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Operator: " Evan Smith: " Ronald Williams: " Jeffrey Schwaneke: " Hua Ha: " Robert W. Baird & Co. Incorporated, Research Division Jack Slevin: " Jefferies LLC, Research Division Jailendra Singh: " Truist Securities, Inc., Research Division Ryan Langston: " TD Cowen, Research Division Justin Lake: " Wolfe Research, LLC Craig Jones: " BofA Securities, Research Division Daniel Grosslight: " Citigroup Inc., Research Division Andrew Mok: " Barclays Bank PLC, Research Division Matthew Shea: " Needham & Company, LLC, Research Division David Larsen: " BTIG, LLC, Research Division Amir Bani: " Operator: Good afternoon, and thank you all for attending the agilon Health Third Quarter 2025 Earnings Conference Call. My name is Brika, and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Evan Smith, Investor Relations at agilon Health. Thank you. You may proceed, Evan. Evan Smith: Thank you, operator. Good afternoon, and welcome to the call. With me is Executive Chairman, Ron Williams; and our CFO, Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I would like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and Form 8-K filed with the SEC. And with that, let me turn the call over to Ron. Ronald Williams: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. I'm pleased to be with all of you today. For the third quarter, we reported revenue of $1.44 billion, medical margin of negative $57 million and adjusted EBITDA of negative $91 million. We are also reinitiating 2025 guidance. While the quarter benefited from the execution of our clinical and quality programs as well as cost discipline, we nevertheless were impacted by lower-than-expected in-year RAF contribution as well as continued high costs from exited markets. As we look forward, we believe 2026 is shaping up to be a strong stepping stone in our transformation with positive development in the first half, the enhanced financial data pipeline ramping to 80% in membership and Part D exposure potentially moving below 30% we believe we are establishing a solid 2026 baseline. We expect to have improved forecasting and lower volatility as well as significant internal and market-driven tailwinds. These tailwinds include our burden of illness and clinical pathways initiatives driving broader identification and diagnosis of high-risk conditions, increased incentives for our quality performance and more disciplined and favorable contracting. This is further supported by more favorable payer bids, including increased premiums, maximum out-of-pocket and deductibles, benefiting agilon's financial performance. And last, we believe we are establishing a more efficient platform to drive additional operating leverage and have reduced our operating costs by $30 million. With increased visibility, we have reinstated our 2025 guidance. At the midpoint, we expect revenue of $5.82 billion, medical margin of $5 million and adjusted EBITDA of negative $258 million, which includes the impact of lower-than-expected risk scores for 2025 and costs related to exited markets, partially offset by positive development in first half medical costs, strong performance in ACO REACH and continued operating cost discipline. Jeff will provide more detail in a moment. Our focus is on executing a strong finish to 2025, and a quick start in 2026. Our organization is executing with precision and purpose. Our strategic initiatives are tightly aligned with our mission and partners and centered on embedding urgency, focus, operational rigor, clinical excellence and data-driven executional accountability across the enterprise, which we believe will translate into improved performance in 2026. Through investment in technology and efforts to expand our access to richer and more timely data, agilon is leveraging data analytics and AI-driven insights to support delivery with a focus to improve the visibility and predictability of our financial performance. Through our enhanced data pipeline, which went live in the first quarter, we now have more timely direct payer data feeds with validated and highly correlated member level clinical and claims data, as well as member level risk scores on approximately 80% of our members. We expect the increased visibility and alignment of our financial and operational data will enable us to more quickly identify and drive improvements. We remain extremely focused on the performance optimization initiatives we previously laid out. These are centered on improving the near-term profitability of the business, allowing us to drive improved medical margin, adjusted EBITDA and cash flow performance in 2026. With respect to improved contract economics, we are currently in active negotiation with our payer partners for 2026. Based on our discussions to date, we are making strong progress on several fronts. First, further reduction in Part D exposure; second, an expansion of quality incentives; third, improved economic terms for Part C. And fourth, we expect a continued narrowing of risk from supplemental benefits through better information. Based on the public commentary and initial review of payer bids, we expect more favorable bid design, focus on MA profitability, including improved pricing, reduced benefits, increased deductibles and maximum out-of-pockets, which is expected to have a positive impact on agilon's medical margin in 2026. We are also taking a very disciplined approach to contracting. And for those payers with benefit designs and pricing that are inconsistent with market dynamics, we are prepared to take decisive action. While this may result in reduced membership, we are focused on profitable growth and earning the appropriate economics for the value we are delivering. With respect to quality or stars, approximately 75% of health plan star ratings are directly impacted by the PCP, making our success in delivering 4 stars in the majority of our markets critical for payers. Our programs enable Care gap closure rates that exceed the overall MA average on key star measures, such as cancer screening and chronic condition management. To further enhance our Stars performance, we are leveraging our enhanced analytics capabilities and collaborating with our partners to further improve condition identification, diagnosis and screening, leading to documenting and closing of gaps in Care through treatments such as medication adherence. In early October, CMS released the 2026 Stars ratings, which will impact 2027. Approximately 75% of agilon members are expected to be in 4+ Star plans, an increase from 71% in 2026 payment year. This also compared favorably to 65% in the overall Medicare Advantage market. In addition, with the 2026 star ratings, agilon achieved a consolidated average of 4.2 stars across our markets. This supports our efforts for improved payer economics that are better aligned with agilon's strong quality performance. Our BOI program is also contributing to improvements in early and accurate identification, assessment and documentation of a patient's comprehensive health conditions. By connecting the burden of illness assessment to our quality and care delivery programs, we can more effectively manage high-acuity chronic disease categories like heart failure. We are on track for our palliative program and clinical pathways. Based on the performance to date, we believe this will positively contribute to our financial results in 2026. As a reminder, these patient-focused, physician-driven and technology-enabled clinical pathways have been developed in collaboration with our physician partners and national experts. They enable our teams to close Care gaps by looking at some of the highest prevalence chronic conditions, which affect our patient population. With respect to our heart failure pathway, we are seeing encouraging results by identifying and diagnosing these conditions earlier in the outpatient setting. Our physician partners are better able to manage the progression of each illness and improving the quality of care for the patient. We have reduced new inpatient heart failure diagnosis rates from 18% in 2024 to 5% in 2025 across our MA population. In markets where our virtual pharmacy solutions are active, about 50% of patients with heart failure and reduced ejection fraction are receiving Guideline-Directed Medication Therapy. This is approximately 30% higher than the national average. Similarly, when virtual pharmacy solutions are combined with transitions of Care cardiology, we have seen 30-day readmission rates fall below 5% as compared to the national average of approximately 20%. This performance is expected to continue as we expand the program and we move into 2026 as more partners fully implement the program. With respect to our Palliative Care Program, we continue to make progress in our education, market penetration and enrollment. By focusing on providing care in a hospice or home setting, we see better Care satisfaction for the member and their families and less hospital admissions. As we move into 2026, in addition to existing programs, we are beginning to expand our COPD and dementia pilots and anticipate further adoption. In the quarter, we have also taken steps to optimize our cost structure to align with current market dynamics, including a more balanced near-term growth outlook. The leadership team is working to strategically realign our organization structure. We have made thoughtful decisions to streamline certain teams while simultaneously investing in other areas that will help drive our next chapter of innovation. Through the centralization of certain functions, implementation of technology and alignment with our PCP partners, we have reduced our headcount and streamlined our capital requirements and third-party costs, all to gain greater operating leverage from the platform and support our growth objectives. These operating expense initiatives are expected to reduce our costs by approximately $30 million in 2026. Finally, while we are making progress in our search for a CEO, the skills, experience and relationships that are aligned to our new path, we remain committed to moving decisively now to enhance performance and agilon's position for sustainable value creation. Thank you for your continued support during this transition period. With that, I'll turn it over to Jeff. Jeffrey Schwaneke: Thanks, Ron, and good afternoon. As Ron touched on, 2025 is a transformational year. We are advancing strategic initiatives that we started putting in place last year to improve our contract economics, reduce our risk and optimize our cost structure. We believe the increased visibility gained from the enhanced data pipeline, advances we have made in our BOI and clinical pathways programs, a $30 million reduction in operating expenses and a more disciplined approach to growth is expected to have positive impact in 2026. For today's discussion, I will cover 4 key areas: First, I will walk through our third quarter results. Second, I will provide details on our reinstated 2025 guidance and a bridge to our jumping off point for 2026. Third, I will provide color on the significant number of tailwinds we believe will support improvement in our 2026 performance. And finally, I will discuss the strength of our capital position based on our expectations for 2026 and a more disciplined near-term growth outlook. Moving to our financial performance for the third quarter. Starting with membership. Medicare Advantage membership at the end of Q3 2025 was 503,000 members compared to 525,000 members in Q3 2024. Our ACO REACH membership for Q3 was 115,000 members compared to 132,000 members in the same period of 2024. As we discussed previously, our decision to take a measured approach to membership growth has resulted in a slight year-over-year decline driven by previously disclosed partner exits in a smaller 2025 class. Total revenue for the third quarter of 2025 was $1.44 billion compared to $1.45 billion in the same period of 2024. Our year-over-year revenue comparison continues to be impacted by lower-than-expected risk adjustment as well as the impact from market and payer contract exits. During the third quarter, we received the remainder of the 2024 risk adjustment data and substantially all the midyear 2025 risk adjustment data from our payer partners. This indicated the 2025 risk adjustment for the remaining 28% of members we did not include in our prior results was lower than the average. The third quarter reflects the impact of lower-than-expected revenue associated with 2025 risk adjustment scores of $73 million, including a 9-month true-up of approximately $50 million for the remaining 28%. We now estimate the full year impact to medical margin for lower-than-expected risk adjustment is approximately $150 million. The larger-than-average impact for the remaining 28% was primarily driven by one payer representing a new market in 2024, where we also did not have data for 2023. This payer is now in our data pipeline, which provides us with confidence in establishing our risk adjustment baseline and potential for 2026. In addition, exited markets negatively impacted the quarter by $20 million. First half cost trends continue to develop favorably and were approximately 5.7%. We took a prudent approach in the current quarter and recorded cost trends at a little over 6%. As we have previously stated, we have limited paid claims visibility at this point post quarter close. Medical margin this quarter was negative $57 million compared to negative $58 million in Q3 2024. The current quarter reflects continued elevated cost trends in line with our expectations for the year. In addition, this includes the previously mentioned risk adjustment and exited market impact. Adjusted EBITDA for the quarter was negative $91 million compared to negative $96 million in the third quarter of 2024. The third quarter reflects the items I already highlighted, partially offset by lower geography entry costs and benefit from continued operating cost discipline. We are very pleased with our strong ACO REACH performance during the quarter, including our final 2024 reconciliation. Adjusted EBITDA related to this program this quarter was ahead of expectations at $18 million. ACO REACH continues to demonstrate the value creation agilon can deliver and is shaping the way we are transforming our MA business, reducing our exposure for things outside of our control like Part D and supplemental benefits while focusing on improved economics and incentives for agilon's quality, clinical and medical cost performance. On the balance sheet, we ended the quarter with $311 million in cash and marketable securities and $172 million of off-balance sheet cash held by our ACO entities. Next, let's move to our medical cost trend outlook and reinstated 2025 guidance. Managing medical cost trends remains a top priority. For the first half of 2025, medical cost trends have been stable but elevated in areas such as inpatient and Part D oncology drugs and restated favorably relative to our expectations. We anticipate the medical cost trend to remain in line with our expectations. Now moving to guidance. With greater visibility as we head into the year-end, we are reinstating our full year 2025 guidance. I will also provide some color on our expectations for 2026 based on our actions to date and initial review of payer bids and contracting efforts. For the full year 2025, we expect Medicare Advantage membership in the range of 503,000 to 506,000 with ACO model membership projected to be between 113,000 to 115,000. We expect revenue for 2025 to be in the range of $5.81 billion to $5.83 billion, reflecting the impact of membership shifts and improved revenue yield from payer contracts. The revenue outlook also reflects lower-than-expected 2025 risk adjustment performance of approximately $150 million, prior year development to date of $70 million, and exited markets of approximately $60 million. Full year medical margins are projected to be between negative $5 million to $15 million and adjusted EBITDA guidance range of negative $270 million to negative $245 million. We expect to end the year with approximately $310 million of cash on our balance sheet, including approximately $65 million held off balance sheet by our ACO entities. We have provided a bridge in the earnings presentation we issued today that walks from the current guide for 2025 to our jumping off point for 2026. The expected $135 million medical margin jumping off point for 2026 includes approximately $150 million of lower-than-expected risk adjustment contribution for 2025. Now let me provide some color on 2026. While we are not prepared to provide specific 2026 guidance at this time, I want to walk through why we are optimistic about next year as illustrated on Slide 7 of our earnings presentation. We see several tailwinds, including macro factors like the 9% benchmark rate increase, better aligned payer contracts and the disciplined cost actions Ron outlined that we believe will both drive material improvement in our performance in 2026 and establish a path for consistent improvement as we move beyond next year. First, in the third quarter, we completed restructuring actions to improve our operating expenses. We rationalized other medical expenses, including better alignment of incentives with our PCP partners, reduced overhead and vendor costs in line with our current revenue run rate and more balanced growth outlook. We estimate that this will drive $30 million in cost and adjusted EBITDA benefit in 2026 with additional opportunities for savings in 2027. Second, we have taken a more disciplined approach to payer contracting, which includes incremental percentage of premium and enhanced quality incentives from payers for the value we deliver. This is expected to drive revenue growth on a PMPM basis potentially greater than the 9% CMS final rate notice for 2026. We have reviewed payer bids across our markets. And on average, we see payers bidding for profitability with benefit design changes, including increases in premiums, deductibles and maximum out-of-pocket expenses and a reduction in supplemental benefits. This is expected to be a positive offset to cost trend in 2026. As a reminder, 2025 included a 1% benefit from payer bids. As part of our disciplined contracting strategy, we are taking decisive action market by market with payer contracts that do not meet a minimum threshold for profitability. While our contracting for 2026 is not final, if we cannot come to appropriate economic terms in certain markets, we may not contract with specific payers in these markets. As part of our discussions, we may also transition some of these members to a Care coordination fee with additional performance incentives. Depending on the outcome, this may reduce our overall membership in 2026, though this impact may be mitigated if a member shifts to another payer with more favorable economics for agilon or moves to a coordinated Care fee arrangement. This disciplined approach is expected to be favorable to medical margin and adjusted EBITDA in 2026 and beyond. Our contracting efforts also include additional steps to reduce variability in our performance by effectively managing multiyear contract terms to reduce our exposure to macro cost trend volatility, interim payer benefit design changes and pricing that may be detrimental to our capitated economics. This includes reducing our payer contract term length if needed or adding additional material adverse change clauses to the contract. In addition, while our exposure to Part D in 2025 was primarily related to carved out or exited markets, we are continuing to further reduce our exposure. With respect to BOI, we are confident that the enhanced data pipeline, which now includes the outlier payer from the remaining 28% of our members, AI advances for high-risk member identification and diagnosis in our BOI program, and execution on clinical pathways will deliver results over and above the final year of V28. Our confidence is based on a review of validated codes in our data pipeline and our ability to deliver results above the impact of V28. Last, on our cash outlook, with the anticipated performance improvement in 2026 from our initiatives and the macro factors I just walked through, combined with our focus on working capital management, we expect to end 2025 with approximately $310 million in cash and 2026 with at least $100 million in cash on our balance sheet, including cash held in our ACO REACH entities. Before I close, given our current stock price, we anticipate pursuing a reverse stock split and expect to seek stockholder approval at our Annual General Meeting in 2026. In summary, while we continue to operate in a challenging environment, the actions we are taking to refine our strategy, improve operational execution and financial visibility and strengthen our financial position are expected to have a positive impact on our performance in 2026 and beyond. We remain confident in the value we bring to our members, PCP partners and payers and our ability to navigate the near-term headwinds while positioning agilon for long-term success. With that, operator, let's move to the Q&A portion of the call. Operator: [Operator Instructions] The first question we have from the phone lines comes from Michael Ha with Baird. Hua Ha: I see on your slide that you have ACO REACH as a negative impact for next year. And I know the risk corridors are narrowing next year to 10% savings rate. I think agilon is at 13%. If, on our back of the envelope math, we're getting somewhere around $10 million to $15 million of EBITDA impact. Is that the right ballpark to frame it? Is that what you're highlighting in your slide? Are you able to offset it? Does this narrowing of the savings rate create any friction with your ACO REACH partners? Just thoughts there would be great. Jeffrey Schwaneke: Yes. Thanks, Michael, for the question. This is Jeff. I actually think the re-baselining of the risk adjustment is actually more meaningful for us. And so yes, what we are reflecting here is that there were several changes to the ACO REACH program. And I think we've commented about this before that we do expect lower economics from the program while still contributing, I would say, very good margin. And we're reviewing our ACOs right now and determining what model is actually better. And I think we've made the decision on some of our ACOs to move them to the MSSP program as we think about 2026 because the economics would be better in that program. Not going to really size the impact right now. We're getting a little ahead here on the '26 guide. But you are correct, it's really driven by those changes. Operator: We will now move on to the next question. We have Jack Slevin with Jefferies on the line. Jack Slevin: I appreciate all the color included in the deck in the release. I guess this might be a little high level because I acknowledge it's a bit early, but I just wanted to frame some of your commentary around potential further exits from payer contracts. And maybe I'll just broaden it out to say, are you contemplating, I guess, one, market exits on the table at this point? Or is it really just specific payers? And then two, if there's any way to get a sense of the order of magnitude that might be at play here? Just trying to frame out sort of what we might be looking at going forward. And any thoughts or sort of qualitative color would be really helpful. Jeffrey Schwaneke: Yes. Thanks, Jack, for the question. You're right, it is a little early. We're kind of midstream on the contracting here as we think about 2026. I think the takeaway for you would be, listen, we are taking a very disciplined approach and where the economics don't make sense for the value that we're delivering, ultimately, we don't have to do business with that payer. Some of those members may move to another payer in that market; and, or we may enter into a Care management deal, a Care coordination fee with upside for quality and things like that. I think the point I would take away is any potential reduction in membership would be beneficial to the medical margin and the EBITDA for agilon. And that's really what we're focused on. So unfortunately, I can't size it for you right now, but any reduction would ultimately be to the benefit of the bottom line. Ronald Williams: Yes. I would just add, Ron here, that we have been very clear with the payers about the value that our physician partners create, both in terms of the Stars Program as well as closing gaps in Care. And I think we've been very clear that we are contracting for tomorrow and not the historical relationship that we've had in a more normalized trend, more normalized utilization. I think the good news is that we've been working with some of our partners who understand this, who are exhibiting an attitude that's supportive of the kinds of objectives that we have. But we're very clear, this is about being profitable and achieving the kind of margin that we want, and we're committed to working through that. Operator: We now have Jailendra Singh with Truist Securities. Jailendra Singh: This is [Indiscernible] on for Jailendra. I guess just to start, is there any type of update you can provide on the CEO search and how that's going? And if you guys have made a decision between like internal and external candidates? Ronald Williams: Yes. I would say that I've been spending a good deal of time. I think I'm pleased to say that we have some very good candidates coming forward. The process is open to all candidates who are interested in applying for the opportunity. And I would say that we feel good about where we are in pace and timing. I certainly wouldn't forecast a conclusion here. I think the most important thing for you to know is that while we don't have a permanent CEO, I am 100% focused on what we need to do to improve performance in the business. I meet regularly on a daily basis. The office of the Executive Chairman meets every day. We focus on the critical priorities and objectives with the goal of having a very strong finish to the year and a strong start for next year. So, while no time line on the process, this is not caretaking. This is active engagement and focused execution. Jailendra Singh: And if you don't mind, if I could squeeze in just a quick follow-up. Thank you for all the color on the medical cost trends. Is there just anything to call out in terms of what you saw in Q3 in areas that were maybe high or cooling off a little bit? And then also if there's any color you can provide into Q4? Jeffrey Schwaneke: Yes. I think it's the same issues we've highlighted in the past quarters, really, its in-patient Part B drug spend, specifically oncology; In-patient continues to run a little bit high as well. I think those have been consistent over the last several quarters. So, nothing new here. I would say that the first half medical cost trends have all restated favorably. So Q1 has come down. Q2 has come down since we last spoke, which is good, and it's just a little bit over the mid-5% range. And again, for Q3, we just took what I call a relatively conservative approach in the low 6s. Ultimately, we don't have a lot of paid claims for that. And so, we'll have to see how that estimate plays out as we get into the fourth quarter. Operator: Your next question comes from Ryan Langston with TD Cowen. Ryan Langston: I think I heard you say there's about $65 million currently at the ACO entity level. I guess, is there a minimum amount of cash you need to have allocated to the REACH entities? And in the year-end 2026 balance for cash, what's contemplated at the ACO REACH level? Jeffrey Schwaneke: Yes. So actually, at the end of the quarter, we had $172 million in the REACH entities, and there's cash settlements that happen in the fourth quarter. And so, the way we think about it is once those settlements are processed in Q4, we'll roughly be at the $65 million. And as you think about the year-end balance, the $310 million we quoted, it includes that $65 million. So, we expect to end the year at roughly $310 million. That includes $65 million from REACH. I would say there's no requirement to hold those dollars in the REACH entities. It's more from a tax perspective because they're outside of our consolidated umbrella. There's some tax efficiencies gained by leaving it there and then monetizing that over time. But we have access to that if we needed it. Ryan Langston: Okay. Great. And then on the sort of higher-than-average impact on the risk revenue for the remaining 28% of the enrollment, I guess, was there any particular reason you expected these members to have higher scores? Was it accrual driven incomplete coding? Just trying to understand the potential implications for 2026. Jeffrey Schwaneke: Yes. I think we highlighted that in the prepared remarks. It's really, I would say, the higher than average is really driven by one payer that was new to us in 2024. We did not have data for them in 2023. So, I think that made the estimation, I would call it, more challenging, obviously, because you have to have '23 and '24 to really determine the increase in actual risk scores. The good news is that, that payers now on our enhanced data pipeline. And what I will say is sitting here today, we actually have the ability to calculate member level risk scores. We did not have that ability a year ago. And so, as you think about what happened in the second quarter, we were able to calculate member level risk scores that tied or that agreed highly correlated with the midyear data from CMS and the final year risk scores as well. And so, we're in a much better position this year to calculate member level risk scores. That's all been driven by the process change associated with the enhanced data pipeline. So, we feel pretty good that we have a solid foundation in order to, I would say, set a foundation for this year and obviously project forward as we think about a 2026 guide. Operator: We now have Justin Lake with Wolfe Research on the line. Justin Lake: This is Dean Rosales on for Justin. Is there any color you can give on what CMS is estimating for fee-for-service trend in '25 within the ACO REACH program? And then my second question is in your earnings presentation, you stated that you expect payer bids to act as a tailwind in '26. Is there any color on the benefit designs that you're seeing that you could share? Would you say reduction of benefit is largely consistent across your payers? Jeffrey Schwaneke: Yes. First, I'll handle the REACH question. The latest data, I think we have is fee-for-service cost trends are 8.5%, and so that's the latest information we have on the cost trends in the fee-for-service business. And then as far as the bid detail, it is different by payer is what I would say. And obviously, everybody kind of reads the public announcements from all of our payer partners. But generally, I would say it's different. But broadly across our network, what we've seen is really pricing for margin. And it's maximum out of pockets, it's all of the things and the levers that the payers have in the bid design. And so, across our book, generally, I would say what we see is pricing for margin, which we believe is going to be a tailwind for us as we head into '26. So not all payers are the same, but across our footprint and our network, it's going to be a positive for next year. Operator: We now have a question from the line of Craig Jones with Bank of America. Craig Jones: So looking at your Palliative and Heart Failure Program, I think you've rolled those out about most of your geographies now. For 2025, what kind of savings do you expect from those, either PMPM or millions? And then as we think about these test programs going forward, once you kind of get installed in all your geographies, is this sort of like a onetime boost that then kind of oscillates up and down based on participation? Or is it sort of an annual continued margin accretion? Jeffrey Schwaneke: Yes. I would say, just to go back, we implemented a lot of these clinical programs, I would say, late in 2024, early in 2025. So there certainly is a ramp period, and some of that benefit will accrue to 2026, given the long-tail nature of our business. We're not going to get into any specific PMPM savings, but I think Ron highlighted in his prepared remarks, some of the outcomes that we're seeing from those programs. They have been very successful. Ultimately, it is reducing medical expense and improving, I would say, the identification of disease burden for our members so that we can get them into the appropriate treatment programs. And so, we look to, I would say, continue the evolution of these programs as we exit '25 into '26. And they will be permanent programs. So, they will continuously drive value, and we would continue to iterate on these programs to continue to make them successful. Ronald Williams: Yes. Probably the only thing I would add is that we will continue to enrich the data sets and the AI algorithms that we use to identify potential suspects and the burden of illness in patients that has not yet been detected along with other diagnostic techniques that our medical groups have invested in, and we've supported. So, I think you can expect that this will continue some level of progression into the future, while at the same time, we expect to ramp up other programs that our medical groups have determined represent good clinical care for their patients. Operator: We have Daniel Grosslight with Citigroup Daniel Grosslight: I think you've covered the changes you're making to payer contracting well. But correct me if I'm wrong, I may have misheard this. I think I heard in your prepared remarks that you're also altering how you're contracting on the provider side. Can you just provide a little bit more detail on how, if at all, your provider contracts are changing, particularly with regard to risk sharing and how this may shift receptivity on the provider side to contracting? Jeffrey Schwaneke: Yes. On the provider side, we're not changing any of the contracts on the provider side. I think what you're referring to is there was a comment about the $30 million of operating savings really executed on for next year. I think part of that was aligning the incentives with our physician partners. So, we did take a fresh look at incentive alignment, and that was a component of that $30 million. Daniel Grosslight: Okay. Can you provide a bit more detail on what that means in practice with incentive alignment, how incentives are changing? Jeffrey Schwaneke: Probably not here. I mean it wasn't a substantial piece of the $30 million is what I would say. And so, as you think about that $30 million, I would say half was generally corporate, what I'd call corporate overhead costs. And then the other half would have been, I would say, more market operating costs that we are looking at. So the physician incentive piece was relatively small. Operator: We now have a question from Andrew Mok with Barclays. Andrew Mok: I wanted to follow up on the payer contract discussion. When you see benefit misalignment with your payer partners, is that concentrated more in small regional health plans or large national carriers? And how much of your current membership is already contracted for next year? And how much is still outstanding? Jeffrey Schwaneke: Yes. I guess what I would say is it's a market-by-market item, right? So it's not just broadly across one payer or this payer. You have to go into each specific market and understand the benefit designs that impact us. And ultimately, as part of our contracting process, we get the bid information, we analyze that, and that is a key component of our request on economics, as you can imagine. And so I would say it's a little more nuanced than kind of what you're saying. And then the second part of your question, what was that? Andrew Mok: How much of your membership is already contracted for next year when you think about what's left outstanding? Jeffrey Schwaneke: Yes. I would say it's kind of hard to put a pin on exactly how much is where the ink is dry, if you will. I think we've come to general business terms with; remember, we had about 50% of our contracts open for renewal. We've come to, I'd say, relative agreement on a substantial portion of that. But obviously, you have to dot the I’s and cross the T’s and that matters. And so I would hesitate to say right now at this point how much. But obviously, we're going to work through the bulk of this in the fourth quarter, and we'll have an update for you when we do our year-end call. Ronald Williams: Yes. The only thing I would add is that the negotiations have really been extensively supported by our physician partners because they are in that community. They have the relationship with the patient. And so they have been really actively at the table with us in markets to assist in delivering the important messages to payers who may not have heard us as clearly as we had hoped. Andrew Mok: Great. And if I could sneak in one additional question. I would love to follow up on Stars. I appreciate the comment that bonus year 2027 Star scores will increase. But as we think about bonus year 2026 and some of the volatility there, to the extent some of your payer partners have a reduction in Stars, can you help us understand whether this headwind flows downstream to you? Or are you getting a fair premium increase to offset that Stars headwind? Jeffrey Schwaneke: Yes. Obviously, that's another key component of what we're talking about when we're doing our contracting. So again, I would say we are looking for total overall economics that makes sense for our partners in agilon, and that's what we're focused on. And that's when we said we're taking a disciplined approach, that would be part of that equation. Operator: We now have Matthew Shea with Needham on the line. Matthew Shea: I wanted to hit on the clinical programs again and the broader COPD and dementia rollout. What is the staging or timing of going from a pilot to permanent program look like? And based on your success with palliative, how long do these broader launches tend to take to ramp towards meaningful savings with that, I guess, given the early success from your existing programs and some of your commentary, do you plan on rolling out incremental programs or piloting new specialty areas in 2026? Or how should we think about clinical programs sort of evolving from here? Jeffrey Schwaneke: Yes. I would say you're heading down the correct path, meaning the first thing we typically do is pilot some of these programs and validate that ultimately, it's improving the Care for the member. And so we would pilot those. You have to have enough data, obviously, to make sure that, that's happening. So I'd say the pilot phase is relatively 6 to 8 months could be longer. But then ultimately, we would roll that out. And of course, it's, you can't roll it out to everyone at all times, right? And so we roll it out market by market, starting with the markets that we believe would provide the most value. And so yes, I would say we plan to take the pilots of COP and dementia. I think we're going to roll those out to more markets in 2026. And then yes, obviously, potential new pilots are on the table, and we're thinking about those as we think about our 2026 guide and what we're planning on doing for next year. Ronald Williams: Yes. All of these programs are developed in consultation with our partners, and we have network Advisory Board where the leaders of the principal medical groups come and advise, review the evidence and support and endorse these types of initiatives as good patient care for their members. And so we do have some teed up, as Jeff described. And we feel like as we've implemented congestive heart failure, we've learned a lot about that process of diffusion of both the clinical evidence technology, training and support of the physicians. Operator: We have the next question on the line from David Larson with BTIG. David Larsen: This is Jenny Shen on for David. I just wanted to ask about the Big Beautiful Bill Act. Do you expect that on the Medicare side to have any impact on your business at all? And if you do, what do you expect those impacts to be? Jeffrey Schwaneke: Yes. We don't expect it to have a meaningful impact on the business. And I guess we'll just leave it at that. Operator: [Operator Instructions] And we now have Amir Bani with Evercore on the line. Amir Bani: So Humana is one of your largest payer partners, I believe, and it looks like they're focused on benefit stability for '26. So I guess I'm trying to get a sense for how you think this impacts your medical costs for next year. Some numbers around that would be very helpful. And if I could squeeze in a quick follow-up. What do you see as minimum working capital for your business? Jeffrey Schwaneke: Yes. So real quick, I think we've kind of covered this maybe the first question as far as Humana. I think we've kind of covered this in the contracting phase, which is ultimately, we get the benefits for each of our markets. We get the plan designs, and we analyze that, and that's part of our overall contracting efforts looking for the economics that we think makes sense for us. And so I would say that's just one, you're just talking specifically about one payer, but the process is the same across all payers. And so I think that's where we are from that standpoint. It's part of the overall contracting process and the economics we look for. And your second question on minimum working capital, I don't know what you're trying to really get at there. I don't have a number off the top of my head for what you're trying to pinpoint, but we can certainly follow up. Operator: [Operator Instructions] I can confirm that will conclude the question-and-answer session here. And I would like to hand it back to Ron Williams for some final closing comments. Ronald Williams: Well, thank you for joining us today. agilon will post 2025 with a sharpened focus and momentum driven by a suite of high-impact initiatives that are fundamentally reshaping our operating discipline and executional rigor. I want to thank our employees and our partners who may be listening and I also want to thank you for your dedication and partnership with us. You're playing a crucial role in the health care industry, helping to transform health care to our employees and empowering our primary care physicians to focus on the entire health of their patients. We will continue to fulfill this mission with our employees. Thank you. Have a good evening. Operator: Thank you. I can confirm that does conclude the agilon Health Third Quarter 2025 Earnings Conference Call. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.
Operator: Good afternoon, everyone. Thank you for standing by, and welcome to the Corvus Pharmaceuticals Third Quarter 2025 Business Update and Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Zack Kubow of Real Chemistry. Please go ahead, sir. Zack Kubow: Thank you, operator, and good afternoon, everyone. Thanks for joining us for the Corvus Pharmaceuticals Third Quarter 2025 Business Update and Financial Results Conference Call. On the call to discuss the results and business updates are Richard Miller, Chief Executive Officer; Leiv Lea, Chief Financial Officer; Jeff Arcara, Chief Business Officer; and Ben Jones, Senior Vice President of Regulatory and Pharmaceutical Sciences. The executive team will open the call with some prepared remarks, followed by a question-and-answer period. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in Corvus' quarterly report on Form 10-Q for the quarter ended September 30, 2025 and other filings the company makes with the SEC from time to time. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I'd like to turn the call over to Leiv Lea. Leiv? Leiv Lea: Thank you, Zack. I will begin with a brief overview of our third quarter 2025 financials and then turn the call over to Richard for a business update. Research and development expenses in the third quarter of 2025 totaled $8.5 million, compared to $5.2 million for the same period in 2024. The $3.3 million increase was primarily due to higher clinical trial and manufacturing costs associated with the development of soquelitinib as well as an increase in personnel-related costs. The net loss for the third quarter of 2025 was $10.2 million, including a noncash loss of $300,000 related to Angel Pharmaceuticals, our partner in China. This compares to a net loss of $40.2 million for the same period in 2024, which included a $32.8 million noncash loss related to the change in fair value of Corvus' warrant liability and a $700,000 noncash loss related to Angel Pharmaceuticals. Total stock compensation expense for the third quarter of 2025 was $1.2 million, compared to $700,000 in the same period in 2024. As of September 30, 2025, Corvus had cash, cash equivalents and marketable securities totaling $65.7 million, as compared to $52 million at December 31, 2024. Consistent with our last quarter, we expect our current cash to fund operations into the fourth quarter of 2026. I will now turn the call over to Richard, who will discuss our clinical progress and elaborate on our strategy and plans. Richard Miller: Thank you, Leiv, and good afternoon, everyone. Thank you for joining us today for our update call. Our primary focus continues to be on the development of soquelitinib for both atopic dermatitis and T cell lymphomas, and we have several important milestones upcoming for these programs. First, we have completed enrollment in the extension Cohort 4 of our Phase I trial, and we expect to have the results of the full data set in late December. Given the proximity to the holidays, we plan to report results in January. Second, the initiation of our Phase II atopic dermatitis trial is on track for early Q1 2026. We believe soquelitinib is strongly positioned as an oral medication with a novel mechanism of action that so far has shown favorable safety and efficacy profile. There has been increasing interest in drugs with novel mechanisms to address atopic dermatitis and other inflammatory diseases. Our confidence in soquelitinib is bolstered by our belief that the data to date not only stands up favorably against recent data sets from other approaches, but indicates that we have the potential to be a leader in this space. We are also encouraged that the clinical evidence obtained to date with soquelitinib in both atopic dermatitis and in T cell lymphoma bode well for the potential of ITK inhibition in a broad range of immunology and inflammatory indications, and we continue to explore potential next opportunities for our platform. On today's call, I will provide an overview of extension Cohort 4 and our plans for reporting this data, and the status of our planned Phase II trial in atopic dermatitis. I will also discuss the relevance of our soquelitinib ASH oral presentation for our Phase III peripheral T cell lymphoma trial and its implications for I&I indications, including atopic dermatitis. And I will provide a brief recap of other operational progress and updates. Let me start with a reminder of the key data reported to date for soquelitinib in atopic dermatitis. In June, we reported data from Cohort 3 of the Phase I trial evaluating a 200-milligram twice-per-day oral dose for 28 days of treatment, building on the encouraging results we had already reported with a lower dose level from cohorts 1 and 2. All of the treatment cohorts demonstrated a favorable safety and efficacy profile compared to placebo. The Cohort 3 efficacy data was especially remarkable, demonstrating earlier and deeper responses compared to cohorts 1 and 2. At day 28, Cohort 3 showed a mean percent reduction of EASI score of 64.8%, compared to 54.6% for the combined cohorts 1 and 2 and 34% for placebo. In Cohort 3, 50% of patients achieved EASI 75, 8% achieved EASI 90 and 25% achieved IGA 0 or 1. No placebo patients achieved EASI 75 or IGA 0/1. We also saw an impact on itch with a number of Cohort 3 patients reporting steep drops in patient-reported PP-NRS score beginning at day 8. In terms of the kinetics of response, Cohort 3 showed earlier and deeper separation from placebo starting at day 8, compared to cohorts 1 and 2, with the EASI score improvement continuing through day 15 and 28. The continuous downward slope of the curve suggests that longer treatment duration could potentially deepen responses further, which we are now exploring with the extension Cohort 4. We have completed enrollment in the extension Cohort 4 of the Phase I trial, which is evaluating 24 patients at the Cohort 3 dose of 200 milligrams twice per day given for 8 weeks, with an additional 30-day follow-up without therapy. The 24 patients were randomized in a blinded fashion 1-to-1 with placebo, 12 active and 12 placebo. As mentioned earlier, we plan to report the 8-week data set on 24 patients in January. Our objective with this additional data is to confirm the results obtained in our earlier cohorts in a larger number of patients and to determine if the longer treatment duration of 8 weeks leads to better efficacy. The second upcoming milestone for soquelitinib in atopic dermatitis is the initiation of our planned Phase II clinical trial, which we anticipate will begin early Q1 2026. The trial will be randomized, placebo-controlled and double-blinded, involving approximately 70 clinical trial sites globally. The trial was designed to enroll approximately 200 patients with moderate to severe atopic dermatitis that have failed at least 1 prior topical or systemic therapy. I would like to emphasize that we are including patients who have failed previous systemic therapies, such as Dupixent or JAK inhibitors. We are interested in this population of patients because soquelitinib has a mechanism of action that is different than currently available agents and prior use of these agents would not be expected to lead to resistance to soquelitinib. The patients will be randomized equally into 4 cohorts, 50 patients each, receiving soquelitinib 200 milligrams once per day, 200 milligrams twice per day, 400 milligrams once per day, or placebo. The treatment duration will be 12 weeks and patients will be followed for an additional 90 days without therapy. The primary endpoint will be the mean percent reduction in EASI score from baseline to week 12. This is the typical endpoint for Phase II clinical trials in atopic dermatitis. Secondary endpoints will include the percent of patients achieving EASI 75 or IGA 0/1 at week 12, impact on itch measured by the percent of patients achieving greater than or equal to 4-point decrease in PP-NRS at week 12, and safety. Photographic documentation of disease at baseline and response to therapy will be mandated on the study and reviewed by independent experts. In oncology, we continue to enroll patients in our registrational Phase III trial of soquelitinib in patients with relapsed PTCL, driving towards interim data in late 2026. In addition, we are pleased to report that the final results from our Phase I/Ib clinical trial of soquelitinib for the treatment of relapsed/refractory T cell lymphomas will be presented in an oral session at the Annual Meeting of the American Society of Hematology meeting in December. This presentation will report on the clinical data and supporting preclinical work that drives us to continue advancing the program for PTCL, as well as providing the rationale and safety information motivating us to focus on immune and inflammatory diseases. In particular, we will report on the durability of progression-free and overall survival. We believe the presentation at ASH adds to the growing clinical evidence that soquelitinib is a safe and active agent working through a mechanism that supports its utility in both T cell lymphoma and immune-mediated diseases. As a reminder, some patients in the Phase I trial were treated beyond 2 years in the same daily dose range as is being studied in atopic dermatitis. And complete durable tumor responses were seen in patients with highly aggressive tumors. We also have a growing body of preclinical data supporting the potential of ITK inhibition in a broad range of additional indications across dermatology, rheumatology, pulmonary medicine, solid cancers and other diseases. Briefly on other operational updates. In October, we appointed Mr. David Moore to our Board of Directors, building on the addition of Richard van den Broek in April. David is Executive Vice President, U.S. Operations, at Novo Nordisk and President at Novo Nordisk. His experience leading one of the most successful GLP-1 franchises, along with his broad expertise across strategy, commercial, market access, business development and investing, is anticipated to be an important strategic resource as we work to maximize the potential of our ITK inhibitor platform. In closing, we remain very optimistic about the potential of soquelitinib in atopic dermatitis. In addition, the knowledge and experience from our current trial motivates us to think beyond atopic dermatitis, to a broad range of other immune diseases. We believe we may have the opportunity to establish selective blockade of ITK as a new therapeutic approach to autoimmune inflammatory diseases based on modulation or rebalancing of cellular immunity. We look forward to providing soquelitinib updates in the coming months. First, at ASH for our T cell lymphoma program, and then in January for the extension Cohort 4 data for our atopic dermatitis program. Combined with the planned initiation of our Phase II atopic dermatitis trial in early Q1 2026 and the ongoing enrollment in our Phase III PTCL trial, we are building significant momentum for soquelitinib coming into the new year. I will now turn the call over to the operator for questions and answer period. Operator? Operator: [Operator Instructions] Your first question comes from the line of Graig Suvannavejh from Mizuho. Graig Suvannavejh: Congratulations on the progress in the quarter. I had a couple of questions. First, on your ASH abstract and the data that you will be presenting next month. I'm wondering, we saw very impressive OS data, and with that in mind, with other information that was in that abstract, could you perhaps put in context the comparability that obviously leads to your enthusiasm for the prospects of soquelitinib in peripheral T cell lymphoma? And I'll come back with a second question. Richard Miller: First of all, the PFS and OS being presented at ASH meeting is quite impressive, the -- especially when you consider this is a Phase I trial using an agent that was not previously tested in this disease. As you all know, T cell lymphoma is a very bad disease with a median survival usually of about 6 months in relapsed. We have far better results than that and we're excited about that. The reason that we're also excited is we've learned so much from that trial in terms of immunobiology, safety, pharmacokinetics, pharmacodynamics, mechanisms of action that pertain to -- that are very pertinent with regard to immune diseases. One of the things I talk about in the ASH abstract, and we'll elaborate on at the meeting, is the fact that we're seeing responses in T cell lymphomas that are so-called GATA3-positive. Now GATA3 is a transcription factor that is also known as the master regulator of Th2 function. Th2 cells are the cells of interest in a variety of immune diseases, including atopic dermatitis. So putting all that information together we feel bodes well, not just for the T cell lymphoma program, but for a range of immune diseases. It's confirming and consistent with our belief that we have a drug with a really new novel mechanism of action, it's oral, it appears very safe. And we are seeing really significant signals of activity in patients who have a cancer of their immune system that involves the very same cells that are involved in all these other immune diseases. I hope I answered that question. Graig Suvannavejh: You did. And then if I could just go to soquelitinib and your atopic dermatitis readout that's coming in the early part of the year. As you have expanded the treatment duration and as you've expanded the number of patients, is it fair for us to assume that what you saw previously will have an improvement on the efficacy that you saw? And if you don't see an improvement versus what you saw previously, does that change in any way your enthusiasm for the prospects of soquelitinib in atopic dermatitis? Richard Miller: So first of all, we feel, and so do many of our outside experts feel, that the data that we generated in Cohort 3 with 28 days of treatment was quite good. It was safe and it was quite active in that. What we aim to show -- and as you recall, the reduction in EASI scores were continuing to go down for the last few weeks of therapy. So with the expanded cohort, we really are looking for 2 things. Number one, we want to show consistency. We want to show -- confirm what we showed before in a larger set of patients with more placebos and more patients getting active drug. Placebos, I don't have to tell you folks, placebos are very important in evaluating these diseases. The second thing we're looking for is: does the extension of the treatment duration improve the results further? So those 2 concepts. I want to see consistency of the data from what we did earlier, and yes, we'd like to see an improvement as we go beyond 28 days. And of course, we want to confirm safety and the other things as well. So that would be what to expect as we look at the data that comes out in January. Operator: Your next question comes from the line of Jeff Jones from Oppenheimer. Jeffrey Jones: Congrats on the real progress you're making here. One on soquelitinib. Richard, as you mentioned, you've seen and been generating data in a number of other indications in the I&I space. What are your plans to take soquelitinib forward in other indications at this point, sort of indications and timing? Richard Miller: Okay. So just to be clear, Jeff, soquelitinib in humans is being studied in the registration Phase III trial and, of course, in our Phase II atopic dermatitis trial. We also have a trial in lymphoproliferative disease called ALPS that you know about. Now we have many preclinical models that we've evaluated soquelitinib, everything from asthma, atopic dermatitis, psoriasis, scleroderma, systemic sclerosis, et cetera. We are making definite plans to move into other immune-related diseases. I'll be talking more about that early next year. The key diseases for us now appear to be asthma, and probably another dermatologic condition, yet to be defined. Jeffrey Jones: Great. Appreciate that. And then you -- or the Kidney Cancer Research Consortium reported an update on the cifo trial at ESMO. Just curious as to the next steps there. The trial is still ongoing, there are still patients on follow-up. How are you thinking about ciforadenant in the context of renal cell and beyond? Richard Miller: So as you know, the cifo trial was done in collaboration with the Kidney Cancer Consortium, who pay for most of the trial. I don't think we have any other expenses related to that. There were 19 patients still on treatment and on follow-up, 19 out of 50, 40% or so almost. So we're going to continue to follow those people, and we'll decide what to do once we see how the rest of the data evolves. But that's our current plan for that. Operator: Your next question comes from the line of Li Watsek from Cantor. Li Wang Watsek: Congrats on the progress. I have a couple of questions here. First, maybe just in terms of baseline characteristics of the Cohort 4 versus prior 3 cohorts. Is it reasonable for us to assume they're pretty similar to Cohort 3? Or is there any difference that we should keep in mind? And I have a follow-up. Richard Miller: It is very reasonable for you to assume that the characteristics are very similar to Cohort 3. And to elaborate on that, the enrollment in the trial is 17 centers, all U.S. centers, the same centers that were utilized for the first 3 cohorts. None of the criteria for eligibility have been changed. And yes, we know the demographics already of our patients, very, very similar to those of Cohort 3. Li Wang Watsek: Okay. Great. And then for the Phase II trial, just given the patient population that you'll be enrolling, it sounds like the patients can be exposed to JAK inhibitors and Dupi. So just given this demographic, what should be the bar for the EASI score? Richard Miller: Okay. So first of all, when we go to Phase II, of course, it's a larger trial, 200 patients, it would be very difficult, would take a long time to enroll that solely in the U.S. So there is going to be a heavy reliance on sites outside United States, particularly in Europe, which is what most companies are doing now. I think that we're somewhat unique in that we're allowing patients who failed Dupi and JAK and other systemic therapies -- within reason. I mean you can't fail 10 therapies. But -- now the reason we're doing that is that we have some patients that we've seen in cohorts 1, 2, 3 and now even in the fourth cohort that have failed those systemic therapies, and they're responding to our drug. So I don't know what the final numbers are going to be on that yet, whether it's identical to first-line therapies or somewhat not identical. So it's a little bit hard for me to say what the bar is. First of all, I'm not aware of any data that has specifically been published on the response of a drug to somebody who's failed the JAK inhibitor or Dupi. Now those studies do, I know, recycle patients. They take patients who are EASI 50s and they treat them again for longer periods of time. But that's really kind of a different kind of experiment. So look, I think it's a little early to set a bar for the Phase II. Let's get our Phase I results. Let's take a look at the Dupi failures and the JAK failures, and then we can talk more about that. But I think it is an important point, I'm glad you asked the question, that the Corvus patient population is a little bit different. Now we're doing that deliberately. We want these failures because we think that we have a drug with a mechanism of action that is going to -- where the mechanism of resistance to a Dupi or a JAK is really -- may not really be pertinent or relevant for our mechanism. And then we need to learn that. So the good news here is that it expands the potential use of our drug. We feel that it potentially could be used first line or it could be used in the relapsed situation. Operator: Your next question comes from the line of Aydin Huseynov from Ladenburg. Aydin Huseynov: Congrats on the progress this quarter, and appreciate taking questions, I got a couple. So Richard, so you're already running a trial in atopic dermatitis, and I was curious to hear any thoughts on potential other dermatologic indications such as either hidradenitis suppurativa, vitiligo, psoriasis or anything else. And can you run several trials simultaneously -- several dermatologic trials simultaneously? Just wanted to get your thoughts on this. Richard Miller: Okay. So the preclinical models and the data we have in the lab tells us that asthma should be a very good indication for us. We also think that a disease like hidradenitis suppurativa would be a very good disease for us. It's in the dermatology space and that's a disease that's both Th2 and Th17 driven. So let's think about that a little bit. A Dupixent, for example, or a STAT6 inhibitor or whatever, is going to get your Th2-type cytokines, but it's not getting Th17 because that doesn't signal through STAT6. So we think we have a distinct advantage here for a disease like HS because we hit 17 and Th2. There are other reasons as well. So other diseases we're thinking about are prurigo nodularis, that's a Th2 and Th17 disease as well. That's not as common, but there's even more of an unmet need there. Alopecia areata, we've considered. It's a very competitive space. JAK inhibitors work well. But that's still on our list and we're still doing some work on that. Now your question, can we run more trials? We intend to run multiple trials in immune disease. We intend to push this drug in multiple areas, as I mentioned on my talk, not just in dermatology, pulmonary medicine, oncology, rheumatology, et cetera, et cetera. Now of course, we know at some point here, we're going to have to raise some money to do that. And we're optimistic that with the data that we have coming out, that we'll be in a position to raise money to fund those activities. Aydin Huseynov: Very helpful, Richard. One more question I have regarding Phase II registration trial. I just wanted to better understand the time lines, the potential readout, and hopefully, the potential launch of the drug. So given so many developments with soquelitinib, I guess this is the first indication -- that's the first indication you're going to launch the drug. And I just wanted to get a better sense of immediate commercial opportunity and the time lines in PTCL for soquelitinib. Richard Miller: Yes. So well, our time line is a futility interim analysis at the end of 2026, probably finished, full data by end of 2027. Launch would be, I think, relatively quick for this. One of the beauties of this trial is that it's a single registration, randomized trial that could lead to full approval should you meet your endpoints. And it's 150 patients, relatively small trial, with relatively short endpoints. The control -- the chemotherapy control arm is expected median PFS, which is the primary endpoint of, what, 3 months, 2 months. So we're excited about it. I'm an oncologist and lymphoma is my expertise, as you know, and I ran a clinic at Stanford for 25 years or more taking care of lymphoma patients, there is no treatment, no good treatment for this disease. There is no competition at this point. Even in the research stages, I mean, really there's nothing new in this area. So we think we have the potential should this drug be approved, where it will be used immediately in all T cell lymphomas, frontline, late line, you name it, because really there isn't anything else. I mean we have a ways to go before we can figure all that out, but the opportunity here, we think, is much larger than people recognize. Now it's not atopic dermatitis in terms of the number of patients, of course, but it also doesn't have the competition and it also doesn't have the very long time lines to approval. All right? Operator: Your next question comes from the line of Etzer Darout from Barclays. Jordan Becker: This is Jordan Becker on for Etzer Darout. Thanks for taking our questions and congrats on the updates. Two questions. You alluded to it, but I just want to double-click on this. Do you plan to do any post hoc analysis following the Cohort 4 completion to look at efficacy in Dupi and JAK-naive and refractory populations? And then two, can we expect a similar analysis in terms of biomarker correlates of clinical efficacy with the updated data? Richard Miller: The answer is yes and yes, Jordan. Thanks for the question. We, of course, will be doing post hoc analysis trying to figure out how the drug is working, how to make it work better, all sorts of things. So clearly, looking at the effects of prior therapy, prior systemic therapies, all those clinical variables will be evaluated. We do have a pretty aggressive biomarker program. We're minimizing biopsies of the lesions on patients only because that does hurt enrollment, and we don't want to do that. But we have a pretty extensive program now looking at single-cell RNA sequencing of blood, and that's revealing a lot of interesting things. I mean there's a lot of new things that are coming out on this. I think the same old, same old look at IL-13 or whatever, that's going to go bye bye, TARC, et cetera. Those are not good biomarkers, everybody knows that. The best biomarkers for these diseases are yet to be defined because they're heterogeneous diseases and we don't really know what the cause is. So we're looking at a lot of that. We'll report on what we find. The biomarker game is a tough game. There's a lot of variables to look at, and hard to make much of anything when you have a small number of patients. But we certainly will hope to get clues and signals that we can validate in larger trials. Okay? Operator: Your next question comes from the line of Sean Lee from H.C. Wainwright. Xun Lee: I just have a couple of quick ones on the design of the upcoming Phase II AD study. So what's the reasoning behind the settling on a 12-week duration treatment rather than the 8 weeks that you're testing in the Cohort 4? And are there any notable differences between the enrollment criteria of the Phase II compared to the patients that you're enrolling in Phase I? Richard Miller: So far, the eligibility criteria are pretty much identical. The reason we're going to 12 weeks is we're going to examine that. Most therapies are out at 16 weeks now. But if you look at the data from most studies, you'll see that most of the separation, most of the efficacy is obtained in the first 12 weeks. You don't really gain that much more by treating longer. So that's the reason for our 12-week study. Look, I'm trying to make this a shorter treatment, not a longer treatment, okay? I don't know any patient, and I've been, as I mentioned earlier, running a clinic for over 30 years, I don't know any patient who wants more medicine to take longer. So I'm trying to see if we can go shorter, not longer. But of course, we want to maximize -- both are important. You want to maximize responses. You want to hopefully shoot for total clearance of disease, that is EASI 100%, that's what you want. And that's what we'll try to do. But that's -- if you look at most studies, you don't gain much by going from 12 weeks to 16 weeks. Now some people are going to 6 months, 1 year. I mean, great, if you're willing to take a drug for that long, for an incremental benefit that's marginal. Operator: Your next question comes from the line of Cha Cha Yang from Jefferies. Cha Cha Yang: This is Cha Cha on for Roger Song. I was hoping that you could give us some color on any of your plans for potential partnerships or licensing deals for soquelitinib in the coming future, or if you plan to raise money and take this forward yourselves in either AD and oncology. Richard Miller: Okay. So thanks for the question, Cha Cha. I can tell you that ITK as a target is on the radar of every major company that works in this area. I know that because we're talking to them. We'll evaluate partnering opportunities as they arise, whether it be in oncology or immune diseases. At this time, however, we're pushing forward with our cancer program and our immunology program. We, as I mentioned just a few minutes ago, we do recognize that we're going to have to raise more money to maximally develop all these programs. We're optimistic about our data and we think there will be ample opportunity to raise funding, whether it be through offering stock or partnerships at the appropriate time. Operator: Next question is from the line of Graig Suvannavejh from Mizuho. Graig Suvannavejh: I was very curious, as you think about your ITK portfolio and comments around potentially advancing next-generation ITK, I was wondering, Richard, if you could share kind of the vision or strategy around the potential of adding another indication for soquelitinib versus moving forward with a next-generation ITK inhibitor with perhaps a similar indication in mind. Just how do you balance that kind of strategy? Richard Miller: Well, that's a -- thank you for the question. That's a good question. Obviously, pushing forward with soquelitinib, which now has a wealth of safety and efficacy data in hundreds of patients, is -- will move faster than bringing along one of our backup compounds, which, of course, still have to go through IND-enabling studies. And then if you go in the immunology space, don't forget you need to do normal volunteer single-dose, normal volunteer multi-dose. So that takes time. But we are going to consider all that. Right now, we're pushing forward in the PTCL, atopic dermatitis and soon other immune diseases. We're also considering other dosage forms and formulations of soquelitinib. We're working on that now. We also are looking at soquelitinib-like ITK degraders. We've made some of those. We're looking at those in the laboratory. Interestingly, it turns out that soquelitinib, a covalent drug, leads to degradation of the ITK target to a certain extent. We've learned that. That's really interesting. I don't think anyone has known that before. So we're looking at any and all of that stuff. But certainly pushing forward with our lead compound, that's going to be the fastest. Operator: Your last question is from the line of Jeff Jones from Oppenheimer. Jeffrey Jones: Just a quick one. Digging a little bit deeper into the Dupi and JAK-exposed patients that could be enrolled in the Phase II study. Would you guys be powering the study to really do a subgroup analysis that could be statistically significant again and separate those systemically exposed patients versus systemic therapy naive patients? Richard Miller: No, we would not be doing that. I mean that's -- I mean, we don't have enough information yet, Jeff, to make a commitment like that. But one thing is for sure, we will stratify the studies to look at that subgroup. So what I mean by that is that will be a defined subgroup. We will stratify randomization based on whether you fail this -- a prior systemic therapy or not. You want those equally distributed in your placebo and in your active arm. But without really knowing the efficacy signal yet we would expect in that, it's a little hard to power how many patients you would need and what effect you're looking for. I think that would be going pretty far. I'm not sure you'd want to do that at this stage. I'd rather do a study, include everyone -- the best outcome, do a study, include those people, have a positive study in your predefined endpoint. You get approval, I mean if it were Phase III, you get approval for everyone. Jeffrey Jones: Yes. No, great. And the other way to look at that would be stratifying. So really appreciate the clarity. Richard Miller: Thanks, Jeff. Operator: Thank you very much. As there are no further questions at this time. I would like to turn the call back to Mr. Richard Miller for closing comments. Sir, please go ahead. Richard Miller: Thank you very much, operator. Thank you, everyone, for participating in this call. We look forward to advancing the soquelitinib programs and our other programs. And we look forward to updating you on our progress as we move forward into 2026 and beyond. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Conversation: Operator: Good afternoon, and welcome to the NMI Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead. John Swenson: Thank you, Gary. Good afternoon, and welcome to the 2025 Third Quarter Conference Call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; and Aurora Swithenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad. Bradley Shuster: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio and strong financial results. Our lenders and their borrowers continued to turn to us for critical down payment support. And in the third quarter, we generated $13 billion of NIW volume, ending the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. In Washington, our conversations remain active and constructive, and there continues to be broad recognition in D.C. of the unique and valuable role that the private mortgage insurance industry plays, offering borrowers low-cost down payment support and access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn and ultimately ensure the safety and soundness of the conventional mortgage market. National MI and the broader private mortgage insurance industry have never been stronger or better positioned to provide this critical down payment support than we are today. And we're excited to continue working with Director Pulte, other members of the administration and the leadership teams of Fannie and Freddie to advance their important goal of helping more Americans than ever unlock the dream of homeownership. With that, let me turn it over to Adam. Adam Pollitzer: Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the third quarter, delivering significant new business production, consistent growth in our insured portfolio and strong financial results. We generated $13 billion of NIW volume and ended the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. Total revenue in the third quarter was a record $178.7 million, and we delivered GAAP net income of $96 million or $1.22 per diluted share and a 15.6% return on equity. Overall, we had a terrific quarter and are confident as we look ahead. The macro environment and housing market have remained resilient through an extended period of headline volatility. Our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends and furthered by the recent improvement in mortgage rates. We have an exceptionally high-quality insured portfolio covered by a comprehensive set of risk transfer solutions and our credit performance continues to stand ahead. We're delivering consistent growth in embedded value gains in our insured book, and we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that's supported by the significant earnings power of our platform. Taken together, we see a clear opportunity for continued outperformance. Notwithstanding these strong positives, however, macro risks do remain, and we've maintained a proactive stance with respect to our pricing, risk selection and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we remain encouraged by the continued discipline that we see across the private MI market. Overall, we had a terrific quarter, delivering strong operating performance, consistent growth in our insured portfolio and strong financial results. We're in the market every day with a clear mandate and purpose offering a low-cost, high-value solution that helps borrowers bridge the down payment gap and meaningfully reduces the cash required at the closing table. In the process, we help to make homeownership more affordable and achievable for millions of Americans and communities across the country with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. Looking ahead, we're well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. With that, I'll turn it over to Aurora. Aurora Swithenbank: Thank you, Adam. We again delivered standout financial results in the third quarter. Total revenue was a record $178.7 million, GAAP net income was $96 million or $1.22 per diluted share and return on equity was 15.6%. We generated $13 billion of NIW and our primary insurance-in-force grew to $218.4 billion, up 2% from the end of the second quarter and 5% compared to the third quarter of 2024. 12-month persistency was 83.9% in the third quarter compared to 84.1% in the second quarter. Net premiums earned in the third quarter were a record $151.3 million, compared to $149.1 million in the second quarter and $143.3 million in the third quarter of 2024. Net yield for the quarter was 28 basis points, consistent with the second quarter. Core yields, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34.2 basis points also unchanged from the second quarter. Investment income was $26.8 million in the third quarter compared to $24.9 million in the second quarter and $22.5 million in the third quarter of 2024. Total revenue was a record $178.7 million in the third quarter compared to $173.8 million in the second quarter and $166.1 million in the third quarter of 2024. Underwriting and operating expenses were $29.2 million in the third quarter compared to $29.5 million in the second quarter. Our expense ratio was a record low 19.3% in the quarter, highlighting the significant operating leverage embedded in our business and the success we have achieved in efficiently managing our cost base. We have a uniquely high-quality insured portfolio and our credit performance continues to stand out. We had 7,093 defaults at September 30 compared to 6,709 at June 30, and our default rate was 1.05% at quarter end. Claims expense in the third quarter was $18.6 million compared to $13.4 million in the second quarter, reflecting normal seasonal activity and the continued growth and seasoning of our portfolio. GAAP net income for the quarter was $96 million and diluted earnings per share was $1.22. Adjusted net income was $95.7 million, and adjusted diluted EPS was $1.21. Total cash and investments were $3.1 billion at quarter end, including $148 million of cash and investments at the holding company. Shareholders' equity at September 30 was $2.5 billion and book value per share was $32.62. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $33.32, up 4% compared to the second quarter and 16% compared to the third quarter of last year. In the third quarter, we repurchased $24.6 million of common stock, retiring 628,000 shares at an average price of $39.13, through quarter end, we've repurchased a total of $319 million of common stock, retiring 11.3 million shares at an average price of $28.25. We have [ 256 million ] of repurchase capacity remaining under our existing program. At quarter end, we reported $3.4 billion of total available assets under PMIERs and $2 billion of risk-based required assets. Excess available assets were $1.4 billion. Overall, we achieved standout financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, record top line performance and expense efficiency and strong bottom line profitability and returns. With that, let me turn it back to Adam. Adam Pollitzer: Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our high-quality insured portfolio and stand out financial results. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions. Operator: [Operator Instructions] Our first question today is from Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. As I look at new defaults in the quarter, it was up only about 5% year-over-year, that's a noticeable step down from the pace of year-over-year increases that you've seen in the last kind of 10 quarters. So maybe just any color on kind of what happened in the quarter? And as we kind of look forward, how should we expect kind of new defaults kind of emerge like when we factor in kind of seasoning and everything? Adam Pollitzer: Yes. Terry, good question. Look, I'd say broadly speaking, we're still greatly encouraged by the performance of our portfolio overall including the trends, obviously, in the default population. The impact of seasonality coming through this year was a bit more muted, which is encouraging. I think we trace that to a few things, right? We got broad resiliency that we've seen in the macro environment, and so that continues to set a favorable backdrop. We have an incredibly high-quality insured book and our existing borrowers, broadly speaking, remain well situated, and we're seeing that continue to translate through to our credit experience. The increase in our default experience that you noted some amount of that traces to seasonality, right? We tend to see seasonally a seasonal uptick in default experience as we roll through the second half of the year, and some portion of it traces to what we've talked about for a while now the seasoning, just the natural growth and seasoning of our book. As we look forward, we do expect that seasonality will continue to come through, and so we'll see an additional impact seasonally in Q4. And we do also expect that as we roll forward over the longer term, we'll continue to see that normalization in our credit experience but overall, we're delighted with how our portfolio is performing. It's exceptionally high quality, and we're encouraged by the trends that we saw in the third quarter and really year-to-date. Terry Ma: Got it. That's helpful. And then maybe just any color on the competitive environment. There has been some rumblings about a potential new entrant, so any color on kind of how to think about how the dynamic may or may not change like if there was a new entrant into the MI market. Adam Pollitzer: Yes. Yes. It's -- I'd say, look, it's not necessarily new. I think there's been periodic chatter about new market entrants over the years. and we're aware of the latest effort that's out there. But I'd say we, perhaps more than anybody else know the challenges and difficulties that come with building a private MI business, it is not easy at all, right? It's really hard to raise the capital. It's really hard to build an MI specific operating platform. It's really hard to hire the right team to sign up customers, earn their trust and also manage through an extended J curve to get to a point of profitability. And when we look at things, say, today versus when we got our start back in 2011, the market is at a very different point today. And so today, there is no clear need in the market, right? At this point, the 6 incumbent MI players are all serving the market incredibly well. We're showing up every day for lenders and their borrowers. We've got ample capacity to support their origination volume. We've got their trust we're offering, I think, broadly speaking, fair and valuable solutions for every borrower that comes through our market, and so it's difficult to know obviously exactly where things land. We don't know what will happen with the latest rumors. But say, it's a very high bar, right? It takes a lot of capital, a very large amount of capital to fund the PMIERs compliance business. And if we were controlling first strings and thinking about making an investment in a new entrant ourselves, I'd say we'd be highly skeptical that now is the right time to do that, given all the challenges that we would see for anybody who came into the market today. And that's not because the market itself is challenges because the market is doing so well in the 6 companies that are there today are performing so well. So we'll see, ultimately, if somebody new came in, everybody -- the market will adapt around it. But I think going from discussions to actually having a fully funded, capitalized approved entity, that's a pretty wide gulf. Operator: Next question is from Bose George with KBW. Bose George: Can you give us an update on what you're seeing in terms of the strength of the consumer? Also just any housing markets that you're keeping an eye on where -- in terms of home prices or other signs of potential weakness. Adam Pollitzer: Sure. Yes. Good question. Look, I'd say broadly speaking, I noted in our prepared remarks, but we've been encouraged by the broad resiliency that we're seeing in the economy and the housing market for a while now. Headline unemployment remains low, inflation is cooled, consumers broadly speaking, are still spending businesses or continuing to make significant investments. The equity market is continuing to set new highs. And so the overall picture today is an encouraging one. But for us, obviously, it's not just about today. It's also what comes tomorrow. And so we always think about risks that might be on the horizon. And so when we parse through the data, I think we can all see it on the macro side, there are signs in the labor market of some degree of strain emerging. We're not seeing unemployment increase, and we don't have government data for the last little while, but there are certain private data points that we can look at. So we don't see unemployment increasing, but certainly, the pace of new hiring activity has slowed. I think consumer confidence is down, particularly amongst certain borrower cohorts, and there's broad talks of -- I think we're terming it a K-shaped recovery. So we'll see what I'd say from our vantage point, it's still a really encouraging and resilient backdrop those macro and housing market but we're always focused on what might come. And then Bose, I think you asked a question about geos. And so yes, we've talked for a while now that there are certain geographies, Florida, Texas, the Sunbelt, Mountain West where we're seeing some -- either a declining pace of house price appreciation or a turn in prices with inventory building. And that's still the case. Those same markets, there's nothing new, the pressure isn't new, but we're still seeing, when we look at the world, those markets that have been soft for a little while now continue to show signs that they're soft, and we see continued strength, though, in the Northeast and the Midwest. Bose George: Okay. Great. That's helpful. And then actually just in terms of the reinsurance markets, can you just talk about what you're seeing there? Also, just I guess you guys are more active on the XOL side, just in terms of execution, like why there versus more on the ILN side? Aurora Swithenbank: Sure. In terms of what we're seeing in the reinsurance market, reinsurance markets remain very robust, and we look at the pricing achieved by some of our competitors in the marketplace year-to-date, it's the best pricing that's ever been achieved. If we wind the clock back to 2024, we placed full XOL and quota share coverage for 2025, 2026 and a portion of the 2027 year with respect to the quota share. So we have a really nice runway in terms of our locked-in capacity in the traditional reinsurance market. So you may recall that in the third and fourth quarter of the year, the back part of the year, we typically engage with our reinsurance partners and talk about the opportunity to lock in further coverage for forward years or to optimize the coverage that we have in place. And so you may imagine, we're engaged in those discussions currently. And -- but again, it's a very strong reinsurance market backdrop leading into those conversations. And with regards to ILN versus XOL, we like both of those markets. Both of them have been very good sources of capital for us as a company. Recently, we have been more biased towards the traditional reinsurance market. In particular, because it offers that forward coverage, which isn't available in the debt capital markets. And so that's been our recent preference just from a cost flexibility and speed of execution perspective. But we like both of those markets. And I think you should expect us in the fullness of time to be active across all different markets. Operator: The next question is from Mark Hughes with Truist. Mark Hughes: Yes. the core yield, it's been holding pretty steady at 34 basis points. Is that a good run rate here? What moves that 1 way or the other in the kind of the near to medium term? Aurora Swithenbank: Sure. I'm happy to start out here. It has been very stable, and that's obviously been supported by the tremendous persistency that we've had in the book and continue to have in the third quarter. So again, we would -- we don't give forward guidance, but given the strength of the in-force book, we would expect that plus/minus that kind of number for the core yield will be good. Obviously, the net yield is influenced by claims expense in the quarter and how that runs through our reinsurance contracts. Mark Hughes: And then any thoughts about the impact on persistency if we do see interest rates drop, that would be great from a new business perspective, a lot of purchase activity would ramp up presumably, but you get a lot of refi. How would you see the puts and takes if kind of you get a refi-ed market? And then if you can get multiple rounds of it, given the -- where recent borrowers have been borrowing at. Adam Pollitzer: Yes. So I think as you termed it, there's both puts and takes. Our persistency was 83.9% in the third quarter, and as we noted, again, helped to drive continued growth in embedded value gains in our insured portfolio. Overall, our portfolio is broadly well situated because we've got a 5.2% weighted average note rate underpinning our exposure at quarter end. But it's not even, obviously, across the entirety of our book. There are vintages parts of our in-force that have greater degrees of refi sensitivity, and where we will likely see an uptick in some prepayment speeds given the recent moves in rates, that's going to be natural, right? So that's the put. The take, as you noted, though, is, one, some portion of the borrowers in our portfolio who will benefit from a refinancing today or very likely to still need MI coverage because while HPA has generally trended higher, it's trended higher at a normal, not record pace. And so there's an opportunity to see penetration of refinancing origination activity grow if there were -- if we saw an uptick in overall refi activity. As you noted, look, if rates lag down, to the point where we see a more pronounced pressure on persistency, we'd also expect to see a benefit in new business activity, NIW volume, bringing prospective buyers purchase demand off the sidelines. And the 1 other 1 to note is there's a potential knock-on benefit from a credit experience standpoint, to a refinancing cycle, right? If we see refinancings accelerate, it's most likely just because of where the underlying note rates are that, that will come from our more recent vintages. And those are the vintages that we're looking at for that normalizing credit experience. If those vintages begin to turn over, it will take -- it will extend that normalization cycle from a credit performance standpoint. Mark Hughes: Appreciate that. And then were there any onetimers in the expense ratio is obviously, as you say, a record number. Anything nonrecurring there? Or is that a good run rate? Aurora Swithenbank: I'd say, with regard to the expense ratio, there was nothing in particular that I'd point out in the quarter. And if you look at the raw dollars, it's within a couple of hundred thousand dollars of what we spent last quarter. And so there are a few positives and negatives, but again, nothing of note. I would say if you're looking forward, typically, the second and third quarter are lightest in terms of expenses and the fourth, and then the first quarter tend to be heavier just in terms of both dollars of expense and also the ratio goes up during those quarters. And in the fourth quarter, that typically results from the accrual of some of our people-related expenses. So that's the only thing that I would note with regard to the fourth quarter. Operator: The next question is from Rick Shane with JPMorgan. A.J. Denham: This is A.J. on for Rick. So if rates fall in refis do start to tick up, is there anything kind of proactive you can do to recapture MI on more of those loans? Could you maybe just walk through your playbook sharing your early experience you've had there? Adam Pollitzer: Yes. So I'd say on the margin, there are things that you might try to do. But more broadly, the most important piece of the playbook is to be everywhere in the market and be offering valuable solutions for our customers to be plugged in with as many lenders as possible and so that we could serve their borrowers. We've noted for a while that 1 of the unique attributes that we have to our benefit is that our share of the new business environment is larger than our share of industry insurance-in-force. So to the extent that there is some amount of industry insurance-in-force that's in motion because it's refinancing, but still needs MI coverage. We have an opportunity, we think, to capture a little bit more of that than we will necessarily lose. And so that's not a strategy per se, it's just where the numbers are. But the real strategy behind it is make sure that we are connected to our customers that we're offering them valuable solutions that were present for their borrowers across all markets so that, that business that is potentially in motion is a business that we can capture. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Adam Pollitzer: Thank you again for joining us. We look forward to speaking with you again soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Operator: Good afternoon, and welcome to the NMI Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead. John Swenson: Thank you, Gary. Good afternoon, and welcome to the 2025 Third Quarter Conference Call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; and Aurora Swithenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad. Bradley Shuster: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio and strong financial results. Our lenders and their borrowers continued to turn to us for critical down payment support. And in the third quarter, we generated $13 billion of NIW volume, ending the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. In Washington, our conversations remain active and constructive, and there continues to be broad recognition in D.C. of the unique and valuable role that the private mortgage insurance industry plays, offering borrowers low-cost down payment support and access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk and loss in a downturn and ultimately ensure the safety and soundness of the conventional mortgage market. National MI and the broader private mortgage insurance industry have never been stronger or better positioned to provide this critical down payment support than we are today. And we're excited to continue working with Director Pulte, other members of the administration and the leadership teams of Fannie and Freddie to advance their important goal of helping more Americans than ever unlock the dream of homeownership. With that, let me turn it over to Adam. Adam Pollitzer: Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the third quarter, delivering significant new business production, consistent growth in our insured portfolio and strong financial results. We generated $13 billion of NIW volume and ended the period with a record $218.4 billion of high-quality, high-performing primary insurance-in-force. Total revenue in the third quarter was a record $178.7 million, and we delivered GAAP net income of $96 million or $1.22 per diluted share and a 15.6% return on equity. Overall, we had a terrific quarter and are confident as we look ahead. The macro environment and housing market have remained resilient through an extended period of headline volatility. Our lender customers and their borrowers continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends and furthered by the recent improvement in mortgage rates. We have an exceptionally high-quality insured portfolio covered by a comprehensive set of risk transfer solutions and our credit performance continues to stand ahead. We're delivering consistent growth in embedded value gains in our insured book, and we continue to manage our expenses and capital position with discipline and efficiency, building a robust balance sheet that's supported by the significant earnings power of our platform. Taken together, we see a clear opportunity for continued outperformance. Notwithstanding these strong positives, however, macro risks do remain, and we've maintained a proactive stance with respect to our pricing, risk selection and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we remain encouraged by the continued discipline that we see across the private MI market. Overall, we had a terrific quarter, delivering strong operating performance, consistent growth in our insured portfolio and strong financial results. We're in the market every day with a clear mandate and purpose offering a low-cost, high-value solution that helps borrowers bridge the down payment gap and meaningfully reduces the cash required at the closing table. In the process, we help to make homeownership more affordable and achievable for millions of Americans and communities across the country with coverage that works to insulate the GSEs and taxpayers from risk and loss in a downturn. Looking ahead, we're well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. With that, I'll turn it over to Aurora. Aurora Swithenbank: Thank you, Adam. We again delivered standout financial results in the third quarter. Total revenue was a record $178.7 million, GAAP net income was $96 million or $1.22 per diluted share and return on equity was 15.6%. We generated $13 billion of NIW and our primary insurance-in-force grew to $218.4 billion, up 2% from the end of the second quarter and 5% compared to the third quarter of 2024. 12-month persistency was 83.9% in the third quarter compared to 84.1% in the second quarter. Net premiums earned in the third quarter were a record $151.3 million, compared to $149.1 million in the second quarter and $143.3 million in the third quarter of 2024. Net yield for the quarter was 28 basis points, consistent with the second quarter. Core yields, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34.2 basis points also unchanged from the second quarter. Investment income was $26.8 million in the third quarter compared to $24.9 million in the second quarter and $22.5 million in the third quarter of 2024. Total revenue was a record $178.7 million in the third quarter compared to $173.8 million in the second quarter and $166.1 million in the third quarter of 2024. Underwriting and operating expenses were $29.2 million in the third quarter compared to $29.5 million in the second quarter. Our expense ratio was a record low 19.3% in the quarter, highlighting the significant operating leverage embedded in our business and the success we have achieved in efficiently managing our cost base. We have a uniquely high-quality insured portfolio and our credit performance continues to stand out. We had 7,093 defaults at September 30 compared to 6,709 at June 30, and our default rate was 1.05% at quarter end. Claims expense in the third quarter was $18.6 million compared to $13.4 million in the second quarter, reflecting normal seasonal activity and the continued growth and seasoning of our portfolio. GAAP net income for the quarter was $96 million and diluted earnings per share was $1.22. Adjusted net income was $95.7 million, and adjusted diluted EPS was $1.21. Total cash and investments were $3.1 billion at quarter end, including $148 million of cash and investments at the holding company. Shareholders' equity at September 30 was $2.5 billion and book value per share was $32.62. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $33.32, up 4% compared to the second quarter and 16% compared to the third quarter of last year. In the third quarter, we repurchased $24.6 million of common stock, retiring 628,000 shares at an average price of $39.13, through quarter end, we've repurchased a total of $319 million of common stock, retiring 11.3 million shares at an average price of $28.25. We have [ 256 million ] of repurchase capacity remaining under our existing program. At quarter end, we reported $3.4 billion of total available assets under PMIERs and $2 billion of risk-based required assets. Excess available assets were $1.4 billion. Overall, we achieved standout financial results during the quarter, delivering consistent growth in our high-quality insured portfolio, record top line performance and expense efficiency and strong bottom line profitability and returns. With that, let me turn it back to Adam. Adam Pollitzer: Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our high-quality insured portfolio and stand out financial results. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success drive growth in our high-quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions. Operator: [Operator Instructions] Our first question today is from Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. As I look at new defaults in the quarter, it was up only about 5% year-over-year, that's a noticeable step down from the pace of year-over-year increases that you've seen in the last kind of 10 quarters. So maybe just any color on kind of what happened in the quarter? And as we kind of look forward, how should we expect kind of new defaults kind of emerge like when we factor in kind of seasoning and everything? Adam Pollitzer: Yes. Terry, good question. Look, I'd say broadly speaking, we're still greatly encouraged by the performance of our portfolio overall including the trends, obviously, in the default population. The impact of seasonality coming through this year was a bit more muted, which is encouraging. I think we trace that to a few things, right? We got broad resiliency that we've seen in the macro environment, and so that continues to set a favorable backdrop. We have an incredibly high-quality insured book and our existing borrowers, broadly speaking, remain well situated, and we're seeing that continue to translate through to our credit experience. The increase in our default experience that you noted some amount of that traces to seasonality, right? We tend to see seasonally a seasonal uptick in default experience as we roll through the second half of the year, and some portion of it traces to what we've talked about for a while now the seasoning, just the natural growth and seasoning of our book. As we look forward, we do expect that seasonality will continue to come through, and so we'll see an additional impact seasonally in Q4. And we do also expect that as we roll forward over the longer term, we'll continue to see that normalization in our credit experience but overall, we're delighted with how our portfolio is performing. It's exceptionally high quality, and we're encouraged by the trends that we saw in the third quarter and really year-to-date. Terry Ma: Got it. That's helpful. And then maybe just any color on the competitive environment. There has been some rumblings about a potential new entrant, so any color on kind of how to think about how the dynamic may or may not change like if there was a new entrant into the MI market. Adam Pollitzer: Yes. Yes. It's -- I'd say, look, it's not necessarily new. I think there's been periodic chatter about new market entrants over the years. and we're aware of the latest effort that's out there. But I'd say we, perhaps more than anybody else know the challenges and difficulties that come with building a private MI business, it is not easy at all, right? It's really hard to raise the capital. It's really hard to build an MI specific operating platform. It's really hard to hire the right team to sign up customers, earn their trust and also manage through an extended J curve to get to a point of profitability. And when we look at things, say, today versus when we got our start back in 2011, the market is at a very different point today. And so today, there is no clear need in the market, right? At this point, the 6 incumbent MI players are all serving the market incredibly well. We're showing up every day for lenders and their borrowers. We've got ample capacity to support their origination volume. We've got their trust we're offering, I think, broadly speaking, fair and valuable solutions for every borrower that comes through our market, and so it's difficult to know obviously exactly where things land. We don't know what will happen with the latest rumors. But say, it's a very high bar, right? It takes a lot of capital, a very large amount of capital to fund the PMIERs compliance business. And if we were controlling first strings and thinking about making an investment in a new entrant ourselves, I'd say we'd be highly skeptical that now is the right time to do that, given all the challenges that we would see for anybody who came into the market today. And that's not because the market itself is challenges because the market is doing so well in the 6 companies that are there today are performing so well. So we'll see, ultimately, if somebody new came in, everybody -- the market will adapt around it. But I think going from discussions to actually having a fully funded, capitalized approved entity, that's a pretty wide gulf. Operator: Next question is from Bose George with KBW. Bose George: Can you give us an update on what you're seeing in terms of the strength of the consumer? Also just any housing markets that you're keeping an eye on where -- in terms of home prices or other signs of potential weakness. Adam Pollitzer: Sure. Yes. Good question. Look, I'd say broadly speaking, I noted in our prepared remarks, but we've been encouraged by the broad resiliency that we're seeing in the economy and the housing market for a while now. Headline unemployment remains low, inflation is cooled, consumers broadly speaking, are still spending businesses or continuing to make significant investments. The equity market is continuing to set new highs. And so the overall picture today is an encouraging one. But for us, obviously, it's not just about today. It's also what comes tomorrow. And so we always think about risks that might be on the horizon. And so when we parse through the data, I think we can all see it on the macro side, there are signs in the labor market of some degree of strain emerging. We're not seeing unemployment increase, and we don't have government data for the last little while, but there are certain private data points that we can look at. So we don't see unemployment increasing, but certainly, the pace of new hiring activity has slowed. I think consumer confidence is down, particularly amongst certain borrower cohorts, and there's broad talks of -- I think we're terming it a K-shaped recovery. So we'll see what I'd say from our vantage point, it's still a really encouraging and resilient backdrop those macro and housing market but we're always focused on what might come. And then Bose, I think you asked a question about geos. And so yes, we've talked for a while now that there are certain geographies, Florida, Texas, the Sunbelt, Mountain West where we're seeing some -- either a declining pace of house price appreciation or a turn in prices with inventory building. And that's still the case. Those same markets, there's nothing new, the pressure isn't new, but we're still seeing, when we look at the world, those markets that have been soft for a little while now continue to show signs that they're soft, and we see continued strength, though, in the Northeast and the Midwest. Bose George: Okay. Great. That's helpful. And then actually just in terms of the reinsurance markets, can you just talk about what you're seeing there? Also, just I guess you guys are more active on the XOL side, just in terms of execution, like why there versus more on the ILN side? Aurora Swithenbank: Sure. In terms of what we're seeing in the reinsurance market, reinsurance markets remain very robust, and we look at the pricing achieved by some of our competitors in the marketplace year-to-date, it's the best pricing that's ever been achieved. If we wind the clock back to 2024, we placed full XOL and quota share coverage for 2025, 2026 and a portion of the 2027 year with respect to the quota share. So we have a really nice runway in terms of our locked-in capacity in the traditional reinsurance market. So you may recall that in the third and fourth quarter of the year, the back part of the year, we typically engage with our reinsurance partners and talk about the opportunity to lock in further coverage for forward years or to optimize the coverage that we have in place. And so you may imagine, we're engaged in those discussions currently. And -- but again, it's a very strong reinsurance market backdrop leading into those conversations. And with regards to ILN versus XOL, we like both of those markets. Both of them have been very good sources of capital for us as a company. Recently, we have been more biased towards the traditional reinsurance market. In particular, because it offers that forward coverage, which isn't available in the debt capital markets. And so that's been our recent preference just from a cost flexibility and speed of execution perspective. But we like both of those markets. And I think you should expect us in the fullness of time to be active across all different markets. Operator: The next question is from Mark Hughes with Truist. Mark Hughes: Yes. the core yield, it's been holding pretty steady at 34 basis points. Is that a good run rate here? What moves that 1 way or the other in the kind of the near to medium term? Aurora Swithenbank: Sure. I'm happy to start out here. It has been very stable, and that's obviously been supported by the tremendous persistency that we've had in the book and continue to have in the third quarter. So again, we would -- we don't give forward guidance, but given the strength of the in-force book, we would expect that plus/minus that kind of number for the core yield will be good. Obviously, the net yield is influenced by claims expense in the quarter and how that runs through our reinsurance contracts. Mark Hughes: And then any thoughts about the impact on persistency if we do see interest rates drop, that would be great from a new business perspective, a lot of purchase activity would ramp up presumably, but you get a lot of refi. How would you see the puts and takes if kind of you get a refi-ed market? And then if you can get multiple rounds of it, given the -- where recent borrowers have been borrowing at. Adam Pollitzer: Yes. So I think as you termed it, there's both puts and takes. Our persistency was 83.9% in the third quarter, and as we noted, again, helped to drive continued growth in embedded value gains in our insured portfolio. Overall, our portfolio is broadly well situated because we've got a 5.2% weighted average note rate underpinning our exposure at quarter end. But it's not even, obviously, across the entirety of our book. There are vintages parts of our in-force that have greater degrees of refi sensitivity, and where we will likely see an uptick in some prepayment speeds given the recent moves in rates, that's going to be natural, right? So that's the put. The take, as you noted, though, is, one, some portion of the borrowers in our portfolio who will benefit from a refinancing today or very likely to still need MI coverage because while HPA has generally trended higher, it's trended higher at a normal, not record pace. And so there's an opportunity to see penetration of refinancing origination activity grow if there were -- if we saw an uptick in overall refi activity. As you noted, look, if rates lag down, to the point where we see a more pronounced pressure on persistency, we'd also expect to see a benefit in new business activity, NIW volume, bringing prospective buyers purchase demand off the sidelines. And the 1 other 1 to note is there's a potential knock-on benefit from a credit experience standpoint, to a refinancing cycle, right? If we see refinancings accelerate, it's most likely just because of where the underlying note rates are that, that will come from our more recent vintages. And those are the vintages that we're looking at for that normalizing credit experience. If those vintages begin to turn over, it will take -- it will extend that normalization cycle from a credit performance standpoint. Mark Hughes: Appreciate that. And then were there any onetimers in the expense ratio is obviously, as you say, a record number. Anything nonrecurring there? Or is that a good run rate? Aurora Swithenbank: I'd say, with regard to the expense ratio, there was nothing in particular that I'd point out in the quarter. And if you look at the raw dollars, it's within a couple of hundred thousand dollars of what we spent last quarter. And so there are a few positives and negatives, but again, nothing of note. I would say if you're looking forward, typically, the second and third quarter are lightest in terms of expenses and the fourth, and then the first quarter tend to be heavier just in terms of both dollars of expense and also the ratio goes up during those quarters. And in the fourth quarter, that typically results from the accrual of some of our people-related expenses. So that's the only thing that I would note with regard to the fourth quarter. Operator: The next question is from Rick Shane with JPMorgan. A.J. Denham: This is A.J. on for Rick. So if rates fall in refis do start to tick up, is there anything kind of proactive you can do to recapture MI on more of those loans? Could you maybe just walk through your playbook sharing your early experience you've had there? Adam Pollitzer: Yes. So I'd say on the margin, there are things that you might try to do. But more broadly, the most important piece of the playbook is to be everywhere in the market and be offering valuable solutions for our customers to be plugged in with as many lenders as possible and so that we could serve their borrowers. We've noted for a while that 1 of the unique attributes that we have to our benefit is that our share of the new business environment is larger than our share of industry insurance-in-force. So to the extent that there is some amount of industry insurance-in-force that's in motion because it's refinancing, but still needs MI coverage. We have an opportunity, we think, to capture a little bit more of that than we will necessarily lose. And so that's not a strategy per se, it's just where the numbers are. But the real strategy behind it is make sure that we are connected to our customers that we're offering them valuable solutions that were present for their borrowers across all markets so that, that business that is potentially in motion is a business that we can capture. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Adam Pollitzer: Thank you again for joining us. We look forward to speaking with you again soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Exelixis' Third Quarter 2025 Financial Results Conference Call. My name is Sherry, and I'll be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed. Susan Hubbard: Thank you, Sherry, and thank you all for joining us for the Exelixis' Third Quarter 2025 Financial Results Conference Call. Joining me on today's call are Mike Morrissey, our President and CEO; and Chris Senner, our Chief Financial Officer; Dana Aftab, our Executive Vice President of Research and Development; and P.J. Haley, our Executive Vice President of Commercial, who will review our progress for the Third Quarter 2025 ended October 3, 2025. During the call today, we will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to today's press release, which is posted on our website for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding discovery, product development, regulatory, commercial, financial and strategic matters, potential growth opportunities and government drug pricing policies and initiatives. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the SEC, which, under the heading Risk Factors, identify important factors that cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitations, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaborative partners and the level of cost associated with discovery, product development, business development and commercialization activities. And with that, I'll turn the call over to Mike. Michael Morrissey: All right. Thank you, Susan, and thanks to everyone for joining us on the call today. Exelixis had a strong third quarter, building on our progress from the first half of 2025. Accelerating R&D momentum coupled with flawless commercial execution has the potential to transform our business as we bring new treatment options to patients and build value for shareholders. The entire Exelixis team is committed to building a best-in-class multi-franchise oncology business, and all corporate activities are aligned on a single focus to improve the standard of care for patients with cancer. Our future success will be accelerated by increasing the number of cancer patients served with current and future Exelixis medicines and the impact we have on their disease. The cabozantinib business has never been stronger and we're pleased to see zanzalintinib move to center stage with our first big clinical success in CRC. Key highlights for the third quarter include: first, continued robust performance of the cabozantinib U.S. business with strong growth in demand and revenue from our commercial activities, cabozantinib maintained its leadership position as the top TKI for RCC and importantly, shows consistent growth in the first-line segment. U.S. Cabo franchise net product revenues grew approximately 14% year-over-year to $543 million in the third quarter 2025 compared to $478 million in the third quarter of 2024. Global Cabo franchise and their product revenues generated by Exelixis and our partners were approximately $739 million in the third quarter of 2025 compared with $653 million in the third quarter of 2024. We're excited by the broad adoption of cabo for the recently approved net indications and have already built a leading position in the oral second-line plus NET segment with a greater than 40% new patient share based on market research. Cabo demand in neuroendocrine tumors grew about 50% and contributed approximately 6% of our third quarter business. With the strong foundation, we expect to exceed $100 million in revenue for the net indication in 2025. Based on our early success in the net launch, and with other GI opportunities on the horizon, we're expediting the full build-out of our GI sales team starting in fourth quarter 2025 to accelerate the growth of the CABINET indication before zanza comes to the forefront. We think this enhancement could be an important component of our growth narrative in 2026 and speaks to the confidence we have in both cabo and zanza as we closed out 2025. P.J. will provide more information and commentary about our third quarter franchise performance and encouraging dynamics of the net launch in his prepared remarks. Second, zanzalintinib is rapidly advancing as our next oncology franchise opportunity and the focus of seven ongoing and soon to start pivotal trials. We've continued to prioritize zanza with existing and new indications and combinations as potentially the most promising and expeditious path to a second Exelixis oncology franchise and one that we believe can eclipse the size, scope and impact of our cabozantinib business. Importantly, we're engaged in numerous clinical trial discussions for zanza that could expand the scope and reach of our zanza pivotal trial efforts. We're thrilled with the positive results for STELLAR-303 and CRC and intend to file in this indication with regulators as quickly as possible. We understand the nuances of the CRC market in the U.S. and believe we can effectively navigate the intricacies of this complicated disease and the current competitive dynamics pending approval. I'll remind everyone of the important messages from the full data set presented at ESMO and published simultaneously in Lancet. Zanza in combination with atezo, but to the first clinical success in a non-MSI-high third-line plus CRC population when compared against a contemporary standard of care. I want to reiterate that four other checkpoint containing regimens failed to achieve this goal. Market research underscores that late-line CRC patients are interested in utilizing immune checkpoint inhibition to attack the disease head on. So the zanza-atezo combo could represent a meaningful advance. The absolute magnitude of the overall survival benefit in the ITT population with the zanza-atezo combination is notable, especially in the context of the offering the potential of a non-chemo containing regimen. We're especially pleased with the magnitude of benefit in patients with prior bevacizumab treatment since the vast majority of CRC patients in the U.S. received bevacizumab as part of their first and/or second line treatment regimens. Tolerability and safety of the zanza-atezo combination is consistent with other TKI checkpoint combinations. The 303 trial continues to include survival events in the non-liver met subgroup and we expect to trigger the final analysis for non-liver met patients in midyear 2026. And again, as you'll hear from Dana, seven ongoing and new zanza pivotal trials are in the queue to address important unmet medical needs for known and new indications across multiple lines of therapy. The Exelixis early-stage pipeline continues to progress quickly with a range of new and potentially differentiated biologics and small molecules heading into and through early clinical evaluation. Dana will highlight these activities today at a high level, and you can expect additional details on these efforts along with our zanza pivotal trial update at our upcoming R&D Day on December 10. Finally, we continue to carefully manage capital allocation while advancing our R&D and commercial priorities. Our balance sheet and expected free cash flows remain strong and provide us with the opportunity to advance our pipeline priorities while we return cash to shareholders. We plan to repurchase shares when we believe they are undervalued, and we're pleased that we have been authorized to repurchase an additional $750 million of our shares. So with that, please see our press release issued an hour ago for our third quarter 2025 financial results and an extensive list of key corporate milestones achieved in the quarter. And I'll now turn the call over to Chris. Christopher Senner: Thanks, Mike. For the third quarter of 2025, the company reported total revenues of approximately $598 million, which included cabozantinib franchise NET product revenues of approximately $543 million. CABOMETYX net product revenues were approximately $540 million. Gross net for the cabozantinib franchise in the third quarter 2025 was 30.4%. During the quarter, we experienced higher deductions from revenue related to 340B discounts offset by lower Medicare and co-pay assistance expenses. We continue to project that our gross to net for the cabozantinib franchise will be approximately 30% for the year. Trade inventory at the end of the third quarter, 2025 was approximately 2 weeks on hand, which was lower when compared to the second quarter of 2025. Total revenues also included approximately $54.8 million in collaboration revenues, which includes approximately $46.3 million in royalties earned from our partners, Ipsen and Takeda on their sales of cabozantinib in their respective territories. Our total operating expenses for the third quarter of 2025 were approximately $361 million compared to $355 million in the second quarter of 2025. The sequential increase in these operating expenses was primarily driven by a $19.8 million restructuring charge we took during the third quarter. The increase in restructuring expense was partially offset by lower SG&A expenses. Provision for income taxes for the third quarter of 2025 was approximately $58.8 million compared to a provision for income taxes of approximately $45.6 million for the second quarter of 2025. The company reported GAAP net income of approximately $193.6 million or $0.72 per share basic and $0.69 per share diluted for the third quarter of 2025. The company also reported non-GAAP net income of approximately $217.9 million or $0.81 per share basic and $0.78 per share diluted. Non-GAAP net income excludes the impact of approximately $24 million of stock-based compensation expense net of related income tax effect. Cash and marketable securities for the quarter ended September 30, 2025, were approximately $1.6 billion. During the third quarter of 2025, we repurchased approximately $99 million of the company's shares, resulting in the retirement of approximately 2.4 million shares at an average price per share of $41.69. As of the end of the third quarter 2025, we had approximately $105 million remaining under the $500 million stock repurchase plan authorized by the company's Board in February 2025. On October 31, 2025, the company's Board authorized an additional share repurchase program totaling $750 million that expires at the end of 2026. We are updating our full year 2025 financial guidance, which is detailed on Slide 14 of our earnings presentation. We are narrowing our total revenue and net product revenue guidance to the upper end of our previously provided guidance ranges. We are projecting that total revenue will be between $2.3 billion and $2.35 billion, and our net product revenue will be between $2.1 billion and $2.15 billion. We are tightening our cost of goods guidance to be approximately 4% of net product revenues. We are lowering our R&D expense guidance range by $75 million to $850 million to $900 million. We are tightening our SG&A expense guidance range to be between $500 million and $525 million. And finally, we are lowering our full year effective tax rate guidance to be between 17% and 18%. With that, I'll turn the call over to Dana. Dana Aftab: Thanks, Chris. First, I'd like to start by saying how excited I am to be leading the R&D organization. The energy and engagement across R&D is super high right now and the momentum that carried us into and through ESMO is continuing to drive our teams with an emphasis on execution and collaboration. Our focus in R&D is on maximizing the opportunities for our portfolio, including zanzalintinib and our earlier-stage pipeline of promising small molecules and biotherapeutics. As I mentioned, we have a lot of momentum coming out of ESMO, primarily driven by our presentation of the results from the STELLAR-303 trial comparing the combination of zanzalintinib plus atezolizumab versus regorafenib in patients with non-microsatellite instability high or non-MSI high colorectal cancer who have received multiple prior therapies. As a brief reminder, the trial has dual primary endpoints designed to assess survival outcomes more broadly in the intention to treat or ITT population and more specifically in the population of patients without liver metastases, which we refer to as the NLM patients or population. The study met one of its dual primary endpoints, demonstrating a 20% reduction in the risk of death with the combination in the ITT population at the final analysis with a stratified hazard ratio of 0.80, a 95% confidence interval of 0.69 to 0.93 and a p-value of 0.0045. At a median follow-up of 18 months, the median overall survival in the ITT population was 10.9 months with the combination of zanza plus atezo versus 9.4 months with rego. The survival benefit with the combination was demonstrated early and was consistent throughout the Kaplan-Meier curve. The overall survival benefit with the zanza plus atezo combination was observed across all pre-specified subgroups with similar hazard ratios observed in key subgroups, including liver involvement, prior treatment with anti-VEGF therapy, geographic region and RAS mutation status. Data pertaining to the other dual primary endpoint of overall survival in the NLM population were immature at the data cutoff, but a prespecified interim analysis showed a trend in overall survival favoring the zanza plus atezo combination with a median of 15.9 months with the combination and 12.7 months with rego. With a median follow-up of 16.8 months, the stratified hazard ratio for this analysis was 0.79 with a 95% confidence interval of 0.61 to 1.03 and a p-value of 0.0875. The trial will proceed to the planned final analysis for this endpoint, which our current projections indicate will be triggered around midyear 2026. The safety profile of the combination was consistent with other TKI/IO combinations with no new safety signals. And finally, we were thrilled to have the trial results published in the Lancet simultaneously with the ESMO presentation. Needless to say, we are very excited about these results, which are highly impactful for a number of reasons. First, prior to the STELLAR-303 readout, there were 4 Phase III clinical trials in colorectal cancer that evaluated immunotherapy-containing regimens, all of which failed to show an overall survival benefit versus the standard of care in non-MSI-high patients, which comprise 95% of the overall colorectal cancer population. As the first and only Phase III trial to show an overall survival benefit compared to a standard of care in these patients, we believe STELLAR-303 demonstrates clear clinical differentiation of zanza from other TKIs and IO partners investigated in this space. As a reminder, in addition to VEGF receptors, zanza simultaneously targets the TAM kinases and MET, which have been shown in preclinical models to drive the ability of tumors to evade antitumor immunity. We believe this differentiated mechanism of action is a key factor in the clinical differentiation of zanza compared to other kinase inhibitors investigated in this space and really underscores the franchise potential for zanza. Second, it's certainly worth noting that to date, no other regimen has demonstrated a higher median overall survival in this setting. Again, in STELLAR-303, the combination of zanza plus atezo showed median overall survival values of 10.9 months in the ITT population and 10.5 months in patients who had received prior bevacizumab. And while we are conscious of the caveats associated with cross-trial comparisons, it's relative to observe that prior to STELLAR-303, the SUNLIGHT trial showed median overall survivals for TAS-102 plus bev of 10.8 months in the ITT population and only 9 months in the bev pretreated population. We believe these are important data points to note, given that the majority of patients in the U.S. are receiving bev in earlier lines of treatment. And last but not least, being an immunotherapy-containing chemo-free regimen, if approved, zanza in combination with atezo could be an opportunity to switch mechanisms to a TKI/IO regimen after receiving chemo plus bev, which we have heard from investigators and key opinion leaders is an important potential choice for patients. Thus, we certainly believe that the combination of zanza plus atezo has the potential for a very meaningful impact in this high unmet need population. That conviction has been driving our internal teams to work nonstop preparing for a potential NDA filing, which we intend to submit this December, pending the government reopening for business. We also intend to complete data collection and analysis for the dual primary endpoint of overall survival in the NLM population, which we anticipate will occur around midyear 2026. Moving on to STELLAR-304. This is our pivotal study evaluating the combination of zanza plus nivolumab versus sunitinib in patients who have not yet received systemic therapy for their locally advanced or metastatic non-clear cell renal cell carcinoma. Based on the current event rate, we are anticipating top line results around midyear 2026. And if positive, those results could lead to the second NDA filing for zanzalintinib. Regarding other clinical development activity for zanza, earlier this year, we initiated STELLAR-311, our Phase III trial evaluating zanza compared to everolimus as a first oral therapy in patients with neuroendocrine tumors, and that study is proceeding on schedule. Progress also continues with regard to the Phase II umbrella study being conducted by Merck in which the combination of zanza plus belzutifan is being evaluated in patients with previously treated metastatic RCC and two pivotal studies that Merck is running in clear cell renal cell carcinoma, evaluating zanza in combination with belz, and we anticipate these studies could start near the end of this year. Regarding the next wave of pivotal studies for zanza, we expect to start two additional trials in 2026, one focused on patients with recurrent meningioma and one specifically investigating the adjuvant setting in colorectal cancer, where patients have been treated with surgery and chemotherapy but have a high risk of recurrence. Given the demonstrated clinical differentiation we've seen with zanza and its potential to be the TKI of choice for combinations with IO, we're continuing to assess the landscape for additional opportunities for zanza development, and we look forward to sharing more details of these important opportunities as we get closer to launching the trials. Now shifting to our earlier -- early clinical pipeline. We have four molecules in this space that are currently in clinical development, namely XL309, XB010, XB628 and XB371. And the Phase I studies for these early molecules are progressing well. In terms of new development candidates, we are continuing to advance exciting new small molecule and ADC programs, and I look forward to sharing more details about our early pipeline programs at the R&D Day event we're planning for December 10 this year. So with that, I'll turn the call over to P.J. P. Haley: Thank you, Dana. The CABOMETYX business remained strong in the third quarter of 2025. And importantly, the launch in neuroendocrine tumors is off to a great start. Cabo continued to show growth in terms of revenue, demand and new patient starts and notably performed well relative to the competition. The team continued to execute at an extremely high level with CABOMETYX continuing to be the #1 prescribed TKI in renal cell carcinoma as well as the #1 TKI plus IO combination in first-line RCC. The prescription data in the oral TKI market basket of cabo, lenvatinib, axitinib, sunitinib and pazopanib convey the strength of cabo relative to the competition. Looking at the TRx comparison of Q3 2024 to Q3 2025, CABOMETYX grew 4 share points from 42% to 46%. Importantly, CABOMETYX was the only product in the market basket to grow market share year-over-year. CABOMETYX TRx volume grew 21% in Q3 2025 relative to Q3 2024, outpacing the growth rate of the market basket, which was 13%. Importantly, CABOMETYX RCC business remains strong and continues to grow. The new indications for previously treated NETs are providing our experienced sales team great access to customers, and we're able to discuss both the CABINET data as well as the RCC CheckMate -9ER 5-year follow-up data with relevant physicians. The 9ER data presented at ASCO GU in February resonate with RCC space and help our team continue to drive differentiation from the competition in first-line RCC. In fact, CABOMETYX plus nivolumab first-line new patient market share in the third quarter was the highest it has ever been. This momentum bodes well for future growth in terms of new patient starts and total demand as more first-line patients receive incremental refills and volume as we look forward into 2026. Turning to neuroendocrine tumors. Our market research and feedback from customers demonstrate that prescribers are excited for a new treatment option for their neuroendocrine tumor patients, the first broadly applicable new oral small molecule therapy in 9 years. Physicians are responding positively to the broad net label in the contemporary trial design and perceive the efficacy and tolerability of the cabo data as favorable relative to the other small molecule therapies in the space. Prescribers are using cabo broadly across patient and tumor characteristics, including patients with neuroendocrine tumors arising in the pancreas, GI tract and lung across all tumor grades, functional and SSTR status and those who have received prior treatment with Lutathéra. The recent ESMO presentation of the lung subset data from the CABINET study continues to elucidate the cabo data in a segment of patients accounting for approximately 20% of NET who have a high unmet need, many of which test SSTR negative. Turning to new patient market share for second-line plus neuroendocrine tumors in Q3. We are pleased that CABOMETYX has rapidly become the market leader in this segment with greater than 40% new patient share for oral therapies. This share is very encouraging so early in the launch, and we believe that new patient share should continue to increase. Over time, as more patients start therapy with cabo and receive refills, we believe demand will continue to grow. Neuroendocrine tumor demand contributed approximately 6% of total demand for cabo in Q3, and we expect that contribution to increase going forward. Demand in neuroendocrine tumors increased by over 50% in Q3 relative to Q2. Finally, market research continues to indicate that CABOMETYX is viewed as the best-in-class oral therapy in neuroendocrine tumors. This perception is typically a leading indicator of prescribing behavior and gives us confidence that CABOMETYX new patient market share will continue to increase in coming quarters. This research finding aligns well with the anecdotal feedback our experienced sales team is receiving from their customers, many of whom are saying they will prescribe cabo for their NET patients once they progress and need a different systemic therapy. Taken together, the data and customer feedback give us a high degree of confidence in the growth of CABOMETYX in neuroendocrine tumors. If we look at the cabo neuroendocrine tumor business, the revenue for 2025 is vectoring towards exceeding $100 million. This trajectory, taken together with the market uptake and enthusiasm provides great momentum for the business heading into 2026. As we think about building on and expanding our GI franchise, we are thrilled with the results of STELLAR-303. Pending regulatory approval, we believe that these data will provide Exelixis with a compelling commercial opportunity in colorectal cancer, one of the big four tumors. Many physicians cite the availability of an immune checkpoint inhibitor for a broader population is important for their patients. They also view zanza as differentiated given the data and the fact that the combination of zanza plus atezo was successful in a cold tumor where other TKI plus ICI combinations have failed. With all the appropriate caveats for cross-trial comparisons, the median OS for zanza of 10.9 months is on par with Lonsurf plus Avastin bevacizumab from the SUNLIGHT study. However, in the SUNLIGHT study, patients who had received prior bev had a median OS of only 9 months. The bev pretreated group will be relevant for the U.S. population as approximately 75% of patients have received bev before reaching the third-line setting, and most of these patients have received bev in both the first- and second-line settings. Exelixis has had numerous successful launches with cabo. We are excited to expand on the commercial capabilities we have built over the last decade and to build on our GI franchise, where we already have experience in hepatocellular carcinoma and neuroendocrine tumors. As you know, we already have a significant GU presence. And for zanzalintinib, we would envision growing our GI infrastructure to a size and scale similar to our GU team. As Mike mentioned, we are expediting the build-out of our GI sales team as we see a great opportunity to continue to drive growth in the NET indication. Additionally, having a full GI team in place will provide important experience selling cabo as well as forming relationships with accounts to be ready for zanza. The incremental sales representatives will enable us to have greater reach in the community setting, which is a segment where our team has typically excelled. This build-out speaks to our confidence and excitement of CABOMET opportunity as well as zanzalintinib. In closing, we are pleased with the cabo business, both in RCC and NETs. In neuroendocrine tumors, prescribers see CABOMETYX as a more favorable choice versus other previously approved small molecule therapies. Additionally, the competition in the oral segment of the NET market are generic therapies, which puts CABOMETYX at a significant advantage with a full commercial organization energized and supporting the launch. All of this taken together drives our conviction that the NET market will be a substantial opportunity for the CABOMETYX business. We are pleased that CABOMETYX plus nivolumab has achieved the regimen with the highest market share ever in first-line RCC setting as this sets up the brand for continued growth in kidney cancer. And with that, I will turn the call back over to Mike. Michael Morrissey: All right. Thanks, P.J. We will wrap up here with a big shout out to the Exelixis' team to thank everyone for helping make our third quarter so successful. I'm pleased to see our collective commitment, focus and urgency continue at a high level as we advance our priorities across discovery, development and commercial activities. On a personal note, after more than 35 years in the biopharma industry, Susan Hubbard, our EVP, Public Affairs and Investor Relations, has decided to retire to pursue her passions outside of her profession. We are incredibly fortunate that Susan joined us in 2014 with her depth of experience and broad expertise in both clinical and commercial. She provided strong leadership and guidance to help us navigate all the twists and turns we've encountered over the years as we grew into the company we are today. And I personally, again, I'm very grateful for Susan as she's been my go-to thought partner for framing the Exelixis' narrative to all our various stakeholders, and we wish her all the best. Susan will be with us through the end of the year, and I'm confident our Investor Relations and public affairs teams are well equipped for the future. Moving forward into 2026, Andrew Peters, currently Senior Vice President, Strategy, will add Investor Relations to his responsibilities reporting to Chris Senner. This is a natural move for Andrew, who joined Exelixis in 2018 following 12 years as a biopharma equity research analyst. To both Susan and Andrew. So we'll close here, and we look forward to updating you on our progress in the future, and thank you for your continued support and interest in Exelixis. And we're happy to now open the call for questions. Operator: [Operator Instructions] And our first question will come from the line of Silvan Tuerkcan with Citizens. Silvan Tuerkcan: Congratulations on all the progress. Maybe if you could just summarize the post-ESMO feedback that you had on the zanzalintinib results and how they match up with those points that you unveiled today regarding how you plan to position this product in the market. Michael Morrissey: Yes. Thanks, Silvan. Yes, P.J., do you want to start with that one and then maybe Dana and I can provide some color commentary as needed. P. Haley: Sure. Thanks for the question, Silvan. We've conducted extensive market research with the data that was presented at ESMO, which has really been very positive. Physicians are seeing the overall survival benefit as very important. They're certainly seeing the fact that we're bringing an IO to bear in one of the biggest tumors, one of the big four tumors, as I said, where IO hasn't been available where TKI plus IO has filled in the past is also very important to physicians as well as the fact that this is a chemo-free option. So what we've seen, as I think about this market, and as we see the market now, it's a very fragmented market. As you look at it, about 1/3 of the market is Lonsurf-bev, 1/3 of the third line plus market is TKI and the final 1/3 of that market is really sort of a smattering of different chemos as well as various targeted therapies. So fragmented market really is one that provides opportunity should we be approved in the setting. And our market research clearly indicates it will take market share from all the competitors in the space. So that's been certainly very positive as well. And as I mentioned, we're excited to build out our GI franchise capabilities, our sales team as we're -- the NET launch is going well. This gives us the opportunity to reach further in the community and continue to drive uptake in NET as well as to be really fully prepared and optimized should we have the opportunity to launch zanza in the near future. So just very exciting all around. Operator: One moment for our next question. And that will come from the line of Sean Laaman with Morgan Stanley. Unknown Analyst: This is Catherine on for Sean. We had one looking at zanza and nccRCC ahead of the readout for STELLAR-304 in midyear '26, could you help provide more color on why sunitinib is the right control given the various histologic subtypes that make up this population? Dana Aftab: Thanks for the question. This is Dana. Yes, so the comparator in 304 is sunitinib, which is a standard of care in this setting. We think it's a highly relevant comparator, especially given the overlap in target profile with zanza. And it's used quite extensively, especially ex U.S., but a number of patients in the U.S. are also treated with this. So it's a standard of care and thus is a good comparator to go with a Phase III pivotal trial. Operator: One moment for our next question. And that will come from the line of Paul Choi with Goldman Sachs. Unknown Analyst: This is Karishma on for Paul. Congrats on the quarter. So given the performance in the STELLAR-303 initial cut of data from ESMO, help us level set expectations for the NLM cut coming out early next year? And particularly, we were interested in the idea of powering with relation to the study given that Lonsurf-bev had approximately 500 patients in their Phase III study. Can you speak to your decision to enroll roughly 900 patients in STELLAR-303 and the overall implications? Michael Morrissey: Yes, it's kind of hard to hear your question with all the background noise. So Dana, can you navigate that one. Dana Aftab: Sure. So the study started out or the prior iteration before it was had dual primary end points. It had a single primary endpoint in patients with non-liver metastases. We -- scientific rationale to look at that, especially with emerging data coming from the LEAP-017 trial and other studies showing that those patients without liver metastases seem to do better with IO. But as the trial evolves, and as we were accruing patients and events, we realized that we had an important opportunity to potentially bring the results in earlier with the ITT population, meaning with the strong contribution of events from the patients with liver metastases, it's a much poor prognosis with those patients. They -- the disease is much more aggressive. They progress faster. They achieve events for overall survival faster. So that's where we realized we really needed to change the trial so that we could get endpoints in both the non-liver mets and the full ITT population. So the result that we presented in Berlin a couple of weeks ago includes both -- it's a combined analysis of both liver mets and non-liver met the entire ITT population. That population is a little bit skewed toward non-liver mets patients in that we put a cap amount of patients with liver metastases that could enroll in the trial. So typically, a trial population that doesn't manage liver mets, the way we did, we'll be about 80% liver mets and 20% -- 20% to 30% non-liver mets, we had about 38% non-liver mets. So that's certainly changed the dynamics of the trial, but the results that we achieved was in the entire population. So as we said, because the non-liver mets progressed a little more slowly, we expect to see results in that subgroup sometime next year around the middle of next year. Operator: One moment for our next question. And that will come from the line of Asthika Goonewardene with Truist. Asthika Goonewardene: I want to offer my congratulations on both the top and bottom line growth here, which are really impressive. So I have a question on this. Merck announced LITESPARK-011 was positive and one could assume that they'll be putting effort into marketing belzu plus lenvatinib combination in second-line RCC patients. We all know that zanza is a better drug than lenvatinib, but there could be a lot of population overlap between LITESPARK-011 and the belzu/zanza cohort in [indiscernible]. So does that reduce the probability that Merck will want to pursue a pivotal second-line study with belzu and zanza? And then if I can sneak one in an extra in here. What was the clinical trial contribution for cabo sales in 3Q? Michael Morrissey: Chris, take that second question, first. Christopher Senner: Sure. So Asthika, it's Chris. There were actually -- there were no clinical trial sales in the quarter. . Michael Morrissey: And yes, it's Mike. The first question was a long drawn-out question, lots of twists and turns. We are confident that the Merck trials that we've been discussing for the last year will continue and start later this year. So I don't want to say more than that to speculate-- I don't want to speculate on other people's data, especially when there's only a press release. We're excited about that collaboration, and we'll see that moving forward. Operator: One moment for our next question. That will come from the line of Akash Tewari with Jefferies. Anastasia Parafestas: This is Anastasia on for Akash. So do you see any risk to your STELLAR-303 trial approval given that Vinay was publicly apprehensive about the usefulness of CABINET? Susan Hubbard: I'm sorry, do you mind repeating the question? I don't think we got all that. . Anastasia Parafestas: Yes, for sure. So do you see any risk to your STELLAR-303 trial, specifically its approval, given that Vinay has been publicly apprehensive about the usefulness of CABINET? Michael Morrissey: Yes. I wouldn't want to comment on that. Operator: One moment for our next question. And that will come from the line of Andy Hsieh with William Blair. Tsan-Yu Hsieh: Well, first and foremost, congrats on the illustrious Korea and the biopharma industry, you've been a mentor to so many of us and really happy for you and I'll miss working with you dearly. So my question has to do with the NET population. Obviously, a very, very successful launch. And I'm just curious, as you look forward to the zanza Phase III trial, I'm curious about the strategy in terms of navigating the potential cannibalization as cabo is being used [indiscernible] potentially entrenching in the earlier lines by setting? Michael Morrissey: P.J, go ahead. P. Haley: Yes. Thanks for the question, Andy. In terms of NET, as you mentioned, we're having -- really pleased with the launch, how it's going. I mentioned kind of 50% demand growth quarter-over-quarter, we're pleased with and certainly the broad utilization across all the relevant demographics in the population. And kind of very early innings here as we're still building new patient share and obviously, only approved at the very end of March, a lot of opportunity for these patients to get refilled and continue the business with regards to demand going forward. As we think about zanza in the long term, it's just a very different study in terms of having an active comparator, and it's really designed to position that very competitively and upfront in the market, but that's far down the road. I think in the near term, there's just so much room for cabo and NETs to really become a key player there. Operator: One moment for our next question. And that will come from the line of Sudan Loganathan with Stephens. Sudan Loganathan: Apologies if this was already asked in a different capacity. But I believe I heard that the other subgroup part of the dual primary endpoint for STELLAR-303 might only come to maturity, maybe sometime early next year. Yes with the NDA submission that you guys are planning for by year-end 2025, could we still expect like a broad label for CRC, including both subgroups to be in play? Or will there be some sort of rolling submission that needs to happen to include that cohort of the primary endpoint? And then just secondly, a follow-up, was the need for both subgroups being split up as a result of guidance from regulators to achieve having both of those non-liver mets and liver mets included on the initial label for zanza? Dana Aftab: Sure. Thanks for the question. This is Dana. So we can file and we will file based on the single hit on one of the dual primary endpoints in the ITT population. And I just want to clarify, the ITT population is not a subpopulation. It is the entire population of the trial. So that would give us, in our view, the broadest label. The NLM subgroup is a subpopulation within the trial. It's just a -- it's a second dual endpoint -- primary endpoint in the trial. So we're proceeding with our filing. And as we said, we will be -- we expect to get that in very soon,depending the government reopening for business. Operator: One moment for our next question. That will come from the line of Yaron Werber with TD Cowen. Unknown Analyst: Congrats on the quarter. This is Sarah on for Yaron. Quick question from us on your early-stage pipeline. I know you mentioned you have an R&D Day coming up, but if you could just give us a quick sneak peek of -- you now have 4 Phase I programs. Can you maybe prioritize among them, which one you expect to transition next into pivotal development? And maybe if you could speak a little bit on XB371 in particular, which is your tissue factor TOPO1-ADC. Maybe just discuss a little bit how it's differentiated from other TOPO1s. Dana Aftab: Sure. Thanks for the question. I don't want to preempt too much around what we're going to say next month. What I can tell you is that 309 and 010 -- 309 is our USP1 inhibitor, 010 is our 5T4 targeting ADC. Those have been in the clinic longer. So those have accrued more patients, obviously. XB628, our bispecific IO molecule targeting PD-L1 and NKG2A started its Phase I trial a few months ago. So that's enrolled -- that's been enrolling well. And then 371, which is, as you mentioned, the tissue factor targeting ADC with the topoisomerase 1 inhibitor payload. That is our most recent IND filing. That Phase I trial is got up and running very recently, but it's already enrolling patients. And what's exciting about that molecule, since you asked specifically about what differentiates it, it utilizes a differentiated antibody that has no impact on the coagulation cascade and also has the tandem mechanism release linker that we licensed from Catalent to release the payload. So it's sort of a belt and suspenders approach for stabilizing the payload in circulation. So it requires both glucaronidase cleavage and then a tandem cleavage by a peptidase inside the cells for payload release. So we think that's what differentiates it, plus we also feel that we are kind of ahead of any others in terms of investigating a molecule like this in the clinic. Operator: One moment for our next question. And that will come from the line of Michael Schmidt with Guggenheim. Michael Schmidt: I had one on zanza, specifically the opportunity based on the STELLAR-304 study. Just help us understand the size of this commercial opportunity in non-clear cell RCC. And how much CAP use is driven in non-clear cell right now? And then lastly, just the minor delay to mid-2026 from the first half. Is that based on event rate slowdown? Or is there something else going on there? P. Haley: Yes. Michael, this is P.J. Certainly excited about the opportunity to get a readout from STELLAR-304 and then the potential to get zanza approved in the kidney cancer space. Obviously, a space we know really well. Non-clear cell accounts for approximately 20% to 25% of the patients in the space. And cabo has utilization there as do many other agents. But certainly, we think that a Phase III study having a positive result would really move the needle in that space to demonstrate with greater level of evidence and support benefit for patients. Operator: One moment for our next question. That will come from the line of Jason Gerberry with Bank of America. Jason Gerberry: Susan, you'll be missed. My question is on the NET cabo launch. Just wondering a pretty impressive share of -- I guess, second-line oral therapies. I was just curious, are orals getting a greater share relative to Lutathéra? Or is the dynamic between orals and Luta in second line relatively stable. And if I could just squeeze one in, the MSN patent appeal, is there a timeline on that? P. Haley: Yes. With regards, this is P.J. Thanks for the question, Jason. As you mentioned, we're very pleased with the NET launch. And as we look at the second line plus oral share, we've already exceeded 40% new patient share there, which we're pleased with. As I mentioned, those are patients just coming on therapy. So we think certainly have room to benefit from the duration of therapy that those patients would achieve. And we think we can continue to -- we believe we can continue to grow share in the space. With regards to Lutathéra in the second-line plus setting broadly, orals constitute a greater portion of that market. But where Lutathéra is utilized, cabo really is the preferred treatment post Lutathéra as ours is really the only study that had patients in it who were pretreated with Lutathéra, which is why that sort of broad study base in a contemporary setting is really benefiting us in the marketplace. Michael Morrissey: Yes, Jason, it's Mike. On the topic, don't have anything to offer up on that today, okay? Operator: One moment for our next question. And that will come from the line of Leonid Timashev with RBC. Leonid Timashev: I wanted to ask a little bit on the mengioma opportunity. Just curious sort of how you're thinking about the emerging investigator-sponsored data with cabo and how that applies to zanza and your confidence there? And then ultimately, what you think the size of that opportunity may be? Dana Aftab: Sure. This is Dana. Thanks for the question. Regarding what was seen with cabo, so you probably know the story, but there's a published case report where a patient with thyroid cancer treated with cabo had an angioma, and they noticed a very substantial reduction in the size of that tumor, and that's not a common occurrence with targeted therapies. A number of different studies noted response rates for targeted therapies, especially VEGF or VEGFR targeted therapies in the single-digit range, 3% or less. So these investigators got very excited and launched an investigator-sponsored trial where they looked at a number of patients treated with cabo, and they saw response rates depending on the criteria that are used anywhere in the 25% to 75% range. So that was quite exciting to us and showed the impact of the target profile of cabo. And as we've said, we feel that zanza is sort of a best-in-class molecule with a cabo-like target profile. So it's a natural progression for us to look at for a white space targeting trial with zanza. So we're very excited about that trial. And as I indicated, we expect that trial to get up and running in 2026. Operator: One moment for your next question, and that will come from the line of Stephen Willey with Stifel. Stephen Willey: Maybe a similar question just on the planned Phase III trial in post-chemoadjuvant CRC. And so I guess when I look at the STELLAR-303, the zanza dose intensity, I guess it was pretty low. And just curious if you're intending to do any additional dose exploration work just to make sure that dose intensity doesn't become a rate limiting factor in a setting where tolerability tends to be prioritized. Dana Aftab: Yes. So this is Dana. I'll take that. Yes, so in the -- our plans for further exploration in colorectal, we're really -- this really comes from the result from STELLAR-303. It's the first demonstration of a positive result in non-MSI-high patients with an IO-containing regimen. So it's natural for us to want to bring that earlier in lines of therapy for patients. And this is some white space in colorectal cancer that we identified as high unmet need. So in patients with high risk of recurrence, the median disease-free survival is in the 6-month range. So we think we can get an answer from this study quite quickly. Now in terms of dose, it's natural and as we've seen with other agents, for example, with cabo that as you move up earlier lines of therapy, you often will look at other doses. So we certainly are intending to look at other doses with zanza. And just -- I would just say stay tuned for more information around that when we finally kind of launch the trial and divulge more details. Operator: One moment for our next question, and that will come from the line of Jay Olson with Opp Co. Cheng Li: This is Cheng on the line for Jay. Congrats on the quarter. Also want to thank Susan for all the help in the past years and congrats on the retirement. Just like wondering about -- as we are seeing like several bispecific programs are now actually being developed in the first-line CRC. So how are you thinking about the potential impact of those like novel agents? And how will that impact the later line uptake of the atezo plus zanza ? And if I could sneak in one clarification question, for the STELLAR-303, file based on ITT population, just wondering why couldn't you file earlier because the top line results were like a few months ago? Michael Morrissey: Yes. We're having a hard time understating you. We're filing -- again, nobody is filing new NDAs right now with the government being closed. So to be aware of that and whether it be a new NDA or a new BLA, there's no filings currently with the government shutdown. So just keep that in mind, and we're hoping to file ASAP when the government reopens. In terms of the bispecifics and that emerging landscape, certainly interesting science, early clinical data, kind of hard to opine on how that's going to change the marketplace without pivotal trials even being started, much less reading out. So I think we should just stay tuned on that and understand that it's a moving landscape across the board. And obviously, data drives the process, and we'll keep our data certainly moving as well, and we'll always be able to layer in our data with whatever emerging data is available. Operator: One moment for our next question, and that will come from the line of Ash Verma with UBS. Ashwani Verma: So I just wanted to come back on the CRC market dynamic that you mentioned that [indiscernible] plus Teva is roughly 1/3 of this third-line market right now. But just the physician feedback that we've been getting is that, that is a growing part. So by the time that you get to the market with zanza- atezo, like what is your assumption that what -- how much would that share be? And then yes, there is some sort of difference in the SUNLIGHT study based on the prior beva exposure, but has that been slowing down the adoption of that regimen? P. Haley: Yes. Thanks for the question. I'll say we've been conducting market research in CRC for quite some time. And I will say that what we've seen is that the share of the SUNLIGHT regimen has actually been relatively stable. So if that continues moving forward, the market certainly remains fragmented, as I said, about 1/3 SUNLIGHT, 1/3 TKI, 1/3 other, which really represents a great opportunity for us, particularly in that our research with numerous physicians, and we're talking -- when we do research, we're talking to over 100 physicians in the community as well as academia to get a really good sample size. And we're seeing -- we're hearing from them that we'll get uptake in this third line plus setting and take share from all competitors. So we're optimistic about that. This is why we're increasing -- one of the reasons in addition to driving more NET with cabo, why we're increasing our sales force because CRC is treated heavily in the community. This is a very common tumor type. So lots of prescribers here. So we're going to get ahead of that and really be able to have a strong reach into the community setting. Operator: One moment for our next question. And that will come from the line of Christopher Liu with Lucid Capital Markets. Christopher Liu: Maybe one that is more around capital allocation and financial strategy. With the share buybacks that have already been done and that are planned, going forward, how are you thinking about incremental buybacks versus things like business development or clinical investment opportunities? And do you feel like there's going to be a point where share buybacks would be less favored for some of these other potential value generators? Christopher Senner: Yes, this is Chris. So generally, we think of capital allocation in the three elements, right? It's R&D, it's business development and share repurchases. And we think with the revenue growth we're generating and with the continued prudent expense management, we're including R&D expense in the $1 billion range, we think that we'll be able to fund all three of those elements, and we'll continue to invest in R&D and invest in BD and invest in share repurchase. Operator: Thank you, at this time, there are no further questions. And so I will turn the call over to today's host, Susan Hubbard. Ms. Hubbard? Susan Hubbard: Thank you, Sherry, and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Hinge Health Third Quarter 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Bianca Buck, Head of Investor Relations. Bianca, please go ahead. Bianca Buck: Good afternoon, and welcome to Hinge Health's Third Quarter 2025 Earnings Call. I'm Bianca Buck, Head of Investor Relations. With me on the call are Daniel Perez, our Co-Founder and CEO; Jim Pursley, our President; and James Budge, our CFO. I want to thank everyone for joining us today. We'll be walking you through our Q3 performance and sharing key updates on our product innovations and commercial momentum. As a reminder, this conference call is being recorded. All relevant materials are available on the Investor Relations section of our website. Today's discussion will include forward-looking statements, which are subject to various risks, uncertainties and assumptions. These statements reflect our current views and expectations regarding future events, including expected performance of our business, future financial results and growth strategies. While these statements represent our good faith judgment and beliefs, actual results may differ materially from those projected or implied. We undertake no obligation to update any forward-looking statements, except as required by law. For a detailed discussion of the risks, please refer to our SEC filings, including our most recent quarterly report on Form 10-Q. All income statement financial measures discussed today are non-GAAP, except for revenue, which is GAAP. These measures should be viewed in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are included in our earnings release appendix. With that, I'll turn it over to Dan. Daniel Perez: Thanks, Bianca, and good afternoon, everyone. Q3 showed what our strategy is built to do, automate care delivery to improve outcomes, experience and reduce costs, all while underpinning a strong business. We'll cover 5 topics today. Firstly, our results. I'll give you a high-level view of the quarter and the momentum in our core metrics. Second, I'll share key product updates, particularly our AI initiatives transforming how we deliver care to our members. This includes our AI care assistant, Robin, our new movement analysis capability and how we're using AI to drive efficiency across our entire organization. Third, Jim will cover sales season progress and updates on HingeSelect, our high-performance provider network. From there, James will walk you through the detailed financials and our updated guidance for the remainder of the year. And lastly, I'll wrap up with thoughts on why we're so confident about the path ahead before we open it up for your questions. Let's dive in. First, let me start with the numbers that really tell the story of our momentum in automating care delivery. We delivered $154 million in revenue for Q3, representing 53% year-over-year growth. Our last 12 months calculated billings reached $624 million, up 50% compared to the same period last year. These results demonstrate the strength of our current execution and highlight the incredible opportunity ahead in automating the largest services industry in the United States, health care. Our operational efficiency improved substantially year-over-year. Gross margin was 83% this quarter, up from 79% in Q3 of last year, reflecting the scalability of our technology-driven care model. Operating margin reached 20%, a significant improvement from negative 4% in Q3 last year, showing how quickly our investments in automation and AI are driving meaningful leverage across our growing business. And notably, we generated $81 million in free cash flow this quarter compared to $28 million in Q3 of 2024. This represents a free cash flow margin of 53%, highlighting the strength of our business model and operational efficiency. Now before I dive into our product updates, I want to remind everyone of our core mission. We're building technology to automate the delivery of health care, starting with musculoskeletal conditions. This quarter, we reached an important milestone, surpassing 1.5 million lifetime members who have trusted us with their care. Everything we do is centered around the triple aim, using technology to transform outcomes, experience and costs in health care. To that end, I'm excited to share 3 key product areas where we've made significant progress this quarter. First, our always-on AI care assistant, Robin, that's transforming how we support our members. Think of Robin as a smart and increasingly capable companion that's available 24/7 to help members navigate their care. Now a typical care journey for back or joint pain isn't linear. People will have good days and bad. When someone experiences a pain flare-up, Robin recognizes this through member-reported data and immediately gathers important details, shares helpful resources and alerts their physical therapists so care can be delivered faster. Beyond pain events, Robin will soon provide instant support, answer common questions and proactively check in with members to keep them on track with their recovery. This isn't just convenience for our members, it's technology that delivers immediate support at the exact moment people need it most while laying the infrastructure for an AI agent that doesn't just answer, it acts. For our clients, this allows us to drive higher member engagement, improved health outcomes and therefore, cost savings, which directly benefit Hinge Health through improved client retention, demonstrable ROI and higher member enrollment yields. Secondly, we've built the ability to perform an automated movement analysis using our TrueMotion Computer Vision technology. There are many measurement tools to track outcomes in MSK care. While valuable, almost all rely on subjective questions and are therefore, self-report only. Our new movement analysis uses our advanced Computer Vision technology to capture joint angles, symmetry and endurance across a short battery of movements to produce Hinge scores that are objective and comparable over time. Pairing these objective measurements with a few targeted questions gives clinicians and members a fuller and more actionable picture of their joint health. Members simply use the front-facing camera on their phone and our technology does the rest. Finally, we're continuing to weed AI throughout our entire organization to drive efficiency and innovation. One example I'd love to highlight is how we've used AI to transform how we build our product. Gabriel, my co-founder, has been personally threading AI throughout our engineering team. I'm proud to say that we've, one, increased code output by 120% and pushed new features live 3x faster in Q3 2025 compared to Q3 2024. Two, we've increased AI adoption among our engineers from around 20% in Q1 to close to 100% today. And finally, three, we've also seen a 32% improvement in developer experience scores from April through October. Our engineering team is not only more productive, they're happier, too. These improvements are already impacting our operating margin, and we're just getting started. With that, -- let me turn it over to our President, Jim, to discuss our market momentum. James Pursley: Thank you, Dan. As highlighted, our continued product innovation allows us to measurably improve health outcomes, delight members and lower medical costs, directly translating to client retention, which is the foundation for our commercial success. Before diving into our Q3 performance, I'd like to remind everyone about our sales cycle and seasonality. The majority of our clients signed contracts with us in the second half of the calendar year, aligning with the typical employee benefit enrollment period. Most of these clients then launch in the first half of the following year, which creates a predictable rhythm to our business. I am pleased to report that our sales season is progressing very well, and we're ahead of where we were at this point last year. We ended Q3 with a strong base of 2,560 contracted clients, up 25% year-over-year, and we expect that number to grow substantially in Q4 as we finalize contracts with clients who gave us verbal commitments during Q3. What's nice about our model is that even when contracts aren't finalized yet, clients still promote Hinge Health during their benefits fares and open enrollment periods. Additionally, since our majority of our clients are contracted through our health plan partnerships, there's limited negotiation or legal complexity in contracting because the terms are pre-agreed and standardized. Year-to-date, our head-to-head win rate is up year-over-year, which speaks to the strength of our value proposition and our widening lead. We're seeing strong performance in several key markets. First, we're winning with jumbo clients, those large, self-insured groups with over 100,000 lives. Second, we're seeing great traction in the federal space, including having our best year ever with federal employee programs. Third, our fully insured segment continues to perform well, which is particularly validating since health plans themselves are the purchasers in this segment. And as actuaries by profession, their adoption validates the real cost savings we're able to deliver. We look forward to sharing more detailed metrics on these wins in our full year earnings report next quarter after the completion of our sales season. Now let me provide an update on HingeSelect, our high-performance provider network that creates a unified experience by combining our digital platform with high-quality in-person care when needed. This quarter, we went live with our first clients. And while it's still in the early days, the initial feedback and learnings are very positive. This gives us confidence as we prepare for broader market rollout. Our provider network is coming together nicely. At the end of Q3, we had contracted with over 3,300 high-quality provider locations across all 50 states, creating comprehensive coverage for our members, and we expect to significantly increase our footprint over the next 12 months. Currently, 86% of our lives live within the HingeSelect network footprint, which positions us well for our continued rollout. On the client adoption front, we have clients representing hundreds of thousands of eligible lives who have already committed to HingeSelect. These clients are either launching the program now or planning to launch next year. And importantly, all of them are existing clients of our core digital program, which validates HingeSelect as a natural extension of our offering. Beyond these committed clients, we have clients representing millions of lives in our pipeline where we have active discussions. This includes both new prospects who see HingeSelect as a differentiator and existing clients looking to expand their relationship with us. Moreover, we're in advanced discussions with multiple health plans and PBM partners to streamline HingeSelect adoption with our mutual clients. With that commercial update, let me turn over to James to walk through our detailed financial results and outlook. James Budge: Thanks, Jim. Let's break down our third quarter financial performance a bit. As a reminder, our billings model is built on 3 key drivers: lives, yield and average price. Lives represents the number of people eligible for our program. Yield is the percentage of those eligible lives who actually enroll and engage with us as a member and price is what we charge per engaged member. When you multiply these 3 factors together, the result is our calculated billings, which is the foundation of our revenue model. For the third quarter, our LTM calculated billings reached $624 million, representing 50% year-over-year growth compared to $417 million in Q3 2024. Revenue came in at $154 million, up 53% year-over-year from $101 million in Q3 last year. This revenue performance exceeded the high end of our guidance range of $141 million to $143 million due to strong billings performance stemming from the continued strength of our underlying fundamentals. We saw solid performance across all 3 drivers of our billings formula. Eligible lives came in as expected, reflecting the healthy growth in our client base and the successful launches of new clients throughout the year. Yield was also a strong contributor to Q3 billings. Our targeted enrollment initiatives are particularly noteworthy. We saw enrollees from our targeted enrollment activities this quarter more than double compared to Q3 2024. Targeted enrollment is where we use data from our HingeConnect platform to reach members at their highest point of need. We also rolled out member challenges this summer to encourage movement during seasonally slower months where members could earn rewards and badges for meeting their goals. These initiatives contributed to strong engagement and overall excellent yield performance. On the pricing side, our new engagement-based pricing model continues to perform as expected, with our average selling price remaining essentially flat for the year. As of the end of Q3, about 48% of our eligible lives had opted for the new pricing model. Moving to our operating efficiency. Our gross margin reached 83% in the third quarter, up from 79% in Q3 last year. This 400-plus basis point improvement was driven by continued enhancements in care team efficiency, largely enabled by the initiatives Dan mentioned, like our AI-powered tools that help our clinicians work more effectively and handle more members without compromising quality care. We also saw strong operating leverage across all expense categories. Total operating expenses were 63% of revenue in Q3, down from 83% in the same quarter last year, demonstrating our continued focus on operational efficiency, even though we made deliberate investments to fund more long-term growth opportunities such as new products, improved enrollment and our go-to-market functions. This operating leverage translated into strong profitability. We generated $30 million in income from operations, significantly ahead of our guidance range of $17 million to $21 million and with a 20% operating margin, a substantial improvement from negative 4% operating margin in Q3 2024. As we continue to grow and evolve, we are consistently looking for ways to become more efficient. And one of the many areas where we have seen improvements is in collections. Improved collections, combined with the billings overperformance and overall cost discipline drove our all-time high free cash flow margin of 53% this quarter, generating $81 million in free cash flow. Through the first 3 quarters of 2025, we've generated $118 million in free cash flow, which represents approximately $1.25 of free cash flow per share using our Q3 fully diluted shares outstanding of 94.5 million. We ended the quarter with $497 million in cash, up from $415 million in cash at the end of Q2. Looking ahead, I'm pleased to provide our updated guidance for both the fourth quarter and full year 2025, which reflects the strength we're seeing across our business. For the fourth quarter of 2025, we expect revenue to be in the range of $155 million to $157 million, representing 33% year-over-year growth at the midpoint. For non-GAAP income from operations, we're projecting $34 million to $36 million in Q4 or a 22% margin at the midpoint. For the full year 2025, we're raising our revenue guidance to a range of $572 million to $574 million, which represents 47% year-over-year growth at the midpoint. This is a meaningful increase from the $548 million to $552 million range we provided last quarter. For full year non-GAAP income from operations, we now expect $106 million to $108 million, a 19% margin at the midpoint and also a meaningful raise from our prior guidance of $77 million to $83 million. Several factors are driving this improved outlook. First, we're seeing continued strength in our core business fundamentals with solid performance across lives, yield and pricing. Second, our strong Q3 and year-to-date billings performance gives us confidence to raise our full year revenue targets. Third, the operational efficiency gains we're achieving through AI initiatives are flowing through to the bottom line faster than we previously expected. Given this overperformance and the strong cash position we have, we are prioritizing investments in growth and expanding our market reach as we continue building the future of health care. Indeed, we already have promising preliminary data on our next product. Moreover, we'll continue to take a disciplined approach to capital allocation, investing in growth while remaining focused on expanding margins and driving sustainable returns. From a share count perspective, we expect our fully diluted shares outstanding to be around 95 million by the end of this year. We recognize the importance of balancing investment in growth while maintaining an efficient capital structure, and we'll continue to be thoughtful in how we manage dilution over time. Finally, I want to remind everyone that our lockup expires at the end of the day on November 17. with shares free to trade on November 18. This represents a natural milestone in our journey as a public company. Of the 94.5 million fully diluted shares outstanding at the end of Q3, 17 million are already free to trade from the IPO and early lockup release, and the remaining $77 million are being unlocked. 41 million of those shares, however, are either unvested and ineligible to trade or owned by directors, officers and Board represented pre-IPO investors. The combination of our strong financial performance, robust cash generation and strategic investments positions us well for continued growth and market leadership, and we look forward to sharing more with you in the coming quarters. With that, let me turn it back over to Dan for some closing thoughts. Daniel Perez: Thanks, James. I'd like to emphasize a point James made on our capital allocation strategy. Our team has shown that we can execute to not only grow top line, but grow it efficiently. Our strong free cash flow allows us to continue investing in organic growth while giving us the optionality to evaluate and execute targeted M&A opportunities and return capital to our stockholders. You should all expect we'll continue driving both revenue growth and profitability. We are committed to managing this business to strong GAAP profitability. That means we see stock-based compensation as a real expense. And just like any other expense, we're going to manage it closely. Indeed, we've brought dilution down for 3 straight years, and we'll continue to be thoughtful in this domain. As I reflect on this quarter's results and look ahead, I'm incredibly confident about our business. Firstly, from a product perspective, there's a vast opportunity ahead in automating health care delivery. Physical therapy is only 1.2% of total health care spend, yet is a $60 billion-plus market in the United States. As we automate other aspects of care outside of PT, even a similarly sized slice can represent tens of billions of dollars in TAM. Secondly, our commercial momentum is also exciting. We're trusted by our clients and partners to build products that don't just automate care but deliver improved outcomes, better experiences and lower costs. That performance is evident in our higher win rates year-over-year. Thanks for your time and continued support of our mission. With that, I'll turn it back to Bianca to open up the call for your questions. Bianca Buck: Thank you, Dan. Operator, we're now ready to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Rishi Jaluria from RBC Capital Markets. Rishi Jaluria: Wonderful. Nice to see continued strength in the business and outperformance just really across the board. I wanted to start, Dan, by digging into the recent AI announcements you made and really exciting to see the innovation there and a lot of excitement, I think, around Robin. Maybe can you help us understand, as we're simultaneously hearing headlines of enterprises, maybe a little bit risk-averse around AI, especially when it comes to data, how you're balancing the kind of desire to drive innovation here, bring AI into the product and ultimately drive better customer success and better patient outcomes and work with especially your partners in alleviating some of those concerns and driving up kind of higher AI adoption over time? And then I've got a quick follow-up. Daniel Perez: Great question. Thanks for that. And you're absolutely right. There's concern and rightful concern and caution from health plan partners, employers, et cetera, about AI in health care. The stakes are simply much higher in health care than in your average industry where AI is being adopted. And so at Hinge Health, we're really focused on some bread-and-butter applications of AI that could make the member experience more convenient, more personalized, make our care team more efficient so we can increase the throughput and then our investments in our core AI threaded throughout the rest of our organization to make the business more efficient as well. So I'd like to start by saying like we actually published our AI care principles this -- a few weeks ago, which actually guide our development of AI across our platform. And I think this is really important. And we feel responsible AI development is foundational to our approach and our commitments include AI that is thoughtfully designed, built responsibly and complements human care and underpinning those commitments are principles that prioritize ethical use, privacy, security, transparency and continuous improvement. And so we've built a good reputation with our clients that they trust us when we build something new. We bring them along with particularly our health plan partners sharing with them our road map, sharing with them our thinking and sharing with them our outcomes. Now our movement analysis is a phenomenal step forward in how outcomes should be within musculoskeletal orthopedic care. Typically, outcomes in orthopedic care can be tracked by particularly patient reported outcomes is very subjective. It's how is your pain been? How is your stiffness been? And there's fewer objective measurements. And so with our movement analysis, we're able to use Computer Vision to bring objective measurements such as endurance, speed, et cetera, in terms of how somebody's joint health is trending. And with Robin, it allows us to substantially increase the throughput of our care team by allowing a member to interact and give background information to our AI care assistant who then helps bring the care team up to date. So if there's any adjustments to the care plan, it reduces the back and forth and shortens the time. and so for the member. So we've -- just to sum up, we agree that there's more challenges in health care. We've approached it with that level of humility and really focus on the bread-and-butter application. And that's the patient-facing aspects. I haven't mentioned the company-facing aspects of AI, which you've seen are driving a lot of our operational efficiencies. Rishi Jaluria: Awesome. No, that's super helpful and really appreciate that color. And then Dan, you talked a little bit about open enrollment at the very beginning of your statement. Maybe can -- as we're in the middle of open enrollment season here in California, I think it just opened up today, maybe can you walk us through kind of what set of assumptions you're thinking in terms of this open enrollment season as we think about the Q4 guide and how you're thinking about it relative to prior years? And now that you have in your arsenal greater Enso traction, you've got HingeSelect out there. Just how should we be thinking about that? And just to complicate things further, I'll toss in some of the uncertainty with over federal tax credits as a result of the current government shutdown going on. Daniel Perez: Great question. So in terms of open enrollment, so a lot of our new clients that are -- have decided to buy us, they actually go live on in around 1/1 or throughout Q1. And so a lot of these -- we have a pretty fairly predictable sales cycle and then implementation cycle of new clients, and they typically go live with the new plan here, which starts in 1/1. So over the course of Q1, we'll have clients going live on 1/1, 115, 2/1 several days of that quarter. And open enrollment is another opportunity for our existing clients to highlight their existing benefits to their members and some do highlight and make available pre-sign-ups for upcoming benefits. And they mentioned, hey, coming up in Q1, you're going to have a new mental health benefit, a new musculoskeletal benefit, a new PPO plan. And so they'll lay the groundwork for members to understand, but they're typically not eligible to sign up and therefore, become a billable member until Q1. And that's how it works in health care benefits. And in terms of the federal government shutdown, maybe Jim could take that in terms of its impact on us. Short answer is not much impact so far. James Budge: Yes, that's right. The short answer is there has not been any impact. We haven't seen any impact. In fact, our federal business is performing as strong as it's ever been. It is their best year ever in the federal space, and we expect that trend to continue. So yes, no impact to the shutdown on the business to date. Daniel Perez: And I'd just clarify that while salaries, unfortunately, are paused. Health benefits, dental benefits and vision are not paused. And so those continue to be paid for throughout the government shutdown. And if this extends into 1/1, I actually -- I don't know. I don't have an answer for you of how health benefits -- what happens to health benefits after 1/1. But throughout the end of the year, they are absolutely funded. Operator: Your next question comes from the line of Jess Tassan with Piper Sandler. Jessica Tassan: Congrats on the quarter. I'm hoping you can maybe explain some of the seasonal and comp year-over-year comp dynamics behind your 4Q '25 yield assumptions. And wondering if the guide implies that active members actually declined sequentially? And if so, why would that occur? James Budge: Yes. Thanks, Jess. I'll cover some of that and then my colleagues want to add great. I would want to remind everyone what we said in the second quarter, which we'll repeat here again, which is that typically, our fourth quarter is slower than our third quarter, and it has been with the exception of 2024. That means our billings are lower in the fourth quarter than the third quarter. There's just less activity in the fourth quarter than the third quarter. Our cash flows are lower in the fourth quarter versus the third quarter. And really with the exception of 2024, that's always been the case. So we expect that again this year. We do expect a really strong fourth quarter, but it's coming off of a really difficult comp last year, where in 2024, we had a ton of pent-up marketing demand going into the back half of the year, specifically into Q4 that drove a ton of engagement. And this year looks more like our normal seasonality that we typically have. Jessica Tassan: Great. And then hoping you can maybe describe some of the targeted enrollment initiatives that supported the 3Q yield outperformance. Was this the expanded Enso deployment? And should we kind of expect Hinge to perpetually introduce these targeted enrollment initiatives that support yield? So Enso this year maybe something else in 2026. Congrats again. Daniel Perez: Great question. So this is Dan. So with regards to our yield improvements overall, we have evergreen investments in this area. And so it's not just like a single home run that's driving improvements, but a series of singles and doubles, and we like it that way, by the way, because this portfolio approach ensures resilience in the system. And sure, we could -- we will be swinging for the fences on a few key experiments, but we never want to be dependent on a home run to achieve our yearly goals. Now specifically with regards to targeted enrollment, this has been going great. So our team has spent a lot of time and effort, not just building partnerships with health plans, but also the piping to ingest the data in as real time as possible. And notably, building these pipes also requires effort from a health plans tech team. And those tech teams are typically small and mighty tech teams at the health plans who have a lot of demands on their time. So part of the increase is due to our years-long collaboration and simply standing up these bidirectional data transfers, cleaning up and standardizing the data and then using it to effectively identify and enroll high-risk members, and that has a big impact on ROI that we can deliver our clients. And I suspect we are far ahead of most everyone else with regards to the sheer amount of data we receive and therefore, the target enrollment we're able to drive with our business. And as mentioned in our earlier remarks, we're up about 2x year-over-year in terms of absolute members enrolled via our target enrollment. Operator: Your next question comes from the line of Saket Kalia from Barclays. Saket Kalia: Absolutely. Dan and Jim, maybe for you. It was great to hear about the strength this selling season here in the second half. Maybe just a high-level question. I'm curious, how many of your wins anecdotally, of course, are kind of greenfield versus displacing a competitor? James Budge: Yes, Saket, thank you for the question. I would say the vast majority of our wins are still greenfield today. Although I will note that a greater percentage of our wins are competitive displacements, although relative to the overall win rate, most of them are still greenfield wins. Saket Kalia: Got it. Got it. That makes sense. Then maybe my follow-up for you, James. I think the number that surprised us most was the operating cash flow this quarter. I think you said it was $81 million or $82 million. Can you just touch a little bit on the better collections there and whether the move to the new engagement-based model is impacting billings or collections at all? Just trying to kind of put that outperformance into perspective a little bit. James Budge: Yes. Thanks. And you're right. It was a pretty extraordinary performance there in the third quarter on cash collections. And I would remind, that's our sixth straight quarter of cash profitability. So being positive is not a new thing, but being $81 million positive is pretty awesome. So yes, we went into the new engagement model, and we took advantage like everything we do in our business, always looking for efficiencies, and that gave us an opportunity to look at everything we do in our collection process from how quickly we build to when we make calls, we deploy AI and when something might be going awry and we engage more people and trying to get after that. We've always been good at collections, but we took the opportunity to try to become great at collections. And some of that came through in the third quarter. And we -- while we will have less cash collected in the fourth quarter just because that's the seasonal trend, we will still have a very strong fourth quarter in cash collections. Daniel Perez: Yes. And as an executive team, we are very committed to managing this business to be reliably free cash flow positive. Operator: Your next question comes from the line of Jailendra Singh with Truist Securities. Jailendra Singh: So I want to follow up on the selling season commentary. My question is more around the rollout timing. Are you guys seeing any late 2025 clients slipping into '26 or maybe on the flip side or '26 plans being pulled forward? And what are driving those type of shifts? And also like related to that, can you share any data around what percentage of your 2026 new logos pipeline are in contracting versus late stage? And how confident you are with respect to the conversion? James Budge: Jailendra, thank you very much for the question. No, I would say this year looks fairly traditional from a rhythm perspective, as we've touched on the bulk of our clients making commitments in the second half of the year using open enrollment to plan for the launch. And then as Dan mentioned, launching around 1/1 in the first quarter of the year. So that operating rhythm has largely played out in a traditional way this year. Specific to the shape and velocity of our pipeline, we don't give specifics on that. I appreciate the question, but we're not prepared to share data, although the overall size of the pipeline continues to grow and is every bit as big as it needs to be to, I think, deliver on what we're hoping to do. So thank you for the question. Jailendra Singh: Okay. Makes sense. And then my quick follow-up. Just curious at this point, do you have a view on how many care team FTEs you're going to require for 2026? Just trying to better understand how some of the recent AI tools you have launched are helping you to further improve your member to FTE ratio. Daniel Perez: Great question. Thanks, Jailendra. This is Dan. So we're in the middle of our 2026 planning, and our approach remains disciplined and targeted. Most of our headcount additions will be in R&D and some go-to-market because we want to invest in growth, organic growth to capture this opportunity. But it's important to note, we are building our product much more efficiently, thanks to AI. As mentioned in our earlier prepared remarks, our code output per engineer is up about 2x year-over-year, and we're just getting started there. Now you asked specifically about our care team. We anticipate care team headcount to be roughly flat to down. That is, despite increasing revenue in 2026, our care team will be at worst flat. You could -- to be conservative, you should model flat. Any gross margin tailwind, though, from those efficiencies will likely be reinvested into the product infrastructure. We like where our gross margin is right now, but we want to continue to invest in the product. We are still in this growth stage of the business, and we want to invest in growth, invest in that member experience, including initiatives like Enso to sustain our differentiation and our growth, and we'll share more details as plans are finalized. Operator: Our next question comes from the line of Scott Schoenhaus with KeyBanc. [Operator Instructions] Scott Schoenhaus: Sorry about that. I just wanted to touch more on your new product offerings, Robin AI and movement analysis. It seems like it also could drive increased yields, but also as you move to a more utilization-based model, which is, I think you said 48% of lives currently probably tracking ahead of everyone's expectations here could also drive ARPU, which I think, Jim, you said it was flat. So maybe walk us through the dynamics of these new 2 product -- AI product offerings on the yield side and potentially on the ARPU side. Daniel Perez: Great question. So improving our core member experience is something we're always focused on, allows us to just better retain the triple aim of improved outcomes, experience and costs. And we're at near all-time highs on member engagement and satisfaction scores, and we expect that to continue as we roll out new things like our movement analysis like Robin. And as I mentioned, our ASP is trending to flat this year, which is where we expected because we modeled that into our contractual commitments for our new billing model to begin with. We knew that even increased engagement would keep it flat because we wanted to commit to that to our clients. But we have now had several years running now of improving our per user engagement, not just improving the enrollment to the program, but improving the engagement of those who enroll, and we want to continue to do that at Hinge Health. And it's going to be similar to our yield improvements, a portfolio approach of singles and doubles. I actually don't see a movement analysis as a home run. I see this like a double, might be a triple actually, but a double. And same thing with Robin, and we want to continue to roll out new capabilities that our members see value in and brings them back, but also is, of course, improving their health, improving their experience and lowering costs for our enterprise customers. Scott Schoenhaus: And as a follow-up, is there any way to like call out the contribution of AI on the operating expense line? It seems like it was big with the engineers and coding on the R&D side. And then where you think a higher level, where we should be able to see operating margins continue to progress as you infuse more in AI across your business? James Budge: Yes. Well, between the improvements in gross margin over a year ago and the improvements in operating margin, that's about 2,600 basis points of improvement. So lots of goodness there. And I would say probably a good half of that came from AI advances. I think we've gotten more efficient in process as a result of AI. We've gotten more efficient with deploying AI versus humans. So a whole bunch of advances from AI initiatives. But the people around that have also gotten more efficient as a result. Daniel Perez: Yes. And as a business, we've also just run the business with constraints. I think when it comes to solving problems, particularly when you're cash-rich like us, it's easy to solve problems with new headcount. And when you put constraints on the business and say, "Hey, we're not adding new headcount to this department. Hey, we're not adding it to this department. And because we have a pretty predictable business on how it grows, we could plan months ahead and saying, hey, when 1/1 comes around, we know the business is going to grow quite substantially with new clients, be ready that you're not going to get all the headcount you plan for. So you need to start investing in AI tools now. And we've been laying that groundwork with our team months and months ahead of time, and that's caused a lot of teams to -- encourage a lot of teams to experiment with new AI tools, new processes and just problem solve in new ways such that we could solve problems with technology and brain cells instead of having to solve problems by adding new heads. James Budge: And maybe, Scott, just one thing I'd add. I think maybe implicit in your question also is that we're probably by anyone standards, we're well ahead of our march towards our target model of 25% EBIT and 30% free cash flow margin. So maybe implicit of the question is, hey, are you looking to adjust that anytime soon. I would say stay tuned on that. We're going to give our 2026 guidance in the February call that we'll have, and we'll talk about concepts like long-term margins and progress towards that when we get to our very first Analyst and Investor Day, which will be wrapped around our Movement conference in June of next year. So that will come in 2026. But today, as of today, no change to our target models that we have. Operator: Your next question comes from the line of David Grossman with Stifel. David Grossman: It sounds like you've had some really good success in the large enterprise segment of the market during the current selling cycle. So with the mix perhaps skewing to larger clients next year, are there any considerations for yield or pricing that we should be thinking about as these clients go live next year? Daniel Perez: Thanks, David, for the question. No, I wouldn't say that the size of the client should influence the way we think about ASP or yield. I think we've -- we have a very diverse client base actually, both from an industry perspective, we're serving almost every consumable industry around the globe as well as client type and size. So I think we've optimized our enrollment, our yields, our target enrollment kind of independent of size. And so no, the short answer is I would not anticipate any variation. David Grossman: Great. And then if I heard you right in your prepared remarks that you have some promising preliminary data on your next product. And I'm not sure if I missed it, but can you provide any incremental context of kind of how we should be thinking about what that may be? Daniel Perez: Great question. And so a lot of our R&D is focused on enhancing our core product of digital physical therapy. About 40% of people have musculoskeletal pain in a given year, 9% see a physical therapists. We think it should be closer to like 12% or 15%. And last year, we enrolled 3.4%. This year, we're trending closer to 3.6% as we continue to chip away and gather more enrollment from people seeking in-person PT. But our overall vision is to use technology to automate the delivery of care. And we want to continue to use technology to peel away aspects of in-person care and automate provider interactions. And so we think if we peeled off an area of health care even half the size of physical therapy, physical therapy is 1.2% of health care spend. So it's about $60-plus billion. If we peeled off an area of health care even half the size of PT, it would represent tens of billions of dollars of TAM, and we're working on a new product right now. And we're -- but we will only enter spaces where we have confidence where we will be either #1 or #2 and preferably #1. Operator: Your next question comes from the line of Brad Sills from Bank of America. Bradley Sills: I wanted to ask about the effort to go after the fully insured segment here. Was that a key contributor to the growth in clients here? I know that going after some of those smaller firms has been more of a focus. James Pursley: Yes. Thanks, Brad. The way we think about fully insured, by the way, might be a little bit different than others. So we count a fully insured client as one client with the health plan. So the health plans fully insured book of business, even though there's thousands of clients, small employers that typically constitute that health plan. So no. We think about that as a singular client from counting our clients' perspective. So fully insured was not a meaningful contributor from a kind of a number of logos perspective, if you will. But it is a meaningful contribute to our business growth. And I think, again, as we mentioned in our prepared remarks, the actuarial rigor that fully insured organizations use to evaluate solutions like Hinge is tremendously validating when you pass those hurdles and become the adopted solution of choice. And so that just continues, I think, to affirm the impact that we're having both on clinical outcomes and member experience and importantly, the full insure also on cost savings. Bradley Sills: Wonderful. Great. And I wanted to ask a question on the yield. I think, James, you said you gave some kind of directional commentary on how that trended. Any more color on just the yield, where that is trending? And what are some of the key initiatives driving that? I know that there's the customer success organization that's been working hard on promotions within the member base. Daniel Perez: Yes. Yes, it's been a great year. I think you'll recall, if I take you back through some of the evolution here that we started out the year assuming that we would be roughly flat in yields, and that's kind of the conservative nature we like to go through in the year until we see the evidence for supporting the uptick. By the time we got to the second quarter call 3 months ago, we were talking about it moving north of 3.5 up to closer to 3.55-ish in that range. And now clearly, the improvement that we're seeing in the Q3 results suggest it's trending even higher than that. So we're pretty comfortable that it will end the year at least at 3.65 and opportunity to improve even above that as we finish out the year here. Operator: Your next question comes from the line of Elizabeth Anderson from Evercore ISI. Elizabeth Anderson: Congrats on a really nice quarter. I wanted to talk a little bit more about the HingeSelect provider network. Can you talk a little bit about sort of how you're developing that network? How do you sort of see the need to continue to ramp that? And then how do you kind of evaluate what makes somebody a high-quality provider for that type of network? And then sort of how you sort of see the interaction between sort of like initial visits and follow-up virtually sort of develop over the next sort of 12 months as you're getting more people on it? Daniel Perez: Sure. And thanks for your question. A couple of pieces to that. So let me start on how we evaluate provider quality. And then if you could repeat a few other parts of the question just to... Elizabeth Anderson: There were a bunch in there. So thank you. Daniel Perez: No worries. And so first of all, on the provider quality front, that is one of the most important elements of HingeSelect is actually assessing for provider quality as well as for cost, by the way. So that's overall value includes cost and quality. And so different providers are going to evaluate them for quality in different ways. You look at both the consumer experience, and this is particularly relevant for like physical therapy, where we know that just the general practice of physical therapy is shown to reduce costs. And so if you just get somebody to conservative management orthopedic care, because management care for their back pain, for their knee pain, for their hip pain, you're going to have a really good shot at reducing downstream costs. The challenge of physical therapy is access. It could be member costs. It could be the time constraints for having to take time off work, et cetera. And so we're really focused on expanding our physical therapy network as much as we can and making sure that we can improve adherence by ensuring that consumer experience with these in-person physical therapists is really high. Now when it comes to other provider types, it's actually really helps to look at claims data. For instance, with a surgeon, you could actually look at the data sources out there. We've partnered with several data sources to actually look at what is somebody's practicing philosophy and what is their -- what does the data show in terms of how they practice care. For instance, if they're doing a knee arthroscopy or a knee replacement on somebody, you could look at the claims history for that individual person. And did that individual person first exhaust conservative management care before the surgeon operate on them. What was the downstream claims that happened after the surgery, where there are a lot of revisions. And so there's various like ways where you could look at what's the quality of a particular surgeon. And so it's going to depend on the provider type, but just giving you examples of surgeons in that sense. And then from -- after assessing for quality, and we're not looking for like we don't necessarily need the top 1%. If you actually go eliminate the bottom 25% for particular orthopedic surgeons, but particularly or even buy it to the top quartile, you're going to have really good orthopedic surgeons who are not over operating and have really good downstream outcomes. And we don't need to have the network density. We're not trying to have the network density of national plans. They are our partners, and this is very complementary to their overall network. We're not looking for 100 surgeons in Atlanta. We're looking for 5. And we're able to shop for the highest quality as well as the price point that makes sense for us and our customers and our members, and that gives us incredible optionality, but also ensures that it is very much complementary to a total health plans network as we build that network. For physical therapists, of course, we want a lot more density than 5 in Atlanta. We want several dozen. Elizabeth Anderson: Yes. No, that's very helpful. And it also sounds like because given the partnership model that you have, you don't have sort of a ton of upfront costs in that, so sort of you can scale that business as you continue to add members in certain geographies and sort of build out HingeSelect over the next couple of years. Is that the right way to think about that? Daniel Perez: Yes. It's a 2-sided marketplace and 2-sided marketplaces are incredibly difficult to build up, but we firmly believe that solving this problem will create one of the most enduring moats and enduring competitive advantages at Hinge Health to have an in-person network that complements our overall national health plan partnerships and our regional Blues partnerships as well and solving hard problems are themselves a moat and building a 2-sided marketplace will be a difficult problem to solve. We've made really good progress by already adding thousands of clinics and really focus on orthopedic care overall and building a technology platform that allows us to process claims. We're processing claims, the claims ourselves. And so our tech platform is actually quite a bit more advanced than I think a lot of people may give us credit for or realize initially. Operator: Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig Hettenbach: Question for Jim on the selling season and really in the context of rising employer costs. So looking for context of just how much ROI engagement on the platform is kind of working to your advantage and how that's kind of resonating with the customer base. James Pursley: Yes, Craig, thank you for the question. I think as anybody has seen in the news, employer health care costs are rising at an all-time high, low double digits in a lot of cases, which is forcing benefits leaders and employers to get really serious in tackling their top cost drivers. Fortunately, for us as a business, musculoskeletal care continues to be a top cost driver. And so we're seeing interest in our business only grow as a result. They're also scrutinizing the impact that solution providers are having on those costs. And the demonstrated and repeatedly validated ROI that we have been able to show is an important part of our story. And I think it will always be an important part, but especially in these environments where you're seeing costs rising and benefits leaders having a mandate to address them, Hinge is a beneficiary of that dynamic, and we believe that trend will continue for the foreseeable future. Craig Hettenbach: Got it. And then just as my follow-up question on Enso, just looking for kind of how adoption is trending with that product. And any anecdotes in terms of that potentially helping to extend engagement beyond a year on the platform? James Budge: Yes. Let me just give some numbers here, Craig, and then Dan might have some commentary as well. Maybe as a reminder, a couple of years ago, our Enso adoption rate was around 5%. Last year it was around 15%. And we said this year, we would be expecting it to be north of 25%, and we're on that trajectory right now. So nothing meaningfully different in the numbers. And I would just reiterate the point that despite increasing cost of goods sold around Enso, we still are producing pretty magnificent gross margins. So we're able to manage that through all the AI improvements we have in the care team. So beyond that, I'll let Dan talk about how that impacts and engagement. Daniel Perez: And I'd say, first of all, at a high level, we think software is going to automate all non-touch aspects of health care, tenting symptoms, formulating a diagnosis, creating a care plan, even like potentially telemedicine visits will eventually be automated via software. However, the touch aspects of health care will require hardware. We are committed. If we -- if your vision is to automate health care, you will have to invest in connected hardware and Enso is one of the most beloved aspects of our program. And we actually don't charge anybody to receive it. We're very thoughtful in sending those out for those who would benefit most. Members who do get escalated to Enso tend to see their activity sessions improve, not only from Enso usage, but their exercise therapy sessions improve and their satisfaction scores are substantially higher when a member is escalated to Enso. And so we're really liking people just love their Enso. And if it ever falters, it's one of the first things they'll reach out to our tech team to have us replace their Enso. It's just a beloved aspect of the program. And it's a big differentiator for us on the market as well. Operator: Your next question comes from the line of Brian Peterson with Raymond James. Brian Peterson: I'll echo my congrats on the quarter. Just following up on some prior commentary on HingeSelect. But as we think about your right to win for a customer that's looking at a digital MSK solution for the first time, how much will HingeSelect and kind of that more comprehensive view of your care offering? How much is that influencing that decision for a new customer? And maybe I'll just ask my follow-up now. James, as we think about the ramp trajectory of that business, anything that you can share for us there? James Pursley: Brian, thank you for the question. You talked about the right to win. I think it's a great way of thinking about it. There is something tremendously credible about the elegant unification of digital and in-person care. I think as we think about, as Dan talks about automating away such a vast majority of care, but recognizing in-person physical care will be required in some minority of the cases. And historically, digital health companies have been unable to elegantly integrate and unify that experience into something that members, patients love and are willing to engage in. And so as we sit down with our clients, our prospective clients and they evaluate the solutions, they are going to, one, first hold us accountable to having a best-in-class digital solution. We are going to continue to invest in innovation there, and we're going to continue to have the best digital solution in the market. But they're also looking beyond digital and saying, how do you -- again, to really tackle back to that cost question, how do we really tackle those costs? That's that elegant unification of in-person digital. And so it is absolutely providing a strong competitive advantage for us and I think really enhancing our right to win as you put it. James Budge: On the second point, Brian, kind of numbers trajectory, I'll just reiterate some points that we made on the second quarter call, and nothing has really changed in the commentary. One, we'll have some increased costs. at the outset as we create a team to go put this provider network together. It's already embedded in the numbers in Q3. We've also added costs in the engineering team to create the product experience for our members eventually. We have been out selling it this season. As Dan mentioned, we've got -- or Dan or Jim, we have a few hundred thousand we'll probably sign up for it. But the big selling season is probably going to be late 2026 when we add a number of eligible lives and the clients that come with it, and that will translate into billings and revenue not really meaningfully until we get into 2027. So short answer there is a few added costs between now and end of '26, which are more than embedded in any forecast that we give. And you'll start seeing some billings and revenue impact in a meaningful way in 2027. Daniel Perez: And by added cost, we're talking like 2 dozen people or so right now, maybe a bit more. Operator: Your next question comes from the line of Richard Close with Canaccord Genuity. Richard Close: Congratulations on the success here. James, maybe for you. First, how should we think about any near-term investments, I guess, other than HingeSelect, is there anything big to be aware of maybe over the next several quarters? And then my follow-up would be on the new service expansion product road map that you're talking about, how are you thinking about not diluting the stellar margin profile that you guys are setting right now? James Budge: Yes. Why don't I take the first one and sort of half of the second one, and then Dan can add his perspective as well. I would mention the near-term investments we have are, again, probably similar to what we shared on the second call. We did have some near-term investments in HingeSelect specifically that's come to pass and will continue over the next several quarters, if not indefinitely. And we also have invested a little bit more in our go-to-market function, adding more capacity into the system into an area where we see lots of opportunity for growth going forward. So those are the 2 I'd identify in addition to products in general and add to kick it over to Dan if he wants to add anything more. Daniel Perez: Yes, we are absolutely committed to organic growth. We -- while we don't like to talk about all of our new products until we're ready to launch them to our customers, rest assured, we have a robust R&D team and most of our new headcount from 2026 is going to be towards R&D to both burnish our core product, which is growing robustly. You see that in our numbers. But we want to start planting seeds, and we are planting seeds. As you could see, some are visible within Select, some are not quite visible publicly yet. Obviously, we haven't announced them yet. But we want to plant seeds while our core business is still strong, knowing that it will take a little while for some of these seeds to grow into big strong trees. Operator: Your next question comes from the line of Scott Berg with Needham Co. Scott Berg: Really nice quarter here. A couple for us. Dan, I wanted to start on, I guess, some commentary around Medicare Advantage. These plans really struggled with cost containment over the last 12 months. And we think this has resulted in some case, in the national insurers cutting some of their supplemental benefits they offer as part of these Medicare Advantage plans. I guess, what impacts are you seeing from these cost challenges? And does this actually create an opportunity for Hinge perhaps over the next year or 2? Daniel Perez: Sure. I'll actually turn it over to Jim, who runs this part of our business, if you want to take that. James Pursley: Scott, thanks for the question. You're absolutely right. We've seen in the news of last year, Medicare Advantage plans. Being under cost pressure regarding MLR. Like you said, we see it as an opportunity. Musculoskeletal spend is a big -- is a cost driver. And again, looking at whether it's reducing medical spend, improving stars ratings, I think we have the ability to have a big impact on our MA clients and prospective MA clients. We've added MA clients this year and haven't lost a single one as a result of some of the headwinds they're experiencing. So we really look at this as an opportunity, again, with the validated ROI and the innovation dedicated to MA that we're investing in as well. We think it's a big opportunity, and we'll expect MA to be a contributor to our growth in the years ahead. Scott Berg: Understood. Helpful. And then from a follow-up question, I know that the selling season commentary you talked about some strong winning with jumbo clients in federal in particular. But I wanted to focus on the federal side because I didn't hear your question on it yet. But with the federal government shutdown, does that impede your ability to sign any new federal, I guess, clients here in the interim? James Pursley: No. The short answer is no, it does not impede our ability at all. The evaluation and procurement of solutions like ours continues unabated, and we had our best year ever in that space and have really, I think, got a lot of momentum that we expect to continue into 2026. Daniel Perez: Again, I would emphasize, again, health benefits are still covered during the shutdown. Salaries are not. Should the shutdown to 1/1, all bets are off. I actually don't have an answer for that. You might have a better answer for that than I do, but we don't know what happens if the shutdown extends beyond the new year. James Budge: Daniel, that's above my pay grade, but we'll pay attention. [indiscernible] everyone. Operator: There are no further questions at this time. I will now turn the call back to Daniel Perez for closing remarks. Daniel Perez: Well, first of all, thank you, everybody, for tuning in and seeing these results. We are absolutely committed to continue to apply technology to automate the delivery of care. I hope you see in our results that we are just in the early innings of this transformation of health care. It is again the largest services industry in our economy. And you could see that with these results that we're making good progress in just a small, small corner of health care, which is physical therapy, and we're going to continue to invest our R&D dollars to continue chipping away at the opportunity. So thanks again, and we'll see you in a couple of months. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Cumberland Pharmaceuticals Third Quarter 2025 Financial Report and Company Update. This call is being recorded at the company's request and will be archived on its website for 1 year from today's date. I would now like to turn it over to Emily Kent from the Dalton Agency, who handles Cumberland's Communications. Emily, please proceed. Emily Kent: Hello, everyone, and thank you for joining us today. This afternoon, Cumberland issued a press release announcing its third quarter financial results. The release also provided an operational update, including key developments during the quarter. The release, which includes the related financial tables can be found on the company's website at www.cumberlandpharma.com. During today's call, management will share an overview of those financial results. They'll also provide an overall company update, including recent developments, along with the discussion of Cumberland's brands, pipeline and partners. Participating in today's call are A.J. Kazimi, Cumberland's Chief Executive Officer; along with Todd Anthony, Vice President, Organizational Development; and John Hamm, Chief Financial Officer. Please keep in mind that their discussions may include some forward-looking statements as defined in the Private Securities Reform Act. Those statements reflect the company's current views and expectations concerning future events and may involve risks, as well as uncertainties. There are many factors that could affect Cumberland's future results, including natural disasters, economic downturns, international conflicts, trade restrictions, public health epidemics and others that are beyond the company's control. Those issues are described under the caption, Risk Factors in Cumberland's annual report on Form 10-K and any subsequent updates filed with the SEC. Any forward-looking statements made during today's call are qualified by those risk factors. Despite the company's best efforts, actual results may differ materially from expectations. So information shared on this call should be considered current as of today only. Also, please remember that the company isn't responsible for any -- for updating any forward-looking statements, whether as a result of new information or due to future developments. During today's call, there will be references to several of Cumberland's marketed brands. Full prescribing and safety information for each brand is included on the individual product website and you can find the links to those sites on the corporate site at www.cumberlandpharma.com. The company will also be providing some non-GAAP financial measures with respect to its performance. An explanation and reconciliation to GAAP measures can be found in the financial tables of the earnings release noted earlier. If you have any questions, please hold them until the end of the call at which point, we'll be happy to answer them. Management is also prepared to hold a follow-up conversation with shareholders after the call, if you prefer. With that introduction, I'll turn the call over to Cumberland's Chief Executive Officer, A.J. Kazimi. A. Kazimi: Thank you, Emily. Good afternoon, everyone. We appreciate you joining us today. As Emily mentioned during the call, we'll provide a review of our financial results for the third quarter this year and we'll also cover key operational developments that occurred during that period. In addition, we'll discuss several recent updates that continue to underscore our optimism about the company's future. So let's get started. Today, I'm very pleased to announce a new addition to our commercial product portfolio. We've entered into arrangements with RedHill Biopharma to jointly commercialize Talicia which is an FDA-approved and leading treatment for helicobacter pylori infections, provided in a single capsule that contains Omeprazil, amoxicillin and rifabutin, Talicia is now recommended as a first-line therapy for aged pylori infections in the American College of Gastroenterology clinical guidelines. The product is patent protected through 2042 and also received 8 years of U.S. market exclusivity under its qualified infectious disease product designation. We believe Talicia is an excellent strategic fit for our company. It was FDA-approved based on two large successful clinical studies, and it features an outstanding safety -- excuse me, an outstanding profile of the three 3 key advantages: a high eradication rate exceeding 90%, the convenience of an all-in-one capsule containing three medicines and minimal antibiotic resistance. We formed a new company with RedHill called Talicia Holdings, Inc., and RedHill has contributed to worldwide rights to Talicia, as well as the product assets to the new company. Cumberland will invest $2 million this year and $2 million next to participate in the new company's joint ownership. Through a joint commercialization agreement, we'll assume responsibility for the distribution and sale of Talicia in the U.S. and will equally share Talicia's net revenues. In 2024, net sales of Talicia totaled $8 million. Cumberland will also assume responsibility for product promotion through our field sales division, which currently details Kristalose, another gastroetrology product. And we'll provide an annual investment of up to $2 million to cover certain distribution, marketing and sales costs associated with the brand. Meanwhile, during the third quarter, we announced international developments, including the launch of our Vibativ product in Saudi Arabia. The launch follows an agreement with to book pharmaceutical manufacturing company, to introduce Vibativ into the Middle East. To book had obtained the final approvals needed to commercialize Vibativ in Saudi Arabia, and we're pleased the product is now available for patients in that market. In October, we announced the regulatory approval of our ibuprofen injection product in Mexico. We worked to secure that approval through our partnership with PiSA Pharmaceutical a well-established Mexican pharma firm. Under the terms of the agreement, PiSA is responsible for both the registration and commercialization of the product in their country, while we provide regulatory support and the product supply. Additionally, we previously shared that our antibiotic batter received approval from the regulatory authorities in China earlier this year. That milestone provides us with access to the world's second largest pharma market, and we're now preparing to support the launch of Vibativ there. Here in the U.S., we announced the availability of our Vibativ starter pack through a new supply arrangement with Vizient, making it accessible to their health care members nationwide. And we also announced that Vibativ was added to a national purchasing agreement with Premier Inc. Meanwhile, we've continued to progress our Phase II clinical programs evaluating our ifetroban product candidate in patients with Duchenne muscular dystrophy, systemic sclerosis and an idiopathic pulmonary fibrosis. Turning to the third quarter financial results. Our portfolio of FDA-approved brands delivered combined revenues of $8.3 million during the quarter. Year-to-date revenues for the first 9 months of the year totaled $30.9 million, while third quarter sales were impacted by a delay in some Kristalose and Caldolor shipments our year-to-date revenue has grown 12% over the same period last year. Furthermore, as a reminder, the fourth quarter is often our strongest as customers tend to increase their product purchases towards the end of the year. And therefore, we continue to believe our financial performance is best evaluated on an annual basis. The adjusted loss for the third quarter was $0.8 million or $0.06 a share, and our year-to-date adjusted earnings were $1.9 million or $0.13 a share. In addition, our business continued to generate positive cash flow from operations, which increased to nearly $5 million through this year through September. At the end of the third quarter, we held $66 million in total assets, including $15 million in cash. Liabilities totaled $40 million and shareholders' equity was $26 million at the end of the third quarter. And please note that our total debt has been reduced by $10 million since the end of 2024. With those developments and overview, I'd now like to turn to Todd Anthony, Cumberland's Vice President Organizational Development to further discuss both our brands and our sales organization. Todd? Todd Anthony: Well, thank you, A.J. I'll start by sharing an update on each of our major brands. Vibativ is our intravenous antibiotic designed for difficult-to-treat infections, such as hospital-acquired and ventilator-associated pneumonia, as well as complicated skin and skin structure infections caused by certain gram-positive bacteria, including those that are multidrug resistant. Unlike many antibiotics that are losing the battle to fight bacteria, Vibativ's unique dual method of action was specifically designed to address these drug-resistant bacteria. We, therefore, believe it has lifesaving potential to help many patients amid this growing antibiotic resistance crisis, which faces a very fragile pipeline of new antibiotic development. Recall that to reinforce the message, we are conducting a series of infectious insights. These are discussions with infectious disease experts that we are disseminating across the country. These video vignettes share the opportunity to use Vibativ as a solution for select patient types where other products have failed. In June, a comprehensive new pharmacokinetic analysis of Vibativ was published in antimicrobial agents and chemotherapy. The analysis utilizes data from over 1,200 patients across varied demographics and comorbidity profiles. The findings support optimized dosing strategies for patients with different infection severities and renal function levels, which reinforces Vibativ's critical role in treating life-threatening gram-positive infections. We recently announced the availability of the Vibativ 4-Vial Starter Pak through a new supply arrangement with Vizient, making it accessible to their health care members nationwide. As the country's largest provider-driven health care performance improvement company, Vizient serves more than 65% of the nation's acute care providers, including 97% of our country's academic medical centers. Through this agreement, Vizient members now have access to Vibativ's new 4-vial configuration, which supports flexible treatment initiation in both inpatient and outpatient settings, again, for this life potentially life-saving therapy. Vibativ was also added to a national group purchasing agreement with Premier, Inc., an alliance of approximately 4,350 U.S. hospitals designed to drive transformation across the health care system. The product's addition provides Premier's members with a cost-effective solution to treat resistant gram-positive infections. Moving next to Kristalose, which is our prescription strength laxative provided in a convenient premeasured powder dose that dissolves quickly in just 4 ounces of water, resulting in a clear taste-free and grid-free solution. While our field sales division has been able to generate prescriptions of Kristalose through their promotional efforts, we have always faced substitution by pharmacies in favor of generic alternatives. That substitution has increased this year with the arrival of additional generic competition. We have taken appropriate action and implementing strategies to protect and grow our business. Let's shift now to Caldolor, our intravenous ibuprofen product. With its new pediatric labeling cleared with the FDA, Caldolor is now the only non-opioid product approved to treat pain in infants that's delivered by injection. As a reminder, we are featuring Caldolor through sales and marketing initiatives, highlighting this new indication, resulting in growing use of the product in our country's children's hospitals. We previously announced the publication of our study investigating Caldolor in clinical therapeutics, demonstrating the product's safety and efficacy for managing postoperative pain in patients 60 years of age and older. This analysis encompassing over 1,000 patients from our comprehensive post-surgical studies represents the first such evaluation in this vulnerable population where traditional pain management options such as opioids, carry increased risk. Turning to Sancuso, our transdermal patch FDA approved for the management of chemotherapy-induced nausea and vomiting. We continue to see favorable sales results following the expansion of our oncology sales force. We have also launched a new Sancuso website along with promotional marketing resources and digital marketing campaigns to further support awareness and access to this product. Recall, our Vaprisol product is the only intravenously administered vasopressin receptor antagonist. It's used to raise serum sodium levels in hospitalized patients with hyponatremia, which is the most common electrolyte disorder among these patients. Our new manufacturing and distribution partner for Vaprisol has successfully begun producing the product in their facility and are now awaiting FDA's GMP certification for this site. Once they receive regulatory clearance we will file for approval to manufacture branded Vaprisol there. Well, that completes my updates for today. And so I'll turn it back to you, A.J. A. Kazimi: Thank you, Todd. I'd now like to provide an update on our ongoing clinical activities. We continue to progress our pipeline of innovative products designed to improve patient care and their quality of life. Our ifetroban product candidate just a potent and selective thromboxane receptor antagonist is being evaluated in several clinical programs for patients with a series of unmet medical needs. Ifetroban has now been dosed in nearly 1,400 subjects and has been found to be safe and well tolerated in those individuals, resulting in an outstanding safety database. Earlier this year, we announced positive top line results from our FIGHT DMD trial. The study evaluated ifetroban as a therapy for Duchenne muscular dystrophy and its heart disease, which is the leading cause of death in DMD patients. The study and its results mark a breakthrough for these patients, as is the first successful study, specifically targeting the cardiac complications of their disease. The trial enrolled 41 DMD patients who received either a low dose of ifetroban, a high dose of ifetroban or a placebo. The study's primary efficacy end point was an improvement in the heart left ventricular injection fraction or LVEF and key findings associated with the patient's LVEF included high-dose ifetroban treatment resulted in an overall 3.3% improvement and the high-dose ifetroban showed an increase of 1.8%, while the placebo group showed the expected decline of 1.5%. And when those are combined, you get the 3.3% overall improvement I mentioned. Now when compared with propensity matched natural history controls, the difference was even more pronounced, with the high-dose treatment providing a significant 5.4% overall improvement as the control patients experienced a 3.6% decline. And both doses of ifetroban were well tolerated with no serious drug-related events. These top line FIGHT DMD study findings were selected for a late-breaking presentation at the Muscular Dystrophy Association Clinical and Scientific Conference in March and were then presented at the Parent Project Muscular Dystrophy Annual Conference in June. We completed the comprehensive analysis of the study results. We've prepared our clinical study report and then we submitted it to the FDA along with a request for an end of Phase II meeting. We held that meeting in September, and we began interaction with the FDA to determine their remaining development requirements. The FDA recommended a follow-on meeting, which we are now planning is the next step in that process. Meanwhile, we've been evaluating our ifetroban product candidate, in a clinical program in patients with systemic sclerosis or scleroderma. Enrollment in the study was completed this year, and we've been monitoring the clinical study sites in preparation to lock the database and begin evaluating the study results and we look forward to announcing those findings from this study. In addition, we have a Phase II clinical study, the finding fibrosis trial underway in patients with idiopathic pulmonary fibrosis, the most common form of progressive fibrosing interstitial lung disease. Patient enrollment in that study is moving rapidly. It's well underway and medical centers across the country. The study design includes both an interim safety analysis as well as an interim efficacy analysis, and we'll look forward to reporting on both of those findings. Additional pilot studies of ifetroban are also underway through several investigator-initiated trials and following completion of our ongoing studies and with the FDA feedback will then determine the optimal regulatory pathway for development of ifetroban, our first new chemical entity. So with that update on our clinical activities, I'd now like to turn it over to our Chief Financial Officer, John Hamm, to review our third quarter financial results. John? John Hamm: Thank you, A.J. For the 3 months ending September 30, 2025, net revenue from continuing operations was $8.3 million. Revenue for the first 9 months of the year totaled $30.9 million. Net revenue by product for the third quarter of 2025 included a $1.2 million for Kristalose, $3.2 million for Sancuso, $2.6 million for Vibativ and $0.9 million for Caldolor. Year-to-date, product revenues totaled $7.4 million for Kristalose, $8.6 million for Sancuso, $6.7 million for Vibativ and $3.8 million for Caldolor. Turning to our expenditures. Total operating expenses for the third quarter were $10.3 million. Year-to-date expenses totaled $32.3 million, the net loss for the quarter was $1.9 million. Year-to-date net income loss was $1.4 million, and when noncash expenses are added back, the resulted adjusting earnings for the first 9 months of 2025 or $1.9 million or $0.13 a share. Cash flow from operations during 2025 was $5 million. Also, please note that the adjusted earnings calculations do not include the additional benefit of the $0.1 million of Vibativ cost of goods during the third quarter. Those goods were received as part of the Products acquisition. We're pleased to see that the additions of Vibativ and Sancuso to our portfolio continue to positively impact our financial performance. As a result of the Vibativ acquisition, a total of $34 million in new assets were added, including approximately $21 million in inventory, $12 million of intangible assets and $1 million of goodwill. The estimated value for those assets was $10 million at the end of the third quarter. The financial terms for the Vibativ transaction included a $20 million payment upon closing and a subsequent $5 million milestone payment. We also continue to provide royalties tied to product sales. Sancuso added a total of $19 million in new assets, including approximately $4 million in inventory, $12 million of intangibles. The estimated value of those assets was $9.5 million at the end of the third quarter. We provided $13.5 million at closing for the Sancuso acquisition, and we paid $1.5 million in milestone payments. There are ongoing royalties that we pay based on the brand sales. Turning to our balance sheet as of September 30, 2025, we had $66 million in total assets, including $15.2 million in cash and cash equivalents. Liabilities totaled $40 million including $5 million on our credit facility. Total shareholders' equity was $26 million at the end of the quarter. We continue to hold a bank line of credit, which provides up to $20 million in capital. The interest rate is based on benchmark term SOFR and is subject to a financial covenant determined on a quarterly basis, and we were in compliance at the end of the third quarter. We are also continuing the process of implementing new trading plans for our Board members who are purchasing Cumberland shares throughout the year to increase their holdings in the company. Lastly, I'd like to note that Cumberland continues to hold over $53 million in tax net operating loss carryforwards, primarily resulting from the prior exercise of stock options. And that completes our financial report for the third quarter of 2025. Back to you, A.J. A. Kazimi: Thank you, John. Well, overall, it's been a successful year-to-date, and we're encouraged by our progress. The addition of a new product marks an exciting next phase of growth for our company. We remain dedicated to our mission of working together to provide unique products that improve the quality of patient care. And we pursued our mission by building a portfolio of FDA-approved brands with the outstanding safety and efficacy profiles that can make a difference in patients' lives. We continue to support our product portfolio through our three dedicated sales divisions, each focused on strategic segments of the health care market. And we're encouraged by the progress of our ifetroban clinical programs as we continue to progress, as we continue to pursue therapeutic solutions unmet medical needs. Looking ahead, we expect continued momentum across our approved brands, increased international contributions, further progress in our clinical pipeline and new opportunities to select product additions. We have a lean, highly productive organization and the achievements outlined today were made possible by the dedication and fine efforts of our outstanding team, and we look forward to providing updates on further developments as the year progresses. Now let's open the call to any questions. Operator, please proceed. Operator: [Operator Instructions] A. Kazimi: Well, if there are no questions, I'd just like to thank everybody for joining us for today's call. We understand that many of our shareholders prefer a private discussion with management. And if so, please just reach out and we'll be happy to get a call scheduled with you and hold such a discussion. As always, we appreciate your time and interest in our company and look forward to providing updates in the coming months. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's call. If you would like to listen to a replay of the discussion, please visit the Investor Relations section on Cumberland's website. I would now like to thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Synchronoss Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ryan Gardella of Investor Relations. Thank you, and you may proceed. Ryan Gardella: Thanks, Claudia. Good afternoon. Welcome to the Synchronoss Technologies Third Quarter 2025 Earnings Conference Call. Joining us from Synchronoss today is President and CEO, Jeff Miller; and CFO, Lou Ferraro. By now, everybody should have access to the company's third quarter 2025 earnings press release issued this afternoon, which is available on the Investor Relations section of our website. Today's call will begin with remarks from Jeff and Lou after which we'll host a question-and-answer session. Before we conclude, we'll provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call will be recorded, made available for replay via a link in the Investor Relations section of the company's website. Now I'd like to call -- turn the call over to Jeff Miller, President and CEO of Synchronoss. Jeff? Jeffrey Miller: Thanks, Ryan. Welcome, everyone, and thank you for joining today's call. While revenue in the third quarter was slightly below our expectations, primarily due to subscriber growth weakness among certain customers and delayed timing of new customer contracts, we are pleased with our profitability performance, including strong EBITDA results, net income of $5.8 million and diluted earnings per share of $0.51. The sustained growth of our cloud-based business model was evident with recurring revenue representing more than 93% of total revenue. Our disciplined execution of key initiatives across the organization continues to enhance the company's financial strength and supports sustained progress in the profitability of our more predictable and stable business model. While we continue to operationalize our costs, we reflect rapidly in the changes of the economic environment, we have further focused on solidifying our balance sheet to enable greater operational flexibility for our future. This year, we completed a strategic $200 million 4-year term loan refinancing, retiring our senior notes and prior term loan, strengthening our capital structure and extending our debt maturities to 2029. This was followed by the completion of our CARES Act refund process, resulting in the receipt of $33.9 million of total outstanding balance of the refund owned to the company. This long-awaited refund enabled us to make a $25.4 million prepayment at par on our term loan, adding to the total of $100 million of debt reduction over the past 4 years, and we placed an additional $8.5 million of cash -- inorganic investments to accelerate our growth. Among those potential avenues, we are exploring new product adjacencies to maximize our total addressable market outside the core mobile market. Turning to Q3 results. Revenue for the quarter was $42 million, consistent with results in Q1 and Q2 and included a year-over-year subscriber growth rate of approximately 1% across our global customer base. While our subscriber growth count was lower than we expected in the quarter, we believe that new customer contracts, combined with the strategic changes to how some of our key existing customers are intending to regain market share, should have a positive impact on our subscriber and revenue growth going forward. As I mentioned in the past, our service is extremely profitable for our carrier partners in their efforts to increase ARPU should ultimately be a positive net for Synchronoss. We delivered $12 million in adjusted EBITDA, which resulted in an adjusted EBITDA margin of 28.5% in the quarter. Those results, combined with our year-over-year reduction in operating expenses, further demonstrate the resilience of our high-margin SaaS business model and our team's disciplined approach to cost management, even while facing some revenue headwinds. Our recurring revenue grew to 93.8% of total revenue, underscoring the stability and predictability of our business model. Plus, with more than 90% of our projected revenue under long-term contracts with Tier 1 carriers, we continue to operate from a position of fundamental strength. We also remain focused on adding new global customers to our cloud platform. And while we've reached the contract negotiation phase with prospects, those opportunities did not contribute revenue in the quarter. Next, I'd like to provide some context on our key customer relationships. At AT&T, we continue to see positive momentum in subscriber growth. AT&T has seen a meaningful lift in their value-added service revenue growth, enabled by the streamlined digital onboarding processes that jointly we've put in place, which continue to drive improved take rates. We're still less than 2% penetrated within the total subscriber base of AT&T and growing ahead of our expectations, leaving a long runway for continued growth in 2026 and beyond. At Verizon, we continue to navigate the ongoing transition of their bundled cloud users migrating to their myPlan Perks portfolio. While this transition has created some near-term subscriber growth pressure, which has been slightly compounded by weakness in the carrier's overall subscriber growth, we believe Verizon's focus on positioning our cloud solution, as a premium perk, will ultimately strengthen the value proposition and drive more sustainable growth as their customers migrate on to those individual perk selections. Further, we have several joint initiatives with Verizon that we believe will further accelerate growth, including expanded leverage of their direct and indirect retail channels, where we're seeing healthy uplifts in cloud take rates in both Q3 and early signs in Q4. We're also capitalizing on new SMB cloud perk to continue momentum with the SMB segment. And we're seeing promising subscriber adoption within the value segment, represented by brands such as Straight Talk, Total Wireless and Simple Mobile. At SoftBank, we've kicked off the development work of our digital integration to their My SoftBank app, through our software development kit. This will allow us to expand the discoverability across a broader base of software -- SoftBank subscribers, which we expect to lead into increased adoption once fully implemented. We expect contribution from this digital channel expansion to begin next year. We're also below 2% penetration across SoftBank's mobile brands, with significant room for growth and expansion throughout 2026 and beyond. With Capsyl, our own branded solution, we're seeing digital marketing initiatives with our carrier partner, Telkomsel, begin to generate tangible momentum. While this launch is still in small scale, we're encouraged by the focus and the results of their promotional efforts. We're also using this success story at Telkomsel to pitch Capsyl to a variety of other deep pipeline opportunities with other carriers, and we're seeing meaningful progress in those conversations. It's still early but we're pleased directionally and expect to see progress accelerate in 2026. On the new business front, we continue to make progress across all channels, including our current partner, Assurant, who has helped us expand our reach into new customers. We intend to continue to leverage this partnership for new customer launches in the fourth quarter and throughout 2026, while seeking additional channel partners, which will expand our customer base. We're also making meaningful progress with several new potential customers moving to the contracting and onboarding phases in preparation for launches in 2026. Also, Synchronoss continues to make and achieve significant milestones in our AI-driven transformation. We successfully developed complex features like end-to-end encryption for desktop clients using AI development automation and advanced AI capabilities by promptimizing tuning large language models to generate user stories and test cases. Our teams leverage AI to enhance product features, improve security and streamline development, including generating code that met stringent security and compliance standards with minimal refactoring. We also accelerated innovation through open source AI model adoption, fine-tune models for greater accuracy and deployed hybrid retrievable augmented generation approaches to meet our customers' requirements. These advancements have enabled us to deliver secure, scalable solutions posted on private networks, enhance our user engagement with AI-powered features and lay the groundwork for continued growth in operational excellence. Additionally, we made a significant step forward with our core personal cloud platform by successfully completing and deploying a hybrid cloud AI model for advanced content intelligence which also continues to focus on our cost optimization by enabling in-house photo tagging and image embedding to be dynamically distributed across both company-owned and public cloud environments. This capability is a foundational pillar for next-generation features, including the new memories feature with integrated highlights and personalized genius style content, reinforcing the commitment to driving monthly engaged users and delivering superior value to our service provider partners. Our enhanced platform capabilities, large global cloud subscriber base and talented software development teams are creating a recipe to introduce capabilities and offerings to drive revenue and complement the expansion of our current cloud customer base. We believe these strategic initiatives will drive accelerated growth in the years ahead. Now I'd like to give some color around our guidance for the remainder of 2025. With anticipated continuation of subscriber headwinds among some customers in the fourth quarter and anticipated revenue contributions from new customer contracts, we're adjusting our full year revenue guidance to be between $169 million and $172 million. Due to this revision and expectations on the top line, we are also lowering our adjusted EBITDA guidance to between $50 million and $53 million and free cash flow of between $6 million and $10 million. These adjustments are a reflection of slightly lower expected revenue contributions and steady performance in operating expenses. Our recurring revenue is still expected to be at least 90% of total revenue and our adjusted gross margin is expected to remain between 78% and 80%. Looking ahead, we see the softness in subscriber growth for the quarter as a temporary weakness, and we're building momentum across multiple fronts that we believe will drive improved performance in 2026. We're diligently working to drive accelerated growth through our core offering, while exploring additional adjacencies to expand our total addressable market without losing sight of what makes Synchronoss unique. We're seeing the pace of development increase, and we internally develop new tools for AI initiatives across the technical side of our organization as well. Our strengthened balance sheet, operational discipline and expanding customer relationships provide a solid foundation for growth. And while we recognize our results for the quarter were slightly below our expectations, we believe our healthy business model, combined with our disciplined approach to cost management and expectations for new customer launches, positions us to deliver improved growth performance in 2026 and the years to come. We remain confident in our strategy, our market position and our ability to drive long-term value for shareholders. Now I'd like to turn it over to Lou for a detailed review of our financial performance. Lou? Lou Ferraro: Thank you, Jeff, and thank you, everyone, for joining us today. First, I'll review our key financial metrics for the third quarter of 2025, which we believe serve as critical benchmarks for our performance, and then we'll provide an update on our financial results and outlook. Starting with our key performance indicators. Quarterly recurring revenue was 93.8% of total revenue, reflecting our stable cloud business model, which was driven by cloud subscriber growth of approximately 1%. Turning to our financial results for the third quarter ended September 30, 2025, total revenue was $42 million, down slightly from $43 million in the prior year period due to delay of anticipated customer contracts and lower-than-expected subscriber growth at certain customers. Adjusted gross profit was $33.4 million or 79.5% of total revenue compared to $34.2 million in the prior year, which amounted to 79.6% of revenue. The slight decline was due to lower revenue in the quarter. Income from operations was up 6.4% year-over-year from $5.5 million to $5.9 million, driven by further reductions in operating expenses. As a reminder, we paid down $25.4 million of our existing term loan at par last quarter from the proceeds of our CARES Act refund. Therefore, we do not foresee having to make another scheduled amortization payment prior to 2028. This should provide us with more free cash flow going to the bottom line over the next 3 years. Moving down the income statement. Our total operating expenses decreased 3.5% from $37.4 million to $36.1 million. Cost of revenues and sales, general and administrative costs were down year-over-year while research and development and depreciation and amortization were up slightly. We're going to continue to be focused on disciplined cost control to support our profitability. As part of our cost-reduction initiatives, we're seeking benefits in productivity and cost savings from AI deployment, including the optimization of multiple open source models used in our products. We'll continue to evaluate every avenue to mitigate additional cost, including deploying AI and machine learning, both internally and externally as appropriate. Net income was $5.8 million or $0.51 per diluted share. This result was driven by a $5.2 million onetime interest income event from our tax refund as well as noncash foreign exchange that was slightly positive in the quarter. As a reminder, foreign exchange is a noncash paper gain or loss that has no impact on the financial viability of the business nor does it reflect on the fundamentals of our performance. Adjusted EBITDA was $12 million, representing a 28.5% margin, consistent with our high-margin model and supported by cost control, including a 3.5% year-over-year reduction in operating expenses on a year-over-year basis, as we've mentioned previously. Moving to the balance sheet. Cash and cash equivalents were $34.8 million as of September 30, 2025. This includes approximately $8.5 million in cash that was not used for the prepayment of debt from the tax refund, which we intend to use to fund new growth initiatives. The remainder of our proceeds from the tax refund were used to materially reduce our total debt balance, resulting in net debt of $139.8 million, which is approximately 2.7x our anticipated 2025 adjusted EBITDA, a significant reduction from the year ago period. As Jeff mentioned, this also reduced our annual interest payments by approximately $2.8 million at current interest rates. Free cash flow was $36 million, driven largely by the receipt of our tax refund in the quarter and adjusted free cash flow was $4.2 million. Due to the factors mentioned today, we have adjusted our guidance to reflect the following for 2025: Revenue of between $169 million and $172 million, adjusted gross margin of between 78% and 80%, recurring revenue of at least 90% of total revenue, adjusted EBITDA of between $50 million and $53 million and free cash flow of between $6 million and $10 million. The company's free cash flow guidance excludes proceeds of $33.9 million from the federal tax refund as previously communicated. As discussed last quarter, the guidance also excludes approximately $4.4 million of transaction fees from the 2025 term loan. These fees resulted from the company's recapitalization in which $75 million term loan and a portion of the senior notes were considered modified under accounting principles when replaced with a new $200 million term loan due to participation by existing lenders. I'll now turn the call back over to the operator for questions and answers. Thank you for joining us today. Operator: [Operator Instructions] The first question comes from Anja Soderstrom from Sidoti & Co. Anja Soderstrom: So I'm just curious with the growth that you are seeing, is that mainly then driven by higher wallet share rather than the subscriber growth, which seems to be a little bit challenged? And how should we then think about overall growth when the subscriber growth comes back, if you are adding more value to the existing customers? Jeffrey Miller: Yes. Anja, I'll give a start. Thank you very much for joining us. First off, we had a slight growth in our subscriber and subscription growth revenue category this quarter. One of the major contributors, as I mentioned, has been a little bit of a long sales cycle that we have experienced on getting new customer contracts and therefore, getting new customer growth to contribute to our overall results. We are seeing those conversations progress very well with new customer prospects, it's just taking some additional time to get through the contracts. On the subscriber side, we believe the initiatives that we have in place with our existing customers and the momentum that is already in existence with AT&T, in particular, will allow us to get back towards mid-single-digit types of subscriber growth, complemented by bringing in some new customers to try to help drive our growth for 2026 and beyond. Anja Soderstrom: Okay. And you're talking about 2 rather important customers in the pipeline that you think you're going to sign one by the end of the year and one early next year it sounded like. But how does the rest of the pipeline look like? Jeffrey Miller: Well, the pipeline, you should look at our business, obviously, in 2 dimensions. Number one, continued growth with the subscribers that we -- or the customers we already serve. And as mentioned, with -- for example, at AT&T, less than 2% penetration of subscriber growth today across their broad subscriber base, we have a lot of growth that will be driven through that. In addition to that, the pipeline for other customers both looks good for, I'll call it, branded clouds, not unlike what we do today for AT&T, Verizon and SoftBank, but also for our Capsyl. And we have those opportunities in the United States, in Asia, in Europe and even other parts of the world. So we are continuing to see a broad and very healthy pipeline of opportunities. And the guidance that we've given, as I mentioned, yes, we expect to have a new customer launch this year, and an additional one launch in 2026. Anja Soderstrom: Okay. And just one last for me. With the improved balance sheet and your positive cash flow, how should we think about capital allocation priorities, and are you -- and potential share buybacks? Jeffrey Miller: Yes. Maybe I'll ask Lou to address that question on behalf of the capital plan. Lou Ferraro: Sure. So Anja, the first thing that we're looking at is our ability for a change to be a little bit more on the offensive with our additional cash that we have from the tax refund. And that really before we get into stock buybacks, we look at that as a two-pronged potential opportunity for the company. Number one is additional investment in our current products or expansion of our platform to serve our current and new customers with additional products or potentially some inorganic growth opportunities that prior to this point, we haven't been able to take the advantage to look at and evaluate strategically. So that's really kind of where our capital allocation mindset is right now. Operator: [Operator Instructions] Our next question comes from Jon Hickman from Ladenburg Thalmann. Jon Hickman: Can you elaborate a little bit on the 2 line items, the expense -- the interest income and the interest expense? Both of those were affected by your IRS payment. Is that what you said? Lou Ferraro: No, so our interest... Jeffrey Miller: Go ahead, Lou. Lou Ferraro: So Jon, our interest income is a result of the interest that we received related to our federal tax refund. And our interest expense is related to the interest on the term loan and issuance costs related to it. Jon Hickman: Okay. So -- okay. So going -- how much of that was like onetime on the interest expense side? Lou Ferraro: $1.7 million. That was the deferred issuance cost as it relates to that line item. Jon Hickman: $.1.7 million, okay. And then the interest from -- so when you got the $39 million or whatever, you had -- part of that was just a refund, but part of it was the interest and that's where the interest -- that was like earned interest that you had been... Lou Ferraro: Right. So if you look at the... Jon Hickman: You had to take it all at once. Lou Ferraro: Yes, if you look at the $33.8 million, Jon, $28.6 million was the pure refund amount that was the remaining balance of the $42-plus million that we had filed for under the CARES Act. And then we received $5.2 million going back retrospectively for all the years that were open under the investigation. So the total proceeds of the company were $33.9 million, inclusive of the interest. Jon Hickman: Okay. So then -- so you said you had 1% subscriber growth year-over-year. What happened between Q2 and Q3, sequentially? Jeffrey Miller: We went from 3% subscriber growth, I believe, as we reported last quarter to 1% this quarter, impacted by some of the things I had described. Yes, go ahead. Sorry. Jon Hickman: Well, was there a loss of subscribers... Jeffrey Miller: No, that year-over-year total subscriber growth on a -- we look at it year-over-year to be able to provide full visibility through gross adds, net adds, churn and everything else. So we look at it on a year-over-year basis. Each quarter, we are growing. So we grew hundreds of thousands of subscribers in the quarter, but by virtue of our 11-plus million subscriber base, that represented 1% on a year-over-year basis. Jon Hickman: Okay. So why -- so can you explain -- I mean, let's see. So revenues were actually down sequentially. Can you elaborate on that? Jeffrey Miller: We had -- in the second quarter, if you look at the line item detail, actually, the revenue makeup, our subscription growth actually grew, as I mentioned, on a slightly Q3 over Q2, but what we saw less of were a onetime license or professional services fees. That is a reflection of the fact that we had a contract with SoftBank that we closed in Q2 for the license associated with the SDK deployment that we're doing. And while we saw some new business revenue in the third quarter, it was not as large as the second quarter performance. Operator: There are no further questions at this time. I'd like to turn the floor back over to Mr. Jeff Miller. Thank you, sir. Jeffrey Miller: Thank you. Once again, to all of those who participate in the investment community, we thank you for continuing to take time to invest your time and understanding and learning more about our business and the prospects for our future. To the Synchronoss team, once again, very strong performance by the team to help deliver tremendous advancements in our AI functionality to improve not only our product capability, but also our operational efficiency and for continuing to maintain very disciplined control that give us the strong financial foundation upon which we have to grow the business in the future. So thanks to the Synchronoss team. I wish the rest of you a very good afternoon, and thank you for taking the time to join the call. Back to you, operator. Ryan Gardella: Thanks, Jeff. Before we conclude today's call, I'd like to provide Synchronoss' safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During this call, management discuss certain factors that are likely to influence the company's business going forward. Any factors that are discussed today that are not historical, particularly comments regarding our prospects and market opportunities are considered forward-looking statements within the meaning of applicable securities laws. These forward-looking statements include comments about the company's plans and expectations about future performance. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. All listeners are encouraged to review the company's SEC filings, including its most recent 10-K and 10-Q for a description of these risks. Statements made during this call are as of today, and the company does not undertake any obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or changes in expectations or otherwise. Please note that throughout today's call, management discuss certain non-GAAP financial measures such as adjusted EBITDA. Although the non-GAAP financial measures are derived from GAAP numbers, adjusted EBITDA is not necessarily cash generated by operations. This does not account for such items as deferred revenue or the capitalization of software development. Today's earnings release describes differences between the company's non-GAAP and GAAP reporting measures and presents a reconciliation for the periods reported and not released. Thank you for joining to Synchronoss Technologies Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the Arteris Third Quarter 2025 Earnings Call. Please note, this call is being recorded and simultaneously broadcast. All materials contained in the webcast is sole property and copyright of Arteris, Inc., with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Erica Mannion: Thank you, and good afternoon. With me today from Arteris are Charlie Janac, Chief Executive Officer; and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the third quarter ended September 30, 2025. Nick will review the financial results for the third quarter followed by the company's outlook for the fourth quarter and the full year of 2025. We will then open the call for questions. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties and factors that could cause results to differ appear in the press release that Arteris issued today and in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended September 30, 2025. In addition, for a definition of the key performance indicators used in this presentation such as annual contract value, confirmed design starts and remaining performance obligations, please see the press release for the quarter ended September 30, 2025. These key performance indicators are presented for supplemental informational purposes only should not be considered as a substitute for financial information presented in accordance with GAAP and may differ from similarly titled metrics or measures used by other companies, security analysts or investors. Listeners who do not have a copy of the press release for the quarter ended September 30, 2025, may obtain one by visiting the Investor Relations section of the company's website at ir.arteris.com. In addition, management will be referring to the third quarter 2025 earnings presentation, which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to CEO, Charlie Janac. Karel Janac: Thank you, Erica, and thanks to everyone for joining us on our call today. In the third quarter of 2025, we achieved yet another record annual contract value plus royalties of $74.9 million, resulting in 24% year-over-year growth. We saw increased product adoption in chiplets and SoCs across multiple vertical markets. AI applications accounted for over half of our licensing dollars in the third quarter reflecting the growing adoption of Arteris system IP technology from data centers to the smart edge. We continue to see growing adoption of our product portfolio by top technology companies. An example of this is Altera, which selected Arteris technology portfolio to streamline design workflows, optimize data movement and enable intelligent computing across data center, communications, vision, industrial applications, robotics, aerospace and defense applications. This includes our network on-chip IP products, including Ncore and FlexGen and the management platform for IP block integration and hardware, software integration automation, which Altera plans to use in designing their next generation of FPGA and SoC FPGA solutions. Speaking of FlexGen, last quarter, we announced that AMD licensed the Smart NoC IP to provide high-performance data transport in AI chiplets across AMD's broad portfolio from data centers to edge devices. I'm happy to note that in the third quarter, AMD has ordered additional incremental licenses. In addition to the Altera and AMD relationships, we added 4 other new FlexGen customers in the third quarter. Within the automotive sector, FlexGen was deployed by Dream Chip, a custom SoC design house for high-end automotive semiconductor design. Additionally, a leading automotive OEM adopted FlexGen for next-generation EVs. Within the industrial sector, NanoXplore, a provider of radiation hardened silicon technology serving the aerospace, defense, avionics and industrial markets, licensed FlexGen's Smart NoC IP to address the demanding mission-critical computing requirements in space while supporting their product performance, team productivity, device reliability and meeting the underlying area and cost targets. This represents another example of our products being used not only for applications on Earth, but increasingly in terrestrial orbit, where performance, safety, reliability and security are essential. These examples illustrate the broad applicability of our new FlexGen Smart NoC IP, helping design teams deliver on expanded needs of chiplets and SoCs. Additionally, we expect demand to scale with rising design complexity and the move to advanced foundry nodes, particularly 5-nanometer, 3-nanometer, 2-nanometer and as we head into the Angstrom era of silicon. As the semiconductor industry accelerates efforts to increase performance and efficiency, especially driven by AI workloads and data centers and the edge, we are continuing to see a growing shift from traditional monolithic chips toward chiplets for multi-die SoC architectures, particularly for AI infrastructure and data center applications. One of the key chiplets is the IO Hub chiplet, which controls data movement across heterogeneous multi-die SoCs. 2V Systems licensed our Ncore and FlexNoC interconnect IPs to develop just such an IO Hub chiplet where Arteris technology serves to control multi-die data traffic meeting the high bandwidth, low latency energy efficiency and total cost of ownership objectives while meeting the needs of enterprise computing in data centers and cloud infrastructure. In the quarter, we also saw increased adoption of chiplets for high-end automotive applications, including our recently expanded multi-die solution. For example, one of our advanced automotive semiconductor customers shifted from a single chip to multi-die SoC architectures for their next-generation ADAS design, leveraging Ncore FlexNoC IPs for underlying data movement. Aside from various automotive semiconductor companies, we also saw expanded adoption of Arteris technology by automotive OEMs. Two of the top 5 EV automotive OEM companies expanding their use of silicon proving Arteris technology with functional safety for their next generation of vehicles, which increasingly include a wider array of advanced electronic functionality. Given the accelerating demand for increasingly advanced chiplets and chips from the AI surge in the high end to the growing needs of advanced microcontrollers, the needs for more specialized computing is becoming increasingly evident. This trend drives a broad range of specialized processors or XPUs, for a growing number of applications by providers who increasingly rely on Arteris technology for their underlying connectivity and data movement. With our growing ecosystem, we recently announced an expanded collaboration with Alibaba Damo Academy, enabling better integration and optimize performance between the risk 5 CPU cores and our data movement system IPs. This collaboration is intended to further enable mutual customers to more efficiently design AI server communications and automotive chips. Such ecosystem collaborations help enhance support for end customers, enabling them to accelerate their pace of innovation, with recent example being Axelera AI, a provider of purpose-built hardware acceleration technology for AI inference. They recently expanded the use of Arteris to help accelerate computer vision for edge devices using our technology to help achieve high bandwidth, low latency and scalability requires to optimize their next-generation inference products. The need for ecosystem collaboration is also evident as industry standards continue to evolve. In particular, AI data center infrastructure needs are rapidly evolving, driving demand for purpose-built solutions that can better support rapidly expanding AI workloads. To better meet the associated demand from customers, Arteris joined the Ultra Accelerator Link Consortium, or UALink. The goal of this organization is to establish an optimized, scale-up ecosystem across multiple AI accelerators with Arteris NoC IP serving as data movement transport in chiplets and SoCs. We joined with other companies in the consortium, such as AMD, Astera Labs, AWS, Cisco, Google, HP Enterprise, Intel, Meta and Microsoft, all of whom deal with high-end computing and some of whom are requesting the related support in our products. Lastly, I'm proud that Arteris continuous innovation was recognized with yet another award this time as the winner of the most innovative technology company of the year by the 22nd Annual International Business Awards, while also being recognized for new FlexGen Smart NoC IP and Magillem registers integration automation software product, both announced earlier this year. We believe the scale and scope of our opportunity remain robust, supported by our current products, and strong pipeline of new data movement system IP technologies as well as growing relationships with the largest and most advanced electronics companies in the world in collaboration with a broader ecosystem. Our customers continue to innovate in exciting high-growth areas across multiple applications from AI data centers to the edge, autonomous driving, advanced communications, consumer and industrial use cases. Many of these customers are increasingly turning to our products and solutions to support their innovative designs. With that, I'll turn it over to Nick to discuss our financial results in more detail. Nicholas Hawkins: Thank you, Charlie, and good afternoon, everyone. As I review our third quarter results today, please note that I'll be referring to GAAP as well as non-GAAP metrics, reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 3Q 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. We had a strong third quarter meeting or beating our guidance on all financial measures. Turning to Slide 5 of the presentation. Total revenue for the third quarter was $17.4 million, up 5% sequentially and 18% year-over-year and above the top end of our guidance range. Notably, trailing 12-month variable royalties was 36% higher year-over-year. At the end of our third quarter, annual contract value plus royalties was $74.9 million, up 24% year-over-year, above the top end of our guidance range and at a new record high. Remaining performance obligations, which is our contracted future revenue at the end of the third quarter was $104.7 million, representing a 34% year-over-year increase, a new high and exceeding the $100 million milestone for the first time. Non-GAAP gross profit for the quarter was $15.9 million, representing a gross margin of 91%. GAAP gross profit for the quarter was $15.6 million, representing a gross margin of 90%. Now turning to Slide 6. Non-GAAP operating expense for the quarter was $19.5 million. We continue to reinvest a portion of our top line growth into technology innovations, solution support and our global sales team. Total GAAP operating expense for the third quarter was $24.4 million. We believe that our ongoing investments will help accelerate our top line growth in the coming years. At the same time, we are delivering operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for over 3 years. This has resulted in a 15% improvement of non-GAAP operating expense as a percentage of revenue for the year-to-date compared to the same period in 2023. Non-GAAP operating loss in the quarter was $3.5 million, in line with our guidance. GAAP operating loss for the third quarter was $8.7 million compared to a loss of $7.9 million in the prior year period. Non-GAAP net loss for the quarter was $3.8 million or diluted net loss per share of $0.09 based on approximately 42.7 million weighted average diluted shares outstanding. GAAP net loss in the quarter was $9 million or diluted net loss per share of $0.21. Moving to Slide 7 and turning to the balance sheet and cash flow. We ended the quarter with $56.2 million in cash, cash equivalents and investments, and we have no financial debt. Free cash flow, which includes capital expenditure was positive $2.5 million for the third quarter, above the midpoint of our guidance range. I would now like to turn to our outlook for the fourth quarter and the full year 2025 and refer now to Slide 8. For the fourth quarter 2025, we expect ACV plus royalties of $74 million to $78 million, revenue of $18.4 million to $18.8 million with non-GAAP operating loss of $2.3 million to $3.3 million and non-GAAP free cash flow of $0.2 million to $3.2 million. For the full year, 2025, our guidance as follows: ACV plus royalties to exit 2025 at $74 million to $78 million, an increase of $1 million compared to our prior guidance. Revenue of $68.8 million to $69.2 million, also an increase of $1 million compared to our prior guidance. Non-GAAP operating loss of between $12.5 million to $13.5 million and non-GAAP free cash flow of $2.5 million to $5.5 million. We remain encouraged by our strong deal execution witnessed by the 34% year-over-year growth in RPO at the end of the third quarter. We are seeing promising signs of accelerated interest by some major customers to increase their outsourcing of system IP products to Arteris, which we believe will help accelerate growth in our license and royalty revenue, ACV plus royalties and positive free cash flow. With that, I will turn the call back to the operator for the Q&A portion of the call. Operator? Operator: [Operator Instructions]. Your first question is from Kevin Garrigan from Jefferies. Kevin Garrigan: Charlie and Nick, congrats on the results in the Altera announcement. Can you just talk a little bit more about Altera? Are they fully away from using internal interconnect teams? Or is there still more opportunities for you guys to expand there? Karel Janac: I think there's more opportunities. Basically, the application is for FPGAs and FPGA SoCs. So Altera is using their own interconnect in the FPGA matrix, and then we are used essentially in the SoC part. But Altera business is going to continue to evolve and grow and we believe that there's future opportunities, but this is a major milestone because Altera, as they spun out of Intel chose to go with Arteris for their primary system IP requirements. But yes, there is more potential going down the road. Kevin Garrigan: Okay. Perfect. And then since the initial discussions with AMD and the initial order announcement, it seems like it took about 1 quarter, maybe a little bit longer for them to expand the use of your products. So what were they kind of most impressed with that led to increasing usage in such a short time frame? Karel Janac: Yes. I mean, AMD is a big company. The deal in the second quarter was for their -- basically their central engineering group. And this -- the third quarter deal was basically for another group. And Altera is -- I'm sorry, AMD has many groups to -- for us to work with. And so there are also additional opportunities at AMD, and we're very much looking forward to helping them accelerate their chip deliveries. Kevin Garrigan: Got it. Got it. Okay. And just one more if I can. You talk -- can you just talk a little bit more about the importance of reliability and safety when it comes to interconnects and the importance of it in some end markets like space as you guys mentioned? And I think you guys have done a very good job on this front, but do you see this as this focus as really a competitive advantage for you guys? Karel Janac: Absolutely. I mean, basically, all the important data goes through our network on chips. And basically, if that has problems or doesn't work, the chip doesn't work. So customers are very risk averse in choosing system IP solutions because any problems there can cause major delays in tape-outs and field problems. So we're being recognized as very much a silicon-proven company. I think now our installed base has shipped something like 3.9 billion SoCs and they all work. And probably some of the stuff used daily, probably has our Arteris Interconnect in it. So yes, we are very much focused on reliability. We're very much focused on quality because if the system IP doesn't work, the chip doesn't work. Operator: The next question is from Kevin Cassidy from Rosenblatt Securities. Kevin Cassidy: Congratulations on the great momentum. Just on the UALink consortium, what kind of timing can we expect for licenses to come out of that consortium and some of the players there? Karel Janac: Well, some of the players are already customers. But basically, the objective of the UALink consortium is to essentially scale up data center solutions. And so we're basically developing technology to support that, and we're already involved in some of those designs, but we're basically following that consortium's protocol in order to support the data center scale up efforts that they are pioneered by the companies that we mentioned. Kevin Cassidy: Okay. Great. And with the penetration you're getting within AMD and combining it with the Altera announcement, is there opportunities for Xilinx? Or is that already included in your AMD discussion? Karel Janac: Well, Xilinx is an important part of AMD. And in fact, Xilinx was the first customer that was involved with us prior to the AMD acquisition. So Xilinx has been a long-time user of Arteris. Operator: Your next question is from Gus Richard from Northland. Auguste Richard: Real quick, you've had a number of design wins for a while. And just wondering the royalty relative to most mature IT companies is relatively low. Just wondering when do you expect that to start to accelerate? Karel Janac: Nick, do you want to take that one? Nicholas Hawkins: Yes. I will. Yes. Gus, welcome to the call. So the -- it's a great question because as you and I have discussed in the past, the -- an increasing rate of customer design starts is a great indicator of future royalty growth because typically, there's somewhere between a 3- to 6-year lag between start of the design and mass production and scale, and it can take even another couple of years to get up to full scale after the mass production starts. So it is definitely a heavy link between the 2. The -- we're already seeing that, and we're already seeing the beginning of the inflection on royalties. And there's one you'll see in our investor, like our Q3 Investor Day, there's a new additional piece of information on royalties. And what's very interesting is number one, the growth of royalties is quite -- a variable royalties is quite impressive. And in fact, the growth year-over-year for the variable royalties in the trailing 12 months to the end of September compared to the prior 12 months ending September 30 2024 was up 36%, which is in line with what we've been saying in terms of the royalties growing at roughly 2x the rate of licenses. And what's particularly interesting in that chart you'll see in the investor deck, is that we -- if you go back to 2020, which is quite an interesting start point because that's when we were dominated in royalties from HiSilicon, which has now, of course, gone to 0, we now have a higher rate of variable royalties in fact we have all year since the days of HiSilicon back in 2020 and now instead of being a one-trick pony where we had one customer making up 90% of our variable royalties. We now have 5 customers who between them have a greater royalty stream than the one HiSilicon. So we've got more diversity. We've got more people who are now the majors. So it's 5 majors and then another 50 smaller players. And so it's all up and to the right and growing very nicely. So we are starting to see that. I do see there's an increasing inflection point as we go through the next couple of years. So by 2028, you'll see an even faster rate of acceleration. Auguste Richard: Got it. That was super helpful. And then, Charlie, for you, you guys talk about the top tech companies that you've penetrated, I was wondering if that's just for everybody to find what those companies are and then how many you've, at this point, penetrated? And then specifically in the AI ASIC crowd, are you starting to penetrate those, both U.S. and Taiwan? Karel Janac: Yes. I mean we basically, we define the large company to sort of top 20 semiconductor companies and then basically, another 20 of the largest system electronics companies, right? So that's -- we're kind of jokingly referring to that as the Arteris index. And we have, I would say, more than 50% of those companies as customers but not all of them are huge customers, right? So there's still a long way to go in terms of expansion of our business. But obviously, with the AMD and Altera announcement, and there's a couple of others who don't let us announce who they are. One of which we also closed in the Q3. We did our best to be able to announce them, but they did not let us. So I think our progress in the top 40 largest technology companies is quite good. But there's a long ways to go. It's about a $1 billion, $1.2 billion market and we're about $68 million this year or something like that. So there's a long way to go. Auguste Richard: Okay. Got it. And then the Lord Baltimore questions. When I go through cash flow on balance sheet, blah, blah, and it looks like bookings were in the ZIP code of $32 million in the quarter, book-to-bill about $1.8 billion. So Nick, am I in the right ZIP code? Nicholas Hawkins: Yes. I don't want to comment on bookings otherwise, we open up a Pandora's box of future disclosure. So bookings, as you know, fairly lumpy. And so -- because we have very large customers these days. And so that can really create a false precedent if we start if we start disclosing that. So I'll have to allow you to do your own math on bookings, Gus. Operator: Your next question is from Joshua Buchalter from TD Cowen. Joshua Buchalter: Charlie, I thought your comments in the prepared remarks about more -- seeing more traction from AI applications and specifically in the data center were interesting. Obviously, a lot's happened in the AI space over the last few months. Could you maybe level set us on how much of your opportunity over time you see coming from actually in data center versus edge device edge and edge embedded devices where I think that's been your bread and butter for a while? Karel Janac: Yes. I mean, basically, our thesis is that, over time, pretty much all electronic endpoints or edge devices are going to be connected to the data center. And so for each end point or edge device, there is some ratio of blades in the data center. And as everything becomes connected to the data center, these the number of chips that's actually in these data centers goes to a very large number. So we're sort of following customer demand. And we are -- there's just a lot of attention on AI workloads in the data center. There's a lot of project starts. Obviously, NVIDIA is a very, very major player and it will continue to be a major player. But some of these system houses are also designing some of their own chips for specific data acceleration of specific workloads. They're working on specific AI workloads and those kinds of things. So we see as a major opportunity, and we're working with those customers, and we're increasingly starting to pivot our engineering to address the issues that are important to these data center companies, hyperscaler companies that are handling the high-end AI workloads. So over time, I mean, I think data center will be somewhere between 25% to 30%, maybe 35% of our business. But right now, AI is -- represents about 50% of all the design starts that we're involved with. So right now, there's a bit of a design start bonanza. But on a long-term basis, I would expect it to be about probably 35% or so. Joshua Buchalter: Maybe, Nick, could you provide any comments or color on -- it seems like you're getting a lot of good traction from FlexGen, which comes with higher ASP on the royalty and I'm guessing the licensing side as well. When should we expect that to start being a sort of meaningful needle mover in the model? Nicholas Hawkins: Josh, just to be clear, are you asking that question specifically regarding royalties or more generally on license revenue? Joshua Buchalter: It was more on the royalty side. Nicholas Hawkins: Yes. So I mean FlexGen is accretive to both ASP and therefore, license, but it's also accretive to royalties because it has more competence as a product than it's -- the more junior the FlexNoC 5 that doesn't have the automation feature. So yes, if you look at somebody, for example, in who've just kicked off a FlexGen cycle or FlexGen deal with us, and most of those have come from the mid of this year onwards. And now you saw we had another 4 in addition to Altera and AMD in the third quarter. So it very much depends on the use case. There are some -- most of the use cases right now are more in the server and FPGA environment which don't have huge volumes, as you know, there are some which are more involved in higher volume. We're early stages yet. We do expect a lot more penetration from FlexGen into some of the other areas that are perhaps higher volume. And of course, the biggest royalty area for us, which is about half of our total royalties is actually from the automotive market. And so from a -- if you use FlexGen in automotive, for example, in automotive design today and you start the design, it would be 2030 to 2031 before we started seeing the royalties from that. So there's a lot of pipe stocking going on in royalties from this. Operator: There are no further questions at this time. Mr. Janac, please proceed with closing remarks. Karel Janac: Well, thank you, everyone, for your interest in Arteris. We're very excited about the current quarter, and we look forward to meeting you -- with you in the upcoming non-deal road shows and investor conferences in the quarters ahead and updating you on our business progress. Thank you very much. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning, everyone, and welcome to the Gibson Energy Third Quarter 2025 Conference Call. Please be advised that this call is being recorded. [Operator Instructions] I would now like to turn the meeting over to Beth Pollock, Vice President, Capital Markets and Corporate Development. Ms. Pollock, please go ahead. Beth Pollock: Thank you, Jill. Good morning, and welcome to our third quarter earnings call. Joining me today from Gibson Energy are Curtis Philippon, President and Chief Executive Officer; and Riley Hicks, Senior Vice President and Chief Financial Officer. The rest of our senior management team is also present to help with questions and answers as required. Listeners are reminded that today's call refers to non-GAAP measures, forward-looking information and is subject to certain assumptions and adjustments and may not be indicative of actual results. Descriptions and qualifications of such measures and information are set out in our investor presentation available on our website and our continuous disclosure documents available on SEDAR+. With that, I will turn the call over to Curtis. Curtis Philippon: Thanks, Beth. Good morning, everyone, and thank you for joining us today. The third quarter was a strong period for our customers and the Gibson team. Our customers delivered a number of throughput records this quarter, including an all-time high across our Canadian and U.S. terminals of 2.2 million barrels per day, up 8% from last quarter and 27% higher than the third quarter of 2024. In Edmonton, throughput reached a record level of over 330,000 barrels per day, 14% higher than last quarter and more than double the volumes from the same period last year. Year-to-date, in Edmonton, we have handled roughly half of the heavy crude volumes shipped to TMX. At Hardisty, volumes remained strong at over 1.1 million barrels per day, marking the highest quarterly throughput at the terminal since TMX came online and tracking toward a potentially new all-time record for annual throughput for Hardisty by year-end. At our Moose Jaw facility, following the successful completion of the turnaround last quarter, we increased third quarter throughput by 7% over the same period last year and delivered a new monthly throughput record for the facility in September. At our Gateway terminal, the completion of dredging supported a new quarterly throughput record of 717,000 barrels per day including a new monthly record of 775,000 barrels per day of loadings in August alone, and we have maintained that this momentum into Q4. The terminal also saw a record number of vessel loadings during the quarter with 85% of those vessels being VLCCs and Suezmax's. These Gateway volumes represent a 20% share of total U.S. crude exports and 44% of the Ingleside market. And finally, in support of our Gateway customers, we've achieved record monthly volumes at Wink in September, exceeding 55,000 barrels per day. This impressive performance contributed to third quarter throughput of approximately 52,000 barrels per day, up from 43,000 barrels per day in the same period last year. We get asked sometimes why do we care about the volume throughput records. The vast majority of Gibson's infrastructure revenue is fixed in nature, so the records do not always directly impact quarterly revenues. But we care about these records because they are a great indicator for us as we look forward. These throughput numbers highlight the strength and growth of our customer base and reinforce the essential role our assets and teams play in safely and efficiently delivering energy to global markets at the best possible netbacks for our customers. On top of these records, I'm pleased with the progress made in the quarter on our 5 strategic priorities: safety, Gateway execution, growth, building high-performance teams and cost focus. We're very proud of the outstanding safety culture and program at Gibson. The team is achieving best-in-class safety performance. In the third quarter, Gibson hit record levels for total recordable incident frequency for our employees and contractors. We have now surpassed 9.8 million hours without a lost time injury. A great safety culture that is focused on continuous improvement is the foundation for our success as an organization. This week, we will achieve a key milestone on our strategic priority at Gateway -- on our strategic priority of Gateway execution with the completion of a major capital project. The Cactus II connection at Gateway has finished construction and is being commissioned this week with oil expected to flow as early as tomorrow. The addition of this connection provides our customers with access to an additional 700,000 barrels a day of Permian supply, effectively increasing their supply options by 1/3 and now providing access to 100% of the supply in the region. We remain fully confident in achieving our 15% to 20% Gateway EBITDA growth run rate milestone in Q4 and the record-breaking performance of Gateway post completion of the dredging project, now combined with the supply capabilities provided by the Cactus II connection will enable sustained elevated throughput volumes. On the growth and building a high-performance team strategic priorities, we had an important addition to the leadership team in the quarter. We continue to strengthen the Gibson growth muscle with the appointment of Blake Hotzel as Senior Vice President, Chief -- Senior Vice President, Commercial Development U.S. based in our Houston office. Blake brings more than 20 years of energy infrastructure experience, including senior commercial and business development roles at Tallgrass and Phillips 66. As we expect infrastructure EBITDA per share growth of more than 5% over the next 5 years, Blake's leadership will be instrumental in advancing our U.S. strategy and driving continued growth across the platform. Following the quarter, the construction and commissioning of the infrastructure supporting our long-term strategic partnership with Baytex was successfully completed, an important step that adds stable long-term cash flow under the 10-year take-or-pay and area dedication agreement. The production is now flowing to our Edmonton terminal. On our cost-focused strategic priority, we continue to advance our -- we are all owners cost focus initiative. We are on track to exceed $25 million in run rate cost savings by the end of 2025, driven by strong engagement from teams across every area of the business. During the quarter, we captured onetime an ongoing cost savings contributing $9 million to distributable cash flow. On financial highlights, the business delivered a solid quarter that was in line with our expectations. Infrastructure continued to perform exceptionally well this quarter with near record EBITDA of $154 million and marketing contributed $7 million of EBITDA as expected. Distributable cash flow was $86 million during the quarter. In summary, the third quarter once again demonstrated the strength and resilience of Gibson's business model. We delivered consistent operational and financial performance, advanced key growth projects on both sides of the border and maintained our unwavering commitment to safety. As we look ahead, with Gateway running at record levels, the construction and commissioning of Cactus II complete and our Duvernay project with Baytex on schedule, we are well positioned to continue generating stable growing cash flows. At the same time, our high-performing team, continued focus on cost discipline and an ownership-driven culture ensures that we remain aligned with our shareholders and well prepared to deliver on our long-term growth and return objectives. With this, I'll pass it over to Riley, who will discuss our financial performance in more detail. Riley Hicks: Thank you, Curtis. As discussed, the third quarter was another strong quarter for our core business. Our Infrastructure segment continues to deliver solid results with third quarter adjusted EBITDA of $154 million, an increase of $4 million over the same period last year and in line with the record that we set earlier in 2025. Infrastructure EBITDA also accounted for over 95% of adjusted EBITDA before G&A during the period, emphasizing the high-quality, stable nature of our cash flows. This performance was driven by record throughput across our assets. In Canada, quarterly volumes rose by 26% year-over-year, while in the U.S., throughput rose by 30% over the same period. These positive results reflect the critical nature of our assets and their value to our customers. Our Marketing segment delivered EBITDA of $7 million for the quarter, consistent with both our prior guidance and the previous quarter results. For the fourth quarter of 2025, we expect the macro environment to remain relatively consistent. And as such, we anticipate marketing EBITDA for the year to be around $20 million, within our previously communicated range. As we look towards 2026, we anticipate a stable commodity price environment with marketing performance expected to remain consistent until egress tightens. As such, our focus will continue to be on supporting our long-standing infrastructure customers as they execute their development plans and grow their production around our critical asset base, positioning Gibson for continued stability, growth and long-term value creation. On a consolidated basis, third quarter adjusted EBITDA of $147 million was $4 million lower than the same period in 2024, primarily driven by lower contributions from the Marketing segment and offset by strong performance through our Infrastructure segment. Turning to distributable cash flow. We generated $86 million in the third quarter, a $3 million decrease from the third quarter of 2024. During the quarter, we captured onetime and ongoing cost savings contributing an impressive $9 million or $0.05 per share to distributable cash flow. Approximately 80% of these savings came from 4 main drivers: lower interest expenses, reduced property taxes, decreased operating costs and the one that I am most proud of, our grassroot cost savings efforts. This area made up a significant portion of our total savings through many small initiatives implemented across the company and supported by the participation of 80% of our employees. This is a great example of our culture of ownership and engagement and highlights how individual contributions have meaningfully strengthened our financial performance. Quarter-over-quarter, our debt to adjusted EBITDA ratio improved from [ 4x ] to 3.9x, though it remains above our long-term target range of 3x to 3.5x, while our consolidated payout ratio for the quarter was 85%. On an infrastructure-only basis, our debt-to-adjusted EBITDA ratio was 4.1x and our payout ratio was 80%. As expected, leverage and payout are temporarily above our long-term targets. However, we have clear visibility to returning to our target range in the first half of 2026. We remain fully committed to our financial governing principles. Our balance sheet remains a key strength of our business, supporting both disciplined growth and a sustainable growing dividend. Supporting our conservative financial profile and our continued commitment to our investment-grade rating, both DBRS and S&P have reaffirmed Gibson's BBB low and BBB- ratings, respectively, each with a stable outlook, underscoring their confidence in our long-term financial plan. With this, I will now pass the call back to Curtis for a few closing remarks. Curtis Philippon: Thank you, Riley. To close, the third quarter further demonstrated Gibson's ability to deliver strong results through disciplined execution and a clear strategic focus. We continue to advance our priorities, maintaining top-tier safety performance, executing at Gateway, delivering growth, building high-performance teams and driving cost efficiency across the business. We'll be holding our Investor Day in Toronto on December 2 and look forward to seeing you there where we will walk through our long-term strategic plan. I'd like to take a moment to thank all of our employees for their continued commitment and exceptional performance. Their dedication to safety, operational excellence and our ownership culture continues to drive Gibson's success. Thank you again for joining us today and for your continued support in Gibson. Operator: [Operator Instructions] Our first call comes from the line of Jeremy Tonet with JPMorgan Securities. Jeremy Tonet: Just want to pick up with one of your last points there with regards to the upcoming Investor Day in December. Just wondering if you might be able to provide a little bit more color, I guess, on what type of topics we could be discussing there. Specifically, I guess, growth initiatives as you see at this point, any foreshadowing color you could provide at this juncture? Curtis Philippon: We want to make sure you come to the Investor Day. So we don't want to get too far ahead of ourselves there. But what I would say is the -- I wouldn't come to it expecting that you're going to hear big individual project FIDs. Like we're not intending to announce a significant sort of $100 million-plus project FID in the meeting or even announce any sort of significant change or improvement in marketing outlook. How we look at the world today is how we think it looks like for the front half of the year. And we think we see from a capital project perspective, a lot of very good projects, but a lot of projects that are more in the sub-$100 million range that we'll be working through. So I wouldn't come expecting a specific project FID announcement. What you can expect to hear is we're going to be introducing the team. So we've got a number of new faces around the table and want to give people a chance to meet them in person. So you'll meet our senior team. You'll hear a little bit more about what we've been working on over the last year, and you'll see us lay out the specifics of our 5-year plan. And I think for me, that's the important step that we lay out some of those specifics and give a bit of a step-by-step of how we're thinking about growth and something that our investors can hold us accountable to. And then lastly, we're going to spend a fair bit of time talking about what I believe is a pretty compelling return proposition in Gibson that is backed by an outstanding dividend. Jeremy Tonet: That's helpful. And maybe picking up on one of your comments there, expectation for kind of a static environment through the first half of next year. Around the middle of next year, do you see the egress tightening at that point and supporting better marketing? Or any other thoughts you could share, I guess, on how marketing progresses over time? Curtis Philippon: I think we'll wait and see. I think at this point, when you look at what you see for production and egress, I don't know that you see significant tightening of egress in 2026. I think that's more in 2027 that you start seeing that come in a bigger way. But I think you do start seeing it on the horizon and you start seeing people acting in preparation of those egress challenges coming. And so I think that will make for some interesting opportunities for Gibson. So we see some slight improvement in the marketing outlook in the back half of the year, but it really is fairly consistent for what we see in 2025. And what I would comment on that is the positive on that is it is a tremendous environment right now for our infrastructure customers. Even in low commodity markets, our infrastructure customers are exceptionally healthy and are growing production, and that's really the core of our business. And so we're seeing very good throughput numbers, you see good project announcements from our customers, healthy balance sheets, all while there's sort of this sort of challenging commodity market backdrop. And so as much as we do believe in the long-term guidance of marketing and returning back to our range, it's actually phenomenal for our infrastructure business that we have this very efficient market egress happening right now. Operator: The next question comes from the line of Aaron MacNeil with TD Cowen. Aaron MacNeil: Curtis, as you mentioned in the prepared remarks, you've seen record throughput across the platform. I'm hoping you can sort of take this a step further. Are there any notable contract expiries in the near term where we could see this performance translate to higher contracted pricing to reflect that stronger fundamental backdrop? And if so, how material could that be? Curtis Philippon: Aaron, really, we always have contract renewals that are happening. So there's no sort of uniqueness to 2026 or 2025 for a contract renewal period. We always are working through those. I would say, as you look into next year, though, as you start seeing tightening egress, we like that market condition for renewals as you get into '26, better than what it has been in '24 and '25. Aaron MacNeil: Okay. I also wanted to dive a bit deeper into the impact of nonrecurring cost savings. I know you don't split it out, but can you speak to the specific items this quarter that were nonrecurring, what the impact is and what the visibility to nonrecurring savings could be on a go-forward basis? Curtis Philippon: Yes. We talk about sort of half and half. I don't know if we're given such a -- it's sort of scattered over a number of different buckets. I don't know if it's worth getting into the specifics of what are the nonrecurring ones, but it's about half and half. We'll get into that a bit more at IR Day. I would call out the cost savings program has just been tremendous. The cultural impact of people leaning in and finding cost savings across the business has been quite impactful and culturally getting people focused on, hey, we're all owners here, let's drive cost efficiencies across the business has been powerful. Riley talked about over 80% of our employees participating and having a direct impact on it. We had one example in the quarter that I think is a great story. We've got a senior ops member of our ops team that's a long-term Gibson employee, Kevin Buelow out in Hardisty, who had a capital project in Hardisty come to his attention that we had done an excellent job designing a growth project in Hardisty. We're improving some connectivity in the Hardisty facility. It was about an $800,000 project. And Kevin, with many, many years of experience and knowledge of that asset, looked at that and felt empowered by the cost program to say, I think there's a better way and drove a great conversation with our engineering team and directly on that project. And we ended up saving, I believe it's almost $400,000 on that project and cut time out of the scope, thanks to that. I think these stories, so that would be a great example of a non-recurring cost impact in the quarter that will be realized -- some of that was realized in the quarter. But we've got stories like that happening all over the business right now. And it's just -- I think the cost program just elevated some of these conversations and empowered people to lean in and suggest different ways of doing things. So shout out to Kevin Buelow. Kevin is also one of the newest members of the Hardisty Town Council. So shout out to Kevin, he's a great long-term employee of Gibson. Operator: The next question comes from the line of Sam Burwell with Jefferies. George Burwell: First off, on exports, a little bit of volatility month-to-month through 3Q, even post dredging. So wondering if you could just sort of illuminate whether that was more idiosyncratic to Gibson or reflective of broader macro conditions? And then any insight you could give us on just like the EBITDA sensitivity to this volumetric volatility? Curtis Philippon: Sam. So from a Gateway volumes, super interesting. Obviously, post dredging, we've seen an uptick as we take that facility sort of 47 to 52 feet of depth. You're able to suddenly fill a VLCC rather than 1.25 million barrels to 1.5 million barrels since we saw immediate throughput increase. Not every vessel going through is a VLCC, so you don't see it all the time and not every customer has all that inventory available every time. And so that you don't always get it. But we saw from time of dredging, so pre-dredging, we would have been in the 500,000 range per day on average unloading. Post dredging over the last 5-ish months that it's been -- we've averaged about 725,000 barrels a day. There is some month-to-month flexibility in that. Some of that is geopolitical. There's a lot going on in the world right now. But some of that is really just our customers' programs and when they're timing. And so we've seen a fairly consistent volume. It's actually quite remarkable that we've been able to do the 725,000 on average without the Cactus connection that we -- when we initially planned this out, we really didn't think we would get that big of an uptick without -- until we got Cactus completed because it's such a challenge for the facility to keep up and our customers to keep up with that level of activity with only 2/3 of the supply available to them. And so we've been doing a lot of juggling. Our customers have been extremely supportive on working with us to find ways to get volume onto other pipes to make sure that they can take advantage of using Gateway. But it has been a challenging situation to maintain sort of the high. We did that 775 in August. It's been challenging to maintain that -- quite that level without Cactus. With Cactus now completed, I expect that you're going to see customers get used to using that, and you'll see a volume uptick as we get into the early part of next year. But there is -- at the end of the day, we get a certain amount of compensation for volume throughput, but the vast majority is on just booked windows. And so there is some sensitivity to volume throughput, but there's -- at the end of the day, it's MVC minimums that drive the bulk of the revenue at Gateway. And so there is sometimes month-to-month variations where customers choose for whatever reason, not to take advantage of their MVC. George Burwell: Okay. Perfect. Understood. On marketing, I appreciate the comments you guys gave earlier and that makes sense that the outlook is challenged given where the dips are. But just curious if there are any other headwinds or tailwinds that you see outside of kind of the headline dip, whether it's refining margins? Or I mean, if we do see crude go into contango, just like anything else out there that could potentially swing marketing one way or the other over the, call it, medium term? Curtis Philippon: Yes, there's a few things, but I caution that they're still early on that. But they do give us optimism that we expect to see a bit of an uptick as we get into next year. One thing we flirted with contango just recently. And so obviously, that's a big deal. We've been very backwardated for a long time. Just recently, we flirted with contango. If that was to come back, obviously, there's a very positive impact for our bottom line. On the refinery side of things, one of it is actually just demand for products that one of our large markets for drilling fluids out of the refinery is Western Canada. And as you see a fair bit of activity around LNG-related drilling activity in Western Canada. We think there's a bit of a small uptick around that, and that's a good product for us. So that's a nice indicator for us. And then the other one is just around Gateway and that we've -- in our U.S. side of our business, we haven't really done a lot to take advantage of what our marketing team can do to help Gateway customers, and we expect that you'll see us do more out of our U.S. business to grow a bit of a market business that supports Gateway throughput. Operator: The next question comes from Robert Hope with Scotiabank. Robert Hope: Maybe keeping on the South Texas theme. With Cactus entering service here imminently as well as the dredging now done, where are you spending most of your time on the files for that asset? Is it on the storage side? Are you devoting more time to the incremental dock? Or is it all contracting? Curtis Philippon: Yes. On Gateway, obviously, a great story this year with a couple of notable things. And so as we get into '26, there's a certain amount of us just taking advantage of the new capabilities that we've got. Now that we've got this dredged facility and all this connectivity, we can really move into some recontracting with customers to -- at larger MVCs and that the original MVCs at the facility were done at an Aframax size vessel. Now that we're fully VLCC ready, as recontracting comes up, there'll be larger windows being contracted. And it's nice that we're getting paid on throughput today for that incremental volume, but we love MVCs. We're midstreamers, we love guaranteed revenue. And so you'll see a lot of work over the next couple of years as contracts come up to sort of shift over to larger MVCs versus having a variable portion on some of this throughput. So that's one piece. The other piece that we're seeing is just with the large amount of activity at Gateway that we're seeing customers really pulling for a lot -- looking for additional supply. And so we're doing a fair bit of work out in Wink to go support sourcing additional volumes for customers, and that's quite helpful as they think about getting incremental cargoes off the dock in Gateway, what can we do to find additional barrels for them. So we're doing a fair bit of work around that, and I think we'll talk more about that at the Investor Day and some of the things we're doing there. And then also out of the Eagle Ford, we see some nice opportunities to provide additional Eagle Ford barrels with existing customers that have a footprint up there that would like to get more of those barrels across the dock. And so we're doing a few things around that as well to sort of unlock some of that potential for the Eagle Ford. Robert Hope: All right. And then maybe on Wink, you've highlighted a couple of times this call, and it's been silent for a number of calls recently. How are you thinking about your Wink assets? And what do you think the outlook for them is and how they fit in to the company longer term? Curtis Philippon: Wink has been -- it's an interesting one for us. So early on with Gateway, we definitely underpromised around what is the linkage between Gateway and Wink. And it was still, still early, we're learning what exactly that potential was. But in the back of our minds, I think there -- we think there's something there. And we've seen that play out this year that it is a big deal for customers to be able to find more barrels for the -- across the dock and Gateway. And so having the ability to gather barrels at Wink has been an advantage for us. And so we've leaned into that. The team has done an exceptional job, and you can see the volumes going up. So we're seeing some good activity and profitability out of that Wink business. We think there's an opportunity to grow that a little bit as well as we -- I think it's a good piece of business, but it's also nicely supports Gateway. So you'll see us leaning into that one a little bit more. And I also think just from an overall macro of the Permian, why I'm interested in that is because you can look forward and say the Permian is right now today, a fairly flattish production profile over the next little bit. But if you look specifically at the quality of the barrel in the Permian, there's a real trend going on out there right now that there's increasingly more quality challenged barrels that would benefit from a terminaling solution that Wink and Gibson can provide to help them make sure that they're optimizing their quality before shipping the barrels out of the field. And so I think increasingly, the importance of our service increased a bit. When saying all that, it's still a relatively small part of our business. This is -- we're talking about 50,000 barrels a day of gathering. It's a relatively small asset for us, but we've been pleased with how it's performed. Operator: The next question comes from Maurice Choy with RBC Capital Markets. Maurice Choy: Just a question on, I guess, taking a bigger picture about your objectives in your second year as CEO. It feels like the first year, you've channeled the company's focus, including on keeping things more simple, focusing on a crude oil theme, optimizing costs and on culture. When you think about your second year, what are some of the mandates you've been given by the Board? And how do you look at things like M&A as well as any other hirings that you need to make beyond... Curtis Philippon: Maurice, I think it's been -- I think you characterized the first year well that we had a certain amount of work to do in the first year to get the organization focused on cost and strategically aligned, execute really well out in Gateway. And the team has done a phenomenal job of that. And so I think as we get into next year, it's a little bit of, okay, we've got the team in place now and let's go really -- let's accelerate this. There's an opportunity to accelerate our growth and some of the things that we're doing. And now that we've sort of been through a bit of a period of change, I think now we've got a bit of ability to just go run now, and I'm really pleased with the team we've got around the table and pretty excited about what we can do with that. But we'll see what that means for M&A. I think we've proven with Gateway that Gibson is capable of doing excellent M&A and going and integrating it well and delivering on it but we're not going to force that. I think one of our benefits is we're -- of our size that we don't -- there's not a need to go do M&A just to get a little bit bigger for the sake of getting bigger. If we would do M&A on crude-focused assets that were true crown jewel type assets that we could add to our portfolio that nicely plugged into our current assets as best as possible and had the sort of contract profile and customer quality that we're after and the valuation has to make sense. So in saying all that, I think we'll be pretty focused on growth capital, but have an eye on is there a potential M&A out there that's crude focused that makes sense for us. Maurice Choy: Understood. And if I could just finish off on a question on the leverage and targets. Riley, I think you mentioned earlier that you're forecasting to reach your 3x to 3.5x debt-to-EBITDA target by the first half of next year. I think previously, there was a mention of this being early 2026. So would you view that to be consistent with your prior messaging? And if not, is it merely the marketing outlook having changed a little bit for 2026? Or are there other drivers that you highlight? Riley Hicks: Thanks, Mau. I think as we look at our leverage and kind of returning to our normalization in the first half, we would view that as consistent with our prior messaging. And really, the main impact driving that downward is realizing the benefit of all the great capital projects we've got here in 2025. As that EBITDA comes online, we'll drive our leverage back down to the range that we like. So we feel very comfortable with our long-term deleveraging plan, and we expect to achieve that in the next -- first half of next year. Operator: The next question comes from Benjamin Pham with BMO. Benjamin Pham: I wanted to follow up on the last question and maybe just touch base on your thoughts on the -- your current leadership team. You effectively have completed so what you need to place on your team. And I'm also curious with the new hire, what priorities you've set for him and any potential changes in terms of how you think about the U.S. versus before? Curtis Philippon: Yes. So from a team perspective, I'm pretty excited about the team we've got. I think we've got -- I think it's so important to get the right team around the table. We've done that. We've got a team that's pretty excited about growing Gibson over the next phase of time. And so we're excited about that. In particular, with Blake joining now. We looked at the U.S. business with the addition of Gateway is now Gibson is very relevant in the U.S. And so we've got -- part of bringing Blake in is like, one, let's make sure that we're running and managing our Gateway and our Wink asset very well and continuing to drive good growth of those things and driving great recontracting and doing all those positive things. So that's sort of plan A, sort of keep the car on the track. So we're having a bunch of success, keep that going well. The second part of that is, boy, we're relevant now. Like we're exporting 1 in 5 barrels out of the U.S. goes through the Gibson Gateway facility. So we're a meaningful part of the energy infrastructure in the U.S. We've got a footprint now. What do we do with that? And what other incremental growth capital or other things could we do that could expand that growth down in the U.S. And so I think that's really what his mandate is. And in saying that, it's -- we're targeting this overall infrastructure EBITDA per share growth of over 5%. And I expect there'll be a nice mix of Canadian and U.S. growth that will be pushing for that and a little bit of adding Blake to the mix and his counterpart, Kelly Holtby in Canada is just -- we grant a nice -- a nice competitive tension of a lot of projects coming to the forefront for us to compete for capital and make sure we're driving the best possible projects forward on both sides of the border at the best possible returns. And so I think that's a little bit of how we're thinking about it. Benjamin Pham: Think what ideally, not necessarily putting numbers at this point in time that you could see long term a nice balance mix of sanction projects between both countries? Curtis Philippon: It's hard to predict what the mix is. I think right now, I think it's a fair assumption that you've got a balance between both sides of the border. When you -- we've got -- the U.S. market is obviously much larger, and so the opportunity set is tremendous. But on the other side, in Canada, Gibson has got 70 years of history and just a really substantial asset base across the Western Canadian basin that gives us a lot of relationships and a lot of opportunities on the Canadian side of the border as well. Benjamin Pham: Okay. Got it. And maybe a follow-up question to your earlier comments, Curtis, on the volume uptick, maybe not necessarily translating to the one for one on the EBITDA side of things. I was wondering, I just simply look at your numbers, infrastructure year-to-date, year-to-year, it's up 2%. And I understand there's some dredging impacts there. There's asset sales, but then you got the Edmonton project and you got a big ramp-up in Gateway. So is that I guess maybe just unpack that a bit of just the disconnect between volumes and EBITDA growth? And then is the 15% to 20% then is that more -- it sounds like it's more of a back-end uptick then depending on your comments on the first point? Curtis Philippon: Yes. I think you've got -- there's -- we've definitely seen volume increases. But as I mentioned, there is not a direct correlation between sort of revenue on some of those volumes. And so when I look at those volume increases, I get excited about okay, the next set of recontracting, when does the next tank demand come on as you see our customers getting more and more active in the terminal. And then on top of that, when you get into situations where you get into egress challenges in the future, over the fact that we've got a great customer base moving a lot of volume, I think that just really even further enhances how can we help them at times of egress challenges in the future. So it's a bit -- it's definitely very much a forward look that we get excited about what that impact is versus sort of an immediate earnings impact other than in gateway where we see some throughput earnings impact on the sort of the excess over MVC numbers. So that's a little bit of how I'm thinking about the volumes. The 15% to 20% marker on Gateway, we feel very good about that. Well -- so that's the marker we set on acquisition day that we wanted to -- we thought that we'd realize some benefits and drive a 15% to 20% increase from what the run rate was at the time of acquisition to at some point in the future. We're hitting at some point in the future here in Q4. There will be a step-up in Q4 with just being able to realize sort of a bit more of the full benefit of having of these assets available to us. I think you'll see a bit more of that. We'll likely be closer to the 15% in Q4, and you'll see a bit more of that as you get into 2026 now that you've got -- obviously, we only have Cactus for part of the quarter here in '25. Operator: The next question comes from Patrick Kenny with NBCM. Patrick Kenny: Just on the Edmonton Terminal, see the throughput being up nicely with TMX and then obviously, the Baytex deal coming online. Just wondering if you could refresh us on what the remaining upside story here looks like at Edmonton, either from a capacity or capital investment standpoint? Curtis Philippon: Yes, we're pretty excited. Like it's over half the volume is going on to TMX. That's a good story. I think where we think about what is the additional growth specifically in Edmonton, when we added those last 2 tanks for Cenovus on 15-year agreements, we did the prework to get ready to build 2 more tanks as we see volume and activity continue to increase, I think the probability of adding those 2 tanks just increases as well, whether -- I think there's sort of 2 things. There's sort of -- is there additional TMX debottlenecking and growth and whether that's dredging on one end of that, that allows them to get additional throughput. I think there's some positive indicators on sort of volume increase that will have a good impact on Gibson. But also the second part is it's still so new that I think our customers are telling us that they're still finding ways to further optimize their netback on what they -- on how they're shipping on TMX. And I think there's things we can do to help them on how they're shipping on TMX to sort of offer some upside. And so I think that provides a bit of a growth opportunity for us with our customers. But saying all that, I'd say this has exceeded our expectations for how much volume we've seen on TMX coming through the Gibson facility and pretty excited about how that pipe has been operating. Patrick Kenny: Okay. That's great. And then maybe at Gateway, just coming back to -- you mentioned you're still comfortable with the 15% to 20% growth target. But if I'm not mistaken, that target was set a while back. And so I'm just wondering based on where your market share is now in Corpus Christi, seeing how strong throughput has been year-to-date. Just wondering how close you are to exceeding that 20% growth target as we look into next year. And just wondering if your base outlook includes your ability to move VLCCs at night or any other optimization efforts that might be in the works? Curtis Philippon: Yes. I think we'll dive into a bunch more of that at Investor Day, Patrick. I think that's -- I think there's an interesting additional value that you can unlock at Gateway. One, just using the current capabilities that we've already got. But yes, as you get into things like night moves of VLCCs and thinking about how do you optimize that capacity, I think there's some additional levers still to be pulled even as we get to the 15% to 20% marker now, opportunity to exceed that as you go forward. Patrick Kenny: Got it. And then maybe just lastly for Riley, not to steal too much thunder from Investor Day, but just coming back to the balance sheet and I guess, the plan to stay under 3.5x once you get there next year. Curious how much dry powder you might see being available for additional partnerships like the Baytex deal or other tuck-in acquisition opportunities? Riley Hicks: Yes. Thanks, Pat. I think when we think about those type of opportunities, we think we have ample liquidity and ample ability to access the financial markets to support our growth plan. So no real concerns in growing and deploying capital to grow. We're very comfortable with our financial plan and where we stand with the investment credit rating agencies. So to the extent that we find great tuck-in acquisitions or opportunities or potential partnerships, we will be happy to execute. Operator: There are no further questions, and I would now like to hand the call back to Beth. Beth Pollock: Thank you. Thank you for joining us for Gibson Energy's Q3 2025 Earnings Call. Additional supplementary information is available on our website at gibsonenergy.com. For follow-up questions, please reach out to investor.relations@gibsonenergy.com. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's First Quarter of Fiscal 2026 Results. [Operator Instructions] Hosting today's conference will be Reed Anderson with ICR. As a reminder, today's conference is being recorded. And now I would like to turn the conference over to Mr. Anderson. Reed Anderson: Thank you. Good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the first quarter of fiscal 2026. On the call today from LifeVantage with prepared remarks are Steve Fife, President and Chief Executive Officer; and Carl Aure, Chief Financial Officer. By now, everyone should have access to the earnings release, which went out this afternoon at approximately 4:05 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of LifeVantage's website at www.lifevantage.com. This call is being webcast, and a replay will be available on the company's website as well. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of LifeVantage's most recently filed Forms 10-K and 10-Q. Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis. Management believes these financial measures can facilitate a more complete analysis and greater transparency into LifeVantage's ongoing results of operations, particularly when comparing underlying operating results from period to period. We've included a reconciliation of these non-GAAP measures with today's release. This call also contains time-sensitive information that is accurate only as of the date of this live broadcast November 4, 2025. LifeVantage assumes no obligation to update any forward-looking projection that may be made in today's release or call. Now I will turn the call over to Steve Fife, the President and Chief Executive Officer of LifeVantage. Steven Fife: Thanks, Reed, and good afternoon, everyone. Thank you for joining us today. Before we dive into our Q1 results, I want to take a moment to reflect on what has truly been transformational this quarter for LifeVantage. We successfully closed the strategic acquisition that positions us at the forefront of a rapidly growing wellness market. We've brought together 2 passionate consultant communities and we've continued to execute on our product differentiation of activating the body through nutrigenomic innovation. Looking at our Q1 2026 results. Net revenue of $47.6 million was up fractionally from a year ago, reflecting a modest increase in the number of consultants and similar growth rates in both the Americas as well as Asia Pacific and Europe. Adjusted EBITDA of $3.9 million was down $500,000 versus last year due to lower contribution margin, partially offset by lower SG&A. Given its strategic importance, let me now turn to the LoveBiome acquisition we closed on October 1. This transaction represents far more than just additional products in our portfolio. It's about positioning LifeVantage squarely within one of the fastest-growing segments in wellness, gut microbiome health. The gut health supplement market is projected to grow from $14.4 billion in 2025 to $32.4 billion in 2035 million and LoveBiome flagship P84 product aligns perfectly with our approach to product using carefully selected blends of naturally derived ingredients that activate optimal health processes ensuring your body is making things it needs for health. The innovative product that's right alongside our existing portfolio of scientifically validated activators including our flagship Protandim Nrf2 Synergizer customer favorite, TrueScience Collagen and our breakthrough MindBody GLP-1 system. But what makes this partnership truly special is our shared commitment to the direct selling industry and the empowerment it provides to consultants around the world. By bringing LoveBiome consultants into our industry-leading evolve compensation plan with compelling products that address a broad spectrum of health concerns, we're able to activate wellness, both financially and physically to a much broader base of consumers. The integration of LoveBiome is essentially complete with systems and website cutover happening this past weekend. We successfully onboarded personnel, including founder, Kelly Olsen, and his leadership team and we're seeing positive early indicators from the consultant community integration. Consultant product cross-selling training has kicked off and is expected to ramp during the quarter. From a financial perspective, we're on track to achieve the operational synergies we outlined at the time of the acquisition announcement. The integration of our technology platform, supply chain operations, and consultant support system is progressing smoothly, and we expect to realize the full benefits of these synergies as we move through fiscal 2026. Looking beyond this fiscal year, we remain confident in our ability to drive improved operating leverage as we scale our combined operations and realize the full benefits of our strategic investment in technology, product development and market expansion. The timing of this acquisition couldn't have been better as it allowed us to showcase this exciting partnership at our U.S. Momentum Academy event, which was held in Dallas on October 24 and 25. This was truly a historic event. The first time our 2 active communities came together in person for training, along with incentive and product announcements. The energy in Dallas was absolutely electric. We had nearly 2,000 registered, making it one of our largest Momentum Academy events ever. The integration of our consultant communities exceeded our expectations with LoveBiome consultants embracing our drive era quarterly incentive campaign and our comprehensive training programs. This year's event centered around the theme, Love Life and Drive which served as both a nod to the companies coming together and inspiration to consultants to take the driver's seat in their business with purpose, speed and unstoppable momentum. Nothing replaces the energy and momentum that comes from meeting in person, and our time in Dallas emphatically proved that point. Attendees are also trained on Healthy Edge, a groundbreaking combination that pairs the original proven technology of Protandim Nrf2 Synergizer with the emerging science of P84. Individually, each product delivers powerful benefits by supporting cellular health and system communication. Together, they form a peak performance wellness system that provides foundational health throughout the entire body, helping you feel ready to take on life's daily challenges. Consultants at the event got a first look at results of a recently completed in vitro study on P84, which demonstrated the activation of 14 natural peptides found in the gut responsible for regulating, repairing and restoring this vital organ. While most other gut health products merely supplement with pro, pre and post-biotics, the testing proved the activation differentiator of this comprehensive product. We will be providing more details of these exciting results in the coming weeks during the full P84 and Healthy Edge product launch. Next, let me update you on the Shopify partnership we announced last quarter as this is a key focus as we continue to invest in modernizing our technology infrastructure to meet the demands of today's fast-paced consumers. This quarter, the team made great progress with the design, content and development aspects of our new e-commerce platform as we work towards a pilot this fiscal year and later our full rollout. This partnership with the most reputable highest converting e-commerce platform on the market will deliver significant growth potential for both LifeVantage and our consultants. Shopify enables increased conversion and brand advocacy through seamless channel experiences, deeper personalization and data insights and greater consumer confidence through enhanced payment security, checkout reliability and order tracking. As we look ahead to the remainder of fiscal '26, I'm optimistic about our positioning and growth trajectory. The successful integration of LoveBiome has expanded our addressable market while strengthening our consultant base with passionate, experienced entrepreneurs who share our commitment to activating optimal health. We're not just adding products or consultants or creating a comprehensive wellness ecosystem that addresses multiple aspects of human health, including physical and financial from cellular health with Protandim to metabolic wellness with MindBody to gut health with P84 to beauty and longevity with TrueScience. We're uniquely positioned to serve the evolving needs of health-conscious consumers worldwide. And with our industry-leading evolved compensation plan, comprehensive training and recognition programs and vibrant community, we're uniquely positioned to serve the unique needs of entrepreneurs worldwide as well. The direct sales industry continues to evolve and companies that combine innovative products, compelling compensation, modern technology and authentic community will be the winners. I believe LifeVantage enhanced by our LoveBiome partnership is perfectly positioned to lead in this new era. With that, let me turn the call over to Carl for a detailed review of our financial results and outlook. Carl? Carl Aure: Thank you, Steve, and good afternoon, everyone. Let me walk you through our first quarter financial results. Please note that I will be discussing our non-GAAP adjusted results. You can refer to the GAAP to non-GAAP reconciliations in today's press release for additional details. For the first quarter of fiscal 2026, we delivered net revenue of $47.6 million, which was up 0.7% compared to $47.2 million in the first quarter of fiscal 2025. The slight increase in net revenue reflected increased sales of our MB GLP-1 system, offset by lower sales of Protandim and TrueScience product line as well as decrease in total active accounts. While net revenues in our primary geographic regions were both up slightly in the first quarter, we did experience higher growth in Japan, driven by the launch of the MindBody GLP-1 system beginning in March. For the quarter, revenues in Japan increased 2.6% on a constant currency basis. Our gross margin for the quarter was 79.5%, down 40 basis points compared to the prior year period, primarily due to increases in shipping and warehouse related expenses. Commissions and incentive expense as a percentage of revenue was 43.5% in the first quarter compared to 43% in the prior year period. The increase was due to changes in sales mix, along with the timing and magnitude of our various promotional and incentive programs. Non-GAAP adjusted SG&A expense was $14.6 million in the first quarter compared with $14.7 million in the prior year period. Adjusted non-GAAP operating income was $2.5 million in the first quarter compared with $2.7 million in the prior year period. Adjusted non-GAAP net income was $2.3 million or $0.18 per fully diluted share in the first quarter compared to $1.9 million or $0.15 per share in the prior year period. We recorded income tax expense of just under $100,000 in the first quarter compared to income tax expense of approximately $800,000 in the prior year period. Our overall effective tax rate for the quarter was approximately 4%. The decrease in our effective tax rate for the first quarter was due to the positive impact of discrete items recorded in the quarter. We anticipate our full year fiscal 2026 effective tax rate to be approximately 25%. Adjusted EBITDA for the first quarter was $3.9 million or 8.2% of revenues compared to $4.4 million and 9.4% in the same period a year ago, primarily reflecting lower gross margins and higher commission and incentive-related expenses. Please note that all of the adjustments from GAAP to non-GAAP that I discuss today are reconciled in our earnings press release issued this afternoon. Our financial position remains strong with $13.1 million of cash and no debt at the end of the first quarter compared to $14.6 million a year ago. We also maintain access to a $5 million revolving line of credit. Capital expenditures totaled $400,000 in the first quarter compared to $300,000 in the prior year period. Turning to capital allocation. We repurchased 44,000 shares during the first quarter at an average of $13 per share for an aggregate purchase price of $600,000. As of September 30, 2025, there is still $16.7 million remaining under our existing share repurchase authorization. Today, we also announced a quarterly cash dividend of $0.045 per share of common stock or approximately $600,000 in the aggregate. This dividend will be paid on December 15, 2025, to stockholders of record as of December 1, 2025. Since the beginning of fiscal 2024, we have returned approximately $19.8 million in total value to our stockholders through stock repurchases and dividends. We will continue to focus on our balanced capital allocation strategy in order to drive value for our stockholders. Turning to our outlook for fiscal 2026. We continue to expect our full year revenue will be in the range of $225 million to $240 million, which includes expected revenue contribution from the LoveBiome transaction. We are also reiterating our profitability guidance and expect adjusted non-GAAP EBITDA in the range of $23 million to $26 million and adjusted non-GAAP earnings per share in the range of $1 to $1.15 per share. We continue to anticipate revenue in the second half of fiscal 2026 will be higher than the first half due to the seasonality associated with our MindBody product line and the impact of the LoveBiome acquisition. Overall, we are pleased with the continued improvement in our profitability metrics and remain committed to improving our adjusted EBITDA margins to reach our long-term target. And with that, let me turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] The first question we have comes from Doug Lane of Water Tower Research. Douglas Lane: Before we get to LoveBiome, can you give us a feel -- I know you don't put out quarterly guidance, you put out annual guidance. But can you give us just a some sort of feel on how you thought the September quarter came in versus your original expectations? Steven Fife: Yes, Doug, this is Steve. Q1 is historically our low quarter. We have a lot of our consultant base that isn't as active during the summer months. And we saw that trend continue this quarter. We also -- when I look back to our prior year comparison, we had in September a year ago, a fairly strong ramp-up to our launch of MindBody that occurred in the middle of October and had a separate incentive 20% off a year ago and a ramp-up to that. So it was -- on a year-over-year comparison, it's probably a tough comparison to begin with. But again, kind of seasonally low in general for us over all the years. So a little softer than maybe than what we thought, but not alarming at all. Douglas Lane: Okay. That makes sense. And this year, I guess you announced LoveBiome right in the third month, September. Was there any impact to your business? Did that have any impact on your business between September 3 and October 1. Steven Fife: No. There was 0 revenue contribution from LoveBiome. We didn't close the transaction until October 1. So there were 0 revenue impact from the LoveBiome group. If anything, I would say that our consultant base of the LifeVantage consultant base may have kind of taken their foot off the gas a little bit to wait and see the anticipation and to understand what all of that meant. So possibly some just kind of a pause with some of the LifeVantage consultants, but no contribution from the LoveBiome revenue group. Douglas Lane: Okay. That's good color. So actually, the opposite of what happened last year. So LoveBiome closed on October 1. So you will benefit from a full quarter of their sales just mathematically before you even begin the integration of their sales force and the rollout of the Healthy Edge stack. So let me ask you this. And that will help offset that tough comparison from last year, but I get that really -- really, we're looking at the second half year to really get the full benefit of LoveBiome becoming part of LifeVantage. Steven Fife: Yes, that's exactly right. We -- the transaction closed on October 1, and for the entire month of October, we were operating separately. So their systems, their website, their comp plan was still in full effect and similar for LifeVantage. What's really exciting and really a great success for us is that over this last weekend, we took our systems down for a few days, but converted all of LoveBiome onto LifeVantage's systems, both the transactional side, the e-commerce, the websites, the back offices, so all the tools that the consultants use and the compensation plan. So effective November 1, we have really integrated all aspects of our business. And that was a huge effort for us to pull off so quickly. And now that integration piece is behind us, and we can focus more of our attention on really optimizing now the combined consultant base and customer base of the 2 companies. So we've put in place a very robust training programs of the cross-selling opportunities. Clearly, we've got a full court press on training the former LoveBiome consultants on the evolved compensation plan and helping them understand how their businesses can benefit from that. And the reception to both sides, I guess, of this partnership has been tremendous. But everyone is kind of drinking from that proverbial fire hose right now. And so the quicker we can get everyone trained and up to speed, and that's going to take a minute for that to really happen. But that's why we also -- and from the very beginning, it felt like our second half of the year is going to be larger than our first half weighted heavily to the second half because of that ramp up with LoveBiome but also reentering a season at our MindBody product will come to the forefront with a lot of consumers. As we enter kind of the traditional weight loss season in the January time frame. And then there's a little bit of a resurgence in the April, May time frame as people start looking closer to summer as well. Douglas Lane: A lot of moving parts. Let's talk about the science a little bit. The P84 Nrf2 stack sort of a no-brainer right, the 2 flagship products from each company. But what I think interests me is how deep you're going on gut health. And what are the opportunities from a gut health standpoint with LoveBiome science combined with the work that you've done on MindBody? Steven Fife: Yes. Well, it fits in from the very first conversations that we had with LoveBiome. The question that we asked ourselves and had to answer was how does it sit into our activation philosophy from a product standpoint. And we've started to do testing on P84, and we were fortunate that right before our Dallas Momentum Academy just a few weeks ago, we announced results from an in vitro test of P84, where I mentioned that we identified 14 peptides in our body that are responsible for regulating, repairing and restoring overall gut health that were activated. So our body's ability to produce is so far superior to anything that we can supplement with it. And our -- that in vitro test showed that across these 14 peptides, it increased the production of those peptides and so we're thrilled with that and adding another activator in a market that it's projected to grow from $14 billion to $35 billion over the next 10 years. So we see a huge massive white space for us to operate in with a product that fits into our product strategy as well as when you couple that with the power of Protandim Nrf2 and we've got studies underway right now that we'll hopefully be announcing here in a couple of months around that power of the synergistic benefits of taking Protandim and PAD together and what we've now positioned in what we call our Healthy Edge stack. Operator: There are no additional questions in the queue. So I'll turn the call back over to Steve Fife for closing remarks. Please go ahead, sir. Steven Fife: Yes. Thanks, operator, and thank you, everyone, for joining us today. As we conclude, I just want to extend my appreciation to our committed employees, our outstanding independent consultants and stockholders and all of our faithful customer base. And I look forward to updating you next quarter with further clarity and outcomes of our results. Thanks a lot. Operator: Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Greetings. Welcome to MARA's Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Robert Samuels, VP of Investor Relations. Thank you. You may begin. Robert Samuels: Thank you, operator. Good morning, and welcome to MARA's Third Quarter 2025 Earnings Call. Thank you for joining us today. With me on today's call are our Chairman and Chief Executive Officer, Fred Thiel; and our Chief Financial Officer, Salman Khan. Today's call includes forward-looking statements, including those about our growth plans, liquidity and financial performance. These involve risks and uncertainties, and actual results may differ materially. We disclaim any obligation to update these statements, except as required by law. For more details, see the Risk Factors section of our latest 10-K and other SEC filings. We'll also reference non-GAAP financial measures like adjusted EBITDA and return on capital employed, which we believe are important indicators of MARA's operating performance because they exclude certain items that we do not believe directly reflect our core operations. Please see our earnings release for reconciliations to the most comparable GAAP measures. We hope you've had the chance to read our shareholder letter and look forward to your feedback. We'll begin with some brief prepared remarks from Fred and Salman. After their comments, we are going to be conducting an analyst interview with management. Today's session will be conducted by Reggie Smith, analyst at JPMorgan. And with that out of the way, I'm going to turn the call over to Fred to kick things off. Fred? Frederick Thiel: Thanks, Rob, and thank you all for joining us. This quarter, we continued to evolve MARA from a pure-play Bitcoin miner into a vertically integrated digital infrastructure company, one that converts energy into both value and intelligence. At the heart of our strategy is a simple belief, electrons are the new oil. Energy is becoming the defining resource of the digital economy, powering everything from Bitcoin mining to artificial intelligence. And we believe those who control abundant, low-cost energy will shape the future of both finance and intelligence. Bitcoin has now entered its institutional phase. We're seeing financial leaders such as BlackRock, Citicorp, and now even JPMorgan, integrating Bitcoin into traditional frameworks. And we're seeing the establishment of strategic Bitcoin reserves by corporations and governments alike and even the Secretary of Treasury has posted positive notes about Bitcoin on X. What miners have always understood is now being recognized by global markets. Bitcoin is digital energy, a mechanism for storing and transmitting value. As one of the largest Bitcoin miners in the world, MARA sits at the center of this shift. Our energy to value infrastructure allows us to convert raw power directly into Bitcoin that we hold on our balance sheet, a distinct advantage that grounds our broader mission, transforming energy into intelligence. Every electron has potential value and artificial intelligence represents the next frontier of this transformation of energy into even higher value. We believe that inference AI where the value of AI is actually created and derived, and not training in foundational models is where the AI industry will create the greatest amount of value over time. Every insight produced by an AI model has a cost per token, driven by the cost to build and operate the data center, of which the energy cost makes up a major component. Over time, compute and the cost to build the data center will drop as technology advances such as low-cost ASICs, open-source models and the ability to operate in less sophisticated and less costly data centers drive efficiencies resulting in rapidly declining drops in cost per token, making the AI data centers of today unable to compete on cost per token over time without significant technology refreshes, requiring even more and higher capital injections. We believe energy, not compute, really becomes the primary constraint on AI growth. We are already seeing the alternatives to GPUs enter the market and open-source AI is making it far easier and much less expensive for companies to deploy advanced AI systems directly in their own private cloud environments. In the past, most models were only available through public cloud APIs. That meant enterprises had to send data off-site and pay high per token fees to access AI capabilities. But today, many of the world's most capable models like Llama, Mistral, and others are available in open-source form, giving companies full control to run AI more cost efficiently and fine-tune their models privately. This is a major inflection point for enterprise computing and a shift that plays directly to our strengths as we build out low-cost, high-efficiency compute powered by our own energy infrastructure. We believe we're positioned to provide the kind of private, scalable environments enterprises need to deploy these open models securely. MARA is positioning itself at the nexus of these two AI trends. Open-source AI is expanding the addressable market for private cloud compute. We believe that the future infrastructure will be built to serve that demand efficiently and profitably. This is where MARA's expertise in securing and operating low-cost power gives us a distinct advantage. Just as we optimize for the lowest cost per petahash in mining, we're now optimizing for the lowest cost per token in AI inference. Our long-term vision is to integrate these two energy pathways, Bitcoin and AI into a single platform. Bitcoin mining monetizes underutilized energy and stabilizes grids, while AI inference transforms that same energy into intelligence and productivity. By bringing Bitcoin and AI together, we seek to maximize the value of every megawatt hour we manage. We've already begun executing on this strategy. This quarter, we installed our first AI inference racks at our Granbury site within a modular non-water cooled containerized data center. This site currently has 300 megawatts of nameplate capacity with potential opportunities to expand our growing AI inference business in combination with our Bitcoin mining operations at the site. This milestone marks a significant step forward in proving out our AI infrastructure and next-generation inference hypothesis. It also demonstrates the versatility of our platform, underscoring the potential flexibility of our mining sites to support AI workloads along with Bitcoin mining. Two major initiatives this quarter are propelling our strategy going forward. First, our pending acquisition of Exaion, a subsidiary of EDF in France. Once regulatory approvals are completed and closing conditions have been met, Exaion will expand our capabilities into enterprise-grade AI-optimized private cloud and HPC infrastructure. We believe this will position MARA as a credible partner for enterprises seeking secure localized inference capacity. Second, today, we announced an initiative with MPLX, a separately traded public company formed by Marathon Petroleum Corporation, the largest petroleum refinery operator in the United States, to develop and operate multiple integrated power generation facilities and state-of-the-art data center campuses in West Texas. Under this initiative, MPLX will provide long-term access to lower-cost natural gas at scale, where MARA will develop and operate on-site power generation and compute infrastructure. The initial capacity is expected to reach 400 megawatts with the option to expand to up to 1.5 gigawatts across three plant sites. We are also evaluating additional prospective sites to support modular AI and HPC data centers alongside mining operations, creating optionality for future AI inference workloads. MARA's approach is to deploy smaller, modular facilities directly at lower-cost power sites instead of building hyperscaler campuses. We believe this distributed model will enable us to capture value at the inference layer while continuing to monetize mining and grid sales. This modular structure also gives MARA the optionality to shift capacity towards HPC over time as and if economics and infrastructure maturity support greater AI utilization. We believe MARA is positioned to capitalize on a key structural advantage as power becomes the primary constraint in AI growth. Together, Exaion and MPLX connect the two sides of our AI and data center business, energy and compute, and strengthen our ability to control both cost and performance from power to inference. Internationally, we're deepening relationships across Europe and the Middle East, where we see significant opportunity to deploy our integrated energy and compute model. Our pending Exaion acquisition exemplifies this, and we're honored to welcome Gérard Mestrallet, President Macron’'s special energy onboard as an advisor tomorrow. His expertise strengthens our global strategy as we pursue our goal of driving 50% of revenue from international operations by 2028. On the financial front, we continue to operate with discipline and transparency. We ended the quarter with 52,850 Bitcoin, having mined over 2,100 BTC during Q3. We remain focused on improving free cash flow through ongoing cost optimization, site level efficiency gains and disciplined capital allocation. We have begun opportunistically monetizing Bitcoin from production to fund operating expenses and aim to limit reliance on our ATM to support growth initiatives, helping to mitigate shareholder dilution. As I spoke about last quarter, Bitcoin prices have consolidated within a range since Q2. With intermittent volatility, we view this as a healthy period of equilibrium characterized by institutional inflows into ETF balanced by long-term holder liquidation activity. Using Jordi Visser's IPO analogy, Bitcoin is going through an IPO where early investors in VCs are exiting and institutional investors are coming in, forming a new base and foundation for growth. Meanwhile, broader macro trends, including rate cuts and expanding liquidity suggest improving condition for risk assets. Regardless of short-term volatility, our long-term trajectory remains unchanged, building enduring value through energy ownership, operational excellence, and strategic execution. Finally, I want to provide an update on 2PIC. While we continue to recognize the long-term potential of 2-phase immersion, its practical broad application is still a few years out, and direct-to-chip cooling remains the preferred cooling methodology of data center operators and compute OEMs. We have exited near-term investment in 2-phase immersion to focus resources on opportunities with more immediate and higher return potential. In closing, MARA is evolving from a Bitcoin miner into a digital infrastructure leader, combining energy generation, Bitcoin mining, and AI compute under one scalable platform. Our guiding metric is simple, profit per megawatt hour. It measures how effectively we convert energy into value, whether in Bitcoin, AI inference, or grid stability. As we continue to execute, we believe the market will increasingly recognize the strength of this diversified model and the strategic importance of energy ownership in the digital economy. I want to thank our employees for their exceptional work this quarter and our shareholders for their continued support as we build MARA into the world's leading digital energy and infrastructure company. With that, I'll turn it over to Salman to review the financials. Salman Khan: Thank you, Fred. During the quarter, global hashrate grew by roughly 20%, with the hashrate and network difficulty both hitting new all-time highs by end of the quarter. Bitcoin's price remained relatively range-bound, trading between $104,000 to $124,000, closing the quarter with a modest $7,000 gain. It was one of the most competitive mining environments in recent times and a difficult backdrop for our performance this quarter. Despite this, Q3 was the highest revenue and exahash quarter in the company's history. Our focus on operational and financial discipline over the past year is reflected in the substantial growth of our compute capacity and Bitcoin holdings. Between Q3 2024 and 2025, our Bitcoin holdings expanded by over 98%, growing from approximately 27,000 to nearly 53,000 Bitcoin. Our energized hashrate also expanded, increasing 64% from 36.9 to 60.4 exahash per second. Bitcoin price appreciation resulted in approximately $4.3 billion or 256% increase year-over-year. While Fred spoke to our vision and strategy, our vertical integration and capital allocation strategy is reflected on our financial results. That balanced execution allowed us to expand our holdings and take advantage of favorable market conditions while maintaining liquidity and flexibility. We mined 2,144 Bitcoin and purchased an additional 2,257. The impact on our financials is evident in the results we achieved. Let's dig in. Revenues increased 92% to $252.4 million from $131.6 million in the third quarter of 2024. Bitcoin's average price increased 88% over that time period, which contributed $113.3 million. We mined an average of 23.3 BTC a day throughout Q3 compared to 22.5 BTC in Q3 of 2024, which resulted in 74 more Bitcoin mined this quarter. Our strategy to deploy exahash responsibly resulted in growth of our BTC mine despite a significant growth in global hashrate and the network difficulty level. We reported a net income of $123.1 million or $0.27 per diluted share last quarter compared to net loss of $124.8 million or negative $0.42 per diluted share in the third quarter of last year. We also booked a $343.1 million gain on digital assets, including Bitcoin receivable during the third quarter of 2025 reflecting the positive impact of the Bitcoin holdings on our balance sheet. Now let's talk about our cost structure. Our purchased energy cost of Bitcoin for the quarter was $39,235 and our daily cost per petahash per day improved 15% year-over-year, which we believe at scale is one of the lowest in the sector. This improvement is directly tied to our growing inventory of owned and operated sites, which now account for approximately 70% of our nameplate megawatt capacity. That transition supports our vertical integration strategy, but also pays dividends both financially and operationally. Since we do not control the price of Bitcoin we mine, minimizing the cost of inputs like energy are critical to the financial resilience and long-term success of the company. Next, I'll provide some insights into our Bitcoin holdings and digital asset management strategy. MARA is the second largest corporate public holder of Bitcoin, and we seek to generate returns on our holdings as Bitcoin price appreciates. Our approach combines the potential for long-term Bitcoin appreciation with disciplined efforts to generate return while managing risk. Additionally, we have also used Bitcoin as a collateral to borrow under lines of credit. As of September 30, 2025, we held a total of 52,850 Bitcoin, including 17,357 Bitcoin that were loaned, actively managed, and pledged as collateral. As such, approximately 1/3 of our total holdings were activated through our digital asset management strategy. In Q3, we issued $1.025 billion of zero-coupon convertible notes due 2032, extending our maturity profile and increasing balance sheet optionality. With additional liquidity, MARA gains strategic flexibility to act on opportunities, whether that's acquiring more Bitcoin, funding acquisitions, balance sheet management, or general corporate purposes. We have positioned MARA to act in response to market conditions in order to maximize long-term shareholder value. As of September 30, 2025, we held over $7 billion in liquid assets, giving us the flexibility to fund domestic growth and pursue international expansion. To streamline our communications starting in Q4, we will share our production on a quarterly basis. Investors can continue to monitor our monthly MARA Pool production in real time on the mempool. As we have stated previously, electrons are the new oil, and we are laying the groundwork for 2026 and beyond. We're executing on a pipeline of energy infrastructure projects, both in the U.S. and internationally, and we expect these investments to expand our capabilities while keeping costs low. With that, I'll turn it over to Reggie Smith from JPMorgan to begin our management interview. Reggie? Reginald Smith: I appreciate you selecting me for this call here. I have a very big announcement this morning. I guess kind of help me interpret this morning's announcements versus, I guess, kind of your prior strategy. Like what's being emphasized, deemphasized? Maybe talk about that from the -- like what's the most emphasis you're placing on the business and maybe the least, because there's a lot going on here, certainly relative to the other Bitcoin miners. I know the other guys, it's either Bitcoin mining or kind of colocation. You guys seem to have a lot more balls in the air. Maybe talk through those differences. [Technical Difficulty] Frederick Thiel: Hey, guys. Is everything okay? Reginald Smith: Yes. I didn't hear anything. Did you catch my question? Frederick Thiel: Sorry about that. Sorry. I had a comms issue here. I'm in the U.K., so it was a little bit of a problem. I'm back on now. So yes, I heard your question, Reggie. Sorry. So if you think about the deal we announced today, it's about getting access to low-cost energy that is reliable, available 24/7, where because we are the generator, it provides us with a very low cost. If you look into the details of the announcement, you'll see that the pricing on the gas is amongst the lowest in the market. The other thing is that it gives us now the capacity to add potentially up to 1.5 gigawatts of data center capacity if we want to, which gives us lots of flexibility. A lot of our Bitcoin mining sites are very attractive to use for inference AI, as we discussed earlier. We talked about what we're doing at Granbury and what we'll be able to do at some of our other sites in a similar fashion where we can blend inference AI and Bitcoin mining. But the relationship with MPLX and the opportunities it provides give us a much broader canvas that we can paint on, whether that is traditional HPC like some of our peers have done or whether we want to build it out as hybrid AI, inference AI, and Bitcoin mining sites. So it gives us a lot of flexibility. And we believe controlling and owning power is a core part of any company that operates in the digital infrastructure space. When you look at the spending that's going on, and I think Sachin Ardell said this, in a recent podcast that was quoted, where he was quoted as saying that compute isn't the constraint, energy is the constraint. And so access to energy, we believe, is critical. We think inference over the long term is where all the value is going to get created in this space. But we believe that Bitcoin mining has a very important role to play in not just balancing grids, but providing a flexible load when mixed with AI, such that AI can begin to operate in more places than it does today. And the last thing I'd say is that we believe that the technology curve is going to move so quickly in this space because you have to realize that just like in Bitcoin mining, where cost per petahash is the most important metric that drives profitability in the AI business, unless you are in the application layer. In other words, running is the -- owning the data and the application that is generating value for the enterprise. In healthcare, owning the healthcare data, running the actual AI analysis. The only thing hosting providers and model operators provide are tokens in the sense of we need lowest cost per token if we're going to use that service. And using the APIs from the cloud providers is a very expensive way of running AI. And most enterprises today are being confronted with the fact that the cost per token is too high using existing systems, and they want to move to lower-cost systems. And we're going to start seeing, and we already are seeing ASIC-based solutions coming, open-source models, all of which will allow enterprises to build their own and operate their own private cloud or use those services from third parties, allowing them to drive value from AI. So I think for a lot of the big guys, the challenge is they are doing deals with colocation partners where they are not taking on the debt. The debt is being laid on the joint venture or the SPV related to that colocation facility. And that colocation partner is having to deploy a lot of capital to build those sites and equip those sites, and you have technology obsolescence. Over the course of a 10-year lease, you will have to upgrade the hardware in that location. And you have to estimate that in the cost of what it's going to be to build and operate. And I think there's a risk potentially that $1.4 trillion of data center contracts signed by OpenAI over the -- that will have to be operating in the next 5 years according to what was recently reported in the press, that some of that may not actually be able to come online and generate revenue. So I think our approach is much better, more prudent, certainly much more capital efficient. And by being at the end of the spectrum where we're vertically integrated and able to operate at lowest cost per token and deliver lowest cost per token, we will have a significant advantage in the marketplace. Salman Khan: And Reggie, just a reminder, we -- today, we control approximately 2 gigawatts of capacity. And this added capacity is incremental to that, that takes us to close to 3.5 gigawatts over a period of time. Reginald Smith: Got it. Understood. I'd like -- Fred, I appreciate the color there. And I was doing some kind of light math this morning. And I think about, I guess, kind of AI and HPC, you made a comment in your shareholder letter about the price of power and the price of compute. You made some parallels between Bitcoin mining and HPC. And I was looking at the numbers, and I think they may be a little bit off, but directionally, this is, I think, a fair statement. When you look at Bitcoin mining, the price of power and the price of the actual ASICs, if you think about depreciating per hour, are about the same, like a 1:1 ratio there. For GPUs, that ratio is more like 1 power 10 GPU. So like depreciation charge, and depreciation is super high. So you talked about ASICs and somehow, I guess, driving the cost of the hardware down there. Am I thinking about that right? Like what are you seeing? And kind of where do you see the role going there? Frederick Thiel: Listen, just think about it this way. When Bitcoin mining started, we were running CPUs, right? Then we went to GPUs, then we went to FPGAs, then we went to ASICs. And when you look at the amount of compute power for -- think of it as the number of terahash we could produce for a jewel of energy, it has dramatically changed. So you are now processing many more calculations at much lower cost of energy. And in our business, we depreciate the compute over 3 years. So if you're a hyperscaler and you're signing a deal for 10 years, some of these are 15 years and the depreciation schedule is 5 years for the machines. Does that mean they're going to have to replace those machines 3x in that cycle, right? And to your point, GPUs to power is most probably a 10:1 ratio. And as you get to ASICs, that starts dropping and power starts becoming an even more important component. And when you start looking at the end cost per token, at that point, the model cost also comes into play. And so if you have open source models, if you have low-cost hardware that's energy efficient, you're operating in data centers that don't cost you $10 million a megawatt to build, you start getting to economics that start resembling Bitcoin mining over time. Reginald Smith: Okay. Understood. Now, help me understand this. I wanted to understand or make sure I'm hearing you correctly. When you think about kind of the investment risk and the CapEx risk within this chain, obviously, you've got guys that are building data centers, you've got people that are buying like GPUs and hardware. And then you say, obviously, you got the model guys as well. But I guess your comments on kind of where the CapEx risk is greatest, are you suggesting that the people that are buying the machines are taking on the most risk? Or do you think there's still substantial risk in building big data centers? And I ask you that in the context of, I mean, you guys just, I guess, bought a few GPUs yourself. And so like help me square all of this together to understand kind of what your view is there. Frederick Thiel: Right. So part of the question is, are you in the business of being a bare metal shop, right? You're providing essentially hosting and GPUs. Look at what Iron is doing, right, bare metal. Somebody has to load their software on it, but they're renting capacity on GPUs effectively. And that's what GPU cloud is called. In that case, the operator is funding the GPU purchases, right? In the case of a colocation, there are some deals that have been done where the operator is funding the GPUs. And there are other deals where the lessor of the space, if you would, is bringing the GPUs, and they are the buyer and operator. So if Microsoft comes and is going to contract with you to just buy capacity from you, they're going to bring the GPUs, hopefully. You would hope at least. And they're taking that risk. But there are lots of different models out there being operated by people. What we're doing with inference at the edge is much more around providing inference AI, which is not running on GPUs. We're running on ASICs, ASIC type solutions. And so it's a very -- it's a different model from a hardware cost perspective. It's air-cooled. It's not liquid-cooled, for example, which means your infrastructure is much less expensive. You're not having to spend many millions of dollars per megawatt on building infrastructure, specialized cooling infrastructure. And all of that adds up to the economics of what you can do. But inference is also done at smaller volumes, right? You don't have to do 100-megawatt sites yet. Most of the needs for inference still are quite young. It's early in the market. But if you believe what Gartner and the analysts say, over the next 3 to 5 years, inference will be the primary generator of revenues and value creation within the AI space. So that's where we're swimming. Reginald Smith: Understood. I'm going to skip around a little bit here. I wanted to talk about Exaion. And kind of loop it back into the broader discussion. But obviously, you guys announced that acquisition. Help me understand what they do today? And maybe talk about the scale of their operations. Like are they running data centers today? And if so, what's the size of those? Like what do they do exactly? Frederick Thiel: Yes. Exaion is today, until we close, a fully owned subsidiary of EDF that operates EDF data centers where all of the data for the nuclear fleet operates in this process. So they run EDFs, AI and traditional data centers across the EDF enterprise. They have about four data centers today, three in France, one in Canada. They also operate quantum technology in the Canadian data center, which is made available for research purposes. And they have built a whole set of software solutions that allow you to operate the data center, store data in full private mode, meaning the users' data is fully encrypted. Exaion doesn't have the keys to that data. And so, were that data center to be broken into, if you think of -- if somebody were to steal data, the data in the data center is encrypted. So it's the customer who holds the keys to that data. And so it's a way to build private cloud solutions that are fully secure. And so the whole reason for making the investment in Exaion is it gives us access to a team and an existing set of data centers that are Tier 3 and Tier 4 already. They know how to operate the most sensitive data. They know how to protect it. They have existing customers, so they have experience, and we are going to leverage their knowledge, their experience, their technology, and their platforms to expand what they do on a global basis. Reginald Smith: Got it. So they're asset like. They're more of a service layer, their engineers, their software, things like that. Like they don't actually own any data centers. It's really running that data center, securing data. Is that the right way? Frederick Thiel: Yes. Reginald Smith: Understood. Okay. Is there a way to frame it, maybe early, their revenue run rate? And interestingly about that transaction, I think the first 64% of the transaction you bought them for $168 million. The next 11% will be at a much higher rate. Like what was the thinking there? Any opinions you can provide there. Frederick Thiel: I mean, I think you can think of how many times deals like this are structured. You're paying for a portion of the business based on where it is today. And then the growth opportunity for the existing investors is in executing on a plan to help grow the business. And therefore, you're going to pay a higher multiple for that. That's how you should think of it. Reginald Smith: Understood. Okay. Now, I want to tie all this back. So the MPLX transaction, real quick on that. Does it require any like ERCOT approval? Let's say these guys have the natural gas. You guys would make the power plant or the generation assets and then the data center. But is anything needed from ERCOT? Any roadblocks there? And like how quickly could you have a data center up and kind of running? Frederick Thiel: Yes. I think you have to think of it more as the first thing we're doing is building a power generating station, which will be gas-fired power plant. So you have regulatory requirements around air permits, for example, which in the current political environment should not be exceedingly difficult to acquire. We feel fairly confident that we'll be able to get those without much problem. So once you built the power plant, then because you are not directly grid attached yet, you then have to apply to attach to the grid and be a provider to the grid. So there's a regulatory process for that. Meanwhile, you can be producing energy and operating data center fully behind the meter. And ERCOT gets involved when you connect to the grid or the utility does once you connect to the grid. So -- and the goal here, what's really important to remember about this MPLX relationship is it gives us the ability to own and operate gas-fired power plants with very low-cost gas with the ability to colocate large-scale data centers with reliable 24/7 power in a very attractive part of the marketplace. And so it gives us a lot of control to really drive our growth in a very cost-effective way. And I think it positions us very well, come what may in this HPC AI market and give us a lot of opportunities to really operate and continue to generate a lot of value for our shareholders. Reginald Smith: I agree. I've been thinking about this idea of like vertical integration, and I didn't know if it was going to be a power company acquiring data center capabilities or the other way around. So this is very interesting. If I could dig in a little bit more. So I think you talked about 400 megawatts of capacity to start. How should we think about like the minimum effective dose to kind of get started. So I don't know if you want to commit to 400 megawatts right off the bat. Is it 20 megawatts? And how quickly can something like this come together? And then I know it's early days, but we've heard estimates of up to $10 million per megawatt to build out a data center. Like what are you thinking about from that perspective as well? Frederick Thiel: So you don't build a power plant in 20-megawatt increments. You build it right to a certain size at each site. So there are three sites. We'll likely think of it in 100-megawatt increments initially, but you have the ability to scale these plants much larger. As it relates to the data centers, we have the optionality. We can build these as traditional Bitcoin mining data centers that are fully containerized at somewhere around $1 million a megawatt, including hardware costs for compute. If you then want to look at going the AI route, if we're doing it similar to how we're running the inference AI we're running today, the actual infrastructure cost is very similar. It may run a little bit more expensive depending on the cooling technology, if we use direct-to-chip cooling or we continue to use air cooled. And if you use direct-to-chip cooling, your cost of infrastructure will end up somewhat higher. But the key is we're not building buildings that take 3 years to build. We're doing these as modular containerized solutions, which gives us full flexibility to reconfigure a site depending on whatever we want to do at it. And I'm a big believer that you will see very high-performing HPC capable modular solutions on the marketplace within the next 2 to 3 years, where you will be able to deploy the same sophisticated solutions you're building in these very sophisticated data centers where people can run some of the most sophisticated AI they need to. Remember, there are not many customers in the world who need data centers of the scale that OpenAI needs it, right? OpenAI needs a lot of compute capacity because of the breadth of data and the breadth of the solutions their models operate. If you remember what DeepSeek did and how DeepSeek created the stir in the market, it's because instead of operating with a broad foundational model, they only load into memory specifically the model segments that they need and the data to solve the query, which means you now don't need all of that scale. So what I think will happen in the marketplace is that you're going to have efficiencies in models going to open-source, clients developing their own models and training their own models because the clients don't want to give the data to OpenAI. If I'm -- and I'll give you an example. I was at FII last week in Saudi Arabia, and I was sitting with the Head of Strategy for Aramco on a panel. And they don't put their seismic data in the cloud. They're not going to do that. What do they do? They build their own models. Other companies do the same thing. Look at what Lockheed just did the deal they just did with Google, right? It's an on-prem solution. You are not -- I'm not going to put my data up into your cloud Google. You're going to build a cloud instance on-prem, on my site that is air gapped from your systems. That's what corporations want. They want data sovereignty. They want private cloud. They don't want to run up in Meta's cloud, Amazon's cloud, or OpenAI's systems. 70% of corporate data today is still not in the cloud. There's a reason for that. And I think when you look at inference, inference is driving insights from the data that runs your company, right? It's -- if you're in the healthcare business doing drug discovery, it's all the patient data, the lab samples, et cetera, all that data, you're driving insights from it, right? And if you are doing -- you're building airplanes, it's all the design data and the manufacturing data. If you're running a factory, it's the operations data of the factory, right? If you're running a power plant, it's the operations data of that power plant. You don't want to run that off-site. You want to actually run it on site because as those systems become mission-critical and actually operate the resources and operate parts of the business, you can't take the risk that you have a system failure that brings your whole business down just because you lose a link to a cloud or Amazon goes offline like it did the other day. So I think it's -- people really have to understand that there is a limit to what data and how much risk people want to do in putting their core critical assets into a cloud operated by a third party. And if they can solve the model issue and do it at lower cost, near-prem or on-prem in a private environment, they will do it. And I have been speaking with the heads of AI for major corporations in the financial market today who tell me that they are relocating AI systems out of the cloud back to near-prem, on-prem private solutions because it is significantly less expensive to operate than doing it in an Amazon Cloud or other places like that. And I think that the analyst community really needs to do a much better job of talking to the enterprises who are the users. These are the people who are actually going to pay the money that will allow OpenAI to be successful or not, that will allow Microsoft to be successful or not. You can talk till you're blue in the face with the people building these things, but it's like building railways. If there isn't passenger traffic and there isn't cargo, the rail lines fail. So I hate to be a downer on this, but this is an important thing that a lot of people aren't doing. You need to talk to the customers. Who's going to pay for this stuff? Reginald Smith: And I want to make sure I'm hearing this right and connect these dots. I think you mentioned kind of a smaller kind of, I think, a 1 megawatt, what do you call it, I guess, kind of like a sample or a small micro data center, pilot site. If I'm hearing this right, are you saying that like that could become like the prototype for enterprises having their own on-premise like AI capabilities? Is that what you want to say? Frederick Thiel: Yes. So think of it this way, right? I'll give you an oil drilling example, right? So you have an exploration drill that's drilling, you have seismic data. Today, you have to plan exactly the drill profile and what some -- what the drill operator is going to do. And so the oil companies have built these very sophisticated AI models that run in a modular container typically out on the drilling site that are collecting real-time data from the drill and then feeding back instructions into the drill master. That's an existing example. You can go to a trading -- a financial trading company. And their whole thing is speed and latency. They want their systems operating on their local network, not on a wide area connection where there's latency because 25 millisecond delay in a response means they lose the profit on a trade. And so there are -- whether you're looking at defense, which is going to be a huge growing sector when it comes to AI, just look at the amount of AI that's needed to operate in any theater of war today, look at healthcare, look at manufacturing and production, look at the movie television industry. The single largest consumer of tokens in AI are video illustrations and audio generation. Those are the systems that consume that these diffusion models are the single largest consumer of tokens. And so cost per token is very critical to them because if you're going to generate a 5-, 10-, 15-minute clip of video, it takes multiple factors of magnitude more tokens than asking OpenAI where you should eat lunch today. And so I think, again, the marketplace gets all hyped up about these big contracts, but they really need to look at who's actually going to use this stuff. What are they going to use it for? What can they afford to pay for it? What will the pricing trends be over time? And to use the worn-out Wayne Gretzky technology. If you're in our business, you want to be skating to where the puck is going to be, right? You don't want to be chasing the puck. And I think there are a lot of people announcing deals out there, getting on the bandwagon to pump their stock when they need to look at what's this industry going to look like in 5 years. Reginald Smith: That actually leads to my next question, Fred. So thinking about announcements and catalysts, like what should we look for from MARA to know that like this strategy is taking form and we can start to frame an economic story or a creation story around some of these initiatives. Like what are the milestones and announcements we should be looking for from you guys? Frederick Thiel: So here's what I think you should look for. 4 years ago, I made a presentation at a conference where I said that Bitcoin miners are either going to become energy companies or be owned by energy companies. I think what you should look for is when large energy companies start signing partnership agreements with companies like us to monetize their energy assets at large scale. That will tell you that if that happens to be us, that they have chosen us to do it with because they feel we are the best option for them to maximize the value of the electrons that they produce. That's one step. The next step is as you start seeing customers using more and more inference AI and you see us reporting a greater and greater mix of inference AI in our data centers. And the real metric you should look for is what is our profit per megawatt hour that we talk about. It's not a GAAP measure, so it's not going to be reported that way. But you can think of it as an operational KPI where the profit we can generate from every megawatt hour of energy that we consume or produce is a data point that our investors will be able to see and that will directly correlate to our profitability and ability to have a cash-generating business. Reginald Smith: Okay. And just to make sure -- and I apologize, this is a silly question. Are you looking to sign colocation clients or deals for this site in West Texas? Or is this something that you're thinking about putting your own machines in? Frederick Thiel: It gives us -- I'm not going to answer the question directly because I think our competitors spend more than enough time listening to what I say and then emulating it. So I'm just going to say it this way. It gives us maximum optionality to decide what we want to do with whom. Reginald Smith: Got it. Okay. Because I want to bring it up because you mentioned signing a colocation as like a milestone and... Frederick Thiel: No, you see if I can operate inference AI and make money on it without signing a colocation facility that will give you a little bit more insight into what the business model might actually be. Because think about it, the best thing about our Bitcoin mining business is we don't have a customer. What's the hardest thing all these colocation deals have is they have to go find a customer. Reginald Smith: Yes. Okay. Okay. People say, I change my opinion when the facts change. And this is a pretty -- this seems like a pretty major shift for MARA. Like I said, you guys bought GPUs, I guess, in the last 3 months and you start to run them. Like what in your mind has changed -- that has changed your opinion or has your opinion changed? Because strategically, it seems like the company is kind of pivoting. Talk to me about that. Like what have you learned or gleaned in the last couple of months or quarters that has driven this shift? Frederick Thiel: Yes. Reggie, I wish I could tell you that I had a lightning bolt strike me and I came to an epiphany, but this is -- we're executing the strategy we decided to execute over a year ago. It's just we have decided not to go totally open with the market and tell people what we're doing because it just gives our competitors insight into what we do and they can emulate it. And we prefer to control the timing on how we talk about what we're doing. But I've been talking for the longest time about inference at the edge, and that's where we would make our mark in the marketplace, and we are. We've talked a long time about owning power and the desire to run our business based on controlling energy assets so we're fully vertically integrated. And we're doing that. There's no change in strategy. There's no pivot. It's just we have been purposely operating more like a start-up in the sense that we have really wanted to make sure that we had everything in place so that as the market becomes aware of what we're doing, they just start seeing kind of announcement after announcement after announcement that just gives them more and more confidence in that we're executing on the vision that we set out a year ago. Reginald Smith: Yes. No, I'd say from where I sit and I think about all the pieces you guys have. There are a lot of pieces, and I'm not smart enough to figure out how to put it all together, but it seems like you guys have a lot of ways to kind of win here. I guess we just have to kind of sit back and wait for those announcements as they kind of come through. I know we've kind of spent a lot of time on this. I hope it wasn't a wasted time for people. Maybe we could shift gears a little bit and talk about your like sovereign and foreign government initiatives and things that are going on there. Like one of the questions I have, as you think about this is like what do you think gives you guys a right to win in the sovereign compute kind of load management space versus competitors? Who's even competing with you there? Frederick Thiel: I think -- so here are a couple of ways to look at it. Most of our competitors enter a marketplace by partnering with somebody or contracting for power. They don't bother talking to the government because they're afraid that if they do, they may not be allowed to do what they want to do. And that's the case in a lot of places in the Middle East. We, on the other hand, chose to do it the other way. So in UAE, where we've been operating now for a couple of years, we chose to directly go and work with the sovereign. So we partnered with ADQ and IHC and operate a joint venture together with them where we balance the grid in UAE. It's one of the most advanced liquid immersion technology sites in the Middle East. The only one that's bigger than that is the liquid immersion site we operate in Granbury. And so that has given us a reputation of being somebody who works well with government entities, follows the rules, and is focused on being a good grid citizen and balancing the grid. So when we talk to people in other countries, such as in France, such as in the U.K., such as in Kenya, in Saudi Arabia, in other places, we are welcomed with open arms because we are focused on how can we make your grid more efficient and more effective. How can we make sure that every electron your generators generate -- sorry, generate maximum value. And we are here to be a good grid citizen, and we are here to operate such that your grid becomes more stable and it becomes easier for you to bring on new types of loads, be them AI data centers or whatever. And the challenge, the way most people see it is that takes time. I have been crossing the Atlantic very frequently, but I have been having meetings in the top levels of government, and we have a lot of support. We certainly have seen a lot of support on the European side because there are certain dynamics in Europe that create very large opportunities for us. And so same thing exists in Saudi Arabia, for example, and other places. And we think that it's worth our effort to spend the time and take the time to do this carefully and prudently and well thought out so that we're able to execute successfully and have long-term success in the countries. Because if we're friends with the government, then we have the advantage that as they look to expand what they're doing, if we are a good partner, they will come to us and say, "Hey, we want to do more with you." And that's the type of relationship we want to have with our partners across industry, be it governments, vendors, or end customers. Reginald Smith: And it's funny, we haven't talked about Bitcoin mining at all. I know we're running short on time. Just an update there. Love to hear about the stuff that's happening at the wind farm and some of your flared gas initiatives. Maybe talk a bit about Auradine. And then I guess, your plans for growing hashrate here and how you think about that in the context of kind of where hashprice is and why it makes sense to continue to grow your hashrate at these levels? Frederick Thiel: Yes. So maybe I'll look at this in kind of a somewhat reverse order. So there is more hashrate coming online every day from lots of players. There are very well-capitalized companies who are not public, who are -- have access to huge amounts of capital, who have a stated goal of becoming the largest Bitcoin miner in the world. And if we don't grow our hashrate, we will have an ever-decreasing amount of the global hashrate and produce ever decreasing amounts of Bitcoin. And we think that it's our duty to continue to grow hashrate, not just in the United States, but globally to support the security and diversity of the Bitcoin blockchain and the Bitcoin network because we don't want it to be dominated by any small handful of players. And so we believe it's our duty to continue to grow hashrate. So how do we do that economically? We do it with low-cost power, which we can control, which ties to the MPLX deal. It ties to what we're doing with our wind farm, Texas. It ties to what we're doing with flare gas. We have doubled -- by the end of this year, we'll have doubled our flare gas capacity, and we're going to continue to grow that. The wind farm is fully built out from a data center perspective, and that's running. And we're going to continue to look at opportunities to acquire more energy that is low cost that we can then allocate between Bitcoin mining or AI. You have to kind of think of us as we are going to own lots of electrons, and we're going to put those electrons to best possible use. In regards to Auradine, Auradine's more recent hydro model, which competes very well with the Bitmain and other vendors' models is doing well. We're deploying Auradine in our fleet. We're not deploying exclusively Auradine at this point. There are still different machines have different characteristics that are really good for different environments, and we have a lot of different environments. And so we're continuing to deploy a mix of systems. But over time, it would be logical to feel that we're going to add more and more Auradine to our fleets. Their systems offer some very unique capabilities, especially around load balancing that in a model such as the one that is beginning to gain steam in Texas, where the utility wants to regulate your curtailment and shut you off and turn you on, that requires special capabilities in the miners, and that's something that exists in the Auradine systems. And so as more and more utilities start looking for those capabilities amongst miners who are on grid, I think they will continue to gain some market share there. Other than that, they have spun out some very interesting AI-related businesses, One or Escape, which is around securing large language models -- sorry, which recently had a lot of positive reviews at the RSA show earlier this year and then also ScaleUp, which is a start-up around ultra high-speed cluster interconnect switch technology. So that has been a great investment for us, and we continue to look for investments like that where we can acquire or build technologies that can become part of our solutions over time. Reginald Smith: I guess last one for me. You kind of talked about it earlier, but obviously, a lot of market cap, a lot of value has been created in the Bitcoin mining space amongst the publicly traded guys. I'd argue that you guys haven't received or gotten your share of that. Like what do you think the market is missing and hopefully will come to appreciate in the near term or medium term? Frederick Thiel: I think. Reginald Smith: About that specifically. Frederick Thiel: Yes. I mean I think the key for us is the floor on the valuation of our stock is essentially the value of our Bitcoin holdings. And people don't put a lot of value on the Bitcoin mining infrastructure or the Bitcoin mining business per se. And I think as our business continues to evolve, especially with the energy generation story and as AI becomes a bigger piece of this and we generate more profit per megawatt hour consumed, we'll start getting more attention from people. And I think you'll start seeing people realizing really the benefit of what we're doing in our model, and we'll get more credit for that. Salman Khan: Reggie, just to add to that, the power capacity that we have secured through these transactions that puts us at the forefront. And here's the actual value flows with Bitcoin mining option value between AI-ready assets, our operational flexibility with integrated power, that's what's going to drive value for our stockholders from a long-term perspective. Reginald Smith: Perfect. Congrats on the quarter. Robert Samuels: Thanks, Reggie. We appreciate it. Most of the questions that we received from our retail shareholders have been answered. We're obviously running short on time. But thanks, everyone, for joining us today. If you have any questions that were not answered during today's call, please feel free to contact our Investor Relations team at ir@mara.com. Thanks very much, and enjoy the rest of the day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: My name is Julianne, and I will be your conference facilitator today for the Amgen Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to introduce Casey Capparelli, Vice President of Investor Relations. Mr. Capparelli, you may now begin. Casey Capparelli: Thank you, Julianne, and good afternoon, everyone. Welcome to our third quarter 2025 earnings call. Bob Bradway will lead the call and be followed by a broad review of our performance by Peter Griffith, Murdo Gordon and Jay Bradner. Through the course of our discussion today, we will use non-GAAP financial measures to describe our performance and have provided appropriate reconciliations within the materials that accompany this call. We will also make some forward-looking statements, which are qualified by our safe harbor statement. And please note that actual results could vary materially. Over to you, Bob. Robert Bradway: Okay. Good afternoon, everyone, and thank you for joining us today. Amgen delivered another strong quarter, driven by rising demand for our medicines and meaningful progress across the pipeline. Volume growth once again paced our progress in an environment where selling prices are declining across the industry. This volume growth reflects the strength of our portfolio and the value our medicines provide to patients and prescribers. We saw growth across all four therapeutic areas this quarter. Revenues were up 12% year-over-year and volume up 14%. 16 of our products grew at double-digit rates and 14 are now annualizing at over $1 billion in sales. Our broad base of innovative medicines is generating powerful momentum and gives us confidence in our ability to sustain long-term growth. We've also been working to expand access to our medicines. And we recently launched AmgenNow, a new direct-to-patient platform that allows qualified patients in the U.S. to access Repatha at one of the lowest prices in the world. This is an important step forward in helping more people benefit from the kind of innovation as represented by Repatha. Let me take a moment to recognize the scale and complexity of what we do in biologics manufacturing which is both an art and a science. And at Amgen, we've built one of the most advanced capabilities in the world in making large molecules. We benefit from 45 years of experience in this space and from having a manufacturing network that's predominantly based here in the U.S., serving American patients and patients all around the world since our inception. We continue to invest in manufacturing with more than $3 billion in planned investments in the U.S. this year alone. This builds on over $40 billion invested in manufacturing and research and development since the passage of the Tax Cuts and Jobs Act in 2017. This foundation positions us well to support growing global demand for our products. And let me just turn briefly to each of our four therapeutic areas. In General Medicine, we're expanding our impact across underserved disease areas with substantial runway. Cardiovascular disease remains the world's leading public health challenge with tens of millions of patients at risk for heart attack and stroke. At the upcoming American Heart Association meeting, we will share data on Repatha showing important benefits in preventing a first heart attack or stroke. Again, a powerful signal for the impact or potential impact of Repatha in primary prevention. In bone health, EVENITY is a transforming care for postmenopausal women at high risk of fracture. It is the first and only bone-building therapy that increases bone formation and decreases bone resorption. EVENITY continues to deliver strong performance and with treatment rates still low among women with high fracture risk, we believe there's significant room for growth. We expect this product to remain a growth driver throughout its life cycle. Looking ahead, both MariTide and Olpasiran offer additional pathways for growth in obesity and cardiovascular disease, two of the world's most pressing health issues. In rare disease, our portfolio of growth drivers are all early in their life cycle. These products are performing well now, and we expect them to continue to grow well into the future. For example, with new indications such as IgG4-related disease and generalized myasthenia gravis on the horizon for UPLIZNA, we're excited by what this product can offer an increasingly broad range of patients. I would also say that the progress that we are seeing with UPLIZNA across a range of different diseases reaffirms our belief for the potential of CD19-directed therapies to address a wide range of rare autoimmune diseases. In inflammation, we've been a leader for decades, and we are very encouraged by what we're seeing with TEZSPIRE as physicians are increasingly comfortable with its profile increasingly comfortable with the fact that it is a well-tolerated and broadly effective agent able to intervene upstream in the inflammatory cascade. We remain highly encouraged by the long-term prospects for TEZSPIRE. In oncology, we're continuing to establish new standards of care. IMDELLTRA has generated strong clinical enthusiasm in small cell lung cancer. BLINCYTO is, of course, now firmly established as the standard of care in frontline consolidation for B-cell acute lymphoblastic leukemia, and we are seeing encouraging project -- progress rather with Xaluritamig in prostate cancer as it advances through Phase III. Meanwhile, our biosimilar strategy continues to deliver results as well. You can see that in the quarter, revenues were up more than 50% year-over-year and are now annualizing at roughly $3 billion in sales. To close, let me just say that we continue to engage with policymakers in Washington and elsewhere around the world to support policies that improve access, protect innovation and strengthen the biomanufacturing ecosystem, especially here in the U.S. We've built a strong springboard for 2026. The products that will drive our next wave of growth are in hand, supported by compelling data, reinforced by readouts this year and still early in their life cycle. We're encouraged by the momentum we're seeing in the business and confident in our ability to deliver innovation and growth well into the next decade. I want to extend my thanks to our colleagues around the world for their commitment to patients. With that, let me turn over to Peter for a financial update. Thank you. Peter Griffith: Thank you, Bob. We are pleased with our strong third quarter performance and remain on track with our 2025 full year goals and long-term objectives. The financial results are shown on Slide 6 and 7 of the slide deck. In the third quarter, revenues increased 12% year-over-year to $9.6 billion, reflecting the continued strong performance of our six key growth drivers, Repatha, EVENITY, TEZSPIRE, and our innovative oncology, rare disease and biosimilar portfolios. The quarter also benefited from discrete items, including roughly $250 million from favorable changes to U.S. estimated sales deductions and a government order for Nplate of $90 million. I would also note that the third quarter included $105 million in sales for RAVICTI, a small molecule within the rare disease portfolio for which we now have a generic competitor as of October. Our non-GAAP operating margin was 47% and reflects significant investments across the business, led by non-GAAP R&D growth of 31% year-over-year, this includes several business development transactions, resulting in roughly $200 million of incremental R&D spending. Excluding these business development transactions, Q3 non-GAAP operating expenses rose 14% and non-GAAP R&D grew 19% year-over-year, reflecting increased investment in our late-stage pipeline. Our continued investments in programs, including MariTide, Olpasiran, Xaluritamig and rare disease will drive sustainable long-term growth and strengthen our leadership in innovation. Our non-GAAP OI&E resulted in a $568 million expense. We continue to strengthen our balance sheet with $4.5 billion of debt retired in 2024 and $6.0 billion of debt retired in 2025. We are pleased to report that we have returned to our pre-Horizon capital structure ahead of plan, and we will achieve greater than $500 million in pretax cost synergies in 2025 in connection with the acquisition. Our non-GAAP tax rate increased 4.8 percentage points year-over-year to 18.2%, primarily due to the change in earnings mix. We generated $4.2 billion in free cash flow in the third quarter, reflecting operational momentum across the business, rigorous management of working capital, all while continuing to invest in innovation. In addition to the increase of 31% in non-GAAP R&D described above, we continue to advance and accelerate technology and AI across the value chain from discovery to development to manufacturing and through to commercial execution. AI and trial enrollment, manufacturing optimization and customer engagement are all among areas leveraging innovation to drive productivity at speed and scale. We're also accelerating molecule design and other aspects of early-stage research powered by modernized AI and data platforms. For 2025, we now expect capital expenditures of roughly $2.2 billion to $2.3 billion to expand network capacity for our products across the portfolio and our innovative pipeline, including MariTide. Our capital expenditures reflect significant investments across the United States, including Ohio, North Carolina, Puerto Rico, Rhode Island, California and Massachusetts. We expect our projects to continue to be on budget and on time. In addition, we returned capital to shareholders through competitive dividend payments of $2.38 per share, representing a 6% increase compared to the third quarter of 2024. Turning to the outlook for the business for 2025 on Slide 8. The benefit of our portfolio was clearly seen this quarter and coupled with momentum across the business, we are raising our 2025 guidance ranges for both revenue and non-GAAP earnings per share. We expect 2025 total revenues in the range of $35.8 billion to $36.6 billion and non-GAAP earnings per share between $20.60 and $21.40. This guidance includes the estimated impact of implemented tariffs. It does not account for tariffs or pricing actions announced or described, but not yet implemented. In addition, let me highlight a few updates to our outlook for the remainder of the year. For the full year, we now expect other revenue to be approximately $1.5 billion. Non-GAAP R&D expenses are now expected to grow at a mid-20s percentage rate year-over-year in 2025. This is driven by increased investment in our late-stage programs and the previously mentioned Q3 business development transactions. We now anticipate non-GAAP OI&E to be in the range of $2.1 billion to $2.2 billion in 2025. We now expect a non-GAAP tax rate in the range of 15.0% to 16.5%. And for WEZLANA in the United States, we continue to expect quarterly sales to fluctuate and do not expect any sales in the fourth quarter. And let me remind you of prior items that have not changed. We continue to expect the full year non-GAAP operating margin as a percentage of product sales to be roughly 45%. The outlook continues to reflect our investments in advancing key late-stage programs, including MariTide, Olpasiran, rare disease and Xaluritamig and leveraging technological advancements, including artificial intelligence. Our operating margin outlook also includes incremental launch and commercial investments. We're focused on delivering sustained long-term growth and value for patients and shareholders by doing what we said we would do, driving innovation in areas of high unmet medical need and maintaining rigorous financial discipline. We continue to focus on execution excellence across the enterprise and remain well positioned for sustained growth throughout the long term. I'm grateful to work with all of our colleagues worldwide in serving patients. This concludes our financial update. I'll now hand it over to Murdo for an update on our strong commercial progress in the quarter. Murdo? Murdo Gordon: Thanks, Peter. In the third quarter, sales increased 12% year-over-year, driven by 14% volume growth. 16 products delivered double-digit or better growth, clear evidence of the strength of our portfolio and the disciplined execution of our teams around the world. Starting with general medicine. Repatha delivered $794 million in the third quarter sales, up 40% year-over-year and now annualizing at approximately $3 billion. Since Repatha's launch a decade ago, the PCSK9 inhibitor class remains underutilized with these therapies currently reaching fewer than 5% of patients eligible for lipid-lowering therapy. With roughly 100 million people still in need of effective LDL-C lowering, Repatha has a substantial opportunity to expand its use to address cardiovascular disease, the world's #1 public health crisis. As you'll hear from Jay, we have recently announced important data from the VESALIUS-CV outcome study, which met its dual major adverse cardiovascular events or MACE endpoints in patients at elevated cardiovascular risk without prior heart attack or stroke. Now I've worked in lipid management for more than 30 years, and I've witnessed numerous landmark statin studies, demonstrating how intensive LDL cholesterol lowering reduces cardiovascular risk. The VESALIUS-CV results demonstrate that Repatha provides additive benefit above and beyond statins, delivering even more reduction in cardiovascular events in primary prevention patients at higher risk. Currently, greater than 95% of patients insured in the U.S. have coverage for Repatha, and most insured patients pay less than $50 out of pocket per month. The prior authorization requirements for many of these patients have also been removed or substantially reduced. In the U.S., we're taking bold steps to improve access with the launch of AmgenNow, our new direct-to-patient program. Repatha is the first therapy available through AmgenNow at a monthly price of $239 or roughly $8 a day. This is nearly 60% below the current U.S. list price, which is already one of the lowest in the world. The launch of this program is a meaningful step toward providing additional affordability and access to Repatha for American patients. EVENITY delivered $541 million in third quarter sales, up 36% year-over-year. In the U.S., sales grew 44%, driven by higher prescription volumes from both established and newly activated prescribers. EVENITY is the only therapy that builds bone and slows bone loss, which is a unique advantage in helping postmenopausal women reduce fracture risk. In the U.S., EVENITY continues to lead the bone builder segment with over 60% market share and approximately 270,000 patients treated to date. However, many remain at high risk of fracture, with close to 90% of the roughly two million very high-risk patients still not receiving appropriate therapy. In Japan, EVENITY has been prescribed to approximately 800,000 patients since launch, making it the leader in the bone builder category with greater than 50% market share. The success of EVENITY in Japan underscores the significant untapped potential in the U.S., where improvements in screening and diagnosis and increased treatment could meaningfully expand patient reach and drive continued growth. Prolia delivered $1.1 billion in sales, an increase of 9% year-over-year. Three biosimilars have launched to date in the U.S., and we see competitive dynamics evolving in line with expectations. In future quarters, we expect increased competition to negatively impact Prolia sales. Our rare disease portfolio grew 13% year-over-year to $1.4 billion, now annualizing at over $5 billion with strong performance across the board. UPLIZNA sales increased 46% year-over-year to $155 million. The launch of UPLIZNA in IgG4-related disease is progressing well with significant uptake among rheumatologists and key academic medical centers. While IgG4-related disease is a recently defined condition, our educational efforts are rapidly building awareness and diagnosis. We've seen over 300 unique prescribers since launch across multiple specialties, demonstrating breadth of adoption of UPLIZNA in this indication. UPLIZNA is a leading FDA-approved treatment for NMOSD with growth driven by increased new patient demand and strong rates of treatment initiations and adherence. Additionally, launch preparations are underway for the anticipated approval of UPLIZNA in generalized myasthenia gravis or gMG, a chronic autoimmune neuromuscular disorder driven by pathogenic B cells. We look forward to the potential of serving more patients who can benefit from UPLIZNA's differentiated profile, including its durable efficacy and convenient dosing and administration. TEPEZZA grew 15% to $560 million in the quarter, driven by increases in inventory and price. We're encouraged by our launch in Japan, where more than 800 patients have been treated with TEPEZZA since December. In the U.S., approximately 25,000 patients have received treatment since launch. To reach even more patients who can benefit from TEPEZZA, we continue to engage a broad prescriber base who have indicated an increasing intent to prescribe. TAVNEOS sales were $107 million in the third quarter, an increase of 34% year-over-year, driven by strong volume growth. More than 6,700 patients with ANCA-associated vasculitis have been treated with TAVNEOS in the U.S. Over 3,800 health care professionals have now prescribed TAVNEOS, representing a 31% increase in the prescriber base so far this year. In inflammation, TEZSPIRE delivered another strong quarter with sales up 40% year-over-year to $377 million and has now achieved over $1 billion in sales year-to-date. TEZSPIRE is well positioned to help many more patients in the U.S. given its differentiated and broadly applicable profile to treat multiple triggers and drivers of severe uncontrolled asthma. In addition, TEZSPIRE has recently been approved in the U.S. for add-on maintenance treatment in adults and adolescents aged 12 years and older with inadequately controlled chronic rhinosinusitis with nasal polyps. This disease is associated with elevated eosinophils and is observed in roughly 20% of patients with severe uncontrolled asthma. This reinforces TEZSPIRE's proven efficacy in eosinophilic disease. Importantly, in this registrational trial, TEZSPIRE demonstrated a reduction in the need for surgery, further expanding its value and potential to help an even broader patient population. Our innovative oncology portfolio, which includes BLINCYTO, IMDELLTRA, LUMAKRAS, Vectibix, KYPROLIS, Nplate and XGEVA grew 9% year-over-year, generating $2.3 billion in third quarter sales. Growth in oncology is fueled by our industry-leading bispecific T cell engager platform, the foundation for IMDELLTRA and BLINCYTO. These medicines are redefining standards of care in difficult-to-treat cancers and extending survival for more patients worldwide. IMDELLTRA generated $178 million in third quarter sales, fueled by strong clinical conviction and rapid adoption across care settings. IMDELLTRA is widely recognized as the standard of care for patients with extensive stage small cell lung cancer who are progressing on or after chemotherapy. Over 1,400 sites of care in the U.S. are now administering IMDELLTRA with more than half of the doses occurring in the community setting. Following superior clinical evidence in the Phase III DeLLphi-304 study, the NCCN guidelines have been updated to reflect IMDELLTRA as the highest recommended therapy in the second-line setting. We look forward to the anticipated full confirmatory approval later this year. BLINCYTO grew 20% year-over-year to $392 million in sales, driven by broad prescribing across both academic and community segments. We see strong conviction in BLINCYTO as standard of care in combination with continued multi-agent chemotherapy for both adults and pediatric patients with Philadelphia chromosome-negative B-cell ALL. Our biosimilar portfolio delivered another strong quarter with sales increasing 52% year-over-year to $775 million and now annualizing at $3 billion. Since our first product approvals in 2018, our biosimilars have generated nearly $13 billion in sales. Additional launches are providing meaningful top line growth and durable cash flow. PAVBLU, a biosimilar to EYLEA continues to gain momentum, reaching $213 million in sales in the third quarter. Retina specialists have responded very positively to the launch of PAVBLU, citing its convenient prefilled syringe format and Amgen's high-quality biosimilar manufacturing as important advantages. I'm very pleased with our performance in the quarter, fueled by the unwavering commitment of Amgen employees around the world to deliver on the company's mission to serve patients. And now I'll hand it over to Jay. James Bradner: Thank you, Murdo, and good afternoon, everyone. The third quarter was a period of strong and disciplined execution across R&D. We advanced multiple late-stage programs and deepened the evidence base for our marketed medicines. Starting with MariTide, both of our Phase III chronic weight management studies are fully enrolled. Interest was significant, enrolling approximately 5,000 adults in roughly 6 months. We have rapidly advanced into additional Phase III studies with strong enrollment momentum in MARITIME-CV and MARITIME-HF for the study of atherosclerotic cardiovascular disease and heart failure, respectively. Recall, in our Phase II chronic weight management study, we observed statistically significant reductions in systolic blood pressure, triglycerides and hs-CRP, a key marker of vascular inflammation. These statistically significant improvements in validated cardiovascular risk factors highlight the potential impact of MariTide beyond weight loss. We have also recently initiated two Phase III studies in obstructive sleep apnea. With six global Phase III studies now underway, we're building a robust evidence base for MariTide. In addition to MariTide, we are advancing our early-stage portfolio for obesity and obesity-related conditions. This includes AMG 513 presently in Phase I and a number of rising preclinical candidates for both incretin and non-incretin targets, featuring both oral and injectable routes of administration. Beyond obesity, in general medicine, as Murdo noted, the Repatha Phase III VESALIUS-CV clinical trial met its dual primary endpoints, demonstrating significant reductions in major adverse cardiovascular events, or MACE, in higher-risk individuals without a prior heart attack or stroke. VESALIUS-CV asked a clinically vital question. Can people at higher risk for a first heart attack or stroke benefit from Repatha when it is added to optimized lipid-lowering therapy. This landmark study enrolled over 12,000 patients, approximately 85% of whom were maintained on moderate to intensive statin-based LDL-C-lowering therapy. At a median follow-up of approximately 4.5 years, both primary MACE endpoints were met and no new safety signals were observed. We are very excited to share the full results from this trial at the American Heart Association Scientific Sessions on November 8 and would encourage all to review the detailed data when presented. In addition to the VESALIUS-CV data, we will also present several real-world studies that report on the state of current lipid management and the effectiveness of Repatha treatment in clinical practice as well as new data from the FOURIER open-label extension study. Together, these data reinforce Repatha's long-term benefit and established safety profile while providing new insights into atherosclerotic cardiovascular disease risk management. The size, scope and ambition of our cardiovascular program, including efficacy from clinical trials and effectiveness from real-world data demonstrate Amgen's unwavering commitment to people living with heart disease and the impact that affordable transformative medicines like Repatha can have on their care. Turning to Olpasiran, our promising best-in-class small interfering RNA medicine targeting Lp(a), we are pleased by the conduct and progression of the fully enrolled event-driven OCEAN(a) Phase III cardiovascular outcome study. We continue to follow the aggregate endpoint accrual rate, which is lower than initial predictions. As the study matures, we will update on the date for primary analysis as appropriate. We retain strong conviction in the potential of lowering Lp(a) to reduce cardiovascular events, owing to very compelling genetic and epidemiological data that link elevated Lp(a) to cardiovascular disease. Moving to our rare disease portfolio at UPLIZNA. We recently presented additional data from the Phase III MITIGATE trial in IgG4-related disease, featuring subgroup analyses stratified by baseline characteristics and organ involvement, such as the pancreas, kidney and bile ducts. These data demonstrate benefits comparable to those seen in the overall trial population, supporting UPLIZNA's potential across the spectrum of IgG4-related disease patients. For UPLIZNA in generalized myasthenia gravis, we look ahead to the December 14 PDUFA date and continue to receive encouraging physician feedback that highlights the need and opportunity for highly active, durable and convenient treatment options for patients with gMG. In inflammation, we are excited by the FDA and European Commission approvals of TEZSPIRE for the add-on maintenance treatment of inadequately controlled chronic rhinosinusitis with nasal polyps for the benefit of adult and pediatric patients aged 12 and older. The Phase III data supporting this approval revealed rapid and sustained symptom improvement and a meaningful reduction of systemic steroid use. Notably, among patients treated with TEZSPIRE, we observed a near uniform avoidance of surgical intervention. Additionally, our two Phase III studies of TEZSPIRE in chronic obstructive pulmonary disease are enrolling patients with moderate to very severe COPD with blood eosinophil counts greater than or equal to 150 cells per microliter. Our Phase III study in eosinophilic esophagitis continues to mature. By targeting thymic stromal lymphopoietin or TSLP at the top of the alarm in inflammatory cascade, TEZSPIRE targets the root cause of serious inflammatory diseases driven by Th2 inflammation. Moving to oncology. Our bispecific T cell engager or BiTE platform is delivering outstanding clinical results for patients facing advanced cancers. IMDELLTRA, our DLL3 targeting BiTE molecule now established as standard of care in second-line small cell lung cancer is generating compelling data in combination and in earlier lines of therapy. In September and October, we presented results for multiple arms of the DeLLphi-303 Phase Ib study of IMDELLTRA in patients with small cell lung cancer, tested in combination with a PD-L1 inhibitor as first-line maintenance therapy. IMDELLTRA demonstrated a promising overall survival of 25.3 months, approximately doubling survival observed in other studies featuring the existing standard of care. In separate arms of DeLLphi-303, IMDELLTRA tested as first-line treatment in combination with platinum-based chemotherapy and a PD-L1 inhibitor demonstrated 12-month overall survival of 81% with median overall survival not yet reached. In both settings, the safety profile was manageable and consistent with the known safety of each component. We are now evaluating these combinations in the pivotal DeLLphi-305 frontline maintenance and DeLLphi-312 frontline induction and maintenance Phase III studies. Previously, we shared the remarkable results of the DeLLphi-304 study, evaluating IMDELLTRA versus standard of care in subjects with relapsed extensive-stage small cell lung cancer after platinum-based first-line chemotherapy. The U.S. regulatory submission has been accepted by the FDA with a PDUFA date of December 18, 2025. Regulatory reviews are also underway in a number of additional geographies. We are developing IMDELLTRA for expansive impact in small cell lung cancer and other DLL3-positive malignancies, including Phase Ib studies evaluating novel agent combinations, less frequent dosing regimens and subcutaneous delivery. As an oncologist, let me share that the impact of IMDELLTRA for patients facing such a challenging disease as small cell lung cancer is honestly very moving. This disease has seen little innovation in decades, and IMDELLTRA is now benefiting so many in this fight. With BLINCYTO, our CD19 targeting BiTE medicines, we continue to work to improve and evolve the standard of care for patients here with B-cell acute lymphoblastic leukemia. Recently, we initiated a potentially registration-enabling study of subcutaneously administered blinatumomab in both adults and adolescents with relapsed or refractory B-ALL. Our first-in-class STEAP1 CD3 bispecific T-cell engager, Xaluritamig is advancing in Phase III clinical development with two studies now underway. The first study, XALute, is enrolling patients with metastatic castrate-resistant prostate cancer who have previously been treated with taxane-based chemotherapy, comparing Xaluritamig monotherapy versus investigators' choice of standard therapy. The second study, XALience, is evaluating the combination of xaluritamig and abiraterone versus investigators' choice of standard therapy in patients with chemotherapy-naive metastatic castrate-resistant prostate cancer. We are also exploring Xaluritamig in other combinations and in earlier stages of prostate cancer with multiple Phase Ib studies ongoing. Across IMDELLTRA, BLINCYTO and xaluritamig, we see meaningful long-term potential from our bispecific T cell engager platform and remain committed to bringing transformative and innovative therapies like these to patients with cancer. Lastly, we are disappointed to announce that FORTITUDE-102, a Phase Ib/III study of bemarituzumab plus chemotherapy and nivolumab in patients with first-line gastric cancer was stopped for an adequate efficacy at an ad hoc analysis requested by the Data Monitoring Committee. We are deeply grateful to the patients, investigators and research partners who made the study possible. We remain committed to creating and developing medicines for challenging cancers where unmet need is significant as for patients with gastric cancer. Here, however, the magnitude of observed efficacy did not meet our standard for an Amgen medicine. Beyond these innovative medicines, our next wave of biosimilar candidates is advancing in Phase III clinical development, featuring biosimilars to OPDIVO, KEYTRUDA and OCREVUS. With breadth and depth across our four therapeutic areas, we are excited about the potential to deliver for patients, and we are well positioned to deliver sustained long-term growth. In closing, thank you to the Amgen teams whose disciplined execution and patient-first mindset make this progress possible. I'll now turn it over to Bob for Q&A. Robert Bradway: Okay. Thank you. Why don't you remind our callers of the procedure for asking questions, and we'll try to get to as many of you as possible. I know it's a couple of minutes past the top of the hour now. So we'll try to get through these. And if we don't get to everybody on the call, we'll be available afterwards to answer any outstanding questions. So, let's get started. Operator: [Operator Instructions] Our first question comes from Salveen Richter from Goldman Sachs. Salveen Richter: With Olpasiran, you mentioned best-in-class in the context of a competitive landscape out there. And you also noted that the event rate for the OCEAN(a) outcome study is lower than you expected. Could you just speak to your confidence in this program and what the event rate means for a base case readout, whether it's now in 2027 versus year-end '26 prior? And then separately, from a BD perspective, you spoke to how you're back at pre-Horizon debt levels. How does this impact your approach to business development heading into 2026? James Bradner: Thank you very much, Salveen. I'll take the first question around Olpasiran. And as I mentioned, our conviction remains very strong. The genetic association for Lp(a) in cardiovascular disease is crystal clear from human genetics, from epidemiological data. Lp(a) is fundamentally an inflammatory lipoprotein particle, and we know a lot about that biology in the vascular beds from analogy to LDL-C. Olpasiran has true best-in-class properties. It's frequency of administration is better. The depth of Lp(a) suppression is better, has a very clean safety profile. OCEAN(a) is an event-driven study. We're accustomed to conducting these global studies, look at VESALIUS-CV. We're very pleased with study conduct and look forward when we do read this out to seeing the impact of Olpasiran. We won't guide today on that particular date, but we'll keep all posted as we put into focus. Robert Bradway: And Salveen, I wouldn't say that the return to the leverage that we had pre-Horizon affects our thinking in business development to any great extent. We're actively looking for opportunities in business development, as you know. We're particularly focused in the therapeutic areas that you're familiar with as areas of interest for us. And just given the number of things we have in the late-stage clinic right now, we're focused primarily on earlier-stage things. And the good news is there are more of those than late stage anyway. So we're focused, open for business, but we have been. So thank you for the question. Operator: Our next question comes from Terence Flynn from Morgan Stanley. Terence Flynn: Peter, I was just wondering, high level, I know you're going to give 2026 guidance at this point, but maybe you could walk us through some of the puts and takes that we should think about heading into 2026. And then, Jay, just one clarification on ROCKET ASTRO. I noticed you completed that trial and it said the safety was consistent. Just wondering if there was any gastrointestinal ulcerations in that study. I know you saw those before in some of the prior studies. Peter Griffith: Yes, Terence, thank you very much for the question. And I would point towards our key growth drivers when you think about the top line and where the company is going. We've just had an excellent quarter, 14% volume growth, Repatha, EVENITY, TEZSPIRE, innovative onc, rare disease now annualizing at over $5 billion off the quarter, biosimilars annualizing at close to $3 billion. So that's how we're thinking about that. As we go down the P&L, maybe the easiest thing for me to do, Terence, would be just to spend a minute because I think people probably are thinking about operating margin. And we've been clear in the past number of years about that. And when we have an opportunity to achieve cash-on-cash returns greater than our hurdle rate, we're going to drive those opportunities for shareholders. So nothing has changed in that. We're at about the 47% operating margin level in 2024 as we continue to accelerate the investing in research and particularly development, Terence of our later-stage pipeline. We're going to continue and have continued to invest in 2025, again, focused on research and development. We're going to stick with this disciplined capital allocation approach. We haven't changed from that, investing in the best innovation, as Bob just said, looking externally inside the company internally remains at the top of our capital allocation hierarchy. Nothing's changed there. So we'll keep that up. We haven't provided longer-term margin targets, so nothing into 2026. But I'd just say we remain focused on achieving industry-leading margins while continuing to invest in the very best innovation. So as you think about the business going forward, here's a couple of thoughts for you to think about. First, we're focused on our earlier pipeline. Bob just mentioned that again, investing in the best innovation to further build out that part of the pipeline. In terms of R&D expenses, I just want to note, we experienced what I might characterize as a step change increase in R&D expenses over the last year. We don't anticipate an incremental step change going forward. In terms of R&D expense, think of a lot of puts and takes there. We'd remind you that we've completed a number of Phase III studies in 2025, including Repatha VESALIUS, the a confirmatory study for IMDELLTRA along with several rocatinlimab, bemarituzumab studies. And we've added studies, of course, for MariTide, Olpasiran and Xaluritamig and those will carry forward into 2026. I'd also remind you, Terence, that our non-GAAP operating margin guidance of for the full year 2025 includes $200 million of business development activities in the third quarter, along with some incremental launch and commercial investments in the fourth quarter. So just kind of summarizing, hoping that answers your question and gives you some thoughts about where we're at this year and continuing into '26. We're going to continue to drive executional excellence, productivity and ruthless prioritization around the organization. We've worked very hard as an enterprise for many years to be amongst the leaders in margins in our industry, and we certainly expect to continue to remain there. So, Terence, thank you very much for the question. Robert Bradway: Jay, do you want to speak to ASTRO? James Bradner: I gladly would. Terence, thanks for asking. For all on the call, ASTRO is a 52-week study of rocatinlimab, the OX40 directed T cell rebalancing agent. In this case in adolescents with moderate to severe atopic dermatitis, tested two doses, 150 and 300 milligrams. We studied the medicine as monotherapy as well as combination therapy with low-dose steroids or calcineurin modulation. Study met its co-primary endpoints at 24 weeks. Safety, quite consistent with the other studies. We did observe GI side effects, mostly mild in nature and not at an excessive rate. As we bring to close the eight studies of the ROCKET program, we start to reflect on the target product profile, we'll have more to say about that in the near future. Robert Bradway: All right. Let's move on to the next question and see if we can keep it to one question so we can get as many of you as possible. Who's next? Operator: Our next question comes from Jay Olson from Oppenheimer. Jay Olson: Congrats on the quarter. We're curious about the VESALIUS-CV results and how you expect them to impact the overall market opportunity for Repatha? And also what should we look for in the details when you present them at AHA? And related to that, just any lessons learned that you can apply to Olpasiran? Robert Bradway: Jay, we're glad you're interested and excited about the VESALIUS study. So are we -- we look forward to having a chance to share with you in detail. Maybe two parts. Jay, do you want to kick off and then Murdo, you can follow up. James Bradner: Yes. Thanks, Jay. Cardiovascular disease is still the #1 killer, heart attack every 40 seconds in the United States. And just about everybody in the world knows about bad cholesterol or LDL-C that Repatha so dramatically lowers. And we know that lower is better, yet lipid management globally is still very poorly managed, about 100 million people in the world who are in need of better control. Repatha, so firmly established as accessible, affordable, efficacious in the prevention of recurrent CV events in VESALIUS-CV, we asked the really vitally important question, can we prevent first events? And indeed, this is the first -- the only PCSK9 to demonstrate such an effect. 75% of MIs are first events. And so it's a really important question. We can't wait to share these data at the upcoming AHA. Importantly, on this study, as Murdo mentioned in the top of the program, this is in addition to optimize lipid management. And so for patients and doctors on a statin, but with inadequate LDL-C control, this is a major, major advance. We're looking very much forward to sharing the complete results. You asked about lessons learned. I think work with great people. The TIMI Study Group was outstanding. We carry all of the learnings of how to conduct a global study of this incredible span in nature, more than 12,000 patients worldwide. And I think it also serves to emphasize by hitting both dual primary endpoints, just how much room there still is to improve cardiovascular care targeting inflammatory lipoparticles. Murdo? Murdo Gordon: Well, I think you've covered most of it, Jay. I would say that if you're not doing anything this weekend and you're really curious, be in New Orleans or tuned in. I really -- I think that the word landmark gets thrown around a lot in describing clinical trials, but I don't think it's an inappropriate moniker to put on this one. I think this is a substantial advance in understanding how you can prevent first heart attacks and strokes. This is a call to action for primary care physicians everywhere. And we will make sure that immediately after the presentation of these data that our medical teams, our field sales teams, our patient support organizations are out there in full force, making sure that primary care physicians are aware of these data. and that patients have the benefit, as Jay said, of an affordable solution that gives them incremental risk reduction beyond any established lipid-lowering therapy on the market today with Repatha. So it's an exciting time. We've systematically told you all that we were opening up access for Repatha and that we were asking primary care physicians to do more beyond the cardiologist role here. And these data give us yet another opportunity to continue that important work. Thank you. Robert Bradway: And Jay, as we mentioned a couple of times on the call in our prepared remarks, Amgen now obviously is an important part of the thinking here. We don't want there to be any excuse for anyone not to be able to get access to this at an attractive price relative to the benefit that the medicine provides. So, anyway, thanks for asking the question. Let's move on to next caller. Operator: Our next question comes from Matt Phipps from William Blair. Matthew Phipps: FDA recently released new biosimilar guidance and maybe removing the need for comparative efficacy studies. I wonder if that changes your view at all on the business, maybe some of the barriers to entry, but also the calculus on what biologics might be worth pursuing a biosimilar for? Murdo Gordon: Thanks, Matt, for the question. I don't think it changes our strategic focus on biosimilars. This has been a very good growth business for Amgen, and we continue to see it as such. Obviously, we pay attention to the new guidance and our development teams and regulatory teams are very focused on making sure we're ready to adapt to them. I would say that all of the technical functions here at Amgen are in a position to compete effectively regardless of the guidance, whether it's heavy clinical trial requirements or whether it's technical comparability requirements. We've got a great process development team here in our manufacturing operations organization who continue to do very innovative things in the development of biosimilars, such as helping us be the only biosimilar to EYLEA commercially available on the market. So we think we'll be in good shape. We'll be competitive. And no matter what the guidelines come, obviously, we'll look closely at them, as I said, and we'll understand how that might impact development of products going forward. Robert Bradway: And just quickly, Matt, at a strategic level, I would observe that there's an undercurrent of question in some quarters, particularly in Washington about how successful the biosimilar market is in the United States right now. As a leading competitor, our perspective is the market is performing very well. We think the ground is well set for this to continue to be a flourishing market in the U.S. with patients having access to alternative supplies of important medicines after their patents have expired. And we would watch carefully to make sure that policies don't emerge that might move this marketplace in the direction of the generic drug industry, where there have been obviously a number of abuses that have given rise to quite a bit of anxiety about that market and its impact on patients. In contrast, we think the biosimilar market is working well. We think regulatory and other policies that are in place today enable that to continue. And we would advocate for, again, a recognition that the things that are in place now are working well. Operator: Our next question comes from Yaron Werber from TD Cowen. Yaron Werber: Great. Maybe just a question for Jay. The second year of the MariTide data is expected by year-end. We know you're looking at three different things. You're looking at the same dose, lower dosing, going to placebo and you're testing Q12 weeks in that study. There's no Q8 weeks. Any sense sort of -- is this going to be in a medical meeting? And can you give us any sense kind of what to really expect and put it in context? James Bradner: Yes. Thanks, Yaron. The Part 2 of the Phase II chronic weight management study is indeed a very interesting study, having achieved strong efficacy in Part 1, 52 weeks, Part 2 will contribute a first maintenance experience. And just a reminder the design, as you covered already, we are testing quarterly dosing, full dose. We're testing low dose at monthly, and we're comparing these measures to placebo and continued treatment. And these data will be very useful to us. This will inform our maintenance strategy. It will provide guidance to additional Phase III designs, and we'll have more to say about our disclosure approach in due course. Operator: Our next question comes from Chris Schott from JPMorgan. Christopher Schott: Maybe a bigger picture question on obesity. We've had a number of updates in the space lately. We've got the Metsera headlines going around. We've got some discussions on lower Medicare pricing for obesity drugs. I'd just be interested in just Amgen's latest view on kind of the obesity market and the company's role within the market with MariTide and the broader pipeline. I want to get just the latest kind of lay the land from your perspective. Robert Bradway: Yes. Thanks for the question, Chris. I would say that we are -- we remain very enthusiastic about the opportunity for us in obesity. We believe strongly, as you know, that we have a differentiated approach to this market than the competitors that are in the space. presently and different from what we see others advancing in their portfolios. So again, our interest in this based on everything we know about our molecule and everything we see in the marketplace remains very, very constructive. So, I'll invite Jay and Murdo, I'm sure they'll have thoughts they want to add. Jay, why don't you kick in? James Bradner: Sure. Thanks for the invitation. It's a major public health crisis. Living in the United States, so many people face this every day. Maybe 40% of adults in the United States will have a BMI over 30 and 1/5 of children. It's also massively costly to health care in the United States. The CDC will estimate over $170 billion a year. And market -- Murdo can speak to it, but the market is totally underpenetrated, implying that health care can significantly improve. But for it to improve, we think it will take really differentiated assets, not just another weekly injectable peptide, which have proven very hard to keep patients on those types of medicines with 55% failure to continue medicines beyond the calendar year. And of course, obesity itself as well as the related conditions require much more enduring and chronic therapy. And so we think that MariTide has a fantastic and differentiated profile to contribute there. But as you asked about the broader pipeline, we've been in obesity and metabolic medicine discovery research for more than 20 years. And this pipeline, we have another Phase I asset, AMG 513. And we have preclinical programs advancing for novel targets within the incretin and non-incretin pathways. Some will be oral, some will be injectable. And so we're really in it to have a huge impact on this major public health crisis. Murdo? Murdo Gordon: Yes. Thanks, Jay. I mean the only thing I would continue to reinforce for everybody listening in is we continue to feel that MariTide is a true differentiation compared to what is available in the market. I mean it is interesting that there's a bidding war between two companies for a GLP-1 that is through some lipid technology enabled potentially to maybe be monthly. So to have a product that's well defined clearly monthly, perhaps even less frequently in a market, as Jay described, that is massive and undersatisfied, where we hope to go into this market, not just to reduce the weight of patients who struggled with obesity but also to help deliver on the medical benefit of managing that weight. And I can't wait to see the results of our Phase III program, and I'm really pleased with how the team is executing. We look forward to that day. Thank you. Operator: Our next question comes from Evan Seigerman with BMO capital. Evan Seigerman: Bob, your comment kind of on the biosimilar sector struck with me. I'm wondering if you could highlight what you think needs to change from a policy perspective to encourage even more uptake of biosimilars. For example, the #1 selling adalimumab product is still HUMIRA and not AMJEVITA. How can you as a biosimilar leader really encourage more use of these products? Robert Bradway: Yes. Again, I think there's a difference in the U.S. between the Part B medicines and the Part D medicines or the retail and the physician-administered medicines. So I think the market dynamics are evolving differently in those two areas. Obviously, the payers are very involved in the Part D where the rebate dynamics are important, but that erodes over time, and I think we see happening that now. Very confident when you look back over the fullness of time, you will see that AMGEVITA, our adalimumab biosimilar will have been a very successful product for us. We see that internationally. It continues to be a strong product for us. We think it will continue to be that. And I think, again, in the U.S., a safe, reliable supply of a true biosimilar like ours will do well in the long term. Operator: Our next question comes from Umer Raffat from Evercore. Michael DiFiore: This is Mike DiFiore in for Umer. I just want to go back to the MariTide Phase II trial for a bit. There is some confusion on whether we'll get two-year weight loss data in the upcoming Part 2 readout of the MariTide obesity Phase II trial. So can you clarify the design, especially as it relates to the washout post week 52? And since most of these patients will have lost weight in year one, isn't it reasonable to assume that weight loss in year two, Part 2 will be a lot less in year one Part 1? Robert Bradway: Yes, Jay, go ahead. James Bradner: Yes, I'm happy to answer the question. As I shared, it's principally a maintenance study that tests low dose monthly and full dose quarterly against placebo and continued MariTide at target dose. As the study was powered really to inform Phase III and we derived a significant amount of guidance from Part 1, there are some aspects of Part 2 that are more descriptive. I mean you may know that to participate in Part 2, patients had to achieve greater than 15% weight loss in Part 1, and then they were randomized to a number of arms. And so the power to make significant insights into weight loss between the arms is not strong, but there will be patients that continue on at their target dose. And as patients in Part 1 did not achieve a weight loss plateau, we'll be interested to follow those patients forward for the second calendar year. Robert Bradway: And just to be clear there, Jay, when you say the power is not strong, you mean it's not designed -- numerically, it's not designed for that purpose. James Bradner: That's right. This, as I shared, is a study that's designed to inform our strategy on maintenance MariTide as well as further Phase III programming. And we fully expect to derive all the information needed from Part 2 of the study for those purposes. Robert Bradway: Great. Okay. Let's go to the next question. Again, I'm mindful we're getting up to the half past the hour. So we'll take two more questions, and then I apologize to the rest of you. We're available for calls later in the day. So let's go to the next question. Operator: Our next question is from David Amsellem from Piper Sandler. David Amsellem: So on UPLIZNA specific question. So you're seeing pretty strong performance in the wake of the label expansion in IgG4-related disease. Can you talk to the extent to which there's been pent-up demand here? Give us your refreshed views on the sales opportunity here? And then I guess, beyond that with the gMG label expansion, how are you thinking about rapidity of uptake there given that, that's a more competitive landscape and there are some competitive dynamics to consider in gMG. Robert Bradway: We'll try to get it efficiently for you here. But I think, Murdo, I'm sure you're going to want to have -- say a few things about the exciting dynamic we see for UPLIZNA. Murdo Gordon: Yes. Thanks for the question, David. Obviously, we're very early in the IgG4 launch. As I mentioned, we've got roughly 300 unique prescribers that have prescribed UPLIZNA for IgG4. I'm not sure I would characterize it as pent-up demand. IgG4 is a disease that really only got its own ICD-10 code in 2023. So this is a patient that often presents without an obvious diagnosis on the part of the physician. So we're actually seeing our awareness, our education and the fact that we've got the only FDA-approved treatment for IgG4 as a catalyst for even more growth. The estimate is about 20,000 patients in the U.S. But as I mentioned, given that the diagnostic codes are relatively new here, the actual market could be much bigger. We have obviously demonstrated overwhelming efficacy. When you can reduce flares by as much as 87%, substantial reduction in steroids and really have patients who are in significant trouble here, have their disease resolved and have their flares reduced as a very important therapy. So it's helped us a lot. Jay will want to expand further on that. But before I turn it to him, I'd just say that in NMOSD, we expect to have a strong -- sorry, in gMG, we expect to have a strong presence in that market given the profile that we were able to show in the MINT trial. We've got a very convenient dosing here after the first loading dose, you get to twice a year therapy. very durable effect, perhaps more durable than some of the agents that are in the market today. And given that the data are already out there, we -- there, we have some real interest on the part of the people who are treating the gMG patient population. The other thing to think about in gMG is there's a lot of switching between treatments and between classes of therapy. Usually, a patient is on a primary therapy for no longer than a year to 1.5 years, and they see at least two medications, sometimes as many as three medications until they feel stabilized. So it is a market that's still dissatisfied despite the number of entrants. Jay? James Bradner: Yes. Thanks, Murdo. I think the differentiation is really strong, as Murdo shared. And I think it's attributable to targeting the core disease biology. I mean targeting the CD19 positive cell is really the entirety of the B-cell compartment, not just the mature cells, but also the immature cells that start to elaborate the autoantibodies. And because of this, although it's always hard to make trial-to-trial comparisons, we see numerically higher efficacy by MG-ADL, which is a standard measure. We see more steroid sparing than FcRn. We see incredible durability, as Murdo said, during the randomized control period and a serious dosing advantage with Q6 months dosing after the loading dose. And so durable, sustained efficacy are not just promising for gMG, but more broadly to the other diseases that are driven by pathologic autoantibodies. And as you might know, we have open studies of inebilizumab as well as blinatumomab in autoimmunity that are open and enrolling in a very dynamic and exciting space where CD19 medicines of many classes are showing profound activity in severe and advanced autoimmune diseases. And we, of course, have two in-market brands. So we're in a good spot to take advantage of this opportunity to help these patients. Operator: Our last question today will come from Dave Risinger from Leerink Partners. David Risinger: So thank you for all the updates. I was just hoping that you could maybe just call out the top two or three pipeline cards that are turning over that could be most impactful for Amgen in the next 6 to 12 months that we should be focused on? Robert Bradway: Jay, do you want to go ahead and talk about a couple of things that you're watching carefully? James Bradner: Yes. Well, I'm obviously very excited in this moment about the VESALIUS-CV, which we're going to be sharing in just a week. And so I really quite encourage you to pay close attention to this. The further development of IMDELLTRA and tarlatamab is also very exciting. We see very dramatic activity in the cases that are now being communicated back to us of patients saved from impossible situations, as I shared, is very powerful. And as we've learned from blinatumomab, moving tarlatamab, IMDELLTRA into combination therapy into frontline use into a setting where there could be less active disease owing to the debulking of chemo, all promises, as we've seen in this dramatic 303 study presented at World Lung as well as at ESMO for really meaningful activity in frontline in Phase III. And this is one of those moments, David, where time just can't move fast enough to read out those Phase III studies. Robert Bradway: We had an opportunity here before the call, Dave, to see some PET scan data on a patient who is in tough shape, who is experiencing quite a profound response to the medicine. So it's a medicine that we're excited about. I think somebody at ESMO described it as wow squared. So stay tuned. A lot of -- we're hopeful about the data that's forthcoming on the IMDELLTRA platform here over time. All right. Well, thank you all for your attention and for joining the call. Casey and his team will be available through the afternoon and evening if anybody didn't get a chance to raise a question that they have an interest in. We look forward to being with you after the next quarter. Thanks. Operator: This concludes our Amgen Q3 2025 Earnings Conference Call. You may now disconnect.
Operator: Greetings, and welcome to the Advanced Energy Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Edwin Mok, Senior Vice President of Marketing and Investor Relations. Please go ahead. Yeuk-Fai Mok: Thank you, operator. Good afternoon, everyone. Welcome to the Advanced Energy Third Quarter 2025 Earnings Conference Call. With me today are Steve Kelley, our President and CEO; and Paul Oldham, our Executive Vice President and CFO. You can find today's earnings press release and presentation on our website at ir.advancedenergy.com. Before we begin, let me remind you that today's call contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees of future performance. Information concerning these risks can be found in our SEC filings. All forward-looking statements are based on management's estimates as of today, November 4, 2025, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as guidance. On today's call, our financial results are presented on a non-GAAP financial basis unless otherwise specified. Excluded from our non-GAAP results are stock compensation, amortization, acquisition-related costs, facility infrastructure and other transition costs, restructuring and asset impairment charges, unrealized foreign exchange gain or loss, and the dilutive effect of our convertible note due to the higher note hedge strike price versus the initial conversion price. Detailed reconciliation between our GAAP and non-GAAP results can be found in today's press release. Please note that this quarter, we added a new reconciliation for non-GAAP income tax and tax rate. With that, let me pass the call to our President and CEO, Steve Kelley. Stephen Kelley: Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Third quarter revenue and earnings exceeded the high end of guidance, largely due to record data center revenue, which more than doubled year-on-year. Total company revenue increased 24% from last year, our fourth consecutive quarter of year-over-year growth. Strong revenue, solid execution and cost savings from our China factory closure pushed gross margin higher. As a result, we delivered the second best quarterly EPS performance in our history. This year's financial performance demonstrates the value of our market diversification strategy. By selling our industry-leading power technologies into a variety of high-end markets, we are able to generate more consistent profits and cash flow. Our markets don't generally move in sync. So there's a good chance that one or more of our markets will be strong at any given point in time. This financial stability has allowed us to continuously increase our investments in new technology, products, infrastructure and production capacity. These are the key enablers of our future growth. Sharing best-in-class technologies across our portfolio is accelerating our time to market. As an example, high-efficiency, high-density technology blocks created for data center applications have already been incorporated into several new semiconductor and industrial products. Another example is liquid cooling, a technology we perfected for plasma power applications. This know-how gives us an advantage in the data center market, which will eventually shift to liquid cooled solutions as power levels increase. Our strong balance sheet allowed us to increase capital investment this year to capture upside demand. The payback on this incremental investment will be measured in months, not years. In addition, our new flagship factory in Thailand, where we broke ground in 2023, is now ready to start production within months of a go signal. We believe that this factory will be able to deliver more than $1 billion in incremental yearly revenue. On the new product front, we are seeing a high level of customer interest in our new technology platforms and in our ability to quickly develop custom products based on those platforms. Now let me provide some color on each of our markets. In semiconductor, third quarter revenue was down sequentially but about flat year-over-year. Despite some near-term market choppiness, we expect 2025 to be our second best year ever in semiconductor. Looking forward, we expect demand for both leading-edge logic and memory to accelerate in the second half of 2026 moving into 2027. The leading edge is where our eVoS and eVerest technologies have taken root. So we expect to see both revenue growth and share gain as the market strengthens. Customers have validated the yield and throughput benefits of our eVoS and eVerest platforms and continue to incorporate them into next-generation equipment. At SEMICON West, we showcased multiple versions of our eVerest platform, each tailored to a customer-specific application. In addition to our success in plasma power, we are also winning in system power applications, adapting our latest industrial power technologies to the needs of semiconductor equipment makers. Multiple wins have begun ramping to volume. In data center computing, revenue more than doubled year-on-year and reached another record. Our technology leadership, superior execution, and accelerated capital investment have enabled this increase in profitable revenue. We expect AI-driven demand to remain robust in the coming quarters and to drive year-on-year growth in 2026. New program wins secured over the past year are beginning to go into production later this quarter with further high-volume ramps beginning in the first quarter of 2026. In addition, we are deeply engaged with our customers in the development of next-generation power solutions, including more efficient high-voltage DC power architectures. We expect most of our current design engagements to ramp to volume in 2027 with more to come in 2028. At the recent OCP Global Summit, we unveiled several new high-power platforms geared to meet the next-generation needs of our customers. In fact, several of our partners featured our products on the show floor. In addition, we are seeing strong interest from emerging cloud and enterprise customers seeking proven, reliable, efficient, and compact solutions for their AI racks. Leveraging in-house technology blocks, we believe that we can quickly customize solutions for many of these customers. In Industrial and Medical, revenue and backlog again grew sequentially quarter-on-quarter as customer inventories continue to normalize. In the distribution channel, resales grew sequentially and inventories declined for the sixth consecutive quarter. Looking forward, we expect steady revenue improvement in the coming quarters. In Q3, we secured important design wins in aerospace and defense and in several medical applications. We are delighted with the customer enthusiasm for our new technology platforms, such as the high-power density Evergreen series and the NeoPower line of configurable power solutions. Acceptance of these and other new platforms will help to drive market share gains beginning next year. In addition, our opportunity funnel continues to grow, benefiting from our strong digital marketing efforts, robust distribution partnerships and a focused sales and applications team. In Telecom and Networking, revenue grew sequentially. We also expect sequential growth in the current quarter, driven by AI-related programs. Now for a few closing thoughts. Due to our technology leadership, development speed, and operational execution, we now expect overall 2025 revenue to grow approximately 20%. Since our Analyst Day a year ago, infrastructure investments in artificial intelligence have increased substantially. These investments are driving increased demand for our differentiated data center power solutions. In addition, high-performance AI systems are stimulating investments in leading-edge logic and memory processes, which in turn will drive demand for our latest plasma power technologies. In semiconductor, we believe the customer acceptance of our eVoS and eVerest technologies is laying the foundation for meaningful share gain. In data center, we now expect revenue to more than double in 2025 with further growth in 2026. And in I&M, we believe that our design win pipeline will drive market share gains in the coming quarters. Our manufacturing strategy and execution have enabled us to consolidate our factory footprint and meet growing demand. Looking forward, we are taking additional actions to further improve manufacturing efficiency, enable scale, and achieve our long-term gross margin goals. In addition, we now have our 500,000 square foot Thailand factory available to ramp on short notice. Finally, with a strong balance sheet, we continue to pursue acquisitions, which meet our strategic and financial goals. Paul will now provide more detailed financial information. Paul Oldham: Thank you, Steve, and good afternoon, everyone. Third quarter revenue of $463 million was above the high end of our guidance as investments in operational capacity and flexibility enabled us to capture higher data center demand. Gross margin improved quarter-over-quarter and exceeded our target, driven by faster-than-expected benefits from our China factory closure and lower tariff costs. Operating margin improved 220 basis points sequentially, and we delivered earnings per share of $1.74, up 78% from last year and at the highest level since 2022. In addition, we more than doubled our operating and free cash flow over last year, even as we increased capital investments to meet growing data center demand. Now let's review our financial results in more detail. Third quarter total revenue was $463 million, up 5% sequentially and 24% year-over-year. Revenue in the semiconductor market of $197 million was about flat year-over-year, but down 6% sequentially, consistent with near-term market dynamics. Data center computing revenue was $172 million, up 113% year-over-year and up 21% quarter-over-quarter. We executed well to respond to changes in customer demand, enabling us to capture higher revenue in a dynamic supply chain environment. Industrial and Medical revenue of $71 million was down 7% from last year, but increased sequentially again, up 4% from last quarter. Encouraging data points from our distributors include 6 consecutive quarters of decreasing inventories and continued improvement in bookings, backlog and sell-through. Telecom and Networking revenue was $24 million, up 24% from last year's low due to timing of some programs and up slightly quarter-over-quarter. Gross margin was 39.1%, up 280 basis points over last year and 100 basis points sequentially, driven by earlier-than-expected benefits of our China factory closure, better factory loading and lower near-term tariff costs. We are pleased that we again improved gross margin despite a higher mix of data center revenue and related factory ramp costs. Operating expenses were $103 million, flat from last quarter and slightly lower than expected due to the timing of SG&A spending. OpEx as a percentage of revenue decreased 360 basis points year-over-year, demonstrating the leverage in our model. Operating income for the quarter was $78 million, with operating margins at 16.8% of sales, the highest level since 2022. Depreciation was $10 million, and our adjusted EBITDA was $87 million. Other income was down slightly at $1.7 million on higher FX costs. For Q3, our non-GAAP tax rate was 16.6% on favorable mix of earnings and benefits of amortizing R&D in the U.S. under the new tax law. Third quarter EPS was $1.74 per share compared to $1.50 in the previous quarter and $0.98 a year ago. Turning now to the balance sheet. Total cash and cash equivalents at the end of the second quarter was $759 million with net cash of $192 million. Cash increased by $45 million quarter-over-quarter. Cash flow from continuing operations was $79 million and free cash flow was $51 million, up 124% year-over-year. Inventory turns increased slightly quarter-over-quarter at 2.8x on higher revenue. Receivables improved from 62 to 58 days and DPO was about flat at 62 days. During the third quarter, we paid $4 million in dividends and invested $28 million in capital equipment. We expect full year 2025 capital investments to be at the high end of our range of 5% to 6% of sales and to remain elevated for the next few quarters on investments in data center capacity, infrastructure capability and our factory consolidation strategy. Before moving on to guidance, let me provide some comments on the impact of tariffs. The environment continues to be dynamic, requiring us to implement additional actions to mitigate the impact of new tariffs. Although tariffs were lower in the third quarter on timing of recoveries, we expect tariffs to increase in the fourth quarter and continue to be in the 100 basis point range. Turning now to guidance. We expect Q4 total revenue to increase sequentially to approximately $470 million, plus or minus $20 million. Semiconductor revenue is expected to be down slightly, consistent with customer forecasts. We expect data center computing revenue to increase modestly from the strong Q3 levels based on mix and timing of customer shipments. In Industrial and Medical, we expect sequential revenue growth over the next few quarters, paced by uncertainty in the macro environment. And in Telecom and Networking, revenue is expected to be up slightly on demand for AI-related products. We expect gross margin in the fourth quarter to be between 39% to 40%, with benefits of cost optimization, partially offset by increased tariff costs. We continue to believe that excluding the impact of tariffs, Q4 gross margins would be at 40% or greater. We expect operating expenses to increase to approximately $107 million on R&D program-related costs and higher variable costs given the stronger full year performance. Other income should be $1.5 million to $2 million, and the tax rate is expected to be around 17%. As a result, we expect Q4 non-GAAP earnings per share to be $1.75, plus or minus $0.25. Now for some closing comments. Our solid performance this year confirms that AE's diversification strategy is working. By leveraging our broad portfolio of power technologies and our industry-leading engineering team, we are targeting to win in the semiconductor, data center computing, and industrial and medical markets. These three growth markets inherently come with different business cycles, mitigating industry risks while enabling more consistent revenue growth, profits, and cash flow. Driven by our success in capturing AI-related demand, we are raising our 2025 total revenue growth outlook from 17% to 20%, with data center computing revenue growth increasing from up over 80% to now more than double 2024 levels. Based on the midpoint of our Q4 guidance, we expect 2025 gross margin to expand 240 basis points and operating margins to improve by 530 basis points, highlighting the progress we've made in improving margins and driving operating leverage. Going into 2026, we are well-positioned to deliver growth in each of our targeted markets. In semiconductor, we expect our new products and leading-edge investments to drive growth as the market accelerates in the second half. In data center computing, next-generation designs secured this year are targeted to ramp in early 2026, resulting in projected growth of 25% to 30%. I&M is expected to benefit from our design win pipeline and ongoing market recovery to continue to grow sequentially each quarter. With plans for further manufacturing efficiencies, product portfolio improvement and ongoing tariff mitigation efforts, we remain focused on delivering higher gross margins and believe that we will reach our initial goal of 40% in the near term despite the impact of tariffs and higher data center mix. Finally, with a solid balance sheet and demonstrated cash flow generation through peaks and troughs, we will continue to look for strategic acquisitions to add scope and leverage our scale. With that, we'll take your questions. Operator? Operator: [Operator Instructions] Our first question is from Brian Chin with Stifel. Brian Chin: Sorry, this first one might be multipart. So I'm curious, what constraints were you able to alleviate allowing you to more than double data center revenue growth this year? When do you plan to begin shipping product from your new Thailand facility? And do you anticipate any efficiencies in the earlier stages of that ramp? And last part of that question, will you have the bandwidth to bring up new customers alongside your four existing cloud customers? Stephen Kelley: Brian, I'll take those questions. This is Steve. The constraints that we removed in 2025 were largely capacity oriented. So we upped our CapEx spending, which allowed us to meet upside forecast from our key customers. And so that was what allowed us to hit the doubling of data center revenue year-on-year. In addition, I think we were able to gain some market share within the programs that we were engaged with at our key customers. So I think a lot of things went right for us in 2025. At the same time, we were engaged with those customers on designs for '26, and we were successful. And so we're anticipating that those ramps will start later this quarter and further ramps will commence in Q1. I think your second question was on the new Thailand factory. So the status right now is that the factory is fully facilitized and ready to go within months of a go signal. So our intent would be to put new customers in that factory. So the second wave customers that we were talking about. And right now, we think the timing of that is in the latter part of the year. But we could go ahead and -- this is the latter part of 2027. We could go ahead and do some prequalification work and start to bring that factory up in the second half of 2026. Okay. And finally, your last question was do we have the bandwidth to bring on second wave customers, right? Brian Chin: Yes, the bandwidth efficiencies when you ramp. Stephen Kelley: Yes. I think that's a really important issue, and we don't want to stretch ourselves too thin. And so with the second wave customers, we are focused on solutions that use technology blocks we've already developed so that the engineering -- the incremental engineering work is not as significant -- not nearly as significant as we've experienced with our hyperscale customers. So we think we have the bandwidth to do it from an engineering standpoint, but we're going to be very careful. We're going to continue to focus on the needs of our primary hyperscale customers, first and foremost, and spinoff derivatives for the second wave customers. And we also have the ability to scale up further in our factories, whether it's Thailand or the Philippines or Mexicali. Brian Chin: Great. And so if it's like an open compute design, open rack design, probably it's a lot of synergies there, it sounds like, in terms of new customers. And maybe for my follow-up question, when you think about the tailwinds to AI server power content and just aggregate demand that are likely to persist next year, can you -- I know it's early, but can you put any parameters around the magnitude of growth you might anticipate in your data center business in 2026? I know this is probably not the right way to do it, but if I just annualize the fourth quarter kind of embedded data center revenue for this year, just annualizing that would probably be about 20% growth or more next year. So any sort of framework or thoughts you have around that would be helpful. Paul Oldham: Yes, Brian, I'll take a cut at that. So I think we've talked in our prepared comments that we would expect to see 25% to 30% growth. So that means we can sustain these much higher levels and grow from here. I think this represents what we have good line of sight to at this point. Obviously, the market is dynamic. We think there's opportunities potentially to grow faster. We also don't know exactly what the mix is as new designs kick in versus the existing design sort of phase out or phase down. So we're preparing to ensure that we have the capacity to capture upside with our existing customers, as Steve just mentioned, prepare for potential second wave of customers, and we'll see how it goes. So we tried to give some direction that we feel comfortable with, and we'll look to capture upside from there. Operator: Our next question is from Joe Quatrochi with Wells Fargo. Joseph Quatrochi: I was curious on the data center side. I seem like the upside this quarter was a lot driven by just kind of catching up to some of the backlog you were unable to fulfill. I guess how do we think about that contribution in 3Q and 4Q as we look into '26? Paul Oldham: Yes. I think it's similar. As we talked about in our prepared comments, because of our good execution, because of flexibility in our factories, we were able to capture some of this higher demand and ship more this quarter. We do, as we mentioned in our prepared remarks, I think we can continue to grow from here. So we do think this is kind of a new baseline for us, where we can continue to grow. That growth will be impacted each quarter by what the mix of our customers are asking for. And frankly, that's been pretty dynamic. I think within the current quarter, within the third quarter, and I think that was one of the things we felt good about, we saw pretty meaningful shifts in mix amongst the different products that our customers want based on the dynamic supply chains in this market today, and we're able to respond to that. So our goal is to continue to be able to do that, be responsive, capture the needs of our customers on a real-time basis and grow from here. Joseph Quatrochi: And then on the semiconductor side, I think 3Q came in maybe a little bit lower than we were anticipating. But are you still kind of guide -- it sounds like you're still kind of guiding for maybe on the lower end of the mid-single-digit growth for '25. Curious, your customers are -- some of your customers are kind of thinking that first half '26 is relatively flattish to second half '25. Is that kind of what we should be thinking about for your business as well? Stephen Kelley: Yes. I think I wouldn't read too much in the short-term choppiness. I think it's a normal ebb and flow of the market. But what we see moving into '26 is particularly over the past few months, we've seen more positive signals. So we're more optimistic about '26 than we were during the last earnings call. We think Q1 is going to be similar to Q4. But from Q2 onwards, we think there's potential for significant upside. And that's going to be primarily due to our new products, also helped by, I think, positive movements in the leading-edge logic and memory markets as well. So I think we're pretty well-positioned based on the new product design wins we've received as well as the surge in the leading edge next year. Operator: Our next question is from Steve Barger with KeyBanc Capital Markets. Steve Barger: Steve, I think you said customers that validated yield and throughput on eVoS and eVerest are leading edge. First, just as that evolved, did you have an early adopter customer and then follow-ons? And then longer term, can you talk about what this means for both leading edge and then for memory in terms of your ability to drive revenue and take share? Stephen Kelley: Yes. Steve, I would say we had multiple early adopters. I think we first launched these products back in mid-'23 at SEMICON West and almost all the customers were interested at that point. So we've had multiple parallel efforts. And so we're pretty far down the road as far as securing these design wins. And what we've said is the conductor etch and deposition wins will go to volume first, next year. And then we anticipate the dielectric etch wins will start in '27 from a revenue standpoint. And we still are very confident in that. So looking forward, I think those products, whether it's eVerest, eVoS, NavX or other derivatives of those products, that's what's going to drive our market share moving forward. And so we think we have a chance to really run the table with eVerest, eVoS, and NavX and win every opportunity we're competing for today. And that's going to drive meaningful market share gains for us. Steve Barger: And I know it depends on how those markets evolve. But just from a TAM standpoint for the new products, is it bigger on leading edge? Or is it bigger on memory potentially? Stephen Kelley: It's hard for me to say, Steve. From our perspective, what we see is our ability to gain incremental share in conductor etch, where we're the leader already, but more importantly, to gain a strong foothold in dielectric etch, where we have very little market share today. So for us, the upside is quite substantial. I'm not exactly sure how it's going to divide between logic and memory, though. Steve Barger: Understood. And then for my follow-up, Paul, it seems like '26 is shaping up to be a solid growth year. Mix is probably going to be pretty positive. Is it reasonable to think about incremental margin for the year in line or better with what we're going to see in 2025 as you think about flow-through and how you manage the business? Paul Oldham: A couple of thoughts. I think, first of all, we've made a lot of progress in 2025, as you saw, over 200 basis points improvement in gross margins. Some of that's driven because we've made a big step forward in our cost down activities. I think the larger part of the 200 to 250 basis points improvement in manufacturing costs will have realized exiting Q4. And so I think that's been very positive. We won't see necessarily that big step down again. But in terms of an incremental perspective, we'd expect to continue to see, obviously, the benefits of volume go through. We talked about that being 100 basis points for every $50 million of revenue. I'll just remind everybody that, that math, it changes as you scale, right, because you're contributing the same amount of income, but it's on a higher level of revenue. So as that goes up, there is some impact to that. I think starting at sort of this $450 million to $500 million, the same math gets you something like 50 basis points to 70 basis points for every $50 million of revenue. So we would still expect to see that flow through. There will be some headwinds to that. Obviously, we had some tariff impact. We'll hopefully be able to mitigate that. The data center mix, frankly, has been a little bit of a headwind, but we've been encouraged that we've still improved margins despite almost doubling the data center revenue this year. We think that over time, we can continue to mitigate the impact of that mix. There will be some minor impact. But on balance, we feel very good about our ability to get to 40% still in the near term. And our long-term goal remains the same to get to 43% as we approach that $2.5 billion organic and $3 billion inorganic number. I think if you took the tariffs out, we'd say we were on track or ahead of that target today. But the world is not static. There's things -- good news and bad news that comes all the time, and we'll continue to manage to get to our goal. We feel very good about our ability to get to the goal in the long term. Operator: Our next question is from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: Paul, thanks for the color on the 25% to 30% data center growth next year. I'm kind of curious, when you look at that, it looks like next year, data center revenues are going to be kind of like closing in on your semi revenues. Just as a follow-up to the previous question, how would that impact your gross margins in 2026? And then I had a follow-up. Paul Oldham: Yes. Obviously, that mix plays a factor. We've talked about seeing up to 50 basis points, plus or minus. I think as data center becomes a bigger factor, that could increase. But as I mentioned earlier, our goal is to work to offset that. And we've done a pretty good job of that so far. I would say, certainly, in the near term, our goal would be get margins over 40% and continue to increment them from there. But a little bit will be the timing based on our relative markets. Over time, we certainly feel really good about getting to the 43% and certainly getting above 40% in the near term. Sreekrishnan Sankarnarayanan: Got it. Very helpful, Paul. And then a follow-up for Steve. I'm curious kind of where you stand on the next generation of high-voltage DC, 800 volt from NVIDIA, 400 volt from OCP. And it seems like that's probably a 2027 event. But at the same time, there are some incremental costs associated with it because of higher voltage safety certification, et cetera. So I'm kind of curious, Steve, any thoughts on that 800 volt, 400 volt, how to think about opportunity for AEIs in that scenario? Stephen Kelley: Yes. Yes, Krish, I actually indirectly mentioned this in my script, but what I said was we're fully engaged with customers on high-voltage DC solutions, which include 800 volt, by the way. So we don't talk about it that much because we prefer to keep the specifics of our development efforts confidential out of respect for our customers. But we're closely engaged with our key customers to develop reliable, efficient, and compact 800-volt solutions. These are not going to go to volume next year, but we think they will start to go to volume in '27 and '28. And I think we're very well-positioned there. The other advantage we have with these customers is that we're already engaged with them on today's generation solution as well as the solutions coming out next year. So this is kind of a natural evolution for us as we move over time. Operator: Our next question is from James Ricchiuti with Needham & Company. James Ricchiuti: I was just going back to the Analyst Day and some of the commentary that you had about the data center market and the fact that you were targeting either being #2 or potentially sole source applications. I'm just wondering, in all of the demand that you're seeing in the market, can you give us a sense as to whether you've gained share among your leading customers? Stephen Kelley: I get that question quite a bit. And I'll tell you, we don't measure share in data center because ultimately, what we're trying to do in data center is to generate reasonable gross margins. And so at the same time, we're growing our business. We've doubled it year-on-year. So we focus on healthy gross margin. We selectively engage with customers, and we try to maximize our share in the programs we're engaged on. And so what that has resulted in is a portfolio that's generating gross margins that are just under corporate average, but a lot better than they used to be. We're going to continue doing that moving forward. So I think the way to think about our business is that we're creating high-value products for a limited set of customers. And that's our strategy with the hyperscalers and the first wave customers. As the second wave customers engage with us, we're trying to reuse what we've already developed. We have extensive technology blocks in the company. So I think we can handle that without reducing our engagement with our key hyperscaler customers. James Ricchiuti: And just with a follow-up question on the M&A pipeline. I'm wondering with the strength in the data center business, have your priorities changed at all? I know initially, you have been talking mainly about looking at opportunities in the I&M area of the business. But I'm just wondering if the priorities have changed at all, just given what you're seeing out in the market. Stephen Kelley: The short answer is no, the priorities haven't changed. And let me just explain why. I think we made substantial investments in the data center business on two axes. One is capital investment. And we've invested in new infrastructure. We've upgraded factories. We've invested in capacity. And then we've invested in new development centers for data center. And it's actually quite expensive because we're handling very high power, very high voltage. And so that takes a lot of money, but we've invested a lot of money in data center over the last 2 years. The other thing we're investing in data center is people. So we've got a pretty broad network of design sites around the world that are well coordinated. And so we've been bringing in additional engineering talent, which helps us with our customers, helps keep our development speed strong. I think moving forward on M&A, we're still focused on industrial medical because that's an area where we think it's highly fragmented, and we can do a partial roll-up and create a nice third leg of the stool, the semiconductor, data center and industrial medical. Operator: Our next question is from Scott Graham with Seaport Research Partners. Scott Graham: Congratulations on a good quarter and guide. My question is also about no surprise data centers. And really, in covering other industrials that serve this market, we have seen pretty much an acceleration in demand quotient each quarter in 2025. And obviously, you guys saw that you gave guidance after the first month of the quarter for the third quarter and you beat that number. So what happens if that happens again in the first half of next year, which if you're a betting person, you'd have to say you'd bet on that. And are you prepared to take your $1 billion facility here and kind of really get it going in the second half of next year to meet that demand? And if so, is there a cost to that and a margin impact? Stephen Kelley: Why don't I take the first part of that, and I'll turn it over to Paul to talk about margins. But the answer is yes, we're ready to go. I think we're conscious of the timing. I actually think it's a fairly good situation, though, because if we went to volume in Thailand with data center, then you have a pretty high-volume product to absorb our fixed cost. And so I think from a financial standpoint, it makes better sense to go to volume first with data center products than it does with semiconductor products. Paul Oldham: Yes, I think that's right. And I'll just say that we have always contemplated our Thailand facility in our gross margin goals. So that's not a new or incremental thing. Obviously, part of that is supported by the volume. And I think on balance, if you look at where we're at as a company, we're ahead on volumes overall as a company versus we thought a year ago in our Analyst Day, and we're certainly ahead in quite a lot in data center. So we'll manage that based on, as Steve said, kind of as we see the volume materialize and the right amount of volume to utilize that factory. Our goal is to make sure that we're prepared and we can capture as we win business or as our customers ramp that we can capture that business either with our primary customers or the second wave customers as we've talked to them. Now inevitably, I think there's some ramp-up costs that always happens. Frankly, we're seeing that today. I talked about that last quarter. We still have some of those lingering ramp costs from the faster pickup in data center in our existing factories. So there will be some of that. Hopefully, that's something that we can manage within our model. We've done that so far, and our goal would be to continue to do that. And look, as data center grows as a percentage of our portfolio, then as I mentioned, our goal would be to continue to achieve our margin goals and certainly to get above and sustain ourselves above 40% even on higher data center growth, if that materialized. Scott Graham: Got it. I guess my other question would be around semiconductor. So away from your eVoS and eVerest platforms, are you comfortable with your wins and product refreshes so that when WFE does kick back up, you're ready elsewhere in the portfolio? Stephen Kelley: Yes. I think your question is really about our mainstream products and our service business. And yes, I'm pretty comfortable. I think that our factory in Malaysia, where we produce most of these products is very capable, and we've maintained strong staffing, and we have excess capacity there. So when things turn up, we're ready to go. And that's in addition to what we're doing on the new products. Operator: Our next question is from Dave Duley with Steelhead. David Duley: Congratulations on nice results. If WFE grows, let's say, in the 5% to 7% range in 2026, I'm wondering what your semi business can grow. And maybe as a follow-on to that, could you help us understand how many major wins you have ramping -- new wins you have ramping in 2026 in semi. Stephen Kelley: Yes, in semi. So we haven't really articulated a number of wins. What I've said is that we're engaged across a wide variety of customers. And there's a good chance we can run the table. We can win everything where we're competing. So I think it's very positive for us. But we haven't gone into the detail there. We're not very good at predicting WFE. But what we do know is that over time, we tend to grow faster in WFE. Now in any given quarter or year, you're going to have variation. But if you look over the past 3, 4, 5 years, we're definitely growing the market. I think we'll continue to do so. David Duley: Okay. And how many 10% customers did you have in Q3? And I guess I'm trying to understand, will one of these hyperscaler customers become a 10% customer? Paul Oldham: Yes, Dave, we -- that's an annual disclosure. So we don't disclose that on a quarterly basis. I mean we'll see at the end of the year. But given the growth we've seen in data center, it's certainly possible we could have a data center top 10 customer. David Duley: Okay. And then a final question from me is you talked about this new factory in Thailand. You have a ton of capacity there that couldn't be used for future ramps. Does that imply that you might close other factories or do further consolidation? Or has that already been done? Stephen Kelley: Yes. That consolidation has largely been accomplished. And we mentioned the biggest move was closing our China factory, which was completed in Q2. So from this point forward, it's really a growth story. I think we've done a good job as a company, reducing the number of factories, but at the same time, increasing the capabilities of the remaining factories. So I'm very happy with where we're at. And we're continuing to expand our output in our existing factories, which are primarily in the Philippines, Malaysia, and Mexico. And then we're ready to start filling our factory in Thailand. Operator: [Operator Instructions] Our next question is from Rob Mason from Baird. Robert Mason: Maybe this is a -- just to get a clarification. We talked about ramping when Thailand ramps, it would have some of the newer customers. But I thought I also caught you talking about some of the emerging customers, enterprise customers participating in '26 in data center. So I was just maybe trying to get a sense of what the -- how you think the mix in data center in '26 would look between those. Stephen Kelley: I think in '26, the mix will be heavily weighted towards our existing customers, the ones we have today that are driving our business. I think in the second half, you may see some contributions from new customers. But we think most of this is going to be weighted towards the second half, even as late as the fourth quarter. But yes, I think it would be good for the company to bring some additional customers on board in a controlled fashion, and we have the capacity to handle it. Robert Mason: And should we think that the margin profile there would be similar to what we're seeing right now, gross margin profile? Stephen Kelley: Yes. Yes, it would be. Robert Mason: Okay. Just as a follow-up, last question. The -- with OpEx stepping up here a little bit in the fourth quarter, how should -- Paul, should we think about maybe the run rate as you enter '26? It sounds like you're comfortable with where your operating leverage should be, but I'm just see if you could put a finer point on OpEx trends. Paul Oldham: Yes. I think our model is pretty similar. We've talked about since the beginning of the year, OpEx increasing $2 million to $2.5 million per quarter. That's kind of what we've done. Now Q3 was flattish. That was mostly timing. So we kind of end up making up for that in Q4 sort of at this $107 million run rate. I think as you look into next year, you should expect that to continue kind of at that pace. It could ebb and flow a little bit. There could be some quarters where it's a little more flat, others where it's up more as we make some investments. Our overall goal is to grow OpEx no more than 50% of revenue growth. Obviously, in '25, we've been well below that. I think we've grown OpEx like 6% on the 20% growth number. So we've kept it well in control. But you should certainly think about it continuing to increase in that sort of $2.5 million-ish per quarter as we fight inflation, we have select merit increases. We have some select investments to capture some growth opportunities. Operator: Thank you. There are no further questions at this time. This does conclude our conference call for today. Thank you again for your participation. You may disconnect your lines at this time. Stephen Kelley: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Enel Chile Third Quarter and 9 Months 2025 Results Conference Call. My name is Carmen, and I will be your operator for today. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from anticipated in the forward-looking statements as a result of various factors. These factors are described in Enel Chile's press release reporting its third quarter and 9 months 2025 results. The presentation accompanying this conference call and Enel Chile's annual report on Form 20-F, included under risk factors. You may access our third quarter and 9 months 2025 results press release and presentation on our website at www.enel.cl, and our 20-F on the SEC's website at www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed. Isabela Klemes: Good morning, and welcome to Enel Chile's 2025 Third Quarter and 9 Months Results Presentation. We greatly appreciate you taking the time to joining us today. My name is Isabela Klemes, and I'm the Head of Investor Relations. Joining me this morning is our CFO, Simone Conticelli. Our presentation and financial related information are available on our website, www.enel.cl in the Investors section as well as through our app investors. In addition, a replay of the call will be soon available. At the end of this presentation, there will be an opportunity to ask questions via webcast chat through the link Ask a Question. [Operator Instructions] Simone will kick off the presentation by covering key highlights of the period, our portfolio management actions, providing us updates on the regulatory context and an overview of our business economic and financial performance for the period. Thank you all for your attention. And now let me hand over the call to Simone. Simone? Simone Conticelli: Thank you, Isabela. Good morning, and thank you for your participation. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. We observed a high-level performance of our thermal generation fleet, which helped offset lower hydrological conditions during the quarter. This outcome reflects our ability to adapt to evolving market dynamics and maintain operational stability. In addition, our gas optimization activities continued to support our margin, reinforcing their strategic role in balancing our portfolio and mitigating exposure to spot market volatility. On the distribution side, we achieved successful implementation of the comprehensive winter plan aimed at strengthening grid's resilience and improving service continuity under challenging climate condition. Indeed, our performance in the period was one of the best in Chile. The winter plan included the deployment of emergency crews strategically positioned in high-risk areas, extensive vegetation management action and the installation of new telecontrol units to reduce restoration time. Additionally, targeted measures were implemented to support vulnerable customers, ensuring continuity of supply during adverse weather events. Now let's move on the Chilean regulatory context. With reference to the VAD 2024-2028, a key milestone was the publication in the last weeks of the consultant report followed by the preliminary regulatory technical report. I will give you more details about it. Furthermore, in October, was also released the preliminary regulated energy tariff report for the first half 2026. Now the generation association, of which Enel is a part of, is working with authorities regarding the outcomes of the report. Looking ahead, 2 regulated energy auctions are scheduled for the fourth quarter 2025. Let's now turn to business profitability. We closed the first 9 months of 2025 with a stable EBITDA compared to the previous year despite the difficult context and significantly lower hydrology, demonstrating the resilience of our operations. Our FFO remained positive, driven by the recovery of $261 million of receivables generated by the PEC mechanism. This inflow significantly strengthened our cash position for the year. As a result, we maintained a strong liquidity position, enabling us to support our development plan and to mitigate operational headwind associated with the market and climate uncertainties. In the next slide, we will take a closer look at these topics to provide further insight, but let me anticipate that these achievements demonstrate our focus on operational excellence and sustainable growth. We remain committed to delivering long-term value to our shareholders while advancing in the energy transition and strengthening the resilience of our business. And now let's move to Slide 4 to talk about the energy market situation, especially regarding hydrology and gas opportunities. On the left side of the slide, you can see our hydro production over the last 10 years. For 2025, we set our target at 10.7 terawatt hour based on the last 10-year average. Although 2025 has been a particularly dry year, our hydro production has remained in line with our strategic plan. This was possible, thanks to the flexibility of our hydro plants with access to hydrological basins. For this reason, we are keeping our hydrology guidance unchanged. To manage this dry scenario, we relied also on the flexible and competitive thermal fleet, supported by a strong and diversified LNG and Argentine gas supply. This helped us respond quickly to market needs and reduce exposure to hydro volatility. As a result, we increased thermal production, used competitive gas and seized favorable trading opportunity, adding $74 million in margin during the first 9 months of 2025. Regarding gas business, in October, we completed a gas sales to Europe with margins similar to those recorded in the second quarter 2025. Looking ahead to 2026, we are evaluating options to secure competitive gas from Argentina through firm contracts in line with the past year strategy. And now moving on to Slide 5, let's review our generation portfolio and energy balance. During the first 9 months of 2025, net production decreased by 9% compared to the same period of 2024. This decline was driven by lower hydro dispatch during the first 9 months of 2025, reduction in renewable energy production due to the maintenance of 2 solar plants, higher curtailment levels also caused by transmission line limitations. These effects were partially offset by higher contribution from the efficient CCGT. The same factors impacted the third quarter generation that amounted to 5.4 terawatt hour, lower by 1.1 terawatt hour versus the same period of 2024. Energy sales reached 22.7 terawatt hour, mainly due to the lower sales to regulated customers following the expiration of regulated contracts. The regulated contracts volume reduction is also the main cause for the decrease of the third quarter sale from 8.4 to 7.6 terawatt hour. And now I would like to take a moment to review an important milestone in the resilient program of our distribution business. We are pleased to share that we successfully implemented a comprehensive winter plan aimed at strengthening the stability of our grids and guaranteeing service continuity during the most challenging months of the year, particularly for our most vulnerable customers. First of all, we deployed 376 emergency crew across our service territory. These teams were mobilized to respond to outages and restore power. One of the most impactful initiatives was the execution of more than 115,000 tree trimming actions, which significantly reduced feeder failures in areas exposed to severe weather. We also modernized the grids, installing new telecontrol unit. This helped us to isolate faults and reducing service interruption time. In parallel, we implemented several infrastructure upgrade that enhanced network reliability and quality of service for more than 193,000 customers. Supporting vulnerable customers remain a priority for Enel, so we assisted more than 3,000 electro-dependents, ensuring continuity of supply through targeted measures. Among them, more than 2,000 were equipped with digital meters, while almost 2,900 receive makeup power solutions, such as generators or battery systems. Finally, we strengthened the collaboration with municipalities to improve coordination during extreme weather events. This joint approach has enhanced emergency response capabilities. All these efforts translated into tangible improvements in the performance of our distribution network with results that clearly demonstrate the effectiveness of the winter plan. And now let's take a look at Slide 7, where we highlight key updates on the energy regulatory context. In 2025, we saw key changes in the regulatory framework. The distribution cycle for 2024, 2028 is under development. In September, the consultant final report was published. Then in October, the CNE released its preliminary technical report with changes in maintenance and technical standards. Company have until the 10th of November to submit comments. The final report is expected in 2026. In parallel, we are currently awaiting settlement of outstanding debt related to the PAD decree for 2020, 2024, published in April 2025, that is expected to be settled in 2026. Passing to generation business on the 4th of October -- on the 14th of October, the CNE published the preliminary technical report for the first half of 2026. It includes a correction related to the inflection effects. We are reviewing the impact and waiting for the final report. Passing to the stabilization mechanism as of September 2025, we have $149 million PEC 1 receivable to be fully recovered by the end of 2027. Going to other relevant topics in August came into effect a resolution on BESS remuneration that authorize the BESS to provide ancillary services. In the last week, changes have been introduced in 2025 regulated auctions, increasing the volume of the 2027-2030 auction from 1.7 to 3.4 terawatt hour per year. The offer deadline is now the 14th of November, launching a 1.5 terawatt hour per year short-term auction for 2026. The offer deadline is the 2nd of December. Finally, regarding subsidies, the third electricity subsidy round run from the 3rd of June to the 15th of July, covering the period from July to December 2025. Around 341,000 annual distribution customer benefit of it. A bid to expand the subsidy is still pending in the Congress. And now I will start reviewing the highlights of our financial performance over the period. Before we review the results, a quick reminder. As of January 1, 2025, Enel Chile changed its functional currency from Chilean pesos to U.S. dollars. For comparison, 9 months and third quarter 2024 figure are short using the average exchange rate of these periods. I will enter into details of our financial and economic performance in the next slide. So let's move to the next slide to look at the progress made on CapEx. Our total CapEx reached $245 million during the first 9 months of the year, maintaining a focus on grids and power plant fleet performance. Let's review the allocation in more detail. 41% or $101 million was directed towards grids investments. 31% or $76 million supported thermal power projects. 27% or $67 million was invested in renewable and storage. Regarding grids, the focus remain on the resilience program to strengthen the grids and ensure service continuity under adverse weather conditions. In thermal segment, the priority is the maintenance and performance announcement of the power plant fleet. In the renewable segment, we have centered our efforts on finalizing the PMGD program, enhancing hydro facility performance and maintaining fleet liability. Now let's move on to the breakdown by nature. Asset management CapEx totaled $139 million, accounting for 57% of total CapEx, mostly used for the maintenance of Atacama Quintero and San Isidro CCGT, the improvement of renewables fleet availability and corrective maintenance and digitalization of grids. Development CapEx was $60 million, mainly driven by investment for grid reliability enhancement, digital methods programs and telecontrol deployment and for the completion of 2024 investment program for PMGDs. The 2025 development CapEx for battery-related project will be recorded starting from the next quarter. Finally, customer CapEx totaled $46 million, mainly invested in low and medium voltage connection projects and initiatives to support load increase. Let's now turn to the next slide, which provides a closer look at our EBITDA performance. During the last quarter, our EBITDA totaled $345 million, representing a decrease of $63 million compared to the same period of 2024, mainly explained by the following factors. Starting with the generation business, we recorded a decrease of $89 million in PPA sales, mostly due to the termination of some high-price regulated contracts that impacted on volumes and average price of regulated portfolio, partially offset by the negative impact of exchange rate hedges recorded in 2024. Regarding sourcing, its contribution remained in line with the same period in 2024. This result was mainly achieved, thanks to our optimized sourcing strategy and the issuance provision, mainly coming from GasAtacama, which effectively offset higher cost in the energy spot market mainly due to the higher purchase volume. Gas trading contributed positively with a $5 million margin increase, mainly fueled by expanded trading activity in the third quarter of 2025. Turning to grids. We recorded a positive impact of $17 million, mainly driven by regulatory provision reflecting the settlement adjustment for the previous year and higher OpEx recorded in the third quarter of 2024 due to the extreme weather events that occurred in May and August. These effects were partially offset by the increase of OEM expenses, mainly associated with the implementation of the comprehensive winter plan. And now let's move on to the next slide to review the main impacts on EBITDA during the 9 months period. Our EBITDA reached $1,004 million, remaining flat compared to the same period of 2024. Starting with the generation business, we recorded a decrease of $244 million in PPA sales, mainly due to the termination of high-price regulated contracts, partially offset by the negative impact of exchange rate hedges recorded in 2024 and the positive price effect due to the indexation of the free market contracts. Regarding sourcing, we recorded a positive effect of $192 million despite the $34 million negative impact related to the transmission line restriction following the February blackout and the additional second quarter issues. The result was obtained, thanks to lower spot and third parties energy purchases costs, energy settlements from previous periods, already anticipated insurance provision and finally, lower transmission costs. In the first 9 months of 2025, gas margin contributed for $27 million, also thanks to the increase of the gas trading activity versus the same period in 2024. Passing to grids, we recorded a positive impact, primarily driven by the provision reflecting the higher tariff expected for the 2024-2028 regulatory period and tariff indexation, some settlement adjustment from the previous year, higher OpEx recorded in the period 2024, mainly due to the extreme weather events, partially offset by the increase of OEM expenses, mainly associated with the implementation of the comprehensive winter plan. We also recorded an increase of generation costs due to the new developed capacity and the maintenance activities. Finally, in 2025, specifically in the second quarter, we recorded the personnel cost one-off effect, mainly for the incentivized early retirement plan to support the company organization aimed at improving internal skills and performance. And so now let's move on to the next slide, where we will review the net income evolution. Our 9-month 2025 net income reached $352 million, a 21% decrease compared to the last year's figure, mainly explained by higher depreciation, amortization, impairment and bad debt expenses for $84 million, mainly due to the commissioning of new renewable capacity amounting to $32 million, the impairment related to our decision not to proceed with the new PMGD solar project initially planned for development in this area. And finally, the $12 million increase of grid's bad debt provision, mainly due to the higher billing resulting from tariff increase and long overdue customer debt. Regarding financial results, we recorded a negative variation of $38 million, mostly explained by the lower capitalized expenses on renewable projects by $61 million, partially offset by lower financial expenses for $29 million resulting from lower average outstanding debt and lower average interest rate. The latter was partially offset by a $20 million reduction in corporate income tax expense, mostly explained by lower results. Focusing on the quarter, net income decreased by $74 million, mainly due to a $63 million decrease in EBITDA, a $29 million increase in depreciation, amortization and bad debt, primarily due to the operation of new renewable capacity and an $11 million increase in financial results, mainly due to the lower capitalized expenses on renewable projects. The latter was partially offset by a $23 million reduction in corporate income tax expenses mostly explained by lower results of the period. And now let's move on to the FFO analysis on the next slide. Let's analyze the FFO composition for the first 9 months of 2025 and the main effect compared to the same period in 2024. Our FFO reached $615 million, representing an improvement of $248 million compared to the previous year. This is due to the following factors. First, EBITDA totaled $1 billion, remaining flat compared to the same period last year, as previously explained. Second, the recovery of PEC receivable in 2025 contributed for $285 million, mainly thanks to factoring executed in April 2025 related to PEC 2, 3 and recovery to the tariff of $31 million of PEC 1 receivable. It is worth mentioning that we offset a positive FFO variation of $248 million versus the 9 months 2024, thanks to the end of accumulation of PEC receivable started in October 2024. Third, the increase of net working capital impacted for $329 million, mainly due to the 2024 development CapEx payment, lower collection in our distribution business and other seasonality effect. The increase was higher by $255 million versus previous year, mainly due to the negative effect of energy payment scheduling and the voluntary compensation paid in 2025 regarding the extreme climate event from May and August 2024. These effects were partially offset by lower CapEx payments related to renewable capacity. Fourth, the income taxes impacted on FFO amounted to $231 million, mainly due to the tax payment in the generation business. Income taxes paid in the 9-month 2025 were higher by $63 million compared to the 9 months 2024. This difference is mainly due to the increased tax payment in the generation business, driven by both higher results and higher monthly payment tax rates. Finally, financial expenses were $130 million, mostly due to the debt related costs. This represents a reduction of $52 million compared to the 9 months 2024, mainly driven by a lower average debt this year. And now let's take a look at our liquidity and leverage position. Our gross debt is $3.9 billion at the end of September 2025, in line with the gross debt as of December 2024. The average terms of our debt maturities decreased from 6.2 years as of December 2024 to 5.5 years as of September 2025, and the portion at the fixed rate is 87% of total debt. The average cost of our debt reached 4.8% as of September 2025, decreasing from 5.0% in December 2024, in line with our efforts to optimize the financial costs. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with the next year maturities. As of September 2025, we have available committed credit lines for $640 million and cash equivalent for $373 million. And now I would like to share the following closing remarks. In the coming months, significant regulatory updates are expected that will clarify tariffs and market mechanisms. These represent an essential step to refine our long-term strategy and to assure that our investment decisions remain aligned with regulatory developments. We are implementing proactive initiatives to address portfolio dynamics and climate challenges. This includes action to strengthen our generation and distribution businesses, improve risk management and enhance our ability to respond to extreme weather events. The measures are designed to safeguard service continuity and maintain system stability. Our solid financial position and flexible business model allow us to follow with our business plan, even through market uncertainties, while continuing to invest in strategic renewable and BESS project and deliver sustainable returns for our shareholders. Finally, we are preparing for our 2026 Investor Day scheduled for the first quarter 2026, where we will share a comprehensive view of our strategy and the actions that will drive long-term value creation. And now let me hand it over to Isabela for the Q&A session. Isabela Klemes: Thank you, Simone. Now let's move on to Q&A session. We will be taking questions via chat through the webcast. The Q&A session is now open. Okay. So Simone, the first question is coming from Rodrigo Mora from Moneda. Rodrigo has 4 questions, so I will be talking one by one, okay? So the first one is, what is the amount that Enel Chile must return to customers due to the miscalculation of the CNE included in the first half 2026 PNP report? Simone Conticelli: Okay. Thank you, Rodrigo. Just to give some context. So in the first half of October, the CNE explained that they have changed the formula for the calculation of the PNP. And so this change in the formula will have some impact. We have calculated the impact for Enel in an amount that is between $40 million and $45 million. So we have to expect a negative provision in terms of mainly financial costs. So the impact will be mainly in the financial items. And -- but in your question, you talked about customer, but in any case, just comment that the customers were impacted just for a small amount because just the 2% of the total amount of the changes was transferred to customer in the tariff. So this amount will be accrual by Enel in 2025, and then we will pay back. In this moment, the process is not so clear. But in any case, we expect in the first half of 2026. But the amount, we will have not impacted directly for the total value of the customer. Isabela Klemes: Okay. Thank you, Simone. So the second question now is on Enel distribution. So what is the amount on to Enel's distribution Chile in connection to the VAD 2000, 2025, please? Simone Conticelli: So talking about the remuneration period of 2020, 2024, we are really not finalizing the last steps of the process. So the amount was ready to be defined. And what we are waiting is that the sector will say when we have to receive back the missing part. And the amount, in this case, is around $50 million, $55 million. There are 2 possibilities. If you want to be prudent, you can imagine that this the cashback can start middle of 2026, even if I remember interview of the new Minister of Energy that say the process can also be faster and start earlier. Isabela Klemes: Okay. Thank you, Simone. So now let me check here. We have the third question. So the third question of Rodrigo now is on generation side on the LNG strategy. So could you please explain about your strategy regarding LNG and Argentina gas firm or interruptible? For the year 2026, how many ships do you plan to buy? Simone Conticelli: So as you know, for us, the gas business is very important business because we need gas for our thermal power plant, but also because we find during the year some creative opportunities to make margin to our gas contract. We have basically a long-term gas contract for LNG. And more or less, the volume for this contract for any addition in more than 32 teraBtu per year. And so in 2026, we'll keep on using this contract. In these very days, we are working -- we are negotiating Argentinian supplier to the new contract for Argentinian gas. And so in this moment, I cannot talk about this negotiation. The negotiation is ongoing as well and has not been finalized. Isabela Klemes: Okay. Thank you, Simone. Now the last question of Rodrigo is regarding CapEx also on generation business. Regarding CapEx for generation, could you please give us an update for 2025? And actually, we also received the same question from balance as well. Simone Conticelli: So very well. Talking about this year's CapEx, as you know, we follow the plan with one exception that was the CapEx for the development of the new system because we recorded a little delay for this project and it was due to strategic reason. I mean we have the new piece of regulation related to BESS. I mean the regulation for the participation of BESS in the ancillary service market. And then we keep on starting the evolution of the market and the penetration of the BESS in the Chilean production system. So we started a little bit late in the project. And in the first 3 quarters, the amount of CapEx for this project was reduced compared to the expectation. But the projects have been already started are ongoing. And so you will see in the last quarter -- in total, talking about AGP and generation investment for more or less USD 150 million, USD 160 million. And a part of this investment will be the BESS, at least $50 million. And then we keep on growing also in investments on thermal fleet and how strategic is the thermal fleet. And of course, in case of low water in the system, our efficient CCGT plants are called to produce. And so we have to keep on these plans at the highest level of efficiency and performance. Isabela Klemes: Okay. Thank you. And we have a final one. Sorry, Rodrigo. We have 5 questions from Rodrigo Mora. So the last one is on distribution side, okay? On distribution, could you outline the measures being taken to address the increasing energy losses? Simone Conticelli: Okay. Talking about losses in energy, we have discussed the losses getting higher in the last 2 years, started from 2023. And so in this moment, the percentage of losses is a bit higher than 6%, which is the reason -- can be many reasons, but the most important reason is the increase in the target. So the final customer. And so a little bit a change in EBIT related also to this increase in tariff. What we are doing? From one side, we are increasing the activity to recover these losses. And so we have recovered more than expected in the initial planning related to losses. And on the other side, we are making other action, for example, launching flexible payment plans for the customers that want to pay the new bill. We have a new smarter special tool. We work on formulas to localize where the losses are originated and we can intervene. And finally, we are working with the regulator to try to find changes also in the regulation that can help to contain this phenomenon. Isabela Klemes: Okay. Thank you, Simone. Now move on. We have questions from Javier Suarez from Mediobanca. Thanks for the question. So the question is, is the company Enel Chile confirm its latest guidance? Simone Conticelli: So the answer is simple, it's yes, but just some context. This was a very tough year in terms of hydrological situation. So finally, the season was drier than expected. But in any case, we show our flexibility as a company. We leverage on our very profitable gas contract. We use the flexible and efficient CCGT. And so we have those effects. So we maintain high production. Also our hydropower plant can use reservoir. And so also the production for Enel did not decrease so much. And given all this action and the flexibility the company built in the past year, we can react to this adverse climate conditions and achieve -- we can confirm the results for the year. Isabela Klemes: Okay. Thank you, Simone. So move on. The next one is also from Javier Suarez, Mediobanca. It's about the FFO. So could you explain the dynamics of FFO during the 9 months of this year? And your expectation by the year-end? Simone Conticelli: Okay. Talking about the FFO, talking about our business, the FFO usually is concentrated in the second half of the year and particularly in the last quarter. And the main reason is that EBITDA is higher in this period and so on. This year, in the first 9 months, and this week, we had a very high level of FFO. And this was -- thanks to the not ordinarily cash-in from tech regulatory process. So we cash in around USD 300 million recovering cash credit from the past. Looking ahead, the cash flow from ordinary business will be higher compared to the first months in the last period. And also, we will have more efficient management of the net working capital because in the last part of the year, the CapEx are focused in the last part of the year. So also the net working capital can be managed in a more efficient way. And so we expect to improve the performance of FFO in this last quarter, which is more or less the dynamic. Isabela Klemes: Okay. Perfect. So now the next question is coming from Fernan Gonzalez from BTG Pactual. So Fernan is talking about the BESS, not the storage that we are implementing. So I will read here. I saw that BESS Las Salinas, 200 megawatts and BESS Acebache, 58 megawatts were declared under construction at the CNE. So these projects involve additional solar capacity or just the energy storage. There are still an additional 200 megawatts of BESS capacity to meet your announcement plan. Will this be added to exist in solar PV in the North? Simone Conticelli: Yes. So talking about the strategy on BESS, we have launched 3 projects this year in line with what was expected in the plan. And these projects are hybrid projects. So we are going to implement BESS system in solar power plant in the North. And while we do this, in general, the BESS can be profitable also like a stand-alone device. But the profitability is higher if you use the BESS system to [ improvise ] our power plants and why? Because the project in faster. You need less environmental document to be produced, considering that you are building the BESS in your plant and also we have some savings in terms of cost and electrical infrastructure. And so I think that I have answered the question. At this moment, we are not increasing the solar capacity. You are just equalizing solar project. Isabela Klemes: Okay. So let me check here. So we have another one from [ Thomas Peruchi ], Balanced Capital. Well, part of the question was already answered. So I'll just keep the one that wasn't here. So thank you for the presentation. And he has one question. If I'm not mistaken, you had a target of -- for 2025 of $500 million for expansion projects, mainly relating to batteries to storage. How has that changed by now, given that you are expecting a resolution on ancillary services before moving forward? And was the resolution in line with your expectations? Do you think we will be enough to unlock high investment in storage? Simone Conticelli: Okay. So in our current power plant, we put more or less 600 megawatts of new capacity. And you are right, 450 average in BESS projects. This well project should have been launched at the beginning of the year and were launched during the second launch. And so you can expect a movement of the COD. The recent COD was in 2026 in the second half. And then the new COD will be in 2027, and this will have an impact. But in any case, we start from a fleet of around 9 gigawatts of production and so this change is not a huge change. Talking about regulation. So in August, the 4th of August was largely in new regulation that say that BESS can participate in Chile service mark. It means that this is a very good news for the country because the BESS very means important element that can stabilize the system at a very low cost. And so usually because for the system, it is also reducing the cost for the participant. In terms of revenues, it's not a huge increase, but it's in line with what we expected. Talking about the current BESS that we have, the BESS that we have already installed, it means that amount USD 5 million and USD 7 million per year. But in any case, it's an important step because a permit to meet the BESS project is little bit more profitable than considered in the beginning. And it means that they are profitable also imagining a higher penetration of BESS project. Isabela Klemes: Okay. Perfect. So we have the last question that is from Edward Palma from Itaú Asset. So the question is, do you have any news for unregulated PPA contracts? Simone Conticelli: In this moment, no, we don't have any news related to this stock. Isabela Klemes: Okay. Perfect. Let me just check if we have no more questions. Okay. As there are no further questions, we formally conclude our conference call. The Investor Relations team is at our disposal for any further inquiries. Many thanks for joining us, and have a great rest of the week. Thank you. Operator: And ladies and gentlemen, this concludes our conference. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to Corcept Therapeutics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Atabak Mokari, CFO. Please go ahead. Atabak Mokari: Hello, everyone. Good afternoon, and thank you for joining us. Today, we issued a press release announcing our financial results for the third quarter and providing a corporate update. A copy is available at corcept.com. Our complete financial results will be available when we file our Form 10-Q with the SEC. Today's call is being recorded. A replay will be available at the Investors Past Events tab of our website. We will also post a presentation regarding our oncology development programs in the same section. Statements during this call other than statements of historical fact are forward-looking statements based on our plans and expectations that are subject to risks and uncertainties, which might cause actual results to be materially different from those such statements expressed or implied. The risks and uncertainties that may affect our forward-looking statements are described in our annual report on Form 10-K and our quarterly reports on Form 10-Q, all of which are available at the SEC's website. Please refer to those documents for additional information. We disclaim any intention or duty to update forward-looking statements. Our revenue in the third quarter of 2025 was $207.6 million compared to $182.5 million in the prior year period. We have modified our 2025 revenue guidance to $800 million to $850 million Net income was $19.7 million compared to $47.2 million in the third quarter of last year. Our cash and investments at September 30 were $524 million, which reflects our acquisition of $50 million of our common stock in the third quarter pursuant to our stock repurchase program as well as shares acquired upon the exercise of Corcept stock options and the vesting of restricted stock grants. I will now turn the call over to Charlie Robb, our Chief Business Officer. Charlie? Gary Robb: Thanks, Atabak. There is nothing new to report regarding our patent litigation with Teva Pharmaceuticals. Recall that in March 2018, we sued Teva to stop it from marketing a generic version of Korlym in violation of our patents. The case went to trial in September 2023, and in December 2023, the trial court ruled against us. We appealed that decision to the Federal Circuit Court of Appeals. 3 judge panel of that court heard oral argument on July 7 of this year. Although it is impossible to say exactly when the court will issue its decision, enough time has passed that it is reasonable to say that the decision could come at any time. If we prevail, Teva will lose FDA approval of its product until the expiration of our patent in 2037. We strongly believe our position is correct and are eager to advance this appeal. I'll now turn the call over to Sean Maduck, the President of our Endocrinology division. Sean? Sean Maduck: Thanks, Charlie. Our hypercortisolism business had another quarter of robust growth. In the third quarter, we shipped more tablets to patients than ever before, 42.5% higher than the third quarter of last year, driven by yet another record of prescriptions written for Korlym. Importantly, our base of prescribers has expanded substantially over the last 2 years. In summary, the underlying strength of our business continues to build. Our financial results don't fully reflect the surge in demand. I discussed on the last few calls, the insufficient capacity of our previous pharmacy vendor. While we expected their capacity to improve in the third quarter, it did not, which is why we have begun transitioning our business to a new pharmacy in the fourth quarter. While capacity constraints may continue for the next few months as we complete the transition, we are very encouraged by the new pharmacy's abilities and its capacity to meet demand. As welcome as such improvements are, eventually the growth we anticipate will outstrip the capacity of any single pharmacy, which is why we plan to add a second specialty pharmacy to our network in January and to onboard a third pharmacy shortly thereafter. Our confidence in continued and accelerating growth is based on several factors. The first is growing physician awareness of hypercortisolism. For many years, the prevalence of hypercortisolism and the serious risk it poses for patients were not well understood. As a result, physicians only screened for and treated the most physically obvious cases of the disorder. In the last 15 years, many studies have shown that hypercortisolism is much more common and is a serious threat to health and far more than the most extreme cases. Most recently, our CATALYST study confirmed these findings, proving that there are many more patients with hypercortisolism than previously assumed and that treatment with a cortisol modulator is highly effective improving their condition, even when other medications, including the newest diabetes medications such as Ozempic and Mounjaro have not. The CATALYST results have been published in Diabetes Care, the field's leading journal and are now being absorbed by the broader physician community. To translate these insights into patient impact, we continue to expand our physician education efforts, and we have enlarged the size of our sales force to 150 clinical specialists, up from 60 at the beginning of 2024. With the awareness of hypercortisolism growing and the effectiveness of cortisol modulation demonstrated in a large placebo-controlled trial published in a leading peer-reviewed journal, I eagerly anticipate relacorilant's approval. Korlym is a great medication but relacorilant is even better. It will be a terrific option for both prescribers and patients. I expect that almost all patients who are receiving Korlym will choose to transition to relacorilant and our growth will accelerate. I've never been more confident in both our current and future commercial growth and most important, our potential to help many more patients. In the next 3 to 5 years, I believe relacorilant will generate $3 billion to $5 billion in annual revenue in hypercortisolism alone. I will now turn the call over to Joe Belanoff, our Chief Executive Officer. Joe? Joseph K. Belanoff: Thank you, Sean, and thank you, everyone, for joining us this afternoon. After many years dedicated to studying the potential of cortisol modulation to help patients suffering from serious diseases, we are on the cusp of a new era at Corcept. We have 2 new drug applications that are rapidly approaching their FDA target action or PDUFA dates. Our NDA for relacorilant as a treatment for patients with hypercortisolism has a PDUFA date of December 30, 2025. Our NDA for relacorilant as a treatment for women with platinum-resistant ovarian cancer has a PDUFA date of July 11, 2026. We believe the FDA will meet both deadlines. We submitted the European analog to our ovarian cancer NDA, known as a marketing approval authorization, or MAA, to the European Medical -- Medicines Agency, or EMA in October with a regulatory decision likely by year-end 2026. Some of our most advanced clinical studies will soon produce important data. Our MOMENTUM trial, which is evaluating the prevalence of hypercortisolism in patients with resistant hypertension will have results early next year. We expect final overall survival results from ROSELLA, our pivotal trial in platinum-resistant ovarian cancer around the same time. By the end of 2026, we expect results of our BELLA trial also in patients with advanced ovarian cancer as well as results from MONARCH, our Phase IIb trial in patients with MASH, a life-threatening liver disorder. We are also about to start important new studies. In consultation with the regulators, we are finalizing the design of a Phase III trial of our proprietary selective cortisol modulator, dazucorilant in patients with ALS. We plan to start this trial by the middle of next year with a simple goal of replicating the strong results we saw in DAZALS, our Phase II trial. Our oncology program is about to expand significantly beyond platinum-resistant ovarian cancer. The success of ROSELLA provides clear evidence that cortisol-directed therapies have substantial potential in oncology. What comes next in oncology is a unique sequencing challenge because the opportunities are so large. We have spent many months giving careful thought to a long-term development plan in oncology that is both methodical and ambitious and most important, will best position Corcept to help as many patients as possible. I'm going to ask Bill Guyer, our Chief Development Officer, to describe what he and his team have planned. Bill? William Guyer: Thanks, Joe. Now in order to understand the scope of our opportunity in oncology, I think it helps to recall that our program follows groundbreaking insights made by investigators at the University of Chicago, who hypothesized that cortisol activity at the glucocorticoid receptor promotes solid tumor growth in 3 ways. First, it's anti-apoptotic, so it blunts the effectiveness of chemotherapy. Second, it provides alternative growth pathways for prostate cancer tumors being treated with androgen deprivation medication. And third, it suppresses the immune system, reducing the effectiveness of immunotherapy in the treatment of cancer. Increasing apoptosis by blunting cortisol activity is a very broad platform. It applies to all solid tumors that express the glucocorticoid receptor. Published research has shown that about 60% of solid tumors express the GR, and they do so at every stage of treatment. Our oncology program is built on the belief that antagonizing the effects of cortisol at the GR can benefit many, many more patients. And a prime example of that is shown by the women from our Phase II and pivotal Phase III ROSELLA studies who received relacorilant in addition to nab-paclitaxel and experienced extended progression-free survival and live longer than the women who were treated with just nab-pac alone. Now remember, nab-pac is one of the most potent treatments for women with this disease and adding relacorilant led to an even better result and remarkably without adding to the safety burden of the women who received it. Adverse events with relacorilant plus nab-pac were comparable in type, frequency and severity to nab-pac monotherapy. As I review the data, relacorilant is a remarkably well-tolerated drug. The medical field understands the importance of our results because the data from ROSELLA were presented at high-profile forums this year, including late-breaking oral sessions at both ASCO and ESMO annual meetings. And ROSELLA findings were published in The Lancet, one of the world's most preeminent journals. Our goal now is to undertake studies that will extend this work in 3 ways: first, in earlier lines of therapy for ovarian cancer; second, in new types of solid tumors; and third, combining our proprietary GR antagonist with additional regimens. So the first study advancing this goal is a Phase II BELLA trial. BELLA's initial objective is to treat and test the additional benefit of relacorilant may bring when combining it with nab-pac as well as bevacizumab, which is a potent drug that is commonly used to treat patients with platinum-resistant ovarian cancer. Due to the strong interest in our program by investigators around the world, this study has enrolled patients much faster than we expected. And as Joe mentioned, we will have the results by the end of 2026. But this is just our first step. BELLA's protocol allows us to add more arms to the study that include patients with different types of solid tumors. Currently, we are going to add 2 new arms. The first will evaluate relacorilant plus nab-pac and bevacizumab to treat patients with platinum-sensitive ovarian cancer, an earlier stage of the disease. In order to enroll in this arm, patients must have progressed on a PARP inhibitor, which is the subgroup that experienced profound benefit in ROSELLA, and we just presented that data at the ESMO conference. The second new BELLA arm will evaluate the potential of relacorilant plus nab-pac to treat patients with endometrial cancer. Separately, we are also initiating a Phase II study of relacorilant plus nab-pac in patients with cervical cancer in collaboration with ARCAGY-GINECO, which is an academic clinical research group specializing in gynecological cancers. These new studies will enable us to triple the potential number of women with gynecological cancers that we can help each year in the United States from 20,000 patients with platinum-resistant ovarian cancer to 60,000 patients. We are also targeting other tumors with significant unmet medical needs. We are initiating a Phase II study in patients with pancreatic cancer by combining relacorilant with the first-line standard of care regimen of nab-pac and gemcitabine. All of these studies will begin enrollment in the coming weeks and should enroll very quickly like all of our past studies have done. The results will be guideline enabling with a particular focus on the National Comprehensive Cancer Network or NCCN guidelines. These studies will also inform our future development decisions. In addition to exploring cortisol receptors antagonism potential to resensitize tumors to chemotherapy, we are evaluating its use in combination with antigen deprivation therapy. Our collaborators at the University of Chicago are currently enrolling a randomized placebo-controlled Phase II trial of relacorilant plus enzalutamide in patients with early-stage prostate cancer to determine if GR antagonism can block a cortisol-mediated tumor escape route. Another possible role of cortisol receptor antagonism is in combination with immunotherapy. Immunotherapy has emerged as a standard of care cancer treatment with more than 200,000 patients in the United States receiving this form of therapy each year. Because cortisol suppresses the immune system, it may blunt the effectiveness of cancer therapies intended to stimulate an immune response. Adding a GR antagonist to immunotherapy may enhance their effectiveness. Therefore, in the coming weeks, we are initiating a Phase Ib dose-finding study of nenocorilant, our new proprietary selective cortisol receptor antagonist in combination with nivolumab, a PD-1 directed immunotherapy to treat patients with a broad range of solid tumors. We've embarked on a mission to advance GR antagonism to help many patients with a broad range of solid tumors. Our ROSELLA study produced exciting confirmatory evidence of our hypothesis, and there is much more to come. We look forward to updating you on our progress. I'll now turn the call back over to Joe. Joseph K. Belanoff: Thanks, Bill. Before reporting advances in our MASH and ALS programs, I will briefly describe the research findings that give us confidence in the substantial opportunity before us in our hypercortisolism franchise. Prevalence phase of our CATALYST trial demonstrated that 1 in 4 patients with resistant diabetes has hypercortisolism, a far higher rate than was previously assumed. These results are transforming medicine. Patients who are enrolled in the placebo-controlled treatment phase of CATALYST had uncontrolled diabetes despite treatment with the best current medications administered by the leading diabetologists and hypercortisolism. In 24 weeks, patients treated with Korlym experienced a 1.47% reduction in hemoglobin A1c, along with significant improvements in body weight and waist circumference. Notably, patients in CATALYST experienced these improvements even as they decreased or entirely discontinued their other glucose-lowering medications, including the most potent GLP-1 agonists. Our MOMENTUM trial builds on the findings from CATALYST by evaluating the prevalence of hypercortisolism in patients with resistant hypertension. Results from MOMENTUM are expected by early next year. The findings from CATALYST and MOMENTUM will substantially accelerate screening for hypercortisolism and its treatment. As physician awareness of hypercortisolism rapidly grows, relacorilant is approaching its December 30 PDUFA date. Relacorilant's NDA is supported by our pivotal Phase III GRACE trial as well as our GRADIENT long-term extension and Phase II trials. In these studies, patients treated with relacorilant experienced clinically meaningful improvements in all the measures of hypercortisolism including hypertension, hyperglycemia, weight, lean muscle mass, waist circumference, cognition and Cushing's quality of life score. These benefits were observed consistently and durably with improvements emerging early and continuing or deepening over time. As awareness of hypercortisolism and its ability to be treated grows, many more patients will be identified, and Corcept is well positioned to help them. As Sean said earlier, we are confident that our Cushing's syndrome business will continue to grow for years. Our proprietary molecule, miricorilant, has very potent activity in the liver. Metabolic dysfunction-associated steatohepatitis, or MASH, is a serious liver disorder that afflicts millions of patients in the United States and globally. Cortisol activity plays a role in both the initial development and progression of the disease and cortisol modulation may serve as a treatment. Our Phase Ib study showed that miricorilant rapidly reduced liver fat and improved other important markers of liver health, including fibrosis. Miricorilant was also very well tolerated without the GI side effects commonly seen in patients being treated for MASH. Our randomized double-blind placebo-controlled Phase IIb MONARCH study aims to expand on our encouraging Phase Ib results. MONARCH enrolled 175 patients in 2 cohorts. The first cohort of patients has biopsy-confirmed MASH. The second cohort consists of patients with presumed MASH. We expect results from both cohorts late next year. ALS is a devastating disease associated with elevated cortisol activity. Our proprietary compound, dazucorilant, is an excellent candidate to treat it. In our 249 patient double-blind, placebo-controlled Phase II DAZALS trial, patients who received 300 milligrams of dazucorilant exhibited an 84% reduction in the risk of death at the 1-year mark compared to patients who only received placebo. The p-value for this finding was 0.0009. This reduction in early death occurs when patients still retain considerable function and quality of life. It does not simply add months to the end of their life when the disease's burden can be enormous. As I mentioned earlier, we plan to start a Phase III trial in 2026, designed with input from the FDA, European regulators and leading clinicians that simply aims to replicate the results of DAZALS. We covered a great deal today. Let me reiterate our important developments. Next month, we expect FDA approval of relacorilant for the treatment of hypercortisolism. This milestone comes as physicians begin to fully absorb the results of the CATALYST study, which demonstrated that hypercortisolism is far more prevalent than previously recognized and the treatment with a cortisol modulator can significantly improve the health of their patients. Our MOMENTUM study will produce results by early next year, building on CATALYST findings. By mid next year, we anticipate relacorilant's first oncology approval in platinum-resistant ovarian cancer, a particularly challenging form of ovarian cancer. Results from the ROSELLA trial showing improved progression-free and overall survival without additional safety burden are groundbreaking. The fact that cortisol receptor antagonism demonstrated such compelling results in this extremely difficult-to-treat cancer type gives us confidence in its potential across a broad range of tumors and underpins our decision to expand our oncology development portfolio. We expect first results from our new oncology studies by the end of next year. Beyond hypercortisolism and oncology, we expect results from a large, controlled study in patients with MASH by the end of next year and plan to initiate a Phase III study in patients with ALS by mid-next year. We continue to discover and develop proprietary selective cortisol modulators with likely very distinctive clinical attributes and are advancing the most promising to the clinic. Cortisol modulation's vast potential to help many patients is just beginning to unfold. It is a very exciting time for Corcept. Operator, let's proceed to questions. Operator: [Operator Instructions] Our first question comes from the line of Edward Nash of Canaccord Genuity. Edward Nash: I wanted to ask, I know sometimes you give the numbers. I just want to get an idea of how many patients at the end of the quarter that you had on drug? And then also, can you give us some idea of -- I know you're going to be bringing on a second new distributor at the beginning of the year, as you mentioned. But just wanted to have an idea of based upon what historically your previous distributor, what additional capacity or what magnitude of capacity does this new distributor that sort of come on in October have over your old distributor? Joseph K. Belanoff: Thank you, Edward. I think we understand both of those questions. And I'm going to pass you over to Sean Maduck, who is the President of our Endocrinology division. Sean Maduck: Thanks, Ed. I appreciate the question. Your first question was around about how many patients do we have on medicine at the end of the quarter. We had around 3,250 paying patients at the end of the third quarter. So in terms of the pharmacy that was just onboarded on October 1, it's a great pharmacy and we think we're going to -- they're going to do just a fantastic job supporting patients. And they've got about 25 years of experience, which is in serving orphan and orphan disease products, which is great. In terms of the specific question around capacity, they have the ability to continually expand with our business. They also have multiple locations around the country to distribute, which is something that was very appealing to us as we continue through the rest of the year with Korlym and then get ready for the relacorilant launch in 2026. Joseph K. Belanoff: And Edward, I think you also asked about other pharmacies, which are coming on next year. I think a really important thing to realize to tie your 2 questions together as well there are now 3,000 or so patients who are taking Korlym. We actually believe that the market capacity is much, much greater than that. And we really do think that as relacorilant begins to come on to the market, no single pharmacy is going to easily handle all of the business there. And that's why we're gearing up right now to add second, third pharmacies to that. Edward Nash: Great. That's helpful. And I just had one quick model question. On the gross margin line, you guys have historically had really high margins. And given the increase in volume, but also pricing and generic shift, are you seeing any downward pressure on margins that might require modeling adjustments going forward? Joseph K. Belanoff: Let me give you back to Atabak on for that question. Atabak Mokari: Edward. No, we have not seen that, and we don't expect that. Operator: Our next question comes from the line of David Amsellem of Piper Sandler. David Amsellem: Just a couple of quick ones. One, can you just remind us what the -- what net pricing looks like relative to brand pricing, just given that more and more of the business is going through the AG? How much of your business is coming from the AG? And then also, as you look to the PDUFA in ovarian, were you surprised you didn't get a priority review? And then lastly, can you talk about R&D and SG&A directionally for 2026 given the launches and given all the clinical studies? Joseph K. Belanoff: Thanks, David. And I think we'll give your questions to the person who could each answer them best. Sean, why don't you begin? Sean Maduck: Yes. Thanks, David. In terms of our authorized generic in the second quarter, we were -- about 2/3 of our business were on the authorized generic. In the third quarter, it ended in the low 70s. And our expectation is by the end of the year, it might creep up a little bit, maybe ending at around 75%. And then in terms of the net, it's about a 30% discount to Korlym's list price. Joseph K. Belanoff: Charlie, answer about the ovarian cancer NDA. Gary Robb: Yes. So we requested priority review. We didn't receive it. And to say, we weren't surprised to not receive it. We wouldn't have been surprised to receive it. Just based on the strength of the application, we were confident that we met the sort of stated criteria about substantial benefit in terms of safety or efficacy over available treatments. But the FDA has many priorities, many other things going on and their decisions are theirs and are sometimes opaque to us. So no, not surprised. Always hopeful, not surprised. And that's just, I think, the way dealing with the FDA on this kind of question has to be. Joseph K. Belanoff: And Atabak? Atabak Mokari: Sure. So regarding your question on R&D spend and SG&A, so we've talked a lot about the huge opportunity that we see ahead of us on multiple fronts across all of our businesses. And so we're going to invest to capture that. So on the R&D side, while we -- Bill walked you through many new studies that we're planning, there are many studies that we've been running throughout this year that are completing and winding down. So I would expect our R&D expenditures next year to be about the same as we are in 2025. And then on the SG&A side, we see huge opportunities on both hypercortisolism and ovarian cancer. And so we've been investing to prepare for launches of relacorilant in both of those indications, and we'll continue to invest to capture the large market opportunity. So I would expect those SG&A expenses to continue to increase. Operator: Our next question comes from the line of Joon Lee of Truist Securities. Asim Rana: Congrats on the quarter. This is Asim Rana on for Joe. Just a couple from us. So you said previously that the second pharmacy would have more meaningful contribution in the fourth quarter. Now that the first pharmacies out of the picture seems to be, how confident are you that Curant can handle the increase in volume over, say, fourth quarter and the quarters going forward? Is Curant fully online as of the fourth quarter? And then just as a follow-up, on the upcoming PDUFA for relacorilant, have you had a late cycle review for relacorilant? And if so, what can you share? Joseph K. Belanoff: Sure. Thank you very much for those questions. I think I understand all of them. The first one, we will send to Sean. Sean Maduck: Yes. So I'll answer your second question first. Curant is fully online. They started taking new patients on October 1. Almost all new enrollments are going to Curant. And over the course of the quarter, we will be transitioning the remainder of the business. So we're very confident in their ability to handle the capacity and meet the demands of the fourth quarter. Joseph K. Belanoff: And Charlie? Gary Robb: So just can you repeat the question for me because I want to make sure I answer it really correctly. What you say? Asim Rana: Yes. Just on the upcoming PDUFA for relacorilant, have you had a late cycle review for rela? And if so, what can you share? Gary Robb: Sure. So just a little background for people who don't -- are not as familiar with NDAs as you are. When the FDA agrees to review your new drug application, they give you a letter that sets out sort of the key milestones that are going to happen during the review process. And one of them is the mid-cycle review meeting with -- between the sponsor and the FDA. And the second is, as you know, another one is this late cycle review meeting. I can tell you that we've had both. I cannot tell you sort of what transpired or the nature of our back and forth with the FDA because we just can't comment on that. But we held them both exactly on the schedule the FDA set out in additional -- in its original letter to us. Things have moved per schedule, very ordinary course, and we are very confident as a result that the FDA will meet its target date of December 30. Asim Rana: And if I could just have a quick follow-up. Is Optime still selling Korlym? And if so, like how long would they have to? Joseph K. Belanoff: Yes. Sean, please take that. Sean Maduck: So Optime is still servicing patients just as they were before as they're obligated by the contract. Operator: Our next question comes from the line of RK with H.C. Wainwright. Swayampakula Ramakanth: A couple of questions. So first question being on the guidance. If I take the midpoint of your current guidance, the fourth quarter sales should come around $265 million or so, which is -- which means it requires a 28% growth from the third quarter number. With only one pharmacy in operation per se, how comfortable are you in thinking about that sort of growth, especially with holidays and less number of sales days? And the second question... Joseph K. Belanoff: Go ahead, please. Swayampakula Ramakanth: Sorry. And the second question is on the new molecule that I see on the pipeline, nenocorilant. -- how different is that from rela? And do you plan to release any preclinical data from that molecule as we start thinking about the study in solid tumors as a combination therapy with the PD-1 inhibitors? Joseph K. Belanoff: Okay. I think we have both of those questions. The first one is Sean. Please go ahead, Sean. Sean Maduck: Yes. So RK, just to be clear, you said in your question that we only have one pharmacy. That's incorrect. We actually have 2 pharmacies. Optime Care is continuing to service the active patient base and all new prescriptions are going to Curant. So over time, a greater percentage of our business is going to transfer over there. We expect combined to see some efficiencies, and we expect to have a strong Q4. Joseph K. Belanoff: And Bill, any comments you'd like to make about nenocorilant? William Guyer: Yes. Thank you. So related to nenocorilant in our oncology portfolio, when we look at relacorilant, as you heard, all the studies we're doing with relacorilant. Relacorilant is a great molecule and it's shown its benefit not only in oncology, but also endocrinology, but we're always looking at and evaluating new molecules preclinically to help us broaden our reach in every therapeutic area and especially oncology. And as we looked at the opportunity with combinations with PD-1 inhibitors, we felt that a drug like nenocorilant had unique properties that allowed us to dose it on a regular basis to help us look at other solid tumors. And we really felt it was the best partner for PD-1 inhibitors compared to that of relacorilant. And so when it comes to publishing our preclinical data, yes, we always publish our data, and I would expect us to have that data in the public domain next year. Joseph K. Belanoff: Let me make just a more general point because I know, obviously, RK is really the first person who really absorbed our oncology opportunity. You've been following this the longest of anybody, but let me make some points for those who have not. One of the really interesting things is that years ago, when we were only working with mifepristone, which we call Korlym, we were looking for a follow-on compound, which wouldn't have progesterone receptor activity. And our terrific Chief Chemist at that point. Now our Chief Scientific Officer, Hazel Hunt, was able to come up with one and then more and then more. And what was really interesting about them is that while all of those compounds modulated cortisol activity and none of them touch the progesterone receptor. So they were really distinct. She sort of accomplished her mission in separating the activities. As we began to test them preclinically, they simply weren't identical. Some got into the brain, some didn't get into the brain, some were organ-specific, some were general and some were more potent in the -- on various oncology models than others. And so where it left us with not a single follow-on compound, which is frankly what I had anticipated but with 4, 5, 6, 7 compounds, each paired with the best treatment opportunity and best disorder for which it could make progress. So it's been a very interesting opportunity. I think nenocorilant is quite interesting. You'll learn more about it next year as we go along. We're very excited to actually begin that study. I think it will really help us learn very much as to what the next thing to do is. So thank you all for your questions. Thank you for listening in. Really an exciting time, and I look forward to talking to you next quarter. Thank you. Bye-bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the Mirum Pharmaceuticals Third Quarter 2025 Financial Results and Business Update. My name is Harry, and I'll be your operator today. [Operator Instructions] I would now like to hand the conference over to Andrew McKibben, SVP of Strategic Finance and Investor Relations. Please go ahead. Andrew McKibben: Thanks, Harry, and good afternoon, everyone. I'd like to welcome you to Mirum Pharmaceuticals Third Quarter 2025 Conference Call. I'm joined today by our CEO, Chris Peetz; our President and Chief Operating Officer, Peter Radovich; our Chief Medical Officer, Joanne M. Quan; and Eric Bjerkholt, our Chief Financial Officer. Earlier today, Mirum issued a news release announcing the company's results for the third quarter of 2025. Copies of this news release and SEC filings can be found in the Investors section of our website. Before we start, I'd like to remind you that during the course of this conference call, we will be making certain forward-looking statements based on management's current expectations, including statements regarding Mirum's programs and market opportunities for its approved medicines and product candidates. These statements represent our judgment and knowledge of events as of today and inherently involve risks and uncertainties that may cause actual results to differ materially from the results discussed. We are under no duty to update these statements. Please refer to the risk factors in our latest Form 10-Q and subsequent SEC filings for more information. With that said, I'd like to turn the call over to Chris. Chris? Christopher Peetz: Thanks, Andrew, and good afternoon, everyone. 2025 continues to be an outstanding year for Mirum. We've created a leading rare disease company, purpose-built to create and deliver life-changing medicines to patients. Our success comes from that foundation. The team deeply connected to patients and families, turning their insights into meaningful therapies and measurable performance. In the third quarter, we delivered strong commercial results, advanced our clinical pipeline and strengthened our financial foundation. I'm proud of the way our team continues to execute with focus and consistency. First, on commercial performance. We reported third quarter revenue of $133 million, representing a nearly 50% year-over-year increase over the same period last year. This performance reflects the strength and breadth of our commercial portfolio, including continued momentum from the U.S. PFIC launch and expanding demand from our international markets. Turning to R&D. We remain on track for three potentially pivotal readouts over the next 18 months. First up is the VISTAS Phase IIb study in PSC. With enrollment complete, we expect to announce top line data in the second quarter of 2026. With the successful interim analysis last year and a consistent body of supporting data with IBAT inhibitors across multiple cholestatic diseases, we're optimistic about volixibat's potential to become the first approved treatment in this setting. We are also progressing well with our VANTAGE study of volixibat in PBC, the EXPAND study of LIVMARLI in ultra-rare cholestatic conditions, and our newly initiated Phase II study of MRM-3379 in Fragile X syndrome. We've also taken meaningful steps to further strengthen our financial performance. This quarter, our cash balance grew significantly, and we recognized positive net income for the first time. This is an important milestone that highlights the operating leverage in our commercial model. In sum, it's been another solid quarter of execution for Mirum. I want to thank the entire Mirum team for their continued dedication to patients. We built a high-growth cash flow-positive rare disease company with a broad pipeline and global footprint, and we're just getting started. And with that, I'll hand the call over to Peter. Peter? Peter Radovich: Thanks, Chris. Q3 was another excellent quarter for Mirum with total net product sales of $133 million. This was driven by continued robust performance of LIVMARLI in both the U.S. and international markets as well as steady contribution from our bile acid portfolio. LIVMARLI net product sales totaled $92 million for the quarter. In the U.S., LIVMARLI demand remains healthy in both Alagille syndrome and PFIC with $64 million in net product sales. Alagille syndrome growth remains durable, and PFIC continues to contribute meaningfully, reflecting the real-world benefit of expanded diagnosis and increased genetic screening. As we begin reaching into broader segments of the medical community, particularly adult-focused providers, we're finding that genetic testing is still less embedded in practice and often requires more education and dialogue. So we view this as an area where sustained engagement can continue to drive incremental gains. Internationally, LIVMARLI demand continues to grow with $28 million in net product sales this quarter. Demand across our direct and partner markets remains robust, supported by expanding reimbursement and launches in new geographies. Q3 was the first full quarter of commercialization for our partner, Takeda in Japan, with in-market adoption dynamics generally consistent with LIVMARLI's U.S. launch. Our Bile Acid Medicines, CHOLBAM and CTEXLI generated $41 million in net product sales this quarter, supported by increased CTX patient finding following CTEXLI's FDA approval earlier this year. And I'm happy to say that we now expect to land in the upper end of our prior full year 2025 guidance range with $500 million to $510 million in revenues. This reflects the continued strength of our U.S. business in both Alagille syndrome and PFIC, steady contributions from our bile acid portfolio, along with the typical quarter-to-quarter variability in international partner and distributor ordering patterns. Looking ahead, we continue to see substantial growth potential across our portfolio with peak revenue potential for LIVMARLI, volixibat and MRM-3379 each exceeded $1 billion. And then with that, I'll turn it over to Joanne for an update on the pipeline. Joanne? Joanne M. Quan: Thanks, Peter. I'm pleased to provide an update on the continued progress across our clinical pipeline, where we're seeing continued collaboration and momentum with physicians and patients across all of our ongoing studies. Starting with volixibat, we completed enrollment in the Phase IIb VISTAS study in primary sclerosing cholangitis, or PSC, and expect to announce top line data in the second quarter of 2026. PSC represents a significant area of unmet need with no approved therapies and limited treatment options. We're deeply grateful to the investigators and the PSC patient community for their partnership in advancing this important study. As a reminder, the outcome of the interim analysis of the VISTAS study last year was what we'd hoped for. The recommendation was to keep the current sample size, which we believe reflects a strong signal for the final analysis. It's worth noting that the study was powered using conservative assumptions, a placebo-adjusted treatment effect of 1.75 points and standard deviation of 3. A case series is being presented at AASLD of 8 PSC patients treated with maralixibat under our compassionate use program, a continuation of a case series presented earlier this year at DDW. All of these patients had meaningful reductions in pruritus and 4 of the 8 had complete resolution. This data supports the role for IBAT inhibition as a treatment for PSC. Turning to PBC. The VANTAGE study continues to progress well, and we expect to complete enrollment next year. Interim data presented last year demonstrated statistically significant improvement in pruritus, meaningful reductions in serum bile acids and encouraging improvements in fatigue. We're excited to advance this study through the confirmatory stage. Additional analyses from the VANTAGE interim will be presented at AASLD, which highlights the decreases in fatigue and improvement in sleep in volixibat patients as well as showing a decrease in IL-31 in treated patients. Our EXPAND study evaluating LIVMARLI in additional settings of cholestatic pruritus is also enrolling well. This study is designed to broaden access to patients across multiple rare cholestatic diseases who currently have few or no treatment options. It represents a meaningful label expansion opportunity, and we're targeting enrollment completion in 2026. Finally, I'm excited to share that we've initiated our Phase II study of MRM-3379, our brain-penetrant PDE4D inhibitor for Fragile X syndrome. The preclinical data we recently presented from a mouse FMR1 knockout model of Fragile X, showed that MRM-3379 reversed the disease phenotype across multiple behavioral assessments and increases our confidence in the importance of this pathway in Fragile X. Overall, we're very encouraged by the progress across our development programs and look forward to upcoming milestones in 2026. With that, I'll turn the call over to Eric to discuss our financial results. Eric? Eric Bjerkholt: Thanks, Joanne, and good afternoon, everyone. We delivered another solid quarter of financial performance, highlighted by total net product revenue of $133 million, representing a 47% increase over the prior year and reflecting growth across all our commercial medicines. This quarter included approximately $5 million in sales to our partner, Takeda in Japan. We do not expect additional sales to Takeda in Q4 of this year. Total operating expense for the quarter ended September 30 was $130 million, which includes R&D expense of $43 million, SG&A expense of $62 million and cost of sales of $26 million. Expenses for the quarter included noncash stock-based compensation expense of $18 million and intangible amortization and other noncash items of $6 million. The intangible amortization and other noncash items expense are largely reflected in our cost of sales. Our cash operating margins continued to improve, and we delivered GAAP profitability in the third quarter, generating approximately $3 million in net income. While this reflects the strength and scalability of our business model, we view quarterly GAAP profitability as a milestone, not yet a consistent expectation as we continue to invest in growth. Cash, cash equivalents and investments were $378 million at September 30, an $85 million increase from the beginning of the year. We continue to be well funded and financially independent, providing us the resources required to expand our patient impact and grow our business. With that, I'll turn the call back to Chris. Christopher Peetz: Thanks, Eric. Before we open the call for questions, I want to close by reflecting on what's been an incredibly productive quarter. Across every dimension of our business, commercial, clinical and operational, we continue to execute with purpose and discipline, anchored by the same patient-centric approach that's driven our success from the start. That's what's enabled us to become a high-growth cash flow positive, leading rare disease company. Thanks again to the Mirum team and to the patients and families who inspire our work every day. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question will be from the line of Jessica Fye with JPMorgan. Abdulqudus Tahlil: This is Abdul on for Jess. We just have two questions. What are going to be the key drivers of LIVMARLI's performance as we look ahead to 2026? And can you talk about why the midpoint of the new guidance range now implies 4Q reps flat sequentially from 3Q? I don't think we saw that dynamic last year. Christopher Peetz: Abdul, thanks for the question. On key drivers into 2026, I mean, we see a lot of basically what we have today rolling forward into next year. We expect that we'll probably give guidance early in the year next year on what that year looks like. But we are in early innings of the PFIC launch, both in the U.S. and internationally. So expect that to continue to build in over time. And I think for the guidance this year for Q4, maybe I ask Peter to speak to what we see from kind of the quarter-to-quarter dynamics... Peter Radovich: Thanks, Chris. Yes, and I appreciate the question, Abdul. The main dynamic is tried to highlight in our prepared remarks. We see growth for LIVMARLI U.S. We see the bile acid portfolio continuing to do what it does. It's really the LIVMARLI international line where we expect variability as we move quarter-to-quarter. As we've talked about before, that business has periodic large orders from distributors, and we saw those come in, in Q3. We also mentioned that we had Takeda revenue in Q3, which we also had Q1 and Q2 that we don't expect in Q4. So there's a fair bit of an inventory build there. So that's really the dynamic that's in the LIVMARLI international line. Operator: The next question will be from the line of Josh Schimmer with Cantor. Joshua Schimmer: Maybe I have two quick ones. First, what trends are you seeing in terms of adoption of the solid tablet formulation of LIVMARLI? And what percent of sales are for that versus the liquid? And then for volixibat, what are you thinking in terms of the appropriate price analogs, especially after we've seen a significant increase in rare orphan disease prices perhaps over the last year, particularly for conditions that perhaps are less prevalent than PBC and more aligned with PSC. Peter Radovich: Thanks for the questions, Josh. Yes. So in terms of the solid tablet, just launched in the U.S. in mid-June. So this is really our first full quarter with it. And what we've seen a very encouraging kind of uptake and really switches from the liquids. So if you look at the prescribing information, patients are eligible to switch if they're at least 25 kilos. I think what I could say is that a substantial proportion of those who are eligible based on their weight, are switching. So certainly excited about what that can mean long term in terms of persistence and adherence and an easier single tablet per dose format that will be preferred by these adolescents and adults. So excited about that dynamic. And then yes, volixibat pricing. Obviously, I haven't made a final decision there, monitored those dynamics that you're talking about. We've kind of base case thinking, you can look at the other -- PPARs and the other products that are kind of approved in PBC at 130 to 150, but we're still analyzing. I think it's kind of too early to say what the right pricing strategy is for volixibat. Operator: The next question will be from the line of Gavin Clark-Gartner with Evercore. Gavin Clark-Gartner: Just had one. What's your expectation for Paragraph IV filers? Maybe just helpful to lay out your confidence in your whole IP portfolio, especially around the method patents and including volixibat. Christopher Peetz: Gavin, thanks for the question. Overall, I mean, the -- we're in the window where we could potentially see that and kind of all routine for this point in the life cycle for LIVMARLI, and really quite confident in our overall IP position. In particular, you mentioned the method patents that are specific to dosing of LIVMARLI in these indications. So we've seen this has been really the key fundamental observation that's made all of Mirum possible and the IP behind it, we see is quite strong and in a great position and prepared to defend it. So more to come if and when we do see any filers, but nothing to date. Operator: The next question will be from the line of James Condulis with Stifel. Mark Hitrik: This is Mark on for James. So recently on earnings, Shionogi seemed to suggest it's still an open question around sort of what exactly the best endpoint is for their Fragile X study. I wanted to see if you guys had any perspectives on that and sort of the implications for your program that you initiated this year. And then we had a second question on PSC. And these patients typically kind of have inflammatory disease sort of like comorbidities. And we know that IBAT inhibitors by nature, sort of have some of these GI side effects. So curious your thoughts on the safety risks there. And if you can see sort of anything in the blinded data on like GI side effects, and whether those look any materially different than, say, PBC or Alagille. Christopher Peetz: Thanks for the question, Mark. I can't really speculate too much on Shionogi's update and what's going on underneath that. But let me turn it to Joanne to talk a little bit about our endpoint strategy and what we're -- our approach on our programs. Joanne M. Quan: Yes. Thanks for the question. We feel that we're in a good spot at this point. The preclinical data in terms of this pathway and the importance of this pathway in Fragile X is quite strong. We recently presented some preclinical data with our compound in a mouse model, mouse knockout model, which supports efficacy in us moving forward. And then we've also had very good engagement with the community with patients and with physicians, we also had a very successful and engaging pre-ND meeting with the FDA earlier this year, and they're entirely aware of the range of endpoints that we're looking at, and we're well aware of the types of validations that are needed for these types of outcomes. So I think we're actually in a pretty good spot. A lot of interest in the community, and we're looking forward to conducting the study and seeing what we see. Christopher Peetz: And then on the PSC safety standpoint, I actually look to Joanne for that... Joanne M. Quan: Yes. And so with regards to that, for the PSC study, we've had a data monitoring committee following with us. And so no issues have been raised, no suggested modifications to the protocol. So we feel pretty comfortable there's no big safety issues here. We feel pretty comfortable with moving forward with the way the protocol was initially designed. So it's not -- no issues have emerged there. Christopher Peetz: Profile overall is consistent with what we know about IBAT at this point. Operator: The next question will be from the line of Joseph Thome with TD Cowen. Joseph Thome: Congrats on the progress. Maybe on the PSC study, now that, that one is fully enrolled, are you able to talk a little bit about the baseline criteria of the patients that were enrolled, especially as it relates to the population that was studied in the interim analysis population? And maybe second, can you also discuss a little bit the importance of hitting on quality of life measures or bile acid in distance to ITCH? And will that -- those secondary endpoints be provided in the top line release in the second quarter? Christopher Peetz: Thanks, Joseph, for the question. I think overall, we've not plan to present or analyze some of the baseline criteria at this point. What we know from -- and we can take it more generally from the enrollment criteria and what was in the interim is the patients are selected for ITCH. So we do have quite elevated baseline pruritus scores. And it's -- from what we're seeing, it's quite representative of the PSC population in terms of background disease, background medications, things like that. So overall, kind of in line with what we expected for the population. And shifting to the question about endpoints, the focus from a regulatory standpoint is 100% on that pruritus endpoint being the outcome that we've discussed with FDA. We do expect to -- are excited about and expect to see based on other settings, we expect to see movement on things like fatigue and the bile acids. Bile acids obviously being a key mechanistic marker, fatigue being a really important measure for patients. But again, those are secondary for a reason. The regulatory path is entirely through that pruritus endpoint. Operator: The next question will be from the line of Ryan Deschner with Raymond James. Ryan Deschner: Congrats on the quarter. Can you remind us what went into the decision to offer BID dosing for the EXPAND study? And how would you expect the dosing instructions to look on an expanded label in cholestatic pruritus patients? And then I have a follow-up. Christopher Peetz: Thanks, Ryan, for the question. I mean the simple answer is empirical, right? So this is based on observations we've had in compassionate use settings at dose levels that have explored across a range in this kind of all in the bracket of these elevated dose levels from the Alagille label up to the PFIC label. And empirically, this is where we've seen really great response stories from compassionate use examples. And Ryan, do have a follow-up... Ryan Deschner: Yes. Real quick, how big of an impact has the government shutdown been so far for things like genetic screening programs and other programs related to Alagille and PFIC? Christopher Peetz: To date, no impact that we've seen across kind of all of our interactions with customers and really across the business. Operator: The next question will be from the line of Mani Foroohar with Leerink Partners. Ryan Mcelroy: You have Ryan on for Mani. Congrats on the quarter. Can you just talk a little bit about the pace of new PFIC adds that you guys saw in the third quarter compared to the second quarter. I know you talked a lot about genetic testing and new patient diagnoses. And then maybe more broadly, as you guys start to see consistent positive cash flow and you have several launches on the horizon. Maybe just talk through your BD strategy about adding more products to the pipeline. Christopher Peetz: Yes. Thanks for the question. I'll turn it over to Peter to jump into those. Peter Radovich: Yes. In terms of the pace of PFIC adds, it continues to be healthy. It continues to come from a broad patient population, everything from infants to adults that we've kind of commented on that is a dynamic where the paradigm is really being changed with adult providers to think about genetic cholestasis as kind of a clinical entity to be suspicious about. So that's kind of an educational effort. And some of the major academic medical centers are on board with that, and they're looking into genetic causes of cholestatic liver diseases in the patients they can't explain with other diseases, but most aren't, right? So that's just kind of a gradual effort and -- but it's continuing to bear fruit in Q3. Oh, BD, yes, do you want to... Christopher Peetz: Sure. I mean the thing we'd say on BD is since the beginning of the company, that's really been at our core is looking for underappreciated programs. So we continue to do that and expect to always be active doing that. But we're in just a fantastic position where there's no urgency and no need. So we have a very high bar. And as you can see from the programs we've brought in since the start of the company, and look for good value creation opportunity. So that will continue to be the standard we take going forward, and plenty in the company to grow and build and optimistic about adding more down the road. Operator: Next question will be from the line of Mike Ulz with Morgan Stanley. Rohit Bhasin: This is Rohit on for Mike. Just with the recent linerixibat PDUFA announced for GSK, how do you see the competitive dynamics playing out in PBC? Christopher Peetz: Rohit, thanks for the question. I think two overarching things to think about for the competitive landscape in PBC. One is just kind of a reminder on lines of therapy and where the volixibat program plays. And in the VANTAGE study, there is no baseline alkaline phosphatase criteria. So our program incorporates both first and second-line PBC settings. So those that have stable alkaline phosphatase on UDCA that likely wouldn't be a treatment candidate for some of the PPARs that are recently launched, but still have ITCH. That's the candidate for volixibat study and what we expect ultimately volixibat marketed treatment. And then with respect to linerixibat as a competitor, we're very excited about the interim data that we saw from the VANTAGE study and what it means for the dose level that was selected. The placebo-adjusted difference that we saw on ITCH in that data set was striking, it led to breakthrough designation. And It's really everything that we had hoped to see from all that we've learned about dosing of this mechanism in these settings. So quite excited about the competitive profile of volixibat given that highly active dose level. Operator: The next question will be from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Wondering if you guys are anticipating seeing similar disease-modifying effects over time with volixibat as you saw with LIVMARLI in PSC and PBC? And if so, what would be the time frame? And do you think that would be an important consideration for adoption and use over time? Christopher Peetz: Jon, thanks for the question. I mean, the overarching first thought there is the first readouts here, we think are probably too soon to be looking at that and focused on the ITCH endpoint, and really see that as the -- that's the launch profile. But I'll turn it to Joanne to talk through some of what we'll be looking at and what we'll be able to see over time from the program. Joanne M. Quan: Yes. Thanks for the question. As Chris alluded to, the whole discussion, especially with the regulators has been around how do we get something in PSC approved. And clearly, that's with pruritus -- with the pruritus endpoint. At this point, in the field of PSC, that's really the only approval endpoint. Obviously, we'll look at other things. Look, longer term, we do expect those types of endpoints may take quite a long time to evolve. We'll continue to follow these patients. And obviously, we'll continue to engage with the agency in terms of appropriate endpoints. But we do think a concrete path forward is with pruritus, and we're pretty confident in terms of the ability of volixibat to affect that in a positive way for patients. Operator: And with no further questions on the line at this time, I would like to hand the call back to Chris Peetz for some closing remarks. Christopher Peetz: Great. Thanks again, everyone, for joining us today and for your continued support. We look forward to updating you next quarter. Good afternoon. Operator: This will conclude the Mirum Pharmaceuticals Third Quarter 2025 Financial Results and Business Update. Thank you to everyone who is able to join us today. You may now disconnect your lines.
Stefanie Zimmermann: Hello, everyone, and a warm welcome. Thanks for joining our earnings call today to discuss the results for the third quarter and the first nine months 2025 with us. With me today are our CEO, Yves Padrines; and our CFO, Louise Ofverstrom. Today's conference call is being recorded. A replay of the call will be available at our website after the call. Additionally, you will find the quarterly report, the presentation and the press release on our Investor Relations website as well. But now let's get started. So I would like to turn over to our CEO, Yves. So go ahead. Yves Padrines: Thank you, Stefanie. Good afternoon, everyone, and welcome to our Q3 and nine months 2025 earnings call. As usual, we have prepared a short slide deck that our Chief Financial Officer, Louise Ofverstrom and I will briefly walk you through so that we have sufficient time for your questions afterwards. As usual, I would like to begin the presentation with our key messages on Page #3. Q3 2025 was another very successful quarter for our company. This success once again highlights the resilience and strength of our business model and strategy. Growth remained very strong, mainly driven by our two largest segments, Design and Build. The Build segment continued with its extremely strong development in the third quarter, even despite the expected moderation of growth due to the fading temporary transition effect of the subscription transition of Bluebeam and the higher associated comparison base. The Design segment also delivered another very good quarter. In addition to a healthy underlying demand, the segment continued to benefit from very strong momentum in its subscription transition, including an additional tailwind from multiyear contracts. As we communicated previously, these contracts are used strategically and only temporary to accelerate the transition of existing maintenance customers to a subscription-based model, mainly at our Graphisoft brand. Reflecting our performance over the first nine months of the year, we are proud of what we have achieved. Main growth driver was once again the recurring portion of our business, in particular, the very strong increase in subscription and SaaS revenues, which is clearly reflected across all our key performance indicators. When looking at the development of our EBITDA margin, it's important to keep in mind that the profitability in the first half of the year was impacted by an extraordinary nonoperating effect in the low teens million euro range, resulting from the unexpected insolvency of a service and payment provider. The foundation for this strong operational performance is the continued progress we have made across our key strategic focus areas, whether that is in agentic AI, the successful transition to subscription and SaaS or the ongoing internationalization of our business. These investments are not only paying off already today, they are also making sure the Nemetschek Group is able to show a high and profitable growth in the future. Lastly, as a result of the very strong development in the first 9 months, we fully confirm our already increased guidance and outlook for the financial year 2025. On Page #4, you see how this key message translates into the developments of our most important key financial indicators. In a nutshell, we continued the great momentum from the first half of the year also into the third quarter. The result and in line with our key strategic priority, the transition to a subscription and SaaS-centric business model, our reported annual recurring revenue recorded an increase of plus 22%. If we adjust for the strong FX headwind we had in the third quarter, mainly steamed from the weaker U.S. dollar, our ARR even increased by plus 26.4%. Thanks to this substantial growth in our recurring revenue base, we were able to strongly increase our revenue in Q3 by plus 15.8% on a reported basis and even by plus 20% on an FX-adjusted basis. We also delivered no promise increase in profitability, plus 25% on a reported at plus 34% on an FX-adjusted basis. The EBITDA growth clearly outpaced our revenue growth in the third quarter. The corresponding EBITDA margin reached a high 32.5% despite the ongoing transition to subscription and SaaS model in the Design segment. Last but not least, our earnings per share for the quarter increased by a very strong plus 40.7% despite the acquisition-related effects, GoCanvas. Coming to Page #5. Before I hand over to Louise, who will provide a deeper dive into our financial results, I would like to take a moment to address what is currently one of, if not the most important topic for us. I'm, of course, talking about the rapid evolution of artificial intelligence. Let me state is very clearly upfront. At the Nemetschek Group, we are deeply convinced that AI represents a tremendous opportunity for us as a vertical software company that is deeply embedded in the processes and workflows of our customers. And we have, as you know, over seven million users of our different portfolio of products across the globe. It's mainly data. Of course, artificial intelligence also plays a key role in optimizing our internal operations. For example, in software development, services and support. However, today, I want to focus on the three main levers through which we are continuously enhancing and expanding our product portfolio with AI-driven functionality to capture this huge opportunity. Starting with our R&D and product development activities in-house. So Nemetschek Group has been working with and developing AI technologies for several years already. However, over the past year, we have clearly doubled down and significantly increased our investment in AI to further accelerate our pace of innovation. Our deep domain expertise and close customer relationship enable us to develop cutting-edge AI products and features. At the same time, it is equally important to us that all AI activities are grounded in ethical and trustworthy principles that place the human or customers or fans at the center. And we are here to help them to become an augmented architect, an augmented engineer and augmented program managers. As a result, we have already introduced several truly value-adding AI features across all our segments over the past quarters. In our Design segment, for example, we launched new features such as the AI visualizer and our groundbreaking agentic Nemetschek AI assistant, one of the first of its kind in our industry. And also across all other segments, we are making strong progress. For example, in the Build segment, recently announced Bluebeam Max, Unbound, where we had over 1,200 Bluebeam fans in Washington, D.C. and Bluebeam Max is combining the AI developments from Bluebeam with the innovative technology of our latest acquisition, Firmus AI. Integration of Firmus agentic AI-based platform into Bluebeam's PDF workflows enables early risk detection during preconstruction design reviews, increasing efficiency and helping to minimize costly work. In addition to our strong internal R&D capabilities, we are also accelerating our AI road map through targeted M&A and venture investments. The already mentioned Firmus AI acquisition, along with Manufacton are strong examples of how we are using technology-driven M&A to further strengthen our position in AI-driven innovation and to complement our portfolio with leading-edge capabilities. Our venture approach, we are also investing in highly innovative and potentially disruptive start-ups, for example, Handoff, Reconstruct, or Document Crunch and many more, as you know. These investments give us early access to emerging technologies and also help foster and broader innovation ecosystem around the Nemetschek Group. Our ambitious AI road map is further strengthened with strategic partnerships, both on the commercial and also the academic side. On the commercial side, for example, we are partnering with Google Cloud to further enhance Nemetschek's position as an AI-first industry leader and to create a strong platform for continued market expansion. On the academic side, we have already been collaborating for many years with the Georg Nemetschek Institute for Artificial Intelligence for the Built World at the Technical University of Munich, TUM. We are very pleased that we announced recently in addition, we have signed strong partnership with prestigious universities such as Stanford University in the U.S. and also with NTU in Singapore. All of these partnerships is to jointly advance R&D and innovation in the field of AI and to strengthen knowledge transfer between research and practice, thereby also helping to define international standards for our industry. You see a lot has already happened, and this is just the beginning. We will continue to use all available levers to position the Nemetschek Group to benefit maximally from this major opportunity. And with that, I will now hand it over to Louise. Louise Ofverstrom: Thank you, and a warm welcome to our earnings call for the third quarter as well as for the first nine months of the financial year 2025 from my side as well. Yves has already briefly touched on some of our key financial figures. I would therefore now like to look in more detail at the most important financial aspects of our Q3 and nine months results as well as at the underlying drivers. As usual, we will begin with an overview of the key financial highlights of the first nine months of our financial year 2025 on Page #7. And I would really like to underline Yves's assessment that we had a very successful first three quarters of this year with continued strong and profitable growth. And this is especially encouraging and mentionable given our ongoing transition to a subscription and SaaS-centric business model in the Design segment and the associated short-term accounting burden on our financial results of this during the transition. So let me start with our accumulated revenue for the period from January to September, which grew by 22.9% on reported and even 25% on an FX-adjusted basis to EUR 866 million. And apart from the inorganic contribution from GoCanvas acquisition in the first half of the year, the recurring part of our business once again proved to be the main growth driver. And this clearly demonstrates the strong progress we are making in executing our strategic road map towards a subscription and SaaS-based business model. And consequently, the revenues in this category increased by an impressive 61.3% to EUR 614.7 million. And our reported EBITDA increased by 28.4% to EUR 264.3 million, and that is corresponding to a reported EBITDA margin of 30.5%. And please allow me to emphasize here that if we adjust for the extraordinary nonoperating effect due to the unexpected insolvency of a payment and service provider from the first half of the year, the underlying profitability would have been at a high 31.8%. On the right-hand side of this slide, you can also see our strong cash generation with a high cash generation up 111% as well as the continued very high quality of our balance sheet. If we turn to the next slide, Page #8, you'll find an overview of the development of our four segments in the first nine months of 2025. Let me start with our Design segment, which primarily serves architectural and engineering customers throughout the globe. In Q3, the segment continues its strong growth momentum from the first half of the year. This is driven by a very strong increase in the segment subscription and SaaS revenues due to the continued successful ramp-up of the subscription transition at our Graphisoft brand. And in addition to this, growth was also partly supported by three-year contracts, although at a slightly lower level compared to recent quarters. And these contracts are being used strategically and only temporary to accelerate the migration of existing maintenance customer to a subscription-based model, mainly at the Graphisoft brand. For the first nine months of the year, revenues accumulated to EUR 389.3 million, a plus of 13.1% year-on-year. And the reported EBITDA margin of 27.5% remained stable year-over-year despite the associated short-term accounting-related dampening effects of the subscription transition and the extraordinary nonoperating effect from the insolvency of the service and payment provider in the first quarter. When adjusting for the extraordinary service and payment provider effect only, the underlying EBITDA margin would have been above the prior year level despite the ongoing transition to subscription. So let's continue with the development of our Build segment, which once again delivered a stellar performance in the third quarter. This was driven by sustained strong customer demand, particularly at Bluebeam. And in addition to this, GoCanvas, which has now been fully consolidated into our Build segment since Q3 2024, continued to deliver as planned. And as expected, we saw slight moderation in growth, reflecting the fading temporary elevated effect after Bluebeam's successful subscription transition and the resulting higher comparison base. So after the first nine months of the year, reported growth stands at 47.2%. And adjusting for the quite strong FX headwind in the third quarter that stems from the weaker U.S. dollar, growth even reached 51.1% on a constant currency basis. The EBITDA margin on the reported level came in at a strong 35.7%. This is an increase of around 350 basis points year-on-year. And despite the dilutive effect of the GoCanvas acquisition as well as our continued investments to support the future growth of this highly dynamic segment, amongst other, as Yves said, the acquisition of the Firmus AI. Let's move on to our Manage segment, which recorded only a modest growth in the first half of the year. Now we saw a clear reacceleration of growth momentum in the third quarter with a plus of 7.3%. The growth in Q3 was driven by a positive momentum in new large customer orders and is clearly an effect of the measures taken to refocus and restrengthen this segment. Year-to-date, the cumulative growth now stands at 3%. And importantly, and despite continued investments into this segment's product portfolio and future growth opportunities, the margin expanded significantly to 10.5%, up from just 7.3% in the prior year. So, last but not least, our Media segment, which continued to be impacted by mixed market dynamics, particularly in the important U.S. market, including somewhat cautious customer spending in some areas. The segment is also still feeling the effects of the missing subscription sales in the first half of the year following the insolvency of a payment and service provider, as we alluded to earlier in this year as well. In total, revenue in the Media segment, therefore, increased only moderately by 1.3% to EUR 89.8 million during the first 9 months of the year. However, when adjusting for the special one-off effect of the service and payment provider, the revenue growth in the first nine months would have been in the mid- to higher single-digit percentage range. And thanks to very good cost control in addition, the margin in the third quarter remained at a very high level of 37% and in line with last year. However, due to the extraordinary nonoperating effect in the first half, the reported EBITDA margin after nine months remains below the prior year level at 31.1%. And without this extraordinary nonoperating effect in the first half, the EBITDA margin would have been at the prior year level. Let's turn to Slide 9 that comprehensively summarizes the financial results of one of our key strategic priorities, which is, of course, the transition to a subscription and SaaS-centric business model. Already alluded to the fact that our recurring revenues were once again the main growth driver in the first nine months of 2025. That is really confirming the good progress of the transition we see from a license-based model to a fully recurring, and therefore, subscription-based model. As you can see on the right-hand side, this exceptional development continued also in the third quarter with an ARR growth of 26.4% and a subscription and SaaS growth of 46.4% on a currency-adjusted basis. Therefore, and fully in line with our strategy, license revenues declined by 38% year-over-year in Q3, and that is reflecting the continued shift from perpetual licenses to subscription models. As expected, this more volatile and less predictable revenue stream now accounts only for approximately 5% of our group revenues. But looking at the longer-term picture at the left-hand slide of the slide here, you can clearly see the speed and the scale of our progress in building up our recurring revenue base. Over the last four years, we have seen an almost sevenfold increase in subscription and SaaS revenues, representing an impressive CAGR of over 60%. And as a result, the recurring revenues now represent 92% of total revenues. And this is a new record high for the Nemetschek Group after the first nine months of the year. To conclude our review of the results for the first nine months of 2025, we provide a more comprehensive overview as you are used to, of our key P&L and cash flow items on Page #10. And as we have already discussed during the H1 call, the effects from the GoCanvas acquisition and the insolvency of a payment and service provider were clearly visible in our reported results for the first half of this year, not only in our key KPIs such as revenue growth and the EBITDA margin, but also, of course, across the main OpEx categories. In the third quarter, there is no longer any bad debt impact from the service and payment provider insolvency. And the effect from the GoCanvas acquisition is now starting to normalize as we have fully consolidated the GoCanvas business for a year. And that is, of course, resulting in a more comparable base. As a result, we are now seeing a clear normalization across our main OpEx categories in Q3. Let me start with the largest component of our overall cost base, which is the personnel cost. We saw a reported year-on-year increase of 24% in this category in the first half of the year, and that was mainly driven by the GoCanvas addition and of course, smaller effects, as we alluded to also in the H1 call, such as reevaluation of stock appreciation rights, et cetera. And as announced already in our last earnings call, we began to see a normalization in the growth rate of personnel cost in the third quarter with an increase of only around 10%. So this underlying run rate despite our continued high top line growth reflects our healthy operational leverage and our consistent focus on operational excellence, even as we continue to invest strongly in strategic and organizational resources for our future strong growth. The nonoperating effect was also the main reason behind the strong increase in other operating expenses in the first half of the year, which is clearly well above a normal level of our business. And with the growth in the mid-teens only in Q3, the growth rate came down materially versus the first half. So without the aforementioned negative payment and service provider effect and on a more comparable base in terms of additional amortization charges related to the GoCanvas acquisition as well as reduced interest cost due to our very strong deleverage after the acquisition, our earnings per share grew clearly over proportionally in the third quarter by almost 41%. Our underlying free cash flow generation in the third quarter was again very strong and additionally supported by favorable tax cash flows resulting from changes in the U.S. tax regime that eliminated the mandatory capitalization of development expenses for tax purposes. So looking at the development over the last nine months of -- the first nine months of the year, the very strong increase of 44.5% in our free cash flow before M&A once again underlines the very high quality of our earnings. Finally, and thanks to our very strong operating performance, Nemetschek maintains a strong balance sheet with an equity ratio of 44.1% and a net debt-to-EBITDA ratio again below 1x. This gives us the flexibility to both continue to delever quickly, but also retain significant financial headroom for future M&A and continued investments in our business and into innovative start-ups, et cetera. And with that, I'll hand it back to you, Yves. Yves Padrines: Thank you, Louise. To wrap up our presentation, let's turn to Page #12 and to take a look at our outlook for the financial year 2025. As a result of the very strong foundation we have laid over the last three quarters, we continue to be very confident to again achieve all our financial targets for the current financial year. We, therefore, fully confirm our financial outlook for the year 2025, which we already increased with our Q2 reporting in July. In particular, that means that from today's perspective, the Executive Board expects a currency-adjusted revenue growth for the Nemetschek Group in a range between plus 20% and plus 22% for the year 2025, including an M&A-related revenue contribution from the acquisition of GoCanvas of around 400 basis points. And we, therefore, also clearly are targeting the upper end of this range for 2025. The EBITDA margin, including the dilution effect from GoCanvas, is expected to be around 31% reflecting, among other things, the extraordinary nonoperating effect from the unexpected insolvency of a service and payment provider. Based on our very strong fundamentals, we expect to continue our very strong path with a very attractive strong growth at a high profitability this year as well. So even despite last year high comparison base and the ongoing subscription and SaaS transition of our business model. And in the coming years, we are very confident to continue to deliver a very attractive average organic revenue growth in the mid-teens. And with that said, I would like to thank you for your attention, and we are now ready to take your questions. So operator, please, back to you. Operator: We'll now begin the question-and-answer session. [Operator Instructions] The first question comes from Nicolas David from ODDO BHF. Nicolas David: I have two. The first one is relating to the Media segment. Just trying to understand better the Q3 performance. Was it still impacted by the insolvency of your supplier which is behind us and now it's just a tough underlying market environment, which is affecting the business? And what do you see for Q4? And do you have an action plan to revise the growth of this segment? And maybe more broadly, could you consider a strategic review for this asset, including maybe a disposal as it's not really 100% core business for you? And my second question is regarding the U.S. construction sector, construction market. As we see a deterioration of some leading indicators there, should we expect that it can affect your business, the Design segment in the U.S. in the coming quarters? Or are you still very confident? Yves Padrines: Thank you, Nicolas. So, first of all, regarding media, clearly, yes, Q3, we had a tough of a recovery in the second half. But the growth, as I said, without the insolvency of the payment service provider would have been year-to-date more in the higher single digits. Clearly, what we see in the market that there is an ongoing mixed market dynamic in Q3 and also the last quarters, including cautious customer spending. But what is very interesting is that the revenue that we are doing or business, which is direct with larger customers or also with channel partners, we are in a strong double-digit growth with this type of customers. We are even close to mid-teens potentially in some areas, especially outside the U.S. And where we have more issues is clearly with our tailwind of customer, which are coming from the web store. So the revenue in Q3 is still impacted also by the missing subscription sales in the first two quarters of the year. And this will continue at least until the beginning of next year. So, with Maxon, so for media in Q4, we expect a slight recovery next quarter or this quarter. And clearly, we see more low double-digit growth next year. But we should come back to double-digit or around low double-digit growth for media next year. And we are not planning any disposal for the moment of this business. Then your second question regarding the U.S. construction market. Well, clearly, we do not see any slowness there in the market. In fact, it is still very, very strong when you look at Q3, especially with our U.S. brands such as GoCanvas and Bluebeam, but also others. And so far in October, we do not see any deceleration for these businesses in the U.S., and there are still very good and strong growth. Nicolas David: All right. That's very clear. And just on the Media segment, no action plan, specifically, you just believe that you are going to recover with the market? Or do you want to put more focus on those large customers and distributors to mitigate the weaker part of the market? Yves Padrines: So we are clearly working more internationally, and we have very, very strong growth, for example, in Asia Pacific, including in India, of course, coming from a lower base. And here, we are working mainly with distributors and channel partners internationally for Maxon. When I say internationally, so more in high-growth region, especially in Asia. We have still a very strong business with large customers, but also these larger customers are cautious, but we have a strong double-digit growth with them, as I said. What we have done also is that we have turned our dynamic in terms of digital lead generation. We are adding more resources and more expertise in our online marketing power, et cetera. But clearly, we see that overall in the media market, the customers are very cautious, and they are very cautious, especially on spendings overall. Louise Ofverstrom: I think maybe just in addition, of course, we also continuously also in the Media segment, as you have seen, we have very strong products here in this segment. And of course, we are continuing to enhance our product offerings as well to the market and expanding that as well. So I think that's also what you will also see is, of course, remain very attractive to the users in the market. And that will, of course, also as part of, of course, capturing that growth. And that's also one of the reasons why Maxon is also our Media segment is growing in general also with this extraordinary effect at a higher pace than the underlying market. Yves Padrines: And we launched, for example, some new AI features with, for example, Cinema 4D with AI search, but we are also now planning to launch in the coming weeks a new AI [indiscernible] generation. We are also planning in the coming months to launch further AI compositing capabilities, especially on scene lighting and relighting, et cetera, et cetera. So have more and more AI features coming up. On our current product line, we're also planning to launch a new iPad version for Cinema 4D. As you know, we launched an iPad version of ZBrush over a year ago. That was in September 2024, which has been a great success. We even have more -- even now more ZBrush iPad users than desktop iPad users, so very successful. And in addition to all of that, as we mentioned already, we are going to do a commercial launch of a new rendering solution for architects based on Redshift Maxon solution, which is first deployed with Vectorworks. So that will be more towards end of Q1, early Q2 2026 when we launch it commercially. And then we are planning to have this new [indiscernible] rendering solution for architects also deployed with other ordering tools and BIM solutions, first of all, from, of course, the Nemetschek Group, such as Archicad, from Graphisoft and Allplan. We are also planning to have that deployed with Revit and Autodesk and other ordering solutions and CAD solution from third party. Operator: The next question comes from Alice Jennings from Barclays. Alice Jennings: I've just got a couple, if that's okay. So, just firstly, you spoke about the mid-teens growth profile in the medium term. But if we think about the multiyear deals that have been signed this year, kind of how does that leave us for next year? So how should we think about growth in 2026? How are you kind of going to manage these multiyear deals next year? And then what are the other things that we should think about there? And then my second question is just on AI. I'm just wondering about the monetization of that. How does that work? Or does it really kind of depend on the specific products that you're offering? Like is adoption voluntary? Or is it included automatically in a subscription? And then what kind of impact will that have on pricing? Yves Padrines: Sure. Thank you, Alice. So, first of all, regarding our outlook, and of course, we are not yet giving a guidance for 2026 and beyond. But clearly, what we are saying is that we are very convinced and that we are going to have an average revenue growth in the mid-teens in the coming years. So how we are going to manage that next year, for example, is your question. So, clearly, yes, we are going to continue to have high growth in the Build segment in 20-plus percentage points here for the Build segment. Clearly, in Design, we are expecting to be in the higher -- high single-digits growth. And then we are expecting Media to be now back to around the 10% or to the low double-digit growth and clearly having operate and manage back to double-digit growth in 2025. So we are very confident that we can, therefore, reach this mid-teens growth in 2026 despite the fact that, yes, but that has, again, a very, very, very small impact that we are still going to do a little bit with Graphisoft, for example, some of these multiyear deals to support the migration from our existing customers on maintenance to push them to subscription model, but it has a very small impact, and it's not going to impact the growth for next year versus this year. So we're going to continue to do that temporarily based on specific actions, and we are going to continue to do that while we are migrating the Design segment to subscription, especially at Graphisoft and Allplan, and this will continue at least for the next probably around two years more or less. But clearly, we are highly confident in this mid-teens average growth for the coming few years and definitely also for 2026. Louise Ofverstrom: And I think just to add to what you said also on the Design transition, which is the last part of the business that we are transitioning to subscription, we will be at the year-end already over 50% of the Design business also already on subscription. So we're also there -- we have a very good amount that is already done. And of course, the blend would Build and the other segments that are already on subscription, of course, getting -- I could say getting stronger. So the piece of that is also getting smaller and the traction is very good, as you can see as well. Yves Padrines: Yes. Then Alice, regarding your second question related to AI and the monetization around it. So, first of all, AI, well, it's fully part of our road map. So it's really depending which features we are talking about and which brands. So, to the extreme, you have products like in energy management, where AI is part of the core product. So it's de facto there. So when you buy Spacewell Energy, for example. Then if you look at other AI features, especially in our Design brands, they are de facto part of the basic subscription package because we want to force adoption, and we also want to make sure that we have some return on the return on investment and the productivity gain that it has, and therefore, we need volumes and we need a lot of data, and we need to make sure that everybody who is on subscription has the capability of having these features. But then, of course, we have then additional other type of AI features, which we are then targeting to have only in higher packages. So therefore, we will use that to increase our average revenue per user. And then as you may have heard and as I said earlier in this call, we announced the launch of Bluebeam Max, which is going to be available commercially sometime in Q1 2026. And Bluebeam Max is a purely new package for Bluebeam, purely AI-driven with new features coming from in-house development that we had at Bluebeam, plus also some features which will be integrated and embedded in Bluebeam Max coming from the acquisition of Firmus AI. And that will be an additional fee per month or per year that Bluebeam user will have to pay to get Bluebeam Max. Then in addition to that, so that's still a per user type of pricing. As we are moving more to agentic AI solution with our Nemetschek AI Assistant and the road map, you can see that over time, we are going to shift more and more also with the business outcome type of pricing and to really monetize more the agentic piece of our AI as they are going to help a lot on the productivity gain over time and not being necessarily purely user-driven. But for the moment, short term, our AI features and AI monetization is very much user-based and more midterm, you will see a shift to business outcome type of pricing model for the Agentic piece in particular. Operator: The next question comes from Deepshikha Agarwal from Goldman Sachs. Deepshikha Agarwal: I just -- first of all, I just wanted to delve a bit deeper on the multiyear deal dynamic. So, basically, like it is indicated that Design is going to be high single digit next year. Can you just like tell -- throw some light on what exactly are the puts and takes there as in how much is the underlying growth? And then how much is subscription transition and how much would be the multiyear deal like adding to it next year? And what does that mean for this segment in terms of when we look at it on a normalized level, like once the transition is almost behind in this segment? Second is basically like the cost dynamics. Clearly, like it seems, as indicated, margins were a bit better than what like Street was expecting. So how do you think about like -- especially with like growth improving over the next year, how should we think about investment versus operating leverage for the business for next year and over the medium term? Yves Padrines: Sure. So, as I said, these multiyear contracts are still going on. And we are using the three-year contract to bring existing customers from maintenance to subscription, and it's mainly driven in Graphisoft and partly also at Allplan. The growth without this three years contract in Q3 would be for the Design segment in H1, it was a tailwind of 4%. And in Q3, it's slightly lower. It's around 3% tailwind for Q3 2025. And the impact at the group level is a tailwind of roughly slightly below 2% year-to-date. So, I mean, yes, it is slightly below 2% year-to-date, but it's only slightly 2% year-to-date, where we are expecting to reach the upper range of our new guidance, which is a 22% revenue growth FX adjusted for 2025. So, clearly, when you look at Q4, we expect the Design segment to be in the mid- to higher single-digit growth. And this is really depending also on the renewal business that we have at the end of the quarter. And please remember that we have also this higher comparison in mind from Q4 2024. And we are expected also to have growth that are including some last time sales of perpetual license in Q4 of 2025. Now if you look at 2026, here, clearly, we are still expecting a growth, which is around at least in around higher single digits or probably also in the low double digits after the subscription and three-year contracts over time. So over time, this should be a business design when we move and when we finish to the move to subscription, it should be a low double-digit business growth when we are more normalized in general. Louise Ofverstrom: Then I'll take your second question on the margins overall, if I understood it. And that's what you say. So, yes, we a very strong margin contribution to our business, and we should not forget that this is during a time when we are going through the subscription transition. I think that's always also important to bear in mind. I think that's rather unusual. That's also how we build the whole transition to the subscription model in our group as well that we take it by a stage approach and make sure also to grasp that. But it's not only that. It's also that we are working very, very strongly with our operational excellence and also shifting to say, our investments into the priorities that really have a high return on investment, and that's what you can see here coming through as well. So, but going forward, so, yes, we see a strong growth scenario to continue as well. So we will continue also to see the leverage. And you have heard us say that before, and that is we will not optimize our revenue growth at the expense or optimize, let's say, our margin at the expense of our revenue growth, right? So we clearly see that there is such a strong revenue growth still to be had in the market, so much opportunities, and that's really where the value creation is coming from. And that's why you will see very, very attractive margins still going forward, and you will see increased leverage. But we will not optimize the margin at the expense of our revenue growth. So whilst you should also -- I said, we haven't guided for 2026 yet. But yes, with increasing growth, you should also see a part of that and of course, combined with our operational excellence that you see a higher leverage, so say, a slightly increasing margin. But that is net of the investments. And as I said before, we are investing strongly into our business into that future growth because we don't see that this continued strong growth will end anytime soon, right? So that's why we are really investing into the business in all our areas and especially as well in the very, very strong growth momentum that we also have into our Build segment. So that's why. To make a long story short, yes, you should expect net of investments due to also our strong operational excellence, you should expect a little bit of higher operational leverage there, but you should also not expect us to now just go for margin optimization because that would maybe put more focus on the margin and on the revenue growth, and that's something that we should not do. Operator: The next question comes from Balajee Tirupati from Citi. Balajee Tirupati: Two from my side, if I may. One question -- the first one on the U.S. Your key peer has sounded quite positive about the momentum from the data center and reshoring of manufacturing into U.S. Could you remind us your exposure here? And how do you see demand evolving? And then second question on the growth in home German market, where the quarter seems to have witnessed one of the strongest growth in years. Could you share how sustainable this return to double-digit growth in Germany is? Yves Padrines: Just -- I'm not sure I understood properly because the sound was not great, but let me try to answer. So, first of all, our exposure to data center building in U.S., I mean, yes, it's great. I mean it's not only in U.S., by the way, the data center exposure. We see great momentum on data center across the globe, everywhere in the world. And we have different solutions around that. Clearly, a strong dynamic for dRofus, strong dynamic also for Bluebeam, GoCanvas. Strong dynamic also for Design brands, if you look at ArchiCAD, of course, if you see at Solibri. So, clearly here, very positive and strong dynamic for quite some time, and it will continue, as you know. That's not going to stop in the short or even midterm. Clearly, it's a long, long growth trajectory. Then if you look at Germany, I mean, clearly, the debt package in Germany is not yet meaningful. It's too early to say what will exactly be the effect on the demand in Germany, especially in infrastructure. The mood and the sentiment has improved, but we believe that we will not see really any impact even next year. It might be more towards the end of next year potentially, but probably more in 2027. So, internationalization, clearly for us is a key element. And we are continuing to focus a lot also of region outside of Europe, where, of course, Europe is still a very important key market for us. And if you look at the strong development that we had in Germany and Europe this quarter, in particular, it was mainly driven by also the Build segment, where Bluebeam had very, very strong traction, but of course, by our design segment, which has recovered, especially with the strong momentum on the subscription move and the transition from existing customers to subscription. Louise Ofverstrom: Yes. And I would maybe just add a little bit to that. So the third quarter also as Germany was in focus a little of our subscription or SaaS to subscription move in the third quarter. So you might see a slighter effect in those Q3 numbers driven by that. But as Yves also said, that's also in general because you know that we have now for quite some time, also expanded our Build segment into Europe as well, especially the -- some special markets, including Germany, and we see good traction there as well. So, and if you look at how sustainable that is, as Yves said, it's also, in general, over time, also the effects of the infrastructure and investment packages also come into the German market, right? So it's definitely say, going in that direction, but you also have some slight effects in the Q3. That was also due to the push that we are having on that market right now for the subscription transition. Operator: The next question comes from Joe George from JPMorgan. Joseph George: I've got two, please, both of which just on the Build division. So, firstly, when you acquired GoCanvas, I think you indicated that you took a haircut on some of the acquired deferred revenues. And I believe Q3 is the first quarter that this has unwound. So can you talk around how much of a tailwind in millions of euros this was to Build revenues through Q3? And I guess, going forward, how should this effect evolve? Will it be flat next quarter? Will this increase, reduce, et cetera, over time? Just any color would be great. And then secondly, I just wanted to follow up on the expectation for 20% plus Build growth in FY '26. The last couple of quarters, you've added about EUR 5 million of revenue sequentially versus the prior quarter in Build. And I guess if we extrapolate that trend out through Q4 and throughout FY '26, that would imply a year-over-year growth rate closer to mid- to high teens. So, I guess, I'm asking, are you expecting an acceleration within the Build revenue growth algorithm anywhere through FY '26, maybe on pricing, new logos, net customer retention, et cetera? Just any color on the building blocks here of that 20% plus would be great. Louise Ofverstrom: Okay. So let me start with the question that you had on the GoCanvas haircut that you're correct on. I'm not sure that I heard because the tone was a little bit bad. So let me -- if I missed something on that question, please ask again. So I understood that your question was that we had a haircut on GoCanvas and how much tailwind did we have in Q3. So the majority on that haircut comes into Q1. That's why it was a very, very small effect in Q3. It was less than EUR 1 million in our total revenues. So nothing more or less. No effect, no tailwind due to that. And I'm not sure, as I said, did you have an additional question to that, the tone broke a bit there? Or was it? Joseph George: Yes, that's perfect. Louise Ofverstrom: Okay. So, and then let's go to the 20% Build growth, which is which is built on, of course, the very strong growth that we see both in the U.S. in the user growth, but also, of course, internationally in the Build segment, right? So we see -- I think, in general, the -- whilst we now have effect from the subscription transition of Bluebeam where you have seen very elevated growth levers, if you may, because of the comparatives, et cetera, comparables that are done with Q4 this year, you still see, say, the underlying very strong growth in the Build segment, of course, very strongly driven by Bluebeam. But also, of course -- expansion of GoCanvas as well. That was also part of the acquisition case. And of course, also that's the smaller part also the Nevaris brand that is also continuing to grow, right? That has also been going through subscription this year and will continue into the next one. So that's why that's really the building blocks are really user -- strong user growth, both in the U.S. and internationally in all parts of the Build business. Yves Padrines: And internationally, we see a strong momentum also in Q3, again, in Europe, very successful growth for Bluebeam, in particular, in Europe. Also GoCanvas is having more and more traction, especially in U.K. now. And of course, now for next year, we are also looking at other regions in addition to Europe, especially in Asia and Middle East for the Build segment, especially Bluebeam. Louise Ofverstrom: We really see that in all channels, right? So we see that in the channel and web, et cetera. So we see all the channels showing that growth. Yves Padrines: And of course, we've made also the acquisition of Firmus AI. We have Bluebeam Max, and we have all the AI tailwind will come hopefully also next year, but that would be probably even more on upside. Joseph George: Yes. All right. Can I just follow up on that, please? Just on pricing within Build. I think it's been a couple of years now where we've seen material pricing used to support growth through FY '26. Should we expect more pricing growth within Build and if so...? Yves Padrines: There is absolutely no pricing on Bluebeam. So I don't know where we had zero price increase on Bluebeam in 2025. Louise Ofverstrom: Except for the legacy, so say, the ones that we took from a very low level that we took back to the subscription pricing. But that's not, say, for the -- that's... Joseph George: Through 2026, should we expect any change to that, i.e., will you use pricing in '26 or same as '25, where it's flat basically? Yves Padrines: I mean the pricing will be more not the fact that we are going to have a big price increase, but we are going to have this new package like Bluebeam Max, which is going to be de facto an average increase of average revenue per user. I mean, over time. Of course, that might not be materialized very quickly in '26 as we are only launching that by the end of Q1, Bluebeam Max, but de facto, as we are going to selling a new package, I mean, it's not a price increase, but it's like an additional pricing for people to have access to these new features. And remember, I mean, the Bluebeam average price, if you take all our paid users today, it's equivalent to not even the price of a coffee per day. So, clearly, if we are able now to sell extra package with Bluebeam Max, this could have a significant impact over time, probably not necessarily next year. this could be a very strong tailwind for the growth of the Build segment. Louise Ofverstrom: Yes. And I think also just to add on that, what you said due to where we are with pricing, we haven't played this card, and we see that there's such an interesting new user growth to expand this incredibly strong mesh and network that we have built with Bluebeam, which really makes this unique, very unique in all segments. So if your question is if we believe that we would have pricing power, yes, definitely. I think we will have pricing power, but we will continue in the banner as well to add features and add even more functionality to this part of the industry that is in high need of even more functionality. So that's why I think that's how we look at it while we are still seeing that the growth is really coming from the new users and new features future side. Operator: The next question comes from Victor Cheng, Bank of America. Hin Fung Cheng: Just going back to Bluebeam again, there are a couple of growth drivers currently. And just thinking going forward, can you help us break down kind of what is the mix of growth drivers? Is 1/3 from the user growth in U.S. and versus expansion into other regions versus the maintenance pricing catching up to subscription with the transition? How should we think about the drivers of growth and obviously, Bluebeam Max as well going forward? And then second question on M&E. I guess we've talked about this before, but any kind of color on the industry maybe adopting AI and kind of the use case for it. I think the other talks about Hollywood using it for drafting, using Gen AI for drafting. Do you see that happening? How should we think about demand there going forward? Yves Padrines: Yes. So, clearly, if you look at media M&E, the impact on AI, I mean, we have AI embedded features in our product portfolio, as I said. So we shipped AI search, for example, and other AI features on Cinema 4D. We have this AI depth generation, which is coming up in the next few weeks and also some new further AI compositing capabilities. So clearly, we see that all customers who are artists here are really welcoming this type of features, which is helping them to be more productive and to automate more tasks and to be also quicker. Overall, I would say that the fact that market has mixed demand, it's not linked to AI. I'm not saying that there might be in the future some AI impact. But clearly, for the moment, it's not coming from that. It's mainly coming from the fact that the customers, the media companies are spending less. They are very cautious on their spendings. Some of them are not in a very good economical situation, as you know. And therefore, the impact is mainly on this long range of freelancers and artists who are more impacted because there is probably also less job for them. And this is a kind of a long tail of customers that we have, especially with our web store because, as I said, when we look at our direct touch customers, so the bigger type of customer, larger media companies or game developers or if we look at our reseller business, it is growing very strongly, double-digit plus. Louise Ofverstrom: Yes. And maybe on the Bluebeam growth again. So the growth driver is clearly now in this year is really the new user growth. So the impact of price, including that maintenance price, let's say, is marginal in our growth in Bluebeam. So -- and that's also how we see it to continue. And why you see that, that's also, I think, something -- although we have such a huge base in the U.S. for Bluebeam, you could think that, that growth at some time should go down a little bit in relative growth, but it's still very, very strong. At some point of time, of course, the absolute basis, it will start to -- in absolute figures, it will continue to grow, but we will have less relative growth. But it's still very, very strong. But what we really see now that APAC and Europe is really catching up at a very strong range. So that's why they are growing so much stronger, of course, from a smaller base. The 2025 numbers in the U.S. growth in Bluebeam is, of course, also including GoCanvas. So -- but if you see that, I would say that, yes, APAC and EMEA is growing very, very strongly at equal strong rates as the U.S. and even ticking up now stronger. So you -- will your question comes to where does the growth come from as the base is still so much larger in the U.S. that still has a significant portion still in both '25 and '26 for Bluebeam, but the international growth in both EMEA and APAC is adding to that, and that's why it's coming to a very attractive growth, but price remains a marginal piece or the smaller piece of the growth. Yves Padrines: Yes. And again, just to add on the U.S. with a very, very large customers that we have there for Bluebeam, all large construction companies in the U.S. are Bluebeam customers. But as an average, they are not even 40% penetrated. And the main reason was that we didn't have so much direct touch with this customer, no key account management. And now the last couple of quarters or three quarters that we are engaging much more with them, we are signing enterprise license agreement and definitely increasing our penetration with these accounts, but there is still a lot of work to do there because this is something we can do across all the large customers in the U.S., which, of course, is not representing the majority of the revenue of Bluebeam, but it's still a significant size. And then you have this long tail of small, medium general contractors or subcontractors, et cetera, where clearly some of them are not using Bluebeam yet and a lot of them are not using Bluebeam. So, interestingly, the potential growth in the U.S. is still there for some time. And then as said, internationally, huge, huge opportunity of growth for Bluebeam. Louise Ofverstrom: Yes. And in the U.S., you can really see that Bluebeam is the industry standard. And that's why you have this, as I said, the measure, the network effect that we see continue at a very, very high pace. So, to say, as is the industry standard, more and more of the subconstructors and the smaller players need to have a Bluebeam license in order to work with the rest of the network, right? And we really see that in all areas. And that's, of course, also contributing very, very nicely to our growth also in the U.S., that's something a pattern that there's no reason why that will not continue then internationally. Yves Padrines: And this network effect, the consequence is that now Bluebeam is even becoming more and more a in the U.S. construction market, especially when we're talking about collaboration tools. Operator: The next question comes from Nay Soe Naing from Berenberg. Nay Soe Naing: Apologies if there is a bit of background noise, I'm traveling at the moment. Hopefully, two quick questions for me and maybe one -- the first one for you, Louise. On the multiyear contracts, I just want to understand how much longer will these contracts be available for customers to purchase? And also just to confirm, there are no favorable commercial terms on these contracts, i.e., that you do not offer a discount for customers to choose these multiyear agreements? And the second question is on the -- maybe one for Yves. I think you had packaged GoCanvas product into Bluebeam as of last quarter or maybe the quarter before that. So I was wondering if you could give an update on the upsell, cross-sell opportunities between the two products? And how much of the revenue synergy opportunities you have expected in your mid-teens medium-term growth outlook, please? Yves Padrines: So maybe just quickly on the multiyear contract, as I said, we are planning to use that only for Graphisoft and slightly for Allplan, but only during the transition to subscription for these two brands, which will be probably for the next 2, 2.5 years around that. And clearly, there is no favorable terms, clearly not. I mean -- and there is no discount. And that's why you have a big part of the existing maintenance customer who are only moving to a 12-month contract because there is no advantage to move to multiyear in terms of pure pricing. The only advantage is to have more visibility of what could be the pricing for the next three years because the price increase is very small from one year to another year. It's only linked to some small indexation in some cases. And so it could give the confidence a little bit to customers that, okay, we are not going to increase suddenly the price significantly after one year. So that we're not going to do a plus 25% or plus 30% price increase suddenly from one year to another. But yes, so there is no favorable or discount linked to this type of multiyear deals. Louise Ofverstrom: It's really -- it's more of that type of customer that goes for this contract. So that's more maybe the customer who have just bought a license who is a bit more conservative as well in the way they look at that. So it's not to get -- that's also not a negotiation to get more favorable conditions. It's really to say, for them to start to think in a new subscription model, right? So -- and you also know that many of these customers, they also sit in Europe, right? So -- and the European market, especially in some areas of the European market has been more conservative into moving into subscription. And that's why it's a bigger change for them than it was, for example, in the U.S. or whatever. And that's why it's a little more this conservatism so that they can start to believe in the subscription model, and that helps them to have that clarity on what will happen in the next three years. And that's why it's not even a negotiation about favorable conditions. Yves Padrines: Yes. And then on Bluebeam and GoCanvas and the synergies, so clearly, as said, we see very strong synergy on the go-to-market, especially linked to indirect channels. So, as you know, Bluebeam is working with large resellers and GoCanvas had only a direct go-to-market business. And so we have now more and more large Bluebeam resellers who committed to sell GoCanvas, and it's working very well. First of all, in the U.S. But now also this is going to help GoCanvas internationalization with some of these very large resellers who have -- some of them have a real global presence, such as ARKANCE, for example, but also others. Then also, if you look at the synergies, there are some cost synergies that we are still working on also too. I mean, we already had some in 2025, but more to come in 2026, where we are integrating even more and more both company, Bluebeam and GoCanvas on different functions. Louise Ofverstrom: So I would really -- I think also to say how much of those synergies that have come what we have planned. I think we are very happy with that. We can clearly see that the trajectory is coming and that we are also -- that we can see even slightly more than we would have thought. So it's definitely confirming the case. Operator: The next question comes from Michael Briest from UBS. Michael Briest: Just coming back on Bluebeam, I think there are currently three SKUs between basics, core and complete. Will Bluebeam Max replace complete or be a further additional one? And can you give a sense of how much higher than the $440 per user per year it might come at? And then more broadly, looking at the Bluebeam user base today, how do they break down between those SKUs? And have you got a program to try and move them up the ladder, if you like? And separately, just on headcount, it was flat quarter-on-quarter. And given all the comments about investments, that seems a bit odd. Can you maybe talk about what happened in Q3 and plans for the rest of the year? Yves Padrines: So, first on Bluebeam, yes, we have currently three packages. And we still have around -- a majority of the people are moving to more the core and the complete packages. So these are clearly the two packages which have the most traction. So, one, as you may know, core is around USD 330. Complete is at USD 440. And then you have the basic package, which is at USD 260. So -- but when we look at the new users and the new logos, they are really going more to core and Complete more than basics. Bluebeam Max will be an additional package. So it's not going to be included in complete. Bluebeam Max is completely new. It will be priced completely differently, and it will be an add-on to what you have. So we have not yet disclosed any pricing yet. It's still under work internally, and we will do that in Q1 of 2026. Louise Ofverstrom: Yes. So, let me take the question on the headcount. So you say, yes, you're correct with the flat development of the headcount. I think you need to look at this holistically. So whilst we are also investing into new human resources, we're also investing a lot into systems and structures, digital demand generation, et cetera, et cetera. We, of course, also get more efficient internally by internal use cases, by AI, but not only by AI, by harmonization and alignment of our global process is something that we have been working with now quite some time is also to streamline through between all the brands, et cetera, our operational excellence, et cetera. And with that, we also repurpose a lot of our headcount. So there, we have savings because we had -- if you look at the Nemetschek Group, how we were run in the past, we would have less systems and automization and more heads due to the structure that we had. Now as we have been combining a lot of that, investing into systems and structures, we can repurpose some of that what you could say maybe would have been excess headcount in a different model, we can repurpose that into our growth. And that's why we really also have a very nice leverage in our numbers as well. So it's not that we are not investing into new headcount. We definitely are, but the investments are also in all other areas of structures, tools and demand generation, et cetera, it's not only people and the people they are more repurposed into new areas, et cetera, where we can have savings in one area because we have automization and also AI support, we repurposed that kind of headcount into where we really need more talent. You should not expect... Michael Briest: Specifically on GoCanvas, did it grow faster or slower than Bluebeam this quarter? I mean the deferred income benefit would have helped, but I'm just curious. Louise Ofverstrom: No. Bluebeam is growing stronger than GoCanvas, yes. Operator: The next question comes from Richard Nguyen from Bernstein. Richard Nguyen: I have a quick follow-up on the Gen AI strategy, please. I know that it is still very early days, but have you seen any kind of pull-through effect with the Gen AI availability? Does that incentivize the customer to move faster to the subscription package? Or is this not yet the case? Yves Padrines: So I'm not sure I understood properly your question, but our AI features, as I said, are depending on which one, some of them, they are included in our basic package subscription. Some others will be or are in higher tier type of packages. And some other, they are stand-alone price or will be stand-alone price like Bluebeam Max AI -- purely AI packages. Richard Nguyen: But I was asking about how the customer perception about the availability of those solutions. Are they more incentivized today to acquire the products, et cetera, because of that? Or it's not yet the case? Yves Padrines: Now clearly, there is more and more adoption of AI features overall in the market. I mean if we compare 2024 to 2025, there's been clearly a nice uptake. We just did a survey, for example, recently, and AI is most commonly applied in design, so around 48% and in planning around 42%, and we see that over 70% of the companies which are using AI allocate up to 25% of their budget more in this type of capabilities. But clearly, it's still very, very, very early stage. So AI-driven collaboration and cross-platform integration is clearly one of the key topic. We are doing a lot of new AI features, which are facilitating real-time cloud-based collaboration. That's clearly the fact with Bluebeam and enabling also integrated workflows with other potential third-party platforms. And construction professionals, Bluebeam AI capability is promising to continue to transform the industry, but also enabling smarter decision-making and greater project success in general. So, yes, we see an uptake in the usage and adoption. And of course, these users, they need to see a clear AOI and they use this type of AI features. If not, they are not going to move to a higher package or even pay extra a new AI purely package such as Bluebeam Max. In general, there is clearly more and more usage. And if you look at architects, for example, what they really like it are really solutions around generative design and Gen AI, which are helping them to automize more the work, and therefore, be more productive and to replace and automate all these repetitive task, for example, that they have to do a lot. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefanie Zimmermann for any closing remarks. Stefanie Zimmermann: Thank you, operator, and thanks, everyone, for attending. We are looking forward to catching up with you soon. If you have any follow-up questions, so please do not hesitate to contact Patrick or myself. And let's conclude the call for today. So thanks again for joining.
Operator: " Mark Chalmers: " Ross R. Bhappu: " Nathan Bennett: " David Frydenlund: " Nathan Longenecker: " Heiko Ihle: " H.C. Wainwright & Co, LLC, Research Division Joseph Reagor: " ROTH Capital Partners, LLC, Research Division Nick Giles: " B. Riley Securities, Inc., Research Division Tatiana Lauder: " Unknown Analyst: " Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energy Fuels Q3 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Chalmers, CEO and Director. Please go ahead. Mark Chalmers: Thank you, Eric. And again, Mark Chalmers, CEO of Energy Fuels. I want to thank everybody for joining our Q3 conference call today. And I can say with absolute confidence, the entire team continued to deliver on our promises this quarter, which is rather unusual in today's world when it comes to getting projects restarted in advance. Namely, we had increased sales, increased revenues. We continued our buildup of low-cost and increased our uranium production. So we're lowering our costs as we increase our uranium production. And we're setting the stage for increased gross margins in 2026, and the timing could not be better. We're making remarkable progress on our rare earth segment, including heavy rare earth piloting and plans for commercial production. We've received a qualification for our NdPr production, which is going into major automobiles manufacturers as we speak. We received all government approvals for the development of our Donald joint venture project in Australia, which has significant heavies as well as NdPr. We received a conditional letter of support from Export Finance Australia, more commonly known as EFA, for up to AUD 80 million, and that's with respect to our senior debt project financing for the project. We also completed an upsized offering of a $700 million convertible note on very favorable terms. And post-quarter, we had a working capital balance approaching USD 1 billion. As many of you understand, these accomplishments are not the norm for many in our sector because it is tough. It is tough to produce uranium. It is tough to produce heavy mineral sands, and it's tough to produce rare earths. And we are a company that is playing the long game. We've been doing that for a long period of time. We deliver on our promises. We have the right team with the right skills, and we have put the company in a unique position of all things, critical minerals, including uranium by design. Not an accident. We're capitalizing on our advantages, which are skills, infrastructure, permits, and capacity globally in all 3 of those sectors. So just a reminder, there will be conference call replays or a replay, which will be on the website later today. And as always, as Eric mentioned, there will be time for questions at the end of the presentation. New for today's call and for the presentation, I will have Ross R. Bhappu, our President; and Nate Bennett, our CFO, to discuss overall company finances, and Ross will be talking about the convert. And in addition to that, at the end of the presentation, both Nate, Ross, Dave Frydenlund, our Executive VP and Chief Legal Officer; as well as Nathan Longenecker, our Senior VP and General Counsel, will be available to answer any questions I am unable to answer. So let's get going. Again, I always say this, I love this slide because we're building a globally significant critical mineral company in the U.S., and this picture is taken not far from the White Mesa Mill. Next slide. I may be making some forward-looking statements. Those are included on Page 2 of this presentation. Next slide. An investment in Energy Fuels is really these 3 investments that I discussed: the uranium, where we are the leading producer of uranium, lowest cost producer of uranium in the United States, the rare earths, which are rapidly emerging, globally significant, and the heavy mineral sands, which will provide the rare earth feeds, the monazite for our rare earth processing. And so basically, you get 3 companies in 1. We are focused and we build these 3 companies on how they fit together, Energy Fuels around the foundation of our core uranium business. And all of these materials contain naturally concentrations of uranium that are found alongside the minerals that occur with these minerals. Next slide. We talk about the uranium mines. And as I mentioned, we're producing more uranium than any other company in the United States today. The Pinyon Plain mine in Arizona, which is in production and it's conventional. We're ramping up our production there. And it's got -- I believe it's the highest grade uranium mine in the history of the United States, and we're actively mining and shipping ore to the mill right now. That's going very, very well. And we'll be seeing and hearing more about that during this presentation as we ramp up the scale of the Pinyon Plain mine. At the same time, the LaSalle complex, also conventional in production. That actually is the Pandora and LaSalle incline, but there are also several other mines along 11-mile trend in that area. And that mining is advancing, and we're doing additional work on other mines there that are being reactivated as the uranium business improves. Next slide. So let's talk about uranium production moving forward. At the mill in Q4, we've commenced processing with the newly mined Pinyon Plain ore in this quarter, and that's the first uranium that has been produced at Pinyon Plain at the mill were actually processed at -- the Pinyon Plain ore processed at the mill. We expect to produce between 1.1 million to 1.4 million pounds of uranium to Q1 '26. That run could go longer. And when we run the mill, basically, we produce about 200,000 to 250,000 pounds per month for every month we run the mill. At Pinyon Plain in Q3, we mined around 415,000 pounds of uranium at an average grade of 1.27%, that is a bit lower because we're mining kind of the upper part of the main zone, where the grades are lower. So that is all expected. Year-to-date, we've mined 1.15 million pounds of uranium at an average grade of 1.66%, and we expect to be mining over 2 million pounds per year at the Pinyon Plain Mine in 2026. Truck haulage has been an impediment earlier in the year, but I'm pleased to say that we have improved that significantly. We've been averaging about 250 trucks per month, and that is more than sufficient to get to about that 2 million-pound run rate for production, getting that ore to the mill. The relationship with the Navajo Nation is going very well, and we've seen that turn out to be a significant positive for both Energy Fuels and the Navajo Nation. And we had a number of those from the Navajo Nation at our open house, which was held a month or so ago, and it was really pleasing to see how they've received the relationship and how we've been executing that relationship together. Uranium cost of production cost of sales are expected to decline. We have previously mentioned that we believe the Pinyon Plain cost will be in that $23 to $30 per pound range as we ramp up production and as we process this material. We have existing inventory right now at the mill of 485,000 pounds, and that is currently at a cost of goods sold of around $50 to $55 per pound. And it's sort of a mixture of various feeds that we processed, including LaSalle, including some of the cleanup material that we've done, and alternate feeds. But as we start ramping up the Pinyon Plain run, we see those same -- the costs dropping pretty materially, should be in that $30 to $40 per pound range in Q1 of this '26 and lower as time progresses. Next slide. So on the contract front, we still have 4 existing contracts. I believe that we are seeing a strengthening in desire for long-term contracts with utilities. In 2025, we have contracts for 300,000 pounds, of which we just in this last quarter, sold 140 into contract. And -- but those commitments are increasing in 2026, and they ramp up to 620,000 pounds to 880,000 pounds and could be higher in due course. We're looking at various spot and midterm sales for the additional uranium inventories that we have that will be greater than our contract sales, and we have a significant margin to benefit from that because we didn't overcontract where other companies have overcontracted and are having trouble meeting those commitments. But we're also looking at other long-term contracts in due course, and the terms just seem to improve as time progresses. And lastly, we have also received a small amount of ore from third-party miner in Colorado. Next slide. So let's talk more -- a bit more about rare earths and heavy mineral sands highlights. We are becoming the leading rare earth producer in the United States, including heavies. I mentioned earlier that we have been getting our NdPr oxide validated by outside manufacturers and confirmation, particularly with POSCO, with that material or some of the surplus material going into the production of electric vehicles and hybrid vehicles. The piloting has been going exceptionally well. We have recovered around nearly 30 kilograms of Dy oxide, 99.9% pure and that's through September of '25, and we're getting ready to start piloting Tb later this year. We're also -- based on the results that we have from the piloting, we are expecting to advance commercial production of heavies later in 2026, and that in itself is a major milestone to pull that off, where we'll be able to commercially recover Dy Tb and perhaps other elements like Samarium through that circuit. Phase 2 feasibility study at the mill is progressing very well. We expect to have that completed towards the end of the year. And the design of that facility, given sufficient feed, would be up to 6,000 tons of NdPr oxide, 275 tons per annum of Dy, 80 tons per annum of Tb, and potentially other rare earth oxides. So that in itself is world significant by every measure, and it is approximately the same quantums as Lynas is in Australia and Malaysia. Next slide. And I've used this slide and talked about this slide before, but monazite is our structural advantage. It is simply a superior rare earth concentrate, super high grades, more NdPr, more heavies, more mid and heavy rare earth oxides. It's a low-cost byproduct of HMS mining. We get the uranium credit. It's easier to process if you have the facilities that can receive the radionuclides and high recoveries. You can see the existing SX circuit in the mill building that recovers the rare earth lights, and you can see the bulky bags. And what we're planning to do is to include a circuit in that building or very close to that building for recovery of the heavies with the commercial facility. So we're the only facility in the U.S. that has the ability to process monazite into lights and heavy oxides. Next slide. So let's talk a bit about the Donald project in Australia. It is shovel-ready and is an exceptional source of heavy rare earth oxides. We expect that potentially as early as Q1 of '26 that we will be in a position to make a final investment decision, a FID, and potentially have monazite deliveries from the Donald project by late 2027. As I mentioned, has exceptional high concentration of the heavy oxides, the Dy, Tb, and Samarium and others, and it is allied country and friendly jurisdiction. It is a joint venture with Astron, where we're earning our 49% JV interest. But we will receive 100% of the monazite. I mentioned the conditional support from EFA for project development financing, and the total capital cost of that project is approximately USD 340 million. And Energy Fuels has agreed to fund approximately the first $120 million. And after that, that will be split between the joint venture. Next slide. Now this is an interesting one showing that at the design capacity of Phase 2, in the capacity at the White Mesa Mill and reflecting on the current rare earth oxide prices, particularly those prices that are outside of China, where NdPr prices are -- have increased 13% over September of 2025 and then looking at the prices outside of China in the European Union for dysposium and terbium, which are all at premiums to the China prices and you look at the production capacity of the rare earth oxides at Phase 2, you can do some simple math there, and that's about $1 billion if you achieve those prices in those production quantities. So it is very, very material. Next slide. Talk about Toliara, heavy mineral sands, and rare earths and Madagascar. It's economically robust and scalable. It is a large-scale operation. It is a high-grade heavy mineral sand deposit. We believe, and many others do and agree that it is considered one of the best heavy mineral sand deposits undeveloped in the world and includes the significant byproduct of rare earth monazite. It's very simple from a mining perspective and tailings perspective, technically straightforward, exceptional project economics. We plan to provide an updated feasibility study by the end of 2025. It has a long project life. There has been some unrest in the country, and a new government is in the process of being appointed. And while the outcomes are not fully known, initial indications are that the new government is pro-economic development. So it's been a little choppy there, but things are starting to settle down, and we're just basically adjusting our plans as prudent as that settles down. We do have people in country that are resident in country that are still working on the project. As a matter of fact, we are still working on the project. And so this work is ongoing. And I believe that Toliara is a company maker. And when you look at when we acquired Toliara, we acquired it because we believed it was a company maker. And I think our time is coming in due course to have this contribute materially to the company going forward. Next slide. Again, you've seen this timeline, and it really hasn't materially changed. There's been a few additions where we've added the rare earth processing of heavies with the Phase 1, also the uranium production ramping up at that 2 million pounds plus over those time horizons and looking at both the Bahia project, the Donald project, the Toliara project, the material we received from Chemours and potentially others that basically position us in the same quantum as Lynas going forward. So we're still executing on all fronts. And again, I don't think the timing could be any better. So now for the tricky part, we are going to show a video explaining our heavy mineral sand processing. [Operator Instructions]. Okay. Hopefully, that provided some information on how the heavy mineral sand mining process advances and how we end up with a monazite concentrate that then is transported to the White Mesa mill for further processing. So -- and again, we're trying to add some of these videos to just mix it up a bit and provide additional information on the company. So now I'd like to hand over to Ross Bhappu to talk about the convertible note. And then after that, will be Nate Bennett, our CFO. Ross R. Bhappu: Thank you, Mark. Well, as Mark mentioned, the company is in very strong financial position right now. On the back of about a $700 million fundraising we just recently did, we intend to use those funds to expand our Phase 2 project at the White Mesa Mill. We also intend to use some of those funds for the Donald project development. Again, it was a fantastic outcome. And really, the funds were very, very inexpensive. It's an inexpensive source of capital. We used an unsecured convertible debt structure that gave us maximum flexibility. The interest rate on that note was 0.75% coupon rate, which is incredibly low. It gave us a 32.5% conversion premium. So the reference pricing was $15.30. The premium with the premium it gave us a $20. 34% conversion rate. The all-in effective tax rate on that note is about 2.1%, again, a very, very inexpensive financing. The nuance of the note was that we put in a capped call feature. The capped call effectively gave us insurance against future dilution and gave us an effective conversion price of $30.70. So it was a very successful offering. Again, we raised $700 million, and it was oversubscribed by more than 7x. The use of the funds is shown there on that slide, the Phase 2 expansion. And if we go to the next slide, it gives you a sense of just how big White Mesa will be. Effectively, we're planning to double the size of the facility to give us individual lines for both processing uranium and rare earths simultaneously. So it's an incredibly impressive project that we're undertaking, and we've got a great financial position to undertake these future plans. And with that, I'll hand it to Nate to talk a little bit more about the financial structure. Nathan Longenecker: Okay. Thank you, Ross. During the third quarter, we continued to strengthen our financial position as we're preparing to develop our long-term projects in the next couple of years, and we finished the quarter with $750 million in total assets. We also increased uranium revenues leading to an improved net loss of $16.7 million compared to the second quarter's net loss of $21.8 million, and we continued low-cost uranium mining at our Pinyon Plain mine. We expect this to continue to improve as we mine and produce low-cost uranium inventory and increase future uranium sales in the fourth quarter. At the end of the third quarter, our working capital was approximately $300 million, which includes $235 million of combined cash and marketable securities with the majority of these marketable securities being interest-bearing securities, treasury bills and bonds. This does not include the $625 million net proceeds from the senior convertible note completed in the fourth quarter, and this will be reflected in our fourth quarter balance sheet. And by the end of the year, we expect working capital to be somewhere between $900 million to $1 billion in working capital. During the third quarter, we sold 240,000 pounds of uranium at a realized price of $72.38 per pound and a gross margin of 26%. We expect similar margins for our fourth quarter sales as we sell and average down our 485,000 pounds of finished uranium inventory that we had at September 30 and as we start to add our approximate 670 pounds of low-cost finished uranium inventory during the fourth quarter as we process those pounds at the mill. As we continue to mine and process ore into 2026, we expect our finished uranium inventory cost per pound to decrease from approximately $50 to $55 per pound to approximately $30 to $40 per pound with our gross margins expected to increase to approximately 50% or above and above. And with that, I'll turn it back over to Mark. Mark Chalmers: Thank you, Nate and Ross. Look, these last few slides are a bit repetitive, so I'll try not to repeat too much. But look, we plan to retain our status as the largest uranium miner and processor of uranium ores in the United States. There was a time where people questioned if we were leaving the uranium business. Well, we're not. We're still going to be #1 in the U.S. We're processing ores. As discussed, the White Mesa Mill is running with Pinyon Plain alternate feed materials and some LaSalle material. We're increasing or have the ability because we have not overcontracted. We're looking at opportunistic spot sales and other opportunities to add to our contract sales volumes, and we'll have a material amount of additional uranium to do that, whether that be later in '25 or in '26. The cost of goods sold is decreasing, as Nate has mentioned, with the addition of the Pinyon ore. We're increasing our ability to produce uranium of 2 million pounds plus per year. And we could probably do that with Pinyon Plain alone without alternate feed, without LaSalle complex and other projects. So we're very comfortable in saying that. The margins are expected to improve material with lower cost and increasing improved uranium prices. We've talked about the 3 conventional mines that are currently in production. We're getting a number of other mines ready for production. Some of those are already permitted. Some are not, but we're advancing the ones that are not fully permitted to get our ability to produce 4 million to 6 million pounds per year, particularly once Phase 2 is completed and the mill is able to be dedicated 100% to uranium production. And we're still continuing advancing the R&D work on the uranium recovery. Next slide. And just talking a little bit about guidance. We haven't really changed this since Q2. But I want to say that we are always conservative on guidance. And I am very, very hopeful and positive, and we mentioned in the press release that we are on the higher ends of a number of these areas, and we hope to exceed guidance in some of these areas. And for example, on the mined uranium, I'm quite confident we're going to be well above that. Look at sales. We have 350,000 pounds. Well, we've already sold 290,000 pounds year-to-date, and we've got contract sales of another 160,000, which would put us at 450,000 and whatever spot sales that we might have on top of that. So we want to be conservative because we deliver on what we say we're going to do, and I like to surprise people on the upside or the company does and the team does. Last slide, just talking about the rare earth and the mineral sands. We mentioned the piloting on the heavies. And we also mentioned the fact that we're planning to have the ability to commercially recover heavies later in '26. Phase 2 expansion project going along very well. I already talked about the quantums for NdPr, the Dy and the Tb. And we will have that -- we're planning to have that update for the feasibility study at the end of this year. Donald project, we discussed with the FID. We think it is in a unique position to supply a material amount of heavies and lights to the United States as required. Toliara FID is still expected in 2026. We're still working through this -- the -- pursuing the permits and approvals with this new government. But as I mentioned earlier, they appear to be pro-business, pro-development. So we just have to kind of see how things shake out there. And we also have all our exploration permits to restart some of the drilling at the Bahia project in Brazil. And on top of that, we're always looking at other opportunities. We do not stand still at Energy Fuels, and we're looking for value-accretive opportunities on a number of fronts, and we'll continue to do so. We have a strong balance sheet to deliver on our existing projects, but we also have a strong balance sheet to look at other opportunities that may come our way. So last slide is just this pretty picture again, the diversified nature of our business with these multiple critical elements. And now I'd like to turn it over to questions for those that are listening, and we will do our best to answer those questions. Operator: [Operator Instructions] Your first question comes from the line of Heiko Ihle with H.C. Wainwright. Heiko Ihle: Conceptually, for the Donald project, I mean, you got the final government approvals. You got the $80 million from EFA. You actually discussed that earlier on this call. We might see the FID as soon as next month. But I mean, just again, conceptually past that, you got the balance sheet and liquidity to put whatever number is needed really into this. Why are we not doing that? And I know the time line is quite accelerated, but I feel like we might be able to shave 1 or 2 quarters off of that now. Mark Chalmers: Yes, Heiko, it's ready to go. I mean what we're looking at is, as you know, there's this huge interest in getting these materials like from the Donald project in the United States, particularly the heavies. And we're just looking at our options potentially with offtakers for that project. And we're working through what that can look like. We've been talking to and basically out seeing what the opportunities could present. And I think there's also this opportunity when you look at that project and you look at these higher prices that are being placed on non-China material, there can be premiums there. So we're really looking at what those are and to help us make the best informed decision there. And that's really what we're doing is we're shopping around to see what interest in those products that are out there, whether it be private or even government agencies that might be interested in those products. Heiko Ihle: And it wouldn't make sense to essentially skip that into the secondary step and just move forward now while you're looking for that? Mark Chalmers: Yes. I mean, Heiko, we're going to -- we're looking at all these opportunities in a holistic way. Yes, we have the capacity to do that right now. And so we're just looking at all our opportunities on how we best go forward. I don't know, Ross, if you want to add anything on that front? Ross R. Bhappu: Well, look, I agree. I think we're waiting to try to secure some offtake agreements. We also have a number of different options on financing, and we're just trying to run those to ground, Heiko, and do the best thing that's -- do what's best for shareholders on utilizing the money that we have in the bank right now. Heiko Ihle: And then just one quick clarification on your preliminary guidance for next year. It says there you expect to sell between 620,000 and 880,000 pounds with the long-term uranium sales contracts. Where is that delta between the 620,000 and the 80,000 come from? Is that a timing? Is that a pricing issue? What exactly could make it go from one end to the other end of that range, please? Mark Chalmers: It's really the flex up or flex down, is what that is, Heiko. Heiko Ihle: So it's purely your choice. Mark Chalmers: No, no, that's a selection of the contracts. So I know some companies have said they're not going to do flex up or flex down. We have. It doesn't really bother us too much because we're -- a lot of these things are evolving as things progress. So that flex up, flex down. We're still looking for homes, whether it be spot, midterm, other contracts for the future. So if you look at -- if we're up at 2 million pounds of uranium production, thereabouts, 1.5 million, 2 million, and we've currently got that kind of contract portfolio, you can see we have a lot of headroom there for doing other arrangements as we see fit. Operator: Your next question comes from the line of Joseph Reagor with ROTH Capital Partners. Joseph Reagor: So I guess first thing on the rare earth separation plant at White Mesa, I know you guys have floated a cost of $300 million to $500 million, but there hasn't been a lot of like ranges put on IRR or NPV for this project. When do you think we'll get those numbers? And then as we're leading up to that, is there a range you're comfortable putting on that so we can start to try to build these into our models? Mark Chalmers: Well, Joe, first of all, thanks for asking the question. We're really on the cusp of getting a number of these feasibility studies completed. One is for the Phase 2 separation plant. We're also completing the feasibility on the Toliara project and also getting the final investment numbers for Donald. And with that publicly disclosed, you're going to have all the information you need to figure out what all those costs are going forward. When it comes to the Phase 2 processing plant upgrade, we are adding -- we've added -- since those earlier estimates, we've been adding a lot of additional infrastructure including the ability to recover heavies. And so some of those costs are going up, but the actual facility is actually becoming more capable to do more things. So we expect to have, again, all these studies completed by the end of the year and then the dots can be connected with certainty because they will be done by third parties or signed off by third parties, fresh and updated to give you the most recent information to make your calculations on. Joseph Reagor: Maybe a follow-up to that then. Would it be fair for us initially to assume that the economics are roughly similar to what we see for this kind of thing historically, where CapEx and NPV are roughly equal and IRRs are in the high teens, low 20s? Mark Chalmers: Look, I don't want to really overspeculate until those studies are completed. But we believe that what our plan, our strategy with the multiple assets we have is going to deliver a very low cost compared to our peers option for producing these multiple rare earth oxides and some of these other critical elements. So we're very confident that our focus on monazite is going to be a very attractive and low-cost opportunity for our shareholders going forward. Joseph Reagor: One other thing on the uranium production side, you guys kind of gave guidance for Q1 only. And is this to say that mining at Pinyon Plain is going to wrap up and then the mines to go back on care and maintenance or just that you're not comfortable giving a guide yet for next year? Mark Chalmers: The main reason that we've only given guidance into part of 2026 is that we have a rare earth plant as part of the White Mesa Mill in that Phase 1, where we share the mill. And we're also doing trade-offs on how much rare earths we have to process versus uranium versus our ability to stockpile. For example, when we process the Pinyon Plain or, we're going to keep mining Pinyon Plain, we'll put it out in the yard, and it will be stockpiled for future processing. And that may be extending that run in 2026, but we're also giving ourselves the option to be able to recover both lights and heavies later in the year, if need be. So that is the reason why we haven't gone too far out, but we will have, and we do have -- frankly, we do have enough mining capacity and pounds that are coming out of those mines to keep running that mill if we elect to do so on uranium only. Operator: Your next question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: Maybe starting on the uranium side. You mentioned blending Pinyon Plains higher-grade ore with LaSalle's lower-grade material through early '26. So can you quantify the margin differential between Pinyon Plain as a stand-alone campaign versus the blended approach? And then just given Pinyon Plain's superior economics, I mean, why wouldn't it make more sense to process higher-grade ore from that asset now while spot prices are above kind of the $75 level and preserve the LaSalle material for potential toll milling arrangements further down the road? Mark Chalmers: Yes. Look, it's a combination of things. I mean the Pinyon Plain is obviously absolutely our lowest cost source, with the exception of on occasion with some of the alternate feeds can be lower. And we look at how -- what feeds we have to process, we have the ability or will have the ability in 2026 to run just Pinyon Plain ore alone. We've made some modifications in the mill to do that. But also when we look at like towards the end of this year, we have -- and we need to do some blending to cut the grade down to some extent. The LaSalle complex -- and right now, we're not recovering the vanadium, okay? So when you look at the LaSalle complex, Pandora, our costs are, say, in the 70s, low 70s, recovering just uranium, but not recovering the vanadium. The vanadium gets put out the tails. We can bring the vanadium back at a later date. And so when you blend in those costs with Pinyon Plain and alternate feed, we can still come up with a very, very attractive combined production cost at those sites. But I believe that where we are with our processing is we're going to push the Pinyon Plain as much as we can. We'll complement alternate feed and La Salle, looking at that blended cost, but we're also likely going to be gaining inventory of mined unprocessed material this year and going forward, we should have a material amount of unprocessed ore at the mill that will be ready for processing at whatever rates we really choose up to complete design capacity of the White Mesa mill as we get Phase 2 rare earth circuit online in due course. Nick Giles: Maybe switching gears. You've signed the MOU with Vulcan could lead to an offtake agreement for downstream magnet production. I mean I think we'll be getting something on the product validation front in the near term. But can you just remind us what really the critical steps beyond that validation would be and kind of how that plays into commercial production decisions later in '26? Mark Chalmers: Yes. Well, these various groups that are looking for are oxides Initially, it's about the validation. And after that, it is working together to come up with potential offtake arrangements, pricing, whatnot, which we really aren't at that stage yet. I mean we are in some initial discussions on those fronts, but we haven't really advanced those. So as you are aware, between POSCO, Vulcan, and we're talking to others, it's pretty dynamic at this point in time. And -- but we haven't really secured any binding agreements for offtake at this moment. Operator: [Operator Instructions] Your next question comes from the line of Tatiana Lauder with Merger Markets. Tatiana Lauder: I just wanted to speak to the excitement around the Toliara acquisition. And the statement earlier that you guys are always looking at value-accretive opportunities. I wanted to ask what those opportunities might look like and what your forward-looking appetite to expand via acquisitions on any part of the uranium supply chain would be or if there's any excitement around some bolt-ons, divestitures or JVs? Mark Chalmers: Yes. Look, we look at every opportunity on its own. I mean we've expressed our desire to do further integration and from one aspect, but we're also looking at having additional feed and diversification of our feed as we go forward. So I think what you're seeing is when you look at the market and the people that are in the business, whether it be heavy mineral sands, rare earths or uranium, they're seeing our -- the strength that we have, the momentum that we have, and it's really a unique market. The world is wanting an integration story of scale. And that is what we're building. And there are companies that routinely come to us and trying to see how they can potentially join with us in different ways. It could be a number of different options on how they might be able to join us. And so we look at them on their merits. So all I'm saying is we will look at each opportunity opportunistically and see how that fits with our strategy and go from there. But I think that when you look at the market cap that we have and the momentum we have, it's very attractive for a number of these parties that are kind of isolated in a small portion of the business, and they don't really have that critical mass. And I'll ask Ross to say a few things on that front, too, if he-- Ross R. Bhappu: Yes, Tatiana, it's a great question because there's so much activity going on in the market right now. I'd say we're looking at probably 2 dozen different opportunities on our plate that are very potentially opportunistic. And so to Mark's point, I think we're going to remain opportunistic. We've got a lot on our plate with our own assets. But that being said, we're always going to look for unique and good opportunities to bolt on to what we have. So there's no shortage of those, and the key is finding ones that are going to be accretive and good value for us. And I would just add that, that both in uranium and rare earths tied to mineral sands. So monazite is really critically important. Tatiana Lauder: It sounds very exciting. Were most of those 2 dozen opportunities just around traditional mining or anything around uranium extraction or other parts of the supply chain? Mark Chalmers: They can be anything really. I think as a general rule of thumb, I'd say most of them are more rare earth oriented, but they can be different things. I mean, again, we've got the infrastructure, we're processing uranium. There's people that would like to have us purchase their ore, the same thing and whether it's monazite producers, heavy mineral sand producers, they're just seeing that momentum and capacity that we've established over the last few years. Tatiana Lauder: And how soon do you anticipate going back out to the market? I know you guys just did the $700 million fund raise that was oversubscribed. How soon should we expect to see you guys going out again to raise more capital? Mark Chalmers: Look, we're in a strong position right now. And you look at our balance sheet, you look at the convert, you look at the building revenue from uranium, we're in good shape. So I'm not going to speculate on how soon we're going to go out to the market again. But again, we're only going to go out to the market whenever that is, when we think it makes sense. And we think it made sense to go out to the market on the convertible, and it was a real successful execution. We're very proud that we were -- Goldman Sachs took the lead on that, and we couldn't be happier with the outcome. Operator: Your next question comes from the line of Eric is a retail investor. Unknown Analyst: So I had a broader question. Given that this current administration is a lot more active about making strategic investments in critical mineral producers, including the Pentagon's equity stake in MP or the DOE's investment in Lithium America or the even more recent Westinghouse partnership. I was just wondering if you guys were in talks with the administration regarding any sort of strategic partnerships? Yes. Mark Chalmers: Yes. Look, that's a loaded question. But I think everybody in these critical minerals sort of sectors, whichever one they are, are in D.C. talking to the administration on what support might be available or not. Look, we're no different. I mean, we spend a lot of time in D.C. We're not prepared to speculate on what the U.S. government may or may not do. But I do believe that really, we've been driving our own bus. We've secured multiple projects. We're producing a lot of the elements that the government is interested in, whether it be uranium, the rare earths, even some of the heavy mineral sands elements are also critical elements. And we are just basically moving forward on our own strategy. Does that mean that might be attractive to a government agency or potentially private entities that are interested in securing U.S. processed non-China material, I think it does. And that's where I'll pretty much leave it at that. So I just think we're positioning ourselves. We're playing the long game, and we'll see where we go from there. But yes, there are these investments that are going on. And just look at the assets we have and where we kind of fit into the picking the chain or food chain when you start looking at MP, Lynas, ourselves and others. Operator: Your next question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: I just wanted to really go back to your long-term contracting philosophy on the uranium side. I mean you have fresh capital. Utilities are out there discussing supply concerns. So I think you're uniquely positioned to sign baseload contracts that would really derisk production. So can you just speak to what percentage of 2026, 2027 production capacity you could target for term business? And what would be the remaining spot exposure? Mark Chalmers: Yes. Look, again, a tough one to fully quantify. Generally speaking, with my experience in this business, if you're not highly leveraged, I generally say 50% of both one or the other is not a bad place to be because you're either 50% right or 50% wrong, and you're not overcommitted. And we obviously are not overleveraged here from a debt perspective with our projects at the moment. So -- but we also want to make sure that we don't have to put too much material on the spot market because it's really not really -- it's thinly traded, and we recognize that we don't want to hold back the spot price. So it's something that we discuss frequently, and it's how to position what new contracts that we're willing to commit to. I believe that the price uranium has to continue to increase because of the true cost of producing a pound of uranium currently isn't at that, say, $80 per pound-ish. Yes, we're just going to play it by ear. But also at the same time, as I mentioned earlier, we currently use the mill to process both uranium and rare earths. And we're also looking at how if we decide or elect to process more rare earths and we're not going to process uranium that we don't overleverage ourselves in terms of too many long-term contracts. So it's that balance that we're looking at. But I think you can safely assume we're going to have 50% of our production contracted in some form, maybe a little bit more, but not less. Operator: There are no further questions at this time. I would now like to turn the call back over to Mark Chalmers for closing remarks. Please go ahead. Mark Chalmers: Well, again, thank you, everyone, for your interest in Energy Fuels. It's been an exciting time for Energy Fuels. I mean you've looked at our share price and how it's appreciated over the last number of months. I think people are finally getting our strategy and the importance of our strategy. I don't think that we could ask for better timing when it comes to the realization by governments around the world that we've become overly dependent on Russia, China, and we plan to continue to execute. And so watch this space. We are focusing for the stars and doing things that are extraordinary. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company's Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead. Sherry Wilson: Thank you, Kelvin. Welcome to the Allegiant Travel Company's Third Quarter 2025 Earnings Call. We will begin today's call with Greg Anderson, CEO, providing a high-level overview of the quarter, along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through demand commentary and revenue performance. And finally, Robert Neal, President and Chief Financial Officer, will speak to our financial results and outlook. Following commentary, we will open it up to questions. We ask that you please limit yourself to 1 question and 1 follow-up. The company's comments today will contain forward-looking statements concerning our future performance, and strategic plans. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com. And with that, I'll turn it to Greg. Gregory Anderson: Sherry, thank you and thank you, everyone, for joining us today. As I reflect back on the past year plus as CEO, I'm proud of the great strides we have made to strengthen our core airline and our focus on making sure we return to our roots as a solid double-digit operating margin business. A hallmark of our success is that we are the leisure carrier of choice in the communities we serve by offering convenient non-stop flights at the lowest fares. That success is also because of Team Allegiant's dedication and execution that underscores our ability to provide consistent and reliable operations for our customers. Our performance is demonstrated by our industry-leading completion factor for July, a peak period that set a new monthly record for the number of customers flown. It is also reinforced by our net promoter scores, which remained near all-time highs, reaffirming the loyalty of our customer base and the strength of our brand. I'm particularly proud that we were recognized by USA Today's Reader's Choice Award for the Best Airline Credit Card for the seventh year in a row, and Best Frequent Flyer Program for the second consecutive year. We designed our programs to serve the needs of our leisure customers, which include high value and frequent travelers. The success of our loyalty program and the fact that we are on pace to generate $135 million in remuneration from it this year underscores our relevancy in the markets we serve, and we see a lot of opportunities to enhance these programs to drive outsized growth in the years ahead. Turning to the third quarter. We saw steady improvement in the demand environment, allowing us to outperform our initial forecast in both revenue and costs. As expected, we reported a modest operating loss in what is typically our weakest period of the year, but it was at the better end of our guidance range. So far this year, average daily peak utilization per aircraft is over 9 hours, near record 2019 levels, and we are delivering one of our best operational performances despite the higher levels of flying on the peak days. The fruit of our cost structure initiatives can be seen in our industry-leading CASM-ex, which is down 7% year-to-date. That reflects our efforts to remove structural costs and grow ASMs without adding aircraft or personnel. As discussed on prior calls, there are several continuing key initiatives driving financial performance improvement. By year end, we anticipate having 16 MAX aircraft in service. Bringing on this new fleet type has been a long time coming, and its integration this year has gone very well. We are now on pace for the MAX fleet to comprise over 20% of our ASMs in 2026, and earn strong returns on the investments we have made in them over the past few years. The MAX fleet continues to perform nicely, both operationally and financially, and is much improved from our older-gen A320s. In addition, owning our aircraft rather than leasing gives us important flexibility to respond to dynamic market conditions. Our Allegiant Extra product is now available on 70% of our planes and is exceeding expectations in demand and customer satisfaction with positive benefits to TRASM and margins. We continue to modernize our technology. Now that our Navitaire system is post-implementation, we are turning our sites to other technology initiatives for improvement, such as website conversion, customer personalization, customer journey, and enhancing communication throughout all phases of travel. Additionally, we are investing in our technology stack to take advantage of the power of AI and optimize our infrastructure for faster interactions and data-driven decision-making. As we turn for the remainder of 2025, we are seeing improvement in leisure demand, particularly around the holidays. We expect a fourth quarter operating margin in double digits and a full-year airline operating margin of approximately 7%. As a result, we raised our airline EPS, our airline only EPS guide to more than $4.35 per share for the full-year 2025. And we are optimistic as we look forward to 2026. From an industry perspective, carriers are moderating their domestic capacity plans, and we are planning on flattish capacity next year as we drive a higher percentage of peak day flying and harness a full year of benefits from the initiatives I just mentioned. When you put it all together, we are poised to deliver margin expansion that continues to set us apart from our peers, further highlighting our low utilization, flexible capacity model is truly differentiated. Our capital allocation priorities remain the same. Our top priority is reinvesting in our business. We will remain disciplined in our goal to balance growth with margins and maintain flexibility, which has served us well throughout our history. And before I conclude, I'd like to congratulate BJ on his promotion to President. He will also continue to serve in the Chief Financial Officer role. BJ has been an exceptional partner and leader, instrumental in driving both Allegiant's financial and operational strengths alongside our strategic execution. He knows our business and this industry well, and I look forward to continuing to work closely with him and the rest of our excellent management team in shaping Allegiant's bright future. I also want to extend my sincere gratitude to the entire Team Allegiant. Their hard work and discipline have meaningfully strengthened our foundation and positions us well for 2026 and beyond. Lastly, I also want to thank the aviation professionals across the system, both within Allegiant and throughout the industry, who have continued to work tirelessly throughout the government shutdown and ongoing ATC constraints. Thanks to their dedication, we have successfully minimized disruption and protected the journeys of our customers. And with that, let me turn it over to Drew to provide details on our commercial performance. Drew Wells: Thank you, Greg, and thanks to everyone for joining us this afternoon. We finished the third quarter with $553 million in airline revenue, approximately 0.5% above the prior year, producing a third quarter TRASM of $0.1119. This was down 8.4% year-over-year, in line with our internal expectations from our mid-quarter update and consistent with the original expectation of sequential year-over-year improvement. Allegiant grew total ASM 9.7% versus 3Q '24, with overall utilization up 10%. Also consistent with our August call was the expected unit revenue improvement in same capacity markets versus the second quarter, which recovered approximately 1 point to down about 5% year-over-year, again, perhaps oversimplified. With a growth expected TRASM headwind of approximately 4 points, we slightly outperformed the combination of core flat capacity performance and the expectation from our elevated growth rate. Further, within the quarter, we saw all 3 months produce better year-over-year unit revenue figures than any month in the second quarter, and the best load factor results for its prior year of any month year-to-date. Meanwhile, the profile of new market ASMs as a percent of the total will steadily tick higher. The third quarter ended around 5%, while the fourth quarter will ramp up to over 5.5% of scheduled service ASMs and is expected to rise again in the first quarter. 51 routes operated in the summer of 2025 that did not operate in the previous summer. Of those, approximately 85% of them contributed positively to earnings in their first summer of operation. The results from these markets rolled into announcing more new and exciting route opportunities through the third quarter. 19 new routes are set to begin Thanksgiving to early spring, including 14 cities: Fort Myers, Florida; Huntsville, Alabama; Atlantic City, New Jersey; and Burbank, California. We're encouraged by the early performance of our new cities and markets and continue to see customers embrace our reliable and convenient travel at unbeatable value. The third quarter of 2025 marked 3 consecutive years of industry commentary around abnormal peak to off-peak relationships in the quarter, be it the tail end of the post-pandemic demand surge into a more typical fall in 2023, or the relatively sluggish July marked by late summer demand uptick into the fall over the last 2 years. All 3 of those quarters saw sequential TRASM declines in the second quarter below pre-pandemic beating levels. Meanwhile, the fourth quarter has remained more resilient, with each of the last 3 years hitting a TRASM above $0.13, a feat we accomplished in just 1 quarter pre-pandemic. As a result of the diverging quarterly trends, our 4Q performance has looked relatively better each year, and that pattern is expected to continue in 2025. As mentioned on the last call, we expect sequential improvement in the year-over-year TRASM results for the fourth quarter, and that should hold into the first quarter of 2026 as well. The converting benefits from Navitaire development we discussed in the last call yield a load factor benefit in the third quarter, as I described earlier, and should persist into the fourth quarter. Despite a roughly 10% scheduled service ASM growth profile in 4Q '25, we expect load factors to be flat to slightly up in the fourth quarter versus 4Q '24. And while capacity for the quarter as a whole is expected to grow roughly 10%, much of that is due to the weather-impacted comparison of October 2024. November and December 2025 expect combined to be approximately 6% higher year-over-year for scheduled service ASMs. Our peak Thanksgiving and Christmas week utilization profiled slightly higher than prior year and around all-time highs during the peak periods. We are incredibly encouraged by peak holiday demand profiling similar to last year as well. Our customer base remains well positioned for leisure travel. Our network lends itself to a lower cost of living profile, with median household income over $100,000. We continue to see demand trending closely to legacy commentary on main cabin performance as well as continued opportunity with our Allegiant Extra Cabin, our award-winning Allegiant Always co-branded credit card loyalty programs and beyond. We've completed a multi-year journey of retrofitting our Airbus aircraft with the Allegiant Extra layout. We continue to see results hold through the expanded offering and repurchase rates growing. Further, the results on the MAX aircraft are in line with the expectations set by current Airbus performance, and we should start to see efficiency benefits from the transition of our Fort Lauderdale base to solely MAX aircraft in the fourth quarter. Our formal review of the co-brand program is nearing an end. We expect to receive approximately $135 million of remuneration in full-year '25. But as we'd expected, given the time since program launch, we believe there will be meaningful opportunities for evolution and improvements. However, there are a few easy parts. Of course, we will soon shift into execution mode, working through the negotiations, logistics and bringing the plan to life. In the short term, we continue to test new acquisition tactics and offers. We realized mid-20% lift on new card acquisition in the month of September and October. As a multi-year core system transition moves into the rearview mirror, our foundation and technology can enable further commercial initiatives, and we're excited to bring the customer experience at a value into focus. Allegion Extra co-brand program update and other commercial developments allow us to better segment for a broad spectrum of customer preferences. And now, I'd like to hand it over to Robert Neal, Mr. President. Robert Neal: Thanks, Drew, and good afternoon, everyone. I'll go ahead and walk through our results and provide an update on our outlook and financial position. As with prior calls, my comments today will reference results that have been adjusted to exclude special items unless otherwise noted. This afternoon, we reported a consolidated net loss of $37.7 million or a loss of $2.09 per share. We had a net loss in the Airline segment of $29.5 million, or a loss of $1.64 per share. Our Airline segment generated a negative 3.1% operating margin, which was at the better end of our original guided range as suggested in our August traffic release. The quarter came in ahead of our forecast on both costs and revenue, while a reduced tax benefit brought EPS slightly below our September expectations. This was driven predominantly by a change in our estimated tax rate, which reflected an improved revenue outlook for the remainder of 2025. Notably, the sale of Sunseeker Resort closed on September 4, marking a significant milestone for the company, supporting balance sheet improvement and driving better consolidated earnings. Airline EBITDA for the quarter was $41.5 million, giving us an EBITDA margin of 7.5%. Through the peak summer season, our team delivered operational excellence for our customers, which underpinned cost performance that continued to exceed our forecast. Third quarter non-fuel unit costs were down 4.7% year-over-year. Our ability to leverage existing infrastructure, grow into our workforce and execute on the cost initiatives outlined on prior calls has resulted in industry-leading cost performance year-to-date with a nearly 7% reduction in CASM-ex fuel through the first 9 months of the year. Our unit cost performance kept the shape we expected at the start of the year despite removal of 4.5 points of capacity growth during the year, primarily coming from the third quarter. With full-year capacity growth of 12.5% on flat aircraft and reduced headcount, we are on track to see full year CASM-ex down mid-single digits, and I want to thank the entire Allegiant team for their remarkable execution. Our cost structure remains a top priority as we look ahead to 2026. We are realizing the full benefit of approximately $20 million in run-rate savings initiatives implemented this year, which delivered ahead of schedule and will carry over into next year. I'm very pleased with the continued focus and discipline the team has demonstrated on this front. Before I move on from costs, I will mention the increase in the maintenance line this quarter. A portion of this was timing related and a shift from the second quarter, largely related to an elevated number of rotable repairs. There was also some maintenance spend associated with aircraft lease returns and to a lesser degree, some tariff costs on parts. Although this will continue for much of the fourth quarter, I view nearly all of this as transitory. Our unique flexible capacity model is rooted in a strong balance sheet. We ended the quarter with total available liquidity of $1.2 billion, consisting of $991.2 million in cash and investments and $175 million in undrawn revolving credit facilities. Cash and investments stand at 40% of trailing 12-month revenue at quarter end. With this robust liquidity position, we continue to make meaningful progress on debt reduction, including more than $180 million in voluntary prepayments during the quarter. Additionally, in October, we repaid $120 million of 2027 bonds under a call notice issued on September 15. We expect total debt to decline a bit further by year-end. Net leverage remained unchanged from the end of the second quarter, and we anticipate ending the year at a similar level. We're continuing to make long-term lasting investments in the business. Capital spending was approximately $140 million for the quarter, including $107 million for aircraft-related CapEx and $22 million in other airline spend, while deferred heavy maintenance CapEx was $11 million. We ended the quarter with 121 aircraft in our operating fleet, down from 126 at the end of the second quarter. During the quarter, we took delivery of 3 aircraft, 1 of which entered revenue service, while 4 leased aircraft exited service and 2 airframes were sold to a third party. Looking ahead, we expect to invest 6 737 aircraft into revenue service and retire 4 leased A320 series aircraft during the fourth quarter, bringing our year-end fleet count to 123. Boeing have produced ahead of plan, with all of our 2025 aircraft having been received by the end of the third quarter, and we continue to expect full-year CapEx of approximately $435 million. Now on to our fourth quarter operating outlook. The improvement in bookings observed in late July has continued. At the midpoint of our guidance, we expect to produce an 11% operating margin and deliver consolidated earnings of approximately $2 per share, which following the Sunseeker sale, reflects solely the Airline segment. The fourth quarter performance should result in full-year airline-only earnings of more than $4.35 per share. Although we're not going to provide guidance on 2026, I will share some high-level commentary. We expect to take delivery of 11 737 MAX aircraft next year, all of which will replace A319s or A320s, resulting in flat year-over-year fleet count. With respect to CapEx, we're working with Boeing to update 2027 and 2028 delivery schedules following their recent approval for increased production rate, which will inform the requirement of pre-delivery deposits and overall CapEx profile for 2026. We expect CapEx to be above 2025 levels, though we do not expect this to place meaningful pressure on net leverage. We're not anticipating notable capacity growth in 2026. While not guidance, we expect a year-over-year increase in TRASM, driven by limited growth, industry supply moderation and revenue initiatives Drew has mentioned to exceed any increase in CASM-ex. Non-fuel unit costs will experience some pressure given limited growth, but the team has done an excellent job driving structural cost out of the business. Additionally, with approximately 20% of our ASMs going on fuel-efficient MAX aircraft, we expect the differential between TRASM and CASM to result in margin expansion next year. In closing, I'm very pleased with the team's operational execution and financial discipline throughout this year. Throughout 2025, Team Allegiant's ability to manage through what has been an earnings setback for the industry has been impressed. It's an exciting time at Allegiant as we turn the corner to 2026. With the sale of Sunseeker completed, a strong balance sheet and continued progress on cost and fleet initiatives, we're structurally well positioned to deliver higher and more consistent earnings in '26 and beyond. And now, Kelvin, we can go to analyst questions. Operator: Your first question comes from the line of Savi Syth of Raymond James. Savanthi Syth: Congrats BJ, and maybe I'll give you the first question to you as a result. You mentioned a little bit about CapEx stepping up, but not meaningfully impacting leverage. But could you talk a little bit more about how you're thinking about the balance sheet now that there's a little bit more kind of stability across kind of the operation and with Sunseeker out of the way, just how you're thinking about cash levels and leverage and just cash flow generation? Robert Neal: Thanks, Savi. Appreciate the comments. Yes. So when we think about next year, I guess I would remind you, we had a limited amount of PDP CapEx in 2025 because we were catching up from pre-delivery deposits that have been made in prior years in the face of some of the aircraft delays. So, I expect those to come back into the CapEx profile next year. As I think you're getting at, we were carrying quite a bit of cash at the end of the quarter. That was partially a result of the Sunseeker sale. And then also -- and I think maybe I mentioned on a previous call, we kind of overfinanced our MAX deliveries at the beginning of the year, and that was just out of caution with what we were seeing in some of the economic headlines back around the April timeframe. So, I do think we can get to a point where we're carrying a little bit less liquidity on the balance sheet. We've historically talked about 2x air traffic liability. And as things have started to stabilize and Sunseeker is behind us and especially as we have aircraft finance further out, we can bring those cash levels down a little bit. And we'll continue to use cash to invest in the business though for the rest of '25 and of course, '26. Savanthi Syth: That's helpful. And if I might, just on the -- I'm not sure if this is Drew or Greg. On the kind of AI and data infrastructure side investments that you're talking about, generally, you think of kind of large organizations as having an advantage there. Could you talk about just maybe how it's being implemented at Allegiant and maybe what advantages, disadvantages you have versus some of your bigger peers? Gregory Anderson: Sure. Let me kick it off and Drew will add some color, I'm sure. But starting on the AI front, Savi, just as an organization, really proud in the way we're embracing AI to make our business better. We've been working over the past year or so on our structured and unstructured data to ensure that it's in the right place for advanced technology and deploying solutions here at HQ across the board, such as Copilot for our developers, GitHub, which is improving productivity. In that regard, we're reshaping functions across the board, but in areas specifically like the call center, our operations where we're using AI and use cases to drive more efficiency, productivity, and we're just scratching the surface. One of the things though I think that's important is a lot of the changes that come from AI are through case management. And as an organization, we're building that muscle. And the reason we're feeling confident about kind of building that muscle and it's let's crawl before we walk, walk before we run type attitude is because of the transformational technology stack that's in place now, which is best-in-class. And we've talked a lot about it what the IT team has done over the past couple of years. They've definitely taken what the whole airline was built on proprietary software and moved it to state-of-the-art systems. We've talked about Navitaire, SAP, Trax and other systems. And so now that we have all those in place, we're really able to start harnessing and leveraging where that's at to be a little bit more nimble. And Drew has got a whole list of priorities and initiatives along with the rest of the team. But Drew, I kind of went off on it a little bit. Anything to add though from your perspective? Drew Wells: No, I'll be fairly quick. On the AI front, there's wins we have as it pertains to revenue modeling, how we think about offer management as we think about rightsizing the combination of air pricing and ancillary pricing, which has historically been a major challenge to solve. There will be some wins there. You're right, a small organization, we have to be a little bit more nimble. We won't get the benefits of scale that the larger ones will. That's not to say there's not wins here. I'm really bullish on what this could mean for '26 and beyond, where we're kind of in the development phase now. Operator: Your next question comes from the line of Duane Pfennigwerth of Evercore ISI. Duane Pfennigwerth: On the flattish '26 capacity outlook, how are you thinking about the shape of that by quarter? And specifically, how are you thinking about 1Q growth? And I don't know if it's too early, but could you characterize maybe the difference between the shape of off-peak versus the shape of peak within that flattish outlook? Drew Wells: Sure, Duane. I'll give it a shot here. So the shape will be kind of down low to mid-single digits in each of the first couple of quarters, just following the shape of fleet. We'll be slightly down, I guess, more down on off-peak at that in the first quarter, while keeping relatively flat utilization through the March peaks in particular. With Easter pulling forward a little bit, you'll see April come down a bit more, but similar story in the second quarter as off-peaks will underweight relative to peak periods to form that. Back half of the year, it will kind of inverse and it will be up low to mid-single digits to get back to that flattish outlook. Robert Neal: And Duane, I'll just add to Drew's point there. There's going to be a higher percentage. We're planning on a higher percentage of peak capacity next year than, say, this year. Duane Pfennigwerth: That's helpful. And then I don't know if you're able to do it, but on the MAX, can you speak to how you were able to deploy those aircraft? What base limitations you may have had this year and how those constraints ease up? I guess I'll stay with you, Drew. Maybe you could just speak to the types of routes the MAX had to fly this year versus the optimal routes you'd like them to fly on? Drew Wells: Yes. So through -- I mean, really, from the time of the first delivery until kind of this week, next week, we've flown them very heavily on short-haul market, trying to maximize the number of takeoffs and landing needs to help facilitate some of the transition training needs. We had to get pilots certified and ready to fly. As we beefed up that number of pilots sufficiently, we'll see that shift more towards longer hauls, taking a little more advantage of the stage length and fuel burn benefits there. As we flip the Fort Lauderdale base to solely Max, we'll get stage length benefit there as well, but a little bit longer haul than Orlando and St. Pete. We didn't necessarily have base constraints. We opted to split Sanford and St. Pete to start just help provide a little bit of resiliency in the event of changes to the delivery schedule from Boeing, have a little bit of a shock absorber there where Airbus could replace that and we can do more Boeing flying as the deliveries shaped up. And then with Fort Lauderdale, we're keeping things fairly geographically centralized to ease just some of the logistics that may come about. As we get to the back half of next year, we'll kind of hit our next wave of base considerations as more deliveries come in and stay tuned. But as of this point, there's no real constraints at least that I'm aware of. I don't think the rest of the team has any, but this has all been kind of our choice on trying to maximize both the efficiencies of the introduction of the fleet but as well as just the continued operation. Operator: Your next question comes from the line of Scott Group of Wolfe Research. Scott Group: Can you maybe just talk a little bit about some of the underlying RASM, CASM assumptions for Q4? And then I don't know any color on what you're seeing with the government shutdown? Do you think -- maybe are your smaller airports being less impacted or starting to have any impact on demand? Just any thoughts there. Robert Neal: Scott, it's BJ here. I'll start on the CASM side. It's probably a bit easier. I talked about the shape of our CASM performance this year, generally holding with comments that we made at the beginning of the year, which should get us to mid-single digits by the end of the year. And I guess you can back into what that does for the fourth quarter. But I would tell you that we expect continued goodness year-over-year in the salaries and benefits and D&A line that you've seen in the prior quarters and then continued pressure in the fourth quarter in the maintenance line and the rent line, both of which I think are transitory. Drew Wells: On RASM, I mean, all we've really said publicly is that we expect to see continued sequential improvement on a year-over-year basis. We know that kind of the implication here is what we're pushing towards the extreme of the fourth quarter versus third quarter performance, but I tried to address that a little bit in the prepared remarks that it's as much a 3Q story as it is 4Q as those are kind of diverging from just a customer base and demand base it seems. On government shutdown, we haven't seen anything meaningful flow-through of bookings or demand at this point. I do feel pretty confident that the longer this drags on, the more likely we are to see impact. And certainly, if it does stretch all the way to Thanksgiving, that will be a huge problem for the industry as a whole. I have some confidence that we will get through this as a country and the government is ahead of that, and strongly urge Congress to unlock this. Scott Group: And then your comments about TRASM exceeding CASM next year, I guess, if you have any more color there, that would be great. And then as I think about what you were saying on one of the earlier questions, first half capacity is down a bit, so pressuring CASM a little bit. Do you think you see TRASM exceeding CASM all year? Or is that -- should we think about that more as a back half TRASM exceeding CASM sort of comment? Gregory Anderson: Scott, it's Greg. Maybe I'll start at a high level and then Drew or BJ will add in some color, I'm sure. Just kind of taking a step back, we've accomplished quite a bit here in 2025, strengthen the airline. We're going to build on those accomplishments in 2026. So as I think about the margin improvement for 2026, and if you break it into 3 or 4 areas: one, the TRASM tailwinds, which at a high level, with flattish capacity, that should also obviously help on the unit rev side, but also flying a higher percentage of peak days, right, versus off-peak helpful. The commercial initiatives that we've been talking about all year, Allegion Extra, Navitaire are larger contribution next year than in '26 than this year. Loyalty contributions are exceeding revenue growth. Drew may want to hit some more on the TRASM front there. But on the cost side, just BJ and team, they've gone through a couple of paths into the budget. So while we're not final, we're in the, I guess, mid-innings of it. And I think the costs have come in to a point where it gives at least us confidence today in the area that we can control on the cost side that we can keep those to a point at which if all else being equal on the demand side or the revenue side that we'd be able to see margin expansion. The MAX performance, we talked a lot about that. 20% of our ASMs next year will be flown on the MAX. To kind of frame that and the benefits we get from a fuel perspective, the ASMs per gallon on a MAX are just over 100, like 105, I want to say, versus the A320 series is closer to 80. So, call it about a 30% benefit in that regard with the same ownership cost. So that, and then coupled with all the technology initiatives and just continuing to get better, drive more productivity and efficiency, our plan now has margin expansion next year, and we think we can build off of that. All right. Drew, BJ? Robert Neal: Yes. I'll just add a couple of things here. So Scott, we're in kind of the second phase of our budget planning for next year. So it's not final. I don't want to go so far as to give guidance. But you can kind of lead into what Drew talked about in terms of the shape of capacity next year relative to fleet counts with being down a little bit in the first 2 quarters, that's going to put the most pressure on CASM-ex in the first 2 quarters of next year. And then like Greg said, I'm relatively optimistic that even given limited growth that we can hold the line on cost next year, just given some of the structural cost improvements that we've made this year. Operator: Your next question comes from the line of Ravi Shanker of Morgan Stanley. Ravi Shanker: So it seems like it's a clear coast ahead. Obviously, Sunseeker is behind you now. Margins are starting to improve. It seems like you're on a better path with kind of stable capacity and the CASM, TRASM issue everything else. So, can we start to dream the dream about what normalized EPS looks like again? Obviously, coming out of the pandemic, it is a very different level than you guys are right now. How do we think about what that long-term trajectory looks like in that destination as well? Gregory Anderson: Thanks, Ravi. Let me kick it off. Again, we're not going to guide 2026 or long-term EPS at this point. But our goal is to get back to solid double-digit operating margins, and that's what we're executing towards. We talked about the work -- the great work that's been performed by the team this year and harvesting all that work into 2026, and we expect margin expansion there. And all else being equal, I think in 2027, there's still more initiatives as we prioritize and continue to improve in different areas of the business, we think continue to expand into 2027. Drew and his team, I think, have done a really good job of kind of walking through a framework of our commercial strategy, and this is more tied to the longer term, I think margin -- improving margins are driving higher margins. And I mean, it's from continued loyalty enhancement to different products, non-ASM revenue in different areas on that front. I think BJ and team on the cost side have done a terrific job. We're unique in the industry in the sense that we have high variable costs, low fixed costs, but it doesn't mean the fixed costs aren't material for us. And so when demand softened this year by way of example, I think the team reacted quickly. We scaled back growth, but then we went in and took out some of the structural costs. And so I mentioned that because looking ahead towards 2026, 2027 and beyond, we're always going to take a hard look at our cost structure. We're going to continue to find ways to better optimize the business. I think the MAX fleet as well. If you think about '27, '28, the efficiencies we're seeing there by the time we get to 2028, I expect 50% of our ASMs are flown by the MAX aircraft and driving a nice tailwind on the fuel side. So, we've talked about it. We teased it on the last earnings call. We probably think it's helpful at some point next year to have an Investor Day to really walk through some of these initiatives, the guardrails and what we think our objectives are and our opportunities are. But I think it just a high level on the earnings call today, where we sit, we feel confident that 2026, we could drive higher margins, all else being equal in the demand and fuel backdrop, and we can continue to build on that momentum in 2027. Ravi Shanker: Got it. Those are helpful building blocks. And maybe as a follow-up, can you just give us an update on the Vegas market and kind of what you're seeing there and remind us of seasonality there again, also kind of easier comps next year, kind of do you think that can bounce back from some of the headwinds earlier this year? Gregory Anderson: Yes. Obviously, Vegas still underperforms where we'd like it to be. It has definitely shown improvement through the summer and through the fall. Maybe on the seasonality front, it's historically been a very unseasonal market. Pre-pandemic, it was very reliable year around. It definitely feels more seasonal today than it has, which is little bit unfortunate given how much of a rock star it has been for so long. Seats are definitely coming out of the market. I think there's room for more improvement. I've seen more from the Vegas resorts in terms of innovative ways to recapture customers and recapture trips. So, I think there's better times ahead for Vegas, but we're still kind of climbing out of the hole a little bit. Operator: Your next question comes from the line of Michael Linenberg of Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. For starters, congratulations on your promotion, BJ. This first question is probably not for you, but maybe to Drew. Can you guys speak to how your competitive landscape is evolving moving into new cities like Atlantic City and Burbank? And I'd also be very interested to hear more about the 15% of new routes that you launched this summer that did not perform to expectations. What did you see there? Drew Wells: Yes. So, maybe first on what I think was about kind of the new city selection. It continues to be the same pillars that guide all of our network selection, looking for unserved and underserved markets that fit our customer profile well. Atlantic City, we've seen some reduction in seats. It's a market -- an airport we've been talking to since 2017, 2018, and we felt like the time was right for us to move in there. On Burbank, and we've talked at length about LAX and the cost structure there was becoming a bit untenable for us. And so we kind of diversified our basin capacity between Burbank and SNA, where we've been in for a few years now. I think Burbank is going to be a great addition. So, that's going to be helpful for us. On the competitive capacity front within those cities, obviously, there is some capacity on Atlantic City and on half of our Burbank selection. It's not something that we're running away from capacity -- competitive capacity from. We're trying to do what's right for Allegiant to run our rates, and we found success on some of these markets. And on the 15% where we weren't successful, we'll take a look at each of those some. It's the first year. It may or may not be meeting expectation, but there should be some level of maturity and run rate associated with those. And for those, we don't see a future, they'll come out. We won't operate them next year. It's kind of that simple. We've got a long runway of new opportunities. So, I have no issue cutting bait on those and finding something new. Gregory Anderson: Shannon, it's Greg. I just want to add to Drew's commentary there that for serving the domestic leisure space, our low utilization tactical capacity model works well. I was interested, I thought Drew provided an interesting comment in his opening remarks, I paraphrase, but it's just along the line of the resilience of our leisure customers who they represent all facets of the economy. They like to travel, and they have the means to do so. And what he and his team are doing are continuing to find those markets that are low fares and convenient non-stop service. It's a strong value proposition. Shannon Doherty: That's great. And maybe just bigger picture, right, is the demand that you're seeing today supportive of higher growth in the peak periods than flattish that you're expecting next year? I'm just trying to figure out how constrained you are from a utilization perspective. Gregory Anderson: For the most peak periods and really, that's the holidays and spring break sprint. We're maybe not 100% at our max utilization, but we're pretty close. We're pushing as hard as we've ever pushed through the holiday period. I think we have just a little bit of slack in March, kind of more growth would come in the off-peak such that the environment calls for if demand were to peak up or fuel were to meaningfully come down, can find a little bit more in there. I think as we get towards the summertime and that schedule comes out as out now will be in the public things in the coming weeks. We'll see a little bit more slack that we can add into on that front. Operator: Your next question comes from the line of Conor Cunningham with Melius Research. Conor Cunningham: Congratulations, BJ, on the promotion. I was hoping to -- we could talk -- so yes, the MAX situation, you're obviously talking that up a fair bit with -- I think, Greg, you mentioned that it's going to be 50% of your capacity in 2027, 2028 or something in that time frame. Can you just talk about -- in the past, you've talked about like a rule of thumb around EBITDA or EBITDA per aircraft. And I would just think that there's -- the MAX EBITDA contribution is way higher than the current A320 fleet. So just any like high-level thoughts around that? I think you mentioned 30% fuel efficiencies. But is there anything else that's within it that could be helpful in building that type of thought process? Gregory Anderson: Yes. Maybe let me kick that one off. And we talked in the past, Conor, quite a bit pre-pandemic, I think the $6 million of EBITDA per aircraft was our true north. I want to say right now, what are we roughly $3.5 million of EBITDA per aircraft thereabouts. I won't go into all the detail on the initiatives that we've either completed or completing or plan to complete that I'm talking about around margin expansion because I think you want to zoom a little bit more on the MAX aircraft. A couple of comments that I think are interesting. One, that the earnings on it today, now it's still early, are 20%, 30% higher than the A320 series fleet. And I want to dig in on that a little bit here. But the other thing is the operational reliability is outstanding. It's not quite a point, but nearly a point higher than the 320 series fleet. But some of the questions as you think about the way we deploy capacity, Drew and his team and you think about utilization, think about it in third, so in terms of lines of flying. So yes, the first 1/3 was through utilization roughly 8 to 10 hours per aircraft per day in the middle 1/3 of the middle tranche, roughly 6 hours and then you go from 3 to 4 hours on the lower tranche. So obviously, with these aircraft, we're going to put them in on our highest lines of flying just because of their performance and their reliability. But Drew did an interesting study where because of our base structure was comparing the highest lines of flying in base A versus MAX performance in respective bases. And it's still like-for-like, significantly outperforming the 320 just given the economics that we've talked about in the past. But Drew, I'm excited about the MAX and what we're seeing, continue to take more deliveries of those aircraft. We have the same ownership cost in general as the 320. So it's commercially a good deal for us. And Drew, BJ, anything else you want to add? Drew Wells: I'll take one step and that was comparing the highest lines of flying regardless of base on the Airbus to the MAX performance and outperforming in that 20% to 30%, putting it on a highly utilized base like Fort Lauderdale is going to have immense benefits, and we'll continue to be selective on where those aircraft go to make sure that we're getting the most value for those going forward. It's incredible. Robert Neal: Yes. I'll just add one thing Thanks, Conor. We've talked about the overall earnings of the MAX at this point being about 30% better than the just an average. As you would expect, most of that comes from fuel efficiency. But there's still a bit of improvement in other OpEx as well, primarily coming in on the maintenance line. Just don't want to underappreciate the value of the maintenance honeymoon. We had gone a few years where we weren't adding any new airplanes. And that meant 2 things. One, we weren't getting any relief on maintenance cost of aging aircraft. But two, we had a larger percentage of our overall fleet unavailable during peak periods for revenue service. And so by introducing some component of new aircraft again, we've got more of the fleet available for service. Conor Cunningham: Okay. Super helpful in detail. Just around the co-branded credit card program review and nearing a completion, I was hoping you could drill down on that a little bit more, just talk about what you've learned, what needs to be tweaked? Just if there's anything else there behind it. I know that you've talked about it for a couple of quarters. As we're closing on the end, just any thoughts in general? Robert Neal: Yes. And probably, it's still a bit early for me to get too detailed, but there's obviously a lot of work left to go. What we've learned, I think, some was in my remarks. We do have a fairly affluent and well-off customer as a subset of our overall base. And we haven't been providing, I think, probably the best value proposition to all of the subsets of customers that we can. So, I think something that's a bit more segmented, something that provides a better value proposition than what we're offering 10 years ago is going to be really helpful. You've watched most other carriers go through a few evolutions of their programs since, whereas our annual fee is still the same today that it was at launch. So, there's a lot of opportunity there just in terms of how the overall market has evolved, as well as leaning a little bit more into what we know with our customers specifically. One area that's pretty obvious and something that I've heard mentioned elsewhere, we weren't giving our customers a great reason to spend on our card, right? It's great when you're interacting with Allegiant specifically. But how do we broaden that to be a bit more relevant more often? And I think that's been pretty low-hanging fruit to drive very scalable and efficient volume in terms of contribution to us. Operator: Your next question comes from the line of Dan McKenzie of Seaport Global. Daniel McKenzie: BJ, congrats on the promotion here. So, I know you guys are guiding to flat capacity in 2026, but probably the biggest change over the past quarter is just Spirit filing for Chapter 11 and downsizing. And I know that your overlap with them is very de minimis, I think 2.5% or something like that. But I guess the question really is, is Spirit's downsizing causing you to rethink the network composition? So, have you picked up more gates either at Fort Lauderdale or elsewhere? Or just kind of thinking about the percent of flying that you have either in the West Coast versus into the state of Florida? Gregory Anderson: Yes. We haven't -- I mean, we haven't seen kind of those direct benefits to date. I'm sure if we will, I think there's still a lot of support for Spirit maintaining a fairly large Fort Lauderdale presence. We have certainly seen some pull down of capacity out there. We're very excited about Fort Lauderdale. We obviously have been putting our MAX aircraft there, trying to grow capacity where we can. So, we're very interested, but I don't know that point to a lot of direct benefit yet. We'll remain opportunistic and mindful of what happens, but maybe not as much to point directly then. Daniel McKenzie: Yes. Understood. Okay. And then CapEx above 2025 and 2026, but not meaningful pressure on leverage to go back to the script. I'm just wondering if you can provide a little bit more perspective on that. Are you planning to pay cash for some of the aircraft next year? Or how should we think about the decision to lease versus to purchase? And how do we think about year-end leverage at 2026 versus 2025? Robert Neal: Thanks, Dan. Yes, I'll give it a shot here. So when I think about next year, I kind of mentioned in response to Savi's question. Some of the CapEx I guess, lift, if you want to think of it that way next year, is really going to be driven by PDPs. And those will come due throughout the year. Our aircraft delivery schedule is back half weighted. And so with the way the business produces cash in the first quarter, certainly, we could pay cash for the amount due to Boeing at delivery for our airplanes probably for the first half of the year. That said, we'll be opportunistic and keep our ear to the ground on the markets to look for the most attractive way to finance those airplanes. I would tell you, we've spent a lot of time on this this year. I would tell you that we expect to continue owning airplanes and that's why we try to grow at the pace that the balance sheet allows for. Owning airplanes in our mind is half the cost of leasing airplanes over the life of the asset. And we think that, that's one of the key ingredients that supports our low utilization model. So, I would suspect that we'll continue to be focused there. We'll always keep an open mind and look at offers that come in, but that's my expectation. Operator: Your next question comes from the line of Brandon Oglenski with Barclays. Brandon Oglenski: Congrats as well, Robert. Greg, I guess I've heard a lot of questions tonight around growth. And now that the hotel is behind you, I think like what's the next phase for Allegiant here as you focus on the core of the business? Historically, we've always heard there's, what, 500 or 600 markets out there that could be Allegiant-esque. Is that still the case? And especially in line with Dan's question just previously, I mean, airlines are still losing money even as some of the low-cost capacity comes out. So, do you just need to see the industry still rightsize itself in the next year before you can start thinking again about future network expansion? Gregory Anderson: Thanks, Brandon. And I'll kick it off and ask Drew to come in on his views around the growth in a little bit more detail. But the good thing about us is we have optionality. As BJ just mentioned to Dan, we own our aircraft. We plan to own the new aircraft that are coming to us, and we own our used 320 fleet. In prior calls, I think we've talked at least at a high level about the importance of earning the right to grow. And so that fleet flexibility advantage, I think that's something we have that gives us the ability to determine what that growth rate looks like. And this is to drive better discipline to ensure we grow that we grow profitably and that we run a really good airline. I think what we've seen from Tyler Hollingsworth and the operational teams over the past couple of years, our ops team has really stepped up and we're pleased with what we're seeing, but we're not going to push it to a point to where it's going to be do more harm than good. In terms of our model and what we do, we think it's unique. We think there's a lot of opportunities for us to continue to grow. And as the industry -- as you kind of mentioned there, Brandon, I think as the industry, particularly our sector or segment of the industry, I guess, for lack of a better term, find this equilibrium kind of works its way through. We think well-run carriers like Allegiant, there's going to be opportunities for a flexible capacity model like ours. But Drew, I mean, you feel like there's a lot of network and runway ahead. So, do you want to talk about how you view the opportunities? Drew Wells: Yes. I'll kind of take it in 2 pillars here, maybe. Number one, right, we talked in the remarks about over 50 new routes that operated this last summer that weren't operating the summer before. I believe there's an immense amount of opportunity that remains. We've talked about 1,400-plus, well beyond the 500, 600 that I think will work well for us. Certainly not all of them will, but I think the vast majority are perfect for what we do. So, I think there's no shortage there. Second, and Greg mentioned kind of this post-Navitaire implementation time frame. It's not a big secret that we didn't have the cleanest of implementations with our Navitaire system. And it's taken us a little over 2 years to start to turn toward, okay, what's the next thing that we can start to build on our new foundation to help further develop the commercial stack and how we're interacting with customers, providing the right experience throughout the journey. And that's where that next phase goes. It's kind of a little bit of catch-up candidly to where others have seen success, which tells me there's a lot of low-hanging fruit for us to be able to get it. So it's not just on the network front. It's about the entire commercial strategy to make sure that the current network and future network work as well as we possibly can. Brandon Oglenski: Appreciate that response. And I guess, Greg, as you think about potential industry M&A, if that does play out, I don't know where does Allegiant fall within that context? Gregory Anderson: Thanks, Brandon. Just some high-level thoughts, right? 80% of the domestic market is controlled by the big 4 carriers and what the industry is showing is that size, scale and relevancy, I think, have their advantages in our industry. And we believe that it's in everybody's best interest, well, certainly consumers' best interest, I should leave it at that and having stronger airlines competing against the big 4. I'll tell you for us, we like our model. We like our ability to outperform, especially given everything we're doing and that we've been talking to the Street about for some time now. So, I don't want to -- I don't think consolidation is needed for us to get back to our historic earnings profile. But at the end of the day, what we're focused on is driving shareholder value. Operator: Your next question comes from the line of Catherine O'Brien of Goldman Sachs. Catherine O'Brien: Congrats, BJ. Maybe a follow-up to Shannon's question earlier. Is the flat capacity outlook next year a function of the fleet being maxed out? Or if demand got significantly better, could you and would you delay retirements or push utilization higher in the off-peaks? And I guess, like if the answer is yes to that, how much better would demand have to be for you to consider doing that? And what are the guardrails you assess in making those kinds of decisions? Robert Neal: Yes. So we're -- I think like I mentioned, we're operating probably about as heavily as we're able to in the peak weeks through Thanksgiving through Christmas and into spring break. There's absolutely room for us to grow in the off-peak periods or even some off-peak days within those peak weeks such that we have a booking curve if the demand environment were to improve or fuel environment were to get meaningfully cheaper. I don't know that I have a specific value would be looking for, say, demand needs to get 5% better to add one. I'm not sure that I have that for you today. But it's something we'll continue to monitor. We certainly have the bandwidth for anything in the spring and then summer is so far away that lots of time to react regardless of what may happen. Drew Wells: Catie, I'll just take the fleet side of that. Just keep in mind, the aircraft reduction that we see in the first part of '26 is a result of 8 leased airplanes returning, really exiting service from late third quarter through late fourth quarter. These were transactions that originated back in the pandemic and those airplanes need to go back because they're much, much more expensive if we had chosen to keep them. And then as we move through the year, there's probably some more flexibility with a few shells to extend retirements, but just don't underestimate how expensive that gets when you start talking about 24-year-old A320 family aircraft. The return is just much better when we invest that capital into our MAX order. And we start to see the MAX deliveries pick up in the back half of the year anyway. Catherine O'Brien: Sounds like a prudent plan. I guess as you -- for my second question, as you've increased the proportion of the fleet with Allegiant Extra over the course of this year, any updates on the impact of the financial impact of that configuration versus your aircraft without it? And then just annualizing the higher proportion of Allegiant Extra in '26 that you put in place over '25 on flat capacity, roughly speaking, any sense of how much of a RASM tailwind that could be into next year? Robert Neal: Yes. So the contribution has remained pretty flat around that $500 per departure. Obviously, as we put more and more on to that layout, it gets a little bit harder because our counterfactual or our control gets a little bit smaller. So, that remeasuring gets a little more challenging moving forward. I feel good about the $500. From a full year basis, I think we'll be something around 10 points of departures incremental on a full-year basis. So, you can think about the $500 per departure across roughly 10% more flights or 10 points of distribution. Operator: Your next question comes from the line of Atul Maheswari of UBS. Atul Maheswari: Congrats on the promotion, BJ. I had a question on the fourth quarter RASM. Last year's fourth quarter was really a tale of 2 halves for the industry, and I also think for Allegiant as well. First half was difficult last year with the elections and some weather, and then the back half of fourth quarter, especially December last year was very strong. That would create very lumpy year-over-year compares for you for this fourth quarter. So the question really is, does your guidance assume some slowing in RASM over December as you lap difficult compares? Or are you simply expecting current book yields for the fourth quarter to persist for the rest of the quarter that's unbooked? Robert Neal: Yes. I mean the lumpiness is nothing new for Allegiant, right? Being a leisure carrier, we're going to ride in the highs and lows of leisure demand, which means in just about every year, Thanksgiving and Christmas are good, and the shoulder and off-peaks are a little bit weaker. We'll certainly get the benefit of having the weather in our comparison through October. I would expect more of that flat capacity weakness to persist in the off-peak period, call it, early November, early December, while the holiday periods, I think, will be much closer to on par with last year, probably not flat, but much closer to on par. So very, very resilient holiday periods with kind of typical fluctuation within the quarter between the peak and the off-peak. Atul Maheswari: Got it. That's helpful. And then just quickly, are you able to share what portion of the fourth quarter is booked by month, if you can? Robert Neal: The portion booked, I can talk to the quarter maybe. We have about 75% of the fourth quarter booked at this point. We do have about 100% of October booked. So, we have some pretty good line of sight. The fourth quarter, in particular, the holidays tend to be the longest booking curve of the year. So, we can give you a little bit of forward insight there. Looking forward to the first quarter, it's obviously much lower. We're probably something closer to 15% booked as well. So, we won't get a lot of insight to the first quarter until the calendar slips really. Operator: There are no further questions at this time. And with that, I will turn the call back to Sherry Wilson for closing remarks. Please go ahead. Sherry Wilson: Thank you all for joining the call. We'll chat again next quarter. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to AudioEye's Third Quarter 2025 Earnings Conference Call. Joining us for today's call are AudioEye's CEO, Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 and provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, will and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections or other statements about future events, that are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of the company's annual report on Form 10-K its quarterly reports on Form 10-Q and its other reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's beliefs only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Further, management remarks today will include certain non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release or otherwise posted in the Investor Relations section of its website at www. audioeye.com. Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed. David Moradi: Thank you, operator. I want to begin by highlighting our record third quarter results. We have achieved 39 straight quarters of record revenue with $10.2 million in revenue. In the third quarter of 2025, we also achieved a record $2.5 million in adjusted EBITDA, up from $1.9 million sequentially. The adjusted EBITDA margin was a record 24%. We expect a significant increase in fourth quarter ARR revenue adjusted EBITDA and adjusted EBITDA margin. As you may recall, we have made significant R&D and go-to-market investments in our Enterprise channel. And we are now seeing the rewards. In the third quarter, we had one of the best quarters in new business in our history, including contributions from the EU. This momentum has continued into the fourth quarter with many deals already closed in the EU and U.S. We currently have several late-stage deals with ARR over $100,000, and in EU and the U.S., which would imply a record quarter in new business ARR based on historical close rates. Our partner and marketplace channel also continues to ramp in anticipation of the DOJ Title II rule, which begins to take effect in May 2026. Our biggest partners in the government and government adjacent spaces contributed significantly to partner ARR growth this quarter. We believe there is significant additional runway for these partners to further expand in 2026. As discussed last quarter, we opted to migrate customers acquired from small acquisitions to eliminate duplicate systems and processes, which should further improve margins in the fourth quarter and into next year. The integration of these customers into the AudioEye Core platform is on track to be completed this quarter. As we finalize attrition from customer integrations this quarter, we expect our reported results to reflect ARR acceleration in our core direct business and growth in our reseller revenue. There have been significant recent advancements in AI which we are very excited about. One recent advancement is the combination of the open source Playwright framework with the Model Context Protocol or MCP. Using Playwright MCP enables large language models to integrate with websites and for AI agents to perform tasks like humans. Things like interacting with buttons, billing in forms, scrolling, et cetera. Instead of analyzing code statically, an AI agent using Playwright MCP would navigate using the accessibility tree, the same structured data that screen readers for people with disabilities use. The key change is that it uses a site accessibility tree rather than the Document Object Model or DOM. Since Playwright MCP uses the accessibility treat, an AI agent using this framework should be more efficient when factoring in compute and LLM token usage, especially at scale. We also see significant potential for Playwright MCP and our product and expect to further improve our industry-leading detection and accuracy. Based on an analysis of 1,500 legal claims, our solution is already 300% to 400% more effective than competitors. We are excited to further improve the detection accuracy and scale of our software with Playwright MCP. These product advancements should drive further margin expansion and cash flow as we head into next year. As we generate more cash, we believe that in addition to M&A, stock buybacks can be an attractive way to deploy cash. In the third quarter, we repurchased approximately 154,000 shares, bringing our total to roughly 300,000 shares in 2025. Moving on to guidance. For the fourth quarter, we are guiding revenue between $10.45 million and $10.6 million. For the fourth quarter, we also expect to generate a record adjusted EBITDA of $2.7 million to $2.8 million and adjusted EPS of $0.21 to $0.23. We are narrowing our 2025 full year revenue guidance to $40.3 million to $40.4 million and refining our profitability guidance towards the top end of the range with adjusted EBITDA of $9 million to $9.1 million and adjusted EPS of $0.72 to $0.73 per share. Based on our expectation of adjusted EBITDA margins in the upper 20s in the fourth quarter, we expect to generate an annualized adjusted EPS of nearly $0.90. We are very excited about ARR growing significantly and the operating leverage in our model. We continue to have an aspirational goal of increasing adjusted EBITDA and adjusted EPS by 30% to 40% annually for the next 3 years. I'll now turn the call over to AudioEye's CFO, Kelly. Kelly Georgevich: Thank you, David. As David discussed, revenue again hit record levels with Q3 2025 revenue at $10.2 million, up 15% over the comparable period of prior year, and an increase of $370,000 over the second quarter of 2025. The third quarter marked our 39th quarter of record revenue. Annual Recurring Revenue, or ARR, at the end of the third quarter of 2025 was $38.7 million, a $2.5 million increase over the end of the third quarter of the prior year and a $500,000 increase from the end of the second quarter of 2025. Our two revenue channels are continuing to generate strong results with high year-over-year and annualized sequential growth. Overall, the enterprise channel grew around 26% over the comparable period of the prior year, and the partner and marketplace channel grew around 7% over the same period. In the third quarter, the enterprise channel contributed around 45% of revenue and 42% of ARR and the Partner and Marketplace channel contributed around 55% of revenue and 58% of ARR. The Partner and Marketplace channel includes all revenue from our SMB-focused marketplace products as well as revenue from partners to deploy those products for their SMB customers. We saw solid ARR growth in this channel in the third quarter of 2025, driven by additional partner penetration, which will soon be affected by the DOJ Title II rule. We continue to see strong retention rates in this channel. We opted to migrate customers acquired some small acquisitions to eliminate duplicate systems and processes. While the ongoing integration will impact the fourth quarter, we expect ARR growth to reaccelerate Customer integration will be substantially complete in the fourth quarter. On September 30, 2025, our customer count was approximately 123,000 and a sequential increase of 3,000 from June 30, 2025. Customer accounts decreased approximately 3,000 from September 30, 2024, due to one partner renegotiation in Q1 2025. Gross profit for the third quarter was $7.9 million or around 77% of revenue compared to $7.1 million or 80% of revenue in the third quarter of last year. As we highlighted on the last earnings call, with customer migration to the upgraded platform, we expected margins in the second and third quarter of 2025 to temporarily decrease. We are pleased with the margins remain in the high 70s in the third quarter, and we expect gross margin to be up approximately 1 percentage sequentially in Q4 as the migration to the upgraded platform complete. While revenue increased 15% over the comparable period of prior year. On a GAAP basis, operating expenses increased only 2% or around $150,000 to $8.2 million with additional investments in sales and marketing, offset by savings and other departments. Our total R&D spend in Q3 2025 was approximately $1.6 million with approximately $450,000 reflects the software development cost in the investing section of the cash flow statement. This was consistent with Q3 2024 R&D investment. The total R&D spend was about 15% of our revenue this quarter versus 18% in the comparable period of prior year and 17% in the second quarter of 2025. We see increased efficiencies with AI tools and our product development team. Net loss in the third quarter of 2025 was $600,000 or $0.04 per share compared to a net loss of $1.2 million or $0.10 per share in the same year ago period. The decrease was primarily driven by additional revenue, partially offset by increases in sales and marketing expense. Our Q3 2025 adjusted EBITDA was a record $2.5 million, and our adjusted EPS was $0.19 per share. The primary adjustments to GAAP earnings and EPS for Q3 2025 for noncash share-based compensation, depreciation, amortization, interest expense and litigation expense. In the third quarter, we repurchased approximately $1.8 million of shares at an average price of $11.86. During 2025 and through September 30, 2025, we have repurchased approximately 3.6 million worth of shares at an average price of $12.05. Our balance sheet remains well capitalized with $4.6 million in cash as of September 30, 2025 and an additional $6.6 million in debt facilities available. As of September 30, our net debt defined as total debt less cash was $8.9 million, and our net debt to adjusted EBITDA ratio was 0.9x. Free cash flow, defined as $2.5 million of adjusted EBITDA plus $450,000 of software development cost was $2 million in the third quarter. We expect this to continue increasing in the fourth quarter. We will now open the call up for questions. Operator, please give instructions. Operator: [Operator Instructions] Your first question comes from Zach Cummins with B. Riley Securities. Unknown Analyst: This is Ethan Widell calling in for Zach Cummins. To start, it sounds like you're getting some nice traction in the EU. And you've highlighted your partnerships with [ Creode mobility ]. Can you maybe speak a little bit more to the momentum that you're seeing there? David Moradi: Yes. I think we had some deals closed in the third quarter. We have some large deals active in the late-stage pipeline today. And this is before any real enforcement. We expect a substantial pickup once the fines are issued, similar to what happened with GDP. Unknown Analyst: Got it. And then it sounds like you're on track for your platform migration. Can you maybe speak to where you're at as of right now? David Moradi: Sure. Yes, the migration is going well. Most customers are going to be on the new platform this quarter. So we're happy to see that. It's going really well. Yes. Unknown Analyst: Great. And then maybe if I can squeeze the third one in. Just with regard to Title II of the ADA. Have you seen any impact to the rate of compliance adoption there from the government shutdown? David Moradi: No, we're not seeing anything there. Operator: Your next question comes from George Sutton with Craig Hallum. Unknown Analyst: We have Logan on here for George. It obviously sounds like Europe is contributing nicely here. I'm just curious if you can give us anything on how the pipeline has developed over the past quarter. And kind of beyond that, is there anything you can say about close rates or conversion rates kind of relative to expectations or maybe the business historically? David Moradi: It's too early to tell on the close rates. It's going very well in the EU at the moment. Kelly, anything to add on that? Kelly Georgevich: No. I think just that pipeline is also growing in the EU, and we're seeing some good opportunities come up. Unknown Analyst: Okay. Got it. Kind of staying on the same note, one of the things that we picked up is that potentially in Europe under the EAA, there's a bit more emphasis on documentation of accessibility and usability statements, things of that nature. Just curious if you're seeing that also. And does that change anything competitively? Or how does that play into your product offering? David Moradi: That's true. We've adopted accordingly with that. We have all the statements for each member state. . Operator: Your next question comes from Scott Buck with HC Wainwright. Scott Buck: David, could you remind us what average deal size looks like in Europe versus the U.S.? David Moradi: It's a bit higher. It's running I would say about 50% higher than the average field in the U.S., it's more enterprise deals that we're seeing there in upper mid-market. Scott Buck: And what percentage of total revenue in the quarter is coming out of Europe versus the U.S.? David Moradi: In the third quarter or fourth quarter? Scott Buck: Third quarter. But if you want to give fourth quarter, that's fine, too. David Moradi: Do see contribution still mostly U.S. and it's picking up into the third quarter or fourth quarter. Scott Buck: Okay. Perfect. I appreciate that. And then I wanted to ask about the aspirational goal you laid out in the release and the early comments in the call. How do we think of that in terms of what's coming from revenue growth versus gross margin expansion versus ongoing cost discipline. I mean, how do we kind of piece that out? To get to that 30% to 40% on the adjusted EBITDA line. Kelly Georgevich: Yes. I think they're all coming into play. To reach that aspiration all we do need revenue to continue to increase. We see good opportunities with you, resellers, U.S. business demand. So that is obviously a factor, but there is also the gross margin opportunity. And then what we've proven is with revenue scaling, we can still be efficient with costs. So all three of those things are contributing to that aspirational goal. Operator: At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Moradi for his closing remarks. David Moradi: Thank you for joining us today. As always, I want to thank our employees, partners and investors for their continued support. We look forward to updating you on our next call. Operator: Before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company website. Thank you for joining us today for AudioEye's Third Quarter 2025 Earnings Conference Call. You may now disconnect, and have a wonderful rest of your day.