets. Keith MacKey: Maybe just continuing on the power generation opportunity. Can you just discuss a little bit more about what's in that 2 gigawatt number that you put out there for the potential market opportunity? What types of opportunities are those comprised of? Where do you see that growing over time? That type of commentary would be helpful. John Turner: Yes. So I think I can give a little bit of color on that. So I think when you look at that 2 gigawatts, there's a core of that that will continue to belong to oil and gas, and that's in the applications that we're using our units in today. It's in microgrids to continue to support oil and gas development. So that's going to be about 10% of our mix and our opportunity set. I think there's another 40% that's in C&I opportunities, which I would take the univers groups of our opportunities. I would say everything that's not a data center is a C&I opportunity. That's how we're defining that. So about half that opportunity set is C&I and oil and gas. And the other 50% is going to be data centers. And so we're getting a lot of inbounds from data centers. We're not actively hunting that market. But I think because we have power, they're finding us, and a lot of them are these smaller bridge opportunities where the conversation immediately goes to, can you solve this near term, and what solutions do you have for the long term? Ben Brigham: The near term could be 3 years, maybe longer. John Turner: A lot of that's driven by equipment lead times and what the proper solution looks like for that customer. And so again, we think we're uniquely positioned to provide a bridge that opens these doors for permanent installs that are 10-, 15-, 20-year power plants. Blake McCarthy: When you look at that split, 90% of that -- let's talk about the C&I space. In the C&I space, we're looking at 10-plus-year contracts on supplying that power. So these are all very attractive opportunities from a risk-adjusted basis for us to deploy capital. Keith MacKey: And I know Blake touched on the EBITDA or earnings generation and the increased target for what you can generate with the megawatts you'll have in the field. Would you be able to just put some maybe guideposts around how you're thinking about that? I know others in the market have said it's somewhere between a 4 to 6x EBITDA build multiple for the CapEx for these types of opportunities. Would you be roughly within that range? I know certainly a sensitive time for the negotiations, but any way we can think about the earnings power of this new opportunity would be helpful. Blake McCarthy: Yes. I'm going to refrain from going into specifics just because we have ongoing negotiations. But I think that with respect to how you think about it, I wouldn't be too far off on the EBITDA per megawatt generation that you've seen from others in the space. Operator: Moving on to Sean Mitchell with Daniel Energy Partners. Sean Mitchell: Just one for me. Just when you talk to your OEMs, I mean, I know you're not providing who's building these for you, but just OEMs at large, what are lead times like for gas recip engines today? And where is that going over the next 2 years? John Turner: Yes. So it varies, but the majority of the OEMs we're talking to are taking orders for 2028 and beyond delivery. It really depends on what you're looking for. I think there are some large players out there that have recently announced bigger deals and bigger orders. And so that has sucked up some of these blocks into 2030. And so, like I said, it varies. But typically, it's going to be 2028, and maybe there's somebody who has canceled an order, and we can step in and be opportunistic with picking up those assets if we've got line of sight to. Blake McCarthy: Yes. And that's why it's so critical, though, that we're armed with capital to pass on it. These slots are very valuable, and we're not the only ones looking to take advantage of them. So when an opportunity arises that aligns with the commercial opportunity, we have to be positioned to move quickly. Sean Mitchell: And then maybe Blake or John, just as you think about the traditional business and the 10 million tons Dune Express at some point, I mean, if we're at a $65 world next year or through next year, what price do you think these guys are going to get back to work? Because it feels like everybody is taking a pause right now. Blake McCarthy: Yes. I think that it's just it's continuing at the current pace. Like, I think everybody is just waiting to see which way the wind blows. I think guys like you are part of the problem. We all read the same stuff where it's like, hey, the price of oil is going to fall off here in the next 6 weeks. And so when crude hangs in the low 60s, but there's a risk that it's going to fall to the low 50s, nobody is going to put more equipment to work. On the flip side of that is that you are starting to see the production statistics start to move in the right direction. But I think it's just a wait-and-see. And then there's no impetus right now at the tail end of the year for people to spend more CapEx. So I think that we'll see the customers are a bit opaque in terms of, like, what their plans are. And I think that's because they're working through their own budgeting processes. But the signals that we have received through RFP season thus far have been very encouraging from our standpoint, and just in terms of being able to gather incremental share. And so like that's what we're focused on right now. Our expectation right now is that '26 is more of the same that we've seen in '25. And so it's up to us to go execute in that type of market. We know the playbook, and we're ready to go. Operator: Our next question comes from Eddie Kim with Barclays. Edward Kim: Just on the power business, do you currently contemplate the entirety of the 240 megawatts you just ordered to be deployed on a single project? Or is it going to be split up into multiple different projects? And just based on your discussion of the end markets, it feels like the 240 megawatts is going to be deployed in something other than like a Permian micgrid supporting artificial lift, so likely in other C&I or data centers. Would that be a fair assessment to make? John Turner: So we don't expect that to be deployed in the oil and gas. We've got multiple opportunities that 240 megawatts could deploy into. I would expect that it's probably not more than 2, and it potentially could go to one project. Edward Kim: My follow-up is on the base business, and apologies if I missed this. I know you haven't provided 2026 guidance yet, but any way you could help us think about your volumes for next year, even just directionally? It feels apparent that the Permian frac crew count is going to be down next year on a year-over-year basis. So, should we expect a similar trajectory for your volumes sold as a base case and maybe flat year-over-year in an upside case scenario? Just any thoughts there would be helpful. Bud Brigham: Yes. This is Bud. I might start, and these guys may add to my comments. Blake touched on it that none of us have a really good sense of when oil is going to bottom. And of course, oil drives sand consumption, whether that's the fourth quarter or whether it pushes out through 2026, it's really hard to say. But my personal view is that for Atlas, in terms of where we sit in this trough that the fourth quarter is the trough for Atlas, in part because our competition is getting weaker. We are the lowest cost producer, and we have significant logistical advantages, including, of course, the Dune Express. So, as we mentioned, our market share has grown. We think that will continue to happen through next year. And so that's why I feel like this is likely our trough from an Atlas perspective, even if oil prices do stay soft, which is probably likely through 2026. But we all know that the longer oil prices are down at these levels, the stronger. The upswing is going to be on the other side. And that's when Atlas is really going to be poised to perform extremely well. Blake McCarthy: Yes. And we're running through the RFP season right now. I said this in my comments. Everything is looking really good right now. I mean, we're looking like, as far as the volumes go, I mean, like Bud said, we're going to gain share. It's not good. Pricing is low, but we're doing what we should with our low-cost advantage. I mean, most other folks aren't producing any cash flow in the sand and logistics business. But we obviously still have really good margins and are generating cash flow. It's not the cash flow we want to generate, but it's good cash flow, and we're positioning ourselves for the upswing. I also think the adoption of the Dune Express was muted last year, with Liberation Day happening. But we are getting an opportunity to fill out those tons this year with opportunities that are coming up. So we're going to have more about that as we move into the fourth quarter, and when we report next year, we're going to have more to talk about. But we're optimistic about the volumes we're going to see next year. Operator: Lee Cooperman with Omega Family Office has our next question. Lee Cooperman: I tuned in a little bit late. I apologize if this question was addressed. Have you suspended your buyback program? Number one? Number two, how much stock have you bought back at what prices did you pay when you bought it back? Blake McCarthy: So we still have a $200 million share buyback authorization in place. We executed a very small amount of that a quarter ago, but we did not execute any during this current quarter. So, that is certainly when there are multiple means of returning capital to shareholders, and we're always looking for the highest return means of increasing shareholder value. We do think that the power opportunity is a once-in-a-generation opportunity. We announced the 240-megawatt order yesterday. This won't be the only one. We had the confidence to make this order because of where we are in negotiations. But I said that's 240 megawatts compared to an opportunity set that is rapidly, rapidly expanding. And so we are working to continue to grow that announcement training. That being said, based on our current forecast, we should be building cash over the course of 2026. And that creates a lot of optionality with respect to how we deploy that. Where the stock is currently trading, we think management believes that it's significantly below the intrinsic value of the stock, and that's certainly a very high return way of creating capital value for shareholders. Lee Cooperman: Despite the elimination of dividends, you would not rule out stock repurchase as a use of capital. Blake McCarthy: No, sir, by no means. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to John Turner for closing comments. John Turner: I want to thank everyone for participating. Thank you to our employees for all the hard work. To our customers and partners, thank you for your continued confidence. And to our shareholders, thank you for your support as we build the future together. We look forward to reporting our fourth quarter results and talking more about 2026 and some of the exciting developments that are happening on the power side at our next call. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: " Jerrell Shelton: " Robert Stefanovich: " Mark W. Sawicki: " Thomas Heinzen: " Todd Fromer: " Kanan, Corbin, Schupak & Aronow Kyle Crews: " UBS Investment Bank, Research Division David Saxon: " Needham & Company, LLC, Research Division Puneet Souda: " Leerink Partners LLC, Research Division Matthew Stanton: " Jefferies LLC, Research Division Subhalaxmi Nambi: " Guggenheim Securities, LLC, Research Division David Larsen: " BTIG, LLC, Research Division Mason Carrico: " Stephens Inc., Research Division Operator: Good afternoon, and welcome to Cryoport's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I will now turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead. Todd Fromer: Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors and elsewhere in our annual report on Form 10-K to be filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission. As a reminder, Cryoport has uploaded their third quarter 2025 in review document to the main page of the Cryoport Inc. website. This document provides a review of Cryoport's financial and operational performance and a general business outlook. Before I turn the call over to Jerry, please note that because of the strategic partnership that has been established with DHL Group and related sale of CRYOPDP to DHL, CRYOPDP's financials, which were previously a part of Cryoport's Life Sciences Services reportable segment are now presented as discontinued operations. Cryoport previously provided quarterly historical information on this basis for fiscal year 2024 and our first quarter 2025 in review document, which remains available on the Cryoport, Inc. website. This information is intended to support the financial modeling efforts of those needing this information. Please note that unless otherwise indicated, all revenue figures discussed today will refer to continuing operations. This includes Cryoport's fiscal year 2025 revenue guidance. It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours. Jerrell Shelton: Thank you, Todd, and good afternoon, everyone. With us this afternoon is our Chief Financial Officer, Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. During the third quarter, we continued our strong momentum, delivering double-digit growth in both our Life Sciences Services and Life Sciences Product segments. Notably, revenue from our support of commercial cell and gene therapy grew 36% year-over-year to $8.3 million, driven by the continuing global adaptation of these life-saving therapies. It is imperative that the growth of the -- it is impressive rather it is impressive that the growth of the regenerative therapies market, which we believe is still in very early stage of development, has remained resilient despite ongoing challenging macroeconomic, political and geopolitical backdrops. Within Life Sciences, revenue increased 16% year-over-year and represented 55% of our total revenue from continuing operations for the quarter. This included a 21% increase in the BioStorage - Bioservices revenue, underscoring the persistent demand for our integrated platform. Driving this growth is the rising prevalence of chronic and rare diseases, prevalence of chronic and rare diseases, coupled with continued advancements in cell and gene therapies targeting solid tumors and autoimmune diseases. We also are encouraged by signs of stability in our life sciences product market, where revenue grew 15% year-over-year, driven by improved demand for our market-leading cryogenic systems. In the third quarter, we expanded our product portfolio with the launch of MVE Biological Solutions next-generation SC4/2V and SC4/3V vapor shippers. These cryogenic systems models have been redesigned, utilizing innovative technologies to offer customers added protection during extended or challenging shipments and include several key advancements designed to enhance the performance and reliability. MVE's newly designed condition monitoring solutions for these doors are integrated with each unit, combining our trusted cryogenic systems with advanced real-time condition monitoring technology supplied by Tacromed, another Cryoport company. These innovations reflect MVE's unwavering commitment to support the life sciences with advanced intelligent connected assets to safeguard vital biological materials. Beyond our core systems and services, we are progressing on a number of other growth initiatives designed to better serve our clients and diversify our revenue streams. These initiatives include the onboarding of our first clients for IntegriCell, our cryopreservation services located in Liege, Belgium and Houston, Texas. These cryopreservation services are designed to address a critical aspect in optimizing the supply chain for the development and commercialization of cell-based therapies through high-quality standardized cryopreserved starting materials. We're excited by IntegriCell's recent progress as it moves forward to become a significant revenue and profit generator. Additionally, in late October, we opened the logistics portion of Cryoport Systems' new state-of-the-art global supply chain center at the Charles de Gaulle Airport in Paris, France. This 55,000 square foot facility provides us with increased ability to serve our clients in the European and global markets. It is designed to support complex life sciences life sciences supply chain needs, including biologistics, bioservices and future cryopreservation services. An official grand opening is scheduled -- is to celebrate the launch of this facility will be held on November 20 with Bioservices opening in mid-2026. In addition, we are also advancing toward opening a global supply chain center in Santa Ana, California, which is expected to come online in the second half of 2026. This facility will consolidate 3 existing locations and feature next-generation technology to optimize operations and client support. Complementing all of these activities, we have begun implementing our recently established strategic partnership with DHL Group. Due to the -- to DHL size, this strategic relationship will take some time. And when completed, it will enhance our positioning in the APAC and EMEA regions and reshape our competitive profile within the industry by leveraging DHL's global scale and capabilities. Regenerative medicine has been advancing steadily, largely driven by the expanding pipeline of regenerative therapeutics entering clinical development and commercialization. Despite any short-term headwinds, cell and gene therapies have continued to enter and move through the clinical pipeline, which should ultimately result in growing revenue from commercially supported therapies. Cryoport's temperature control supply chain solutions are supporting the largest portfolio of clinical and commercial gene therapies in the world with a record total of 745 global clinical trials and 83 of these in Phase III, representing approximately 70% of the cell and gene therapy clinical trials. In the third quarter, 4 BLA MAA filings occurred and 3 more were filed in October. For the remainder of 2025, we anticipate up to an additional 7 application filings, 1 new therapy approval and 2 additional approvals for label or geographic expansions or moves to earlier lines of treatment. Of course, the timing of these filings may be impacted by the current government shutdown of the FDA in the United States. While global trade conditions remain dynamic, Cryoport did not experience any new material impact from tariffs in the third quarter. Furthermore, we have, of course, taken steps to diversify our supply chain to mitigate potential impacts that could come as a result of tariffs, impacts not covered by these mitigations are covered by surcharges. With the strong momentum we have achieved year-to-date and our progress across the board, we are updating our full-year 2025 outlook for total revenue from continuing operations to the range of $170 million to $174 million. Our team is dedicated to building long-term value for our shareholders. Cryoport is maintaining and growing its competitive differentiators as the only pure-play end-to-end temperature-controlled supply chain platform that supports the largest portfolio of clinical and commercial cell and gene therapies globally. This concludes my remarks. So I'll now ask the operator to open the lines for your questions. Operator: [Operator Instructions] Your first question comes from the line of Kyle Crews from UBS. Kyle Crews: Congratulations on the quarter. Maybe just to start, the high end of the guidance implies a sequential decline in revenues. At the same time, you're seeing positive momentum across the entire business. You have an increased number of commercial therapies supported higher number of clinical trials, and you've launched new products within MDE. Can you help us reconcile that with the implied sequential decline in guidance? And then for a second question, can you discuss if the recent release of the triple FDA draft guidance is that support making clinical trials easier has resulted in an uptick in clinical trial interest at your company? Jerrell Shelton: Well, you had a lot of questions in there. And I think Robert will start answering your financial questions, and Mark will address your FDA question. Robert Stefanovich: Yes. Look, you're certainly right in terms of how you phrased the question. Given all the macro uncertainties right now, we think it's a responsible guide. It balances the momentum that we are seeing versus the macro conditions, such as the current government shutdown and the ever-changing tariff landscape. I think we've managed it to date very well. And we're obviously, of course, focused on profitable and disciplined growth. If you look at the revenue guidance and the increase in revenue guidance represents about 8% to 11% revenue growth over the prior year from continuing operations. But as you said, at the same time, we continue to be very bullish on our market-leading position. We feel that our long-term growth rate will be close to that of the cell and gene therapy market, as you can see in our Q3 performance, and as more and more commercial therapies come to market. In fact, if you look at our commercial revenue right now, it's already a fairly significant portion of our total revenue. I think it's roughly about 18%, 19% of total revenue. So we're trying to balance those 2 parts. One, the cautious view on the macro uncertainties, but at the same time, we are very bullish in terms of the outlook and bullish in terms of finishing the year strongly. Jerrell Shelton: Mark, do you want to answer the FDA portion? Mark W. Sawicki: Sure. Assuming you're referring to the REMS requirement, is that correct? Kyle Crews: No. They recently released 3 new draft guidances related to clinical trials. Yes. Mark W. Sawicki: Yes. So obviously, yes, some of the draft guidance announcements that you're talking of that came out recently, some of them are targeting some generic small molecule programs. Those don't have a significant bearing on our market. Those that are aimed at the orphan markets and those that are focused on driving biologics approvals much more quickly, are impactful to us and our clients, and we do believe that those will help drive more activity in the future from a BLA standpoint. Just turning to REMS because I think it's important to understand that one, too. So the REMS requirement, which has also one that's been announced, will have an even more impactful positive impact for us as it will drive the implementation and utilization of cell therapies into the community care setting. And I think if you look at both BMS and J&J's CARVYKTI revenue in Q3, both of them had very strong growth. And in fact, CARVYKTI folks even came out and said almost 80% of the patie. Kyle Crews: Great. And then maybe just one last one. Can you discuss whether you're seeing increasingly different trends within gene therapy and cell therapy within the broader cell and gene therapy market? Mark W. Sawicki: Yes. I mean, obviously, there's a little bit of tentativeness around financing in the gene therapy space because of some of the challenges that have been seen, but that doesn't impact the long-term opportunity. And so there are still a lot of new start-ups in the gene therapy space. There's a lot of activity and investment that's going into the gene therapy space. But obviously, the lion's share of funding at this point is still going into the cell therapy side of things. And obviously, with the number of potential approvals moving forward later this year. We've got another potential, as Jerry mentioned in his introductory comments, and potentially another 7 filings this year, and potentially even another 1 new and 2 supplemental approvals this year. So there's very strong activity in the cell therapy space as well. Thomas Heinzen: Just to round that off, Mark, just would point out in our review piece, we broke down by percentages the clinical trial portfolio that we have. And the number of gene therapies in there is a single-digit percentage, and the number of vaccines is even smaller. It's like 3%. So we're much more exposed to the cell therapy side of the world. Operator: Your next question comes from the line of David Saxon from Needham. David Saxon: Congrats on another strong quarter here. Maybe, Robert, I'll start with you. I didn't hear anything on EBITDA guidance. I think the expectation is to reach profitability on a quarterly basis sometime this year. So is that still the expectation? And then how should we think about profitability as it relates to 2026? Could you see that on a full-year basis? Or are there any meaningful investments we should be aware of? Robert Stefanovich: Yes. No, thank you. As you can see from our '25 performance to date, the adjusted EBITDA, we improved it by over $10 million for the first 9 months, bringing our adjusted EBITDA loss in Q3 to $600,000. So we are getting very, very close to getting and crossing the line to positive adjusted EBITDA. From a cash flow perspective, cash flow from operating activities was positive for the quarter. We had about $2.2 million positive cash flow from operating activities. And we think we can get to positive EBITDA. We're very close to it as early as year-end. That was our target. At the same time, I do want to highlight, we're obviously trying to balance some of the growth initiatives that we have with driving towards solid positive EBITDA. There are some specific client-driven growth initiatives that we have, including the global supply chain center that we're opening in Paris this month, as well as the IntegriCell platform that we started out a while back. And those, in some cases, require some upfront investments. So that's really balancing those 2 parts, but we're certainly making very strong progress towards that goal. And overall, we like our momentum. We like the positioning that we're in, and our teams are working towards executing on that goal. In terms of profitability itself and crossing the line of profitability, we have not given guidance. Our main focus is really on executing on our initiatives, driving positive EBITDA, and obviously creating that pathway to profitability. Jerrell Shelton: David, you've heard us talk about the pathway to profitability before, and we certainly are on that pathway to profitability. And as Robert points out, we're moving toward positive adjusted EBITDA. And so we think possibly we can get there in the fourth quarter and certainly early next year. And that's a surrogate for cash flow. But remember, we have a number of facilities, which I went over in my opening comments. I just mentioned a couple of examples, a number of capital investments taking place. We know that those are the right capital investments. We vetted them thoroughly. We know that they're the right thing to do for the future. But as we're building those out in today's accounting, it does affect your income statement. So our pathway to profitability includes all the things that Robert said, plus building out those facilities and then starting to experience the operating leverage that comes with getting those facilities up and running and utilized. David Saxon: Jerry, maybe my second one is for you. Just on product, that growth really improved versus kind of the first half. So maybe talk about what's driving that strength? How much of that is market versus some of those new products you called out, maybe driving some mix benefit? And then in terms of the backlog, I guess, can you talk about that at least qualitatively? And then what level of visibility does that give you into the product growth outlook as we head into 2026? Jerrell Shelton: David, we talked about backlog a lot during the COVID period because we had an extraordinary period. But we don't talk about backlog now as much because we are on more normal -- we're in a more normal market, which is about a 6- to 8-week lead time. It's no longer 6 months or a year lead time. It's back to the normal, which is about 6 weeks lead time. So we do monitor our sales trends. We do monitor our order intake, and that order intake does give us indication that the market is beginning to stabilize. And of course, government shutdown hasn't helped us there any, but it still continues to go on. It hasn't helped us because it does slow down the government sales that are associated. But so we're doing well in terms of the industry and the stabilization. There was no impact on the new things that I talked about in my comments and opening up. No revenue coming in from that. It wasn't time. It does take time for these things to get out. The 3 -- the 2 doors that were developed with the integrated condition monitoring at MVE are focused on the animal health business. And so that's a seasonal business, and there will be an uptake there. But we have a number of things going on at MVE. Does that answer your question, David? Or is there other parts to it? David Saxon: That was super helpful. I guess maybe if I could rephrase it, like how -- the market has been stable year-to-date. I guess as we think about our models for 2026, like do you -- is making the assumption that, that continues a fair assumption? And then with, I guess, those product launches in the animal health space, maybe some increased demand across the other end markets, like maybe how should we frame or how would you frame product growth potential for 2026? Jerrell Shelton: I would look at it with stability and use a very high single-digit growth rate. Operator: Your next question comes from the line of Puneet Souda from Leerink Partners. Puneet Souda: So maybe first one on some of the cell therapy exits that we have seen. I mean you're delivering relatively strong growth. Some of it is comps, but some of it is just overall market stability, which you talked about. But just trying to understand if you could contrast with what we're seeing, Takeda exiting its allogeneic programs, Galapagos is winding down their programs. Novo is divesting its cell therapy assets. Are you seeing any downstream impact from those exits on your pipeline or the service demand overall? And then within that, as Jerry said, high single-digit growth -- is that still something you -- I mean, is that you're contemplating into 2026 and '27, just given sort of these exits? And maybe just provide us any context for backfilling some of these programs that might have been lost. Jerrell Shelton: Yes, Puneet, we're honored that you're on the call because we thought you might miss it because of conflicts. But let me start, and then Mark will add to what I have to say. First of all, the 9%, I said high single digits, so you said 9%, that's fine. But that supplies to MVE product segment and you mix product and services. And so in the Service segment, where you have Galapagos, you've cited and some of the other activity that's happened, that's -- that's normal to me. You should probably know this, but it's normal to have puts and takes. And people make their investments and other -- and sometimes they can support them financially going forward. Sometimes they can't. Sometimes they're rationalizing what they're doing, and we have no insight on that. What we do know is we are continuing to grow. We continue to see robustness. We have an increase in the clinical trials that we support with 83 being in Phase III. I think it was 83 in Phase III. And we're doing well, and we see a continued buoyancy in the market. This science is not going to stop. It's going to change the way medicine is practiced around the world. It just takes time. And it has had some headwinds, but it's buoyant, it's strong, and we're growing, and we intend to continue to. Do you want to add to that? Mark W. Sawicki: I think you answered it pretty well. The only thing I would just add is Jerry is right. I mean, I think some of the changes that you mentioned are really strategic portfolio decisions. I don't think they're market-driven decisions. There's also other companies that are putting a lot more money into and expanding their programs from a top 5 pharma standpoint. So we don't have a level of concern around that. As Jerry had mentioned, very strong pipeline activity, very strong activity from a regulatory standpoint. As we had mentioned, upwards of another 7 filings this year, upwards of potentially another 25 filings next year. So there's a lot of activity in the space, which will continue to expand the number of commercialized therapies and the revenue associated with those therapies as the market matures. Thomas Heinzen: [Indiscernible]. Could I thing in there just to pile on? Mark W. Sawicki: Yes, Tom, please. Thomas Heinzen: Just to point out, September funding in biopharma was quite strong, and October was the best month of the year so far. We had over 20 IPOs and follow-on offerings of greater than $100 million in October alone. So some of the programs you mentioned are falling off, but certainly other ones are coming in up and taking the place. Puneet Souda: On the government shutdown piece and the implied 4Q guide, I'm just trying to understand how should we think about the segments within the guide for the fourth quarter, Bioogistics versus BioStorage, Bioservices versus the MVE Life Sciences product line. Maybe just help us understand -- how should we think about modeling each of those, if you could provide some segment commentary? And just maybe just if you could pinpoint in the government shutdown exactly, I mean, what are customers telling you? What are some of the worries here if this shutdown extends into December? Jerrell Shelton: On the first part of your question, Puneet, it depends on what you think about the government shutdown. Frankly, the government shutdown is temporary. Right now, you can't make a filing, you can't pay your fees for a filing. But that's going to end soon. It can't go on forever, and there's an election coming up, which I think will motivate a political end to the shutdown. And then we'll see some things open up. We'll see things start to move through, and we'll catch up. So it's not going to last forever. The government shutdown is. And again, under the backdrop we've had, we've shown substantial growth in spite of any headwinds there. Mark, do you have anything to add to that? Mark W. Sawicki: Yes, I think you answered it well. I mean, yes, from a service standpoint, we haven't seen any impact other than the delay in filing activity, which they just can't do because they can't pay -- as Jerry mentioned, their filing their application fees. That's the only impact that we've seen is there may be a short-term delay in some of the filing activity, but the service activity still remains very robust. And then just looking at Q4 without going into too much detail, obviously, we expect year-over-year increase on the services side. On the product side, it largely depends on timing, especially if you look at some of the larger freezer orders or even some of the potential delays in government shutdown, that they could just have an impact on timing of whether those are going to come in, in Q4 or be shifted in Q1. Jerrell Shelton: That's because they're capital expenditures and somebody has to sign off on them. Does that help you? Puneet Souda: Yes. Operator: Your next question comes from the line of Matt Stanton from Jefferies. Matthew Stanton: Maybe one for Mark. Just on the commercial trends, you're tracking up over 30% here year-to-date. It sounds like you saw some approvals here early in the quarter to continue more filings and then I think next year, '25, which is a big number. Can you just talk about the durability of the growth in terms of what you're seeing here from customers? And as we think about that kind of 30% plus, how you feel about that on the commercial side into '26? And I mean, is there opportunity for that to accelerate even further if some of these things kick in on REMS or some of these filings kick in, and to your point earlier, start to get signed off and get out there? But just talk about the kind of growth algorithm on the commercial side. Mark W. Sawicki: Yes. I think as you focus, you're going to focus on two things. One is the existing therapies as they mature, they move to earlier line and they go through global expansion. And as we had mentioned earlier, I mean, both BMS and Janssen and J&J have come out with very positive comments around growth and their data -- their financial data supports that. [ Janssen ] said their goal is 10,000 doses by year-end and 20,000 patients by the end of 2027, which is a substantial increase. And then you have the newer therapies as they launch, they're also expecting significant ramps. Vertex has come out and said they expect to see CASGEVY start to ramp more significantly. And then we have other data on some of these earlier launches, so which most of it has come out at or ahead of guidance. So if you take those in addition to the new filing activity, we think it will remain robust in '26 and beyond. Matthew Stanton: Great. And then, Robert, maybe just to go back and know a few times just on the 4Q ramp. I mean, I know last quarter, you guys were kind of saying 4Q probably higher than 3Q, part of that seasonality. Obviously, 3Q came in better than we expected. Is it fair to say that the sequential quarter-over-quarter implied 4Q, I mean, the government shutdown, maybe some of the timing you talked about, I mean, is that kind of a low single-digit million impact tied to those and maybe erring on the side of conservatism? Just kind of thinking about three months ago, 4Q higher than 3Q and now we have kind of the opposite playing out. And maybe just confirm there was nothing kind of that fell in 3Q that you had previously expected to fall in 4Q. Robert Stefanovich: No, no, there's not. But you already really framed it. Yes. I think it's really balancing that and looking at our guidance. Certainly, we have upside potential, no question. But given some of the uncertainties, we felt that that guidance kind of reflects where we stand right now to acknowledge some of those other aspects that we discussed earlier. Operator: Your next question comes from the line of Subbu Nambi from Guggenheim. Subhalaxmi Nambi: You recently announced the Cryoport Systems received ISO certification. Could you speak to what this means in terms of your customer win rate or any competitive dynamics? How meaningful is this? Jerrell Shelton: I want Mark to speak to that. But in addition to that ISO, we've also won an award or two and certainly one that we're proud of, and we did help on that ISO. So Mark, take it away. Mark W. Sawicki: Yes. So ISO 21973, which is really around the governing of handling of cell therapy-based materials is what we received that certification in. We are the first entity that has received a formal ISO certification. Others have claimed that they have compliant with it, but we actually have received a certification from the ISO governing body related to that. Yes, on a global basis. So what it really does is it reinforces us as the best-in-class and the gold standard as it relates to the management of these therapies on a global basis and reinforces, obviously, the quality paradigm that we have. And I think as you look at our growth as it relates to commercial revenue as well as our clinical trial adds, the market continues to respond very favorably to that as they continue to put a larger share of the overall clinical trial count as well as the commercial activity into our portfolio. So we believe that will be a continued positive influence on decision-making by our clients and sponsors. Jerrell Shelton: You might mention that award that we won also. Mark W. Sawicki: Yes, we actually won two awards, CPHI award, which is one of the larger chemical industry awards for excellence of supply -- temperature control supply chain solutions. And then we also won another one from a biotech agency, which also reinforces that in the quarter. So I think the markets are absolutely responding to our platform is best-in-class. Subhalaxmi Nambi: That's great. Any updates you can share on how you're progressing with your China first strategy? What milestones can we expect as we look to growth in that region for you guys? Jerrell Shelton: We have not assumed any growth in China for the -- will not be assuming any growth in 2026. There's no change right now. We do have some efforts underway. It does take time to implement strategies of that nature. And we hope by 2027, it will be -- certainly one thing, we cannot ignore China. It is an advanced country. It has a very big population, and it has resources and it can move very quickly. So we will continue to work on our China strategies, but we don't have anything we can report right now. Subhalaxmi Nambi: Perfect. And last one for me. Is there a potential for a catch-up heading into 2026, just given the environment is improving, something that you touched on previously? Jerrell Shelton: You're talking about a catch-up in terms of--- What are you talking about, Subbu, in terms of catch-up? Subhalaxmi Nambi: Catch-up as in ordering. Just do you anticipate there could be some sort of catch-up orders next year? Thomas Heinzen: I think she's referring to the product side, guys. Robert Stefanovich: Yes. When you talk about the products, I think what we said is it's really stabilizing. I don't think we can speak of that at this point in time. And in general, conceptually, obviously, more and more material is being developed that requires cryogenic storage and MVE being the largest global provider of storage and cryogenic systems, certainly, we will be the first beneficiary of that. But at this point, it's just stabilization of the market that we can see. Operator: Your next question comes from the line of David Larsen from BTIG. David Larsen: Congratulations on another very good quarter. It looks like the number of clinical trials, the growth rate year-over-year was the highest it's been in like 2.5 years. And just any thoughts on The Big Beautiful Bill Act, reductions in Medicaid enrollment, reductions in exchange enrollment, maybe as high as 10% or 30%. Does that matter or not? Any thoughts on payer mix? Are most people getting cell and gene therapies? Are they covered by commercial plans, not Medicaid and exchanges? Just any thoughts there would be helpful. Mark W. Sawicki: Yes. I personally don't think it's much impact at all. The vast majority of therapies, by understanding, are not being covered by public funds. They traditionally are typically private plans that are reimbursement at this point. David Larsen: Okay. And then are there -- do you have any concerns around drug pricing like with price caps due to the Inflation Reduction Act or rebate flow limits on price increases? Has that entered into any conversations at all or not? Robert Stefanovich: No, cell and gene therapies are exempt from all of that, Dave. Mark W. Sawicki: Yes. I was going to say the same thing. As said, yes, I mean, the White House has actually come out in support of cell and gene and their interest in continuing to support it in an aggressive manner. And there is -- they are exempt from some of those pricing constraints that the White House is currently working through. Robert Stefanovich: They're also not impacted by any tariff talk either. David Larsen: Okay. Great. So minimal regulatory risk heading into '26. Fantastic. And then in quarters past, you talked about the growth in number of clients at these bio storage facilities, I think, in New Jersey and also like allogeneic storage. Any color there in terms of like capacity or number of client growth? Mark W. Sawicki: Yes. I mean we're still continuing to onboard a significant number of clients at those sites, both existing and new clients. And so that rate continues to be very robust as evidenced by the sales data that we put forth publicly. So we anticipate continued growth in the Bioservices area into '26 based on that. Jerrell Shelton: By the way, David, this is not a singular thing. It's not a singular strand. I mean our -- we built these on a strategic basis. We built them to support our clients and to create more of a one-stop shop and because clients actually prefer doing business with less vendors and especially one that they can trust. So it's kicking in, and our clients are beginning to take hold of our BioStorage Bioservices operations within Cryoport Systems. Mark W. Sawicki: Yes. We're averaging almost 2 audits a week at this point. So that's obviously a significant volume of new workflow that's coming into the facility. Jerrell Shelton: So you're witness a strategy play out right now. David Larsen: Great. One more quick one. IntegriCell, I get questions on that all the time. Just any more color there would be helpful. It sounds like you're building a new facility. Is that going to support global efforts for . IntegriCell? And do you have revenue coming in for that business yet or not? Just any more color would be helpful. Jerrell Shelton: Well, let me start, and Mark can give you more detail. But IntegriCell is another strategic endeavor, and we do have a network in mind, but we are carefully going into the development of IntegriCell. As Mark said earlier, we have revenue coming in at both locations. But I want to see those locations closer to cash flow to positive cash flow before we add other operations. We do have plans for other operations. They will be added. The network will work. All the information that we've gotten so far is very encouraging. And now we're on the uptick by getting customers, clients and revenue coming through those 2 facilities. And I'll just turn it to Mark after that. Mark W. Sawicki: Yes, Jerry, as Jerry -- what Jerry said is exactly right. We opened those facilities at the end of Q3 last year. And the tech transfer process takes time because it's part of the production process. So there's regulatory activity that needs to occur for adoption. But we have completed our first tech transfers from both biotech and top 10 pharma, and we have started to generate revenue from both sites, both the site in Belgium as well as the site in Houston, Texas. And our expectation is that it will -- revenue will ramp modestly in '26 with a significant ramp, almost in a hockey stick modality post '26. Operator: Your next question comes from the line of Mason Carrico from Stephens Inc. Mason Carrico: Robert, maybe just a quick one on margins. Just as this new facility comes online, can you just walk us through how the start-up costs and the ramp and timing have been factored into your model and just how you expect that to influence margins over the next few quarters? Robert Stefanovich: It's a very good question. And it's again one of those balancing acts because you're absolutely right. We have new facilities going online. [indiscernible] went online, as Mark mentioned. We have a Global Supply Chain Center in Paris by the Charles de Gaulle Airport going online with the official opening being in in a few weeks from now. At the same time, we are seeing some operating leverage already of the existing facilities, and that allowed us to show gross margins reaching 48% and even higher on the service side in particular. We do typically have start-up costs that we run the SG&A. But then as we open the facilities, you'll see some impact on the margins. So while we see operating leverages in some of the existing facilities that are driving higher margins, you'll have some margin depression by these new facilities coming online and starting to see revenue ramp over time. So that's -- as we start and really '26, '27 is really about that operating leverage, really about driving utilization of the existing footprint -- global footprint that we have that will ultimately drive the gross margins. Our target is 55% gross margins overall and a 30% EBITDA margin. And obviously, there's still some time to go to get to the gross margins, but we'll see that operating leverage kick in later in 2026. Mason Carrico: Appreciate that. And just touching on those long-term margins. Can you just highlight your thinking in terms of timing around those as well? I know it's been a longer-dated proposition. I just kind of want to get your updated thoughts there. Robert Stefanovich: Yes. We're not giving guidance on that at this point in time because it's really -- if you look at the cell and gene therapy market, it is still a fairly new market when it comes to actually commercialization of therapies. So we want to see more progression and more therapies come to market. But we're clearly on that pathway, as you can see in terms of the significant improvements to adjusted EBITDA as a first indicator, and we'll certainly drive that further into '26 and '27. Operator: There are no further questions at this time. Turning over back to Jerrell Shelton, your line. Jerrell Shelton: Well, thank you very much, and thank you for your questions and our discussions. In closing, in the third quarter, we continued to see strong momentum in our business. This included double-digit revenue growth in both our core business segments. Our Life Sciences Services segment, the key driver of our future growth, grew 16% year-over-year, driven by 21% increase in BioStorage Bioservices revenue and a 36% increase in commercial cell and gene therapy support. We also continue to see further steadiness in our Life Science product business, where revenue grew 15% for the quarter. Cryoport is positioned as the critical temperature-controlled supply chain company supporting the life sciences that derisk the end-to-end delivery of cell and gene therapies worldwide. Thank you for joining us today. We appreciate your continued support and interest in our company and look forward to speaking with you again when we report our fourth quarter and our full year financial results. Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Masimo Third Quarter 2025 Earnings Conference Call. The company's press release is available at www.masimo.com. [Operator Instructions] I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Eli Kammerman: Thank you. Hello, everyone. Joining me today are CEO, Katie Szyman; and CFO, Micah Young. Before we begin, I would like to inform you that this call will contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our periodic filings with the SEC. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Furthermore, these non-GAAP financial measures reflect the continuing operations of Masimo's Healthcare business and includes Sound United business, which is reported [Technical Difficulty] operations for both current and historical reporting periods. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release, earnings presentation and supplementary financial information on our website. Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q in order to make informed investment decisions. I'll now pass the call to Katie Szyman. Catherine Szyman: Thank you, Eli, and good afternoon, everyone. I just want to do a quick speaker check because we're getting feedback that there is a big echo. Is there any possibility that the echo [Technical Difficulty]. Eli Kammerman: I'm not log to the call... Catherine Szyman: As I completed my first 9 months at Masimo this week, we are pleased to share that once again, we delivered strong results. Our revenue grew 8% in the quarter, driven by strong underlying demand for our Innovative Technology. We also drove 450 basis points of operating margin expansion and we increased adjusted earnings per share by 38% year-over-year. The strength in our margin [Technical Difficulty] is a direct result of higher revenue and the cost efficiencies and product [Technical Difficulty] over the past year. Now let me highlight some exciting [Technical Difficulty] and strong execution from our [Technical Difficulty] this quarter. First, we closed the sale of Sound United to Harman in September, marking a key milestone in our [Technical Difficulty]. Second, we announced the expansion of our strategic partnership with Philips in early September, marking a key milestone in our collaboration. Within the [Technical Difficulty], we remain significantly underpenetrated relative to our overall share [Technical Difficulty] in the market and [Technical Difficulty] represents a compelling [Technical Difficulty]. We expect that the expansion of our share [ position ] over the next 5 years within the [Technical Difficulty] will have the potential to be even greater than what we have seen over the previous 5 years. And [Technical Difficulty] continues to strengthen. This new agreement advances our joint [Technical Difficulty] commitment to innovation and delivering enhanced value to customers and the broader industry. [Technical Difficulty]. I want to call out that our competitor studies have been performed mostly on healthy patients where it's easier to obtain positive results. We are highly encouraged by the 0 undetected hypoxemia event rate seen in this study alongside spot-on accuracy of less than 1% median bias among critically ill adult patients with both dark and light skin under the most challenging real-world circumstances imaginable. We are looking forward to publication of the fully completed INSPIRE study next year alongside other similar prospective real-world skin tone accuracy studies for neonates and separately for pediatric patients. We believe this new data clearly demonstrates our superior performance for all patients regardless of skin tone. Eli Kammerman: We're going to try to disconnect and reconnect. It's good. Catherine Szyman: Sales teams are armed with this new data to continue to drive growth into new accounts. Overall, we're confident in our technology's performance where accuracy matters most at the bedside during motion and low perfusion in the setting of critical illness and procedural care. Now let me recap our strategic and financial goals and the progress we are making. We continue to invest in our core health care business to position for strong, sustainable long-term growth. Specifically, we are focused on driving 3 waves of growth ahead. First, elevating commercial excellence; second, accelerating intelligent monitoring; and third, innovating wearables. In terms of commercial excellence, we are continuing to leverage our leadership position in pulse oximetry to broaden our impact on patients across other advanced monitoring categories. We are consistently winning broader contracts as evidenced by the growth we are seeing in advanced monitoring. Recently, we had a big win for capnography with one of our key accounts in the Southeast region that will drive significant capnography growth within the territory. Collaborations like these exemplify our ability to leverage our portfolio to drive growth and deepen relationships with customers that will create more diversified revenue streams over time. In our second wave, accelerating intelligent monitoring, we are very focused on using AI and machine learning to upgrade our sensors and create next-gen monitors. A key part of this is taking the incredibly advanced algorithms the team had developed for use outside the hospital and redeploying these into sensors for use inside hospitals. One specific example we are working on is to leverage our de novo grant for opioid halo that was cleared in April 2023 for detection of opioid-induced respiratory depression to create a hospital solution that can be integrated into our next-generation of smart sensors and AI-enabled patient monitors that are going to launch next year. In 2026, CMS is going to require hospitals to report opioid-related adverse events as a new electronic quality measure required reporting. Our new technology detecting OIRD with our smart sensors will help hospitals keep these patients safe and meet the reporting requirements. This is one of a number of exciting AI-enabled sensor opportunities that we have and that we are planning to launch in the future. As I covered last quarter, our third wave of growth will come from innovating wearables. We recently announced the finding of a new study from Dartmouth-Hitchcock Medical Center, demonstrating that surveillance monitoring with Masimo SET pulse oximetry and patient safety net is operationally cost effective and save hospitals money. For context, previously published Dartmouth clinical outcome studies have shown a 43% reduction in transfers to higher levels of care and a 65% reduction in patient rescues, in addition to 0 preventable deaths due to opioid-induced respiratory depression over a 10-year implementation period. In the latest study, Dartmouth-Hitchcock calculated that each 10% reduction in rescues and transfers achieved through earlier detection led to projected savings of about $350,000 to $400,000 a year, respectively, for 200 general floor beds equipped with Masimo monitoring, which broke down to over 5,500 per rescue event prevented and about $10,700 per higher level of care prevented. We are confident these findings will apply to the other health systems adopting a curve-to-curve strategy of continuously monitoring all patients inside the hospital. In terms of additional growth opportunities, our diverse portfolio of wearable technology and telehealth solutions continues to be successfully piloted globally to address numerous unmet patient needs. We look forward to sharing more details of our intelligent monitoring and wearable innovations at our upcoming Investor Day on December 3. Before I close, I want to thank our global team for their hard work and commitment this quarter. With our highly innovative technologies, we have a unique opportunity to improve outcomes for millions more patients around the world. Our focused execution once again demonstrates the benefits of our recurring revenue contracts and the durable growth profile of our business. We are looking forward to a strong finish for the year as we realize growth from continued demand and new customer installations throughout this year. As a result of our strong performance, we are pleased to raise our adjusted EPS guidance, which Micah will expand on later in the call. Above all, we are confident in our ability to deliver on our goals for 2025 and beyond and execute on our mission to empower clinicians to transform patient care. With that, I'll turn it over to Micah. Micah Young: Thank you, Katie, and good afternoon, everyone. For the third quarter, we once again delivered strong results with revenue growth of 8%, EPS rising 38% and operating cash flow of $57 million. Healthcare revenue was $371 million, representing 8% growth. We continue to see strong underlying demand trends as evidenced by Trace data, sales pull-through and other metrics we track. Growth rates this quarter are impacted by unusual year-over-year comparison. Consumables grew 1% this quarter compared to a growth rate of 20% in the third quarter of 2024. Capital equipment and other revenues grew 67% this quarter compared to a decline of 33% last year. When looked at on a 2-year or on a multiyear basis, compound annual growth rates in consumables continue to be double digits and growth rates in capital are low to mid-single digits. The incremental value of new contracts secured in the third quarter reached $124 million, marking a robust year-over-year increase of 48%. As we've talked about this before, it's highly dependent on the timing of large contracts that come up for bid throughout each year. This achievement represents the strongest third quarter contracting performance in our company's history, fueled by the outstanding results delivered by our U.S. commercial team. Notably, as of the end of the third quarter, the amount of unrecognized contract revenue expected to be realized within the next 12 months was $507 million, representing a year-over-year increase of 17%. As a reminder, contract-related shipments account for approximately 1/3 of our overall revenue. This quarter, we shipped 66,000 technology boards and monitors, reflecting a strong increase of 8% compared to the 61,000 drivers shipped in the same period last year. This growth underscores the sustained and accelerating demand for our products, which continues to exceed our initial forecast for the year. Moving down the P&L. Our gross margin of 62.2% experienced a decline of 70 basis points compared to the prior year due to tariff impacts outweighing operational improvements. While operational enhancements contributed to a gain of 70 basis points, tariff-related costs caused a margin erosion of 140 basis points. Tariffs increased our cost of sales $5 million this quarter, aligning with our expectations. Our operating margin of 27.1% increased by 450 basis points year-over-year, driven by operational improvements of 590 basis points, partially offset by a tariff impact of 140 basis points. The cost optimization measures implemented late last year have contributed to solid margin expansion this year despite tariff [ pressures ]. Excluding the effects of tariffs, operating margin for this quarter would be 28.5%. We are proud of the substantial margin expansion our team has achieved in recent years and are confident in our ability to continue improving margins going forward. Our margin expansion alongside solid revenue growth was a key factor contributing to adjusted earnings per share of $1.32, representing a 38% increase from the prior year. We generated strong operating cash flow of $57 million and secured net proceeds of $328 million from the strategic divestiture of Sound United in late September. These proceeds were proactively deployed to repay $56 million of outstanding debt and to optimize capital structure through repurchasing $163 million of common stock by the end of the third quarter. The remaining proceeds were further invested in repurchasing an additional $187 million of common stock in the fourth quarter. Collectively, we have returned $350 million of capital to shareholders through the repurchase of 2.4 million shares over the third and fourth quarters, underscoring our disciplined approach to capital deployment and our unwavering focus on enhancing long-term shareholder value. Now moving to our updated fiscal 2025 financial guidance. We are tightening our full year revenue guidance to be in the range of $1.510 billion to $1.530 billion compared to a prior guidance range of $1.505 billion to $1.535 billion. Changes in our revenue guidance are driven by 3 factors. First, we are tightening revenue range by $5 million on the top and bottom end. Second, we are accounting for foreign exchange benefits of $4 million realized to date. And third, we are accounting for the impact of a switchover to a distributor model in some international markets that creates a $6 million headwind to our full year revenue guidance that has no impact on profitability. Please keep in mind that we have an extra selling week in the fourth quarter of this year. This contributes approximately 1 point to full year 2025 growth. As a reminder, this benefit has been primarily offset through this fiscal year by a variety of factors, including revenue loss from discontinuing product lines at the end of 2024, our shift to a distributor model in some international markets, among other factors. In 2026, we will return to a typical 52-week fiscal year and provide more details when we initiate formal 2026 guidance. Moving down the P&L. We are raising our operating margin guidance to be in the range of 27.3% to 27.7%, representing an increase of 25 basis points at the midpoint versus our prior guidance range of 27% to 27.5%. And we are raising our earnings per share guidance to be in the range of $5.40 to $5.55 compared to our prior guidance range of $5.20 to $5.45. This represents an increase of $0.15 at the midpoint, primarily driven by improvements in operating margin contributing $0.05, the benefit from share repurchases adding $0.08 and a reduction in interest expense accounting for $0.02. In conclusion, our third quarter results highlight the strong underlying demand for our products despite challenging year-over-year comparisons. We delivered solid contracting performance, successfully securing new business for our technologies alongside higher-than-expected demand for our technology boards and monitors. Our business' exceptional earnings power remained evident with continued significant improvements in operating leverage. Looking forward, we are confident in our ability to close out the year strong, driven by accelerated growth in consumable revenue and solid execution of contracts. With that, we'll open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Rick Wise with Stifel. Frederick Wise: Great to see the strong performance this quarter. Maybe just it's hard to not start off with the outperformance and the resulting guidance. How do we think about the rest of the year and the potential for -- I mean, what can I say for further outperformance in the short run? What would the drivers be some of the new contracts or new product launches? And maybe -- I know it's early to ask about '26. It's hard to resist. How do we envision this setting us up for '26? Micah Young: Yes. Thank you, Rick. First, I'll start off with -- we're not going to give -- we typically don't give guidance on '26 or the next year on the third quarter call. What I can kind of hit on, and we'll talk about that more later in the year. What I can hit on is where we see the strength in our business. Number one is in the contracting that's picked up in Q3. We expect a strong finish in Q4 to close out the year. We expect that's going to drive a good acceleration in our consumable growth. We talked about unusual comps being in the first or in the second and third quarter this year, and those comps normalize throughout the year. So we expect a very strong finish in the fourth quarter with increased shipments in consumables. And that will set us up well as we move into next year. Catherine Szyman: And as you think about the profitability side, part of it is due to the share buybacks, right... Micah Young: Yes. So if you look at the change in EPS guidance, as I laid out, we're up in the guide at the midpoint by $0.15. $0.08 is coming from share buybacks, but we have about $0.05 coming from the operational improvements that we've been making. We continue to see strong expansion of margins this year. A lot of that was throughout the past year, we've done a lot of optimization of costs, becoming more efficient with our cost structure, and that's paying dividends this year. Frederick Wise: Great. And just as a follow-up, Katie, obviously, thank you for clearly laying out the 3 priority areas. But just to take one of them, you've been very focused on elevating commercial excellence or enhancing commercial excellence at Masimo. Last quarter or you've recently made multiple hires, realigned the sales force structure to be more regionally focused rather than specialized by product. Just maybe at a high level, I know we'll hear more in early December, but where are we in that process? Or are you pleased with where you are? How much more to go? What's the impact going to be? When are we going to see it? Aside from that, I have no questions. Catherine Szyman: Thanks a lot, Rick. So yes, like how you said that, that essentially we focus on enhancing and elevating and it's really focused on our specialty categories to give them more resources to match our success in pulse oximetry. So you see more of a partnership of our pulse oximetry top sales force being able to help pull through the reps in the specialty categories. And we've made strategic investments in capnography, hemodynamics and brain monitoring to give those platforms similar commercial horsepower to what we have in pulse oximetry. And so the question about the timing, we're starting to see small wins, but it's something with kind of the length of our sales cycle here at Masimo. You'll see it really begin to pick up more and more momentum into next year. Operator: Your next question comes from the line of Jason Bednar with Piper Sandler. Jason Bednar: Congrats on a good quarter here. Katie, I want to start with you and I hope you can expand on the comments you made of the share gains in Philips. I think you said being greater over the next 5 years versus what you've seen in the last 5 years. Help us with maybe where you're currently at with Philips share and/or what kind of share gain you've seen in the last 5 years just so we have some kind of baseline. And don't get me wrong, I really like the confidence, but can you give us a bit more on what gives you that confidence to make that statement? I'm assuming this is coming from some of those advanced parameters, maybe building off the question you were just -- or the answer you just gave to Rick, but any additional color you can provide here would be appreciated. Catherine Szyman: Yes. Thanks, Jason, for the question. So with -- we have a duty of confidentiality with Philips, and so we can't disclose our specific position in their installed base. But what we do know is that when the first agreement was signed back in 2016, Masimo had relatively almost 0, very, very low market share in the Philips installed base. And so we've kind of gotten to a runway, but we still see ourselves as disproportionately low on a relative market share position versus what we are kind of for the whole market, right? So if you think about us as globally in the 50-ish, 50-plus percent market share globally, we're still under-indexed in the Philips installed base, and that's what we see as this opportunity to run in the installed base. Jason Bednar: Okay. And I'll ask one follow-up and then a separate question. When you answered that question, I think you emphasized globally. Is that the opportunity more so than advanced parameters with Philips? And then Micah, a question for you here. And sorry, this might be a little long, but I apologize in advance. So the incremental contract figure was really strong. It seems like you're on pace for a normal year or maybe a better-than-normal year for that metric. But you've been focusing this all on the unrecognized contract revenue figure that's going to be recognized over the next 12 months. That was up 17%. I'm sure you're going to say mid-teens plus is a bit hotter than where we should be -- what we should be thinking about for next year. So -- but as we try to aggregate and dissect these data points that we all now have, how would you counsel us to interpret the trend line in that unrecognized contract revenue? Does that give you confidence in delivering on your revenue growth objectives as we look out over the next couple of years? Micah Young: Yes. Let me start there with the contract revenue. If you -- as a reminder, I mean, 1/3 of our revenues are contracted and come through in shipments of those contracts. So that's important to understand. So we're getting good growth, and that's really coming through in our [indiscernible] incremental that's feeding into the growth that we're seeing in our -- what's going to be recognized within the next year. And as you know, I mean, it's all due to timing, size, duration of contracts, so that can ebb and flow. But we are seeing very good strength. And I think that's going to be a good driver for us. It's not to indicate that our overall revenues grow at that level, but it's good strength coming from the contract wins we're getting this year. Jason Bednar: And just a follow-up question on the... Catherine Szyman: Yes. Jason, on the relative installed base, I would say it's hard to be specific. I would say it's about equal between those 2 categories. Operator: Your next question comes from the line of Michael Polark with Wolfe. Michael Polark: I have a question about the third quarter performance, 1% consumables growth. You called out a tough comparison. Capital was quite a bit better from a growth perspective. Can you just remind us on the third quarter last year, what was unusual about that compare and kind of maybe reassure us that the consumables line specifically will return to a more normal rate of Masimo growth in the quarter and year ahead. Micah Young: Yes. Thanks, Mike. So one place to start would be inpatient admission growth last year was running at about 4%. One thing we talked about through the first 3 quarters of last year is we kept seeing a stepped up consumer revenue, and that was being driven by higher ordering patterns from customers. So it's created a tougher comp, 20% growth last year in the third quarter. And -- but if you look at it and what I pointed out to in my prepared remarks is that if you look at it on a 2-year basis or a multiyear basis, you see double-digit growth in consumable revenue. So -- and then very similar, we have another kind of comp going the other direction with last year, our capital and other revenues was down about 33% due to [indiscernible] timing. And on a 2-year stack basis, that growth rate is more in line with low to mid-single digits. So we're seeing things come through as we expected this year. Again, just facing the unusual comp that we've talked about coming into this year, by the time we get to the end of the year, we'll see that normalize out. Catherine Szyman: I was going to say that we expect to see increased shipments associated kind of in the back half -- in the Q4 time frame. So we also see it kind of accelerating as we get into Q4. Michael Polark: For the follow-up, Micah, I just want to ask on the $6 million distributor call out. I just want to understand exactly what that is. So you're shifting from a distributor model to direct and that's creating the $6 million headwind, can you confirm that? And then can you also confirm that, that $6 million that's new news for your guidance that you're absorbing that in today's update. It wasn't in there before. Micah Young: That's correct, Mike. So if you look at it, our guidance does include that $6 million revenue headwind for the full year with a large portion of that coming in the fourth quarter. We are moving to a distributor model in one of our -- some of our international markets that's causing that headwind. We think this is the best decision as we look forward because it will give us more durable growth, and it's neutral to our earnings and margins. So we think this is going to drive more sustainable growth within the region. Catherine Szyman: But it's kind of -- it's going from direct to distributor, not distributor to direct [indiscernible] on the question. Operator: Your next question comes from the line of Jayson Bedford with Raymond James. Jayson Bedford: Congrats on the progress. Just on the last line of questioning on consumables, was there anything kind of onetime-ish in there? Specifically, I guess I'm just looking at the sequential move from 2Q to 3Q. Micah Young: Yes, Jayson. So sequentially, just to remind you that we had a sizable consumer revenue in the second quarter this year, and that was driven by that large international contract. We expect to see higher shipments in the fourth quarter under that contract as well, and that's going to contribute to our increase in consumable revenue in the fourth quarter. So that's given us the confidence to -- in our accelerated growth rate that we expect in Q2. Jayson Bedford: Okay. That's clear and helpful. Katie, I think you called out growth in advanced monitoring. Would love to -- if you could give us a little bit of either the growth rate there or some context as to the growth in 3Q versus the first half of the year. Catherine Szyman: Yes. So thanks for the question. We really don't disclose kind of the details until the end of the year in terms of breaking out the different product line growth rates. But suffice it to say that we are seeing an acceleration in the growth rate in the advanced monitoring categories. It's really consistent with the strategy. So it's -- we have a goal kind of in that double-digit range for those categories. And so we are seeing us deliver an acceleration of that as we implement the cross-selling strategy. Operator: Your next question comes from the line of Mike Matson with Needham. Michael Matson: So just one on the wearables strategy. So is this really based on products, hardware that you already have like the W1, and I think you have like sort of wireless pulse oximeter. Or is it going to require new hardware? And what's with the timing of that, if so? Catherine Szyman: Yes, that's a great question. So we already have launched a product called the Radius VSM. And that product is actually being piloted at 5 major institutions here in the U.S. and then a couple of institutions outside the United States. And honestly, Masimo has been working on perfecting that technology from a pilot basis for the last 2 to 3 years. And so what we're seeing is that over time, we expect to actually go more for a full market launch with that. So we -- that product already exists and is in good shape. Related to the W1, the W1 is used more for what I would call telehealth in the hospital to home category. And for that, we do have some pilots that we're working on outside the United States where you have more centralized health care where it's easier to do that through virtual hospitals, et cetera. So that product is available, but we haven't actually decided yet how we will launch that inside hospitals. Does that make sense? And then the last product we have is a product called Radius PPG, which is a very simple wrist-worn unit that can tap in and WiFi connect that has a pulse oximetry on the patient's hand. That product is also in pilot phase and would be part of what we're going to get a full connection with the Philips monitors. And so we'll be able to launch that. Right now, we've also piloted that in several cases with Philips. But as that actually gets finalized with Philips with the collaboration, we would be able to launch that. Probably -- that's harder to say with the Philips timing, but probably in the next 1 to 2 years. Michael Matson: Okay. Great. That's helpful. And then the -- just on the AI algorithm. So what -- can you give us any more detail on the timing there? And is this something where you've already -- like the opioid monitoring, I think you've already got an FDA clearance or something, but are any of these going to require navigating the FDA? Will it be 510(k)s? And what do you have left to do there, I guess, to commercialize these things? Catherine Szyman: Yes. So thanks. So the first thing for opioid-induced respiratory depression, or OIRD is easier to say, 10x fast. But -- so for OIRD, we actually, as I mentioned, have it a clearance for the algorithm. What we are doing is actually submitting it to get it on to our monitor and onto our new Smart set technology. So we would imagine that launching towards the end of next year. And so all of this will be covered at our Investor Day, the first week of December. Operator: Your next question comes from the line of Matt Taylor with Jefferies. Matthew Taylor: I guess the first one I wanted to ask about was just to clarify on the Q4 guidance. It looks like about 10% growth at the midpoint. So with the extra week days adjusted, would that be roughly 6% to 7% growth? And I guess what are the puts and takes impacting the growth rate in Q4? Micah Young: Yes. So for the fourth quarter growth, we're expecting a stronger or acceleration in growth rate from consumables. Capital, we're expecting that to be lower in the fourth quarter. So that strength should come from the growth that we're expecting in our consumables business. And we talked about how we'll see acceleration part of that coming from that large OUS contract shipping more in Q4. We expect to see the performance coming off the contract than we did in the third quarter and to finish out the year strong in that area. So I'd say outsized growth in consumables, partially offset by the softness more in capital in terms of comparison year-over-year. Matthew Taylor: And then can I ask a follow-up on the Philips agreement actually? So I just remember from 2017, '18 time frame when you struck the first one, I think the commentary was that through the course of that first agreement, you had thought your share would kind of get up to your natural share. But then today, saying it's still well below that and you have an opportunity to gain even more share over the next 5 years. So I just wanted to kind of do a postmortem of sort of what happened over the last 5 years and talk -- maybe have you talk about why the next 5 could be better. Catherine Szyman: Yes. So thanks for the question. I mean -- so I wasn't here, I guess, during that time. But what you have is the fact that when you start at a very low position and how contracts move once every 5 years, it takes a little bit longer to gain your share position inside an installed base than you think. So I would say that what happened is we probably gained a lot of the share that was anticipated, but we still have a gap that we're excited about trying to close. Operator: And your final question comes from the line of Vik Chopra with WF. Vikramjeet Chopra: Maybe just on Sound United, after using the sale proceeds to repurchase stock and pay down some debt, maybe just talk about what your broader capital allocation framework is going forward. Micah Young: Yes. Thanks, Vik. We'll outline a lot more at Investor Day, but at current levels, we would definitely lean into share repurchases going forward. We also -- another important area for us is tuck-in technologies to continue to augment our portfolio in the hospital across whether some of those areas and ways of growth that we talked about earlier. So as we look into wearables or some additional sensors or monitoring capabilities in the hospital, that's another area of capital allocation. So those are kind of the 2 main areas of focus for us, especially with where we're sitting at levels. Vikramjeet Chopra: Great. And then just a quick follow-up. I appreciate all the color you provided on Philips. But I'm just curious at a high level how this expanded partnership with Philips will influence your product road map and perhaps your revenue mix over the next few years. Catherine Szyman: So thanks, Vik, for the question. I think that we -- since the majority of our -- a large portion of our advanced sensors, even the rainbow sensors are sold through the Philips monitors. It's going to, I think, help us to continue with the same product mix. The question is really for advanced monitoring categories, including kind of brain and capnography, et cetera, can we get a stronger presence? And so some of that is still underway. It takes a while to get our sockets out there. So it's one thing if they can add it, but then it's another for us to be able to get our sockets out there. So I would say it's not going to dramatically change our product mix in the short term, but it will be something that just continues to help us drive our growth and presence, but the mix itself will probably stay about the same. Operator: At this time, I will now turn the call back over to Katie Szyman for closing remarks. Catherine Szyman: So first of all, I just want to thank everyone for joining today and really thank you for your interest in Masimo. I'd like to welcome you all to listen to our upcoming Investor Day on December 3, where we look forward to reviewing our strategic focus areas, detailing our product pipeline and outlining our longer-term financial outlook. Thank you all for joining, and have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to Ascent Industries Q3 2025 Earnings Call. Today's speakers are CEO, Bryan Kitchen; CFO, Ryan Kavalauskas; and the company's outside Investor Relations adviser, Ralf Esper. We will begin with prepared remarks followed by Q&A. Before we go further, I would like to turn the call over to Ralf Esper as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Ralf? Ralf Esper: Thanks, Dana. Before we continue, I would like to remind all participants that the discussion today may contain certain forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially. Ascent advises all of those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties. Ascent does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include non-GAAP measures. In accordance with Regulation G, the company has reconciled these amounts back to the closest GAAP-based measurement. The reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company's website at ascentco.com. Please note that this call is available for replay via webcast link that is also posted on the Investors section of the company's website. Now I'd like to turn the call over to our CEO, Bryan Kitchen, to walk you through the third quarter results. Bryan? J. Kitchen: Thanks, Ralf. Q3 was a breakout quarter for Ascent, the strongest earnings performance we've delivered since 2022 and our first full quarter operating as a pure-play specialty chemical company. Revenue grew 6% sequentially to $19.7 million. Gross profit rose 20% to $5.8 million, lifting margins 400 basis points to 30%. Adjusted EBITDA improved by more than $1.7 million quarter-over-quarter, swinging from a modest loss to a 7% positive margin. As a subsequent event to this quarter, these gains aren't episodic. They're structural. They reflect disciplined execution, strategic focus and a business model that's working. Over the past 6 quarters, we've tightened cost structures, optimized mix and built price and margin discipline across every part of our organization. Those moves are now showing up directly in profitability with gross margin improvement tracking ahead of plan. As I've said before, the market didn't do it to us, and it's not going to fix our performance for us. We own our outcomes. Every game we deliver comes from relentless self-help and execution, and that's what's driving the structural earnings power of this platform. We've strengthened the foundation this quarter with successful implementation of our new ERP system on time, on budget and without disruption. It delivers a single source of truth and the visibility to manage growth at speed. Our team turned what's often an enterprise crippling endeavor into an enabler of scale, control and customer responsiveness. Simply put, Ascent has moved well past stabilization to acceleration. Our commercial engine is gaining speed, customer relationships are deepening, and our pipeline is converting at exceptional [Audio Gap] levels. This is the inflection point where stabilization meets commercial momentum and where we begin to unleash our fullest earnings growth potential. In Q3, we welcomed 10 customers across our sites for audits, trials and joint development workshops. That kind of engagement doesn't happen by chance. It's a direct reflection of trust and the capability that we've been building. When customers visit, they meet our operators, our engineers, our chemists, our quality professionals and service teams that drive our success, and they see firsthand what makes Ascent different. This is our Chemicals as a Service model in action, agile, customer [Audio Gap] customer-centric and outcome-driven. We meet customers where they are, helping them solve real-world problems faster with less friction and more flexibility. And that approach is translating to results. Last quarter, I shared that we added roughly $25 million of new projects in Q2. By the end of Q3, nearly half or 49% had converted into customer commitments. That's an incredible success rate and a clear validation of our model and our execution. About 65% of those commitments were related to custom manufacturing opportunities and 35% were product sales, long-term, high-value relationships in key segments like case, infrastructure and water treatment. They represent repeat, trust-based partnerships that deepen our customer relevance and extend the durability of our growth. Of course, the CEO wants all of those commitments to turn into purchase orders and shipments tomorrow morning. And yes, our sales and operations team get more than a few calls from me checking in on exactly that. but we know that implementation timelines vary. We know that customers are qualifying new technologies. They're rewiring their supply chains, and they're working down inventory. What matters is the direction is unmistakable. The commercial flywheel is turning and the earnings leverage is building. And that momentum continues to grow. In Q3, we added another $18.2 million of selling projects into our pipeline, extending a robust base that will fuel growth well into 2026. Over the past 6 quarters, Ryan and I have emphasized the strategic recapitalization of SG&A, rebuilding the commercial and technical engine that drives our growth. Those deliberate investments in sales, marketing and revenue operations have reshaped our go-to-market capability and are directly reflected in the record pipeline activity and customer engagement that we're seeing today. Now we're extending that focus to R&D, making targeted investments in people and capabilities that accelerate product and process development, shorten scale-up cycles and strengthen our technical differentiation. These investments are already delivering results through new chemistries, improved manufacturability and deeper integration with our customers' innovation pipelines. What gives us confidence in this next phase is the strength of our operating platform. Our quality and service have never been stronger. Across every site, teams are debottlenecking processes, boosting reliability and grinding out waste with incredible urgency. That discipline is the backbone of our margin expansion story, and it allows us to grow efficiently, protect profitability and deliver for customers in any environment. Every investment we make, whether in people, processes or technology is deliberate and return-driven. Self-help at Ascent means disciplined capital use, sharper execution and improvements that compound into lasting earnings power. Our priorities are clear: drive organic growth by filling our available capacity with high-margin opportunities; deepen customer partnerships through innovation, reliability and speed and maintain balance sheet strength and disciplined capital allocation to accelerate earnings growth. We're not waiting for the market to recover. We're creating our own. Ascent is stronger, faster and laser-focused, and we're building a company to perform in any environment. Our culture is turning execution into endurance and endurance into compounding value. The numbers tell the story, but our people write it. To the entire team at Ascent, grit, hustle and ownership are what make this possible. You are our unfair advantage. Our foundation is solid. The distractions are nearly gone, and the flywheel momentum is accelerating. And the best part is, we're just getting started. With that, I'll turn it over to Ryan to walk through our financial results in more detail. Ryan? Ryan Kavalauskas: Thanks, Bryan, and good afternoon, everyone. I'll start by echoing Bryan's earlier comments. From an operational perspective, the transition to a pure-play specialty chemical platform is complete. We're now zeroed in on structural margin improvement, capacity and throughput lift and durable growth in target segments. Let me walk through the quarter and how that translated to our results. Revenue from continuing operations was $19.7 million, down 6% versus the third quarter of last year, but importantly, up nearly 6% sequentially from Q2. The modest contraction in revenue was driven primarily by a low single-digit percentage decline in volume, which created the bulk of the shortfall. Pricing was a partial tailwind, reflecting selective increases and product mix contributed incrementally positive gains as higher-value programs continue to scale, though not yet at the level needed to fully offset the volume impact. In other words, while demand softness weighed on shipped pounds, pricing discipline and ongoing portfolio upgrading helped cushion the impact, reinforcing that the earnings profile of the business continues to strengthen even in a softer volume environment. The evidence of that stronger earnings profile can be seen in gross profit increasing to $5.8 million with gross margins expanding to 29.7%, up from 26.1% in Q2 and just 14.4% in the prior year period. For those tracking our progression, Q1 gross margin was 17.2%, Q2 was 26.1% and Q3 is now 29.7%. We have said publicly that 30% was our gross margin target. As utilization improves across our network and we layer operating leverage rebuilt earnings base, we now believe meaningful upside above 30% is achievable on a sustained basis with the right execution. Moving to SG&A. Expenses were $6.3 million compared to $5 million in the prior year period. About $0.5 million of the current quarter's SG&A was tied to residual divestiture and legacy segment activity, partially offset by other income. As Bryan alluded to, we view the modest increase as part of the foundational investments we've been talking about each quarter that ultimately scales and drives growth. With that foundation beginning to produce results, you are beginning to see the earnings power of the business more clearly. Adjusted EBITDA for the quarter was $1.4 million, an increase of $2.1 million year-over-year. Excluding the legacy divestiture noise, adjusted EBITDA would have been $1.6 million. Turning to the balance sheet. We ended the quarter with $58 million of cash, no debt and $13.7 million of incremental availability under our revolver. That is a position of strength and one we intend to preserve. M&A still remains part of our long-term capital allocation strategy. But as we've evaluated what's in market today compared to returns on internal growth, we've been very comfortable being patient. We said before, and I'll say it again, we won't deploy capital simply for the sake of activity. Our capital priorities remain clear and consistent: protect the balance sheet, prioritize free cash flow and deploy only when the returns are undeniable. When the right opportunity comes, whether internal or external, it will compound value over years, not just quarters. The work of the past 18 months, stabilizing operations, rebuilding talent, exiting distractions, sharpening commercial focus doesn't always show up in a single quarter, but it shows up in trajectory. 3 straight quarters of margin expansion, stronger commercial wins, all with meaningful capital and capacity still ahead of us. That's why we're confident in where the business is heading. With that, I'll turn it back over to the operator for questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Gregg Kitt with Pinnacle Fund. Gregg Kitt: Bryan and Ryan, congratulations on a great quarter. Can you help me make sure I understood correctly? You said that you added $25 million of new projects in Q2 and that 49% converted into customer commitments. So does that mean that you won approximately $12.5 million of new business in Q3? J. Kitchen: That's correct. So that $25 million was in reference to the pipeline that was built up in Q2 -- in Q3, we won roughly half of that business opportunity. So as I mentioned earlier, from a phasing standpoint, that will be feathered in over time. We're looking forward to that hitting kind of full run rate clip as we get into 2026. Gregg Kitt: And when I think about that win rate or that conversion rate, I think in the past on the Q2 call, you talked about 14% being more like industry average. You had 18% in Q2. So you're betting above average in Q2 and obviously, 49% is excellent. Is there some reason why your conversion rate or your win rate was so high in Q3? Can you give me some color? J. Kitchen: I mean I really think it gets back to the health of the projects that are making their way into the selling project pipeline. So kind of rules of engagement, right? Nothing goes into our pipeline that we can't make, right? So either we've made the product before or we know that we have the capabilities to manufacture it. Underpinning both of those things, though, is a specific customer need. So in other words, there's an expressed requirement from a customer that is driving us to pursue that particular activity. So I think those things, along with just improved execution is really the reason why we were pretty successful in the third quarter. So proud of what the team has done in Q3 and looking forward to continuing to inch that up over time. Gregg Kitt: Is there a way to think about how much of that business is from existing customers versus new? I think the prior couple of quarters, you tried to help give some color around that. J. Kitchen: Yes. It was in the last quarter, so that was about 50-50, 50% custom manufacturing -- sorry, 50% existing customers, 50% new customers. Gregg Kitt: For Q3? J. Kitchen: Yes, for the Q3 wins. That's right. Operator: Our next question comes from Eric McCarthy with InLight Capital. Eric McCarthy: Bryan, Ryan, great quarter. It's really good to see the progress that you have made in such a short while. As I'm looking through the new business that you've added to the funnel and then converted to revenue, what are some of the end-user markets that are really driving some of the new business? J. Kitchen: Yes. I think in this last quarter, if you think about it in the context of that $12.5 million of new business that we were awarded, certainly, case, so coatings, adhesives, sealants, elastomers, water treatment and other infrastructure-related applications. That was kind of the core. Certainly, we gained in other areas like oil and gas, but those 3 are really the driving force behind our wins in the last quarter. Eric McCarthy: And then more on the big picture business side. When I look at the structure of the Board, many of the directors are more tied to the legacy business lines and some have even been actively selling the stock. What are the organization's plans to maybe align the Board more with the future strategy and what we have in place now and maybe even getting someone like yourself on the Board? J. Kitchen: Yes. Look, I appreciate the question. I think a similar question was thrown over the fence in our last earnings call. I mean, look, our Board has been incredibly supportive of Ryan and I. When we came in the door last year, they have done exactly what they committed to do. So for that, we're certainly grateful. But you're right. I mean, as we kind of look forward to the evolution of the business and where we're going as a company, no longer do we have tubular assets, we're a pure-play specialty chemical company. And the Board is actually in the process of reimagining what that future forward complement needs to look like moving forward. They've been kind enough to solicit my input and the input of others. So we're making progress. I think we'll have some information to share in the coming quarters. And yes, that's the short story. Eric McCarthy: Okay. That's great news. I guess in that same vein, is there anything about what you're seeing in the landscape, both operationally and from a corporate perspective that is front of mind for you is giving me any concern that keeps you up at night? J. Kitchen: What keeps me up at night. Ryan, I'll let you jump in on this one as well. I mean I think for me, it's all about retention, right? So you know, right, transformations aren't easy. Done the right way, they're just world-class hard, a lot of tough decisions, a lot of late nights, crazy pace. So for me, it's just making sure that we do everything in our power to retain the talent that has gotten us to this point, and that's going to take us that next phase in our transformational journey. So that's what keeps me up at night. Ryan? Ryan Kavalauskas: Yes. I think as we move into this next phase of growth and we're moving through and past the stabilization phase, it's how do we scale and how do we make those investments appropriately. How do we do that without diluting margins? I think that is really the next phase and challenge for us is how do we continue to make these gains, win new business and scale the organization after we've kind of rightsized the cost structures in a lot of different places, challenged the team, stretch the team as much as we can. So that is really the focus. I think that is really our big challenge coming up is can we operationally execute in pace with the commercial team as they bring these wins. And I think we're doing a good job today, and we've got to keep going. And I think that's really our focus and really what I think if you had to say what keeps me up is how do we do that and how do we do that appropriately in the next few quarters. Operator: Our next question comes from the line of Adam Waldo of Lismore Partners LLC. Adam Waldo: I hope you can hear me okay. J. Kitchen: We can. Adam Waldo: Great. Well, solid quarter, and I wanted to probe and expand on Ryan's prepared remarks, comment a little bit about gross margin. I think, Ryan, you articulated that you felt comfortable with the ability to sustain a 30% gross profit margin going forward on a pure-play business now that you reached that stage of corporate development. Is it fair to say that there may be some additional headroom beyond that on an intermediate-term basis just to the extent that you're comfortable commenting on that? Ryan Kavalauskas: I do. I don't think we're going to see kind of the rapid expansion of gross margins we saw this year. We did a lot of work of purposely repositioning the product portfolio and really attacking costs. So I think for us, we got a lot of those gains early on. Here, I'd expect basis point improvements going forward. As I just alluded to Eric, we have to grow appropriately. And I think as we scale and find where the pain points are, we are going to have to invest in people, both at the operational level and in the back-office level. So I expect there to be some margin expansion, especially with layering on volumes onto this optimized base that we have. So we should see some operational leverage pull through. But again, I don't think it's going to be this 300, 400 basis point increase every quarter, but I do expect some nominal increases as we keep going. So how far up that can go remains to be seen, but we do -- we have a tremendous amount of capacity. We have a lot of room to pull on that operating leverage. And I think if we are mindful of where we make those investments and how we scale, I think I expect to see nominal increases in gross margin throughout the next few quarters. Adam Waldo: Okay. So 30% plus gross margin in the coming 1 to 2 years, modest sequential improvement [Technical Difficulty] modest headroom. [Technical Difficulty] adjusted EBITDA margin 15%, you're already at 7% this quarter. At what level of adjusted EBITDA margin do you need to be to achieve sustainable positive operating cash flow in the business? Ryan Kavalauskas: Yes. I mean we're almost there. So if you kind of pull out some of the legacy Munhall activity and formerly -- former steel assets and you look at just our Chemical segment with corporate layered on, we're right there today. So I feel comfortable that if we can get up to 10%, that should be where we need to be to sustain kind of positive cash flow going forward. Like I said, we're effectively there today. So we just need to keep this kind of improvement going, be mindful of how we're investing in SG&A. But that high single digits, low, low teens is where we effectively are. And I think if we can kind of just keep continuing to not only build off this base, we should see cash flow generating. Adam Waldo: Okay. one more, if you permit me. On the Munhall divestiture, and I apologize, I got on the call late. Did you make any prepared remarks, comments as to the update on your hope for timing on closing that wind down? J. Kitchen: No, I didn't offer any prepared remarks on that. But what I will say is we are efforting to getting this completely off of our books by the close of this year. We're making good progress. We're not over the finish line yet. But I would look for 2026 to be a clean sheet of paper. Adam Waldo: Fabulous. Okay. Last question, if you permit me. [Technical Difficulty] Maintenance CapEx in the business at your current unused capacity. How do you think about the IRRs from share repurchase as you get over that 10% adjusted EBITDA [Technical Difficulty] based on multiples you're seeing in the market right now before any potential [indiscernible] synergies or revenue synergies? J. Kitchen: Adam, I hate to bring it to you, but we could not hear hardly anything that you just said that you... Operator: We're having a hard time hearing you. Yes, I apologize. Do you want to try calling back in or... Adam Waldo: If you can't hear me now, I'll call back in. I apologize. Operator: [Operator Instructions] Our next question comes from Gregg Kitt of Pinnacle Funds. Gregg Kitt: One of the other more encouraging statements that I heard you say, Ryan, was that you're very comfortable being patient on acquisitions right now. And it sounds like in part, that's because you're winning business organically and maybe that's at a rate more than what you previously thought. I think when I talked to both of you earlier this year, my thought was that maybe you'd go look at acquiring some proprietary products like a portfolio that could help accelerate your ramp to that $120 million to $130 million of revenue. It seems like you're winning business organically at a rate where maybe that you don't need to do that. Could you give just a little bit of color around how you're thinking about product -- proprietary product portfolio acquisitions relative to your organic growth? J. Kitchen: Yes, sure. Great. Can you hear me okay? Gregg Kitt: I can hear you just fine. Can you hear me? J. Kitchen: Yes, I can. Yes. Just from -- look, from an M&A perspective, we're certainly active. We're just not -- we're not in a rush to do a bad deal. We were actually under an LOI in Q3. Obviously, that didn't move through, but that just goes back to our patience and how we're going to be good stewards of the capital that we do have. From a product perspective, certainly, we're very interested in acquiring product lines that could then be integrated in within our existing underutilized asset base. Obviously, that's a little bit more difficult to find, but we are efforting that. Gregg Kitt: And so because you have this opportunity to be patient on acquisitions, you have a bunch of cash, which is generating interest income in the meantime. I think maybe to piggyback on some of Adam's question, how do you think about your current balance sheet repurchase activity? And how do you evaluate -- I think you said what's an IRR on your -- a repurchase versus some other use? Ryan Kavalauskas: Yes. I mean what we like is we have the optionality right now. And I think that's a unique position for a lot of people in our industry who are just trying to kind of get by every quarter. So we look at it all holistically, we have been more successful at a faster rate in organic growth. We have a tremendous amount of upside within our own assets. So ideally, that is the safest, lowest risk return if we can find ways to allocate capital internally to growth CapEx, for example, operationally to support growth. That will be our first and foremost point of allocating capital. Like Bryan said, we've been looking at M&A. We've been looking at inorganic growth. But frankly, there's just not been a lot of assets out there that we feel are worth the distraction and that would generate the returns on a risk-adjusted basis to equal what we can do organically. And then we've always had the option to buy back stock. If the stock continues to stay at this level, we'll continue to be active in the market. We are buying back shares daily. It's a small amount. We took quite a bit of shares out of the float earlier this year. So we kind of just look at it holistically, and we're always keeping our ear to the ground on what's out there from an M&A perspective. But with the amount of idle capacity we have today, it doesn't make a lot of sense for us to go buy capacity, right? We have to fill our own plants. If we can find a product line that we can slot in, if we can find a new vertical to go into that's outside of the core ones that we participate in today, we'll look at that. So we do have some IRR benchmarks internally depending on where that investment goes, but we like the optionality point as we continue to kind of evolve and see where this business is taking us and see where we're successful, I think that's where we're going to be able to allocate capital and drive again, like organic first, and then we'll look at the other options. Gregg Kitt: One last question for me. Can you talk about some of the targeted R&D investments that you're making? How quickly can those turn into -- are those new products? You have the capability to manufacture it in your existing equipment and you're looking at how can you develop a new product? Or if you could flesh that out, that would be great. J. Kitchen: Yes. I mean I think first and foremost, it was the -- was hiring Prashanth, our new R&D leader. Prashanth's an industry expert, came to us by way of Olin and prior to that, DuPont. So within literally weeks, Prashanth was helping us crack the code on some product development challenges that we have had. He's leaned in. He's helped us resolve some process R&D-related challenges, so improving the manufacturability of products that we've developed in the lab and helping them scale up more efficiently and effectively in the plants. So he's already making a huge difference. Obviously, from a capability standpoint, we have lab capabilities today. There's probably some targeted investments that we'll be looking at making in 2026 to close a couple of capability gaps that we have from a lab equipment perspective. But really just really pleased with how Prashanth has leaned in and the impact he has made in such a short period of time. Operator: Our next question comes from the line of Adam Waldo of Lismore Partners LLC. Adam Waldo: Apologies for the earlier connectivity issues. I hope you can hear me okay now. J. Kitchen: Yes. Adam Waldo: Great. Okay. All right. So at the kind of 30% gross margin and with some headroom above that going forward over the next couple of years, what kind of variable contribution margins do you think you'll be able to achieve at the adjusted EBITDA margin line as you bring on -- continue to bring on strong levels of new volume? And then related to that, what do you think your current system-wide capacity utilization is presently? Ryan Kavalauskas: I'll speak to the incremental margin. So not to be kind of difficult here, but it's really the way our assets are set up, it's not a straightforward calculation where 1 pound equals x margin or incremental margin. So it's really dependent on the customer, the engagement, the product mix and where we make that product, right? So we have 3 plants today, depending on what it is and where it is, that's how we're able to kind of define that incremental margin pickup. So where we're at today, the business we're bringing in today, again, I think it's going to -- you're going to see incremental margin improvement on top of this going forward. So it's really difficult to say 5 million pounds a week million of margin. It's just really dependent on how this mix plays out, where we determine that it's the best place to fit those products into our current assets. So I would say incremental margin improvements as we keep going. Again, I don't expect tremendous pickups every quarter here just despite the volume growth. So that's kind of how I view the incremental margin gains. Bryan can speak to capacity. J. Kitchen: Yes. Just to add a little bit more color on that, Adam. I mean, so from a manufacturing process, some of the products that we make have a 6-hour cycle time. Some of the products that we manufacture have like a 48-hour cycle time. So obviously, the cost is very, very different from product to product from manufacturing-to-manufacturing locations. So we're not trying to be difficult, but that descriptor, it depends, it really does depend. From a utilization standpoint today, we're right around 50% utilized. So tons of runway for organic growth inside of the existing asset base with minimal capital requirements. I mean if you do a look back over the past 3 to 5 years, our average CapEx spend has been in that, call it, $3 million a year range. Moving forward, there's nothing standing in our way from being able to deliver $120 million to $130 million of top line through our existing asset base without additional material capital required. So tons of runway for organic growth, super excited about the momentum that's being built up from a commercial standpoint. We want to see those wins start hitting the income statement sooner than later. But the momentum is real and it's building. Operator: This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kitchen for closing remarks. J. Kitchen: Okay. Great. Thank you, Dana. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you again when we report our second quarter -- our third quarter, fourth quarter 2025 results. We'll get that right next time. Thanks a lot, everyone, and have a great evening. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to HealthStream's Third Quarter 2025 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] I will now turn the conference over to Mollie Condra, Head of Investor Relations and Communications. Please go ahead, Ms. Condra. Mollie Condra: Thank you. Good morning, and thank you for joining us today to discuss our third quarter 2025 results. Also on the conference call with me today is Robert A. Frist, Jr., CEO and Chair of HealthStream; and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and we may refer to in this call. So with that start, I'll now turn the call over to CEO, Bobby Frist. Robert Frist: Good morning. Thank you, Mollie. Welcome to our third quarter 2025 earnings call. It's always good to start a quarter off with this. In the third quarter, we achieved record quarterly revenues. They were up 4.6% from the third quarter of last year. Operating income was also up 16.5%, while net income was up 6.3% and adjusted EBITDA was up 7.9%, all over the same quarter last year. Now with the first 3 quarters behind us, we updated our financial guidance for the full year 2025 by keeping the same midpoints as indicated in previous guidance while narrowing the range for each of the financial metrics. Later in the call, I'll provide some exciting developments in each of our learning, credentialing and scheduling enterprise application suites, but stay tuned because I'm also going to describe our career networks, which are an emerging part of our business that we're really excited about. First, I want to highlight our recent acquisition of Virsys12, which closed on October 8. Virsys12 is a health care technology company that offers payers and health plans an innovative provider data management suite for onboarding, credentialing and network management. Right from the start, Virsys12 strengthens and expands HealthStream's entry into the payer and health plan space, which we entered around 15 months ago with the launch of Network by HealthStream. Over that time, we have seen strong demand in the payer market for a dynamic provider data management solution, and we've also identified the need to expand HealthStream's payer-related expertise to better address this market. Not only does Virsys12 provide us with an excellent software solution and an expanded customer footprint, combined with our Network product, we now have over 25 active accounts, and it also brings world-class payer market expertise to HealthStream's leadership team. We're excited both by the quality of the Virsys12 solution and the quality of the expanded knowledge of leadership HealthStream has gained through this acquisition. We believe those things together position us well for success in this newly declared, about 15 months ago, market. Before we go further in the call, I want to briefly summarize for those that are new to the business the business for the benefit of those that are hearing it for the first time. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing and scheduling the health care workforce through SaaS-based enterprise-class solutions, each of which are becoming more valuable because of the interoperability they are achieving through our hStream technology platform. The company holds 20 patents for its innovative products, which have been awarded -- and we've been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based. Through our new career networks, and we've coined that phrase, we have started to open our sales channels directly to health care professionals and nursing students across the continuum of health care training. We are profitable. We have no interest-bearing debt, and we report a strong cash balance of $92.6 million at the end of the third quarter of 2025. We are solely focused on health care, and more specifically, we're focused on the health care workforce and those preparing to enter it. The 12.6 million health care professionals and nursing students in the United States comprise the core total addressable market and target audience for our SaaS-based enterprise class solutions. At this time, I want to turn the call over to Scotty Roberts, our CFO, for a more detailed look at the financial performance, and then we'll circle back and do some business updates. Scotty, it's all yours. Scott Roberts: All right. Thanks, Bobby, and good morning. Now let's go over the financial results for the third quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Our revenues were a record high of $76.5 million, which is up 4.6%. Operating income was $7.6 million, which is up 16.5%. Net income was $6.1 million, up 6.3%. EPS was $0.20 per share, up from $0.19 per share, and adjusted EBITDA was also a new record high, coming in at $19.1 million and was up 7.9%. Revenues increased by $3.4 million or 4.6% and were $76.5 million compared to $73.1 million in last year's third quarter. Revenues from subscription products were up $4 million or 5.7%, while professional service revenues were down $0.6 million or 18.6%. Our subscription revenue growth was supported by continued strong performance from our core solutions with CredentialStream growing by 23%, ShiftWizard growing by 29% and Competency Suite growing by 18%. While a portion of the strong revenue growth in CredentialStream and ShiftWizard are associated with conversions from our legacy credentialing and scheduling applications, revenues from these legacy applications declined by $1.7 million compared to last year. Excluding the impact of the legacy products from the core business, the core business grew by 8%. Our remaining performance obligations were $621 million as of the end of the third quarter compared to $549 million for the same period of last year. We expect approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months and that 67% will be converted over the next 24 months. Gross margin was 65.3% compared to 66.5% in the prior year quarter, and gross margin was impacted by an increase in our cloud hosting costs and software licensing costs, primarily for the CredentialStream application and the hStream platform. Operating expenses, excluding cost of revenues, increased by 0.6%. Product development expenses were flat compared to last year. Sales and marketing were up 5.6% and were primarily from additions to staffing. Depreciation and amortization was up 7.4%, and this was primarily from capitalized software amortization. And general and administrative was down 13.3%, and that's primarily due to the lower rent resulting from the sublease of a portion of our Nashville office space and also lower stock-based compensation expense. Our net income improved to $6.1 million and was up 6.3% over last year. And finally, adjusted EBITDA came in at $19.1 million, which was up 7.9%, and adjusted EBITDA margin was 25% compared to 24.2% last year. And moving on to the balance sheet. We ended the quarter with cash and investment balances of $92.6 million compared to $90.6 million last quarter. And during the third quarter, we deployed $7.5 million for capital expenditures. We paid $0.9 million to shareholders through our dividend program, and we repurchased $6.9 million of our common stock under the share repurchase program that we announced in May. Our days sales outstanding improved to a record low of 33 days compared to 37 days last year, and this improvement resulted from more timely customer payments compared to the prior year. On a year-to-date basis, cash flows from operations were $50.1 million, up from $46.5 million in the prior year, an increase of 7.8%. On a year-to-date basis, free cash flows were down about $0.5 million and came in at $24.7 million compared to $25.2 million last year, and that reduction is primarily due to a $4.1 million increase in payments for capital expenditures. Ending the quarter with $92.6 million of cash and investments, free cash flows and no debt, we are well positioned to deploy capital to improve shareholder value. As a reminder, we maintain a disciplined approach to capital allocation and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of the profits back to shareholders in the form of cash dividends. And the fourth priority is that our Board may authorize share repurchase programs, which they did earlier this year. In fact, in May, our Board of Directors authorized a $25 million share repurchase program. And during the third quarter, we repurchased $6.9 million of our common stock, completing the full $25 million program. In regard to M&A investments, on October 8, we announced the acquisition of Virsys12 LLC, a health care technology company, which Bobby described earlier. The consideration paid for Virsys12 consisted of $11.2 million in cash, which takes into effect customary purchase price adjustments. It's also subject to a post-closing working capital adjustment. Up to an additional $4 million of cash consideration may be paid over a 3-year period following closing, which is contingent upon achievement of certain financial targets. In addition, we maintain an active M&A pipeline and continue to evaluate additional opportunities that align with our platform and product strategy. Now let's go over our financial outlook, which has been updated as we enter the final quarter of the year. We expect consolidated revenues to range between $299.5 million and $301.5 million. We expect net income to range between $20.3 million and $21.5 million. We expect adjusted EBITDA to range between $69.5 million and $71.5 million, and we expect capital expenditures to range between $33 million and $34 million. This guidance also includes the recent Virsys12 acquisition but does not include assumptions for any additional acquisitions that we may complete during the remainder of the year. Our revenue estimate includes contributions of approximately $900,000 from the Virsys12 acquisition, offset by a $3 million expected decline in our legacy credentialing and scheduling products. And finally, before I wrap up, in respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.031 per share, which will be paid on November 28 to holders of record as of November 17. Now I'll stop here and turn the call back over to you, Bobby. Thanks. Robert Frist: Thank you, Scotty. As we enter this last third here, I'm going to do things a little differently today. Typically, I follow Scotty's financial discussion with business updates on learning, credentialing and scheduling application suites, and we're going to do that. But before I do that, we want to reclassify and recharacterize some work we're doing. We've kind of coined this phrase career networks. And so I want to explain what we mean by that and what's happening there because it is actually very exciting. So let's talk about these emerging career networks, kind of what are they. It's an exciting new space for us. And after this update, I think you're going to share my excitement about that. So a quick framework. Our career networks provide value directly to the individuals who provide care. You can contrast that with our enterprise application suites, which provide value to the health care organizations, and then through them, to the individuals. So one set of solutions is geared to students and professionals, that's our career networks, and the other set of solutions is geared to businesses, that's our enterprise application suites. To really address the complex issues around today's health care workforce, we think you have to have both types of solutions. And I'll do one better. To really change the game, I think you have to connect those 2 in unique and powerful ways, and we're doing that through our common platform, which we call hStream. Those who follow us know that HealthStream has been steadily building robust solutions to support the lifelong development of individual clinicians, and we are now referring to those as our career networks. Prime examples of this include our myClinicalExchange network and our NurseGrid solutions, which empower individuals to build, track and evolve their professional identity, skills portfolio and career over time. This network includes over 250,000 clinical students using myClinicalExchange to prepare for their careers in health care and more than now 660,000 nurses using NurseGrid to manage and grow their career. myClinicalExchange streamlines the clinical rotation process for future clinicians, helping them match and schedule rotations required for graduation and licensure. These rotations not only deliver precepted experiential learning across nursing, allied health and medical disciplines, but they also expose students to diverse care settings and career opportunities within the organizations where they train. NurseGrid is the #1 app for nurses with over 660,000 monthly active users and more than 3 million social connections and a 4.9 star rating from 150,000 reviews in the Apple App Store. You could really think of NurseGrid as a social network. We like to do an analog, and, of course, maybe everyone likes to say this, but it is becoming, we believe, the LinkedIn for nurses in health care. I'll just give that as an example so you can kind of place it. It's a place for nurses to connect with colleagues, coordinate work and coordinate personal schedules. And that's a key interesting point there is they use it to coordinate their schedules, their personal calendars and their work calendars. They can also maintain a career portfolio. They can earn CEs directly as professionals. And similar to LinkedIn, users can discover learning that advance their careers, share career progress and explore work opportunities, full-time or part-time gig and travel assignments tailored to their specialty and location. And that's a relatively new capability in about the last 2 months. Now let me give you an example of how our hStream platform is connecting our career networks with our enterprise software application suites in ways that make both of them more valuable. When a clinical student or a nurse joins myClinicalExchange or NurseGrid, they either log in with or they create an hStream ID. This unique identifier is the key to HealthStream's platform-level identity management, which connects users to applications and organizes their learning data throughout their career journey. To date, users in our career networks have created 391,000 hStream IDs with approximately 6,000 new IDs added each week. A powerful example of hStream ID capabilities occurred just last month. We enabled users to automatically add their primary sourced verified credentials earned through the HealthStream Learning Center, our enterprise class learnings management application, directly to their portfolio, their career portfolio in NurseGrid. This seamless integration marks a significant step forward in empowering the health care professionals to manage and showcase their qualifications. It's a prime example of our hStream platform connecting the career network valued by the health care professionals to the enterprise application suite valued by the health care organizations. Now let's take a break here and turn our attention to the enterprise application suites that provide the foundation for who we are today and where we're going. Let's hit some of the highlights of the third quarter, and I'll take them in order. The learning application suite -- and again, enterprise class is called the HealthStream Learning Center. It's our flagship product, and it continues to be preferred in the market. It was named #1 best software application in all of the health care industry by G2 at the start of 2025. The HLC, as we call it, the HealthStream Learning Center, grew approximately 7% in the third quarter of this year over the same period last year. On the last day of the quarter, on September 30, we saw a record number of course and activity completions achieved by our customers. On that single day, 586,307 completions were accomplished through the HealthStream Learning Center. This milestone is a testament to the commitment of our teams in delivering reliable and powerful and scalable solutions to our customers. Importantly, when the HealthStream Learning Center is up for renewal, we frequently see customers purchase multiple new and additional products with it when they renew. This results in expanding wallet share from those customer accounts. In the third quarter, for example, Jefferson Health chose to add CredentialStream, another enterprise class application, to their suite of products already contracted with HealthStream. Similarly, Premier Health chose to add the American Red Cross Resuscitation Suite to their account for their clinical staff enterprise-wide. Many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular applications and content libraries, which we call the Competency Suite. We bundle them together and the customer purchases a subscription to the Competency Suite for all of their nurse employees with unlimited use. The customer receives a discount compared to actual cost if all the applications and content have been purchased separately. This relieves the customer of having to go through the arduous process of making multiple one-off decisions and requests in the organizations and the budget process around separate products, while it is financially advantageous for HealthStream as well. Sales of our Competency Suite in the third quarter were up 18% over the same period last year. It is now one of our largest revenue drivers in our Workforce Development business. The third quarter was strong for sales of CredentialStream application, which is our flagship application within our credentialing application suite. Revenues from sales of CredentialStream in the third quarter were up approximately 23% over the same quarter last year, while we're seeing growth of approximately 25% year-to-date. We believe credentialing is a key area where we are well positioned to innovate in ways that will drive profits and productivity for our customers. Specifically, we are enhancing CredentialStream to help health care organizations reduce the time it takes between a physician starting work and actually generating revenue from providing care. Working together with our customers, we are developing solutions to reduce the approximately 120 days that it takes for a physician to onboard, enroll, credential and privilege a physician. We believe everyone benefits, including patients, from being able to expedite the time it takes to get physicians ready and available to deliver care. Finally, let's turn our attention to ShiftWizard, our core enterprise class scheduling application. And it continued to deliver strong revenue growth in the third quarter, revenues from sales up approximately 29% over the third quarter last year. In terms of quarterly revenue contribution, we announced last quarter that ShiftWizard eclipsed our legacy ANSOS suite of products in the second quarter. It continues to be our top-performing product in our scheduling application suite. We think the growth trajectory of ShiftWizard really speaks to the market viewing it as a best-in-class solution for clinical staff scheduling. Like previous quarters, our sales on ShiftWizard came both from competitive takeouts as well as growth within existing customers. I always like to remind everyone as we kind of summarize that if you're interested in a profitable recurring revenue, SaaS and now PaaS, Platform-as-a-Service health care technology company, that expects to deliver steady growth -- albeit incremental lately, but steady -- and is determined to share some of its gains directly with shareholders in the form of dividend, maybe HealthStream is a company and a stock for you to watch and invest in. With that, as our conclusion, I look forward to delivering the next year-end summary. Of course, that will be early next year in February. But for now, let's turn it back over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum Capital Group LLC. Matthew Hewitt: Maybe first up on the Virsys12 acquisition and just a little bit more color there. So you had made the move into the payer market a few months ago. And I'm just curious, what are the key differences in that market? What are the customers in that market using prior to you kind of getting in? And where do you see that opportunity going over the next few years? Robert Frist: Yes. I think we're learning that. We created a version that was tweaked for that market of our CredentialStream application suite, giving us some new capabilities and how they manage the payer -- the provider rosters and several other small details. I think we learned that there are still more things that, that market needed. And the acquisition of Virsys12 brings them more, the experience and the background. And so we'll look forward in the coming quarters for us to distinguish that. But now we have the team and some additional technologies, and just a more complete view of the customer needs set there. In the long run, we think there will be synergies between payers and providers using a similar architecture on the back end and particularly in the transfer of certain kind of core primary source verified data sets. So we're excited about that. But for now, it's a distinct market. It uses a mix of technologies from our acquisition and our adopted or adapted CredentialStream application. And we think we're going to be able to better meet the needs. And Tammy Hawes, the CEO of Virsys12, has joined us to help lead our efforts in this market, and her team are really deep in their knowledge of that market. So I think it's just going to add momentum to a market that has a clear need for better provider data management overall. Matthew Hewitt: All right. And then maybe kind of a separate question, but you've shown some nice EBITDA -- adjusted EBITDA margin growth or expansion this year. Where do you think that could go over time, especially with kind of the shift a few years ago where you're owning more of your content? Is that -- is there an opportunity for that to become a 30% EBITDA margin line? Or just what are your thoughts over the next few years there? Robert Frist: Yes. I guess what I could say is that if you look at kind of the core of classic HealthStream, if you go back 10 years even, it was really a model built on a razor blade strategy where this learning system, which is a high-margin SaaS application, was subscribed to. And then we delivered a lot of content. A lot of that was, as you point out, third-party content. Third-party content has a cost of goods, which is royalties. And sometimes we -- they sell and we get a high-margin fee to deliver their content. And sometimes we sell their content, where we collect the revenue and we pay out a high cost of goods or a royalty. And so the nature of that model, again, if you go back before we focused on where we are today, had a lower gross margin profile. And so you're right to observe 2 things. One, in that model, we've increasingly signed more partnerships and on more favorable terms, and we've launched some of our own libraries that we own both the content and the data and the delivery mechanisms. And so we boosted our blended margin there. Now the relative growth rate of some of those products determines our overall blended margin. And I think it's also right to point out in the last, say, 3 or 4 years, we've moved from kind of the 55% to 65% sort of range in this margin measure. And that was due to this increasing mix shift, because most of the things we've been building in the last 5 years are higher-margin SaaS and PaaS applications. And so where do we end up? Sure, I think almost every quarter or 2, we introduce new things. Those things generally have an intrinsically higher gross margin and EBITDA margin in their delivery because they're more SaaS and PaaS based. And so depending on the mix of sales, if we have a blowout quarter or 2 in partner products where we have a high cost of goods, it might pull that margin down a little bit. But I would say the overall trajectory would be upward pressure on the margins, meaning positive, moving towards a higher margin business because most of the new things we're introducing, and I talked about some of those today, are intrinsically higher-margin products than where we started as a business selling third-party content. And so again, now, in any given quarter for the next year or 2, if we sell a lot -- and there's still a lot of market to go in products like the American Red Cross Resuscitation Suite, where we have a high cost of goods, but it's a beautiful product. It has a good EBITDA margin. It is, though, intrinsically a lower-margin product, obviously, because we have an incredible partner. In fact, the American Red Cross is the most recognized brand on the planet. I believe, by most measures, the #1 most recognized brand on the planet. So it's a great honor and a privilege to partner with them to take their products into the market. But as I point out, has a lower intrinsic gross margin profile for us. But it's still exciting and it gains momentum. It's a unique product. But -- so the relative growth rate of that product versus CredentialStream and ShiftWizard and our policy management software and our now career networks, all of which are higher intrinsic margins, should in the future have a positive influence on our gross margin and EBITDA margins for the company. Operator: [Operator Instructions] Our next question comes from the line of Richard Close from Canaccord Genuity. Richard Close: Congratulations on a good quarter there. I got on the call late, but maybe wanted to hit on Virsys12 a little bit. I wasn't sure if you guys provided any revenue, I guess, details there on the business. I'm curious on the mix between maybe recurring and periodic revenue, maybe consulting, and the historical growth there. I don't know if you can provide any details. Robert Frist: Sure, Richard. The one number we did provide, and it doesn't mean -- there could be more when we guide next year. But the one number we did provide was our expected contribution of revenue in the fourth quarter. And that was -- it's approximately -- our estimate includes about $900,000. We did not break down the mix between subscription revenue and consulting. There is a decent component to consulting, which is really the implementation cycle. In fact, that's one of the things we like about the expertise of this group, is they seem to really know how to get enterprise class software implemented, and that should help us overall. But there is a decent mix between subscription revenue for their products and essentially consulting or configuration revenue. And so while we didn't break that down, just know it's a reasonable mix and the estimated quarter revenue in Q4 is about $900,000. Richard Close: Okay. That's helpful. And then just -- since you spent some time on the career network here, I was just curious if you could go over the monetization of, I guess, the offerings in career networks. And then the expansion of the TAM or the opportunity that these provide in terms of expanding your TAM? Robert Frist: Sure, sure. Let me spend a few minutes on that. That's a great question, and we're working on it. I mean we're really excited about what we're seeing, this organic growth in the subscriber base for both products. In fact, NurseGrid, as we mentioned, which we now consider and call our career network for nurses, is growing about 2,000 a week in subscribers organically with a very low marketing budget. So it's essentially a viral app. It's super exciting. Now monetization, we have over 6 strategies for monetization, and each of them is at a different stage. Almost all of them are relatively new. The first was to start to offer education on a credit card purchase directly to nurses in NurseGrid Learn, and that was the first of 6 strategies. And it's trucking along and doing, I think, $40,000 a month or so in sales through the education channels that are commerce enabled. So super excited to see that start to get a little traction. It's fast pay and fast revenue recognition and fast value delivery. So we're really excited about that. On the other end of the spectrum, we just launched a jobs capability, a little bit like LinkedIn. And so we don't have our first customers for that yet, but we've begun the process of helping people, and we see great activity with the initial job opportunities that we posted in there. So we're excited about that. Hopefully, we'll get our first enterprise customer for that soon. Given the size of our network, we have a lot of excitement around that. It's also -- we think of it as a career development network because we're building it like an ecosystem itself and bringing value directly to nurses. We have a partnership with a company called Plenary and Plenary is a preferred and referred partner from inside of NurseGrid that helps nurses lower their cost of student debt. It's been amazing. We've helped over $2 million worth of loan consolidation already through our network where nurses have selected the Plenary services, and we revenue share with Plenary as they help nurses save money, consolidating their student debt. A really fascinating solution. We're trying to only build value-added services to the individual into the NurseGrid network. And I've just given 3 examples of monetization and many more to come. We're working on a set of tools that will let enterprise customers communicate to the network and potentially finding former employees, for example, that we track now. We have -- now that we have a more longitudinal historical relationship through this app, where they use it even between jobs because of it's a social app. It's a way to find people and maybe communicate with them. And so look for more exciting opportunities there around the social and career network, as we call it, for nurses. It's getting exciting. But again, all of them in their infancy and we're new to this kind of monetization, so we don't want to get too excited. But we want to just define it and explain it and show you some of the interesting things, too, because it's not a stand-alone network. Both myClinicalExchange, which I'll talk about in a second, and NurseGrid are connected through the hStream ID. And remember, the hStream ID is one of the core functions of the hStream PaaS or Platform-as-a-Service capability set that we have. And so what that means is that, as you heard me mention, we're adding thousands of new hStream IDs to our total ecology. And there's a lot -- and now they can get them. In fact, all the students in myClinicalExchange are issued an hStream ID. That's the only way they can use the software. So it's really exciting. Both of those are using the platform service of the hStream ID, which essentially gives us a one-to-one relationship with those workers. Imagine they land in a hospital using other HealthStream products? They already bring a portfolio with them, which is super exciting. And some of those connections haven't been made, but that one is. The ID is used to log in now to both of those apps. On myClinicalExchange, the student network, the initial monetization is a straight-up fee. It's about 50% of the time to the student -- about 50% of the time, it's paid for by the student. About 25% of the time, it's paid for by the nursing school. And about 25% of the time, it's paid for by the hospital. And so it's an election model, where the hospital and the nursing school can choose who pays the nearly $30. And so typically -- and half of them are -- and it's grown about 0.25 million students. Pay about $30 to kind of register in the application, which then helps match them to rotations. And one of our bigger customers has learned now that they really need to pay attention to this network because a lot of those students doing rotations in hospitals are great future employees of those health systems. And frankly, from our research, hospitals and health systems do a really bad job currently of letting those students know that they're potentially valued future employees. And so another example, we built a little set of tools that exist in our application called My Team that enterprises are beginning to use to communicate to the students. And so it's kind of like plugging HR into the network directly. So for example, when students are rotating at their hospital, a manager on the My Team application will get a little alert at that hospital saying, "Hey, we have 3 students from Belmont Nursing School today rotating on the second floor. Go say hi to them." That's going to improve their odds of recruiting that student when that student eventually becomes a professional. And so little things like that where we're linking -- in that case, My Team is a feature of our platform as well, and that widget is a brand-new widget that lets them have an alert to know that, that student is in their hospital. And so we're connecting the enterprise to the individual, the individuals engaging through myClinicalExchange, the career network for students and the hospitals engaging through My Team, an application that ships with our platform. So I hope that provides some clarity. Again, one is a subscription model and the other has a bunch of kind of LinkedIn style monetizations. And we're new to all of this, so we're learning. But we're learning rapidly, and we're really excited about their organic growth. Richard Close: Maybe a follow-up on that. Whether it's either the career networks or some of the other parts of your platform, the enterprise side of it, do you see any opportunities to maybe monetize through something like how a Doximity does in terms of where there's some brand marketing, brand awareness from industry on the platform? Robert Frist: We do. I mean the clearest answer is if we had to say what we're modeling NurseGrid after, it would be LinkedIn or Doximity. And so we think -- I think it's fair to -- particularly NurseGrid, it's fair to think of it as the #1 social network for nurses and growing. And so again, we're new to that kind of monetization, but -- and nurses maybe have a different profile, value profile to industry than physicians like Doximity, where they're strong. But it is clear that they are valuable increasingly. Nurse practitioners, for example, are prescribing nurses. There's a shortage of nurses. So staffing. And large, large health systems have declared a lot of their strategy on building and strengthening their nursing core as central to their overall strategy for success. You see some of these large health systems even buying nursing schools. So I think it's an important audience, and we're going to learn how important in the coming years. But I do think it's fair to characterize our ambition there to be aligned with the way you would think of Doximity and LinkedIn. And of course, this is a big ambition for a small company, but we like it. And we're starting to see these multiple paths to monetizing it and start to have a little light at the end of the tunnel as we launch some of these services really in the last 6 months, a couple of them are brand new. Richard Close: Okay. And my final question, just a point of clarification. With respect to the HLC CredentialStream and ShiftWizard, the numbers that you gave in terms of the -- I think it was 7% growth -- what was it? -- 23% for CredentialStream, 29% for ShiftWizard. Was that bookings like new wins in the quarter? Or was that revenue contribution year-over-year growth? Robert Frist: They're smaller products, but that is revenue contribution. Scotty, please verify and take it forward. Scott Roberts: Yes, that's right. That's the growth in revenues Q3 of this year versus Q3 of last year. Richard Close: Congratulations. Operator: Our next call comes from Vincent Colicchio from Barrington Research. Vincent Colicchio: Yes, Bobby, a nice quarter with ShiftWizard. I'm curious, is the product at the point -- it's ready to penetrate large organizations? Did you sell to any large organizations in the quarter? Robert Frist: We've got a good pipeline of medium to -- of the large enterprise, smaller -- it's still not -- and I thought it would be here by now. It's still not quite ready for the biggest of the big. But we're making progress, and we are winning some, I guess, you could call them the upper middle class. And so good-sized contracts, $1 million-plus contracts. So we're excited to see that. But we've got work to do around the data management still. We're trying to leverage our platform data services, we call the Insights infrastructure, into both credentialing, for example, and into scheduling, and we're just not quite there yet. But we're on it and we're making headway. And I would say that we've got a nice pipeline of these upper middle-class opportunities, if you will. Vincent Colicchio: No, that's good to hear. Can you provide an update on the -- what you're seeing in the small hospital and rural hospital markets? Robert Frist: Yes. We're working on bundling strategies throughout to address kind of the overall challenge of the marketplace. You heard us mention that even at the big scale, when people cross purchase, we're working on bundling strategies. We want to be viewed as best-in-class and the most economical, especially when you're a big customer and you use more and more of our suites. And so in the small hospitals, this is also true. I think they're definitely under financial pressure. Our strategy there is to be the most complete, highest quality solution, but also with the way we're bundling and getting the features just right for those smaller hospitals, the most economical. And so you're going to see us move to more bundling strategies by market. We've launched our Critical Access bundle just a few months ago. And what it does, it's a blend of software and content. So instead of multiple decisions over time, like incrementally growing, we've kind of created a few opportunities to go a little bit more all -- not all in, but take a bigger chunk of our ecosystem under contract at a better price per unit, but a more complete selection of products. So the Competency Suite is another effort at bundling that has started to show success. It's kind of reflective of the current economic reality, but also it's just -- frankly, it's simplifying our product suites and making them easier, a one decision instead of 5 separate decisions. So in all cases, for both economic benefit to customers under stress, and because we think it's probably overall a better selling strategy, you're going to see an increase in our bundling efforts. So by way of example, in the small markets, we have our new Critical Access bundle, which we think kills the competition. We think it's got both software and content and multiple applications and a bundling of applications that our competitors don't have. And so instead of just buying like, for example, learning, which everyone has, we put in learning and a time management solution, which most of the competitors don't have. And if they have that, we add the policy management solution. So bundling is a key strategy and it reflects both, I think, a better selling strategy, but also addresses the economic pressures, we think, more effectively that the small hospitals are under. Operator: I am seeing that this concludes the question-and-answer session. Robert Frist: Thank you. I do have a closing remark or 2. For the analysts that are still on, I just really want to point out our guidance. We tightened the ranges, but they stayed the same, and they factor in everything we know today, including the acquisition. And so one of the things you could note from our disclosure and our discussion was that you heard all these great growth rates and they're super exciting, but also a little caveat about the drop-off in legacy software up to $3 million in the fourth quarter. So remember to listen carefully to our guidance as you think about how to model our growth rate and know that we're still working through these legacy issues, and that needs to be factored in and modeled. Now it's a positive and a negative at the same time. Some of the legacies are migrating and some are lost to the market, but that number in the fourth quarter is estimated to be about $3 million, offsetting all this wonderful and exciting new core growth in both our career networks and our enterprise class applications. So all I'm doing is reemphasizing that in spite of all the excitement, you look at our actual guidance as we provided. We maintain the exact same midpoints as prior guidance and we narrowed the range. So we provided more clarity on the range of our expectations. With that, I want to conclude the call, and I look forward to reporting again as we report year-end results sometime late February, I believe. Thank you all for your participation and following the HealthStream story. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Hello and thank you for standing by. My name is Bella and I will be your conference operator today. At this time, I would like to welcome everyone to Unum Group 3Q 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Matt Royal, Head of Investor Relations. You may begin. J. Royal: Thank you, Bella and good morning to everyone. Welcome to Unum Group's Third Quarter 2025 Earnings Call, which will include discussion of our annual reserve assumption review. Please note that today's call may include forward-looking statements and actual results, which are subject to risks and uncertainties, may differ materially, and we are not obligated to update any of these statements. Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our third quarter earnings press release and financial supplement. Those materials, which include an overview of the GAAP reserve assumption update and updates to key sensitivities may be found on the Investors section of our website, along with a presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation. References made today to core operations sales and premium, including Unum International, are presented on a constant currency basis. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; Chief Financial Officer, Steve Zabel; Tim Arnold, who heads our Colonial Life and Voluntary Benefits lines; Chris Pyne for Group Benefits; and Mark Till, CEO of Unum International. Now let me turn it over to Rick for his comments. Richard McKenney: Great. Thank you, Matt, and good morning, everyone. We appreciate you joining us today. Our third quarter results underscore the strength of our core businesses, which have delivered consistent performance throughout 2025. Year-to-date solid premium growth, which is up 4% and disciplined execution continue to drive industry-leading margins and robust capital generation. We will get to the details of our assumption updates, particularly on the Closed Block, which in aggregate increased reserves and had an after-tax impact of $378 million. The changes there include a series of actions we are taking to continue to manage the block while still affirming our view of no additional capital contributions needed behind this business. Turning to the details of the quarter. We delivered another solid performance across the board from top line growth to bottom line profitability. While earnings per share of $2.09 fell below our overall expectations, this was primarily due to volatility in the Closed Block. Importantly, our core businesses have exceeded our most recent expectations and continue to demonstrate healthy margins and strong returns. Our core business profitability trends are underscored by continued discipline in pricing and risk selection as we show continued strength in both group disability and group life. Each have shown very favorable levels of earnings power. And we are particularly pleased with the premium growth across our core segments, which grew nearly 4.5%, excluding transactions. This includes Unum US growth of nearly 4%, Colonial Life up over 3% and International delivering 10% growth. This growth is supported by high levels of persistency and sales growth of 12% in the quarter and reflects the strength of our market position and the value employers place on our offerings. That is true for new customers but even more so from existing clients that support our very high persistency trends. Our growth is enabled by the success of key technology initiatives like HR Connect and Total Leave, which continue to differentiate us in the market. These platforms create deep connections with employers and employees who value a high-quality digital experience backed by the expertise and empathy of our team who are supported by the AI tools we are equipping them with. This combination of technology and human touch is driving stronger engagement and retention and employers increasingly view us as a trusted partner for integrated benefit solutions. Delivering on our purpose and growing the number of people we protect is highly motivating to our team. It is also deeply rooted that we do so with an eye to profitability and long-term growth. Our disciplined approach to pricing and risk selection, combined with consistent execution translates into solid product returns. Return on equity for our core operations continues to be near 20% as margins across our lines remain above historical levels. These results demonstrate the strength and scale of our core operations and our ability to deliver sustainable margins and maintain expense discipline. Combined with our Closed Block, in aggregate, our return on equity is 11.3%. The stability of our core operations supports our ability to take strategic actions to advance our Closed Block strategy and reduce the associated overhang of this legacy business. The third quarter began with the successful closing of our milestone long-term care reinsurance transaction with Fortitude Re, which ceded 20% of our LTC reserves. The transaction showcased our ability to execute in the market and we are actively pursuing additional opportunities with third parties to remove this risk. Meanwhile, we continue to actively manage the block from within. We implemented several actions in conjunction with our annual assumption review that derisked the block and strengthen its long-term stability. While Steve will go into more detail on these changes, I'll stress that while our strategic actions necessitate higher GAAP reserves, we are pleased that they position us to reduce the size of our existing group policies, remove an area of modeling uncertainty and supports further risk management through premium rate increases. Altogether, these steps reinforce our confidence that no future capital contributions will be necessary. Turning to the balance sheet. Our investment portfolio continues to perform well. We have derisked the portfolio, improved credit quality and positioned ourselves for future market cycles. Our portfolio maintains an A- average rating with historically low exposure to below investment-grade securities. Our overall position, combined with strong underlying statutory earnings of approximately $300 million resulted in holding company liquidity of $2 billion and an RBC ratio of over 450%, both well above targets. This robust level of capital provides tremendous flexibility to pursue our strategy and return capital to shareholders. Through the first 9 months of the year, we have returned nearly $1 billion to shareholders, including $750 million in share repurchases and $230 million in dividends. Our capital priorities have not changed. First, to invest in strategic initiatives that strengthen our core businesses; second, to pursue selective M&A opportunities that complement our capabilities; and third, to execute on shareholder-friendly actions through increasing dividends and share repurchases. These priorities reflect our disciplined approach to building franchise value and delivering long-term returns. Underpinning these strong financial results is our team that is relentlessly focused on protecting more people and exceeding customer expectations at time of need. Our digital-first disciplined approach is driving favorable operating trends as we advance our market-leading positions and prepare for continued growth into 2026. With that, I'll turn it over to Steve for some more details on the quarter. Steve? Steven Zabel: Great. Thank you, Rick and good morning, everyone. As Rick mentioned, we're pleased with the results of our core business, which continues to show strength and sustainability for both top line trends and margins. In the quarter, core operations premium grew 2.9%, which does include the impact of both the ceded IDI business from our LTC reinsurance transaction and the runoff of our sold stop-loss business. When adjusting for these impacts, premium growth exceeded 4%, driven by strong persistency that continued to outpace our expectations. Additionally, while a smaller sales quarter, results were robust with core operations sales growing 12.2%. This provides good momentum as we enter the fourth quarter, our largest sales quarter and we remain confident in our full year outlook for core operations sales to be relatively consistent with last year. Third quarter adjusted after-tax operating income per share was $2.09, down from $2.13 in the same period last year, reflecting strong core business returns of over 20% that did normalize from the historic highs we saw throughout 2024. Additionally, the results of our annual reserve assumption review that we completed in the third quarter resulted in an overall net increase in reserves of $478.5 million pretax or $377.8 million after tax across our product lines. In our core businesses, the impact was favorable with reserve releases totaling $162 million pretax. In addition, the review recognized the recent elevated incidence experience in our long-term care business. It also reflected the implementation of several strategic actions within the block, which helped reduce the long-term care risk profile and further advance our Closed Block strategy. As I outline results for each segment, I'll provide additional detail on the impacts of the assumption update in my overview. So starting with Unum US, the segment produced adjusted operating income of $334.9 million for the third quarter of 2025 compared to $363.3 million a year ago. Not included in adjusted income is the impact of our third quarter assumption update, a $147.7 million reserve release driven primarily by $105.8 million of group disability releases. The group disability release reflects the favorable recovery trends in long-term disability and we continue to believe recent levels of recoveries are sustainable. Reflecting these positive recovery trends, group disability produced adjusted operating earnings of $133.5 million in the quarter compared to $156.7 million a year ago. While down year-over-year, results this quarter reflect a benefit ratio of 61.3%, in line with our low 60s guidance driven by continued strong recoveries. This translated to an ROE greater than 25%. Adjusted operating income for Group Life and AD&D was $88.1 million, which exceeded our expectation but was lower than last year's high watermark of $94 million. The benefit ratio of 66% outperformed our outlook of approximately 70%, driven by lower overall incidents, including favorable trends in AD&D. We continue to expect a 70% benefit ratio for this business with normal period-to-period volatility. Our supplemental and voluntary lines showed a year-over-year increase in operating income, driven by growth in our voluntary benefits business. Growth in this segment was despite the impact of our ceded IDI business that was part of our long-term care reinsurance transaction. Adjusted operating income of $113.3 million was above the $112.6 million a year ago and slightly exceeded our expectation of approximately $110 million that we communicated following the transaction. So then wrapping up the discussion on Unum US, top line trends were healthy. Sales grew 16.1% and premium increased 1.9% but was impacted by factors such as the ceded IDI premium for the long-term care reinsurance transaction and the runoff of our stop-loss business. Adjusting for these items, premium increased nearly 4%. Specifically for group disability, adjusted premium growth would have been approximately 3%. While sales were strong in the third quarter, it is a smaller sales quarter for Unum US and therefore, persistency was a key driver for premium growth as it has been all year long. Persistency for total group was 89.8% compared to 92.5% a year ago and above our expectations coming into the year. Now shifting to Colonial. Adjusted operating income of $116.6 million was above the $113.4 million from the year ago result, driven by growth in the business as evidenced by premium that grew 3.3% from prior year. Underlying the premium growth was persistency of 78.7%, which was 70 basis points higher than a year ago. In addition, sales increased 3.1% in the quarter, further demonstrating continued improvement in momentum. Finally, the results of the reserve assumption update resulted in reserve releases of $8.9 million, driven by favorable morbidity trends. Then for the International segment, adjusted operating income totaled $38.8 million compared to $40.3 million in the prior year period. Unum UK results reported in pounds of GBP 26.3 million were slightly below our expectation of the upper GBP 20 million range with results primarily driven by higher disability claims in the quarter. Top line results for our International segment continue to trend favorably with premium growth of 9.5%, including 18.7% in Poland and sales growth for the segment of 24.9%. Finally, results of the annual assumption update resulted in $5.4 million of reserve releases. Before touching on Closed Block earnings and the related assumption update, I'll briefly cover the Corporate segment, which produced an adjusted operating loss of $47.7 million, slightly improved from the prior year result of $49.4 million, driven by higher investment income, which was partially offset by onetime expenses from our recent M&A activity. Rounding out the segments, the Closed Block produced adjusted operating income in the quarter of $14.1 million, which was below $34.2 million in the year ago period, driven by a combination of lower alternative investment income and unfavorable average new claim size in the long-term care line of business. Alternative investment income in the quarter was $21.7 million or an annualized yield of 6.5% compared to our outlook of 8%, putting our year-to-date annualized yield at 6.2% Additionally, LTC experience this quarter continued to be impacted by the higher new claim size dynamic that occurred in the second quarter, though to a lesser extent. I will note that claim counts for the quarter were in line with the expectations established under our updated reserve assumptions. Turning now to the reserve assumption update impacts for the segment. Closed Block reserves increased $640.5 million, of which $643.1 million was attributable to long-term care. As highlighted in the earnings release, I will distinguish the changes into 2 categories, those representing regular assumption refinements to our liability cash flows and those that are onetime nonrecurring in nature and help advance our Closed Block strategy over the long term. In terms of the liability assumption refinements, incidence has rebounded from the significant lows we saw throughout the pandemic and in recent periods have been elevated above our long-term assumptions, leveling out over the past year. While we continue to believe that some of this is delayed incidence that we did not see during the pandemic, we have increased our go-forward incidence assumptions. This resulted in an increase of reserves of approximately $300 million. Importantly, with this update and with the experience seen in the third quarter, we believe that incidence counts are normalizing from the elevated levels we've seen over the past few years. In the same period of time, we have also seen consistently elevated disabled claim mortality within the same experience set, resulting in a decrease in reserves of approximately $200 million. Taken together, these updates represent a net reserve increase of approximately $100 million. I'll now move to the second category of impacts, which, as I mentioned, make up the bulk of the reserve increase and reflect onetime nonrecurring actions that derisk our long-term assumptions and align with our broader strategic objectives. First, we fully removed the morbidity and mortality improvement assumption, which added approximately $850 million to reserves. The decision to fully remove this key variable follows actuarial analysis through the post-COVID period. While evidenced through pre-COVID experience, we've elected to remove the assumption as a result of the significant reduction and then rebound of incidence in the most recent periods, which has heightened modeling uncertainty. Next, as part of our ongoing efforts to align our portfolio with long-term strategic priorities, we took action to discontinue adding new employee coverage on existing group long-term care cases effective February 1, 2026. As a reminder, we closed our group business to new cases in 2012 and have not written new group cases since that time. However, we have historically allowed employers to enroll new employees to those existing cases. New employee pricing has been based on more recent assumptions. Therefore, those coverages have been profitable and contributed margin to our business. As a result of our decision, we have fully removed the estimated future margin of new employees from our reserve assumption, which increased our reserves by approximately $200 million. We believe this is a sound decision that will benefit our company and stakeholders by minimizing future risk and supporting our strategic priorities. Finally, after considering all liability assumption changes, we have also reexamined our rate increase plans and assumptions. As a result, we have expanded our program, which reduced reserves by approximately $525 million. We have been very pleased with the success of our premium rate strategy over time and feel confident in achieving this updated target. In addition to changes I described to the GAAP reserves, which were reflected in current results below the line, the assumption updates also resulted in an increase of the future lifetime loss ratio or net premium ratio from 94.9% to 97.6% sequentially. This change decreased Closed Block quarterly earnings by approximately $10 million following the update. This impact will continue into future quarters. Considering this change, combined with the impacts of lower alternative investment income in the quarter, earnings per share in the quarter were impacted by approximately $0.10. We expect a similar effect in the fourth quarter. Despite the GAAP reserve impact, the statutory reserve impact, which will be finalized in the fourth quarter, is expected to be minimal with no capital contributions needed. In addition, our long-term care protections, which consist of statutory reserves above best estimate reserves plus the excess capital at Fairwind remain robust at approximately $2 billion. While this is a decrease, we see significant value in the trade-offs and substantial benefit of having fully resolved and removed several assumptions. As demonstrated this quarter, the protections not only provide substantial flexibility to manage assumption refinements but also affords us optionality. We remain firmly in a position to proactively manage the block and pursue strategic initiatives and we are confident that no future capital contributions to support LTC reserves will be necessary. Ultimately, these updates do not change our capital outlook. In the quarter, capital metrics across the board remain robust. Holding company liquidity stood at $2 billion and traditional RBC at 455%, both well above our long-term targets and consistent with our expectations. As we approach the end of the year, we remain confident in our outlook of ending the year with greater than 425% RBC and holding company liquidity above $2 billion. Through the first 9 months of the year, we have returned just under $1 billion to our shareholders, comprised of $750 million in share repurchases and $230 million in common stock dividends. In the third quarter alone, we repurchased $250 million of shares and paid $78.3 million in dividends. As we close out the remainder of the year, we remain on track to repurchase shares at the top end of our previously announced range of $500 million to $1 billion. In addition, we expect to return approximately $300 million to shareholders through dividends. These actions position us to deliver a total capital return of approximately $1.3 billion to our shareholders in 2025, underscoring our ongoing commitment to enhancing shareholder value. Our robust capital position is enabled by our strong statutory earnings power, which mirror the strong GAAP margins we saw in our core businesses. Adjusting for the onetime items related to closing our milestone LTC reinsurance transaction, normalized after-tax statutory income was approximately $300 million, demonstrating continued cash generation of our business model. So before wrapping up the commentary on the quarter, I'll spend a few minutes on our investment portfolio. Our portfolio's after-tax net investment gain totaled $101.2 million for the quarter and was almost entirely attributable to closing of our long-term care transaction. As a reminder, in previous quarters, since announcing the deal, we recognized investment losses through a mark-to-market. However, gains are only recognized at closing, driving this quarter's result. The investment portfolio remains well positioned. Our portfolio's average rating is A- and both below investment-grade exposure and watch list securities are at historical lows. I already discussed this quarter's alternative portfolio's performance but we'll reiterate that while recent results have been lower than our long-term expectation, the portfolio provides immense value for our long-term care ALM strategy and has produced returns of 9% since inception. In summary, this quarter stands as a testament to our strength and strategic focus. Our core business continues to deliver robust margins and healthy top line growth, fueling strong earnings and capital generation. The decisive actions we've taken in the Closed Block demonstrate our commitment to proactive management of this business. Our capital position remains exceptionally strong, enabling us to invest in growth, return value to shareholders and pursue new opportunities as they arise. As we look ahead to the fourth quarter and into 2026, we are energized by our momentum and confident in our ability to deliver sustainable results for all of our stakeholders. Unum is well positioned for the future and we remain focused on driving innovation, operational excellence and long-term value. Now I'll turn the call back to Rick for his closing comments and I look forward to your questions. Richard McKenney: Thank you, Steve. As we wrap up our comments, I'd like to shine a light on our core franchise that has continued to lead in the employee benefit space for many years. We have and will steadily invest in the capabilities that will build our future and bring leading solutions to our customers. There will understandably be discussion on the actions we have taken this quarter. Importantly, with our growth trajectory and the capital to back it up, we head toward the end of the year and into 2026 excited about our prospects. We can now turn the call to questions and I'll turn it over to Bella to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Ryan Krueger with KBW. Ryan Krueger: My first question is more on the statutory side of the LTC assumption review. I know the overall impact is limited but can you give us any more color on some of the moving parts that impacted stat, whether it be how to think about some of the changes that you did make, how it came to stat and kind of the offset from the future premium rate actions? Steven Zabel: Sure, Ryan. This is Steve. Yes, I'll kind of break it down a little bit because when you think about the reserve charge, it really impacted the entire block of business. And as you know, we have about 80% of the block in Fairwind. And the way to think about it in Fairwind is the adjustments that we made, including the future rate increase adjustment that we made, really just flows through to the protections that we have there, really did not impact our reported stat reserving levels within Fairwind. They're well in excess of the best estimate reserve that we would have there. Then we do have 20% of the block in our Tennessee company. As you recall, we reinsured the New York block over into the Tennessee company, released quite a bit of capital in the process of doing that. We did reflect these updates as well as other updates around interest rates and what we've been doing around hedging. It did have a slight impact to what we would view as our statutory reserving levels as we go into the fourth quarter. I will remind, we've gone through really the work to understand changes in our best estimate to statutory reserving. We'll report those in the fourth quarter but we have a really good handle of the impacts. And we do think that those are going to be pretty de minimis and really not impact our capital plans at all. Ryan Krueger: And then one follow-up. You had originally planned to upstream $200 million of capital out of Fairwind following the LTC transaction. I think it sounds like maybe you're going to keep it in there now. But can you give us some thoughts on the rationale there? Steven Zabel: Yes. I'm not sure we ever stated that, that was our intent. But we obviously were going to consider whether that's what we would want to do as we're going into the year-end process. I would say our view right now is we would leave it in Fairwind at this point. We feel really good about the protections we have there at $2 billion and just think that's probably the prudent thing to do. So that would be our current intent. Operator: Your next question comes from the line of Tom Gallagher with Evercore ISI. Thomas Gallagher: First question is just on the $500 million in change of the actuarial rate -- actuarial justified rate increases. Of those -- based on how you've laid it out, it looks like those are directly linked to the removal of the morbidity and mortality improvement assumptions and also the change in group life contracts. Is that a fair way of looking at it, that those are the main drivers of the rate increase requests? Steven Zabel: Yes. We look at all of the assumption changes. And as we've done in the past, when we change our best estimate assumptions, we'll flow that through to how we think about the projection of the blocks and what would be actuarially justified. I mean, I think, Tom, the context you can put it in, the normal just experience updates that we made to our assumptions, it was fairly small. And so it's reasonable to say that, that probably hasn't impacted our rate increase program as much. But it's more just because of the magnitude of the adjustments themselves. But those will all flow through to our thinking as far as the rate increase program. Thomas Gallagher: Got you. And then can you -- I guess when you see a big change like this, you wonder what's sort of behind it, what's driving it. So was there anything in the experience you've been seeing in your block that would warrant these long-term assumption changes to morbidity and mortality? Or was this more due to future uncertainty and prudence? And -- or was this more to get in line with what peers are assuming? Because I guess what I wonder is, if I'm the regulator seeing this request, is this viewed as -- if a management team is just becoming more prudent, are they still likely to approve it, I guess, is the thing I'm grappling with. Steven Zabel: Yes. Tom, again, I'd break it down into 2 pieces. Just the adjustments that we made through just the cash flow assumptions for both morbidity and mortality, that was based on what we've seen over the past several years on -- we've talked about that quite a bit as far as the higher incidence that we've seen coming out of COVID. We've also seen higher mortality in part of the block. And so that's really just reflecting that into our longer-term assumptions. I think the key here is that coming through COVID, that created a lot of uncertainty in how we view our experience set generally. And so we were comfortable for those basic assumptions that it's been reflected in our experience here long enough that it's time to go ahead and make that change. I would say specific to morbidity improvement, we're now several years behind -- beyond the pandemic. And we have observed morbidity improvement prior to COVID. We felt really good about that assumption. The trend hasn't really fully reemerged, I would say, in recent experience. And so when we just look at that and we look at some of the uncertainty and volatility that we've seen in incidence and mortality, it becomes very tough to model it and so it's created some modeling uncertainty. And so there's a lot of actuarial judgment around this but we did think based on the experience that we've seen, this was the right time to go ahead and make this change. And it derisks our assumption set. It's one of the largest sensitivities that we had to the protections for the block. And so it just felt like the right time to go ahead and make that change. And regulators, they'll take that into account as we're going through the rate increase process. I would say we base all of our assumption changes on the experience that we've seen and we think it's very supportable in all the moves that we would make. So I don't have any concern about that process. Operator: Your next question comes from the line of Joel Hurwitz with Dowling. Joel Hurwitz: First, a couple on the Fairwind protection and PDR. On the PDR, Ibelieve there is morbidity improvement included in that. How does this change impact that? And I guess, what's actually left to the PDR given the reinsurance transaction and movement in interest rates? And then just on the $2 billion of protection, could you -- can you now provide color what portion of that is excess reserves versus capital? Steven Zabel: Yes. I'll make a couple of points. I'll reiterate the comments I made earlier about how the assumption changes to the best estimate kind of flow through to Fairwind. And just think about it as the pro rata piece of that block, it kind of dollar for dollar affected how we think about the protections. The best estimate reserve went up. The reported reserves for statutory purposes really didn't change because those are currently in a locked-in position because that reserve exceeds the premium deficiency reserve calculation. So the PDR has become less of a consideration. We think more about what our stated statutory reserves are versus that best estimate reserve. You are right. As part of the transaction, that did impact what the calculated PDR would look like because it was older age and that's where a lot of the margin was built in with the PDR itself. But at this point, when we think about margins to the business, we think more about our best estimate reserve and where our reported locked-in statutory reserves are. Yes, sorry. And the last part of that, none of these changes really impacted excess capital within those -- that protection calculation. The change from the $2.6 billion to the $2.0 billion would all be related to the best estimate reserve. Joel Hurwitz: Got it. Okay. And then shifting gears to group disability, can you just provide some more color on what you saw in the quarter in terms of incidence and recoveries? And then on the actuarial assumption review, just, I guess, what gives you comfort for further reserve releases in this business? I think this is the fifth straight year that you've had a positive assumption review in that business. And any statutory benefit from that change? Steven Zabel: Yes. There's a lot in there. Let me kind of click through them. So first of all, we're very pleased with the group disability benefit ratio within the quarter. Internally, from management's point of view, we've been in the range all the year when it comes to the benefit ratio right around the 62% range. This quarter is a little bit lower. I would say, first half of the year, we had a couple things with incidence that our cost was a little bit inflated, whether it was count or it was average size. That all kind of settled down in the third quarter. I would say recoveries have been very consistent throughout the year and right on our expectations. And we continue to think that operationally, those are very sustainable. When you think about the GAAP reserve assumptions, we do want to see some time pass before we go ahead and adjust the recovery assumptions within that reserve. We've now seen several quarters at a higher level of recoveries. And we went ahead and took the opportunity to adjust that assumption in the current period for GAAP. That's something that we'll consider in the fourth quarter for our statutory reserves but we'll have to work through that. And anything that we would do there, we'd record in the fourth quarter. I would say it might give us a little bit of a tailwind but doesn't really impact how we think about our capital outlook. Operator: Your next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: It seems like the actions you guys took with the LTC block this year do position you for -- better for potential future risk transfer deals. So if you could just comment just relative to just discussions in the market and the potential for additional transactions with the block. Richard McKenney: Yes. Elyse, it's Rick. Just to talk about the market first in general. I think we've said it's been constructive in terms of dialogues that are out there. People that are interested. As we said, it ebbs and flows in terms of who's interested because it is something that needs some more detailed modeling, some better understanding. But we feel like the market is constructive around that and we're really happy to get our transaction done earlier in the year. More specifically, when you think about these actions that we've taken, we've said pretty consistently that a counterparty is going to be looking at the details. So they're going to be forming their own views of what things look like. And with all that being said, I think that some of these assumptions that we have changed, sometimes they can garner discussions in those negotiations. And so it's always good to be on a simpler basis and I think that's what we saw as part of these actions. And then the last thing I'd say is we haven't discussed it more in detail in the Q&A but the removal of new lives also makes it simpler in terms of what somebody -- a counterparty would need to model. So on the margins, it probably is a little bit easier. But I would say that our counterparties that we're talking to and have talked to for a long time know the details and they form their own views around what these risks look like. And so I think it's all part of the context. So it's a good question and I appreciate the question, right. We're going to stay active on it, as we've said. This is something we want to continue to do, to reduce the size of this block. And we'll stay active in the markets to help us do that. Elyse Greenspan: And then my second question was just a follow-up on the group disability side, right? So you guys saw better results in the Q3. I think you had been guiding to around a 62% benefit ratio in the back half. So does it feel like the Q4 could potentially be better relative to that guide also? And then can you just give us some initial thoughts on '26? Does it feel like you'll still be kind of in the low 60s there? Steven Zabel: Yes. So I would say 62% is as good of an estimate as any for the fourth quarter. There will be volatility around that. And so we, again, kind of feel like each quarter this year, we've been in that range of normal volatility around kind of what our expectations were. And it was a little bit better in the third quarter but we think 62% is still a good planning assumption as we head into the fourth quarter. And then we'll talk more about 2026 as we get into our outlook discussion for next year. Richard McKenney: Yes. I'd just add to that, too. When you think about these levels, 62%, as we're talking about low 60s, this is a very high-returning business for us. And so making sure we continue to do that, the team is working on that. And I'd just remind, even with that range that Steve talked about and volatility, this is all at very high margins. And so we're very happy with the results we saw this quarter and actually that we've seen all year. Operator: Question comes from the line of Alex Scott with Barclays. Taylor Scott: I just had a follow-up on disability. Wanted to get your views on just the pricing environment as we're heading into the enrollment period. And also maybe even just reflecting on the pricing environment over the last couple of years that will be earning in because of the longer duration nature of some of these contracts. I mean, do you have any kind of visibility on just the trajectory of sort of what's already happened over the last couple of years that will be earning in next year? Christopher Pyne: Yes, Alex. It's Chris. Thanks for the question. The competition is out there. We've talked about it before. It's still a normal competitive environment. We also -- even the display loss ratio conversation that's been going on, we're operating at these levels because disability is a cornerstone product for what we do. It gets you to the leave management side. It gets you into the connection to HCM platforms. So the conversation isn't all about price. As you step back and you think about how we work with our customers, we're very transparent on price. We renew case by case. But they look for long-term stability. And when you're doing things like solving problems around leave management and you're connected into their HCM platform and you can show them what a fair returning price is, there are some up, some down but it does present a reasonable and fair pricing environment, which I think we've seen over the past period and we'd expect to continue. Taylor Scott: Got it. Just listening at some of the peers' earnings calls, I think it sounded like there was some pressure on leave management across the industry this quarter. So I was just interested what you're seeing there, if there's any kind of repricing activity going on? Any kind of way we should think about from that this quarter? Christopher Pyne: Yes. Again, it's Chris. Leave management is a major topic that we all do talk about quite a bit. I think there -- you kind of got us into it the -- in the first part of the question around disability pricing. That's part of it. Then you get some elements of pricing around what are people getting for the fees for services. That's a little bit more granular. And then I think the third part is those states that have incorporated a new paid family medical leave plan where private options exist and we very much participate in that. That's kind of core -- a core element of our leave management program. It's part of our Total Leave offering. As they come on, again, you set a price and then you manage it over time. You take a look at the experience. You make adjustments. This is just a very normal thing we do. Obviously, we're equipped to manage that as part of our overall disability block, So we -- it kind of absorbs in. But I think that might be what you're referencing in terms of some of the maturing of the business. It's maybe the new PFML states. And we work through that very normally. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: I wanted to come back to the premium rate increases related to the reserve review, the [ 523 ]. Can you just unpack that a little bit and just provide some color around how this compares to what you've asked for in the past? And sort of over what time frame are you assuming that you would get these increases? And I believe in the past, you kind of had a number and you put a haircut on it for potential that you wouldn't get what you asked for. Just wondering if there's an element of that baked in here. Steven Zabel: Sure, yes. So I would say our approach is very consistent to the approach we've taken in the past. Any time we change our estimate assumption set, we really -- we look at that, we flow that through our future cash flows, and then we look at the different blocks of business to really understand what's actuarially supported. And then we go state by state. And we really look at past experience that we've had in those states. Different states approve these differently as far as the pace, the significance. And so we overlay that to that aggregate premium rate request and then we come up with what our best estimate is. And we've gone through the same process. And that affects the timing as well as the magnitude of what we think should be expected. It's very consistent with what we've historically done. I think we're over $5 billion of present value of approvals that we have gotten over time. So in the context of that, this adjustment, I think, is pretty manageable. I think the time frame of getting these approvals will be fairly consistent with what we've seen in the past. It usually takes 3 to 5 years anytime we have new request to kind of work its way both through the review process, the administrative process, the implementation process and then, ultimately, the effective date of the premium increase. And so I would view this as very much consistent with the playbook that we've historically run. And I would say, we feel like we've been very successful in the past. And so we'll go through the process like we've done in the past and feel pretty confident of our ability to be able to meet that. I will say, more recently, there's been times where we've actually overperformed that assumption a little bit. We did that last year with some large states. And so we try to be prudent with the best estimate that we set but also make sure it's a very reasonable estimate. And we feel like we've done that this time around as well. Richard McKenney: Yes, I'd just add to that, Suneet. This is a very mature process for us. And the team knows exactly how they're going to go about it and what they're going to do, who they're going to talk to over what time frame. So we feel very confident about achieving these rate increases. Suneet Kamath: Okay. And then I guess on group disability, one of the things that we've been hearing from other companies is around recoveries and how they're just not as strong as they have been over the past few years. Just kind of want to get a sense of what you're seeing there? Any big changes? And just any color would be helpful. Richard McKenney: Yes. Thanks, Suneet. I mean, our team does do an incredibly good job of managing our group disability block, taking care of our customers, getting people back to work. And so when we look at that, we've talked a little bit about -- we had a really strong recovery year last year and it's been very stable as we look at over the course of this year. I think what's important is the process hasn't changed when you think of what we do and how we go through that. And so I wouldn't highlight those similar things. I think we do see and you can see on the incidence side some volatility as people submit claims. But when it comes to recoveries, our teams just do a good job of managing this over the longer term. And I'd also caution the read across to other companies and what they see on recoveries particularly in a given quarter because I think that dynamic just isn't going to be consistent across the industry. So we feel good about where they are. Team has done a great job. Loss ratio, 61.3%, incorporating all those things that Chris talked about and we feel good about it. Operator: Your next question comes from the line of Jack Matten with BMO Capital Markets. Francis Matten: Just one on capital management. I guess now that we're through the assumption review, you're still running with a very healthy level of excess capital. I guess, could we see a level of share buybacks potentially ramp up next year? And then maybe other uses of cash that you think could come into play? Richard McKenney: Yes, sure. Thanks, Jack. And I think when you think about our capital deployment plans, they've been very consistent. We've been increasing our share repurchase over time. So maybe I'll talk a little bit about this year. I think it's probably a little bit early to talk about what we're seeing into next year. And the first thing I'd highlight is the strong capital generation. And so with that, you can see the -- building in the balance sheet. And as we redeploy that back to customers, you're really starting to look at cash conversion ratio that's close to 100% between share repurchase and dividends. And so we feel good about that there. But I'd take you back and say, first and foremost, we want to put our money back into growing the core operations. How do we take these good franchises we have and just allow them to grow faster? And so that's where the cash and capital is going to go first. Second, on the M&A front, inorganically, how can we grow? We'll certainly pursue items in the market. I think we've been consistent to say these will look more like capability acquisitions as opposed to a big block deal or something like that. So we're going to put money there when we need to. And then you get back to what we've done with share repurchase over the last couple of years and we've seen that ramp up. And I think Steve said in his comments and I've reiterated, we started the year at a range of $500 million to $1 billion. We're at the top end of that range. We feel good about that as we wrap up 2025. And then we'll have to see what we do in the future because we are in a good capital position. We are in a strong capital position and it gives us ample flexibility to do the things that we want to do. Francis Matten: Got it. And a follow-up on the premium growth outlook, especially for Unum US. I think you've been running kind of like in the 3% to 6% range on an underlying basis this year. I guess just wondering how sustainable you see that? And are you seeing any changes in kind of that natural growth rate regarding employment and wage levels given that we've seen some signs of potential labor market softening in recent months? Richard McKenney: Yes. I'll just start at the macro from a premium side and the growth in the company. We'll hear from each of our businesses around that because I think it's very insightful in terms of what they're seeing. I think when you think about our premium growth overall, we feel good at just continuing to engage with customers, taking on -- protecting more people. And you talked about the natural growth. We are still seeing natural growth and we're seeing that somewhere in the range of 3%, plus or minus. So we're still getting good natural growth behind the block. The concerns that you hear about are usually one-off in terms of what you see in the market. So we're just not seeing that in our block today. But it's helpful to hear from each of our business lines. And maybe we'll start off in the U.S. Chris, you want to talk a little bit about how we're feeling about premium growth and the trajectory? Christopher Pyne: Yes. Thanks, Rick. Yes, we remain very excited about the premium growth. Sales in the quarter were obviously quite good. There is some volatility, small quarter for -- smallest quarter of the year, as Rick pointed out at the outset. And we did have a couple of large wins that presented some positive volatility, which we're excited about but wouldn't expect to continue every year. Fourth quarter, Rick's guided to flattish sales, which makes sense and we're excited about that but it's coupled with really strong persistency. And persistency has been going up through the course of the year, where we see both close ratio on new and retained customers that are tied to our strategic investments. There's a lot of good logic as to why they're coming to us, why they're staying and also why we'll get a fair price over time. And those things add up to put us in that strong premium growth range that you referenced. And we expect that to continue and we're really excited about it. Richard McKenney: That's good. Tim, do you want to talk about Colonial Life and voluntary? Timothy Arnold: Yes. I'll start with VB on the Unum side. When you think about the industry growth rate, most of the resources we have suggest the industry growth rates in the 4% to 6% range on sales. For the last couple of years, on the Unum side, we've had double-digit sales growth and that's led to some pretty strong premium growth. In the first quarter this year, we had a really strong quarter again. Second quarter was a lot softer. LIMRA indicated midyear that first -- sorry, sales for the first half of the year were a bit sluggish for the entire industry but we see that rebounding in the third quarter and we have expectations that 2026 will also rebound it to the range we've provided before. Strong persistency on the Unum side led to 5.6% earnings premium growth in the quarter. So we feel good about that. Also early indications on the 1Q pipeline looked pretty strong, especially in large case for Unum. So we continue to believe that we can perform as we have over the last few years. On the Colonial Life side, sales momentum has been improving. Growth rates are better subsequently each quarter of 2025. Our sales organization is now fully staffed and we have a high degree of confidence in their ability to execute. Our value prop continues to resonate with strong growth in our strategic initiatives, including cross-brand sales and Gather, which as a reminder, our proprietary HR and benefits platform. Fundamentals on the Colonial side are also really, really good with recruiting of 29%. Sales from those new agents, up almost 36%. Offices that were established in 2025, new district offices, we have 20% more of those than we did last year. And sales from those new offices are up 75%. As Steve pointed out in his comments, persistency was also up 70 basis points from last year. So that led to earnings -- sorry, earned premium growth of 3.3% and we see that continuing into '26. Richard McKenney: Exciting. Mark? Mark Till: Okay. Yes. I mean, just very briefly on international results. We're pleased with the top line growth that we've seeing. Poland remains a very buoyant market with strong growth potential. We can see that translating into sales growth in Poland of 17% in quarter, premium growth of 19%. U.K. market has been steady for new business this year. We've seen good growth in quarter 3 with sales up 25% and that's off the back of new business in both core and large case, offset a little bit by slightly lower new lines on existing schemes. Persistency in both countries has been good. In the U.K., we've hit a record 91.8%, so that's an increase on the prior year. And premium growth overall in the U.K. for the quarter was 7.6%. And I think sitting behind all of this really is the very strong customer satisfaction that we're seeing, which is at a record high for the business. And I think that's off the back of the investments we've been making in technology, both customer-facing from the employer and the employee perspective, as well as the experience we're offering for our brokers. So I think we have -- we're feeling pretty buoyant about how the market is playing out in both countries at the moment. Richard McKenney: Great, Mark. And Jack, as I wrap it up, I'd just say like when you think about our premium growth, you represented the ranges. If you're 3% to 6% in that range, you get to 5%, you're talking about $0.5 billion of new premiums that we're bringing on. These are done at good margins as you've heard about, and you've seen from [indiscernible] and it's really part of our engine. So when you think about the enterprise and then the people we have here are focused, we are focused on premium growth because we think that's all in line with our purpose, do it at a good price. And we'll see the overall enterprise growth. So I appreciate the question. Operator: Your next question comes from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: I guess one question for you. Why do you guys report earnings on Closed Block and LTC given that the block has lost capital over time? Richard McKenney: Missed the last part of your question. Steven Zabel: Yes, Wilma, can you repeat that? Wilma Jackson Burdis: Given that the block has lost capital over time. Steven Zabel: Yes. Wilma, you keep cutting out. Sorry. Wilma Jackson Burdis: Okay. Sorry. My question is, why do you guys report earnings on Closed Block and LTC given that the block has lost capital over time? Steven Zabel: Well, I'll try to answer that question. I mean, as part of kind of the overall organization, clearly we have the requirement to report earnings for the entire entity. And so we do that. We have put LTC in Closed Block status. So from a segmentation perspective, we think that's the right thing to do. And then I think the key for the long-term care block, obviously, is cash generation or cash deployment. And so we try to be very disclosive just around kind of how we think about the capital needs of that block. And clearly, right now, we're in the position that there really are no capital needs for that block and we don't foresee that going forward. And so that's kind of how we think about the type of information that would be meaningful to investors and we try to focus on that. Richard McKenney: Yes. I'd just reiterate that. On the statutory side, we do kind of follow what you're talking about, which is we kind of split it in 2 and talk about our Closed Block separately and distinct from our core operations. And we think that's a better disclosure. But from a GAAP perspective, it's in the segment and earnings that we need to report on. Wilma Jackson Burdis: And then I guess just my takeaways on the assumption review are that it doesn't have a negative cash impact. Ultimately, it will add cash generation given the rate increases that you're seeking. And then I guess, third, just [indiscernible] assumptions that are going to reduce the risk of future charges. Do you think that's fair? Steven Zabel: I think that's the right way to think about it. And just generally speaking, when you think about the assumption set itself, we've created less risk around some of the assumptions, which maybe are less controllable around morbidity improvement. And we've bolstered some of the assumptions specifically around rate increase, which we think are more controllable and things that we can execute against and generate value. And you're right, generate -- cash generation directly from those actions that we can take. So I think your model is good, like how you're thinking about it. Operator: Your next question comes from the line of Wes Carmichael with Autonomous Research. Wesley Carmichael: I had a follow-up question on the assumption review. But is there a way to size each of the gross impacts of the removal of morbidity improvement and the removal of mortality improvement? I know they're somewhat offsetting but I wonder if you could provide the gross impact there. Steven Zabel: Yes. Wes, we haven't disclosed that. And part of the reason is they're so interchanged with each other, where when you think about the drivers or the cause of both morbidity and mortality improvement, it comes back to fundamental health trends that you would see in the population and specifically in our insured population. And so it's kind of tough to pull those apart and think about them independently in our view. And we've historically seen those really move together. And so we did remove both of them as part of this assumption update but really view those as kind of one concept and one assumption that we need to get comfortable with. Wesley Carmichael: Got it. And maybe just one more follow-up on LTC. But on the net premium ratio, should we think about that increase to the NPR is expected to increase the volatility in quarterly earnings in the Closed Block segment, I guess, as most of the -- or more of the cohorts become capped under LDTI? I know you gave some insight on 4Q but just wondering how you're thinking about overall volatility on a quarterly basis. Steven Zabel: Yes. No, it's a good point. And just to kind of step back a little bit, the NPR did increase as part of the assumption review. And so therefore, future margins, expected margins are going to be less with LTC and we kind of talked about that being one of the drivers in the third quarter as well as going forward. I would say, generally speaking, the more capped cohorts you get, probably the more volatility you're going to see within the results. But that's something that we'll just have to see how it plays out and it's very dependent on just variations against our expected results and which cohorts those are in. Operator: Your next question comes from the line of Tracy Benguigui with Wolfe Research. Tracy Benguigui: Most of my questions were asked. Just a few quick follow-ups. When you conduct your fourth quarter statutory reserve review, it will be helpful to understand if you're looking at similar factors both on the experience side and the strategic update? Or are you just looking at a subset of those factors? Steven Zabel: Yes. Tracy, I can answer that right now because we've already really evaluated that, where every change that we have made for GAAP, we have factored into our view of what this -- the results of the statutory work is going to be. So we kind of already know the results as of 9/30 and understand what the results are going to look like. It's just that from a regulatory basis, we report on any kind of adjustments we make in the fourth quarter. But I would consider the work to pretty much be done as far as understanding the impacts of the changes we made in the third quarter to statutory results. We just won't book them until the fourth quarter. Tracy Benguigui: Perfect. And just another follow-up on what's driving some of the experience adjustments. So on the morbidity improvement assumption, does any of that reflect some of these medical advances we're seeing like GLP-1? Steven Zabel: Yes. I would say we are not able to kind of draw straight line between any causes and how we think about the assumption itself. It more comes down to, you go all the way back to pre-COVID, we had really good data that would support the assumption that we made at that point. There's been just a lot of volatility through COVID. And as we kind of come out of that period of time and also seeing some of the elevated incidence, it's harder to really model and there's just more modeling uncertainty around being able to support that assumption. And so we really just made the choice to go ahead and remove that assumption completely. Richard McKenney: I think it's -- yes, Tracy, I think it's just... Tracy Benguigui: I was talking more about the $200 million improvement, not the drop of the future morbidity or mortality improvements. Steven Zabel: Oh, around -- yes, I'm sorry, around mortality. Yes. So I would say we haven't probably seen a direct cause and effect there. But we have seen improved mortality in certain segments of that block and we just went ahead and reflected that. It's hard to attribute it to any one thing. It's just -- it has built up over time and we feel confident now that we should go ahead and change our longer-term assumptions. Richard McKenney: Yes. I think important to that, Tracy, is GLP-1s or just drugs in general, I mean, that actually lend to better health outcomes. We don't factor that in until we've really seen that coming through our block. And so it's early for that. When you think about that, it's hard to project exactly how that will impact. We think it's probably good that there's better healthier populations across a number of our products. But we really wait until we see it before we factor those type of things in. Operator: Question comes from the line of Maxwell Fritscher with Truist. Maxwell Fritscher: I'm on for Mark Hughes. Just one for me on the government shutdown. Any updates there? And are you seeing any effect on new disability awards? Christopher Pyne: Yes, Maxwell, this is Chris. Right now, we are -- all systems go and no particular impact. We kind of have a playbook. We are ready for government shutdowns. And generally speaking, it doesn't really hit and play out in reality. So I think we're living that right now. But we're ready if anything changes and -- but all systems go right now. Operator: And your next and last question is from Josh Shanker with Bank of America. Joshua Shanker: In terms of thinking about the review, you made a interesting comment about that you're closing the existing group contracts to new cases. But also the cases that you were adding were actually beneficial and that cost you about $200 million in the review. If they were a positive, which just comes to me as a surprise given the cost of capital and whatnot, why take them out? And maybe I can answer my own question, if people are looking at this Closed Block, maybe you need to stop adding cases. What was the motivation of taking off something that was benefiting the trends over time? Richard McKenney: Yes. First, Josh, it's Rick. Let me clarify when you talk about cases. We were not writing new cases and so that's first foremost. We actually closed that down back in 2012. What we're talking about is, if you think about an employer, so you have to think about a group construct for any of our products, where when a new employee joins the company, they get added on to the rolls of their health care or even our types of products on group disability, group life, et cetera. And so that was happening as well on the group contracts around LTC. As we've looked at it over time and we think about it, we decided to actually curtail that in terms of allowing new employees onto those contracts. That's the decision that we've made as we work our way through that. And so I think that, that's really the dynamic that you're seeing coming through the reserves. These were profitable business. But understand, we go back to our strategy. And our strategy is to reduce the size of our Closed Block. We're doing that through multiple ways, through reinsurance and then this is another way we will reduce ultimately the size of our Closed Block. So these were profitable customers coming on to the rolls given our -- given the fact that our new pricing is much different than the pricing a long time ago but we still made that trade-off decision to stop new lines coming on to these contracts. Joshua Shanker: So you're foregoing positive cash flows and business because you simply want to make the book smaller? Richard McKenney: That is correct. I think if you look at the course of this call today, we spent a lot of time talking about our Closed Block. When you think about our company, we are about protecting people during their working lifetime and long-term care is not in tune with that. And so that's why reducing that block and having that out of our strategic focus is important to us. And this is one small piece. It's not actually overly material to the size of the block but we think this is a good action to take something out. So that is a trade-off that we'll make. Operator: This concludes our Q&A session. I will now turn the call back over to Rick McKenney for closing remarks. Richard McKenney: Yes. Thank you, Bella, and I appreciate everybody staying on with us today. Certainly a lot to go through in this quarter. And I'd highlight just the underlying operations and what we've got going forward as we look to the end of the year and into 2026. We're excited about it. And we'll be out talking to a number of investors here over the coming weeks. We look forward to seeing you out there at a number of conferences, both Steve and I. And we'll talk to you soon. Thanks. And this concludes our third quarter call. Operator: Ladies and gentlemen, thank you all for joining and you may now disconnect. Everyone, have a great day.
Operator: Good morning, everyone, and welcome to the Third Quarter 2025 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of this call will be available approximately 2 hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions] I'll now turn the call over to Mr. Steve Frank. Please go ahead, sir. Steven Frank: Thank you, operator. Good morning, everyone, and welcome to the Zoetis Third Quarter 2025 Earnings Call. I am joined today by Kristin Peck, our Chief Executive Officer; and Wetteny Joseph, our Chief Financial Officer. Before we begin, I'll remind you that the slides presented on this call are available on the Investor Relations section of our website and that our remarks today will include forward-looking statements and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ I refer you to the forward-looking statements in today's press release and our SEC filings, including, but not limited to, our annual report on Form 10-K and our reports on Form 10-Q. Our remarks today will also include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in the financial tables that accompany our earnings press release and the company's 8-K filing dated today, Tuesday, November 4, 2025. We also cite operational results, which exclude the impact of foreign exchange. With that, I will turn the call over to Kristin. Kristin Peck: Thank you, Steve, and welcome, everyone, to our third quarter earnings call. Today, we reported 4% revenue growth and 9% growth in adjusted net income on an organic operational basis, thanks to the relentless focus and consistent execution of our colleagues across the world. Our International segment delivered 6% organic operational revenue growth with the U.S. contributing 3% growth excluding the impact of the MFA divestiture. By species, Companion Animal revenue grew 2% operationally and Livestock organic operational revenue grew 10%. As we anticipated, growth moderated this quarter driven by a strong year-over-year comp and macro factors, including vet clinic visits and promotional activity. Our resilient growth engine remains strong fueled by our market-leading innovation and pipeline, a diversified portfolio across species and geographies, global reach and trusted brands that continue to lead their categories and remain essential to veterinarians despite some near-term headwinds. Now let's turn to our key franchises where we're continuing to drive growth and the market opportunities remain significant. In parasiticides, our Simparica franchise grew 7% operationally with 6% operational growth from Simparica Trio. Internationally, we delivered strong broad-based double-digit growth, driven largely by the continued strength of Trio across all regions, underscoring this strong and growing global demand. And Trio's most recent approval in Brazil further extends that momentum. Another example of how our innovation and geographical expansion continue to fuel the franchise's long-term growth. In the U.S. while broader end market dynamics affected overall franchise performance, we continued to see solid growth in retail and home delivery channels, which drive compliance and convenience for head owners. Trio growth moderated against a strong prior year comp with continued strength in the alternative channels, helping to partially offset subdued clinic traffic. We continue to navigate a more competitive U.S. market and hold share with disciplined and focused execution. Trio continues to set the benchmark in the category, supported by the broader strength of the Simparica franchise. Our first mover advantage, strong retail presence and customer loyalty position us well to sustain momentum across the portfolio. Parasiticides remains the largest category in Animal Health, and as the clear leader, we are competing from a position of strength with best-in-class innovation and high adoption, driving long-term growth. Our Key Dermatology franchise grew 3% operationally in the quarter reflecting the resilience of our differentiated and innovative portfolio. In the U.S., growth was driven by Apoquel Chewable adoption and strong retail performance offset by clinic softness and competitive dynamics in the category. Internationally, dermatology grew despite heightened competitive dynamics, including aggressive promotional activity tied to new product launches. At the same time, we continue to expand our differentiated portfolio with Apoquel Chewable approved in Chile and Cytopoint receiving an expanded label in Brazil for allergic itch, again, reflecting our approach to geographic expansion and life cycle innovation that support sustained category growth. As expected, we saw some minor share shifts during these launch periods, however, we're confident our portfolio will maintain its position as a preferred choice among customers. Even with this competitive backdrop, the overall opportunity in dermatology remains significant. More than half of periodic cases globally remain untreated, and we see substantial runway for continued growth and market expansion. In the quarter, our osteoarthritis or OA pain franchise declined 11% operationally. In addition to impact in the U.S., our performance in primarily English-speaking international markets has also been affected by misperceptions amplified on social media, contributing to a 15% operational decline in global Librela sales. We are executing a focused multipronged strategy to return Librela to growth. First, we're increasing awareness that OA is a serious progressive disease requiring early and proactive care to control associated pain and improve a pet's quality of life. Second, we're deepening education and engagement with specialists and veterinarians to reinforce Librela's positive risk-benefit profile and real growth impact. Third, we're continuing to share clear science-based information and amplify the overwhelmingly positive experiences people and pets are having. Finally, beginning in Q4, our Phase IV research conducted through independent third-party studies aimed to provide vets and specialists with even greater confidence in Librela. We are encouraged by recent trends showing signs of stabilization, supported by strong satisfaction among the majority of pet owners, giving us confidence in the actions we're taking to support recovery and then how we're applying those learnings to future launches. To that end, we are excited about the first market approval of Lenivia, a distinct long-acting molecule for dog that offers greater choice and flexibility for veterinarians and pet owners in Canada, with a launch expected there in the first half of 2026. We also received a positive CVMP opinion recommending marketing authorization in Europe. In addition to that, we received European approval for Portela, our long-acting monoclonal antibody for feline OA pain with the launch also expected in the first half of 2026, further extending our leadership in chronic pain management across species. These milestones highlight the durable strength of our innovation engine and our ability to advance a deep pipeline from approvals through launch and we anticipate a major new market approval each year for the next several years. Together, Librela, Lenivia, Solensia and Portela for a next-generation OA pain portfolio, unmatched in its depth and scientific innovation, offering flexibility, reaching a broader patient population and reinforcing the long-term growth trajectory of this important and underpenetrated market. To enable growth in this expanding portfolio, we're continuing to invest in manufacturing excellence including our new Atlanta Advanced Biologics facility and expanded monocle antibody production capability, ensuring that every innovation we bring to market reaches veterinarians and pet owners with a [indiscernible] viability and scale they expect from Zoetis. Beyond our product portfolio, we're evolving our U.S. commercial structure to better serve customers and enhance our agility and efficiency building on the strength of our key Companion Animal franchises and the critical role in veterinary practices. As the U.S. pet market expands, expectations for more personalized convenience and enhanced care continue to rise. To better meet those needs, we're implementing a go-to-market model that sharpens our focus and simplify our structure. The result will be a leaner, more agile field organization with single point of contact coverage, expanding our reach and frequency and deepening engagement with our customers. We expect this model will support growth and bolster our competitive positioning, and we will continue evaluating opportunities for similar enhancements across the business into 2026, ensuring we continue delivering the best experience for customers and the strongest value for shareholders. We look forward to sharing updates on our progress. In Livestock, organic operational revenue grew 10% in the quarter, reflecting broad-based growth across geographies and species, and we're on track for a third consecutive year of above-market growth in 2025 supported by strong execution and resilient market demand. As an example, poultry continues to benefit from focus and vaccine-led growth following the MFA divestiture with deeper penetration among key accounts, market expansion and growing adoption of Procerta across multiple regions. This progress reflects the strength of our strategy, advancing innovation, strengthening partnerships and ensuring our portfolio meets the evolving needs of producers worldwide. Rising protein consumption and the growing role of fish in the global food supply continue to reinforce the long-term fundamentals of this business. And beyond strong performance, we continue to live our purpose through innovation, demonstrated by the speed and effectiveness of our response to emerging zoonotic diseases including recent approvals related to HPAI and New World screwworm. Turning to guidance. We are updating our full year outlook based on our year-to-date performance and expectations for the remainder of the year. For organic operational revenue, we're revising and narrowing our range to 5.5% to 6.5%, given a more measured view of the macro and operational environment in the back half of the year. We're also narrowing our organic operational adjusted net income growth range to 5.5% to 7%, supported by continued cost discipline with a balanced approach to investment that enables us to sustain strong profitability and deliver shareholder value even amid near-term variability. Overall, we have the right portfolio, the right strategy and deep connections with customers and pet owners, positioning us not only to navigate the current environment but to capture the significant opportunities ahead. And we're delivering on the commitments we've made since outlining our innovation time line in January, we've executed on or ahead of schedule. We are continuing to differentiate our portfolio with more than 130 geographic expansion and life cycle innovations this year, several of which you can see in today's slides. Our ability to deliver on our commitments continues to define Zoetis and position us to create significant value for shareholders. It's how we build trust year after year with customers, colleagues and investors alike. We are confident that Zoetis has the most robust comprehensive pipeline in animal health, advancing care across every category and stage, powered by innovation and purpose, we're shaping the future of animal health and creating entirely new categories of care. And with that in mind, as we announced yesterday, Rob Polzer, our Head of R&D, will retire following a 10-year distinguished career at Zoetis, advancing our innovative pipeline. We are grateful for Rob's incredible contributions. Rob will remain in his role until the end of the year and following his retirement at the end of February will be available to Zoetis as a Scientific Adviser until the end of 2026, ensuring a smooth transition and continued momentum for Zoetis' pipeline. We are excited to appoint Kevin Esch as Rob's successor, effective January 1. Kevin has held a series of influential roles in our R&D organization over the last decade and is ready to step in and lead Zoetis' R&D into the future. Kevin has demonstrated a lifelong commitment to advancing animal health. Before joining Zoetis, Kevin was a practicing veterinarian and practice owner for more than 10 years and has a strong scientific background with formal training in public health, immunobiology and pathology. I hope you'll join us on Tuesday, December 2 at 8:30 a.m. Eastern Time for an innovation webcast where we will provide investors with the latest pipeline updates and the progress we're making to move the industry forward. With a resilient business and unmatched pipeline and significant market potential, we remain confident in Zoetis' long-term growth trajectory. And with that, I will turn it over to Wetteny. Wetteny Joseph: Thank you, Kristin, and hello, everyone. Let me now provide some additional insights into our third quarter results. We posted $2.4 billion in revenue in the third quarter, growing 1% on a reported basis and 4% on an organic operational basis. This was primarily driven by price as volume was flat in the quarter. As Kristin noted, we anticipated that growth would moderate as we entered the second half of the year. Adjusted net income of $754 million was 5% on a reported basis and 9% on an organic operational basis. Our global Companion Animal portfolio posted revenue of $1.7 billion growing 2% operationally in the quarter. On an operational basis, our Simparica franchise contributed $356 million, growing 7% and Key Dermatology posted $469 million, growing 3%. This growth was partially offset by our OA pain franchise, which declined 11% operationally to $138 million. Our global Livestock portfolio grew 10% on an organic operational basis in the quarter, contributing $725 million in revenue with strong balanced performance across segments and species. Again, these results reflect the continued resilience of our business following last year's strong comparison, and they reaffirmed the solid fundamentals driving our growth. Even amid near-term challenges, our core strengths market-leading innovation, a diversified global portfolio in trusted brands continue to position us well for future growth and market expansion. Now moving on to our Q3 segment results. As expected, growth moderated in the U.S. as we enter the second half of the year, with revenue down 2% on a reported basis and up 3% on an organic operational basis. Companion Animal was flat and Livestock grew 14% on an organic operational basis. This moderation primarily reflects the strong comparable period in Companion Animal, particularly in derm and parasiticides. In the vet channel, we continue to believe clinic revenue is more impactful to our growth than overall visits. That said, we saw declining visits across all major therapeutic areas during the third quarter, which impacted new patient starts. Meanwhile, the distributor inventory dynamics we discussed earlier in the quarter, normalized by quarter end and remain near the low end of the historical range. The U.S. Companion Animal business was flat in the quarter with growth in our Simparica and Key Dermatology franchises, offset by declines in our OA pain mAbs. Our Simparica franchise grew 2% in the quarter to $263 million in revenue. Our performance builds off of strong comparable period in the prior year where we saw 27% operational growth, driven by a more disciplined approach to our promotional strategy. Growth in alternative channels continues, fueled by pet owner preference and higher compliance. This strength has helped sustain Simparica Trio's momentum despite continued softness in the U.S. vet channel. As the leader in triple combination parasiticides, the fastest-growing segment in animal health, Simparica Trio is well positioned for continued growth. driven by our first-mover advantage, broad label and strong market presence. Key Dermatology sales grew 1% to $306 million, with growth in Apoquel being partially offset by declines in Cytopoint due to lower dermatology clinic visits. Our growth in the quarter primarily reflects the impact of the initial distributor stocking of the Apoquel film-coated tablet, which was made available to distribution in September. In addition to a strong comparable period in the prior year, we saw modest share loss in the U.S. derm space, primarily driven by competitive discounting and sampling related to new product launches. Based on our experience, these impacts are typically short-lived, and we remain confident in the value of dermatology portfolio provides to vets and pet owners and that our pricing aligns with the quality and outcomes we deliver. We are well positioned to grow and expand the dermatology market moving forward, anchored by our 3 differentiated brands with a proven track record of safety and efficacy and an estimated 11 million medicalized dogs that remain untreated or undertreated for itch in the U.S. alone. Our OA pain products saw a decline of 21% in the U.S. on $58 million in sales. Librela posted $41 million in revenue for the quarter, a decline of 26% versus Q3 of last year. Kristin highlighted our multipronged strategy to return Librela to growth and we are confident that the actions we are taking will help reaccelerate adoption. Additionally, I will echo that we are seeing early signs that Librela is beginning to stabilize. While this is an early read, we continue to see high satisfaction scores among vets and pet owners who use level, reflecting the meaningful and positive impact this product has on those living with OA. Solensia revenue of $17 million declined 4% in the quarter. Despite the decline in this quarter driven by fewer new patient starts, we remain optimistic about the untapped market potential of the feline OA space, where currently only 15% of effective cats are receiving treatment. Our U.S. Livestock business posted broad-based organic operational growth of 14%, with almost all major brands showing improvement in the quarter. Our performance was primarily driven by improved supply of ceftiofur. Additionally, as Kristin mentioned, we have seen an acceleration in our Livestock vaccines, both MSA divestiture due to increased field force focus. Moving on to our International segment. Revenue grew 3% on a reported basis and 6% on an organic operational basis. Companion Animal grew 4% operationally, and Livestock grew 8% on an organic operational basis. International Companion Animal growth was driven by our Simparica and Key Dermatology franchise. Our international Simparica franchise grew 22% operationally or $93 million in revenue with double-digit growth across both brands. Simparica Trio grew 32% operationally to $41 million in sales bolstered by an increasing standard of care in many international markets. Simparica grew 15% operationally to $52 million in sales. Growth remains strong, especially in markets that have not yet adopted triple combinations will then have low hardware equivalence. Our Key Dermatology franchise grew 7% on an operational basis, posting $162 million in revenue, driven by both Apoquel and Cytopoint. Growth was driven primarily by Europe, where we continue to see expansion in new patients and increased compliance in chronic cases. While we saw a share loss to competitors in certain international markets, these declines like those in the U.S. are losses driven by launch promotions. We continue to see significant room for expansion in our international markets and remain confident in our differentiated franchise of products continuing to be first-line treatment. Our OA pain mAbs declined 3% operationally in international markets on $80 million in revenue. International Librela sales were $62 million, down 6% operationally in the quarter. As Kristin highlighted, we continue to see perception challenges primarily in English-speaking countries and are implementing many of the same U.S. tactics to return to growth. Solensia sales grew 9% operationally to $18 million. Solensia's adoption continues to expand as the product redefines the standard of care for feline osteoarthritis, supported by strong and sustained vet satisfaction. We are excited about the recent European approval of our long-acting feline OA pain mAb, Portela. Portela's extended dosing interval delivers meaningful quality of life benefits for cat and pet owners alike, aiming to drive stronger treatment compliance. International Livestock grew 8% on an organic operational basis in the quarter, with broad-based growth across all species. In cattle, growth was driven by both price and volume across the portfolio. Poultry continues to benefit from focus and execution on vaccine growth. Additionally, we saw increased key account penetration across most geographies. Finally, Fish was driven by price increases as producers recognize the value our products provide in driving healthier fish and lower mortality rates contributing to higher yields. Now moving on to the rest of the P&L for the quarter. Adjusted gross margins of 71.6% grew 90 basis points on a reported basis. Foreign exchange had a favorable impact of 20 basis points. Excluding the impact of foreign exchange, we saw higher margins due to favorable impact of our MFA divestiture as well as benefits from price. Adjusted operating expenses increased by a modest 1% operationally, reflecting our ongoing commitment to cost discipline in a dynamic and inflationary environment. Adjusted net income grew 5% operationally and 9% on an organic operational basis. Adjusted diluted EPS grew 7% operationally in the quarter and 12% on an organic operational basis. Now moving to guidance for the full year 2025. Please note that guidance reflects foreign exchange rates as of late October and does not assume any impact of future tariffs or policy changes. We are revising our full year revenue guidance to a range of $9.4 billion and $9.475 billion and organic operational growth of 5.5% to 6.5%. It's on a more measured view of macro and operational trends in the back half of the year. We now expect adjusted net income to be in the range of $2.8 billion to $2.840 billion, reflecting a narrowed organic operational growth range of 5.5% to 7%. Finally, we are maintaining our reported diluted and adjusted diluted EPS guidance range of $5.90 to $6 and $6.30 to $6.40, respectively. We are operating from a position of strength, supported by the broadest portfolio in the industry, even while we are navigating some temporary headwinds. We remain confident in the long-term growth potential of both our business and the broader animal health market. Now I'll hand things over to the operator to open the line for your questions. Operator? Operator: [Operator Instructions] We'll go first this morning to Erin Wright of Morgan Stanley. Erin Wilson Wright: Great. So first, I just wanted to know kind of what meaningfully changed for you kind of on an intra-quarter basis after you raised guidance last quarter? And what were some of the key surprises that you saw, whether it's competition or destock or otherwise. But also on competition, just you mentioned some of the competitive dynamics in dermatology. I'm just curious how you're seeing practices at this point, how they're looking at the category? Are they carrying both JAK inhibitors in some of those certain international markets that you were talking about? And what do you have embedded now in terms of competition? Like do you think that guidance is conservative enough at this point? And should we anticipate a continuing impact as we head into 2026. How does that fit into your typical 6% to 8% top line growth guidance that you would typically give as we head into next year just given where it's tracking below that year-to-date? Wetteny Joseph: Yes. Thanks, Erin. Look, clearly, as we entered the year, we expected some deceleration in the back half of the year compared to how we would start 2025. Certainly, in the quarter, what we saw besides the really strong comp that we anticipated and factored in, besides anticipating competitive launch dynamics in terms of aggressive promotions, we factored into our thinking coming into the year. We certainly saw a bit of a macro impact, particularly in U.S. clinics. Over the last 3 quarters, we've seen therapeutic visits. As you know, overall visits are not a great gauge for our growth. But therapeutic visits certainly are, and you need those to at least start patients before we can have multiple channels to fulfill those. And so we saw 3 quarters in a real therapeutic visit pressure that has certainly impacted where the quarter landed, and we factored those into our thinking in terms of the remainder of the year and the guidance that we have provided today. To your point around guidance for 2026, as you know, we will look forward to providing that in February. However, I don't see how we're exiting the year in the fourth quarter to be a readthrough to what 2026 will be. I think there are a few pieces here that I think are worth considering. For one, we would typically see price contribution. And as you know, we have consistently done that over the years. where typically we're in the 2% to 4% range. We've been above that. If you look at the last couple of years, certainly, and this year, we're running closer to 4%. And I think we can see us in the range that we typically would operate in from a price perspective. Despite what we see historically as launch period aggressive promotions, we have high confidence in continuing to grow our key franchise areas, particularly derm and parasiticides given the significant unmet market opportunity in both of those areas. So we see those driving growth for us as you look ahead. And as you said in prepared commentary, we've seen signs of stabilization from a Librela perspective, which certainly has been a headwind for us throughout this year, but particularly in the back half of this year and the comps have been very strong in Q3 and Librela comp in Q4 remains relatively strong. So as we see signs of stabilization here, we would expect a return to growth in 2026. And a couple of other things I would say here, Erin, is that Livestock has continued to demonstrate strength for us. You've seen now in our third year of consecutive growth above market, and we anticipate continuing to see growth in Livestock in 2026 as well. So those are the reasons why we would say the exit of this year is not indicative. In terms of where '26 is, though, we're not prepared to give guidance here at this time. Operator: We'll go next now to Michael Ryskin at Bank of America. Michael Ryskin: I want to stick on that topic of what's changed. I mean I hear your answer, Wetteny, on some of the macro and some of the vet dynamics. I think the pushback I have is that we've seen that be a challenge in the end market for several years now. I think I mean it's 2022 and 2023, where they really started being the case. And Zoetis has really consistently been able to put up better numbers than that in companion in the U.S. really through the second quarter, surprisingly strong. We've heard you guys speak a thousand times about how you're insulated from some of those vet challenges about the importance of medication, about some of the alternate channels that you're able to build to and all of that has been able to sustain that growth. So it really is a pretty striking change in the companion outlook in the U.S. and globally, sort of what we've seen over the last couple of years versus 3Q. So I was just wondering the timing with competition coming on, you mentioned some of that, but that could be playing a bigger role because that would indicate a little last longer. Just wondering if you could maybe dive in some of those changes a little bit more. And then as a follow-up, you alluded to some of the intra-quarter dynamics being short living by the end of the quarter, seeing better trends. Just anything you could say on distributor levels, inventory levels among some of your customers. Can you just sort of thought on that as you look to the fourth quarter and again into next year. Wetteny Joseph: Yes, sure. I'd love to start and see if Kristin wants to add anything in terms of the macro in terms of what we're seeing. Certainly, as you highlighted, Mike, over the last several years, you've seen overall visits being down, and in fact, down more than they were in the quarter. We think overall visits were down somewhere just of 2% in the quarter. And you've seen worse than that historically. What is different, though, is we have seen over the last 3 quarters, therapeutic visits being down. If you recall last year, despite overall business being down, Derm business were up about 3% or 4% on the year. And OA pain visits have been up, particularly since we launched our OA pain products in the U.S. That has turned this year. Certainly, you've seen that impact therapeutic visits. I think flea, tick, heartworm, which are wellness visits have consistently been down, but they've been more than offset by what's happening in the alternative channels if you look at the last 3 years. So the difference here is the therapeutic visits, particularly when you look at derm as well as OA Pain that are translating to fewer patient starts and certainly, we're starting to see that have an impact here. Now what is encouraging is we continue to see really strong growth across alternative channels. Those grew about 21% on the quarter. And within that, is actually home delivery coming from vet channels as they continue to see opportunity to really drive and meeting the patients where they are. We are seeing momentum in that area as well. It grew about the same rate as retail within the quarter. Again, something we'll continue to encourage and watch as well as work with our vet clients to continue to drive. So I think those elements certainly continue to be there and are supportive of the business. However, I think what we're seeing in terms of therapeutic versus where the impact has been. And I think it's a bit of a combination of really significant price increase that our vet customers have taken over the last few years, both across their products as well as services that is different from our price that we give to them. And we're seeing that impact, particularly the larger corporate accounts as well as we look at the numbers. So sitting here, if you look at our portfolio, we have the broadest portfolio in the industry, certainly, our innovation engine continues to clock away the most productive in the industry as well. So we're confident in our ability to drive growth as we look at the long term, again, why we don't see the fourth quarter as an indication for '26 in particular, and that those give us a lot of profess as we look ahead. In terms of distributor inventory levels, we did highlight those in the middle of the quarter. We have some distributors take -- move -- shift their inventory levels down into a quarter. It did recover within the quarter. And just to put it in the context, Mike, since the beginning of 2023, we have been operating at levels that are below the low end of the range in terms of level of inventory and distribution. We have remained there even as we exit the quarter. So while they dipped even further below where they have been operating in the last few years, they did recover back, but the level is still below where they have been historically. Operator: We'll go next now to Jon Block with Stifel. Jonathan Block: Sorry to sort of harboring the same thing. But cash you on the 4Q '25 exit not being sort of indicative for '26. We're calculating, sort of, it implied 3% organic operational in 4Q. Hopefully, we've got that right. It's off of a comp that eases materially. But just to take a step back, I would think that sort of implies zero-ish volume in the back half of '25. You said volume was zero this quarter, price was up $4. So we think about like zero vols in 2H '25, competition increasing further in some key franchises, notably derm, we never know exactly what's going to happen, but that seems to be the case, why wouldn't that be indicative? In other words, what changes between the price/volume algo? Does price go higher? Or does vols bounce? And if vols bounce, why would that sort of a backdrop? Wetteny Joseph: Yes, John, I'll start. Look, I think what we said in terms of the fourth quarter exit and you're roughly right in terms of your calculation. I'll remind you of a few things. And again, at the risk of being repetitive on this to some extent. We are exiting with -- though we have year-over-year comps with respect to Librela that continue to be challenging, we are exiting with that showing signs of stabilizing. And so again, we expect that to turn to growth as we get into 2026. Look, we came into this year expecting to see some competitive pressure as they launch their products and are looking to gain some traction given the high satisfaction level we have in our products in the number of years that we have, particularly when you think about derm. We've been in the market for 11 years. We're roughly 120 million doses in when you look at a combination of Apoquel and Cytopoint. The level of satisfaction with customers, both pet-owner as well as vets is very, very high. So competitors, as they launch their products are up against that strong position and are, as we anticipated, being very aggressive to look to get positioned. And if you look at where they are from a patient share perspective, it's still very limited. Now I think this is where the macro comes in. And I think if you look at the macro in a market where you're seeing fewer therapeutic visits, then the impact of those competitive pressures will be felt a little bit more than when you have extension. Now if you look at derm and International, that grew 7% on the quarter. And that's despite in certain markets where you've seen very aggressive competitive pressure, but you are seeing expansion of those markets. And while I want to sit here and predict how long the macro will be there, our position, though, in terms of our products and our portfolio couldn't be stronger. And so again, I don't see this as a permanent feature. And as you've seen historically, these initial launch promotions tend to be short-lived. And so we'll make adjustments where we see necessary, but we'll be disciplined as we execute in this market. we've been there before. And so we'll continue to do that, and we're very strong in terms of our portfolio as well as with coming in terms of where we're starting to see approvals on already. Operator: We'll go next now to Brandon Vazquez at William Blair. Brandon Vazquez: I wanted to switch a little bit and talk about the new long-acting OA drugs that have been approved or are upcoming. The question being, that clearly, Librela's launch didn't go as planned. I think the safety and efficacy stands behind it, but social media kind of got a little bit ahead of the drug and impacted its adoption as we're seeing, what have you guys learned? What's going to change as you launch these new long-acting OA drugs because a successful launch of these into 2026 feels like it could be one of the key levers to remain within that 6% to 8% organic growth that you guys have talked about for a long time. Just curious on thoughts on what that launch might look like relative to what Librela was? And what gives you the confidence that can kind of have a more successful ramp from there. Kristin Peck: Thanks, Brandon. I'll take that one. We're very pleased with the approval in Canada and the positive opinion in the EU on Lenivia. I think another example of delivering on our commitments across our innovation pipeline. We are really excited about that as well as Portela, which received its first approval in the EU. I think we are going to make sure that we apply all the learnings we had from Librela to these new launches. We are expecting launch, as we mentioned, in the first half of '26 for Lenivia. And we're going to apply the learning from Librela. We're going to start, as we talked about with early experience with specialists, make sure they understand the product well and then they can help us as we launch more into the general veterinary population. We're going to make sure we continue to raise awareness of OA as a serious disease that requires a proactive approach to manage the pain. It's a progressive disease. We're going to make sure we continue to deepen education with specialists first, and also with vets. And we're going to -- the same way we're doing with Librela, we're investing in long-term Phase IV research to make sure specialists and veterinarians continue to understand how best to use the products. We're really excited with these new products. As you think about Lenivia, it will add convenience. A 3-month administration will help us expand the market some and put a lower barrier to entry, I think will also help us increase compliance. As we talked about before, Lenivia will target a different location on NGF. It's a different molecule than Librela. It provides long-lasting relief at 10x lower the dose. So we do expect it to expand the market and provide incremental revenues, although obviously, we'll cannibalize some of Librela. But I think it's an exciting new opportunity for us. I would say the same with Portela which is, again, a different area of NGF that is targeting and again, is a different molecule. But I think especially if you think about cat, you can help us expand that market in cats where bringing your cat in every month is a big barrier as we know, for cat, and we're seeing strong growth in cat. Solensia grew in the quarter, as you saw. And we see cat visits being the bright spot and visits overall with cat visits increasing. And we really believe that Solensia is one of the reasons that's helping drive that cat visit growth. So we are excited about both of those launches and their ability to expand the market for OA pain for us in 2026. Operator: We'll go next now to Chris Schott at JPMorgan. Christopher Schott: I'm just still trying to get my hands around what happened with U.S. Derm this quarter. I know you've talked a lot about the comps and macro. But can you just elaborate a little bit more in terms of what we're seeing either with Zenrelia or positioning ahead of a potential Merck launch, it just seems like we saw quite a trend break this quarter relative to the past year. I was trying to get a little bit more color there. And just as a follow-up, on the therapeutic visit side, it sounds like from your commentary that we need to see some of these visit trends improved to get new starts in the right place, et cetera. Can you just elaborate a little bit more in terms of what your outlook of when we could see that recovery or more just qualitatively, what it's going to take to get these to recover again? Wetteny Joseph: Sure. Look, I think as we discussed, the competitive positioning here isn't significantly different than what we anticipated coming into the year or even as we saw quarter ago. Again, the -- if you look at the patient share gains in here, they're relatively limited. Now as we look at Q4, we are factoring in a full launch of a competitive product in Europe coming in with NUMELVI, which started in the third quarter. So we are anticipating that and that's factored into our guidance, certainly. No word yet in terms of exactly when the Merck approval will be in the U.S. as they have said, they expected approval late this year, early next year. So that's not really a potential topic here as we exit the year. However, the competitive again, piece isn't significantly different. I think the difference here, Chris, is truly what is the impact of therapeutic visits, which were up the last few years, even as overall business were down that turned this year, where we're seeing therapists for derm declining on the year and the cumulative effect of those as we got into this quarter, we're seeing that impact in terms of patient starts. Exactly when we will see those turn around, I won't venture to give you here, but we are assuming the macro continues into the fourth quarter, certainly, what you see impacting here, and we will update those in terms of what that means in terms of guidance in February. One last point I will give is as we factor these trends, again, very encouraging to see Librela showing signs of stabilization and so on, those are areas that we are looking forward to as we enter into 2026. But it's not last point in terms of the guidance. Very pleased if you look at the disciplined execution from an expense management perspective, not only in terms of the performance on the quarter with 12% growth in adjusted diluted EPS, but we are maintaining our guidance from an EPS perspective in terms of bottom line for the year versus the guidance that we gave back in August. Again, these are elements that I want to remind you of. I don't know if Kristin wants to add anything. Kristin Peck: No. The only thing I'll build on with regards to Librela is, Librela remains widely used with over 30 million doses distributed globally, and we do remain confident in Librela's growth potential. I think executing on our multipronged strategy as we're starting to see the signs of stabilization right now, it gives us confidence that the actions we're taking are going to return Librela to growth and as we mentioned, we believe it will return to growth in 2026. So what gives us that confidence is watching the trends over the last few months, we look over trends of 4 to 6 weeks at a time rolling and that's what gives us confidence that it will be stabilizing and we'll return to growth in 2026. I think it's really strong execution across our multi-prong strategy. Operator: We'll go next now to Steve Scala at TD Securities. Christopher Schott: This is Chris, on for Steve. Just one question on Livestock, had another very strong quarter. How doable are these growth drivers as you look ahead to 2026. Wetteny Joseph: Yes. We're very, very pleased with double-digit growth in Livestock on the quarter. Livestock has now demonstrated growth above market the last 2 years. This is the third year in a row. And we are anticipating that continuing in terms of growth in next year. I think the underlying demand picture in Livestock and if you look at the secular trends that are driving that are sustainable. You see increased demand for protein. You see population growth as well as growth in emerging middle class as well as organization driving these trends globally. And again, we're very pleased to see the performance on in the quarter. I think this really demonstrates one of our core strengths with diversification across the portfolio. You have a double-digit growth in Livestock in the quarter where you see some headwinds in terms of macro, particularly in U.S. Companion Animal. And again, this is what makes Zoetis great in terms of if you look at our portfolio and the breadth of it across species and across therapeutic areas, et cetera. Operator: We'll go next now to Navann Ty at BNP Paribas. Navann Ty Dietschi: One on the derm portfolio, if you could quantify maybe how much is due to distributor inventory dynamics versus the competitive pressure from Zenrelia and NUMELVI in Europe. And also on Librela, when do you see signs of stabilization? And what are the drivers of that in your view? Wetteny Joseph: Yes, sure. Really, distributor inventory levels were not a point to really raise here other than, as we said in the prepared commentary, we did move Apoquel into distribution on the quarter that was about a $10 million contribution if you look at the derm figures in the U.S. But there's not a point here in terms of distribution impact to speak of in terms of overall performance. And again, with respect to Zenrelia, both in the U.S. and across international markets, the level of patient share that they are gaining here is certainly in line with our expectations, it's not below it. So we don't see that really being a key factor that's different from what we came into the year with and it's been limited in terms of the impact. I'll turn over to Kristin on the Librela question. Kristin Peck: Yes. I mean I'll just reiterate, we're encouraged that we've seen the recent signs of sequential stabilization, and that really gives us confidence to the actions we're taking are working, and that's what gives us confidence that we'll return to growth in 2026. Operator: We'll go next now to Daniel Clark of Leerink Partners. Daniel Christopher Clark: Just wanted to circle back on some guidance you gave last quarter on double-digit growth across the derm, Trio and OA pain franchises? How is that tracking at this point? And how should we kind of think about the growth of those 3 going forward, given all the dynamics you've laid on the call? Wetteny Joseph: Yes, Daniel, Happy to take that. Look, we came into the year and you've seen our key franchises that includes derm, parasiticides with Simparica as well as the Librela and OA Pain driving double-digit growth for the year. And through the first 3 quarters, even with the headwinds we've seen from OA Pain, particularly in the U.S., they're tracking to about 9% on a year-to-date basis. They're about 2% on the quarter. And so we now expect those key franchises to be high single digits on the year. I won't -- again, I will venture into what forecast might be as we go into next year, we'll provide more clarity on those in February. Certainly, we look forward to that. However, I would say, again, the stabilization we're seeing in OA pain is certainly helpful to see. If you look at the OA pain in terms of the impact on the quarter. Certainly, you can see how that played out, particularly in these 3 franchise areas. But it is encouraging to see the civilization in terms of Librela and to the therapeutic business that we talked about, those have been down for the last 3 quarters. But if you look at derm, for example, visits for therapeutics in derm in the U.S. clinics were down less than 1% down, where they were down more in the last couple of quarters. So we are encouraged by some of those, again, not necessarily forecasting what the macro will look like as we look ahead. Operator: We'll go next now to Andrea Alfonso with UBS. Andrea Zayco Narvaez Alfonso: I wanted to just probe a little bit more on the Simparica Trio franchise in the U.S. in the quarter outside of the tough comp. I guess, I would be curious if you could provide any color on the actual dosage share and debt clinics particularly among new puppies, did you retain or cede some share? And also curious if you could speak to maybe some of the pricing spreads versus the competitors? Have they narrowed some of those new launches. And then separately, but sort of the same topic is in one of your slides in the investor deck, there was some mention of new canine parasiticides in the innovation road map slide. Just curious at all, if you can comment, are those simply long-acting, maybe any new efficacy and breadth that you expect to roll out there? Wetteny Joseph: Yes. I'll take the overall question and see if Kristin wants to chime in on the pipeline here. Look, as we look at Trio, I know you said despite the tough comp, but I do think that is probably the biggest factor here in addition to the macro that we've already talked about. If you look at where Trio performed a year ago in the third quarter, Trio was up 27% on the quarter. So I think, clearly, that is a very strong comparative period and strong performance that we're up against, and we knew that and coming in, which is why we factored some of that in. But I do think it's important. In terms of share, we are largely maintaining our share across the vet clinic. I think the reduction in flea, tick, heartworm visits that we're seeing from a therapeutic category perspective is part of the impact here. But again, the competitive share gains from a patient share perspective that we're seeing here are not significant. Again, they've been limited here. We are continuing to see expansion though of the overall flea, tick, heartworm particularly a triple combination space as we look ahead. And so there's still significant room to grow here over the last couple of years. You've seen that share of prescribed oral medications go from 30% to 47% over the last 2 years with substantial more room to go. And Trio is the market leader here, certainly in the U.S. and we continue to see our opportunity to continue to capitalize on that as a first mover and very, very high satisfaction rates from customers here. I won't get into the specifics in terms of pricing spreads here. Again, there are some dynamics that we anticipate in terms of what happens during the period of launch. Historically, those have been short-lived, and we won't get too deep into those other than to say, we're confident in our position. We're confident in our product, we're confident in differentiation that we have across our products, and that gives us a reason to be very disciplined as we cycle through those periods. Kristin Peck: Yes. I'll just go on your second question, which had to do with the pipeline. As I mentioned before, we're really excited continuing to deliver on our commitments across our pipeline. I think you're referencing a slide from our JPMorgan presentation, we continue to be on or ahead of schedule with the overall pipeline, and we look forward to providing very specific updates on the progress of that pipeline, including our canine paras, which remain an important part of that pipeline on our webcast on December 2 on innovation. So we'll give you a fulsome review of the pipeline progress and more information on it on the December 2 webcast. Operator: And ladies and gentlemen, that is all the time we have for questions this morning. Ms. Peck. I'd like to turn the conference back to you, ma'am for any closing comments. Kristin Peck: Well, thanks, everyone, for joining us today and for your thoughtful questions. We're proud of another solid quarter that reflects the consistency of execution and the strength of our portfolio and the focus of our colleagues around the world. As we look ahead, we'll continue to advance our strategy and investment innovation that is driving our sustainable growth. And as always, we remain committed to delivering long-term value for our shareholders and look forward to sharing continued progress on our innovation pipeline during the upcoming innovation webcast. We look forward to speaking to you that. Have a great day, everybody. Operator: Thank you very much, Ms. Peck, and thank you, Mr. Joseph. Again, ladies and gentlemen, this will bring us to the conclusion of Zoetis' third quarter 2025 Financial Results Conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Greetings. Welcome to the National Storage Affiliates' Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Hoglund, Vice President of Investor Relations for National Storage Affiliates. Thank you, Mr. Hoglund. You may now begin. George Hoglund: We'd like to thank you for joining us today for the Third Quarter 2025 Earnings Conference Call of National Storage Affiliates Trust. On the line with me here today are NSA's President and CEO, Dave Cramer; and CFO, Brandon Togashi. Following prepared remarks, management will accept questions from registered financial analysts. [Operator Instructions] In addition to the press release distributed yesterday afternoon, we furnished our supplemental package with additional detail on our results, which may be found in the Investor Relations section on our website at nsastorage.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties and represent management's estimates as of today, November 4, 2025. The company assumes no obligation to revise or update any forward-looking statements because of changing market conditions or other circumstances after the date of this conference call. The company cautions that actual results may differ materially from those projected in any forward-looking statement. For additional details concerning our forward-looking statements, please refer to our public filings with the SEC. We also encourage listeners to review the definitions and reconciliations of the non-GAAP financial measures such as FFO, core FFO and net operating income contained in the supplemental information package available in the Investor Relations section on our website and in our SEC filings. I'll now turn the call over to Dave. David Cramer: Thanks, George, and thanks, everyone, for joining our call today. We delivered solid results in the third quarter, reflecting sequential improvement in the level of year-over-year same-store revenue growth in 16 of our 21 reported MSAs. Additionally, our core FFO per share result beat consensus estimates. Our focus on driving performance with our upgraded tools, a consolidated platform and an enhanced team is starting to take hold and has continued into the fourth quarter. Contract rates in October were better than last year by 160 basis points versus a 20 basis point increase for the third quarter. Occupancy ended the month at 84.3% versus 84.5% at the end of September. We were pleased that we're able to hold occupancy relatively flat in October. On a year-over-year basis, occupancy was down 170 basis points. I'll remind you that occupancy in October of last year had 20 basis points of hurricane demand. Looking at the sector more broadly, we are positive about the outlook for self storage in 2026 and beyond. Given that, one, new supply over the next few years is expected to come down to levels well below long-term historical averages, supporting a notable shift in the supply-demand balance for the sector. Two, assuming Fed interest rate cuts push down mortgage rates, this would likely result in increased storage demand that would accelerate the current inflection in fundamentals. Three, in addition, lower interest rates will benefit our borrowing costs and overall cost of capital, which will aid us in our future acquisition activity. Additionally, we are encouraged by our relative position in the industry as we have 2 levers to pull: rate and occupancy, which provide us with a growth potential advantage going forward. Our positive momentum is supported by: one, the pace of our same-store revenue growth is improving quickly, suggesting the worst is behind us and a solid inflection off of the bottom. Two, our continued focus on the execution of our strategy, including enhanced marketing and revenue management, optimized staffing levels, property improvements and expense controls are all starting to show results. Three, we continue to add earnings growth drivers as evidenced by the launch of our preferred investment program. Adding strategies like this will help return NSA to being a growth company. In aggregate, these factors provide the best setup for the self storage sector and our portfolio have seen in several years. We are confident that our revenue growth will continue to improve even without a housing market recovery. Although the pace of the recovery is uncertain, we are encouraged that we have reached an inflection point. We will continue to focus on improving our occupancy level and revenue growth with increased marketing spend, competitive position in terms of rate and promotion, solid execution of the sales process and remaining asserted with our ECRI strategy. We are also focused on improving our portfolio through continued capital recycling and reinvesting in our properties. I'll now turn the call over to Brandon to discuss our financial results. Brandon Togashi: Thank you, Dave. Yesterday afternoon, we reported core FFO per share of $0.57 for the third quarter, in line with our expectations. The 8% decline from the prior year period was due primarily to a decrease in same-store NOI and an increase in interest expense. For the quarter, same-store revenues declined 2.6%, driven by lower average occupancy of 150 basis points and a year-over-year decline in average revenue per square foot of 40 basis points. This is a meaningful improvement from the first half of the year due to us finding stability operationally and also as we encounter the easier comps to last year. To emphasize this, I'd refer you to Schedule 7 in our supplement, where we break out same-store total revenue between rental revenue, which represents over 95% of the total and other property-related revenue, which primarily consists of tenant insurance dollars retained by the stores. Our rental revenue line item was down 2.2% year-over-year in the third quarter compared to negative 3.2% year-over-year in the first half of 2025, a 100 basis point improvement. The other property-related revenue line item on the other hand had a difficult comp as last year's third quarter was outsized, partly due to us commonizing all of the legacy PRO properties onto our corporate tenant insurance program. Understanding these different components is critical to evaluating the same-store portfolio performance in the third quarter and the implied fourth quarter growth at the midpoint of our guidance. Expense growth was 4.9% in the third quarter. The main drivers of growth were property taxes, marketing and utilities, partially offset by a decrease in insurance costs. Property taxes were elevated mainly due to a tough comp given successful appeals in the prior year period. Marketing was up 29% versus the prior year as we continue to invest in customer acquisition spend in markets where we clearly see the benefits. We expect some of these expense pressures to ease a bit in the fourth quarter as implied by our guidance range. Moving to the transaction environment. Our 2023 JV acquired 2 properties, one in California and one in Tennessee for a total of $32 million. We also completed the sale of 2 assets, which were discussed on last quarter's call. Our continued commitment to our capital recycling program provides several benefits. First, we're becoming more operationally efficient. Second, it generates proceeds to deleverage. And third, it funds attractive investments through JV and preferred equity structures. We're particularly excited about the preferred equity program that we just announced because this opportunity allows us to accretively invest in self-storage deals that provide us with a larger initial yield than wholly-owned acquisitions. It also allows us to continue partnerships with our former PROs using a structure that solves for our partners' capital raising needs and NSA's risk-adjusted return requirements for capital deployment. It also provides a captive acquisition pipeline for us as we have a right of first offer on the properties acquired by the joint venture we announced with the Investment Real Estate Group. Now speaking to the balance sheet. We have ample liquidity and maintain healthy access to various sources of capital. Subsequent to quarter end, we amended our credit facility agreement to remove the 10 basis point SOFR index adjustment on our revolver, Tranche D term loan and Tranche E term loan. This amounts to nearly $1 million of annual interest savings on the debt associated with these facilities. We have no maturities of consequence until the second half of 2026, and our current revolver balance is approximately $400 million, giving us $550 million of availability. Our leverage has been slowly coming down with net debt-to-EBITDA of 6.7x at quarter end, down slightly from 6.8x in Q2. Turning to guidance. And given that results were in line with expectations, we maintained our guidance ranges for 2025 for same-store growth and core FFO per share, which are detailed in the release. I'll highlight that the midpoint of the same-store revenue and NOI guide imply continued improvement in the pace of growth for the fourth quarter, building off of the inflection in the third quarter, which gives us further confidence of positive momentum into 2026. Thanks again for joining our call today. Let's now turn it back to the operator to take your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Samir Khanal with Bank of America. Samir Khanal: Dave, when I listen to your opening remarks, your comments in the earnings release, your prepared remarks, certainly, you have a very positive tone here, which is a bit different versus what we've heard from the peers. Maybe help us understand what makes you so confident sort of on a relative basis. David Cramer: Yes. Samir, thanks for joining. Good question. I think from my seat and from our seat, we spent the last couple of years in a very challenging environment working on our company and working on our -- the way our company was structured, working on initiatives that allowed us to become better and position ourselves to have better performance in the future. You think we collapsed the PRO structure. We consolidated brands. We consolidated operating platforms. We hung everything on nsastorage.com, centralized marketing platform, have centralized revenue management now, centralized pricing, centralized marketing. And so we've worked really, really hard to put ourselves in a position now where we're looking forward saying that we think we've inflected. From this point forward, as we go forward, as we look out to 2026, we think we're in probably the best position we've been in several years to perform in today's environment than any other environment that's in front of us. And so as we look out and we look at the progress we've made over the last 3 or 4 months, around some of the efficiencies that we're tracking like occupancy level, contract rate and where we're heading coming out of this year and looking into 2026, it just feels like from our seat, we feel very, very good about how we're executing, how the team is executing all of the work and the changes we've done are coming together. And we just feel very confident as we head out that we're in a position today that we haven't seen in several years from easing supply pressures from the sector, but really from our seat looking at what we have in front of us. We have a couple of levers to pull that make us a little bit different than our competitors. We have occupancy left and we have rate left, and we're going to work on our marketing spend, and we're going to work on our execution and really focus on driving our portfolio forward and having success around in today's environment and really sets us up in a position for 2026 going forward. You heard in our opening remarks, we've been able to hold occupancy relatively flat coming -- we improved in the third quarter, held it flat in October. We're in a position now where contract rates is still remaining positive on a year-over-year basis. There's just a lot of things that we feel that we've worked on that are really starting to have fruit right now, and it feels like as we go into 2026, it sets us up to have a good year. Samir Khanal: Got it. And then I guess switching subjects here on -- maybe on the disposition side. Maybe talk around kind of capital recycling, how you're thinking about that sort of disposition capital recycling over the next 12 months? David Cramer: Yes, I think we'll stay at our thought process around recycling our capital. We still have some markets and some stores that we're in the market with right now. And so we have stuff that we have not closed on, but we're marketing today. As part of that initial push, as we look through our portfolio, everything is built around becoming operationally efficient and really trying to find the future that this serves us the best and creates the most return for our shareholders. And so we look at recycling capital, we've had good success selling properties. We've had good success with the buyers wanting our properties, and we've been able to turn around and reinvest that money from the recycling program in very efficient ways. Brandon will -- has spoken in his opening remarks about this new opportunity we just created, which allows us to take some of this recycled capital and put it to very good use and a very good preferred investment. And we just think we'll be smart about it. We think that probably the big chunks of our recycling program are over, but we will continually work on the portfolio to make sure we're in the best position to perform. Operator: Our next questions are from the line of Michael Goldsmith with UBS. Michael Goldsmith: Dave, the move-in rate was up 4.9%, which is really encouraging, but same-store revenue growth was down 2.6%. So from your perspective, how do you think about these improved street rates flowing through the algorithm and its ability to impact -- positively impact same-store revenue growth. How long do you think that takes? And what's the opportunity there? David Cramer: Yes. Good point, Michael. I think from our seat, we're doing 3 things right now. We're closing the year-over-year occupancy gap and as we look out into 2026, we're going to work very hard around having a pretty level basis on year-over-year occupancy and look next year to grow that occupancy on a year-over-year basis. So that will help on the overall revenue output of the portfolio. Along with that, obviously, we'll position ourselves in the market from a street rate and promotion positioning to make sure that we're competitive and we get the amount of conversions we want for the marketing effort and for the positioning that we're doing around attracting new customers. And so that creates still a rent roll down, which I think we're all dealing with. But what I do have more confidence in as we get better and better with our platforms is around the ECRI strategy and our ability to continue to maximize how we implement in-place rate changes to our customers. And so that's probably a long-winded ended answer to, I think we have 3 things that we're working on that are going to help us drive additional customers into the platform and actually be able to maximize the revenue. And so as we look at 2026, we're going to start the year in a position we haven't been in several years and the fact that we're going to be pretty flat on a year-over-year basis on occupancy. We're going to have good positioning on contract rate. And from that point forward, it's just a matter of how we drove 2026 as rental volume levels and how we execute on the ECRI program. Michael Goldsmith: Got it. And as a follow-up, just along the same lines, to what extent are the former PROs impacting same-store revenue growth? Is that a positive now? Or is that still a little bit of a drag? How have you been able to operate those stores better and when do you think you can kind of harness maybe some of the upside from your operations out of those stores and realize that benefit. David Cramer: Yes. Good question. We definitely in the third quarter saw some momentum around, I'll give you this data, around move-in square footage for Q3. And if you think about the overall move-in square footage for Q3 was 5.8% higher than it was a year ago. So as we look at our platforms and our marketing and all the things we're working on, we certainly saw an improvement in the net rental square foot that we were able to achieve. Of that, 3% of that $5.8 million came out of the core portfolio, the corporate stores that we have managed before. The PRO store saw a 10.1% improvement in that net rental square foot on a year-over-year basis for Q3. So we certainly are starting to see momentum around all of the rebranding and all the efforts around centralized platforms starting to flow through on a rental basis, which will lead to revenue and revenue outperformance. From the expense side of the house, we've seen some savings around payroll, but we're also spending more on the marketing dollars to generate the rental volume that you're seeing here. So we just think -- as we talked about last quarter, we were a little bit behind where we thought we would be. Definitely we're happy with what the momentum we saw in the third quarter. Operator: The next question is from the line of Spenser Glimcher with Green Street. Spenser Allaway: Just given your former PROs were obviously a strong piece of your historical external growth. Should we expect to see more of these growth-focused JVs form in the near to midterm? David Cramer: Spenser, yes, thanks for joining. I certainly think it's an opportunity. We -- one of the strong points of the -- there was a lot of strong points to the PRO structure, but that was one of them with their access to these local markets and ability to get off-market transactions done with buyers and sellers and us being the buyer and then finding sellers. And so I do think it's an opportunity. We are very pleased to announce the one that we have just announced. We put this in the Mid-Atlantic, kind of Northeast section of the country where this former PRO has a very, very strong operating presence, and they have very, very strong tentacles into these markets where I think they're going to have very good success buying properties and have good success in this program. So I think it could lead to more. We don't have a line of sight right now on more, but it's certainly something we think could be attractive. Spenser Allaway: Okay. Great. And then I know you mentioned in your prepared remarks that the capital recycling provides obviously to delever and that has been coming down slowly. But can you just talk about the larger capital allocation decision here to grow at all when you're 45% levered and trading at a material discount to NAV that doesn't allow you to delever outside of those disposition proceeds? Brandon Togashi: Yes, Spenser, this is Brandon. I would say everything that we're doing today is pretty modest and with a very disciplined and prudent eye, I mean, if you just look to the activity that we reported for the third quarter, right? I mean we completed the sale of 2 assets that was part of the 10 pack that we had talked about closing the majority of that portfolio in late second quarter. So that was just finalizing that deal. Our JV '23 acquired 2 stores. Our capital outlay was $8 million. Certainly, this preferred investment that we're talking about is a larger capital outlay and upwards of $100 million plus, but that will take time to deploy all that. And then at the same time, we have a clear initiative to improve the portfolio over time through some targeted select dispositions. And so I hear the spirit of your question, but I would just say that everything we're doing is relatively modest and measured for long-term benefits. Operator: The next question is from the line of Eric Wolfe with Citibank. Eric Wolfe: I think on your last earnings call in your recent presentations, you provided the [ RevPAF ] growth. I was just hoping you could provide that for October specifically and then talk about how you expect to trend through the quarter to hit that midpoint of your guidance. Brandon Togashi: Yes, Eric, this is Brandon. I'll take that first, and then Dave can chime in. That metric, we started to introduce into our investor deck back at June NAREIT, and that followed our first quarter supplemental in late April, early May, which is typically when we introduce any type of new disclosures, right? And so in that first quarter supplemental, that's when we first started introducing the in-place customer rate for our same-store portfolio as well as the rates at which customers were moving in and out. And so because we were providing that in-place customer rate, it's essentially -- [ RevPAF ] is essentially a combination of that in-place customer rate metric with the occupancy. And so to your question about October, Dave in his opening remarks mentioned our occupancy down 170 basis points at the end of October. We were down 140 at the end of the third quarter. So on average, you're in that down 150 to 160 territory. But you also commented the contract rates were up 160 basis points. So those 2 things are essentially flat, meaning that [ RevPAF ] metric for October is essentially flat as well. All of that having been said, you do have things like the impact of discounts and concessions, which we've talked on these calls more recently about those discounts being elevated in the prior year. So that eats into the revenue growth a little bit. And then you also heard in my opening remarks about that other property-related revenue line item being a little bit of a drag. And so those are really the things that are dragging you from that [ RevPAF ] metric for the third quarter to get to that negative 2.6% that we reported. And that's also what would take you in October from being flat on [ RevPAF ] to something that's negative, but frankly, starting with a 1 handle instead of a 2 handle, and that is where we need to be, obviously, to get to that midpoint of the guide. Eric Wolfe: That's helpful. And then I think you mentioned a comment about occupancy being flat to start 2026. Did you mean that on a sequential basis or on a year-over-year basis, meaning you're comparing it versus like, say, October, the third quarter on average? Are you saying that by the time you start 2026 that on a year-over-year basis, that 170 basis points of occupancy gap that you have today in October will go to 0. Brandon Togashi: I think what Dave meant well, he can answer for himself there, but I'll also be really clear about what's in our guidance. I mean we -- I've said at recent conferences, we expected to have something in that 150 basis point year-over-year delta for the back half of the year and now a range of scenarios feeds a guidance range, obviously. But I still expect we would be negative year-over-year to some degree, but certainly not to the magnitude that we were to start '24 and '25, which I think was the essence of Dave's remark. So not entirely 0 year-over-year, flat year-over-year, but modestly negative and improving. Operator: Our next question is coming from the line of Michael Griffin with Evercore ISI. Michael Griffin: Dave, I want to go back to your comments just on inflection as maybe you look to the year ahead, and I realize you're not giving '26 guidance at this point, but can you give us a sense of maybe the trajectory or expectation of same-store revenue growth? Was that more a comment of a year-over-year improvement? Or could we see that maybe in the first half and then building throughout the year? David Cramer: Yes. Thanks for joining. It's a good question. I think everything we see today and what Brandon was just commenting earlier is our momentum sequentially month-over-month, and our traction that we're gaining on a year-over-year basis, we're closing the gap on several fronts. And that's around some of the occupancy delta that we faced in the last couple of years, certainly on a contract rate basis as we go forward. And so we look at 2026, where we're starting in a much better position earlier in the year than we've started the last 2, 3 years in several quarters. And so we look at 2026 probably with a little bit more rosy lens in our opinion right now, just from our starting position. And so I think from an occupancy level contract rate, where we're going to be with [ RevPAF ], I'm not giving any guidance for 2026, but we do think we're going to be in the best position we've been in several years and have some success there. Michael Griffin: Great. Appreciate the color there. And then maybe Dave or Will, can you walk through maybe some of the assumptions or give us a little more color on the recently announced joint venture in terms of what kind of properties you're targeting in terms of acquisition cap rates? And then maybe an IRR you're underwriting to and assumptions maybe around revenue -- NOI growth or exit cap as it relates to achieving that IRR. Brandon Togashi: Yes, Griff, this is Brandon. I'll take it and then Dave can supplement. Certainly, value-add deals is the flavor of what we're looking for in the structure. I think to Spenser's earlier question, a lot of the properties fit the profile that very well may have suited our former PRO under our PRO structure, meaning the initial yield may look stabilize, but there could be an opportunity for further upside just because the properties if we're acquiring them off market, the JV is acquiring them off market, they've maybe been undermanaged by a less sophisticated operator. Also some assets that maybe have expansion opportunity where our former PRO and partner have a specialty in being able to deliver on those types of additive additions and expansions to sites. And so that's the profile. I would tell you the yield that we're targeting, our cash flow is priority to our partners. And so all of the operating cash flow after [ debt ] service will come to us up until that 10% pref return is filled. And so that -- and that just corresponds to the level at which we're invested in the capital stack. And so we expect that initial cash flow to be less than the 10% and the delta, the unpaid piece of the 10% will accrue and then be paid over time as cash flows increase. David Cramer: Yes. I think I'd just add to that, to Brandon's point, I mean, I don't think we're being overly assertive on exit cap rates, and I don't think we're being overly assertive as we think about revenue growth. I think the partner we've chosen has a good handle on their markets, and we overlook all the underwriting as well on the properties they're buying. And I think we'll certainly be very smart about putting capital out and how we underwrite the performance of the properties. Operator: The next question is from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just in the opening remarks, Dave, you mentioned the enhanced team. So I was just hoping you could spend a little time on the additions you have made and maybe future opportunities to kind of bolster the senior leadership of the company. David Cramer: Yes. Thanks, Juan, for joining. Good question. We've really spent a lot of time around looking at all facets of our business. Early on, we had to obviously strengthen our financial team as we brought all the accounting and all the stuff through the PRO structure and the team has done a good job there. Our recent additions have really been around more revenue management, performance driving leadership roles. And so we brought in a seasoned person to help us with our revenue management. She takes care of the ECRI pricing and upfront pricing for customers and promotions and she really leads the data science team and the revenue management team on the efforts towards improving and remodeling and tweaking and continually to test and do all the things we're trying to do around driving the maximum dollar through our portfolio. We've also added strength in the IT department that allows us with these consolidated systems to have the most efficient technology platforms we have and continue to develop and we added another strengthened leadership position around the marketing -- pure marketing team and the customer acquisitions team. And so I think adding this experience, these 3 people we added had years of experience in their field. They've had years of experience, 2 of them had years of experience around self-storage. And so I think we've just really strengthened there. And then that just ripples through the team. As they come in, they bring in additional talent, whether it be at a manager level or whether it be at systems operations level. And so they've just done a really, really good job strengthening that side of the house. On the operations front, obviously, now the transitions over the operations team has spent a tremendous amount of time around staffing levels, hours of operation, I think I said in my last call, it's nice to be focused on the business instead of transition. And I think all the benefits of focusing on the business are starting to pay off, and we just are really starting to hit our stride. Juan Sanabria: Great. And then just on the revenue side. Hoping you could talk a little bit about ECRIs and kind of the quantum or the cadence and how that's changed? And then on the move-in side, could you give the numbers net of discounts? I think that's a more useful figure than the kind of the advertised rate, if you will. David Cramer: Sure. I'll start, and then Brandon can finish up on the rate question. From the ECRI strategy program, I would tell you how we look at the cadence of the ECRIs, we haven't changed. We've been testing some different thought process around it, but we haven't changed, and we haven't seen anything that's going to make us really change our cadence. I think on the magnitude side, all of the testing we're doing is helping us improve our magnitude on the rate increases. And that's all the way through from the first time rate increase, all the way through the existing customer base. And so I think on a year-over-year basis from our seat, we feel like the ECRI program is still a little bit stronger than it was last year, and will continue to evolve as data points tell us it can evolve. And so having the additional talent, additional strength and additional wisdom there is paying off on our ECRI strategy. Brandon Togashi: And then, Juan, on your discounts question, related to the move-in rate metric that we report back in Schedule 7 for the same-store pool. As Dave mentioned it earlier, for the third quarter, we were up 4.9% from the move-in rates. If you adjust that for discounts. It's -- for both third quarter and the second quarter, it was about 100 to 150 basis point impact because concessions were higher. So that 4.9% would otherwise be kind of mid-3s. And for second quarter, we reported that move-in rate was up 130 basis points, and it was probably closer to flat. Juan Sanabria: Do you have the corresponding October? Brandon Togashi: October year-over-year, Juan, is very -- is high just because -- and that's a consequence of last year, September and October comp was as much easier, just given where we had moved rates, given what was going on in the market as well as what we were dealing with the PRO internalization. So our move-in rates achieved for October were up 14% and I would also guide you to take 1 point, 1.5 points off that for the discounts. But that's going to flip in November and December, we're likely going to be down. So on average, for the fourth quarter, I think it will be year-over-year relatively flat. Operator: The next questions are from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: A couple of questions or follow-ups, perhaps on the new growth vehicle that you announced yesterday. I guess, first, will the $105 million pref, will that be funded on a property-by-property basis? Or is each investment completed? Is that how that will work? And then Brandon, you noted that the properties will not hit the 10% pref early on, the balance will accrue. But based on today's cost of debt and the return profile and assets that you're looking to acquire, any sense what the time line might be for that 10% hurdle to be achieved? Brandon Togashi: Yes, Todd. So on the first question, it will be deployed on an investment-by-investment basis or asset by asset. So it will occur over time. And we've been working on the specifics of the agreement with our former PRO for multiple months and very pleased to be able to announce it now. We've also, over this past few months, been concurrently underwriting a couple of deals that haven't materialized, but jointly underwriting some opportunities. So we are excited about what we're seeing in the market and looking to deploy those first dollars in the venture. On the second question, it's going to be deal dependent. I mean, I think the initial cash yield to us will rival the type of cash yields that we're generating in our other JV structures. But then obviously, that growth is going to [ inure ] to our benefit disproportionately. And so then that's where it has an opportunity to get up into that 10%. So it will vary. But I'll just tell you because I referenced that we've underwritten a couple of opportunities recently. You're hitting that in a few deals that we've looked at most recently, year 3 on average, I would say. Todd Thomas: Okay. And then it sounded -- I mean, you characterized it like a program, and I think you referenced this or maybe mentioned it in a prior question. It sounds like you don't have line of sight into additional ventures, but is there interest from former PROs to replicate this? Is this something that you think we should assume with sort of a geographic market focus or some exclusivity regionally around the country that you might roll out? And then with regard to move-in specifically, you just rebranded and announced that you rebranded those stores. How many move-in stores are there left operating today because my understanding is that the acquisitions made by that venture will be branded move-in. And how comfortable are you with that brand-in banner moving forward from an operational standpoint? David Cramer: Sure, I'll take this. This Is Dave, Todd. Thanks for the questions. I think there is interest from other former PROs around this program. And like I say, we don't -- like I said we didn't have a direct line of sight, but we've certainly had conversations. And so if we think it's appropriate, and we think it's the right time to move forward, you could see us roll this out a little bit more to -- as you said, it really around geographic focused, opportunistic focus areas where this fits their capital need and our capital want. And so yes, I think we could see some more activity here in the future. I don't -- again, no direct line of sight, no timing on that, but it's certainly something that could materialize. As far as the move-in brand, they still operate, I think over, I don't know, 35, 40 stores. They've got probably in that range around those store count. They are a regional brand that is strong when we [ collapsed ] the PRO structure, it was a brand they wanted to keep. So they paid to have our iStorage stores branded from their move-in stores and they wanted to keep their regional brands. So there's a lot of strength in their local markets with this brand. And so we're pretty comfortable in their ability to manage the stores in this venture for us and to have success at a level where we think it's appropriate. Todd Thomas: Okay. So there won't be any additional fees or any sort of efficiencies or scale benefits from this growth vehicle, it's purely just limited to the preferred equity investment, and that's it? David Cramer: Yes. I mean certainly, there's an initial 10% and then upon exit of a particular part of this venture, there's a chance for us to earn up to about a 14% total return somewhere in that neighborhood of where we want to be potentially. But right now, it's a preferred [ 10% ] with an upside. Todd Thomas: Okay. Right. But no revenue management platform that's being shared, no technology, no overlap around -- any impact around tenant insurance or anything of that nature? David Cramer: Yes. yes, there is TI, Todd. That's something we could mention. They're using our TI program, and so we'll have some benefit from the TI use program. We get some -- obviously some revenue off of that TI program. Other than that, no revenue management, no marketing, no other fees being paid to us, but the tenant insurance is an upside. That's correct. Brandon Togashi: I think, Todd, though, to your -- tying your questions together, though, this initial deal with our former PRO made a lot of sense given that particular PRO had invested a lot in building out a property operations group. So -- and our comfort with them being managers of assets stems from obviously our history with [indiscernible] PRO. To your earlier question about do we see this more as a programmatic thing that we can roll out to other operators or other owners? The answer is yes. And I think in some of those situations, we would potentially be the property manager in which case, some of those scale and platform benefits would start to come into play. Operator: Next questions come from the line of Jon Petersen with Jefferies. Jonathan Petersen: Can you update us on how the consolidation of brands on a single website is going? And if you've got search engine optimization back to the levels where it was before the integration? David Cramer: Yes. Thanks for joining. Good question. Yes. So the -- we've had good success with the NSA storage consolidation and consolidation of brands. From a high level, October was really the first month where we had really year-over-year statistics because there was a lot of noise on different websites and different [ major ] websites and trying to track the numbers as you think about everybody else having their own little systems and those pieces. But just a couple of high-level stats to come in October. I mean web shopping sessions were up 23% year-over-year in October, which we thought was a good metric, shows good solid progress on the fact that we're actually, the marketing spend and the visibility we're putting at our place and where we're putting our underwriting shares was working, and so we're very happy with that. And the conversion rate was up 7.1%. So we're pretty happy with both the shopping session and the conversion rate. So again, momentum, things that made us happy and pleased with the progress. Jonathan Petersen: Okay. All right. That's helpful. And then maybe related to that, Dave, I think in your prepared remarks, you mentioned that you want to spend more on marketing. Can you talk about what that might look like, like what channels and maybe dollar amounts that you guys are targeting on marketing? David Cramer: Yes. I think the run rate will be pretty consistent as we go through the fourth quarter of what we saw around the third quarter as far as dollars deployed towards really the primary driver of this is around the paid marketing platform. You do some paid search in social, you do some paid search in other platforms, but we're really working hard on positioning ourselves in the market where we have the right efficiency to get the right amount of sessions we want and the amount of our reservations, which obviously lead to rentals. And so the team has done a good job with the new modeling around our paid search model, and that's been our primary effort and primary lift, and we're very happy with the progress we're making there. So I think from our view, we use the marketing dollars as a tool. And if the tool is working, we'll continue to put dollars into the tool as long as we get the results out of it. Operator: Next question is from the line of Ravi Vaidya with Mizuho Securities. Ravi Vaidya: Can you discuss some of the demand drivers within the quarter and for October here? Are you seeing any more housing-related demand given that mortgage rates are in the high 5s and low 6s? And within your portfolio, which markets do you think have the most immediate upside in the event of a housing market recovery? David Cramer: Yes. Thanks for joining. Good questions. Certainly, we have not seen a major shift in the amount of people because of the housing market. Obviously, you're pleased to see rates come off a little bit, but it does not have -- hasn't had a material impact, in our opinion, on the amount of resale of homes or turnover around homes. I would note that moving is [indiscernible] about where it would be in our thought process of positioning of why people are using storage. So we're seeing moving as a top reason people use storage, which is good. But that doesn't mean they're buying a house. It could just mean they're moving from apartment to apartment or some other place and they're still renters. But the fact that we have seen more around moving in, transition is encouraging as far as just people moving around the country. The second part of that, Sun Belt obviously, for us. We've got a lot of exposure throughout the South. If you think about down through Florida, down through parts of Phoenix and Vegas and you go all the way through really the southern parts of the country would be the biggest benefit, we think, from a housing turnover for our portfolio. And we have a lot of exposure down there. We like the market long term. We think they're a great place to own storage, but we think they've been the most adversely affected during this lockup of the housing market. Ravi Vaidya: Got it. That's super helpful. And maybe just one more here. It seems like fundamentals are inflecting and there's a lot of positive momentum. Maybe why not narrow the guide at this point sitting in November? Like what are some of the bear and bull assumptions regarding the implied 4Q core FFO and same-store? Brandon Togashi: Yes, Ravi, this is Brandon. Your question touches on probably more of just an approach that we've always taken where, especially if we've revisited the guidance midyear in August, and things haven't materially changed and we feel comfortable with the ranges generally, we just leave them untouched down the board. Obviously, our commentary here and we've got a couple of conferences coming up, which I'm sure will be helpful for folks. It allows people to kind of understand our -- any type of bias or narrowing that others want to take from our results and commentary and apply. So that's really the reason. It's just kind of been our historical approach of leaving everything unchanged and then supplementing it with our remarks on these calls. Operator: The next question is from the line of Brendan Lynch with Barclays. Brendan Lynch: The PRO internalization was kind of -- the reason you guys gave at the time was about managing your assets in-house and simplifying your story. But with the new JV structure, it seems your partner is going to manage the assets and the JV itself has a bit of complexity. So maybe just help us think about how we should think about the benefits of this ongoing change to your structure? David Cramer: I'll start and Brandon, you can jump in. I think in this particular opportunity, we like the priority position we have in the investment. We understand the operator. We understand the markets that they'll be looking in. We don't have a significant presence in those markets from an operating standpoint. We did rebrand our stores to iStorage, but the markets that this particular person is in is not necessarily on top of those stores. So I don't know that we look at it as it's overly complicated from our point of view. It's -- they're good strong operator, and we know they understand the markets and where they're at. And from our seat, that's part of the reason we chose them. We were very, very comfortable. We didn't think it was going to be a high risk and a high attention need from us. We understand their abilities and what they're able to do, and we felt very comfortable that they're able to grow their portfolio in a manner that we would approve and have success with. Brendan Lynch: Okay. If you do -- it sounds like you're considering doing more of these going forward, would you expect to manage the assets in any other JVs that come down the line? Or would you kind of outsource that again? David Cramer: No, I think we're open to doing both. I think depending on the situation of the investment and the situation of the operator, I think we could see this where you may find folks who want to do this and have us manage the stores. And so I think the opportunity would sit on both sides. Again, I think we evaluate at the time of who this -- who the people are and how strong they are and what their desires are and what our desires are, and it could lead us to both paths. Operator: Our next question is from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: I just have two quick ones. Just on the same-store revenue, I know the guidance implies you're sort of down 1.3% in 4Q, but the commentary suggests that the inflection point, so maybe you're doing better than that. So I guess I was just wanting to tie those together. And is the thinking here if things continue to improve that presumably same-store revenue should flatten out at some point in the next 12 to 18? Just high level without sort of thinking through guidance here. Brandon Togashi: Yes, Ronald. So I'll just -- I might restate some of the same things we said earlier, and that's more just to reemphasize and try to answer your question at the same time. So one of the stats that Dave gave earlier about October was our contract rates being up 160 basis points. That's for the all customers in place for the same-store pool. And then the same-store average occupancy for October being down 170 in the month, and I supplemented that and said, on average, it was in the 150 to 160 range. So those 2 things, the in-place contract rate for all same-store customers as well as the average occupancy stat that gives you this flat [ RevPAF ] And then you have higher discounts year-over-year. I mentioned tenant insurance year-over-year being a little bit of a drag. Those are the things that put you into the red negative year-over-year still on revenue. But to Dave's opening remarks, the pace of that year-over-year growth is changing quickly. And so we like the trajectory. We like the trajectory that we have exiting the year, entering '26. And so I think being flat on revenue growth is certainly achievable sooner than a 12-month time frame or 18-month time frame, I think you're talking a shorter window than that. Ronald Kamdem: Yes. Super, super helpful. I guess my follow-up, just on the dividend, I think the payout ratio had been over 100%. Now that we're at this inflection, just does your -- how does your thinking change about when you can get back to below that 100% level mark? David Cramer: Yes. I think you're touching on something. We're confident in our trajectories. We're really confident in how we're starting to execute. That certainly puts us in a position to start growing FFO again. And then the pace of that will be determined on how -- a lot of factors that we've talked about on the call here today. I think from our Board seat, they're very thoughtful. They always think about all of the things that are going on with our business and what the future looks like. But the one thing that is very prevalent in our business, to Brandon's point, is you can move pretty quickly in this industry about rates and about occupancy and really adjust to the factors that are going on pretty quickly in this industry. So I think as we go forward, we're looking to 2026 in a little more positive way than we were looking at this year. So I think that helps from the dividend payout percentages. Operator: Our final question is from the line of Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Just wanted to go back to the JV, again, Brandon, with your comments about 3 years to get to the 10% prerequisite return. Can you just kind of give us a little bit more information around what kind of NOI growth you are basically underwriting to underneath that? And kind of what kind of debt or cost of debt this JV entity will have when it does ultimately fund the debt part of the equation? Brandon Togashi: Yes, Tayo, it really is going to vary based on the specific deal and the opportunity that, that deal provides. And so I think it's tough to speak to it in generalities. We wanted to announce the program because it's been something we've been working on for a period of time now, and we do think that it's going to be an important part of our story for 2026. But I think maybe getting into some of the particulars that you're asking about will be easier once we've identified and funded the first couple of deals and then we'll have real numbers to speak to. Illustratively, what I would tell you is if you think about a 6-cap property and the debt cost is very similar to that cap rate. So you're kind of neutral there. And then if you had 6% equity yield, we're 75% of that equity capital and we're getting all of the cash flow, you run that math and you're at an 8% yield, right? I mean that's super high level, super simplistic, and then you layer growth on top of that. And so you can kind of -- if you use that super high-level illustrative example, you could impute that growth that would be required to get you to a 10% return to your end of year 2, middle of year 3 and year 4 scenarios, right? Omotayo Okusanya: Got you. Okay. And then why would your PRO partner also be willing to take on a 10% preferred equity hurdle? Like what's kind of in this for them? The first few years kind of sound like it basically is working for you before they kind of start to make any money. So why is the 10% preferred equity the most attractive cost of equity to them? David Cramer: I think, Tayo, from their seat, looking at the properties they're going to buy and looking at it from their lens, as we talk about our underwriting, we talk about how we think the properties are going to perform and the overall performance of the deals they're making. I think they have had history and have proven that they're going to outperform. And from their lens, this is an appropriate level of cost of capital for what they're going to get out of it. And so I -- just being around that -- these operators a long time, I was one of these operators. I think they will find some home run deals that work out very, very well for them and makes us very attractive for them. Operator: At this time, this concludes our question-and-answer session. I'll turn the call back over to George Hoglund for closing comments. George Hoglund: Yes. Thank you all for joining our call today, and we look forward to seeing many of you at the upcoming conferences this month and next. Have a good day. Operator: Ladies and gentlemen, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Operator: Good morning, and welcome to Franco-Nevada Corporation's Third Quarter 2025 Results Conference Call. This call is being recorded on November 4, 2025. [Operator Instructions] I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Thank you. Please go ahead. Candida Hayden: Thank you, Ina. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Third Quarter 2025 Results. Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our full executive team is available to answer any questions. We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on Slide 2 of this presentation. I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada. Paul Brink: Thank you, Candida, and good day to all. For the third time this year, we're announcing record quarterly results. The new benchmark set this quarter were driven by high gold prices, strong operations, new acquisitions and the sale of Cobre Panama stockpiles. Over the last 18 months, we've made 6 acquisitions of meaningful new gold interests. Yanacocha, Cascabel, Sibanye's Western Limb, Porcupine, Côté and Arthur, all large ore bodies that will contribute to our growth for many decades. Of the 6 Porcupine, Yanacocha and Western Limb are also producing. That will impact our 5-year growth and have boosted our gold price exposure. 85% of our revenue was from precious metals in the quarter. The last of the acquisitions in July this year was a royalty on the Arthur Gold project in Nevada, operated by AngloGold. We did draw on our corporate revolver to fund the acquisition with our strong cash flow generation and the proceeds from equity sales, the company was once again debt-free by quarter end. During the quarter, we saw progress on the ground at Cobre Panama, completion of the concentrate shipments, pre-commissioning of the power plant for restart with the aim to provide power to the Panamanian grid, and formal notice to SGS to commence the environmental audit work. Perhaps just as important, we're encouraged by the recent constructive comments by the President of Panama towards resolution of the Cobre mine closure. If Cobre does come back online and with the contributions from our recent acquisitions, we're positioned for roughly 50% growth in GEOs over 5 years compared to last year. For the long-term assets we've added, we can then maintain that level of production for many years thereafter. Our deal pipeline remains very active. Although with this run-up in gold prices, we're also expecting good organic growth. With roughly half our revenue coming from principal gold assets, we expect this to be a powerful driver. Operators have strong cash flow for mine expansions, some ongoing by Detour and others now planned at Côté, Magino and Valentine. Developers have been able to raise capital for new builds, in particular, Skeena and Perpetua were both successful tapping the equity markets to ensure that they can advance Eskay Creek and Stibnite Gold. And the drills are turning on our large portfolio of exploration stage royalties. Recognition of the importance of critical minerals has also unlocked a number of permitting processes, giving the green light to construction to Copper World and Stibnite Gold. Castle Mountain is also now included in the U.S. FAST-41 permitting process. On that same note, I've been impressed to see the profile that the Ring of Fire is getting in the Ontario government's Critical Mineral Strategy. In the last few years, we've added new avenue to grow our company. That is finding good teams and good projects and not just providing royalty or stream financing, but being their financial banker. The first was G Mining Ventures with Tocantinzinho and the second, the discovery team with Porcupine. Both are best-in-class and are proving to be highly successful. We are delighted to have played a role in their success. We're looking forward to supporting them going forward and to find other strong teams to bank. With that, I'll hand the call over to Sandip to discuss the quarter. Sandip Rana: Thanks, Paul. Good day, everyone. As Paul mentioned, Franco-Nevada reported record financial results for the third quarter ended September 30, 2025. Our diverse portfolio of royalty and stream assets performed ahead of recent expectations, and we continue to benefit from higher precious metal prices. Precious metal prices with gold in particular, continue to be strong. On Slide 4, you will see the comparison of commodity prices for Q3 2025 and Q3 2024. Gold and silver prices increased significantly year-over-year with the average gold price higher by 40% in the quarter and average silver price higher by 34%. We also saw a rebound in prices for platinum and palladium, while prices for iron ore remained flat year-over-year, lower for oil, but we saw a significant increase in natural gas prices year-over-year. On Slide 5, we highlight some of the key financial metrics used to measure performance, total GEOs sold, net GEOs sold, revenue and adjusted EBITDA. Total GEOs sold increased 26% to 138,772 in the quarter compared to 110,110 in third quarter 2024. Precious metal GEOs sold in the quarter were 119,109, higher by 41% compared to prior year. Also, just under 50% of total GEOs sold were sourced directly from mines where precious metals are the primary commodity. For the quarter, we received strong contributions from a number of our key assets, Cobre Panama, Guadalupe and Candelaria, and we also benefited from our recent acquisitions, Western Limb, Yanacocha, Porcupine and Côté. This quarter, we recorded our first full quarter of revenue for both Porcupine and Côté. Approximately 11,000 GEOs were delivered and sold from Cobre Panama as we received GEOs related to the concentrate that had been stored on site since November 2023. In addition to better performance from Guadalupe and Candelaria and receiving GEOs from recent acquisitions, we also benefited from the continued ramp-up of operations at new mines, Tocantinzinho, Greenstone and Salares Norte. With respect to the Hemlo NPI, the NPI was not as strong this quarter compared to earlier quarters this year due to lower production on Franco's Interlake claims on the property. Barrick is in the process of selling Hemlo, and we look forward to seeing what improvements the new team has planned for the mine. Diversified GEOs sold were 19,663 for the quarter compared to 25,733 for prior year despite diversified revenue being higher year-over-year, $67.1 million versus $61.2 million. The GEO sold reduction is due to the impact of higher gold prices when converting revenue to GEOs. For Q3 2025, net GEOs were 125,115 for Franco compared to 97,232 in Q3 2024. Net GEOs removes the cost of sales component for all GEOs so that GEOs sold are represented after cost. As you know, royalty GEOs are higher margin than stream GEOs. As you can see from the chart, total revenue increased by 77% for the quarter to $487.7 million, which is a record for Franco-Nevada. Precious metals accounted for 85% of revenue. Adjusted EBITDA, also a record, was 81% higher for the quarter at $427.3 million compared to $236.2 million in third quarter of 2024. Slide 6 details the key financial metrics reported by the company. As mentioned, total GEOs sold were 138,772, generating $487.7 million in revenue in the third quarter. With respect to costs, we did have an increase in cost of sales compared to prior year due to higher stream ounces sold, particularly Cobre Panama. Cost of sales was $47.2 million versus $31.9 million last year. Depletion increased to $87 million versus $54.2 million as we received more GEOs from Candelaria, Cobre Panama and began depleting our recent transactions. This impacted depletion as those assets are currently higher per ounce depletion assets. Adjusted net income was $275 million or $1.43 per share for the quarter, both up 79% versus prior year. One other transaction that did occur during the quarter was the sale of some equity investments. We sold a portion of our equity investment in Discovery Silver and received total proceeds of $84.4 million with a gain of $67.4 million recorded on the sale. Under our accounting policies, these gains are reported in other comprehensive income and not reflected in our earnings per share. However, the gain would have generated an additional earnings per share of $0.30. Slide 7 highlights the continued diversification of the portfolio. As mentioned, 85% of our revenue was generated by precious metals, with revenue being sourced 88% from the Americas. No asset contributed more than 10% of our revenue. Slide 8 illustrates the strength of our business model to continue to generate high margins. For third quarter 2025, the cash cost per GEO is $340 per GEO. This compares to $290 per GEO last year. As the gold price has risen, Franco has seen a significant increase in our margin per GEO. Margin was $3,116 per GEO in the quarter, an increase of 42% year-over-year. Slide 9 summarizes our updated guidance. We have benefited from an increase in GEOs from Cobre Panama and Côté during the first 9 months of 2025. That along with record gold prices has resulted in record financial results for the first 9 months. Based on GEOs sold to date and what our expectations are for Q4 2025, we expect to be at the higher end of our initial guidance range, which was 465,000 to 525,000. We've narrowed this range to the higher end and now expect total GEOs sold to be between 495,000 to 525,000. With respect to precious metals GEO sold guidance, our original guidance range was 385,000 to 425,000. With asset performance to date and precious metal GEOs received from Cobre Panama and Côté, we now expect to exceed the top end of the original guidance range. As a result, our updated guidance range for precious metal GEOs is 420,000 to 440,000. Slide 10 summarizes the financial resources available to the company. The company had $236.7 million in cash and cash equivalents on hand at the end of the quarter. When including our credit facility of approximately $1 billion and our equity investments, total available capital at September 30, 2025, is in excess of $1.8 billion. As well, we continue to be debt free. And before I turn it over to the operator, I would just like to summarize the recent CRA Settlement that we achieved. On September 11, 2025, we reached a settlement with the Canada Revenue Agency, which provided for a final resolution of Franco-Nevada's tax dispute in connection with the reassessments under transfer pricing rules for the years 2013 to 2019 for our Mexican and Barbadian subsidiaries. Under the terms of the settlement, no payment of any tax in Canada is required on these foreign earnings for the subsidiaries for this period. We're glad to have this matter behind us and are very pleased with the settlement reached. And with that, I will pass it over to the operator, and we're happy to answer any questions. Operator: [Operator Instructions] And your first question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: On the deal pipeline, can you talk a little bit more about the commodity focus? There were some articles recently talking about maybe expanding the gold business in Australia specifically. But at the same time, I know historically, Franco's strategy has been to try to be as countercyclical as possible. So just curious what the commodity focus is given where gold prices are today? Paul Brink: Fahad, it's Paul. Thanks for the question. It's a good one. As usual, our #1 commodity focus is on precious metals here. The pipeline is good. So I think there's some good prospects of adding more gold deals. That said, gold prices are high. I think we are better positioned than most, 2 reasons. The one that I spoke a bit about in my comments there is in this environment, we expect strong organic growth. The second is we always have a bit of our business open to diversify it. And so we always have the discipline in this environment, if there are better deals to do on the diversified side, we've got some room to do that. But as I say, most of the pipeline is currently gold. On Australia, I was down there visiting recently. We and speaking to the number of Australian investors and the press about our plans there, we have added a new person to our team in Australia, Matt Selby out of Perth, who's driving our business development there. We would like to grow our business in Australia. As you know, we have a ton of royalties that cover a huge amount of land in Australia, but it's not yet a big part of our revenue. I think they are particularly good prospects and very keen to find good teams in Australia that we can back and potentially do something similar to what we've done with G Mining or Discovery in the country. Fahad Tariq: Okay. Great. And maybe just as a follow-up, there were some comments probably now 2 months ago about looking at natural gas, given where natural gas prices were, maybe lithium brine transactions, given where lithium prices are and maybe oil, although the last time, I think Franco-Nevada did the oil royalty was when oil was below $50 a barrel, so we're not quite there yet. Just maybe comments on those 3 commodities specifically. Paul Brink: We're open to all 3. The -- as I said, right now, as we look at what is ahead of us in the pipeline, the most actionable is on the gold side. But we're -- on the other commodities, it's less driven by the commodities. It's more driven by asset quality and being able to get good value. So if there is good value in either of those areas, we'd be open to it. Operator: And your next question comes from the line of Sathish Kasinathan from Bank of America. Sathish Kasinathan: This is Sathish on Lawson Winder's team. Just a follow-up on the pipeline. So you highlighted that you have a strong growth potential on the organic side with all the projects that you have under your portfolio. Does that mean that going forward, the focus is going to be more on the organic side instead of deals? Or how should we look at it? Paul Brink: No. As I just said on my last comment, there's a good pipeline. We're always focused on getting new deals done. I make the comment on organic growth really just in respect of discipline. You don't -- the market is bullish. We don't need to overpay for assets in this environment because we know that we're going to have good organic growth. So we know we've got a baseline there. The acquisitions on top of that are incremental. But the confidence that we'll have good organic growth allows us to keep our discipline. Sathish Kasinathan: Okay. That is clear. Just one follow-up on Palmarejo. So it had a huge quarter this quarter. It seems it is driven by a higher proportion of ore from the region that is covered by the stream. How should we look at Q4? Sandip Rana: It's Sandip here. Yes, I would expect similar levels to what we've averaged for the first 9 months of the year. Our projection for the year is anywhere between 40,000 to 50,000 GEOs from Palmarejo. So that's the guidance at this stage. Operator: And your next question comes from the line of Heiko Ihle from H.C. Wainwright. Case Bongirne: This is Case calling in for Heiko as he's on another call. Just on our end, we're thinking out loud here, 3 months ago, gold was just below $3,400. Today, we're just below $4,000. Obviously, a pretty huge change in price, not really expected by most. You guys have been a huge benefactor of this, probably have more cash flows now than you budgeted for in recent past. So the question is, has the recent gold price environment maybe changed your mind a bit in regard to shareholder returns as it relates to the higher dividend, potential share buyback or continued M&A given the pricing environment? Sandip Rana: Sure. Really, no, it's business as usual. As Paul highlighted, our priority is to continue to add good quality assets to the portfolio, focus on precious metals and then adding diversified if there's very good opportunities available to us. So that is the #1 priority for capital deployment. With respect to the dividend, it's a decision we sit down with our Board at the beginning of every year and go through what's in the pipeline, what our cash flow projections are and make a recommendation on how much we should increase that dividend. Our philosophy on the dividend is sustainable and progressive, raise it every year, never be in a position where you cut it regardless of what's happening with commodity prices. So we will be increasing it next year. The quantum is still yet to be determined, but there will definitely be an increase. As for buybacks, that it comes down to what's the best use of a dollar. And for us, we think the best use of a dollar is still adding good quality assets to the portfolio. So share buybacks is not something that we're considering at this time. Operator: [Operator Instructions] And your next question comes from the line of Cosmos Chiu from CIBC. Cosmos Chiu: This is Cosmos from Cosmos' team at CIBC. Maybe my first question is on the NPIs. Paul and Sandip, as you know, I'd like to ask about these NPIs during periods of more robust precious metal prices. But as you mentioned, Hemlo did not have the best quarter in Q3, in part due to less ore being mined at Interlake. I guess my question is, I'm just wondering how much visibility do you have in terms of what's being mined from the different areas into Q4 and potentially into 2026 as well? And how is the potential change in ownership going to potentially change that thinking? Sandip Rana: Cosmos, so in terms of visibility, it's limited. Obviously, there's a mine plan put in place at the beginning of each year and a budget that the operator does. So in this case, Barrick you can move away from that and sometimes based on timing, and that was what's happened in Q3. In this environment at these gold prices, we do expect the NPI to do quite well, and it did in the first part of this year. I think part of the impact of Q3 was also with the sale going through and just probably some impact to efficiency with the mining on site. With respect to the new ownership group and that transaction has not closed yet, obviously, they're seeing something there to be spending over $1 billion to acquire that asset. So that is encouraging. We -- it's a wait-and-see approach at this time as to what changes or improvements they will make. But we're excited to see what their plan is and what they envision, and I think we'll have more information over the next few months. Cosmos Chiu: And how about the Musselwhite 5% NPI. Again, I'm seeing Q3, it didn't really increase that much from previous quarters in 2025. Like when does that one kick in? How should we look at that one at Musselwhite? Sandip Rana: Yes. So Musselwhite is a -- again, it's a profit calculation. We have limited visibility at this time. We get paid once a year, which is after year-end. So right now, what you're seeing from our numbers is just an estimate. We haven't seen what capital is being spent. We'll get the calculation, as I said, post year-end, and there'll be a true-up there. We're a conservative group. So our numbers are conservative. So I'm hopeful that the actual number that comes out at the end of the year is much higher. But at this stage, it's our best estimate. Paul Brink: It's early days on both of those assets, Cosmos. But I got to say, delighted with the change in ownership in both. Bob Quartermain and their team. Bob, as you probably know, started his career at Hemlo, drilled some of the original discovery holes there. So having that team in place led by Bob, there's no doubt in my mind that they are going to drill and expand that ore body, which I think is going to do terrifically well for us over time. Similarly, on Musselwhite, delighted that it's the older team led by Jason Simpson, very capable group, also very aggressive, having great success in drilling out the strike extension of that deposit. So all these things take a little bit of time before it starts showing up as cash flow. But I think very positive that you've got both those teams focused on expanding those assets. Cosmos Chiu: Great. I do agree as well. Maybe switching gears a little bit. I noticed that and as Sandip you mentioned, you sold some -- or the company sold some Discovery shares in the quarter. How much of that was kind of related to your desire to be debt-free by the end of the quarter, especially since you had drawn $175 million on your credit facilities to pay for the Expanded Silicon acquisition. So how much of that was due to you wanting to be debt-free and number one? And number two, what's kind of like the plan now for the remaining Discovery shares or for that matter, your G Mining shares? Paul Brink: Cosmos, it's Paul. The -- so first of all, with G Mining and Discovery, the -- our plan is to be their financial bankers, not just with stream and royalties, but also to be in the equity. So we will be long-term holders. That said, the equity side of our business, as we all know, it's not the core side. So we do plan to take profits over time. With Discovery, there were a couple of things there. The one is we had very good share price performance. And you're absolutely right. The other part of it was we had some debt outstanding. And so those 2 things together, we sold a small part of our position. We're able to realize a good gain and repay the debt. But we -- but longer term, we will continue to be holders of their stock and supporters of the company. Cosmos Chiu: And then one last question, Western Limb, I saw that it had good results in Q3. And you had mentioned that platinum prices -- PGM prices -- sorry, PGM prices have actually outperformed gold since the acquisition, which is good. But I just want to understand because I know this is a bit of a complicated transaction. And so I know that gold is actually based on PGM production. The delivery is actually pegged to the 4E PGM production. So -- and then you also mentioned in the MD&A that right now, it's 82% and 18% gold versus PGM. And I think the press release that came out earlier this year during the acquisition was 70 and 30. That was a split. So I guess I'm trying to confirm PGM prices have outperformed gold. Does that benefit your stream? And if so, how does it benefit? Eaun Gray: Cosmos, it's Eaun speaking. Thank you for the question. I think it's a very good question. I would say, first of all, delighted with the performance of platinum. It has outpaced gold to a certain degree. And we do benefit from that both directly and indirectly. So you'll note that there is a portion of the stream that is platinum. So we do enjoy the appreciation in those platinum revenues immediately. And then secondarily, you're quite right that what we've done is we've linked the gold deliveries to the 4E PGM production. So as the basket improves, as Sibanye looks at options for the assets, we would benefit indirectly from that as well. And -- as you'll probably know, there are 2 distinct ore bodies in these deposits, the UG2 and the Merensky. And this structure mitigates any risk of volatility for mining from one versus the other for us and provides a more stable stream of gold revenues to Franco. So that's why that was done. Cosmos Chiu: Congrats on a very strong Q3. Operator: And your next question comes from the line of Tanya Jakusconek from Scotia Bank. Tanya Jakusconek: I just wanted to come back to the transaction environment in a little more detail. I guess it's divided into 3 sections. I'm going to start on the precious metals opportunities that you're seeing out there. When we last spoke because lots of things have happened with this rapid rise in the gold price, the opportunities were in the $100 million to $500 million range. I'm trying to understand if that's still what you're seeing out there. And is it still for funding of asset sales or still funding for asset builds? I'm just wondering if that has changed at all? And are you seeing more competition now in the market with Zijin coming in and other players? And are you finding it's taking longer to get deals done? That's my first question on the precious metals. Eaun Gray: Okay. Thank you, Tanya. It's Eaun speaking again. It's a very good question. When we last spoke, I indicated a similar environment to what we had seen in prior quarters. And I would reiterate that, that continues to be the case. In terms of deal size, certainly, and also in terms of the type of transaction. So we do see good opportunities in asset sales as likely over the coming quarters. Likewise, good potential project financings as well. And I think those are 2 kind of legs of the stool, and we look to back teams in both of those types of financings, utilizing similar structures to what we would have done with Discovery or G Mining. So we're quite optimistic about more of those transactions as we move forward. There are also some high-quality third-party royalties that are out there, and we continue to look at those and selectively execute on transactions like that when they come available. Hopefully, that's helpful. Tanya Jakusconek: And are you finding that there is more competition and taking longer to complete deals with this higher gold price? I'm just trying to understand on how tight that market is? Eaun Gray: Sure. I would say not a noticeable change in the competitive landscape really from my perspective. What has defined recent period is volatility, volatility in prices and volatility in terms of a number of other factors at play in the market. And as things kind of settle down and find more of a base, I think we'll see more transactions happen. And when you have significant moves in metal prices, of course, for any type of transaction on the short term, it makes it a bit more difficult to execute. But I think we'll see hopefully some more stability as we move forward. Tanya Jakusconek: Okay. Thank you Eaun for that on the precious metal side. On the nonprecious metal side, I know we talked about lithium and natural gas and oil. So I wanted to ask whether that extends to also iron ore, if that's still something you're looking at? And also what's the size in a nonprecious metals deal are you seeing transactions similarly in that $100 million to $500 million range? And does iron ore or maybe potash also fit within that at this point? Paul Brink: So Tanya, Paul, the -- as my comments were earlier on, what we're looking at that's immediately actionable in the pipeline is precious metal focused. We -- but all those commodities that you mentioned there lithium, oil and gas, iron ore, we're open to those if there are transactions with good value. On the potash side, you do know we did it. We were able to acquire an option on the Autazes potash project down in Brazil. So that is -- if and when that project reaches a project financing, we've got the option to buy a royalty on that one. So all of those are our future prospects. Tanya Jakusconek: And size-wise, Paul, what are we looking at in those types of transactions? Paul Brink: As I say, they were open in concept to transactions. The -- nothing that I can say is immediate in the pipeline. And -- but you know what our guidance is on diversified. It's a limited part of our portfolio. So I don't expect anything large. Tanya Jakusconek: Okay. So under $500 million. Okay. And then maybe just on my third portion of this is, are you -- as you look at the landscape out there, how do you assess corporate transaction vis-a-vis some of these other opportunities? Paul Brink: We always run our pencil over the other companies, Tanya, to see if there is good value. And the -- nothing has changed from what we've said in the past. It comes down to you've got $1 to spend and where are you going to get the best return for your dollar. We typically find that, that is in doing private deals. And I'd say that's where we currently are again. Tanya Jakusconek: Okay. And then just maybe if I could ask on the equity interest, I think $625 million of equity investments. Just with the sale of the Discovery Silver, and I don't know what else may have been sold. Can you just kind of remind me, Sandip, what are the biggest portion of that $625 million, Discovery Silver, G Mining, is there anything else that's public? Sandip Rana: Sorry, Tanya, Labrador Iron Ore Royalty, LIF. Those are the 3 largest positions. Tanya Jakusconek: Okay. So the Labrador is in there as well. Okay. No, that's very good. And congrats on a good quarter. Operator: And your next question comes from the line of John Tumazos from John Tumazos Independent Research. John Tumazos: Could you elaborate on the extra royalty on Gold Quarry buy-in? It's famously discovered over 40 years ago. Is the coverage the underground mining from the feeder zone with the open pit oxide all used up? Or are there more oxides that are economic because gold is $4,000. I'm wondering what the sizzle is there. Eaun Gray: John, it's Eaun speaking. Thanks for the question. I'd say, first of all, we're very happy to add to our position on Gold Quarry. This is incremental to what we already have there. And so in reality, this royalty is structured with a minimum, which is based on a number of factors, one of which is the amount of reserves. So as those change based on a number of assumptions, one of which often would, of course, be gold price, that can trigger a change in the minimums. So in terms of what makes it attractive to us, there's that potential for sure. And I think as well, based on the current level of payments, it provides a very healthy rate of return. So very pleased to add that and the coverage is the same as set out for the existing royalty in the asset handbook, which I would have you referred to. Paul Brink: And John, there's a pushback of the pit wall to the north and the east that's been contemplated over time, not something that's currently on the books, but the hopes and dreams are with high gold prices that, that is something that would go ahead and that we could get a lot more from that royalty. John Tumazos: If I could ask one more. On Discovery, the quick calculation I made was that you sold 27.8 million shares and had 52.2 million left and that you received USD 3.04 per share. Is that about right? Sandip Rana: So John, we sold 26 million shares. John Tumazos: So you got a little more for it. Operator: And your next question comes from the line of Daniel Major from UBS. Daniel Major: Can you hear me okay? Paul Brink: Yes, loud and clear. Daniel Major: Yes, my first one, apologies, I was slightly late joining the call if it's already been asked. But just the first one on Cobre Panama and from a, I guess, significantly involved party, but not directly at the table. I mean when you look at the catalysts that need to occur to trigger a restart the environmental audit, the renegotiation of fiscal terms, remobilizing the workforce, et cetera, what do you think kind of feels most likely to be the bottleneck in the process? And I heard the -- some commentary out of Argentina that there's still a belief that the environmental audit and the fiscal terms can be negotiated by the end of the year. Do you think that's realistic? Paul Brink: That is -- Daniel, that's the time line that President Mulino had put out there as his objective. These things can always take longer, but they've been consistent on saying that is what they're aiming for. The audit is underway. There are no formal negotiations at this stage, although I know the company and the government have engaged in getting set for that. So it is -- I think it's still possible that, that kind of time line gets met. We're encouraged by -- you probably would have seen the recent press comments by President Mulino, also comments by Tristan Pascall on acknowledging that the state would remain the owner of the minerals. And agreement on trying to negotiate on that basis. So I take that as a strong positive. The government comments is that, that has been received well. So I think that news is positive. The other positive news has been coming out of country is just the shift in sentiments where you saw 70%, 80% of folks post protest were anti-mining in any form, and that has shifted to a slight majority now that are open and also a good amount that I think would be supportive under the right terms, the right participation for the government of Panama, the right amount of transparency. So I think things are definitely trending in the right direction. As we mentioned, there is movement on the ground with the government approving the various aspects of preservation and safe maintenance, the shipping of the concentrate, the power plant. The company has been rehiring folks so that they can start some of those activities. They've had a very strong response, a lot of folks looking to acquire those jobs. And I think that has also helped shift sentiment as people realize the value of the mine to the economy. Daniel Major: Okay. The second one on the Arthur Gold project. I mean, how do you see the initial scope of the project? And obviously, we've seen some initial kind of projections, et cetera. But I mean, yes, from your perspective, how do you envisage the time line and the initial scope of the project if you have to kind of hazard a range of expectations? Eaun Gray: Thank you, Daniel. It's Eaun Gray speaking here. First of all, we're thrilled to be involved in this project with AngloGold. We think the geological upside on the royalty grounds over time is phenomenal. In terms of first steps in permitting, I understand that they need to start somewhere, even though the full deposit, in our view, likely hasn't emerged. So they -- I think AngloGold's disclosure is around Merlin-focused plan to start and then exploration, hopefully continuing from there. We have also been very happy to see the U.S. permitting environment has evolved quite positively over the last little while and projects such as Stibnite where we're involved have moved along quite well. So in terms of permitting, we're hopeful on the time frame as to when that when that can happen. I think there's got to be a significant over-under in exactly when that happens with any regulatory process, but we're hopeful that the mine would start in the early portion of the 2030s. Operator: And your next question comes from the line of Derick Ma from TD Cowen. Derick Ma: At current gold prices, is there more leverage in royalties and streams on primary gold mines versus byproduct gold streams? And does that factor into the way you look at your portfolio, or your decision-making when assessing new opportunities? Paul Brink: Good question, Derick. And yes, is the short answer. Obviously, when the gold price is running on a primary gold deposit, the -- it allows operators when they look at their reserves, and that's kind of -- I think a lot of operators are looking at the reserves right now to figure out what price are they going to use at year-end. I think at the end of last year, the average for the industry was about $1,800 an ounce. I'm guessing at this, but I think the industry will be over $2,000 an ounce for the gold reserves. It means lower cutoff grades, and it means a lot of material that's going to move into the mine plan. Put that forward just a couple of years, let's just assume we're at $4,000 gold in 3 years' time. You could easily see the industry at [ '26, '28 ], $3,000 gold for reserves. So even if the gold price stayed flat in that scenario, our stock price would be worth a lot more because you get a huge amount of ounces that get moved into reserves. And so that's -- on our portfolio, about half the assets are gold streams on copper mines. Half the assets are royalties on principal gold assets. So I think that's a big driver. On the other side, copper prices are doing great, too. So the same thing applies for a copper asset, higher copper prices, you'll get a lot more material moved into those mine plans. So on both sides, I think we should see great organic growth. Derick Ma: Okay. Great. And maybe a question on Argentina. Two of your longer-term growth assets that you've listed, Taca Taca and San Jorge are in Argentina, midterm elections are behind us now. What are your current views on Argentina as a mining jurisdiction and as an investment destination for Franco-Nevada going forward? And then maybe a follow-up on top of that is how many GEOs for Taca Taca and San Jorge are in your 2029 outlook? Paul Brink: Yes. Maybe I'll just speak about the assets and then Sandip can comment on the guidance. The San Jorge is a, I'd call it, a midsized but good grade copper gold asset in Mendoza. The company tried to get a permit probably more than a decade ago, didn't quite get there at the time. Things have changed materially. In meetings early this year, I met with the Governor for Natural Resources in Mendoza, and she was very encouraging saying, San Jorge could be the very first of the assets to move ahead under the new RIGI program. So we're very encouraged by that. No, the company is working on raising financing to move that forward. Next up, Taca Taca. We're very hopeful that, that is the next big copper asset that First Quantum will build. I think as we all know, RIGI is a 2-year window to get your applications in, and we're a year into that. So there's another 12 months to get that application in and then companies need to start spending and their minimum spends over the next 2 years. So I think this is highly likely that you'll see spending going ahead on Taca Taca in the short term. For Argentina, we don't need to invest anything on those assets. We already own those interests. So that will happen regardless. For Argentina, it is the big question. Huge amount of assets there that are going to attract a lot of investment dollars. So we will consider Argentina. The -- what has been put forward in RIGI is very positive. It addresses the 2 big issues you have. The one is currency convertibility. That does get guaranteed if you enter into the RIGI program. And then the second thing is to make sure that it has teeth that survives through multiple regimes, you do need rights to international arbitration and RIGI does afford that, too. So both those things go a long way to making Argentina an attractive destination. Sandip Rana: And Derick, just in terms of the 2029 guidance for those 2 assets, obviously, they still have to be built. So we were conservative in our estimates, but on a combined basis, it's about 5,000 GEOs. Operator: [Operator Instructions] There are no further questions on the phone line. I will now turn the conference over to Candida Hayden for any closing remarks. Candida Hayden: This concludes our third quarter 2025 results conference call. We expect to release our year-end 2025 results after market close on March 10. Thank you for your interest in Franco-Nevada. Goodbye. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Lithium Royalty Corp.'s Third Quarter 2025 Results Conference Call. This call is being recorded on Tuesday, November 4, 2025. [Operator Instructions] I would now like to turn the conference over to Jonida Zaganjori, Vice President of Investor Relations at Lithium Royalty Corp. Please go ahead. Jonida Zaganjori: Good morning, and welcome to Lithium Royalty Corp.'s Third Quarter 2025 Results Call. Please note that our complete financial results are available on our website, lithiumroyaltycorp.com, under the Investors tab and on SEDAR+. This event is being webcast live. A replay of this call will be available on our website. Joining us today are Ernie Ortiz, President and CEO of Lithium Royalty Corp.; and Dominique Barker, Chief Financial Officer at LRC. Ernie will begin with introductory remarks, followed by Dominique, who will provide an overview of our financial results. After the presentations, we will transition to a Q&A session where our executive team will respond to your questions. We would like to remind participants that today's commentaries may contain forward-looking information. For more details and other important notices, please refer to our press release dated November 3, 2025, available on our website and on SEDAR+. Please note that all figures referred to on today's call are in U.S. dollars unless otherwise noted. I will now turn the call over to Ernie. Ernie Ortiz Ortega: Thank you, Jonida, and good morning, everyone. Revenue in the quarter was $417,000. This figure increased by 86% compared to the year ago figure. The increase in revenue was driven by the tailwind from positive quotational pricing adjustments that had previously been subtracted to revenue. Similarly, the quarter benefited from easier year-over-year comparisons as core Lithium's last shipments occurred in the second quarter of 2024, and are no longer factored in the year-over-year figure. Pricing was a headwind with SMM reporting a year-on-year price decline of 6% despite a 14% sequential increase for spodumene concentrate. Spodumene prices were volatile in the quarter with a range of $620 per tonne at the lows to a peak of $1,000 per tonne. The quarter exited with prices at approximately $850 per tonne and are currently trading near $950 per tonne. In a sign of the magnitude of the recent downturn, if spot prices hold at the current levels for the remainder of the year, then the fourth quarter of 2025 would be the first quarter in which the sector sees year-on-year price increases since the first quarter of 2023, or since LRC became a public company. LRC has witnessed portfolio maturation that positions the company well to deliver revenue growth in the years ahead, irrespective of the pricing environment. In this vein, LRC is pleased to congratulate Zijin Mining on their start-up of the Tres Quebradas lithium project in Argentina during the third quarter of 2025. Zijin started production at this large-scale asset and is actively ramping up production that should see more meaningful contribution in 2026. The company was able to complete one small shipment during the quarter that translated into LRC recording its first ever revenue from the Tres Quebradas project. Zijin is actively working to increase output as it ramps to nameplate capacity for its Stage 1 project of 20,000 tonnes per year. As part of Zijin start-up commentary, Zijin also disclosed that its Stage 2 production profile is now 40,000 tonnes per year compared to the prior guidance of 30,000 tonnes per year. This start-up complements the inauguration of Ganfeng Lithium's Mariana Lithium project in Salta, Argentina earlier this year, which continues to derisk with first revenue expected for LRC in the near term. Also in the quarter, Sinova Global started production at its Horse Creek mine in British Columbia. Sinova Global started production mainly to test the capabilities of the mine and near-term production could be sporadic, although we expect first revenue from the Horse Creek mine in 2026 from the recent production. Atlas Lithium continues to advance the Das Neves asset in Brazil. Atlas has a DMS facility in Belo Horizonte and is awaiting additional environmental permitting to progress to construction. The company is well advanced in its development and could be one of the earliest greenfield mines to enter production in the next cycle. Core Lithium remains a high-quality asset for LRC. The company completed a $50 million equity raise to accelerate the restart of the Finniss lithium project and to expedite the BP33 box cut and decline development. LRC visited the site in October and can attest to the high-quality DMS plant on site, the solid infrastructure it has with proximity to port and the unencumbered material it has from its 205,000 tonnes SC6 nameplate capacity. Core is advancing the project towards a final investment decision to restart the mine. In the quarter, we were active on our NCIB program. We acquired 4,400 shares at an average price of $5.90 per share. This brings our buybacks for the year to almost 716,000 shares at a price of $5.63. In addition, we were able to acquire our 36th royalty in the quarter on the Fox tungsten asset that is owned by Happy Creek Minerals. LRC acquired a 1.25% net smelter return royalty for approximately $260,000. The Fox tungsten asset holds a mineral resource of 1.15 million tonnes at 1.231% tungsten trioxide. The company announced a 100-hole 10,000-meter drill campaign in September to enlarge the resource. Tungsten is a critical mineral in several countries, including Canada, the United States and the European Union. Approximately, 85% of global production emanates from China, Russia, and North Korea, high in the strategic nature of the Fox tungsten asset given its high-grade ore body located in British Columbia. Tungsten has a high melting point and extreme durability with applications in the defense industry, semiconductors, robotics and electric vehicles. This is a very complementary acquisition for LRC, and that it is a small cash outlay and leverages the strong intellectual property the LRC team holds in critical minerals as an extension of our very strong position in the lithium sector. With this acquisition, LRC's portfolio is mainly exposed to lithium, but now benefits from other key exposures, including silica quartz, cesium and tungsten. Our focus remains to grow the acquisitions of additional lithium royalties. But to the extent there are tactical opportunities in critical minerals that are relatively small in capital outlay, yet benefit from our IP within the sectors of electric vehicles, energy storage, robotics and eVTOL, they will continue to evaluate opportunities as they arise. In this vein, our pipeline continues to grow and improve. Our preference remains to acquire royalties on cash flowing or near-term cash flowing assets, and we feel that we can be selective given the stage of the cycle. Our pipeline is robust, and we are optimistic about potential royalty acquisitions in the quarters ahead. As we mentioned previously, given that we have royalties on some of the best assets globally, we will remain prudent on when to deploy additional capital. I will now pass to Dominique, who will discuss our financial results. Dominique Barker: Thank you, Ernie. Our royalty revenue this quarter was $417,000, up from $224,000 in the same period last year and up from $127,000 last quarter. The price of lithium is up quarter-on-quarter for the first time since our IPO, coming off the bottom of approximately $600 per tonne for spodumene in June 2025. That and QP adjustments upwards, both quarter-on-quarter and year-on-year were factors that contributed to the revenue increase. The most material financial event for our company this past quarter is the start of production and revenue generation at Tres Quebradas in Argentina. While the production at Tres Quebradas this quarter was minimal, owing to the short period of production in September, we expect more normalized production in line with what Zijin has said, namely annual nameplate of 20,000 tonnes per annum. We are also pleased to report that we received the first royalty payment from Zijin in U.S. dollars. It is also worth noting that the risk in Argentina continues to be manageable with the 10-year bond in Argentina moving up over 20% after the election results last week and stabilizing there. We would not have expected any impact of the election on our investments in Argentina. That's because the commodity is exported and our royalties are paid in either Canadian dollar or U.S. dollar. However, I do think it is still worth noting to you that the country is on the right track and helps in the perception of our investments. G&A was $1.6 million in the quarter, compared to $1.3 million in the same period last year. Noncash G&A stock-based compensation was $478,000 in the quarter, compared to $407,000 in the same period last year. Taking this into account, our cash G&A was $1.1 million this quarter, compared to $1.2 million last quarter and $1.1 million in the same period last year. LRC's adjusted EBITDA was a loss of $1.1 million in the quarter, compared to a loss of $1.1 million in the same period last year, and a loss of $1.5 million last quarter. The decrease in loss compared to last year is primarily due to the increase in revenue. The loss is comparable to last quarter. With regards to balance sheet, our position is strong. We had $27.5 million of cash at quarter end and no debt. We were active on our NCIB and repurchased 4,400 shares in the quarter at an average price of $5.90. As most of you will know, the rules on share buybacks are restrictive, so we were limited on the quantity we could repurchase in the quarter. However, we do continue to look for opportunities, and we still have an ability to purchase up to 1.2 million shares on our current NCIB. I will now pass it back to Ernie, for closing remarks. Ernie Ortiz Ortega: Thank you, Dominique. I will now provide an overview of the lithium market. Lithium demand growth has remained strong and resilient throughout 2025. LRC estimates that lithium demand is on track to grow by north of 25% this year. The largest end market currently is electric vehicles, but that is rapidly diversifying. Like how electric vehicles amplify the demand profile of lithium for mobile electronics a decade ago, the lithium market is seeing an expansion of its end market base as battery technology proliferates across the energy storage, robotics, humanoid, shipping, and electric vertical takeoff and landing, or eVTOL. These new end markets are important for two key reasons. First, the energy storage market is one of the fastest-growing end markets within the lithium industry with channel checks suggesting energy storage deployments are on track to grow by approximately 60% in 2025. This is above initial expectations from battery sector analysts. Furthermore, while 2026 growth estimates are preliminary, some estimates call for another strong year of growth on the order of 60% again. The energy storage market is opaque, which we believe can lead to an underestimation of demand. LRC estimates that energy storage could comprise approximately 30% of global lithium demand this year, showing the growing importance of energy storage. Second, the new applications from robotics, humanoid, shipping and eVTOL are fragments of the market that are likely not yet counted in demand estimates for lithium. These markets are seeing major capital investments such as with SoftBank's acquisition of ABB's Robotics division for $5.4 billion. Meta's progress towards its own robot called the Metabot and several leading tech companies expanding in the robotics industry. Furthermore, several companies are working towards electric air aviation with Elon Musk commenting just last week that there could be a product unveiling before the end of the year in this area. Within the electric vehicle sector, demand growth remains strong with Rho Motion reporting 26% year-on-year growth for EVs globally on a year-to-date basis. The growth was led by Europe with growth of 32%, followed by China at 24%, and North America at 18%. Europe is the second largest electric vehicle market, and the market is seeing a rapid acceleration in growth rates. This is being led by more options of affordable mass market EVs and more funds allocated to EV subsidies on the continent. In Europe, BNEF is tracking to at least 7 new EV models that are priced below EUR 25,000 to be unveiled in 2026. In addition, they believe there will be at least 19 affordable models available by the end of 2027. On top of this, Germany recently announced a EUR 3 billion subsidy campaign to provide for EUR 4,000 subsidy for certain electric vehicles. This follows some of the recent commitments from the U.K., Italy and France. The subsidies announced amount to over EUR 4.5 billion in support for electric vehicle market in Europe that started in the second half of this year, but with full effects likely to be felt next year. We have already touched on energy storage, but a few other anecdotes worth sharing. LG Energy Solutions recently increased their backlog in the energy storage sector to 120 gigawatt hours from 50 gigawatt hours just a quarter ago. Tesla reported year-to-date energy storage deployment growth of 60% year-on-year with the most recent quarter showing 81% year-on-year growth. Tesla commented on the earnings call that demand for energy storage continues to be really strong into 2026. In contrast, supply growth appears to be moderating on the back of low prices, lower returns and limited capital raisings in the lithium sector in the last couple of years. Over the last 4 years, supply growth averaged approximately 30% per year. Over the next 3 to 4 years, consensus supply growth is forecasted to grow by mid-teens per year. In other words, supply growth rates are expected to half versus the recent history in the lithium market. Should demand trends remain robust as they have been in 2025, there is a potential to rebalance the lithium market sooner rather than later. Data providers in the sector suggests that there have been monthly drawdowns of inventory in China in both September and October. Current battery production trends suggest continued firm demand in November as well. SMM reports that inventories have declined by 11% since the recent peak in July, although it is important to note that we are in a historically strong season for demand and tracking industry trends in the next quarter will be important. To conclude, LRC is well positioned to thrive in the quarters and years ahead. LRC has a strong balance sheet with $27.5 million in cash for which we continue to evaluate attractive opportunities. This quarter marked an important milestone as Zijin Mining started the Tres Quebradas project. We expect operations to ramp up and royalty revenue to increase as we head into 2026. Our portfolio continues to progress, and we believe visibility into the organic growth profile of the business will improve as portfolio companies achieve their milestones. The industry is lapping the most negative impacts from price declines of this current downturn. At current prices, the fourth quarter of 2025 is expected to be the first quarter of positive year-on-year price growth in spodumene concentrate since our IPO. SC6 prices are now at $950 per tonne, compared to $850 per tonne exiting the third quarter of 2025. The combination of asset start-ups such as Zijin, and Ganfeng, with a potential pricing recovery should help revenue growth in 2026. We are encouraged by the resilient demand in the lithium sector, with energy storage growth rates surpassing market expectations. The positive incremental demand has the potential to rebalance the market earlier than expected. Our pipeline remains strong, and we are evaluating more high-quality opportunities with a focus on advanced assets with a near-term path to cash flow. We believe we are well positioned to grow and thrive in the years ahead. LRC is set to benefit from operating leverage from more volume and potentially higher prices. This will be enhanced by a strong balance sheet that will allow us to unlock further growth via additional royalty acquisitions. With that, I will pass it back to Jonida for Q&A. Jonida Zaganjori: Thank you, Ernie. We are ready now to open up the lines for Q&A. Operator: [Operator Instructions] Your first question comes from the line of David Deckelbaum with TD Cowen. David Deckelbaum: Curious just with the Tungsten acquisition, if you could add a bit more color there on just how that came to pass and with maybe some of the recent Trump administration initiatives around reshoring the supply chain in the U.S. and obviously, what we've seen up in Canada with Carney, are you looking outside of the lithium world a little bit more aggressively now as sort of a longer-dated opportunity for some attractive value here as we attempt to reshore the supply chain here? Ernie Ortiz Ortega: Sure. David, yes, so this acquisition came through our network. So as I alluded to in prepared remarks, we do have a very strong IP in lithium, but lithium as a critical mineral does touch other verticals that have the same end markets as other critical minerals. So through our network, we were able to evaluate the secondhand royalty on the tungsten asset. It's one of the highest grade assets in North America and just generally in the West. So we thought given our IP in the space, given the strength of our network, we were able to capitalize on that. And we do think it provides very good optionality. The returns are very high for something like this, and we were able to assume very conservative assumptions. So we do think it adds an element of diversification. But at the same time, our preference right now is for Lithium Royalty. So it is a relatively small outlay. We are looking at other critical mineral royalties. I wouldn't say we're looking at it more aggressively than we have been in the past. I think just our network continues to grow and expand. And as our cash balance is still very strong, we are able to be more opportunistic and tactical when it comes to evaluating these opportunities. But we do take note in some of the new government efforts, particularly in the West of trying to bring more supply into the domestic market and allied countries. And we think LRC will be an important avenue to finance some of these mines, mostly in lithium. But like I said, if there are some tactical opportunities in other critical minerals where it's not competitive, it's bilateral, it's within our network, and we can leverage our IP, then I think it's something that we will continue to look at. Operator: Your next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: You provided a pretty helpful time line on the upcoming milestones and you expect to get some inaugural royalty revenue from Mariana next year. I guess what should we expect in terms of order and payment timing, revenue step-up throughout 2026? And any milestones that we should be aware of just to be tracking in real-time when some of these assets start producing? Ernie Ortiz Ortega: Patrick, so every asset is different. And as we've seen with some of these start-ups, the timing of shipments is particularly important. And obviously, with prices also being quite volatile, that can also impact the cadence and the timing of these shipments. By way of an analog, Sigma, for example, in 2023 started production in April and then -- but their first shipments started in the third quarter of the year. So we didn't record first revenue until the third quarter of 2023, and then means we got the cash afterwards once the payments were due. So that's an analog from prior iterations. Of course, every asset is different. And in this case, 3Q was actually quick to do a small shipment, even though it's small. So we did get payment in the in the third quarter. But we suspect that once they have steady production, this will likely not be as a huge impact as far as timing and cadence of shipments. We do know there are, I guess, monthly export data that we're tracking out of Argentina and other countries to help have a better visibility into the timing of shipments and production. But I think we're just very pleased that Zijin was able to get one small shipment and now production seems to be going in the right direction. So I think it's something that as we get additional color from our operators, we'll provide additional information. But right now, I guess, we're sensitive to what they've disclosed. Patrick Cunningham: Then maybe just a higher-level lithium market question. Just given some of the volatility you discussed and obviously, it seems like equity values and pricing increases in lithium are likely to stay somewhat volatile. How much of it is short-lived and maybe sentiment-driven versus structural? I guess maybe a better way of asking that question is, has this current view or updated supply or demand view changed your underwriting assumptions or long-term price outlook? Ernie Ortiz Ortega: Sure. So our long-term pricing outlook and expectations haven't changed all that much. And we will actually also mention that even consensus long-term price expectations haven't changed dramatically even throughout the last 2.5 years. So since I think like 2 years ago, consensus had around $1,400, $1,450 a tonne for long-term spodumene price and now on our tracker, it's around $1,300 a tonne. Of course, near-term prices have shifted dramatically, but the long-term price expectation hasn't shifted too dramatically, either internally or externally. We think the recent volatility, it's something that is part of the course for lithium. It's a nascent market, and we think volatility, while it likely diminishes over time as the sector grows, it's still nascent. So it still needs time to mature and to develop. But I think bigger picture, what is the most important is that this is being a demand-led kind of price firming in the last 3 to 6 months. The biggest story has been energy storage and that demand is surpassing expectations by very big numbers. And now from our prepared remarks, we think it could be 30% of the market. And if that continues to grow at similar growth rates, which some expect in 2026, that alone could be around 18% of demand growth in 2026. So obviously, we're taking it day by day. But right now, I think the bigger picture is that we are encouraged by the energy storage market. So it's being -- it's a demand-led story for the time being. And it hasn't changed our views dramatically. But of course, we're always trying to maximize value for shareholders. So we're trying to get the highest returns on the lowest assumed prices possible. Operator: Your next question comes from the line of Katie Lachapelle with Canaccord Genuity. Katie Lachapelle: Can you just quickly discuss some near-term capital allocation priorities, royalty transactions versus buybacks? I know during the quarter, you highlighted that your current pipeline is very robust. So maybe some incremental detail there and when you believe that some of those transactions could be announced if it's near term or medium term, et cetera? Ernie Ortiz Ortega: So as far as capital allocations, the priority is still to acquire additional royalty acquisitions. We did retire about 9% of the float this year by way of buyback. And that has been a very attractive return for our shareholders given the return that they've seen to date. But like I said, the pipeline remains robust. We are seeing activity that is picking up, evaluating several projects. The product attributes remain relatively similar as discussed in the past. We're looking at high-grade, low-cost assets with a preference for near-term cash flow ranges between, say, USD 3 million to as high as USD 30 million to USD 40 million. We are hopeful that we can announce something in the next couple of quarters. But of course, it depends on 2 parties involved. But I would say, we're seeing more robust levels of discussions recently, and that is very encouraging to see. But of course, we'll take it day by day. And to the extent that we can be opportunistic with the shares since we do have a very strong balance sheet, I think we do have a very optimistic view of where the company can head over the next few years. So we will look to stay active where we can on the buybacks. Operator: At this time, we have no further questions. I'll turn the call back over to you, Jonida, for closing remarks. Jonida Zaganjori: Thank you to everyone who joined us today. This concludes our third quarter 2025 results call. Goodbye. Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and ask that you please disconnect your lines.