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Operator: Jalpa Nazareth: Good afternoon, and thank you for joining us for our third quarter 2025 earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Farmer Mac. As we begin, please note that the information provided during this call may contain forward-looking statements about the company's business, strategies, and prospects, which are based on management's current expectations and assumptions. These statements are not a guarantee of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those. Please refer to Farmer Mac's 2024 annual report on Form 10-K and subsequent SEC filings posted on Farmer Mac's website, farmermac.com, under the Financial Information portion of the Investors section for a full discussion of the company's risk factors. On today's call, we will also be discussing certain non-GAAP financial measures. Disclosures and reconciliations of these non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on Farmer Mac's website. Today, I'm joined by our Chief Executive Officer, Brad Nordholm, who will lead our discussion on third-quarter 2025 results, and our President and Chief Operating Officer, Zack Carpenter, who will discuss customer and market developments. Select members of our management team will also be joining us for the question-and-answer period. At this time, I'll turn the call over to CEO, Brad Nordholm. Brad? Bradford Nordholm: Thank you, Jalpa. Good afternoon, everyone, and thank you for joining us. We delivered exceptional third-quarter 2025 results, achieving yet another quarter of record net effective spread and core earnings. We surpassed $31 billion in outstanding business volume and strengthened our already robust capital base through a very successful preferred stock issuance, further supporting our long-term growth objectives and providing a buffer against market volatility. Our total portfolio is well diversified by both commodity and geography, and we remain confident in the overall health of our portfolio as evidenced by our continued strong asset quality metrics and I might add, our day in, day out market information we receive from being active in every commodity in every region of the United States. It's a real advantage. It is the consistency of our growth and financial results over the last few years and my expectations that that will continue that has given me the confidence to announce my anticipated retirement in March 2027, and for the Board of Farmer Mac to name Zack as President and Chief Operating Officer and as my successor upon my retirement. Zack has been instrumental in diversifying our loan portfolio into newer lines of business while extending our reach to more corners of rural America by developing strong strategic partnerships and relationships with both existing and new customers. I will continue to support Zack as he builds on Farmer Mac's trajectory of mission-focused growth, operational resilience, and delivery of consistent financial results. So, turning to those results. We ended the quarter with a record net effective spread of $97.8 million and core earnings of $49.6 million. Year-to-date, net effective spread and core earnings are $287 million or $281 million and $143 million, respectively, reflecting double-digit year-over-year growth. The growth in spreads was driven by higher average loan balances and the continuing shift to higher spread business, which has been a key driver of the net effective spread increase over the past several years. Our strategy-driven decision to diversify our loan portfolio into newer lines of business that play to our competitive advantages in intermediate and long-term match-funded and securitized funding, such as renewable energy, broadband infrastructure, and corporate Ag finance, has been a key priority, and that diversification is benefiting us through changing market cycles. Also contributing to our net effective spread growth is our effective asset liability management and funding execution. The strengthening of our balance sheet through retained earnings growth and preferred stock issuance supports our balance sheet management strategies, which are fundamental to the resilience of our business model, as these strategies enable us to be thoughtful and responsive to changing market conditions. Also reflected in our core earnings results this quarter is the purchase of $24.2 million of renewable energy investment tax credits, resulting in a $1.5 million benefit. We will continue to actively evaluate these types of renewable energy credit opportunities in the next few quarters, as we have a consistent top marginal corporate tax liability and remain a significant participant in the renewable energy project finance market, again, giving us unique insights and some competitive advantages. Partially offsetting the growth in net effective spread in the third quarter was an increase in operating expenses related to headcount, technology investment, and higher transaction-related legal expenses. The majority of additions to headcount were related to resources needed to support increased business volumes, especially in higher spread businesses, as well as new technology and operational efficiency project implementation. We maintain our disciplined approach to expense management by proactively monitoring and managing expense growth against income revenue streams. Another way of putting it is our efficiency ratio. We'll continue to assess appropriate investments in our operational and technology platforms, resources to support future growth and scalability, and our ability to innovate and drive profitability while maintaining a disciplined efficiency ratio within our long-term target average of 30%. In terms of credit expense, several factors contributed to the $7.4 million net provision to the total allowance for the quarter. Specifically, the provision expense this quarter reflects, first, an increased loss estimate on certain Ag storage and processing and broadband substandard assets; second, a handful of specific properties affected by groundwater regulation in California. And third, volume growth in both agricultural finance and infrastructure finance lines of business. Offsetting credit expense this quarter was the recovery of $2.2 million, primarily related to a single permanent planting loan that was previously charged off in the second quarter of 2025. We also recorded during the quarter a $4.4 million charge-off related to 3 different loans. As we've mentioned on prior calls, our newer segments, which have grown significantly over the last several years, carry different risk weights, hence requiring increased provision expense during this period's growth while generating a significantly higher net effective spread. Our provision expense reflects model-based CECL changes or charges, rather, and is part of our normal and ordinary course of business. We will continue to see quarterly adjustments, additions, and releases as our portfolios grow and mature. As of September 30, the total allowance for losses was $37.2 million, or 12 basis points of our total outstanding business volume. We believe that our total portfolio is well diversified by industry, geography, and segments, and that we're well positioned given our strong levels of capital. The fundamentals of our underwriting and risk analytics enable us to continue to effectively navigate the current volatility and uncertainty in the agricultural cycle. While credit losses are inherent in lending, we believe that any losses in the current credit cycle will be moderated by the strength and diversity of our overall portfolio and our allowances. From a credit perspective, portfolio quality remained stable during the third quarter despite a modest uptick in 90-day delinquencies, which reflects the seasonal impact of the July 1 payment date on almost all of our loans in the Farm & Ranch segment and not any identifiable trend. Despite heightened volatility and market uncertainty, our prudent underwriting approach, emphasizing the dual assessment of loan-to-value and cash flow metrics, positions us well to withstand market cycles. To date, we have not seen any significant effects on our portfolio related to political developments, government actions, including the current shutdown, or changes in policy. We'll continue to closely monitor industry and credit conditions as new government policies are implemented. Farmer Mac's core capital increased by $131 million to $1.7 billion as of September 30, exceeding our statutory requirement by $723 million or 75%. The sequential increase reflects the successful issuance of $100 million of Series H preferred stock in August. The addition of preferred capital, together with our strong earnings, improved our Tier 1 capital ratio to 13.9% this quarter from 13.6% last quarter despite the strong growth in assets. The issuance effectively allowed us to strengthen our Tier 1 capital position and also allowed us to demonstrate strong access to low-cost preferred stock capital. Looking ahead, we will continue to evaluate all the capital management tools we have available to achieve our goal of optimizing our overall capital position through organic capital generation and securitization opportunities, especially as we continue to grow our book of business in more accretive segments that will require an incrementally greater amount of capital. Our strong capital position has enabled us to grow and diversify revenue streams, remain resilient in volatile credit environments, and continue to offer competitively priced liquidity to our customers and their borrowers even in challenging times. We're working toward a second prime transaction in the fourth quarter of 2025, which will be similar to the deal earlier this year. The securitization program remains an important strategic initiative for Farmer Mac as it allows us to enhance and optimize the balance sheet by efficient deployment of capital and also enables our growth strategy by targeting new asset opportunities. We're very pleased with the tremendous support we've seen from our stakeholders for this program, and we look forward to exploring alternatives to risk transfer structures that will allow us to expand our offerings while serving as another source of capital management. Lastly, I'm pleased to share that, subsequent to quarter-end, Farmer Mac has repurchased approximately 30,000 shares of Class C common stock for a total amount of about $5 million. We have several tools we leverage to return capital to shareholders, including dividends and buybacks, ensuring any action taken is both sustainable and value accretive. This balanced approach allows us to invest in growth, maintain financial resilience, and deliver returns, all while remaining agile in a dynamic market environment. So at this time, I'd like to turn over to Zack Carpenter, our President and Chief Operating Officer, to discuss our customers and market developments in more detail. Zack? Zachary Carpenter: Thanks, Brad. I want to first start by expressing my deep gratitude to you and our Board of Directors for their trust and confidence in appointing me as President and Chief Operating Officer of Farmer Mac. It is truly an honor to step into this role and to build on an incredible foundation that Brad and the team have established. What makes this moment especially meaningful is the opportunity to lead alongside such an extraordinary team here at Farmer Mac. Across the organization, I see a shared drive to innovate, serve with purpose, and never settle for average. This passionate, mission-focused culture at Farmer Mac is what gives me tremendous confidence in our future. Our team delivered another solid quarter of outstanding business volume growth. We achieved $500 million of net new business volume, resulting in total outstanding business volume of $31.1 billion as of quarter end. The growth in our portfolio was primarily driven by the infrastructure finance line of business, which grew by $600 million this quarter to $11 billion as of quarter end, reflecting continued strong interest in investment in data centers, broadband expansion as well as the construction and completion of renewable energy projects, coupled with the overall need for significant energy generation and transmission capacity for rural America. Serving agriculture businesses and providing liquidity to enhance and enable rural infrastructure are both critical to our mission of driving economic opportunity to rural America. This proactive business diversification continues to pay dividends, which we expect to continue going forward, and it has also expanded our commitment to rural communities as this liquidity is geographically aligned with our core mission across all our segments. Volume in our Renewable Energy segment more than doubled from the same period last year to $2.3 billion as of quarter end. This segment has doubled every year since its inception, and we believe the strength of our near-term pipeline supports this continued growth over the next 12 months. Despite increased policy uncertainty across the renewable power investment market, we expect to continue participating in renewable energy transactions for both new projects and refinancing of existing projects, utilizing the same disciplined credit standards. In addition to the substantial increase in need for new power generation, the tax credit phaseouts for renewable energy generation projects in HR1 will continue to drive near-term growth in this segment, and we believe this will continue over the next 12 months for projects to start construction to meet required milestones to maintain crap tax incentives. Our Broadband Infrastructure segment doubled year-over-year to $1.3 billion as of quarter end, compared to $600 million in the same period last year. The growth primarily reflects the continued demand for data centers. We anticipate increased financing opportunities in this segment for data center build-outs, given the increasing investment in capacity to support AI, cloud storage, and enterprise digitization, particularly by large hyperscalers. We believe these developments are crucial for rural economic growth and support the historically strong demand for connectivity needs across rural America. Our Power and Utilities segment grew $126 million this quarter, largely due to the strong loan purchase activity supporting the investment needs of rural electric generation, transmission, and distribution cooperatives. Growing business volume in our infrastructure finance segment remains a top priority, and we will continue to focus on strategic investments in these areas to build our expertise and capacity as market opportunities arise. Activity this quarter in our $20.1 billion agricultural finance portfolio reflected strong loan purchase growth in our foundational Farm & Ranch segment, offset by scheduled maturities of large AgVantage facilities or bonds. Our Farm & Ranch loan purchase portfolio grew by $285 million in the third quarter, far outpacing scheduled maturities. We believe loan purchase growth will continue into the foreseeable future due to ongoing agricultural economic tightening in certain sectors, reflecting commodity price volatility and input inflationary dynamics, the potential for increased tariffs and trade policy changes, as well as general balance sheet management of our community and commercial bank customers, including liquidity needed for farmland equipment purchases by the ultimate farmer borrowers. The Farm & Ranch segment is core to our mission, and we remain committed to bringing our customers products and solutions that provide capital and risk management solutions as well as supporting their borrowers' financial needs. While AgVantage securities in both Farm & Ranch and Corporate Ag Finance segments faced large maturities over the last year due to many of our partners pausing capital deployment to navigate the ongoing market uncertainty, there continues to be strong demand for wholesale finance products and solutions. For example, prior to quarter end, we successfully closed a new facility with $4.3 billion of borrowing capacity with a large agricultural finance counterparty, further demonstrating the strength of our relationships and the relative value of our wholesale finance product. We do expect additional funding for this facility in the fourth quarter. Looking ahead, we will continue to work closely with these counterparties and tactically determine when to refinance maturing securities or provide incremental financing needs based on current market dynamics, as well as the appropriate return on capital thresholds for this product. We remain steadfast in our commitment to deliver a broad spectrum of financial solutions to the agriculture community by working alongside our growing customer base. Despite this backdrop of broader market uncertainty stemming from factors such as interest rates, regulatory shifts, and trade policy changes, we are confident in our ability to continue to deliver growth and consistent results. Our total portfolio is well diversified by both commodity and geography, and we remain confident in the overall health of our portfolio, as evidenced by our continued strong asset quality metrics. And with that, Brad, I'll turn it back to you. Bradford Nordholm: Well, thank you, Zack. We delivered yet another record financial result this quarter while fulfilling several important strategic and revenue objectives. We delivered record core earnings, maintained a stable credit profile, reported a core return on equity of 17%, a little bit north of that actually, and we did that while holding our efficiency ratio below our strategic target of 30%. We are optimistic about the future, and we believe that we'll continue to be well-positioned to deliver on our multiyear strategy with strong liquidity and capital levels, a diversified mix of business, a highly effective risk management practice, and, most importantly, a talented team of dedicated professionals here at Farmer Mac. I'm going to turn to the Q&A period, but just a quick comment before I do an update on our CFO search. We have interviewed a number of outstanding candidates with strong qualifications and expertise to be the next CFO of Farmer Mac. I've been gratified that Farmer Mac is seen as a very desirable employer and career opportunity for many of these qualified people. And I think it's likely that we're going to get to an announcement within this calendar quarter, the fourth calendar quarter of 2025. And now, operator, I'd like to see if we have any questions from anyone on the line today. Operator: [Operator Instructions] Your first question comes from Bose George from KBW. Bose George: Congrats, Zack, and all the best, Brad, on your retirement. In terms of questions, I just wanted to start with the question on spreads. Can you just talk about the outlook for spreads, just given the expectations for mix and the forward curve, which I guess is the Fed now cutting about 3x by next summer? Bradford Nordholm: Yes. Thanks, Bose, and nice to have you on today. A couple of comments. I'll let Zack get into the mix of business that impacts our NES or net effective spread. But I'd just like to begin with a reminder that the way we run our asset liability management and our match funding strategy here at Farmer Mac, a cut in interest rates by the Fed should have no impact on the net effective spread here at Farmer Mac. We structure our portfolio so that we're neutral to changes in interest rates at the short end or even the long end of the curve. And so if interest rates go down or interest rates go up, as we have demonstrated quarter in, quarter out for a very long period of time, those changes in market interest rates really don't impact Farmer Mac much at all, a couple of basis points here and there. But we are not a bank that immediately benefits from sticky asset pricing and a drop in liability pricing. Ours move in tandem and are structured to remain in tandem. We carefully do upward and downward basis point shocks in funding. And today, as is the case virtually every day at Farmer Mac, those upward and downward shocks really don't result in a change in profitability in our earnings. So Zack, maybe you can add some color to what's driving NES and how the mix of business might impact that going forward? Zachary Carpenter: Yes, happy to. I think first and foremost, we really focus on appropriate risk-adjusted return at Farmer Mac. As we've evolved and diversified our business model, we are in new lines of business that carry different risks. And as we put capital to work, we want to make sure that we are achieving returns for those new lines of business. A couple of moving parts in this quarter, I think that showed the diversification benefit. We continue to see strong, strong growth in infrastructure finance. Two of the strong growth segments are broadband and renewable energy. We continue to see significant funding in those segments. Those are market-based deals that do, in many instances, carry more accretive spreads than our core Farm & Ranch or agricultural finance line of business. And in many instances, these transactions are construction financing. So when you think about a data center, a large commitment over that will fund over time. So we have a very strong pipeline of commitments in the broadband space that will fund as constructions take place, and we will take advantage of, I would say, more accretive spreads than our other lines of business. We don't see as the market evolves in this space, especially over the foreseeable future, significant changes in credit spreads in these sectors, and thus would anticipate that as fundings take place, relatively stable to accretive spreads in this space. In Farm & Ranch, there was a slight decrease in spreads, and this is typical. I mean, this is the seasonal nature of our payment cycle. We generally have more prepayments in the first and third quarters, and that generally creates some nonaccruals as we go through the quarter. And we had a little drag in Farm & Ranch from nonaccrual loans that over time will cure, and we'll receive that interest income, but that was the slight decrease in Farm & Ranch. And then the last component I would say is the investment-grade credit spread market out there is extremely, extremely tight. If you follow some of the transactions, there's tremendous pricing that these organizations are getting. So we're being prudent, especially in our AgVantage securities space, to refinance and provide incremental financing when the price makes sense for our capital to go to work. So in instances where there's very tight credit spreads that may not make sense for us to put capital out the door, we'll look at other segments such as broadband, renewable, and corporate ag that maybe carry a higher credit spread for us for our capital use versus putting capital out the door to AgVantage. So again, this goes back to our focus of strong risk-adjusted pricing across all of our segments and making sure that as we put capital to work, we're supporting our mission, but also getting paid for the risk that we're taking. Bose George: And then actually switching over to credit. As some of the other business lines continue to grow, should a provision around the current level that you reported this quarter and last quarter seem like a reasonable place? Or is it still going to be kind of sporadic based on what happens to the portfolio? Bradford Nordholm: First of all, in terms of context, this provision is tiny compared to other financial institutions. So we're talking about mid-high 7-figure allowance for an organization that had about $50 million of core after-tax earnings for the quarter. So keeping in that context, this is very, very low. You've seen it fluctuate at very low levels for many, many quarters. We go to great lengths to make sure that we uncover and appropriately allowance and value any credits that seem like they're getting in trouble. And what you see reflected in the third quarter reflects everything that we see right now. As I indicated in my comments earlier, we don't see systemic risks or sector risks where we have a series of loans that are in trouble. It tends to be a little bit more episodic. The closest that I reported in my comments earlier today were a few loans in California. I'm talking about a handful that were negatively impacted by changes in water policy in California in an effort to manage subsidies, the actual depletion of groundwater, and the lowering of the elevation of land. And that was a very, very comprehensive review. As of today, we don't see anything else on the horizon that would cause the numbers to increase. But look at, there's very likely to be continuing episodic events and some numbers here and there. Today, we don't see anything that would make us think that the number next quarter is going to jump out of that kind of 7-figure range. Operator: The next question comes from Bill Ryan from Seaport Global. William Ryan: I'd also like to extend congratulations to both you, Brad, and Zack, for the announcement a couple of months ago. A couple of questions. First, starting off on the big picture of things. Obviously, a lot of headlines over the last quarter that I think have impacted the stock price at least to some degree, specifically tariffs. And the media has portrayed as the end of the farmer, it seems like when you listen to the news. But obviously, you portrayed it very differently on the call today. Could you maybe remind us what the crops are that, I guess, I'd say we know about soybeans, but what are the crops that are being most impacted by tariffs? What are you seeing? And as far as having the market stabilization payments to farmers started? Or is that kind of on the come? Bradford Nordholm: Yes. Well, thank you, Bill. And we appreciate the recognition that you made that it's probably some of these headlines and major publications about negative developments in agriculture that have negatively impacted our stock price. We see the same thing. But it's always a little bit more of a nuanced story. Soybean prices in the last 2.5 weeks are up 10%. Almond prices were a very large portion of the crop, 50% is shipped to Asia, you think we'd be very negative in the last 1.5 years, prices there are up to over $3 a pound from a mid-$1 a pound range 18 months ago. So, yes, there are definitely financial pressures in major crops, soybeans, corn and cotton, also wheat. We pay great attention to that. We are very concerned about the farm families that may be negatively impacted by that. But we have seen these cycles in American agriculture before. The last time was in 2019, 2020. And we believe that through a combination of better balances in supply/demand globally, more stabilization in tariff and export policies, and farmers making crude decisions based on what they see in front of them. If you asked someone a month ago, "Are we going to be planting as many soybeans in the United States in 2026 as in '25?" The answer is a resounding no. Farmers are very smart and very adaptive, and they look at market conditions and adjust accordingly. So we look at what actually happens to our portfolio, which is really a second derivative from what's going on in the countryside. And we haven't seen the impact that may be suggested by the headlines. Going to discretionary payments, what we call market facilitation payments during the Trump first administration, I think we're expecting to see about $10 billion to $12 billion flow in the next couple of weeks. There is a discussion about additional payments towards the end of the year. We'll see how that materializes. And I would note, when you think about those headlines, that there are advocacy groups for farmers who are interested in telling a story that results in sentiment, greater support for voluntary payments from the federal government. And that has been one factor in what has been motivating and capturing a lot of headlines recently. Zachary Carpenter: Bill, this is Zack. Just one comment as you think about Farmer Mac and our unique nature as a national secondary market, but we're not focused on specific regions, and that's important. I mean, there's a lot of negativity on the soybean farmers out there. But if you look at dairy, protein, livestock, a significant part of the ag sector is having tremendously strong results, tremendously strong export markets. And when you think about Farmer Mac, I've looked at the year-to-date loan purchases in our Farm & Ranch space is over 100 different commodities in practically all 50 states, covering all of these different ag sectors. So I think it's important when you think about our national diversity that we are diverse. We are executing across all the different ag commodities, and we're seeing a lot of the benefits of the strength of many of those ag borrowers that are seeing record years wanting to buy more land, wanting to buy more equipment, and we're able to support that as well as we have concerns for providing liquidity and solutions for other farmers that may be having a more difficult time. William Ryan: And just as a follow-up question, you highlighted Farm & Ranch. And if I got my numbers right, the new business volume was up about 38% in the quarter, following a 28% year-over-year increase. Last quarter, I believe the outstanding balance was up for the first time in like 5 or 6 quarters in terms of outstandings. And you also know there's a higher level of prepayments in the quarter as well. Are we hitting a point that, that business might begin to accelerate a little bit more, just in terms of total outstanding volume? And a part of that has the structure of the loans that you're offering changed? Is it a fixed rate, a variable rate? Is the mix about the same as it has been in the past? Zachary Carpenter: I mean, that's a tremendous question. And I think we've been focused on this for some time now in a couple of different areas. First, yes, we are seeing a significant increase in loan applications, loan approvals using the Farmer Mac secondary market across the board. As I mentioned earlier, the number of commodities that we've supported this year is over 100. So it's broad-based. And I think that's coming from numerous different avenues. First, yes, there are ag sectors out there that are incredibly strong and want to borrow and leverage the opportunities in the market. We are seeing that. Clearly, some sectors need liquidity to support working capital. Many of these borrowers are underlevered. They have significant equity in their land, and it's a key component of getting liquidity to support maybe a tough 2025 harvest, and we're seeing that as well. Interestingly enough, a significant majority of the growth in 2025 has been new money loans, meaning borrowers coming in to find liquidity for a new land purchase, equipment purchase. So again, going back to Brad's point, we are not seeing that significant stress that people are reading in the environment and the articles in our portfolio, which gives us confidence that we see continued growth going forward. [Technical Difficulty] We anticipate that as rates continue to mostly come lower, that will also increase loan demand. In terms of the structure of our loans, we changed our under. We continue to be very consistent on how we look at risk buffer pricing risk that farmers generally go into more products given the pricing between fixed rate mortgage hasn't changed over the years consistently [indiscernible] is our bank's commercial institutions to manage their capital, their loan to deposit that need to potentially secondary market increased tension and/or for the second dynamics. We look forward to [indiscernible]. Operator: Next question, Brendan Michael McCarthy from Sidoti. Brendan Michael McCarthy: [ Technical Difficulty] Congratulations, Brad and Zack. I also wanted to just ask how prepayment expectations are looking ahead. Zachary Carpenter: [Technical Difficulty] Prepayment, I'd say, the drop in rates in 2021, we don't envision increasing significantly, just given that we don't think rates are going to drop to accelerated levels. And I think a key component of that is in 2020 and 2021, a significant number of borrowers who just locked in long-term fixed-rate mortgages at historically low rates, those are set for life. There's no way those are going to be touched or refined. So what we're seeing now is a much lower environment for prepayments given the bulk of those refinancings took place, coupled with rates may moderate a little bit, but it's not going to significantly come down to lower levels to entice that refinancing opportunity, which is tending to then lower prepayment speeds as well as farmers are going to take probably shorter maturity variable rate mortgages to manage the volatility that they experience across their different ag sectors. Brendan Michael McCarthy: I wanted to go to the net effective spread back up to 1.2%, a really strong level. I know, looking back at the past couple of quarters, there might have been the expectation that the net effective spread would stabilize, maybe closer to the mid-teens area. But obviously, there's some secular growth trends at play there with the infrastructure finance segment. Just curious if there's anything baked into that net effective spread, 1.2% that might have surprised you, or maybe just previous past quarterly movements upwards, has that come as a surprise at all to you? Bradford Nordholm: We acknowledge that it's probably a little bit higher than we have commented on over the last year. But so too has been the pace of growth, particularly in rural infrastructure, which is amongst the most accretive segments that we have. And so that's really the primary reason. It's a good news story from our standpoint. And I think Zack provided some good commentary and analysis on that mix going forward, with maybe a little bit of pressure on corporate and AgVantage, but acceleration of the Farm & Ranch opportunity and continuing very, very strong strength and expectations for rural infrastructure. Zachary Carpenter: Brendan, the only thing I'd comment on as well is mix is important here. We've been talking about some of the headwinds we've seen in Farm & Ranch AgVantage, that product by itself is a fairly tight net effective spread margin, just given the strength of the counterparties we're lending to. So when you see a lot of that volume mature, especially in this environment with historically low credit spreads, part of it we're choosing not to put money out the door because that investment doesn't make sense for us. So with that headwind in the maturity space and the significant growth elsewhere, the mix is really rebalancing the NIS spread to the higher level of our range than what we'd expect if we saw a lot of AgVantage volume. Brendan Michael McCarthy: And one quick question on the credit side with the $7.4 million provision in the quarter, specifically as it relates to the $6.8 million provision in Ag Finance. Just looking at the breakdown there, would you say that was more weighted towards just general volume growth or the groundwater regulations in California you mentioned? Bradford Nordholm: It was actually a mix of growth that comes through our CECL models and the groundwater. And I think we also called out 3 specific credits that had special allowances. So once again, it was a mix. I characterize it as episodic, and that's really what it was. Brendan Michael McCarthy: And then the $4.4 million charge-off, the 3 borrowers there, I guess that was probably disclosed previously in a provision. Is that correct? Bradford Nordholm: No. No, it was just 3 small loans. Brendan Michael McCarthy: Then lastly, I just wanted to obviously comment on the environment, more negative than what you have disclosed on the earnings call here regarding the diversification of your portfolio. But just considering where the share price is, and really, maybe a misconception among investors, were you active at all in the share repurchasing program that we discussed last quarter? Bradford Nordholm: We were. We disclosed the purchase of about 30,000 shares at a price of about $5 million. That was the fourth quarter. Operator: There are no further questions at this time. I will now turn the call over to Brad Nordholm. Please continue. Bradford Nordholm: Great. Well, thank you. Thank you very much. Once again, we really appreciate you taking time out of your day to join us. We're proud of our results. I hope that's very clear. Once again, I think someone once characterized our results as boring. If record NES, 17% ROE, stable credit factors, and an efficiency ratio of 30% or boring, I'll take that any day, and I hope you appreciate it, too. So thanks for joining us. And again, if you have any questions whatsoever, please take them in with Jalpa. We'll circle up the right team to have a special call with you, talk you through your questions. Otherwise, we look forward to getting back with you on our regular scheduled call in February to discuss our fourth quarter and fiscal 2025 results. Good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Vertex Pharmaceuticals Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead, ma'am. Susie Lisa: Good evening, all. My name is Susie Lisa, and as the Senior Vice President of Investor Relations, it is my pleasure to welcome you to our third quarter 2025 financial results conference call. On tonight's call, making prepared remarks, we have Dr. Reshma Kewalramani, Vertex's CEO and President; Duncan McKechnie, Chief Commercial Officer; and Charlie Wagner, Chief Operating and Financial Officer. We recommend that you access the webcast slides as you listen to this call. The call is being recorded, and a replay will be available on our website. We will make forward-looking statements on this call that are subject to the risks and uncertainties discussed in detail in today's press release and in our filings with the Securities and Exchange Commission. These statements, including, without limitation, those regarding Vertex's marketed medicines for cystic fibrosis, sickle cell disease, beta thalassemia and moderate to severe acute pain, our pipeline and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially. I would also note that select financial results and guidance that we will review on the call this evening are presented on a non-GAAP basis. I'll now turn the call over to Reshma. Reshma Kewalramani: Thanks, Susie. Good evening all, and thank you for joining us on the call today. Vertex delivered strong performance across the board in Q3 with $3.08 billion in revenue, reflecting double-digit growth versus Q3 2024. As we continue to extend our leadership in CF, we're also diversifying our revenue base by product and by geography with the growing global momentum of CASGEVY and the broad uptake JOURNAVX and acute pain across a wide range of prescribers pain types and settings of care, Concurrently, we are forward planning for the fourth vertical of Vertex's growth. Centered on renal diseases and povetacicept in multiple indications, starting with Pove in immunoglobulin A nephropathy or IgAN. Moving to the pipeline and starting with CF. Our long-standing goals in CF have been threefold: one, bring forward a medicine that can treat CF patients who make some amount of CFTR protein. Two, bring forward a medicine that restores CFTR function to normal levels as measured by sweat chloride and to do so from as early in life as possible. So patients have the potential to live a long and healthy life like people who carry just one CF allele; and three, bring forward a medicine for the last 5% of CF patients who do not make any CFTR protein at all. . We are making progress on all 3 fronts. First, ALYFTREK treats more mutations than TRIKAFTA. The number of patients newly eligible for CFTR modulator that treats the underlying cause of their disease is approximately 400 more patients in the U.S. and approximately 4,000 more patients in the EU than TRIKAFTA. In total, 95% of all patients are eligible or will be eligible for ALYFTREK as we make our way to lower age groups. Second, ALYFTREK, which launched in the U.S. late last year and is launching in Europe now has seen a strong response from patients and physicians who are excited for a once-daily medicine that can bring sweat chloride levels down in patients ages 6 plus to the lowest levels achieved of any CFTR modulator in this age group, 2 additional points to make on sweat chloride. We recently completed the pivotal study for TRIKAFTA for the 1- to 2-year patient population and the results are remarkable. The study's primary endpoint was safety and the data were consistent with the established safety profile of this medicine. The secondary endpoint was reduction in sweat chloride. The baseline sweat chloride was about 100 millimoles per liter, and over the course of the 24-week study, there was a mean reduction of more than 70 millimoles per liter from baseline through week 24. Furthermore, nearly 70% of patients in the study achieved levels of sweat chloride below the 30 millimole per liter threshold the level considered normal. This magnitude of sweat chloride improvement is unprecedented, and the largest reduction we have seen with any CFTR modulator in any population to date. We are on track to make global regulatory submissions for TRIKAFTA in this population of 1 to 2 year olds in the first half of 2026. Additionally, as we serially innovate, we continue to develop new CFTR regimens with the aim of reaching our long-standing objective of bringing the majority of patients of any age with CF to normal levels of sweat chloride. As I just discussed with the TRIKAFTA 1- to 2-year-old study, we are already there in our youngest patients. And in our ALYFTREK Phase III study of 6-11 year-olds, more than 50% of patients got to normal levels of sweat chloride VX-828, our NextGen 3.0 CFTR corrector is the most efficacious we have ever studied in vitro to enter the clinic. I am pleased to share we have now initiated the CF cohort in the VX-828 study. And third, regarding our final goal, VX-522, which we're developing for the 5,000 or so patients who cannot benefit from our CFTR modulators, we have resumed enrollment and dosing in the MAD portion of that Phase I/II study. Moving then to pain. In acute pain, during the quarter, we completed enrollment in 2 Phase IV trials evaluating JOURNAVX initiated preoperatively and as part of multimodal approaches to acute pain management. The interim analysis for one study will be shared at a medical conference later this week, and top line results for JOURNAVX show safety and efficacy, consistent with the pivotal program. Accompanied by substantial reductions in opioid use following aesthetic or reconstructive procedures with approximately 90% of participants being opioid-free compared to less than 10% after similar procedures per the literature. In neuropathic pain, the first DPN Phase III study is well underway, and we have completed work that sets up the initiation of the second DPN Phase III study later this month. Transitioning now to the kidney portfolio. Renal Medicine is experiencing a renaissance in drug development, and Vertex seeks to be a leader in the field. With our differentiated R&D approach, grounded in causal human biology, validated targets and biomarkers that translate, we have a broad portfolio of innovative therapies with transformative potential for patients with serious kidney diseases. Our clinical pipeline has first-in-class or best-in-class assets for 4 kidney diseases. 3 of which are already in or approaching pivotal development. VX-407 for autosomal dominant polycystic kidney disease, or ADPKD, and inaxaplin for APOL1-mediated kidney disease or AMKD pove for IgAN and pove for primary membranous nephropathy. Starting with VX-407 ADPKD, where the Phase II proof-of-concept study was initiated earlier this quarter. Recall, there are approximately 300,000 patients with ADPKD in the U.S. and Europe. These patients have limited treatment options and no approved therapies that treat the underlying cause of this disease. We believe that up to 10% of patients with ADPKD may be eligible for treatment with VX-407, a first-in-class small molecule protein folding corrector. VX-407 is designed to target the root cause of ADPKD by restoring PC1 protein function. This Phase II proof-of-concept study is a single-arm trial of 24 patients that evaluates the effect of VX-407 on height adjusted total kidney volume. The second kidney program to highlight is inaxaplin for primary AMKD, a disease that affects 150,000 patients in the U.S. and EU. Enrollment in the interim analysis cohort of the amplitude pivotal study has completed. The patients in this cohort are now being treated for 48 weeks, after which we will conduct the interim analysis. And if positive, we will be poised to submit for potential accelerated approval in the U.S. Additionally, we are running the amplified study, which is a Phase II proof-of-concept study of inaxaplin in patients with AMKD with moderate proteinuria or patients with AMKD and diabetes populations not being studied in the amplitude trial. AMPLIFIED is on track to complete enrollment by the end of this year. Now turning to povetacicept. The lead and first indication for pove is IgAN, a disease impacting more than 300,000 diagnosed patients in the U.S. and Europe and over 1 million patients globally. There are 4 points to highlight in this program. First, we completed enrollment of the interim analysis cohort of the RAINIER Phase 3 trial earlier this year. Second, the FDA has granted pove breakthrough therapy designation and rolling review for our BLA. Third, we have completed the studies to support the launch of pove for at-home self-administration with a subcutaneous auto-injector. Lastly, the new news, I'm very pleased to share tonight is that we have completed full enrollment in the RAINIER Phase 3 trial. The trial enrolled approximately 600 patients in approximately 15 months, the fastest of any contemporary Phase 3 study in IgAN and is a testament to the significant opportunity ahead for pove. Here's the outlook when you put these 4 major milestones together with the rolling review that the FDA is granted, we will begin our submission for potential accelerated approval before the end of this year. Once the interim analysis cohort completes 36 weeks of treatment, assuming the results are positive, we will complete our BLA submission for potential accelerated approval in the U.S. in the first half of 2026. We have used a priority review voucher, and thus, we have certainty that pove's BLA in the IgAN indication will receive an expedited priority review in the U.S. That is a 6-month review versus a traditional 10-month review. Next, and consistent with this pipeline and product potential, we are pleased to have initiated the pivotal study for the second potential renal indication for pove in primary membranous nephropathy. There are approximately 150,000 patients with membranous nephropathy in the U.S. and Europe and nearly 500,000 globally. Today, there are no approved therapies that treat the underlying cause of this disease, leaving a significant patient population with high unmet need. Pove was recently granted Fast Track designation by the FDA in membranous nephropathy and our Phase 2, 3 adaptive study OLYMPUS, is now underway. One final note in R&D regarding Zimislecel in type 1 diabetes. While we have completed enrollment in the pivotal trial for T1D, we have temporarily postponed completion of dosing while we work through an internal manufacturing analysis. As this is an ongoing pivotal trial, it is critical to maintain study integrity, and so we won't be providing any additional detail. I look forward to updating you once dosing is complete. In closing, Vertex now has 7 commercialized medicines. Five programs in Phase III development and an exciting earlier-stage R&D pipeline. Accordingly, as we drive to achieve our R&D milestones, we're executing on the concurrent work of getting our approved medicines to more patients around the globe and preparing for additional near-term potential launches. To tell you more about our commercial efforts, I'll now turn over the call to Duncan. Stuart Arbuckle: Thanks very much, Reshma. I will focus my comments tonight on the CF franchise, global launches of ALYFTREK and CASGEVY the U.S. launch of JOURNAVX and commercial planning for our potential launches in 4 serious kidney diseases, the first of which will be Pove in IgAN, Beginning with CF, our CF franchise delivered strong double-digit growth this quarter as we continue to grow the number of eligible patients taking our CFTR modulators. This reflects the ongoing launch of the ALYFTREK, progress with younger patients and patients with rare mutations, enhanced survival benefits of our therapies and expansion into new geographies, such as Brazil and Turkey. Focusing on ALYFTREK, our fifth therapy approved to treat the underlying cause of CF. We believe ALYFTREK is the best CFTR modulator available for eligible patients given that when compared to standard of care TRIKAFTA, ALYFTREK provides further improvements in CFTR function as measured by sweat chloride is indicated for additional rare mutations and offers the convenience of once-daily dosing. . The U.S. launch of ALYFTREK is progressing well across all patient groups. We have seen particularly rapid uptake in those patients who are naive to CFTR modulators and the vast majority of previously untreated patients in the U.S. have now been initiated on the ALYFTREK. We also see continued uptake by those patients who have previously discontinued one of our other CFTR modulators. Lastly, the pace of transition patients primarily those switching from TRIKAFTA remains steady and represents the majority of patients on ALYFTREK in the quarter. Outside the U.S., the early launch of ALYFTREK is off to a strong start in multiple European countries where patients have reimbursed access England, Ireland, Germany and Denmark. And the feedback has been very positive, both in terms of the clinical profile and once daily dosing. And as Reshma mentioned, there are nearly 10x as many newly eligible patients in Europe with rare mutations for TRIKAFTA and ALYFTREK than in the U.S. and no additional liver monitoring requirements. Overall, we are pleased with the response to ALYFTREK and continue to expect that the majority of patients around the globe will transition to ALYFTREK over time given its multiple benefits. Moving to CASGEVY, our transformative onetime treatment for patients with severe sickle cell disease and beta thalassemia. The momentum continues to build as we enter the last few months of 2025. As a result, we have a clear line of sight to over $100 million in CASGEVY revenue this year and significant growth in 2026. Importantly, we have seen continued progress in securing access to CASGEVY around the world, with the notable recent addition of reimbursement in Italy for TDT and SCD. Italy has the second largest population in the world of TDT patients at approximately 5,000 patients, about half of whom are eligible for CASGEVY. As further evidence of CASGEVY building momentum across all 3 regions, the U.S., Europe and the Middle East, I'm pleased to report that since launch and through the end of quarter 3, 2025 nearly 300 patients have been referred by their physicians to an ATC to initiate the treatment process. More than 160 patients now have had their first cell collection. This includes 110 in the first 9 months of 2025, double our full year 2024 total. And a total of 39 patients have received their infusions of CASGEVY edited cells, including 10 patients in the third quarter of 2025. We see continued growth in ATC's onboarding and initiating patients in the U.S., Europe and the Middle East as the treatment teams become more familiar with the process. Through the end of September, 25 ATCs had initiated more than 5 patients and at least one ATC in each of the 3 regions had initiated 20 or more patients. Given the very well understood duration of the treatment journey and the fact that we now have significant numbers of patients at every stage in the process, CASGEVY has a strong outlook, and we are excited to serve the growing numbers of patients through the end of this year into 2026 and beyond. Now shifting to the launch of JOURNAVX in moderate to severe acute pain. We continue to see a very positive reaction to this novel non-opioid option for the treatment of moderate to severe acute pain. As a reminder, our goals in 2025 were firstly secure broad payer coverage. Secondly, ensure hospital and health system access through P&T reviews and formulary adoption. And thirdly, drive broad usage of JOURNAVX across a range of physician and pain types with a seamless experience for physicians and patients alike. We are executing well on all fronts, and I'll now provide some details. We continue to make good progress with payers. As of mid-October, across commercial and government payers, over 170 million lives of reimbursed access to generics, up from the 150 million we discussed on our Q2 call. With commercial payers, our negotiations continue to progress favorably. We have formal coverage under 2 of the 3 large national PBMs and are working to add the third. In Medicare, we continue to engage with plans to secure coverage. And for Medicaid patients through mid-October, we now have a total of 19 states, up from 16 last quarter that are providing access to JOURNAVX without prior authorization or step edit requirements. We continue to expect that coverage across commercial, Medicare and Medicaid payers will expand through the balance of 2025 and into 2026. Note that even after national payers grant formal coverage for JOURNAVX, it can take time to ensure that all lives are covered in their downstream plans. Therefore, we plan to extend our patient support program, or PSP, into 2026 to ensure that if a physician makes the decision to prescribe JOURNAVX for their patient with acute pain, the patient will receive the medicine. Recall the PSP only kicks in for those patients without coverage or with highly restricted coverage. So for patient's plan reimburses JOURNAVX, the PSP program is not triggered. Secondly, we're making excellent progress with P&T committees at the approximately 150 healthcare systems and 2,000 hospitals we're targeting, more than 750 hospitals and approximately 90 of the 150 targeted large health care systems have now added JOURNAVX to their formularies, protocols or order sets. Thirdly, we continue to see broad adoption of JOURNAVX by a wide range of physicians, including orthopedic surgeons, plastic surgeons, anesthesiologists, pain specialists and dentists. They're using JOURNAVX in a wide range of pain settings, including surgical and nonsurgical procedures, such as joint replacement and repair, shoulder surgeries, fractures and sprains and dental procedures. In hospital systems and clinics that have adopted JOURNAVX, we have received impressive feedback from physicians in terms of very significantly reduced or eliminated opioid usage, consistent with the Phase 4 study results Reshma mentioned earlier. Reports from patients also continue to be very positive in terms of how well JOURNAVX manage their pain in addition to being well tolerated. We also continue to see that JOURNAVX is promotionally responsive to our field representative calls as well as our digital engagement with physicians. There is a clear correlation between frequency of calls and depth of prescription writing by physicians. For these reasons, and as we discussed last quarter, we're planning to add 150 additional representatives in the first quarter of 2026, which will enable us to increase our frequency of calls with existing prescribers and expand our coverage to additional physicians. And to raise awareness of JOURNAVX among consumers, we have a wide range of communication initiatives ongoing, including a partnership with basketball Superstar, Jayson Tatum as he shares his JOURNAVX treatment journey experience post is Achilles injury during the playoffs last season. Finally, as evidence of the growing reception in the marketplace, there have now been more than 300,000 prescriptions filled for JOURNAVX across the retail and hospital settings as of mid-October. We continue to have high confidence that there is a significant unmet need for an effective non-opioid option to treat moderate to severe acute pain, and we're in the early days of creating another multibillion-dollar franchise for Vertex. I'll close with some comments on our commercial planning for our potential launches in renal medicine, where we have begun the build-out of our commercialization team. We expect that our renal franchise will become a significant growth driver and value generator for Vertex over the next several years. I'll focus my comments this evening on our first step in that direction, pove in IgAN. We believe that pove offers a unique combination of attributes with a compelling clinical and patient profile. Firstly, pove is a fusion protein specifically engineered for better tissue penetration and to deliver optimized, targeted dual inhibition of the BAFF and APRIL cytokines. In the Ruby III clinical data we've seen to date, pove delivers substantial reductions in [ GDI GA1 ], hematuria and proteinuria. Secondly, among the APRIL only or dual BAFF APRIL inhibitors, pove has the most convenient dosing and administration for patients. Every 4 weeks at home administration via a subcutaneous auto-injector and the lowest dosage volume of less than 0.5 milliliters. And thirdly, pove is the only dual BAFF APRIL inhibitor in pivotal trials for multiple serious kidney diseases, IgAN and pMN. We believe pove has a superior mechanism of action, a superior clinical profile and will deliver a superior patient experience. In short, we believe pove holds best-in-class potential. We're excited to build out our renal franchise and prepare for commercialization in our fifth disease area with pove as a potential best-in-class treatment for IgAN. I'll now turn the call over to Charlie to review the financials. Charles Wagner: Thanks, Duncan. Vertex's Q3 2025 double-digit revenue growth demonstrates our consistent strong performance and attractive growth profile. Third quarter 2025 total revenue increased 11% year-over-year to $3.08 billion. U.S. revenue growth of 15% year-over-year was driven in CF by ongoing patient demand and favorable net pricing versus prior year. As well as contributions from ALYFTREK, CASGEVY and JOURNAVX. Revenue outside the U.S. grew 4% year-on-year, including mid-single-digit CF growth and a contribution from CASGEVY. . Included in Q3, '25 total global revenue and the regional growth rates was $17 million of CASGEVY revenue and $20 million from JOURNAVX. Third quarter 2025 combined non-GAAP R&D acquired IP R&D and SG&A expenses were $1.28 billion compared to $1.08 billion in the third quarter of 2024. Non-GAAP operating expenses increased 19% year-on-year, driven primarily by the continued advancement of our broad later-stage pipeline, including the acceleration of pove development programs as well as the build-out of commercial capabilities in pain. Acquired IP R&D expenses were $55 million compared to $15 million in the third quarter of 2024. Third quarter 2025 non-GAAP operating income was $1.38 billion compared to $1.31 billion in the third quarter of 2024. Third quarter 2025 non-GAAP effective tax rate was 17.6%, including benefits from R&D tax credits as a result of last year's Alpine acquisition. Third quarter 2025 non-GAAP net income was $1.24 billion compared to $1.14 billion in Q3 of '24. Third quarter 2025 non-GAAP earnings per share were $4.80, an increase of 10% compared to $4.38 in the third quarter of 2024. We ended the quarter with $12 billion in cash and investments after deploying approximately $1.1 billion to repurchase more than 2.7 million shares in the third quarter. Year-to-date, we have spent over $1.9 billion to repurchase approximately 4.5 million shares. Our priorities for cash deployment remain unchanged, innovation and growth fueled by investments, both internal and external, with a second priority of share repurchases. Now switching to guidance. With only one quarter remaining in 2025, we are updating our financial guidance for revenue, operating expenses and taxes. We now expect 2025 total revenue to be in a range of $11.9 billion to $12 billion versus prior guidance of $11.85 billion to $12 billion, representing growth of approximately 8% to 9% for the full year at current exchange rates. This outlook reflects our expectation for continued growth from our portfolio of CF medicines, including the ongoing launch of ALYFTREK in the U.S. and recent launches in Europe. As Duncan mentioned, full year revenue guidance also includes over $100 million of CASGEVY revenue as we treat more patients in geographies where we have secured regulatory approval and reimbursement. In addition, guidance reflects further contribution from JOURNAVX in the fourth quarter due to growing prescription volumes. We are also refining guidance for combined non-GAAP R&D acquired IP R&D and SG&A expenses and now expect operating expenses of approximately $5 billion to $5.1 billion versus prior guidance of $4.9 billion to $5 billion for the full year. This is primarily due to the acceleration in pove development programs across multiple indications and increased investment in commercial and marketing activities to support the launch of JOURNAVX. There is no change to our estimate of approximately $100 million in projected IPR&D charges for the full year, including the recently announced collaboration with Enlaza. We continue to expect an immaterial cost impact from tariffs in 2025 based on what we know today due to our significant U.S. presence and our geographically diverse supply chain. Of course, given the dynamic nature of the tariff situation, including the potential for sector-specific tariffs, this outlook is subject to change. And finally, we are lowering our expected full year 2025 non-GAAP effective tax rate guidance from a range of 20.5% to 21.5% to a revised range of 17% to 18% and to incorporate several onetime tax benefits. These benefits include those recognized in Q3 from Alpine related R&D tax credits as well as anticipated recognition in Q4 '25 of previously deferred tax benefits. In closing, Vertex yet again delivered strong results in Q3 '25, growing and diversifying our revenue with the launch of 2 new products in the U.S., ALYFTREK and JOURNAVX, the launch of ALYFTREK in Europe and the continued global launch of CASGEVY. We also made significant pipeline progress across the portfolio in mid- and late-stage clinical development, including pove's pipeline and a product potential and continued advancement. These and other anticipated milestones of continued progress in multiple disease areas are detailed on Slide 17. We look forward to updating you on our progress on future calls. I'll now ask Susie to begin the Q&A. Susie Lisa: Thanks, Charlie. And apologies, we understand there were issues with the webcast. And for that, we're sorry, working with our vendor Chorus call. We'll also look to get the transcript out as soon as possible. Chuck, can you please give the Q&A instructions? Operator: [Operator Instructions] And the first question will come from Geoff Meacham with Citibank. Geoffrey Meacham: I just have 2 quick ones. On ALYFTREK. Just wanted to get maybe a bit of a status update. Do you think you're hitting a tipping point with regard to kind of patient switching or those that are maybe kind of new starts and just curious about the monitoring requirement, whether that's sort of eased a little bit. And then the second thing is, as you guys look forward, Reshma, I know your nephrologist by training. So as you get closer to the pove dataset. Maybe just help us with kind of how you're thinking about the differentiation here versus the many BAFF, APRIL type of assets here? I know obviously, it's data dependent. I want to get your high-level comments? Reshma Kewalramani: You bet. Geoff, let me ask Duncan to take the question on ALY and I'll come back for pove. Duncan J. McKechnie: So yes, as far as ALYFTREK is concerned, I would say that the vast majority of the newly eligible patients in the U.S. have now started on ALYFTREK. And we're seeing the discontinued and transition patients transition nicely over to ALYFTREK as physicians are navigating the monitoring requirements over the first few months. The pace of transitions remain steady, and we're very happy with the progress. Outside the U.S., we're also seeing strong uptake in those countries with access. And I would add that in the 10 months since the launch of the ALYFTREK it's generated close to $0.5 billion of sales in revenue. So overall, we're pretty happy with the pace of progress on ALYFTREK. Reshma Kewalramani: Geoff, on povetacicept, let me focus my comments IgAN. It is really very exciting. The data that we're going to share at the ASM, which is this coming week, is more patients' worth of data and longer follow-up. And you should look for the endpoint of proteinuria, hematuria, you should also look for the pharmacodynamic marker in IgAN, which is called Gd-IgA1. I'm very, very excited about these results. To me, if you think about IgAN and what it means, it is a chronic disease that unfortunately results in death, dialysis or transplantation, that's what ends up happening to our patients. And so what we're really trying to do here is get those autoantibodies under control in order to mitigate that end point. If you look at the disease, it's a disease of elevated APRIL levels and elevated BAFF levels. It's not the case that just one of those two cytokines is elevated. So it makes all the sense in the world to me to inhibit both, which is what pove does. The next thing to look at is the preclinical data, and you've heard me say before, the reason we were so excited about Alpine and pove because it was specifically engineered for higher tissue distribution, potency and binding affinity. And then you translate that to the early data that we see in the clinic through RUBY-3. And it looks really good. Last thing I'll say is for patients who have this a chronic disease. The important thing is that they have a medicine, a biologic that they can take over time that is best for them. And from all of the data, not only in market research for IgAN patients, but you look at biologics in the marketplace is about the dosing small volume. It's about having an auto-injector and monthly dosing, which are key, and that's what we have with pove. Last thing to say, I do think nephrologists are also going to be interested in the fact that we've already started our Phase 2/3 trial in membranes. So all in all, it's pretty neat. Operator: The next question will come from Salveen Richter with Goldman Sachs. Salveen Richter: Just a follow-up on Jeff here with the pove data. With all those markers that we're going to look at in the longer-term Phase 2 data, maybe put that in context for us about how to think about the read-through to eGFR benefit and just kind of overall positioning as we look to these other 2 drugs that are out there or more? And then secondly, on the pain franchise, you talked for a bit about getting that third PBM on board prior to really opening up distribution. Could you just help us understand what's being finalized on that end? Reshma Kewalramani: Yes. Let me take the pove question first, Salveen, then I'll ask Duncan to comment on the last of the 3 PBMs. So Salveen in many renal diseases, including in IgAN, there's a very strong association of correlation between reductions in proteinuria and stabilization eGFR. And I expect that, that will hold up in all of these Phase 3 data that we see. I think the important thing to note though is that while the final end point -- that's to say even for traditional approval is eGFR showing the stabilization of eGFR. What we're really trying to do for our patients is to prevent those long-term complications of death, dialysis and transplantation, it's just that the endpoint if we measure that would take too long, so the agency has accepted eGFR stabilization of that is the fine end point. And so when you look at all of the evidence that's been generated over the course of time, the medicine that has the best reductions in proteinuria in hematuria, in this Gd-IgA1. I think that's the medicine that's going to be best for patients. If you think about the long-term outcomes. But I do think that the association of proteinuria and eGFR will hold, and I expect that you will see that. Duncan. Duncan J. McKechnie: Salveen, so I think it's important to note that we're building a long-term pain franchise here where, clearly, we want to secure broad access for patients, but we also want to ensure long-term value of our medicines. So we feel very happy with the progress we've made so far in securing 170 million lives for JOURNAVX in a relatively short period of time. . I would say that we're in productive ongoing conversations with the third PBM. And obviously, we'll keep you updated as we have news there. And as you know, in the meantime, patients who are not covered can get JOURNAVX through the patient support program. So overall, we're pleased with the access progress to date. It will continue to expand over the balance of 2025 and 2026. And in the meantime, of course, a key performance indicator is continued physician uptake and prescription growth while we secure access. And on that point, although you didn't ask, I would just reference the prescription growth we saw 10,000 prescriptions in quarter 1, 90,000 prescriptions in quarter 2, 170,000 prescriptions in quarter 3, and of course, several thousand in October. So we're very happy with the acceleration we're seeing in prescriptions while we finalize access. Operator: Your next question will come from Jessica Fye with JPMorgan. Jessica Fye: I was wondering if you could just touch on what your current priorities are as it relates to capital allocation and specifically on the business development front, is there a phase of development you feel as the sweet spot for assets that Vertex brings in? Reshma Kewalramani: Charlie? Charles Wagner: Yes, Jessica, no change in our priorities for capital allocation. We've said for some time now, our top priority is to reinvest in the business, both internally and externally to drive innovation and growth. That continues to be true. We are investing in our pipeline right now in commercialization. We are making capital investments in support of the business as well, and that remains the top priority. . A secondary priority for us is share buybacks. We were very active in the third quarter, taking advantage of the volatility in the stock price after the last earnings call. So we were out there buying aggressively in the quarter at prices that we think are quite attractive. And so that combination of reinvestment in the business, as well as share buybacks will continue to be the priority going forward. In terms of whether we are looking for assets of any specific stage of development, here, I think you know with our sandbox approach, we are always looking for the best technology and the best assets in any of the disease areas where we are focused. That sometimes takes the form of enabling technology. Sometimes it takes the form of programs that are either preclinical or in the clinic. We were certainly very happy with the Alpine acquisition last year. If we could find something like that again, we would certainly be interested but we are open to all types of deals that move our strategy forward in our different disease areas. Operator: Next question will come from Evan Seigerman with BMO Capital. Evan Seigerman: I want to touch on the competitive profile, pove. We talked about having an auto-injector and Q4 week dosing. Can you put the context of how important this is maybe in relationship to other competitive products that could be on the market? And why you think this could give you a competitive advantage? Reshma Kewalramani: Yes. Evan, I'll take team that with Duncan said he can give you a commercial perspective. The auto-injector once-monthly dosing in small volumes are really, really important. Of course, this means we've already stopped through safety, efficacy benefit risk and a really good-looking clinical profile. But especially in diseases where you're using a biologic this administration set of features just cannot be underestimated. Now I'll turn it over to Duncan to tell you about some examples in the field and maybe some market research as well, Duncan. Duncan J. McKechnie: Yes. Thank you for the question. So I mean, I would step back a little bit and just make the point that for a variety of reasons and attributes, we believe that pove offers best-in-class potential in terms of its mechanism of action, the way it's been specifically engineered for the disease the compelling clinical profile and then as you allude to, the patient profile, the key here is that it's dosed every 4 weeks at a very low volume. It can be administered at home. And those attributes are incredibly important, especially in biologics. They're being shown to significantly reduce patient burden, improve adherence and increased treatment satisfaction in other biologics previously launched. So -- we do think, although it sounds unimportant. Actually, this is a very important differentiator for pove alongside the mechanism of action and the excellent clinical data that we're seeing. So we're super excited to be bringing it to market. And for all of those reasons, we do think it has best-in-class potential. Operator: Your next question will come from Tazeen Ahmad with Bank of America. Tazeen Ahmad: Can you just provide some clarity on what the FDA had seen thus far that let them give you the confidence to start the filing early and get this breakthrough designation? For pove? Reshma Kewalramani: Yes, sure thing. So, we've had the opportunity to complete what's called a pre-BLA meeting. In other words, we've had the opportunity to sit with the agency, review all of the data to date, talk through what the filing submission, what's called the will look like. So they have access to all of our data and our plans for how we expect to be filing after we went through that meeting, that's when we got the breakthrough designation. It's also when we received their endorsement for rolling submission. . I would say that if the reason they have granted us breakthrough enrolling is probably the same as for most medicines that get it. They see unmet need. They [ tear ] a medicine that is attractive and can treat the disease at hand and that they have enthusiasm to receive the filing so that they can plan their workload. Brian Abrahams: Your next question will come from Terence Flynn with Morgan Stanley. Terence Flynn: Great. I was just wondering, Reshma, if there's any update on the NOPAIN Act and what you guys are doing on that front. And then I know you mentioned there's some Phase 4 data for JOURNAVX that's coming up here. Are we going to see anything on time to discharge setting? I know that's something that some physicians have asked about in the past. Reshma Kewalramani: Yes. Sure. Terence. On the no pain final list, it was supposed to be out on October 31. So last week Friday, and we understand that it's been postponed because of the government shutdown. We continue to advocate vigorously for the inclusion of JOURNAVX.An as we've talked before, while the dollar number may be small for hospital outpatient or surge center for Medicare patients. We think that the principle is really important. The NOPAIN Act was literally designed for a medicine like JOURNAVX. So we continue to have our conversations, but the list -- the finalization of that list and the release of that list has been delayed. I don't have an updated timeline for when it will be out. On the Phase IV data, we've now completed enrollment in 2 Phase IV studies. One is multimodal therapy and use prior to and post [indiscernible] aesthetic and reconstructive surgeries and another one is in orthopedic and general surgeries. The data that you're going to see later this week is in the aesthetic and reconstructive surgery area. And the trust of the data is about opioid reduction compared to what's seen in the literature. We have a whole host of additional studies coming that look at a variety of other endpoints, including discharge, but those data are not ready just yet. Operator: Your next question will come from David Risinger with Leerink Partners. . Unknown Analyst: I'm Edward calling on behalf of David Risinger. So 2 questions, please. For JOURNAVX, how many of the 170 million lives have unrestricted access and how many commercial lives are covered by the major PBMs. And the second question on the next-generation CF candidate VX-828. Can You provide more details on the PPP news ahead and also the timing for data disclosure? Reshma Kewalramani: Let me take the VX-828 question first, and I'll turn it over to Duncan to talk to you about JOURNAVX. So on VX-828, the important thing to know is it is the most efficacious medicine in vitro that we had ever studied and you know that our in vitro systems in CF have translated time and again, not only qualitatively but quantitatively to what we see in the clinic. So 828 is the most efficacious that we've seen so far. You should expect to see data next year. We're in the patient cohort now. I'll give you more specific time lines in the coming months, but you should see data next year. And in terms of what we're looking for, look, it is getting hard to do better than what we have today. The data that I described at TRIKAFTA 1- to 2-year-old is truly remarkable and unprecedented. But if it is possible to do better and by that, I mean bring more patients across all age groups to lower levels of sweat chloride, i.e., higher levels of CFTR protein function, that's what we are committed to do, and that's what we're looking for with VX-828, Duncan a couple of words on JOURNAVX. And the 170 million lives and tell us about the kind of coverage. Duncan J. McKechnie: Yes. So thank you for the question. So to answer it, of the 170 million lives, 113 million are unrestricted. So as I've communicated before, all of the contracts that we have done all of the agreements we have in place are for no prior authorization, no step edit. So we're very pleased indeed with that progress. And as I alluded to, in one of the earlier questions. We continue to make progress with the third PBM, where we're in active conversations and indeed with the Medicare plans as well. Operator: Next question will come from Philip Nadeau with TD Cowen. Philip Nadeau: Two commercial questions for us. First, on JOURNAVX, based on prescription trends and the prescription numbers that you said, it seems like gross to net continues to be quite high. Can you give us a sense of where it currently is and where it could be in 2026? And then second, on ALYFTREK, you said a couple of times steady transition from TRIKAFTA to ALYFTREK. When do you think you'd be in a position to give formal guidance, say, 3 years from now, some percentage of TRIKAFTA patients will be transitioned to ALYFTREK? Reshma Kewalramani: Sure thing. So let me take the second question first, and I'll turn it over to Charlie for gross to net. As you heard Duncan say, in the coming couple of years, we expect the majority of patients around the globe to who are on TRIKAFTA to transition to ALYFTREK. Because we believe ALYFTREK is the best available CFTR modulator. Charlie, a couple of words on gross to net and JOURNAVX. Charles Wagner: Yes.Phil. So the 3 drivers, of course, gross to net are payer discounts, wholesaler discounts and the impact of the patient support program with that last one being most significant in 2025. While we are working to expand payer coverage and finish some of the contracting work that Duncan talked about, the patient support program continues to be very active, and that's resulting in elevated gross to net for the time being. We're not yet ready to give guidance for 2026 on that until we've landed on the mix and the book of business with payers. I think it would be early to say anything about that for next year. Operator: Your next question will come from Paul Matteis with Stifel. Unknown Analyst: This is Julian on for Paul. I just wondering if there's any updated thinking around the potential development of suzetrigine in chronic pain following the update that you provided last quarter. Just wondering if there's any other indications you're pursuing or if there's any other way in which you're considering potentially even acquiring an asset to play in the space longer term as there's been greater interest from competitors? Reshma Kewalramani: Yes. The -- no new updates for you on suzetrigine in the peripheral neuropathic pain area. We are hyper-focused on getting our DPN study #2 up and running to secure the DPN indication, which -- for which there is a clear pathway concrete next steps for us to take and an ability to serve 2 million patients. With regard to our ideas for how to expand to the broader P&P market, there's a couple of things there. . We're working through what we believe would be the most efficient way to get there. We're also thinking through time lines for our NaV1.8 inhibitors, i.e., JOURNAVX and our NaV1.7s and the possibility of combination. So more to come on that. PNP remains very interesting to us. But the focus now is on securing the DPN indication, getting the second DPN study diabetic peripheral neuropathy study up and running. And I do think that we'll be completing both those studies by the end of next year. Operator: Your next question will come from Gena Wang with Barclays. Huidong Wang: So maybe I would just have one quick question regarding the Poly data later this week. I know you cannot disclose anything. Regarding the actual data. But just wondering, given if we look at Vera data, they're already setting eGFR, but are pretty high, basically flat or the slow is relatively I think a slope is minus 0.1%. So here, do you think with your drug profile, do you think it could actually improve the eGFR over the longer treatment? Reshma Kewalramani: Yes. Gena, I do understand your question. I think -- you'll be pleased with the data that we show at ASN later this week, I certainly am. I would say the same thing that I said to Salveen reductions in premier in a number of homogeneous renal diseases with proteinuria that translated to stabilization of eGFR. And so I think that, that will happen. I think the more important question is, over the long term, as we treat our patients with IgAN or membranous and we have medicines that can get patients to lower levels of proteinuria completely eliminate if not decrease, hematuria, gets a low levels of these [indiscernible] Gd-IgA antibodies. I think that's where we're going to see practice move. And I think you're already seeing that with KDIGO guidelines, for example. I won't jump ahead of the data coming at ASN, but you will see eGFR data from the Povetacicept IgAN program. Operator: Your next question will come from Mohit Bansal with Wells Fargo. Mohit Bansal: And I would also emphasize or asked a question around the BD here. I would love to understand your thought process here given that, I mean, you said that if we find something like pove, we would go for it. I think the only challenge is that Vertex is not a small company anymore. So maybe is there a -- is there a chance that you would look at bigger deals in that $5 billion to $10 billion range as well? Or given your cash position, you think you would probably be nimble and small when it comes to BD at this point? Reshma Kewalramani: This is Reshma. Sorry, sorry. I'm sorry. I think Charlie summarized it really well. Our BD strategy is very much in lockstep with our internal innovation strategy. It's all about the Sandbox diseases and our approach to R&D, high unmet need, the biomarkers that translate from bench to bedside as well as targets that are validated, be it a genetic or pharmacology efficient clinical development and regulatory pathways and specialty markets. That is the -- those are the guiding principles that have led us to where we are. And you can bet that we're going to keep going with the same. It's not about the size. It's all about fit with R&D strategy. Operator: The next question will come from Myles Minter with William Blair. Unknown Analyst: This is Jake on for Myles. I have a couple for you. First, I wanted to ask you about any updates to your DM1 program when or how much data we can expect and then sort of how you're evaluating that program given the recent acquisition of Avidity. And then on CASGEVY, can you remind us as patients are going through the process and then enrolling into this long-term follow-up study, your policy for disclosing adverse events would those be both from the preconditioning regimen or from the editing regimen or both? Reshma Kewalramani: Yes. Let's maybe do CASGEVY first. For all of the clinical trial patient data, whether it's in the primary, let's call it, the primary sickle cell disease and beta thal studies [ CLIN 1 ] and [ CLIN 2 ] or if it's in the long-term follow-up study, they get reported through the clinical trial system. For commercially treated patients, they get reported as physicians may report through to either the company or to the FDA in the normal manner. DM1 is an exciting program for us. You might recall that the way we set up the study in order to be most efficient and fastest to pivotal development if the data are supportive, is we did a SAD/MAD directly in patients. We've completed the SaaS portion of DM1, and we're in the MAD portion now. I expect that we'll be able to complete the study and have results next year. And what that means is because we are in patients, it will be safety and efficacy. Operator: Last question. The last question of the day will come from William Pickering with Bernstein. William Pickering: I have 2 about pove and pMN if I may. The first is if you could discuss the competitive landscape in that indication and perhaps compared to IgAN? And then the second is how you define the pMN addressable market. I think that Biogen has estimated only 36,000 patients in the U.S., which seems a bit more conservative than your combined U.S. and EU number would imply? Reshma Kewalramani: Yes. So with regard to membranous, there are some similarities between IgAN nephropathy and membranous the most compelling is that they are both B-cell mediated diseases where there's autoantibody formation and that the autoantibodies end up depositing in the kidney, which leads to the kidney dysfunction. The way that membranous and IgAN are different is clearly in prevalent. There's about 700,000 people with IgAN, for example, in China. It's a really significant disease in Asia I think the estimates are something like 300,000 in the Western world, while membranous is more like 150,000 in the Western world. The competitive landscape is also different much more competitive intensity in IgAN nephropathy, likely because it's a larger patient population. To the best of my knowledge, we're the only APRIL/BAFF, for example, in pivotal development for membranous. And I do think exactly for the reason that these are both B cell-mediated diseases, I think a drug like Poly has best-in-class potential in membranous. And in the APRIL/BAFF class, we're in the lead because we are already initiated in the Phase 2/3. I hope that helps. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Susie Lisa: Thanks, everyone, for joining. Apologies again for the technical issues. We'll look to have the replay up as soon as possible. And with that, Chuck, if you can give that information. Thank you. Operator: Yes, ma'am. The conference has now concluded. Thank you for attending today's presentation. A replay of today's event will be available shortly after the call concludes by dialing 1 (877) 344-7529 or 1 (412) 317-0088. Using replay access code 101-96553. Thank you for your participation. You may now disconnect.
Operator: Michael Benstock: Thank you for the introduction, operator, and welcome, everyone, to our call. I'll start by discussing evolving market conditions, followed by a review of our third quarter consolidated financial highlights as well as our revenue performance by business segment. Then Mike will take us through a more detailed review of our financial results before we're joined by the President of our Branded Products business, Jake Himelstein, to take questions. Our third quarter earnings were solid, came in as expected, and represents sequential improvement from the second quarter. Also, today, we're adjusting our full year revenue outlook range to reflect a higher midpoint. As we pointed out last quarter, we had a significant pull forward of branded product revenues into the second quarter of this year. In addition, as you know, we had a very robust quarter 1 year ago for the many reasons we've discussed at the time. Both these factors affect the year-over-year comparison we reported today, but again, this was as expected, and we continue to execute and show sequential progress with pipelines that continue to build. Currently, there is still a significant level of uncertainty and caution among our customers and potential new prospects across all of our business segments. This has caused a significant uptick of promising near-term opportunities in our pipelines. And as our prospective customers gain clear insights into trade policies, inflation, and interest rates, we will be well positioned to achieve stronger growth with solid margins. We remain committed to leveraging our sales capabilities effectively while maintaining tight expense management in this uncertain environment. Let's review our third quarter results, which reflect our successful navigation of the demand environment just described. While our consolidated revenue declined by 7% compared to the same period last year, we also managed to reduce SG&A expenses by 7% or $3.9 million. In fact, all 3 segments saw improvements in SG&A, which started to take hold in Q2 and have been fully realized during Q3. I applaud our business leaders for focusing on this while not losing sight of repeating our strong history of coming out of uncertain economic times with larger market share. In other words, we have encouraged our leadership team to be especially cost-conscious. However, in areas where we have significant opportunity to drive long-term growth, we continue to aggressively invest. Next, let's talk about our largest segment, Branded Products. We experienced an 8% revenue decline due to factors we discussed on prior calls, such as sales pull forward, lower employee turnover among customers, smaller average order sizes, and delayed ordering. However, when we consider combined second and third quarter results, branded products revenue has, in fact, increased compared to last year, supported by a stronger pipeline and order backlog. That is something truly remarkable when you consider the macro headwinds. As shareholders, you need to know that we remain laser-focused on expanding our market share in this attractive, highly fragmented market. Our strategy continues to include recruiting more sales representatives as well as developing and leveraging software automation to make sales representatives and customer interactions more efficient. These initiatives will drive the acquisition of new accounts and help expand our wallet share within our existing customer base. Next up is Healthcare Apparel, which saw a 5% decline in revenue relative to the third quarter of 2024 as macro uncertainty weighed on both our wholesale-related consumer channels and institutional health care apparel. Recognizing the softness in demand, we reduced expenses while continuing to invest in demand-driven activities to support our Wink and Carhartt licensed brands. These efforts are not only resulting in the growth of our own direct-to-consumer channel, but also an increased footprint in the retail stores of certain wholesale customers that will provide an opportunity for further growth as the economy heats up when uncertainty dissipates. The healthcare apparel industry has significant secular growth drivers on which we are well-positioned to capitalize over time. Turning to our third business segment. Contact center revenue declined 9% relative to the third quarter of 2024. Consistent with the prior quarter, the downsizing and loss of existing customers outweighed new customer growth as prospective customers are slow to commit, given the economic uncertainties that I described. Despite the short-term effect, our pipeline remains strong, and we're beginning to realize new customer conversions. I'll wrap up by mentioning that our balance sheet remains strong, which Mike will provide even more details on in just a moment. This allows us to wisely invest and strategically execute our plan to profitably grow market share across our entire business. With that, Mike will now walk us through a more detailed review of the third quarter results before Mike, Jake, and I take your questions. Mike? Michael Koempel: Thank you, Michael, and thanks, everyone, for being with us today. Our third quarter consolidated revenues came in at $138 million, up 7% relative to the year-earlier period. Branded Products, our largest segment, produced revenue of $85 million, down from $93 million in the year-ago period. As we mentioned in August, this was due to $8 million in timing of orders delivered in the prior quarter in order to navigate the tariff environment, as well as lower sales volume and pricing related to certain customers. These decreases were partially offset by a $2.9 million increase resulting from revenue generated by 3 Point following the acquisition in December 2024. Our next largest segment, Healthcare Apparel, had revenues of $32 million, a 5% decline relative to the third quarter of 2024 from lower volume with certain customers due to heightened wholesale and retail customer uncertainty. Revenue for contact centers was up 9% to $23 million for the quarter, driven by lower volume, as Michael previously described. Despite the short-term challenges, our sales efforts and competitive differentiation across all 3 of our businesses continue to make for robust pipelines of business. And we're confident that once market conditions normalize, we will be able to capitalize and drive profitable growth, leveraging our existing investments and recent cost reductions. Our consolidated third quarter gross margin of 38.3% was down from a peak of 40.4% in the year-ago quarter, but sequentially consistent with the second quarter. The Branded Products segment's gross margin rate of 34.8% was down 140 basis points, driven by customer sales mix. The Healthcare Apparel segment's gross margin rate of 38.5% was down from a peak margin of 41.8% in the year-ago quarter due to product cost reductions last year, but its margin rate is up sequentially from the first and second quarters. While the gross margin rate for contact centers of 52.9% was consistent with the prior quarter, it was down from 54.9% last year, driven by higher agent costs and unfavorable margin mix associated with the closure of our Jamaica center. Overall, we improved third quarter SG&A expenses year-over-year by $4 million to $48 million, resulting in SG&A as a percent of sales of 35%, flat to the year-ago quarter despite the quarterly sales decline. SG&A costs declined across all 3 segments, driven by lower employee-related costs, cost reductions initiated in the second quarter, and a credit loss reserve recognized in the contact center segment in the year-ago quarter. Based on these results, our overall EBITDA of $7.5 million was up sequentially from $6.1 million in the prior quarter, although still off from $11.7 million in the prior year. Again, our growing pipeline of new business enterprise-wide suggests that as sales conversion improves, we should be able to generate attractive, profitable growth given our improved cost structure. Moving on to net interest expense. This was $1.4 million for the third quarter, improved from $1.6 million a year earlier, reflecting a lower weighted average interest rate. And turning to the bottom line. We generated net income of $2.7 million, up sequentially from $1.6 million in the second quarter, but down from $5.4 million in the strong year-ago quarter. This equated to earnings per diluted share of $0.18, up from $0.10 in the second quarter but compared to $0.33 in the third quarter of 2024. Our balance sheet remains healthy as we continue to maintain a strong cash and cash equivalents balance, which was $17 million as of the end of September. Therefore, the combination of our cash and cash equivalents plus the available capacity under our revolving credit facility provides SGC with over $100 million of liquidity to execute our growth plans while continuing to return capital to our shareholders, such as through our quarterly dividend and our share repurchase authorization, which had approximately $12 million available as of September 30. I'll close our prepared remarks with an update to our full-year outlook. Specifically, we're tightening our revenue outlook, resulting in a new range of $560 million to $570 million compared to the previous range of $550 million to $575 million, translating into a higher midpoint and slight growth year-over-year at the high end of our range. As we've mentioned earlier, while the growth environment remains subdued across our 3 businesses, our pipelines remain strong, and we are focused on converting these pipelines while maintaining expense discipline. The investments that we've made to date have positioned us for growth as economic uncertainty dissipates and will enable us to capture additional market share across our 3 attractive lines of business. With that, operator, Michael, Jake, and I will be happy to take questions. If you could please open the line. Operator: [Operator Instructions] And our first question today comes from Michael Kupinski from NOBLE Capital Markets. Michael Kupinski: First of all, congratulations on your impressive SG&A reductions, pretty impressive in a challenged environment. A couple of questions. First of all, on Branded Products, you just -- can you just kind of describe the environment? Is it kind of one of hesitancy in buying, and kind of like the shifting sands of trade policy? Or do you feel like you're kind of getting back towards a more normalized environment? Michael Benstock: It's a great question. This is Michael. I'm going to turn it over to Jake since he's with us today. As I said, Jake is the President of our largest segment, our Branded Products segment. So Jake, take it away. Jake Himelstein: I would say that the market has been challenged over the last couple of quarters because of the tariff environment. Look, in an industry where large proportion of stuff that we're bringing in comes from overseas. Tariffs are clearly going to have an impact. And so macroeconomic uncertainty, tariff-related volatility, it does exist, and it influences customer behavior. So clients are being selective about where they place their dollars, focus on value and speed to market. So the new tariff announcements that came out over the weekend are definitely positive. We see that across the organization. They're a positive announcement that will hopefully normalize things a bit and provide some stability. And when we see things like this come when there's a little bit more certainty, orders follow quickly behind. And so we talk to our clients really weekly about these updates and already hearing very positive things. The nice thing about where we're positioned versus our competitors is we are proactive from the start and been very, very, very communicative with our clients on this. lean into demand where it existed, been able to source things in lower tariff jurisdictions, and expand share of wallet with customers because we're at the forefront and talking to our customers day in, day out about what's going on, not just bearing our heads in the sand. So we've actually seen it as an opportunity to build pipeline and build a backlog, which we've done to date. Michael Kupinski: If you don't mind, if I can squeeze in a couple more? I believe in the last quarter, you mentioned that you purchased inventory for Branded Products in healthcare in advance. I was just wondering where you are in working off that inventory, and maybe kind of give us your thoughts on potential cost increases of inventory going forward. Michael Benstock: Why don't you jump on the branded product side of that, Jake? Jake Himelstein: As it relates to inventory, we've been opportunistic where we can bring in inventory from lower tariff jurisdictions and have them on the shelves or bring them in from domestic sources. We've done that. So there are some instances where we've said, look, tariffs are high from outside jurisdictions. We'll bring them in from domestic sources and sell Maiden USA products. We've been opportunistic about that, but try to be smart about it and really work as partners with our clients to tell them, hey, look, this is an area where we should slow down buying, or we should speed up buying and build up inventories in certain instances. So for us, it's really about communication, and there are certain instances with clients where it makes sense to build up a larger inventory position. And there are certain instances where we say, hey, we should hold off right here, and we should wait to see what happens. Like a month ago or a couple of weeks ago, when the 100% tariff announcement came out of China, we told our clients to pause and wait and see what happened. And sure enough, now, a couple of weeks later, we're in a better environment where we are picking up some of the inventory buys to fill that backlog. Michael Benstock: And then, Michael, this is Mike. On the healthcare side, this is really where we're able to leverage the advantage of our Haiti sourcing as a company, because in terms of duty, certainly more advantageous than other countries. So on the health care side, we really didn't have too much of a, what I'll call, prebuild in advance of tariffs. because we're able to leverage the advantage of Haiti. And then just in general, in terms of managing the tariff pressure in general, just as Jake has done, our healthcare business has also been able to adjust pricing to offset the tariffs that we are incurring with respect to Haiti and some of the other locations where we're sourcing our healthcare product. Michael Kupinski: And sorry for my last question here. I know that in the last quarter, you indicated that you lost a client in the call center and that it would impact this quarter. I was just wondering if you can quantify that impact and then maybe just talk a little bit about the pipeline and if you kind of think whether or not you might see kind of swing towards growth in that call center business, and maybe give us your thoughts about that pipeline. Michael Benstock: Sure. The impact of the solar customer on an annualized basis about a couple of million dollars on an annualized basis. With that said, that business is still going through a transition. So it's quite possible that there's an opportunity for us to grow or retain portions of that business. So that's a little bit of a moving target as we speak, but that will just kind of give you, Michael, some just general sense of the impact. As it relates to the contact centers, it's really, I would say, consistent with what we've described in the previous quarter and also mentioned in our prepared remarks. We're still seeing what I would call elongated decision-making. We are starting to see, what I'll say, some green shoots. I mean, as companies are feeling the pressure to get efficient as they're looking for opportunities to improve margin, we're starting to see some movement in the pipeline that we have, which we believe will benefit us in 2026. Operator: And our next question comes from Jim Sidoti from Sidoti & Company. James Sidoti: Can you talk about your pricing power? Do you think you'll be able to maintain price or approximately increase price over the next couple of quarters? And where do you think that goes? Michael Benstock: Jake, do you want to start with Branded Products, and then I can jump in on the other segments? Jake Himelstein: Sure, Jim. So we've been able to increase pricing in spots where costs have increased. So if you look at the Branded Products segment, the majority of the segment has orders that are priced to order. So someone orders a product, and then there's a price that goes along with it for that specific order. And so if there's tariffs associated with it or there's additional duties or general cost increases, those typically get passed along to customers. And it might hurt the overall buying power, or how much someone is buying, or the customer behavior. But typically, those prices are getting passed through. On longer-term contracts that have set pricing, we have largely put through pricing increases to offset the impact of tariffs. And in very, very rare instances that we've been forced to eat the cost of those tariffs. But as public as it is, everyone sort of knows the environment we're in, which has allowed us to pass through virtually all of those cost increases to our customers. Michael Benstock: And then, Michael -- I'm sorry, Jim, on the health care side, we initiated price increases starting in July and then again in August. So what we did see in the third quarter is that we were able to largely offset the tariff impact in Q3. You might recall, we did have a tariff impact in Q2 because the tariffs were implemented before we put price increases in. So we had sort of an initial impact. Our expectation going forward would be that we can continue to offset those tariffs, obviously, depending upon whether the tariff environment changes. But based on what we know today, we would expect to continue to be able to offset that pressure in healthcare. In the contact center business, obviously, you don't really have the tariff impact. And so not really any changes, I would say, from a pricing standpoint as it relates to our contact center business. James Sidoti: And then if I take the midpoint of your guidance, it looks like your revenue will be up about $7 million sequentially in the fourth quarter. Do you think that's primarily in the Branded Products business? Or is that spread throughout Branded Products and healthcare? And is that just the normal seasonality that you're factoring in? Michael Benstock: Jim, it would be primarily related to the Branded Products segment. And maybe, again, I can just push it over to Jake to sort of highlight a couple of the drivers there. Jake Himelstein: Thanks, Mike. Bookings are strong, Jim. The pipeline is strong, a lot of new opportunities. As I mentioned before, in an environment where a lot of our competitors are kind of turning their head or paring their head in the sand, we're getting a lot more aggressive. So while conditions are unsteady or uneven, we're seeing really good activity levels across key accounts. And as we continue to bring on new accounts, we feel very good about the prospect for the future, right? Our customer attrition is extremely low. And what that means is that revenue on a client-by-client basis can vary based on a number of factors, right? It can go up or down based on macroeconomic, employee turnover, the company, our clients' performance. But as we continue to add more logos or add more clients to our roster, as things get more normalized and recover, we're just going to see more and more revenue come along with those new logos. Operator: Our next question comes from Keegan Cox from D.A. Davidson. Keegan Tierney Cox: I was just wondering if you could give any color on your sales trends kind of by month, or what areas you're seeing strength in each segment? Michael Benstock: Keegan, this is Mike. I'll take your question. What I would say about the fourth quarter is that we would see sales building month-to-month, with December really being our largest month. And I would also -- back to the prior question, what we're seeing and expecting is a build from Q3 to Q4, really in the Branded Products segment for the reasons that Jake articulated. Keegan Tierney Cox: And then I guess my follow-up would be, what are you guys seeing on the acquisition opportunities at the moment? I know you kind of talked about a better environment, and you guys seem to hold on to cash this quarter. So wondering what your view is there. Michael Koempel: I would say it's a very rich playing field. There's a lot out there. Always with uncertainty comes a lot of people decide this may be the time to call it quits and be part of a larger organization, or they back want to cash in and take some of their chips off the table. No different. It's become more and more prevalent. And I would say valuations are not at their highest, which is good for a buyer. We're looking at a lot of decks that come across our tables. I know Jake is -- there's a few every single week. And unfortunately, we have to kiss a lot of frogs along the way. And we have a very specific criteria for what we're looking for. And if it doesn't meet that criteria, we quickly take a pass on it. We do get into some deep discussions along the way. And sometimes that helps us learn more about the whole process and who else we might be approaching and what other verticals they may be in, which could be helpful to us. But we're -- I can tell you, we're being as aggressive as we need to be. I don't think it's about conserving cash for any period of time. Our leverage ratios are very much in line for us to do an acquisition now or any time for the rest of this year or next year, but it's got to be the right deal. So clearly, we've said in the past that most of that opportunity is going to come from the branded products side of the business; having 25,000 competitors makes that a richer playing field. We would be looking on the contact center side for businesses like us that were smaller than us, more, I would call them mom-pop shops that may have a great geography serving verticals that we don't service that could get us into some new types of business. But mostly, we'd be looking for the right geography that would be a lower-cost geography. There's plenty like that. They're a little bit harder to uncover. I think Jake could probably get a list of the 25,000 competitors tomorrow, whereas on the call center side, that data really doesn't exist quite in the same format. And a lot of people -- for a lot of people, they have 1, 2, 5 customers, and they've made a business out of it, but they made a good business out of it. So I'm spending a lot of my time now that Mike is President on the acquisition side. And I would expect that we'll see something happen in the next year for sure. Keegan Tierney Cox: And if I can sneak one more in, and I might have missed this on the call, but how much did the cost savings program help this quarter? Michael Benstock: Sure. The cost savings, so when you look at -- we had about $4 million in reduction in G&A. And I would say about half of that was related to our cost savings. And as Michael said in his prepared remarks, those have been fully executed, phasing in, and all of those are currently executed and driving benefit for us each month. Michael Koempel: Yes. We said a couple of quarters ago that we anticipated on an annualized basis against budget that we would save $13 million. So some of the savings had to do with us not spending money that we had intended to. And so about half of that is against actual results. Operator: And ladies and gentlemen, at this time, we will be ending today's question-and-answer session. I'd like to turn the floor back over to Michael Benstock for any closing remarks. Michael Benstock: Thanks, operator, and thanks, everyone, for being on today's call. We certainly appreciate your interest in Superior Group of Companies. I want to thank Jake for joining us today. I think he's able to give insights that really was very, very clear. I want to congratulate Mike again for his ascension to President of SGC. I'm very excited about that. We'll continue, I can assure you, to make strides across all 3 of our very attractive businesses, positioning SGC for the creation of significant shareholder value over time. Look forward to seeing many of you during the many upcoming conferences and road shows that we'll be doing. And in the meantime, please don't hesitate to reach out with any additional questions. Thanks again for your interest. Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
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 Hims & Hers Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Bill Newby, Head of Investor Relations. Please go ahead. Bill Newby: Good afternoon, everyone, and welcome to the Hims & Hers Health Third Quarter 2025 Earnings Call. Today, after the market closed, we released this quarter's shareholder letter, a copy of which you can find on our website at investors.hims.com. On the call with me today is Andrew Dudum, our Co-Founder and Chief Executive Officer; and Yemi Okupe, our Chief Financial Officer. Before I hand it over to Andrew, I need to remind you of legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on, among other things, our current market, competitors and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. We take no obligation to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. The risks, uncertainties and other factors that could cause actual results to differ from our forward-looking statements are described in our earnings release and SEC filings. Please see our recent earnings release and most recently filed 10-K and 10-Q reports for a discussion of these risk factors as they relate to forward-looking statements. In today's presentation, we also have certain non-GAAP financial measures. We refer you to the reconciliation tables to the most directly comparable GAAP financial measures contained in today's press release and shareholder letter. You can find this information as well as a link to today's webcast at investors.hims.com. After the call, this webcast will be archived on the website for 12 months. And with that, I will turn the call over to Andrew. Andrew Dudum: Thanks, Bill. The third quarter was another strong step forward for Hims & Hers. Our strategy is working. We're expanding reach, deepening engagement and transforming how people experience health care. And the most exciting part is that this growing scale is making the entire experience better for our subscribers. Hims & Hers is one of the few health care platforms where each customer engagement improves the overall experience. Scale doesn't just make us bigger, it makes us better. The learnings from each encounter position us to drive better experiences, stronger customer relationships and wider accessibility. Personalized care sits at the center of this evolution. Our growing scale means more people have access to treatment plans that can adapt to their unique needs, biology and goals by incorporating a variety of form factors, dosing regimens and multi-condition solutions. Our consistent focus on democratizing access to these types of experiences continues to deliver meaningful results for our business. At the end of the quarter, subscribers using personalized solutions grew 50% year-over-year, helping drive nearly 50% in year-over-year revenue growth. Over the past few years, how we serve our customers has evolved in extraordinary ways. We started by helping people access simple, effective treatments for a narrow set of conditions. Then we expanded into personalized multi-condition care, giving customers a single place to manage a wide variety of health challenges with solutions tailored to them. Now looking ahead, we plan to go beyond helping people treat their existing conditions and start helping them proactively manage their health before conditions even materialize. As we continue building a platform that unlocks broader access to care that's personal, proactive and connected, we expect that broader collaboration will become key. Whether that's through partnerships, investments or joint innovation, we see enormous potential to work alongside others across the health care ecosystem to make this future a reality. As we noted in our earnings release, we are in active discussions with Novo Nordisk to make Wegovy injections and once FDA approved Novo's oral Wegovy available through our platform to continue advancing consumer options. Earlier in the quarter, we announced a partnership with Marius Pharmaceuticals, which will allow our customers to access one of the few FDA-approved oral testosterone treatments in 2026. We expect these solutions, combined with consistent provider support and the ability to seamlessly track hormone levels via the Hims app can help redefine how millions of men access effective hormonal care. And most recently, we made a strategic investment in GRAIL, the company behind what we believe is the most advanced multi-cancer early detection test on the market. We are proud to invest in a company that shares our vision for the future. These relationships underscore the potential of what we've been building. They reflect our ongoing commitment to making our platform a powerful curator of the best-in-class health and wellness solutions. Over time, we plan to pursue a mix of strategic investments, partnerships and collaborations in order to build a single destination where customers can access a range of innovative offerings alongside the most personal, convenient care available. These recent developments are an exciting glimpse into a future where access to proactive preventative care is not a privilege but a standard. I've never been more excited about where this company is heading. When we initially shared our 2030 goals earlier this year of more than $6.5 billion in revenue and $1.3 billion in adjusted EBITDA, it was with this clear vision in mind. Today, we're delivering against that vision in a real way. The opportunities to accelerate our trajectory are materializing quicker than anticipated, and we are leaning in. Let's start with weight loss, which remains one of the most important global health challenges impacting nearly 1 billion adults around the world. Since launching this specialty nearly 2 years ago, we've shown that combining reliable access to effective medications with a best-in-class experience has the potential to change lives. We believe that customers are best supported when they have access to data-driven provider recommendations, ongoing clinical guidance and easy-to-use digital tools that track progress. The foundation behind our continued growth will be the ongoing verticalization of our compounding infrastructure. We believe investments in these facilities are establishing a new gold standard for compounding infrastructure broadly, positioning us to accelerate growth while maintaining the high standards of safety, quality and affordability our customers are accustomed to. Importantly, this means all active pharmaceutical ingredients in compounded treatments are sourced from FDA-registered facilities. And in cases such as semaglutide, for which the FDA recently established a green list of GLP-1 API suppliers, we source solely from these suppliers. As our scale has grown, we've also shown a consistent track record of translating that growth into greater efficiency. This track record and ongoing efforts to verticalize our sterile compounding operations support our ongoing pursuit to make GLP-1 offerings increasingly accessible. Recently, we strategically reduced prices across compounded GLP-1 treatment plans by as much as 20%, extending accessible care to an even broader population. In the quarters ahead, we'll also continue expanding the breadth of options accessible through our platform. Our technology and vertically integrated infrastructure are unlocking new levels of personalization, most recently with the addition of microdosing options for compounded semaglutide treatments. It's allowing us to deliver what we believe is the most high-touch patient-centric experience in the market. And as we help more customers find the right treatment and support providers in evolving patient care, we're continuing to strengthen that leadership position. Put simply, we're making it easier for more customers to start, stay on and succeed in their own weight loss journey, and we're confident that we'll continue to drive results for a growing set of customers by doing so. We're also extending the benefits of our consumer-centric approach to new specialties. We believe recent launches supporting low testosterone and menopause unlock significant long-term growth opportunities and increase our ability to deepen relationships with existing subscribers while expanding access to care for millions more. The current state of hormone health care in the U.S. reflects the exact challenge Hims & Hers was designed for, conditions that impact millions, available treatment options that can make a real difference and a system that still makes access far too hard. We're changing that. Millions of men experience symptoms of low testosterone but face stigma, confusion or limited access to effective care. Our recent launch aims to address these issues with access to personalized provider-guided treatment plans supported by at-home lab testing. While still early, the response to this launch has already indicated an immediate product market fit, and we're actively optimizing both the experience and the operational engine behind this offering to meet the strong demand. Through our perimenopause and menopause offering, we're addressing one of the biggest gaps in women's health. Nearly 1.3 million women in the U.S. enter menopause each year, yet only 30% of OB/GYN residency programs offer formal training on how to treat it. Our new Hers offering helps close this gap by providing access to personalized care and support designed specifically for women during this stage of life. We expect this offering to become a meaningful growth driver as the Hers brand reaches more women and scales towards $1 billion in annual revenue in 2026. Together, these launches expand our reach across life stages and conditions, and more importantly, they lay the groundwork for the next era where Hims & Hers can change the status quo for millions of customers, proactive health and diagnostics. We plan to launch comprehensive whole body lab testing before year-end, which will represent a significant step forward in this evolution. By scaling capabilities like blood testing, we're thrilled to help more customers affordably access the insights they need to monitor, maintain and improve their overall health. We envision these capabilities empowering consumers to proactively address health concerns such as vitamin deficiencies, unoptimized hormonal levels and genetic risk factors while also identifying early indicators of more serious conditions like cancer and cardiovascular disease. Historically, people have come to us to manage existing conditions. Soon, we'll help them take a more proactive role in managing their health and in doing so, can potentially impact millions of lives. Our goal is to one day help identify and manage risks associated with heart disease, metabolic disorders, neurodegenerative diseases and cancer, long before symptoms appear. We believe our platform is uniquely positioned to make this possible. We have the lab testing capabilities to give customers and providers deeper health insights. We have the provider network and compounding infrastructure in place to help take action against those insights, and we have a strengthening data feedback loop that can help measure, adapt and refine care at scale. We believe that combination positions Hims & Hers to do what few others in health care can, turn data into tailored action for millions of people. These capabilities alongside our California-based peptide manufacturing facility, which is actively onshoring R&D for core peptide applications form the foundation of the longevity specialty we plan to launch in 2026. We plan to scale the specialty to feature a broad range of therapies in addition to our new testing options. Over time, we expect these will include peptides, coenzymes, GLP and GIP treatments designed to improve performance, recovery and cardiometabolic longevity markers. Each of these initiatives are part of a broader effort to make advanced diagnostics and the care that follows more accessible. Through investment and when appropriate partnerships, we expect this type of care, which has historically been accessible only to a small affluent subset of the population available to each of our customers. Finally, our success in the U.S. and U.K. gives us real conviction that our model can scale globally. We believe that this team, vision and balance sheet we have in place are uniquely positioned to scale a leading consumer health platform globally. In Europe, our acquisition of Zava Global gives us the infrastructure to serve customers across the U.K., Germany, France, Ireland and Spain. We're now reaching a total addressable market of more than 200 million adults across these regions, and the early response continues to validate how naturally our model translates. Next, we're preparing to launch in Canada in the near future, notably expanding our North America presence. With 2/3 of Canadian adults overweight or living with obesity, we're incredibly excited about this opportunity to make high-touch care more accessible. We are in active discussions with leading generic manufacturers to ensure that once semaglutide becomes available in generic form in 2026, we are ready to deliver access through our platform. Looking ahead, we see international markets as a powerful long-term growth opportunity, representing more than $1 billion in potential annual revenue. We're deploying meaningful capital to bring the Hims & Hers experience to more customers across the U.K. and broader European markets, where we see a significant opportunity to scale our model and deepen our presence. We believe Hims & Hers will soon become the largest global consumer health platform, unlocking access to direct-to-consumer personalized care for more customers than any company in the world. This approach extends across our entire business. The runway for growth and the opportunities to drive accelerating adoption across a wide range of conditions and health concerns are clear. We'll keep investing in what matters most, expanding our reach, deepening engagement and broadening our capabilities, allowing customers to manage and improve their health on one single platform. Since founding this company, I've never been more excited than I am right now. The future of health care is ours to build, and we are building it piece by piece. With that, I'll pass it over to Yemi to talk through our financial performance and updated outlook for 2025. Yemi Okupe: Thanks, Andrew. I'll start by providing an overview of our third quarter financial results before going deeper into our final outlook for 2025. In the third quarter, our commitment to doing more for our customers drove another period of exceptional growth and expansion. By consistently introducing new innovative offerings and broadening the range of specialties we support, we're systematically increasing the number of individuals we are able to reach and help. This growing breadth of care anchored in a precision medicine-based approach is enabling us to reach customers at multiple points throughout their health care journey and evolve with them as their needs change. During the third quarter, revenue grew 49% year-over-year to nearly $600 million, while adjusted EBITDA margins were above 13%. In the third quarter, our subscriber base increased sequentially by more than 30,000, reflecting a year-over-year growth rate of 20%. We see the formation of a robust foundation of multiyear growth levers across 3 key areas of our portfolio: offerings under our Hims brand in the U.S., offerings under our Hers brand in the U.S. and an expanding portfolio of international markets. Within our Hims brand, we are making a deliberate effort to transition away from generic on-demand sexual health solutions towards more personalized daily treatment offerings that allow providers to address a wider spectrum of needs. Excluding the impact of the current sexual health transition, subscribers in the third quarter grew north of 40% year-over-year. Our expectation is that the effects of this transition will meaningfully dissipate in the second half of next year. We believe that these dynamics in conjunction with the launch of new offerings such as testosterone will result in accelerating growth in the second half of 2026 within our Hims portfolio. Switching to Hers. We've seen the collective offerings under our Hers brand grow near or above triple digits for the last several years and are now on pace to deliver revenue of over $1 billion in 2026. We expect the addition of new specialties such as menopause, diagnostics and longevity to continue driving strong growth across the Hers portfolio. Before going deeper into the investments we are making to drive growth across our strategic areas, I'll provide an overview of profitability dynamics. During the third quarter, adjusted EBITDA grew more than 50% year-over-year to $78 million, offering another strong proof point of our team's ability to execute with discipline and deliver results consistent within our capital allocation framework. Adjusted EBITDA margins increased relative to the prior year as significant leverage on our marketing spend more than offset higher costs, and we continue to benefit from investments that are enabling us to scale new specialties, expand our global footprint and further elevate the talent across the organization. In particular, we're making meaningful investments in talent across our technology organization as we build out the team and infrastructure that will power our next phase of expansion. Marketing as a percentage of revenue was 39%, representing more than 6 points of leverage year-over-year. We continue to see acquisition gains through lower cost and nonpaid channels, benefits from higher retention as more subscribers benefit from personalized offerings and a more stable backdrop within our weight loss offering. Each of these factors has resulted in leverage from revenue growth outpacing marketing investment. Gross margins declined over 2 points quarter-over-quarter to 74% as tailwinds from continued growth in non-weight specialties were offset by lower intra-quarter revenue recognized per shipment from certain weight loss offerings due to shorter shipping cadences. G&A costs were also pressured as a result of the Zava integration as well as additional expenses related to the hiring of new leadership talent. G&A as a percentage of revenue increased 2 points year-over-year. A similar dynamic was seen in operations and support costs. Technology and development costs as a percentage of revenue increased nearly 2 points year-over-year to 7%, reflecting ongoing investment in engineering and product talent across the organization. We expect to continue investing in this area over the coming quarters as these initiatives enhance the customer experience and drive long-term financial returns. We believe these investments will pay back over the mid- to long term in the form of reduced costs from greater efficiency, but more importantly, through unlocking new growth vectors for the company in the future. Our priorities center around long-term free cash flow generation and each of the investments we are making today set the foundation for greater free cash flow generation in the future. In the third quarter, cash flow from operations was $149 million, which translated into free cash flow of $79 million. At quarter end, we had over $1.1 billion of cash, short-term and long-term investments, of which $630 million was held in cash and short-term investments. The strength of our cash flow and balance sheet places us in a unique position to strategically deploy capital to expand both organically as well as through strategic M&A opportunities. We believe this to be a meaningful differentiator and opportunity to cement our leadership position as we do not believe that there is a peer in our space that has the resources and expertise to do the same. Similar to prior quarters, we expect to invest across the following areas. First is continued verticalization and expansion of personalized capabilities within our facilities. In the coming quarters, we expect our operational footprint and capabilities to continue to expand. We entered the year with a facility footprint of just under 400,000 square feet and expect to leave the year with a footprint north of 1 million. This will enable us to unlock additional form factors like gummies across a broader set of specialties, increase capacity for fulfillment of sterile offerings as well as leverage insights from diagnostic capabilities to have an even more comprehensive set of multi-condition offerings. While we expect to see retention and acquisition benefits across each of our specialties, this will be a particularly important component with respect to: one, broadening the appeal of our sexual health offering while we transition from on-demand offerings towards daily solutions; and two, leveraging verticalization to make higher complexity offerings, inclusive of our weight loss and testosterone solutions more affordable with minimal long-term margin sacrifices. Second, we plan to continue expanding the breadth of solutions and enhancing the customer experience across our new specialties. In the third quarter, we were pleased to launch our low testosterone offering and have already seen strong interest from our current subscriber base. In the fourth quarter, we have launched solutions for perimenopause and menopause support and plan to launch comprehensive lab testing diagnostics, both of which we believe will be meaningful accelerants to the business. We expect continued investments in our facilities will enable us to broaden solutions within these specialties as well as reduce cost of verticalization. Third, we continue to see strategic investments, partnerships and collaborations as powerful tools to extend our impact and advance our mission. Our recent investment in GRAIL exemplifies this approach. Through these initiatives, we see real opportunity to leverage our balance sheet to strengthen relationships across the broader health care ecosystem. Over time, these efforts can make new and innovative developments in health care more accessible to a broader portion of the population. Fourth, we expect to make meaningful investments in the capabilities of our technology platform. We believe the breadth of data on our platform and its utility value in helping our subscribers optimize their health will meaningfully increase with the launch of deeper diagnostic testing from our offerings. This can come in the form of data-driven treatment recommendations, chatbots to enable faster nonclinical customer solutions or AI-assisted tools such as nutritional coaches. We are already seeing early wins and look forward to bringing deeper updates on this front in the future. Lastly, our mission to help the world feel great through the power of better health does not have borders. Success in the U.K. was a catalyst in our expansion into Germany, France, Ireland and Spain through the Zava acquisition, and soon, we will add Canada to that list. The strength of our balance sheet and the considerable cash flow profile we built in the U.S. position us to deploy capital into these more nascent markets in a disciplined way. Additionally, we expect to meaningfully scale our operations in the U.K. with more investment in expanded capabilities and reinforcement of our brand, given signals around the significant opportunity that we see. Further refinement of our playbook unlocks our potential to expand in Brazil, Australia and other Latin American and Asian markets in the future. Hims & Hers is undergoing another significant evolution on multiple fronts, technology, new capabilities, new specialties as well as expanding geographical coverage. One of the most exciting shifts will come from what our upcoming launch of comprehensive whole body diagnostic testing will bring. Currently, consumers come to our platform seeking a solution for a known condition that they want help with. With deeper diagnostics, we believe we'll be able to orient to a model that allows subscribers to proactively manage their health in pursuit of healthier and longer lives. This will enable us to attract a broader set of consumers as well as deepen engagement with our current subscribers. Over the coming quarters, we expect to elevate investment to unlock capabilities to improve the experience we bring to current and future subscribers. Investment will be focused on accelerating adoption in new specialties, enhancing our technical talent to build a next-generation technology platform and cementing our leadership position by delivering greater value to our subscribers. Our capital allocation framework will remain in place, and we believe similar to past investment periods, we will realize a meaningful return on these investments in the future. With that, I'll double-click into our outlook for the remainder of the year. In the fourth quarter, we expect revenue to be between $605 million to $625 million, representing a year-over-year growth rate of between 26% and 30%. We are anticipating adjusted EBITDA in the range of $55 million to $65 million, reflecting a 10% margin at the midpoint. For the full year, we expect revenue to be between $2.335 billion and $2.355 billion, reflecting a year-over-year increase that ranges from 58% to 59%. We are anticipating adjusted EBITDA in the range of $307 million to $317 million, reflecting a 13% margin at the midpoint. Behind our outlook are the following assumptions. First, we expect the migration of fulfillment for sterile weight loss products to 503A facilities to drive between $20 million to $25 million of headwinds in the fourth quarter from shorter shipment cadences that result in less revenue recognized per shipment. This dynamic will normalize in the second half of 2026 as the cohorts of customers refilling their orders accumulate. We are making meaningful investments to expand our internal 503A sterile fulfillment capacity. Progress on this front gave us conviction to make GLP-1s more accessible through lowering the price points for our 2-month, 4-month and 6-month offerings in the fourth quarter. This is expected to come with near-term margin headwinds that will normalize in the second half of next year as we continue to progress with the verticalization of our sterile fulfillment capabilities. Second, we continue to expect at least $50 million of incremental revenue from Zava in the second half of the year. Since closing the acquisition in July, momentum has been strong, and we're actively deploying resources in our proven consumer-centric playbook to capture the significant market opportunities we see across Europe. Lastly, we expect the continued moderation in our on-demand sexual health business to persist in the near term, though these headwinds should begin to ease in 2026 as daily sexual health subscribers and multi-condition treatment plans become a larger share of the mix. The ongoing shift for personalized offerings remains a key driver of long-term revenue retention, supporting our target of 85% or higher, positioning the business for more durable recurring growth over time. As Andrew mentioned, we're excited to be in a position where we can confidently invest in the long-term trajectory of our business. We expect these investments to start in the fourth quarter and continue through 2026 as we scale new categories, build a larger presence in new markets and begin driving greater value to subscribers through innovative partnerships. While this may result in a temporary pause in year-over-year margin expansion, we believe these investments will meaningfully extend the reach of our platform around the world. With the immense opportunity in front of us, our conviction remains high in our ability to meet or exceed the 2030 targets we established earlier this year, at least $6.5 billion in revenue and $1.3 billion in adjusted EBITDA. Our success would not be possible without the significant efforts of Hims & Hers employees around the world. I'd like to thank them, our subscribers and our shareholders, for supporting us in our mission to help the world feel great through the power of better health. With that, I'll turn it back to Bill to kick off Q&A with 2 questions from our retail investor community. Bill Newby: Thanks, Yemi, and thank you to all the investors who sent in questions over the weekend. We received a number of questions on the upcoming launches of lab testing in our longevity offering. This one comes from [ Nick G ]. What is the time line to release a full stack subscription service that includes at-home testing and additional products and services like peptides and a broader longevity offering? What are the biggest hurdles for this type of rollout? Andrew Dudum: Yes. Thanks, Nick, for the question. Great question. We are extremely excited about both of those 2 categories. As we shared in the prepared remarks, we will be launching the whole body lab testing on the platform very soon before the year-end. I think this is a really exciting one for me personally. I mean this is a set of tests that historically cost me and my family upwards of anywhere from $5,000 to $10,000 for this type of comprehensive testing, and we'll be bringing it to market for an absolute fraction of that cost. So really an incredibly powerful opportunity for true equalization for anybody out there to be able to get a sense of where their body is at, where their family is standing and the people that they love, making sure that they're getting ahead of any issues that they're unaware of. I think this testing lays the foundation for the longevity specialty that we mentioned, which, again, is a really exciting new category. This specialty will be coming to market in 2026, and will include a really wide range of treatments from on-market peptides, coenzymes, GLP, GIP treatments, all that will be designed and blended with performance, recovery, cardiometabolic longevity markers as the core optimization of choice. So this is a category that is, again, leading the charge on health and wellness. It's something that a very few have access to today. And I think the great equalization and bringing this to more people is going to be something that's going to be incredibly powerful. In that category, we're also hopeful that the current administration can help further expand access to more of these peptides. I think there's a growing list of them from BPC-157 and TB-500 and others where research is starting to show real health and longevity benefits. And I think expanded care there is just going to be great for customers. I think the other advantage we have in this category, which is an exciting one is, as you all remember, we acquired the California-based peptide manufacturing plant, and that facility is up and running and operating and currently onshoring a lot of R&D that I think is going to be very important for the vast range of options on the peptide side that will be a part of this future category. Bill Newby: Thanks, Andrew. The next question comes from the Hims House community and focuses on some of the trends we're seeing in our longer tenured businesses. The question is, earlier this year, you indicated the core business was meeting or exceeding expectations. It's now clear that we've started to see some growth deceleration in a few of these places. How confident are you that you'll be able to reaccelerate core growth over the coming quarters? And what specific levers can you pull? And what's the realistic time line to see in these results? Yemi Okupe: Yes. Thanks for the question on Hims House. I think what we see is we see the world rapidly evolving with new specialties, and we see the specialties more and more becoming a blend of one another. I think as we look at some of the new capabilities that we'll have later this year, such as diagnostics, I think that's only going to further accelerate. And so we increasingly see each of the components that we outlined and Andrew laid out and the vision for where the company is going to in the future is really becoming part of the core offering. And so we spoke around this a little bit in the prepared remarks, but we increasingly look at the business across a few strategic areas. The first is Hims U.S. The next is in our Hers U.S. business. And finally, we see a great deal of opportunity in the international markets. As we look around just the scale and the footprint of opportunities within each of those strategic areas, we see several growth vectors that have the ability to not only continue to drive strong growth, but potentially accelerate in the second half. So we the new specialties such as testosterone in the Hims brand or menopause and longevity in the Hers brand. And as we also start to shift towards being able to proactively help consumers manage their care with lab diagnostics, I think these trends are only going to accelerate. We spoke about some of the near-term headwinds that we're seeing this year with respect to the shift towards the daily sexual health consumers and away from the on-demand sexual health users as well as some of the dynamics around the shorter weight loss cadences. As we start to turn the corner around in the second half of the year, we remain very confident that we'll see both the Hims & Hers businesses not only remain strong growth drivers, but also potentially accelerate growth in the future. Bill Newby: Thanks, Yemi, and thanks again to everyone who sent in questions. With that, I will pass it back to the operator to begin the regular way analyst Q&A. Operator: Your first question comes from the line of Justin Patterson with KeyBanc Capital Markets. Justin Patterson: Andrew, as diagnostic capabilities ramp up, how do you envision the pace in which you provide personalized treatments and expand into new specialties changes? And then related to that, how might you adjust your marketing efforts to make more consumers aware of just this expanded offering? Andrew Dudum: Yes. Great question, Justin. I think it's going to rapidly accelerate the pace of bringing new products to market. When you can understand everything from nutrient deficiencies to pre kind of genetic risk markers, your ability to adapt the assortment and SKU and hyper-personalized just accelerates. And so we shared in the prepared remarks that by the year-end, we'll be north of 1 million square feet of infrastructure and have really built what I think is gold standard and true high-quality compounding capabilities, my hope is that the diagnostics open up a real floodgate of opportunity for hyper-personalization. On the marketing side, I think it's a really big change, which is a really exciting one. I think historically, the business has been very much direct marketing focused given the very stigmatized conditions that we offer, right, things like hair loss, sexual health, et cetera. When you start getting into diagnostics, when you start getting into longevity, whole body health, wellness, these are categories that you want to talk about. There are categories that you want to share with the people you love, right? There are categories you want to share with your family. There are products within this offering that I personally have been buying for my family for years because I just want my loved ones to have access to them. So I do think there's going to be a really structural change in how you see the Hims & Hers brand show up, the types of messaging that is going to be going out there. I think this ultimately allows for great long-term leverage in the business, which is really exciting, but also just can really transform how people know our business to be, right? Instead of coming just for acute issues, I think there's an opportunity here to build a platform globally where not only tens of millions but hundreds of millions of people can rely on you to help get ahead of health and help get proactive with health. And I think you're really going to see that show up in the transformation of the brand and the types of messaging and the types of places that we're showing up. Operator: The next question comes from the line of Maria Ripps with Canaccord Genuity. Maria Ripps: I just wanted to ask about sort of your approach to the portfolio of GLP-1 solutions on the platform, especially if the Novo partnership moves forward. And I guess, are there any other GLP-1 solutions that you may add sort of to the specialty? And then secondly, can you maybe talk about sort of consumer price sensitivity to compounded GLP-1s at this point? And how do you see sort of price reductions impacting demand? Andrew Dudum: Yes. Thanks, Maria. Great question. I'll talk to the first part and Yemi, maybe you can jump on the second. Generally, I think breadth and assortment and choice for patients is the winning formula. So we're excited to be able to reengage with Novo about the Wegovy pill that is hopefully to be FDA approved as well as the commercial dosing. I think they and others will have more and more innovation coming. There's also obviously advancements in biotech that are in Phase II and Phase III trials that have next-generation GLP-1, GIP dual and tri-agonist opportunities. So our stance is that breadth and assortment and choice ultimately gives each individual more personalized abilities to just have great outcomes. And so you'll see us continue to pursue a wide range of treatments here. I think generally, it's inevitable that partnerships like this where we are the largest consumer distribution platform in health care and others are the best in bringing new therapeutic innovations to market, those types of companies should be working together ultimately. So I think you're going to see more of that in the ecosystem, but it's definitely something that we have a lot of brain power on and are making sure that as advancements in the next generation comes, we have great relationships with the teams and they understand the opportunities that we can have together. Yemi Okupe: Yes. And then to hit the second part of your question, Maria. I think our weight loss specialty follows a very similar principle that we've deployed across our historical specialties. And that centers around scaling, verticalizing and then optimizing and passing the value and the savings back to our subscribers. And so we do see across both our weight loss specialty, inclusive of the orals as well as GLP-1s is the high-touch model that we have with providers really is resonating with our subscribers. We see strong retention across the platform. Our view is that as we -- similar to other specialties that we've done with in the past, as we're able to make the price points more accessible to a broader base of users, that will enable us to continue to draw on a broader audience. And so we see some very early promising signs with some of the recent changes that we've made. We're excited to continue to invest to verticalize our operations at a high-quality standard to continue to pass those benefits back to our subscribers. Operator: The next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig Hettenbach: Yes. First question is just on the Hers business and the color of kind of approaching $1 billion in revenue in 2026. Can you just touch on just the cadence of the new menopause products like how much that may move the needle? Or do you expect kind of the growth to be driven mainly by the existing products going into 2026? Andrew Dudum: Yes, I can speak a little bit to that, Craig, and Yemi, feel free to jump in. I think Hers has a really nice range of growth drivers. We've talked about in the last couple of quarters, that growth rate being triple digits or around there. And I think there's real path over the next few years for it to maintain that type of trajectory. You've got legacy categories, "Legacy" that are a few years old on the dermatology side that are still growing extremely quickly. You've got obviously the oral weight business, the personalized weight business on the GLP side that is growing very robustly. And then I think these new categories in hormonal health, perimenopause as well as longevity and diagnostics are going to be very important for women and this demographic. So it's a business line that I think has 4 or 5 different growth engines. It's probably one of the more exciting parts for me of the business just because you're able to see the platform extend to completely new audiences, different ages, different demographics and completely new therapeutic categories. But it's one where there's real diversity coming from the composition of that growth. Yemi Okupe: Yes. And just to add a couple of things to that, Craig. I think what we also just see as the Hers platform has scaled, our ability to invest in the brands distinctly continues to increasingly elevate. And now with the broader set of portfolio that we have across things like mental health, the menopausal support, air, weight, soon to be diagnostics. I think similar to what we saw with Hims, that just gives us a broader spectrum with which to speak to our consumer base and capture them early in their journey. We also see that, as Andrew mentioned, diagnostics as being a key evolution point for the company that will benefit both the Hims business and Hers business. I think that will enable us to proactively help consumers manage their care. And so while we're very excited by that business on a stand-alone basis, its ability to also highlight newer specialties that we should be entering or personalize the treatments in a more precise fashion, I think will not only increase retention, but also broaden the subscriber base that we're able to reach not only within the Hers business but also the Hims business as well. Craig Hettenbach: Great. And then just as my follow-up, Yemi, I appreciate the color on the investments you're making in the business. You kind of alluded to a temporary pause in margins. Is it possible margins could contract year-over-year in 2026 before you see the follow-through? Or do you think despite these investments, you can kind of hold ground on margins into next year? Yemi Okupe: Yes. I think it's a bit too early to give specific color around 2026. The teams are actively undergoing the plans. I think we're following a similar investment thesis to what we've deployed in the past, similar to 2023, where we lean into investment. Within a couple of quarters, we started to see rapid margin expansion. I think here, we have a much broader set of levers. And I think what also just gives us the conviction in these investments that they will be accretive. Some of them will be new capabilities and new specialties. I think we have a broad set of options to verticalize and optimize the unit economics on some of those new specialties that gives a great deal of confidence. I think we're also investing in things like talent that tend to have a exponential and asymmetric ROI as those folks come in and start to really just change the capabilities and the trajectory for what our technology platform can do, we see a significant amount of upside. And so I think we're -- it's a little bit too early to give you specifics around 2026 guide, but we do see immense opportunity not just for future growth levers, but for continued free cash flow generation as well as the midterm expense of margin expansion that we've seen in prior quarters as well. Operator: Your next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats on the quarter. Maybe just on the topic of cash flows, I mean buybacks were kind of strong in the quarter. Just curious how you're thinking about capital deployment towards buybacks versus obviously, you're spending a good amount of capital on CapEx. Yemi Okupe: Yes. I think we have the luxury of very strong free operating cash flow as well as a very strong cash position. I think similar to prior quarters, any time where we view that there is a meaningful disconnect in the valuation of the company, the market value relative to its intrinsic value, we will step in and act. And so I think in the prior quarter, we did see those dynamics take play with some of the volatility that we saw in our stock. So we opted to lean in. That said, I think that the first and foremost priority will always be around investing in the appropriate levers to grow the business. That includes, like we talked about earlier in the prepared remarks, extending the set of personalized capabilities that we have to offer our patients, investing in the overall platform as well as in international markets. But I think we just have the luxury of a very strong balance sheet and very strong cash flow, we're able to do all of those things while at the same time, realize disconnects between the intrinsic value and the market value when those arise. Brian Tanquilut: Got it. And then I guess my follow-up, as I think about -- obviously, in the press release, you talked about the negotiations with Novo. As we think about your decision to bring down price on your GLPs and those conversations, I'm just curious, what are the negotiating points? What are the discussion topics that are kind of holding that agreement back right now? Or what will it take to get it over the line? And then maybe just thinking about what the pros and cons are for rolling out a Novo product here, both for you and maybe for Novo? Andrew Dudum: Thanks, Brian. I can probably answer that and for better or worse, not give you too much information. But there's probably not much we can share on the specific conversations that have been going with Novo. I think we're excited to be engaging with them. And I think Mike is a great new leader for the organization. Generally, like I said, we believe and have always said breadth of options for patients is best. We're a platform where we hope to give people the absolute right course of treatment, the right course of care and connect them with providers that can help them make those decisions. And so from our perspective, we are constantly engaging with great innovative therapeutics, great innovative diagnostic companies, et cetera, next-gen biotech companies because we just want to make sure that Hims & Hers truly does represent the must-have in health care over time. And ultimately, our job is to fight on behalf of everyday people to hopefully bring that to them at a price that is truly affordable to them and their family. Operator: Your next question comes from the line of Eric Percher with Nephron Research. Eric Percher: I'd like to check in on weight loss growth components versus your initial expectations for the year, ask if you're still on path for $725 million for the year or better and a little bit of context on how the compound versus oral market has developed. Yemi Okupe: Thanks for the question, Eric. Yes, I think the short answer is we see continued strength across each component of the weight loss specialty. The oral business continues to remain robust and grow at healthy rates. A lot of that is driven by the fact that there's broader eligibility requirements for oral offering as well as there's the ability to reach a broader audience of people that may be apprehensive around injectables. They're also at a price point where users are able to access them at a lower price, but still realize over half of the benefits that they're able to see on the injectable side. We also continue to see the GLP-1 offering remain strong as well. And so we are on pace to achieve the $725 million or greater target that we put forth earlier this year. Eric Percher: And on the personalized compounded side, I know you provided us with $20 million to $25 million headwind. Was that -- did I catch that as 4Q? And could you just kind of speak to the cadence as you offboarded the commercial doses into 2Q to 3Q to 4Q? Help us a little bit there. Yemi Okupe: Yes. So I think a lot of the drop that you saw earlier this year between the first quarter and the second quarter, that was primarily the result of offboarding the commercially available dosages that subscribers are on. I think as we look to what's going to transpire over the next couple of quarters, what's effectively occurred is we started to ship the GLP-1s in smaller shipments. The net effect of that is we recognize our revenue on when shipments occur, not necessarily when the consumers place their orders. So we continue to see very strong order velocity, but because we're shipping in smaller cadences, that's effectively what's driving the headwind in the back half of this year that you see that we expect will materialize in the $20 million to $25 million headwind. Now what happens is as those consumers renew because they're on a smaller or shorter cadence, as they renew, they renew more frequently throughout the year. And so what happens is you see a stacking of cohorts that kind of compounds each quarter. So our expectation is by the time we get to the back half of next year, this dynamic will largely normalize. And so it's less around internal dynamics around the business, and it's more around just like the adjustments to the shipping profile -- cadence profile that we have for our subscribers. Operator: The next question comes from the line of Ryan MacDonald with Needham. Ryan MacDonald: Andrew, I want to start on international dynamics. You've got Zava obviously, under your belt now for about a quarter. I'm just curious, as you've gotten more comfortable and familiar with that business and started to spend more time in international markets, how much is the sort of Hims messaging and approach resonating outside of the U.S. market? And how is that informing sort of this international expansion plan? And as you think about these markets, it sounds like there's some pretty aggressive expansion. I feel like there's a unique aspect within each country that sort of changes the dynamics of how care is provided. How do you -- and what investments do you need to make to sort of scale your network of clinicians as you continue to broaden your reach internationally? Andrew Dudum: Yes. Thanks, Ryan. It's a great question. I think Zava has been a wonderful first bite into the international space, immediately accretive acquisition, just great team, great operational capabilities and incredible learnings. They've already moved through quite a few markets already, which has been really fun to watch. I think probably the best takeaway so far is that we think the demand is the same as here in the U.S., whether it's a national system, insurance-based system, it kind of doesn't matter. I mean I think the global frustration with access to great health care is consistent wherever you live. The time it takes to meet with specialists, the quality of the care, the high-touch nature of the care, the personalized aspects of that care, the cost of that care, I mean, it's really, really quite consistent. And so we are, I think, given that as well as given, I think, our confidence in what we believe is a really scalable operating model here in the U.S. like I think we've, over the last 8 years, optimized what we think is the winning formula, the winning experience for customers. I think we are now accelerating our ability to bring that into very key markets. And so as we shared, Canada will be going live in the near future. We're already in great conversations with all the major generic manufacturers up there in anticipation of the generic semaglutide, which goes live in 2026. We believe the Brazilian market is a really interesting market where we'll be spending time, further deepening investments in the U.K. likely as well as other smaller markets in Australia and Japan, et cetera. So generally, I think we have a really good grasp of the competitive landscape in these markets, the consumer distinctions, the local dynamics to be aware of, the regulatory differences to be aware of. And so the experience might be slightly different in each. To your point, there might be nuances in positioning or in marketing or in offering. But generally, I think the frustration with care and the demand for a higher touch consumer-centric care is very much widespread. And I think we have the team and the ambition and maybe the crazy, just a little bit of craziness in us, right, to go and attack this and be the winner quite quickly across all of these major markets. Ryan MacDonald: Helpful color there. I really appreciate it. Maybe from a follow-up perspective, I wanted to ask on sort of whole body lab testing and how that might be structured or packaged or integrated within some of the other offerings like menopausal health, low T, longevity into next year. Unless we're mistaken, I think that what we've seen in our experience on sort of the whole body testing market, especially in a cost effective -- efficient manner for the consumer is it might -- it can tend to be a bit lower margin business from a gross margin perspective. So one, is that what you're seeing? Or is that a risk from launching a stand-alone whole-body lab testing offering? Or if so, how are you going to package it with maybe more longitudinal offerings on the Hims platform to sort of enable that sort of, let's call it, strong LTV to CAC as we think about over the next year or 2? Andrew Dudum: Yes. It's a great question, Ryan. I think we're a really unique company in our ability to bring at-home lab testing or lab testing to the masses because our business is in helping people be healthier, right? So we do not long term, need to make huge margin off of these tests, which is distinctly different from everybody in market and distinctly different from major lab testing companies, other competitors that have diagnostics. Our business is ultimately helping you feel great and helping you get ahead and helping you refine what that personalized care should be and then acting on it. And so I think to your point, there will, over time, probably be a really nice mix of both stand-alone diagnostic opportunities, which then lead gen into advanced treatment care as well as bundled services for diagnostics in core treatment pathways, like you've seen with testosterone. And I think you'll see that kind of continue to expand. So I think there'll be a nice diversity there. But ultimately, my ambition, as we have done in the past is to bring these offerings to market, verticalize the infrastructure over time, which we've already started to do with our Trybe acquisition and other investments when it comes to lab diagnostics, establish that, systematize that, bring the cost down to incredible levels where you can really and truly undermine most of the peers on price and give customers huge access to this information and then ultimately be the trusted partner that can help them take that information and be incredibly action-oriented and precise with what the next step should be, how the personalized care should follow and the handholding through that cadence. So I think we're really uniquely positioned to do exactly what you're talking about, but I think there's a true distinction with us given the fact that our core business is to help keep you healthy and keep you on top of these issues. And also, we have the ability to verticalize this infrastructure in a way that can leverage testing at lead gen into the platform. Operator: Your next question comes from the line of Jonna Kim with TD Cowen. Jungwon Kim: You've seen nice leverage on the marketing side. Just curious if there has any changes in your marketing strategy or approach. And as you think about the new year, how are you thinking about the marketing, especially around Super Bowl and just lapping your great success last year? Yemi Okupe: Yes. Thanks for the question, Jonna. I think we see a couple of different levers that we're able to deliver very strong marketing leverage, both in the quarter as well across the year. One is that we do see that there is significant leverage coming from the fact that we see more and more acquisition coming from both organic channels as well as via lower cost channels. I think as we start to push further into the comprehensive full body testing that we spoke around earlier, that dynamic is likely to continue to get better and better as we kind of optimize and tune that engine. We also see from the shift of more and more users opting for personalized solutions, the retention is becoming stronger and stronger. And most of the marketing spend that we have is either around educating consumers around the overall brand or acquiring new users. And so as we see retention elevate, we inherently get leverage on that front. Now what we do see is we have a wide array of different growth opportunities in front of us or that will be coming in front of us in the coming quarters. That is some of the newer specialties that we've launched [indiscernible] menopausal support, elevating our presence in some of the markets where we've already seen success like the U.K. as well as some of the markets that we will likely -- that we are going to enter in the near future, such as Canada. And so I think we're not going to be shy around investing. That said, I think we're going to do so in a way that's consistent with our historical capital allocation framework that calls for the payback period of 1 year that basically positions the ecosystem to benefit from greater and greater economies of scale. So that as we look a couple of quarters down the road from those investments, you start to see some of the levers that we're enjoying right now from some of the investments we've made in the past. And so I would say as we look at 2026, as mentioned, the growth opportunity is probably even larger than what we anticipated before. So we will lean in and invest in that. That said, I think that the profile and our confidence in the ability to hit the 2030 target of the $6.5 billion of revenue and $1.3 billion of EBITDA is only increasing. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and welcome to the Qorvo, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Doug DeLieto, Vice President, Investor Relations. Thank you, and over to you. Doug DeLieto: Thanks very much. Hello, everyone, and welcome to Qorvo's Fiscal 2026 Second Quarter Earnings Call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today as well as the risk factors associated with our business in our annual report on Form 10-K filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain noncash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our Investor Relations website at ir.qorvo.com under Financial Releases. Lastly, for detailed information regarding the Skyworks and Qorvo combination announced on October 28, I encourage you to review the press release, investor presentation and related materials available on our Investor Relations website at ir.qorvo.com under Events and Presentations. Today's call, however, will focus on our fiscal second quarter results as well as our outlook for the December quarter. Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales and Marketing; and other members of Qorvo's management team. And with that, I'll turn the call over to Bob. Robert Bruggeworth: Thanks, Doug, and welcome, everyone, to our call. Qorvo delivered solid operating performance during our fiscal second quarter. I will cover the business strategy driving these results as well as restructuring actions we are taking to enhance profitability and quarterly strategic achievements. After that, Grant will discuss the financials. Qorvo is sharply focused on our highest performing businesses and we regularly evaluate each of our investment areas. We have divested or exited businesses that do not meet our financial or strategic objectives, and we continue to do so. We are restructuring CSG to increase our focus on our top opportunities and improve profitability. We are narrowing our focus in ultra-wideband opportunities to automotive, industrial and enterprise markets where customer pull for our technologies is increasing and we are reducing our spend related to mobile and consumer applications, which are more fragmented today. We have consolidated our CSG organizational structure to reflect this increased focus. These actions coupled with associated cuts and corporate support functions are expected to reduce operating expenses by approximately $70 million per year in fiscal 2027. In ACG, we're driving a richer mix toward premium and flagship smartphone tiers as we reduce exposure to lower-margin mass tier Android. Our pricing and portfolio actions are ahead of expectations and now we anticipate lower margin Android revenue to decline by roughly $200 million this fiscal year and by more than $200 million next year. This disciplined approach is improving ACG's profitability as we concentrate on higher-value 5G RF content for premium and flagship smartphones that demand more advanced RF performance. Within our factory network, we are also executing on cost and productivity initiatives to reduce capital intensity and structurally enhance gross margin. Our manufacturing strategy is to internally produce the most differentiated elements of our products, geographically aligned production with customers and suppliers and leverage the scale, capabilities and cost effectiveness of our outsourced partners. Over 2/3 of Qorvo's production costs are external. This includes procured raw materials, wafers purchased from external foundries as well as packaging, assembly and test operations. Prior actions to optimize our global operations include the sale of our factories in Beijing and Dezhou, China. And the transition of our GaAs wafer production from North Carolina to Oregon. We are on track to close our facility in Costa Rica and transition to external partners. We have begun the process of transferring SAW filter production to our Richardson, Texas, and we are on track to shut down the North Carolina facility once the transfer is complete. This positions our factory footprint strategically to manufacture GaAs, GaN, BAW, SAW and advanced multi-chip modules, all onshore in the United States. This is critical to D&A customers and increasingly a strategic differentiator to customers in other markets. Turning to our quarterly highlights. In ACG, we supported a seasonal ramp during the quarter at our largest customer. We are benefiting from strong unit volumes across existing platforms and greater than 10% year-over-year content growth on the ramping platform. We grew across each of our four primary product categories we supply to our largest customer. They include antenna tuners, high-performance filters and switches, integrated modules and envelope tracking power management. Within the Android ecosystem, revenue declined sequentially as expected. At our largest Android customer, we supported their second half flagship launch with a broad set of solutions. In China, ACG sales to China-based Android OEMs were approximately $65 million versus just under $100 million in the prior quarter. In HPA, we supported a broad range of mission-critical D&A applications, including land, sea, air and space radar systems, drones, electronic warfare, missile defense and military and commercial satellite communications. Our leading-edge beam forming technology is helping to modernize defense platforms and satellite terminals and we are leveraging our advanced capabilities and scale in filtering and RF power to counter evolving enemy jamming capabilities. We expect double-digit year-over-year growth in defense and aerospace markets driven by new platforms, upgrade cycles, RF content and increases in U.S. and allied defense spending. Qorvo is a strategic supplier to the U.S. government and to U.S. primes, and we enjoy broad exposure to RF content growth opportunities and critical programs such as the proposed Golden Dome multilayer defense system. Outside the U.S., Qorvo is also a beneficiary of increased EU and allied defense spending. In power management, we supported the launch of a popular smartwatch that earned media coverage for its broad set of features, including superior fast charging capabilities. We are also a market leader in PMICs for the solid-state drive market and see increasing tailwinds in the data center portion of our business. We are leveraging the performance advantages of our PMIC and motor control portfolio to expand content in AESA radars, drones, enterprise and AI data centers, smartphones and wearables. In infrastructure markets, Qorvo is benefiting with the industry's transition to DOCSIS 4.0 where Qorvo is a leading supplier of broadband amplifiers. There also continues to be solid demand for our base station small signal devices. In CSG, we're collaborating with a large automotive Tier 1 to scale ultra-wideband use cases, and our lead program is on track to ramp early next year. We are also supplying ultra-wideband solutions to Tier 1 equipment manufacturers for WiFi 7 network access points with ultra-wideband integrated into network access points, high-density venues can achieve ultra-precision location awareness. Locations include factories, warehouses, corporate campuses, hospitals, stadiums and transportation centers. Key applications include indoor navigation, occupancy sensing, asset tracking and touchless fare transactions. In addition to ultra-wideband, the content opportunity for Qorvo and these access points also includes WiFi front-end and filtering solutions. WiFi 7 is being adopted broadly given its performance advantages in throughput, latency, efficiency and network capacity and Qorvo is supporting broad adoption across routers, mesh networks and client devices. We are also collaborating with market-leading chipset providers to support the development of WiFi 8 and delivered first samples in the September quarter. Looking across our operating segments. In ACG, we're investing to expand our content opportunity with our largest customer, while continuing to serve Android's premium and flagship tiers. In HPA, we're investing to grow our satellite communications defense and aerospace and power management businesses and maintain leadership in infrastructure markets. In CSG, we are targeting growth in network access points and diversification in markets including automotive, enterprise and industrial. And with that, I'll turn it over to Grant. Grant Brown: Thank you, Bob, and good afternoon, everyone. Qorvo's fiscal second quarter revenue of $1.059 billion, non-GAAP gross margin of 49.7% and non-GAAP diluted earnings of $2.22 per share, all compared favorably to guidance. During the quarter, our largest customer represented approximately 55% of revenue. On the balance sheet, as of quarter end, we held approximately $1.1 billion in cash and equivalents. We currently have approximately $1.5 billion of long-term debt outstanding and no near-term maturities. We ended the quarter with a net inventory balance of $605 million. This represents a sequential reduction of $33 million and a decrease of $89 million on a year-over-year basis. During the quarter, we generated operating cash flow of approximately $84 million and incurred $42 million of capital expenditures, which resulted in free cash flow of $42 million. Regarding our outlook for fiscal Q3, our guidance reflects strong execution and demand across multiple end markets. We are seeing continued momentum in HPA, offset by our exit from lower-margin entry-tier Android and the normal seasonal decline at our largest customer heading into December. Our expectations for the December quarter are as follows: revenue of $985 million plus or minus $50 million, non-GAAP gross margin between 47% and 49% and non-GAAP diluted EPS of $1.85, plus or minus $0.20. Gross margin continues to improve on a year-over-year basis. Q2 non-GAAP gross margin increased approximately 270 basis points versus last fiscal year and Q3 non-GAAP gross margin is expected to increase 150 basis points versus last quarter at the midpoint. This improvement is a direct result of multiple initiatives. We've actively managed our product portfolio and pricing strategies to reduce exposure to mass tier Android 5G. We have positioned the company to benefit from growth in D&A, which is margin accretive given the high mix, low-volume nature of the business. We have divested or exited margin-dilutive businesses. And we continue to manage factory costs aggressively while consolidating our manufacturing footprint. We project non-GAAP operating expenses in the December quarter to be between $255 million and $260 million. The sequential decrease in OpEx reflects lower incentive-based compensation, continued OpEx discipline and our restructuring efforts within CSG and associated corporate support functions. These actions are included in our December quarter OpEx guidance. Below the operating income line, non-operating expense is expected to be approximately $10 million, reflecting interest paid on our fixed rate debt, offset by interest income earned on our cash balances FX gains or losses, along with other items. Our non-GAAP tax rate for fiscal '26 is expected to be approximately 15%. We continue to monitor the situation as a specific implementation of the new tax bill in the U.S., as well as changes to international tax policy may evolve over time. We are confident the steps we are taking today across our product portfolio, business segments, manufacturing footprint positions the company to expand profitability. The benefits of these strategic initiatives will continue to become evident as we advance through fiscal '26 and into fiscal '27. Before we open the call for questions, I'd like to reiterate that the purpose of today's call is to discuss our quarterly results and outlook and we appreciate you keeping your questions focused on these topics. At this time, please open the line for questions. Thank you. Operator: [Operator Instructions] We have the first question from the line of Karl Ackerman from BNP Paribas. Karl Ackerman: It seems like you're now assuming a $200 million headwind from exiting the low end of the China Android market. I think that's a bit more than you previously envisioned of $150 million to $200 million. Could you address why that is the case for this year and next year? And if there's anything else that's happening with respect to the mid-tier market or if it's just something else? David Fullwood: Karl, this is Dave. I can answer that one. Yes. So the $200 million decline that Bob mentioned is going to be more weighted towards the back half of the year and even more so in March for a couple of reasons. So if you recall, last time, we said we gained content in our largest Android customer in their second half flagship. So we'll be on the other side of that when we get into March. And we also mentioned that we would have lower content this year on their first half flagship ramp next year. So those two are factors, but the bigger factor is really just the timing of those mass tier models that we continue to support as we made this pivot in our Android business. Those are now ramping down, and we're not obviously replacing them with new designs heading into next year. So that's probably the bigger impact that you're seeing is driving now. Karl Ackerman: Got it. for my follow-up, how would you rank order the December quarter outlook across HPA, CSG and ACG? I appreciate some of the initial commentary you gave with respect to the decline of Android and seasonal decline of Apple, but I guess as we look out into HPA from December quarter and into next year, just click on that and see if that, in fact, will be the best performing segment for December of next year. Grant Brown: Sure, Karl. Let me take a stab at it and then Philip can jump in. Over the course of the year, we do expect our D&A business to continue to increase quarter-over-quarter just given the seasonal nature of customer order patterns there, and we're still expecting that to be the case. We had some very strong growth in that business. On a year-over-year basis, it was over 25%. HPA was up 25% on a year-over-year basis in the last quarter. And we feel very strongly that that's a very high-performing area from a growth perspective. Philip Chesley: Yes. I would add. So outside of D&A, we're also seeing quite a bit of strength in our infrastructure business. In our broadband business, as we've talked about, DOCSIS 4.0 continues to roll out really, really strong ramp. We see continuing throughout this year and into next year as well. And then on our base station business, kind of our core base station business that goes into kind of the radio stuff, that's doing well. But we're really seeing a proliferation of those products into some new markets that we're excited about. The first is drones both two-way and one-way drones are using both 4G and 5G products as one of their communication path. So we're seeing strength this year. This quarter, next quarter and into next year for that. And then also, if you think about it, as you look at these direct to cell satellites, really, they're base stations in the sky. And so we're seeing the same products that we use going here, terrestrial going up into space into these applications. So we expect that to continue, and that's why we're pretty optimistic about double-digit growth going into next year as well. Operator: We have the next question from the line of Chris Caso from Wolfe Research. Christopher Caso: I guess the first question is in light of some of what you're saying about some of the Android decline weighted towards the March quarter. What should we think with regard to March quarter seasonality? What do you consider normal seasonality to be? And what are the factors that we should consider when comparing to normal seasonality this year? Grant Brown: Sure. Chris, this is Grant. Let me take that one. We're not guiding Q4 or the full year at this time. But we're encouraged by the strength that we saw in the first half, but we're mindful of the typical seasonality as you mentioned, in the back half where we see our largest customer ramping down typically in the March and June periods and then as we pivot away from some of the lower-margin Android business as Dave pointed out earlier, to be especially impactful in fiscal Q4. Now that said, we are executing on our strategy to focus on driving meaningful productivity improvements. And so from our standpoint, we're executing that strategy. We're focusing on a premium flagship tiers and this is something you're starting to see in our gross margin profile. I mean, we committed to hitting high 40s and we're doing just that and we're getting very close to 50 points of gross margin in a seasonally strong quarter. So we are hard at work executing on profitability and executing to our strategy to pivot away from Android -- low-tier Android, excuse me. Christopher Caso: Great. Well, you mentioned gross margins and that was going to be my follow-up. And there's a lot of moving parts as we go into next year. There's still some things you're doing with the factories in order to drive efficiency, but you just said that -- I would imagine the mix gets better as you exit some of the low-tier Android. So how does that result in gross margins? What are the puts and takes we should think about gross margins next year? Grant Brown: Sorry, you're breaking up. Can you repeat the end of your question? Christopher Caso: Just what -- in terms of what we should expect, the puts and takes on gross margins for next year? Grant Brown: Sure. So the business mix is one of them. It will be meaningfully helpful for us as we see HPA and defense and aerospace and other areas grow as a percentage of our total top line. That's very impactful. And then product mix within the segments, especially ACG, where we have already communicated our exit from the low-tier Android area. So the premium and flagship products there. In terms of that portfolio will be helping from a mix standpoint. And then the factory actions that we're executing on bringing more volume to our other locations also helps significantly. We've talked through Costa Rica and the closure there is on track. Transfer of our SAW capacity from Greensboro to Texas is also on track, and we'd expect that to be beyond fiscal '27 and I think all the other cost reduction efforts that we're doing, the standard blocking and tackling, yield improvements, cost downs and all the other things are more standard activity are all on target. Operator: We have the next question from the line of Harsh Kumar from Piper Sandler. Harsh Kumar: First of all, really good results. Maybe, Grant, one for you. In your guidance, I'm looking at your margins versus what you just delivered for the September quarter. And I would have thought that your margins wouldn't be down quite the way they're guiding to. So I guess I'm curious if it's just revenues that are driving this? Or is there other factors in play? Because you've got a lot of positives going on in the margin structure as well that fundamentally that you're driving to. So I just want to understand the factors driving the margin for the December quarter guidance. Grant Brown: Sure. It's generally the case that as we're ramping down and as we start to see that happen in the December quarter as we are heading into the March, it tends to -- the utilization tends to lead the revenue there. So we're seeing some of that. It's not atypical. I would say that the margin performance is still substantially improved on a year-over-year basis. And so even on the revenue bases that we've been guiding to, you can see that impact. So my view is it's strong improvement and we'd expect that to continue as we move through fiscal '26 and into '27. I wouldn't read anything too meaningful into any of the subtle variations from a quarter-to-quarter basis other than generally the mix. Harsh Kumar: Okay. And then maybe one for Bob. Bob, on aerospace and defense, you've got some pretty good -- pretty large goals, but you're also doing really well. We know the market is healthy. So maybe help us understand two things. One, what is the scale right now? Like how big is this business right now? You mentioned it's up 25% year-on-year, but just in absolute dollars, if you can. And then specifically, right now, what kind of technologies or end applications are working for Qorvo to drive that revenue growth? Robert Bruggeworth: Thanks, Harsh. It's hard for me to contain Philip when it comes to this. So I'm just going to let him go ahead and talk and add a little color but I appreciate the question on the Defense business. As you said, it's doing fantastic, and producing great products and really doing an extremely good job. Philip? Philip Chesley: Yes. So Harsh, I would say that we've sized it publicly before. So I would say kind of mid-$400 million and growing. I think we had commented in our last call that we have funnel and it is continuing to grow. It actually grew another $2 billion in the funnel over this quarter alone. Really, where we're seeing the applications, they're pretty broad-based. And so it's maybe a long answer to your question, but I'll try to kind of hit some of the highlights. So one of the areas that we're really seeing it is the U.S. is looking at how do you build new capabilities both in drones which require a lot of different kind of technologies both radar and comms. So there's a whole lot of more and better RF that's needed to scale that up. The other area is in electronic warfare, where we're looking to come up with new ways to drive spectrum dominance in that area. And in electronic warfare, one area that is really growing rapidly is the use of solid-state PAs to be able to do more direct energy type defensive and offensive applications. That is a sweet spot for our technology. And so just a tremendous amount of opportunity there. But in addition to that, I would say in our core markets, whether -- and I would say, core markets in defense and aerospace is really the radar-based platform. Whether that's land, sea, air, we are seeing a whole new set of capability needs that are what the U.S. government calls an urgent need and it really fits into the sweet spot of what we do. And then you layer on top of that, the -- if you look at Golden Dome and what they're trying to do in any kind of missile defense system, you're going to need land-based assets, you're going to need air-based assets, you're going to need space-based assets. All of those platforms that they're looking at, we are in those platforms. And so that will be a tailwind for us as well. So it's really broad-based. I can't just pick one that is driving it. But we're seeing a lot of tailwinds and especially because I think I would add as the administration has really laying -- starting to become very clear on what their priorities are. And those priorities really do fit with what we're doing. And I mean that doesn't even include what's happening on the NATO side in Europe as they increase their defense budgets up to 3.5% of GDP. So again, a lot of positive things that are happening. Operator: We have the next question from the line of Christopher Rolland from Susquehanna. Christopher Rolland: I guess as we think about '27, are we still thinking about like mid-single digit? Are we thinking about growth overall for ACG. And then additionally, you have talked increasingly about integrated modules. Would love an update there on your capabilities, your differentiation and the likelihood you think you get some new sockets here, that would be great. Grant Brown: Yes, sure, Chris. Let me take the first part, and then Frank can jump in. Obviously, really excited about our technology, but it's too early to comment on fiscal '27 at this point. So we won't be making any commentary there at this point in the game, but we'll have more to talk about probably as the year advances. I'll let Frank comment on integrated modules. Frank Stewart: Yes. Chris, similar feedback with respect to things at our largest customer. Too early to say at this time. We're working very hard on product development, not just for next year, but for the next 3 years. I do want to say I'm really proud of the ACG team and all the work they do. Christopher Rolland: Great. And then as we talk about the merger, are there still any opportunities? Would you consider any merger opportunities, even tuck-ins, any acquisition from that standpoint, any divestitures, any buybacks, any OpEx changes or any like footprint consolidation beyond what you've already announced? Or should we just kind of think steady state Qorvo until all the approvals and the merger is done. Robert Bruggeworth: I appreciate the question. And I think what's most important is we also have to keep in mind that we are going to be running separate and independent companies. So there is latitude in our agreements for us to make changes and do things that we want to be able to do, but you got to remember, we're running these as separate companies. Operator: We have the next question from the line of Krish Sankar from Cowen and Company. Sreekrishnan Sankarnarayanan: I have two of them on mobile. First one, Bob, can you give an update on your progress with your biggest customer on the mid- to high band side. It seems like that's a big opportunity. Is there any way to figure out how that's progressing and when we should start seeing some results or any time line for that? I have a follow-up. Robert Bruggeworth: I appreciate the question. And you can imagine that's a topic that we just can't cover and comment about where we're at. And I think Frank has already said how proud he is on the team and how well they're executing. But time will tell and patience, please. Sreekrishnan Sankarnarayanan: Fair enough. Fair enough. All right. And then a follow-up, post exiting the lower tier Android, how should we think about your Android and China exposure? Are you still chasing 15% to 20% of the Android market today? How to think about how it splits between China and your big non-China Android customer. And I think you kind of commented a little bit on March quarter. I'm just wondering, besides the lower tier Android in March and seasonality are there any idiosyncratic things you had to worry about in March quarter? Grant Brown: We still feel very strongly about our strategy to pursue the premium and flagship tiers of Android, right? They're going to have a product portfolio and they're going to compete against other devices in that segment, they're going to need to use premium performing parts and that's where the majority of the TAM and SAM is for us in the ACG side. We feel very well positioned. We're going to continue to support our Android customers. And we've been very successful at exiting some of the less attractive areas there, as Bob commented on in his prepared remarks. A little bit difficult to comment on share specific to one quarter given the ramp timing of all the different models in the Android ecosystem. Operator: We have the next question from the line of Jim Schneider from Goldman Sachs. James Schneider: On the HPA business, I'm wondering if you're seeing any kind of cyclical effects outside of the normal kind of secular growth you're -- in those product lines? And what are your customers telling you in terms of inventory levels, willingness to restock or anything else from a sort of a supply chain or cyclical point of view? Philip Chesley: This is Philip. I would say channel inventory is healthy. We're not seeing any kind of unusual order patterns I would say it's more on the -- we're starting to get requests for hey, we need delivery sooner rather than... [Technical Difficulty] Operator: Ladies and gentlemen, there seems to be a challenge with the management line. Please stay connected as we reconnect the management. Over to the management. Philip Chesley: All right, we're back. Thank you. So the question, I think, was around HPA and channel inventory. What I was saying was we don't see any kind of excess of channel inventory. In fact, we see more kind of expedite ask than we do channel or pushouts or anything like that. So I'd say the channel is healthy. One area I would also maybe highlight is we are seeing really strong bookings and backlog in our power management business surrounded around the data center side for solid state drives. So that would be one area we're also -- don't see any inventory challenges, but we're seeing expedite requests. James Schneider: That's helpful. And maybe as a quick follow-up. As a housekeeping question, maybe color on your guidance by segment expectations heading into the December quarter? Grant Brown: Yes. Thanks for the question. We don't guide by segment. Operator: We have the next question from the line of Edward Snyder from Charter Equity Research. Edward Snyder: Just a couple of housekeeping questions. Was there any underutilization charges, especially in regard to Oregon and what's your feeling on those for -- obviously, you could be seasonally down in the next couple of quarters because your largest customers, you're probably going to be burdened more. So just as a starting point, can we get color on that? Grant Brown: Yes. Ed, this is Grant. So no period related charges associated with underutilization. It's just the normal loadings are generating factory variances within the normal bands and that applies to product costing but nothing from a period charge perspective that would create an abnormal utilization charge. Edward Snyder: Okay. And then I'm just try to feel for how much capacity you have, both in GaAs in Oregon and then BAW in Texas. I know you haven't been notified yet on anything that would occur next week, your largest -- next week, next year, it's your largest customer. But -- and I know it depends on share if you do win, et cetera, but I'm just trying to get a feel for what kind of CapEx you might be facing if any, especially with regard to GaAs because both of your product wins aren't really GaAs intensive. You got a lot of tuners, you got less SOI, et cetera. So I'm just trying to get a feel for where you sit in capacity in GaAs and BAW. Robert Bruggeworth: Yes. Thanks for the question, Ed. I think first, I want to say the team has done a fantastic job in both GaAs, as well as in the filters, BAW filters, in particular, in shrinking sizes. So as we ramp new technologies typically, we're reducing the size, so we don't have to add a lot of capacity to meet the same demand. So team's done a fantastic job there. And I think as we look at the outlook for next year, we do expect -- we'll spend money for expanding capacities and bringing in new technologies. But I think it's going to be less than what we spent this year. But again, I think people underestimate the tremendous work the team has done in reducing die sizes as we release new process technologies. So I think we're in good shape to support a lot of business. Grant Brown: Maybe, Ed, I would just further to -- just further Bob's comments. Obviously, you know -- I mean, in order to compete for business, you have to have an ample amount of capacity in place in advance. So we wouldn't be targeting business, we don't think we could support with our existing capacity. Robert Bruggeworth: And then we also have the ramp down of the Android business as well, which frees up capacity. So we're in a pretty good place. Operator: We have the next question from the line of Peter Peng from JPMorgan. Peter Peng: Just on the content growth of about 10% plus for the last for the most recent generation, you mentioned that all of your four major products grew on a content wise year-over-year. Maybe if you can just give us a sense of contribution from these product groups? Grant Brown: Peter, thanks for the question. We haven't actually commented, I mean each of the four different categories of revenue at our largest customer and which was contributing to the growth other than to say that we're seeing growth in all categories. Peter Peng: Got it. Okay. And then for my follow-up, I think last quarter, you guys talked about the CSG being able to grow low single digits. Just give us some of the restructuring initiatives. What's the current expectation for this business group? Grant Brown: Sure. So CSG, as we commented last quarter, had experienced a pushout of a large award in our ultra-wideband business and that is still the case. There's no change there. In terms of growth, there would be some impact, but relatively marginal due to the restructuring activities. So you could see a roughly flat, perhaps year for CSG plus or minus. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks. Robert Bruggeworth: I want to thank everyone for joining us tonight and hope everyone has a great evening. Thank you. Operator: Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to Simon Property Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Tom Ward, Senior Vice President, Investor Relations. Thank you, sir. You may begin. Thomas Ward: Thank you, Sherry, and thank you all for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer and President; Eli Simon, Chief Operating Officer; and Brian McDade, Chief Financial Officer. A quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to 1 hour. For those who would like to participate in the question-and-answer session, we ask that you please respect our request to limit yourself to one question. I'm pleased to introduce David Simon. David Simon: Good evening. I'm obviously pleased with our financial and operational performance for the third quarter. Our results were driven by solid fundamentals. Higher occupancy, accelerating shopper traffic, strong retail sales and a positive supply and demand dynamics, all contributing to strong cash flow growth. We are pleased to have acquired the remaining interest in Taubman Realty Group that we didn't own and are excited about the opportunities to enhance the operational efficiency and increase the NOI from the assets and deliver long-term returns to our shareholders. I want to thank Bobby and Billy Taubman and the entire TRG team for our successful partnership over the last 5 years. I'm now going to turn it over to Eli, who will discuss the terrific TRG transaction and update on our development activity, and Brian will cover our third quarter results and other various goodies. There you go, Eli. Eli Simon: Thank you. As mentioned, we completed the acquisition of the remaining 12% interest in TRG that we did not previously own in exchange for 5.06 million limited partnership units. We are pleased with the outcome, having acquired these high-quality assets at an overall cap rate of over 7.25%, not taking into account any operational efficiencies and improvements. These iconic assets further enhance the quality of our overall portfolio, and we are now in a position to pursue new growth and value creation opportunities for this portfolio. The portfolio has strong operating metrics, including 94.2% occupancy, average base minimum rent of $72.36 per square foot and retailer sales of approximately $1,200 per square foot. This transaction will be accretive in 2026 as we assume management responsibilities and integrate the assets, with the full benefit realized in 2027, given all of the operational aspects of running on our platform, adding at least 50 basis points to the going-in overall yield. TRG will be consolidated and the acquisition will be accounted for as a business combination. This will require remeasurement of our previously held equity interest to fair value, resulting in a really big noncash, non-FFO gain to be recognized in the fourth quarter of 2025. Now turning to development. In the third quarter, we began construction on several new projects, including a second phase of residential at Northgate Station, an expansion of the Westin Austin Hotel at The Domain, retail and experiential additions at Brea Mall, King of Prussia and The Shops at Mission Viejo. At quarter end, our share of the net cost of development projects across all platforms was $1.25 billion with a blended yield of 9%. Approximately 45% of net costs are for mixed-use projects. In addition, our new development and redevelopment pipeline continues to grow with exciting new opportunities ahead, including a major full-price retail and mixed-use project in Nashville, where we will be unveiling our vision later this week. I will now turn it over to Brian, who will walk through our third quarter results. Brian McDade: Thank you, Eli. Real estate FFO was $3.22 per share in the third quarter compared to $3.05 in the prior year, 5.6% growth. Domestic and international operations had a very good quarter and contributed $0.26 of growth, driven by an 8% increase in lease income. As anticipated, lower interest income and higher interest expense combined were a $0.09 drag year-over-year. Domestic NOI increased 5.1% year-over-year for the quarter and 4.2% for the first 9 months of the year. Portfolio NOI, which includes our international properties at constant currency, grew 5.2% for the quarter and 4.5% for the first 9 months. Retailer demand remains strong as we signed over 1,000 leases totaling approximately 4 million square feet during the quarter. Approximately 30% of our leasing activity represents new deals, reflecting continued strong demand across the portfolio. The Malls and Premium Outlets ended the third quarter at 96.4% occupancy, an increase of 40 basis points sequentially and 20 basis points year-over-year. The Mills achieved a 99.4% occupancy, an increase of 10 basis points sequentially and 80 basis points from the prior year. Average base minimum rents increased 2.5% year-over-year for the Malls and Premium Outlets, while the Mills saw a 1.8% increase. Retailer sales per square foot for the Malls and the Premium Outlets were $742 for the quarter. Importantly, total sales volumes increased more than 4% in the third quarter. Shopper traffic and retailer sales accelerated sequentially, reflecting the impact of a successful back-to-school season. Occupancy cost at the end of the quarter was stable at 13% Third quarter funds from operations were $1.23 billion or $3.25 per share compared to $1.07 billion or $2.84 per share last year. Some of the increase was due to improvement in OPI compared to last year. Please see the FFO reconciliation included in our supplemental today for details on the year-over-year changes in FFO per share. Turning to the balance sheet and liquidity. During the quarter, we completed a dual tranche U.S. senior note offering that totaled $1.5 billion at a combined average term of 7.8 years and a weighted average coupon rate of 4.8%. During the first 9 months of the year, we completed 33 secured loan transactions totaling approximately $5.4 billion. The weighted average interest rate on these loans was 5.38%. We ended the quarter with approximately $9.5 billion of liquidity. Turning to our dividend. Today, we announced $2.20 per share for the fourth quarter, a year-over-year increase of $0.10 or 4.8%. The dividend is payable on December 31. Now turning to guidance. We are increasing our full year 2025 real estate FFO guidance range to $12.60 to $12.70 per share. This compares to $12.24 last year in our prior guidance range of $12.45 to $12.65 per share. The updated range reflects a $0.15 increase at the low end and a $0.10 increase at the midpoint. Thank you. We are now available for questions. Operator: [Operator Instructions] Our first question is from Michael Goldsmith with UBS. Michael Goldsmith: In the prepared remarks, you mentioned the opportunity for operational efficiencies and improvement for the Taubman assets twice and that these should help improve the yield by 50 basis points. So can you share some of the specifics of the opportunity from bringing these assets fully on to your platform? [Technical Difficulty] Hello. Operator: We are able to hear you. David Simon: Okay. We got disconnected. So can you repeat the question? We didn't get it all. Michael Goldsmith: Yes, absolutely. In the prepared remarks, you mentioned the opportunity for operational efficiencies and improvements for the Taubman assets twice and that these should help improve the yield by 50 basis points. So can you share some of the specifics of the opportunity from bringing these assets onto your platform? David Simon: Yes. I mean when we bought the original 80% of Taubman, the only real operational efficiencies we got was eliminating public company costs. Obviously, they had a full operational team running those assets, and we'll be able to add them to our platform at very little cost. And then from an operational enhancement point of view, we bring our expertise in development, redevelopment, leasing, marketing, brand ventures, and we put all that together, and that's what we do for living. So we've helped out, but not to the point of how we would if we actually ran the properties day-to-day. So now we put them on our -- we bolt them on to our platform, that's easy. And then we run the properties day-to-day, and we bring all that we can bear to a portfolio like that. And that's where we see a tremendous amount of upside. If you look at the occupancy, it's lower than where we're at, and we think we can bring it up to our level. And then we've got all our asset management techniques, property management capabilities that are going to just grind higher cash flow. That's what we do for a living. That's why we've been the acquirer. That's why we've been successful time and again. And if you look back at this portfolio and you look at the entire transaction, we're going to be at an essentially an 8% cap rate when we add these a little over 8% cap rate when we add the assets to our platform. And that -- and you look at the quality of the assets, that makes for a terrific deal, which you guys need to understand. So it's at a much higher cap rate than strip centers are trading, much better growth rate than strip centers are trading that I've seen. And these assets have been around 70 years. That's the other thing to step back. So take data centers. Data centers trade at a 4.5% cap rate. And we don't know -- nobody knows what they're going to look like in 5 years. What we do know is that good malls have been around 70 years, 70 years, not 7 years, not 17 years, but 7-0 years. So we made a hell of a trade, and that's certainly one of the reasons why I think the Taubmans wanted to convert this last 12% into our units, which is convertible on a one-to-one basis to our stock because they've seen our ability to execute and perform at levels that no one else has in our peer group. Operator: Our next question is from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Eli, welcome to the public earnings call. You now get all the enjoyment that David has had over the years. So David, just going back to the cap rate, and if you'll indulge me a little bit, if we take the implied cap rate of the shares issued on Friday, it's sort of a little over 6%, but you spoke about an 8%, which sounds like the existing assets were producing a lot more the overall versus the final buyout trade. But then you spoke about the initial 50 bp increase once it's on Simon's platform, but presumably, there's a lot more growth over the next 5 or so years that presumably that 8% goes higher. So one, can you help us understand sort of the pricing of the final 12% and how that relates to the 7.25% that you initially spoke about? And then over the next few years, presumably, this cap rate is going to be much higher than an 8%. David Simon: Yes. So let me just unpack it a little bit. I'll be a little more clear. So if you look at -- we had 4 transactions within the Taubman Group. We had the initial 80% we had the 2 4% and then 12%. If you look at that on today's numbers, today's numbers, that's basically a little over a 7.25% cap rate. If you add what we think will bring in operational synergies, efficiencies/enhancements, that's where we get to north of 8%. And then obviously, Alex, you're right, then you have all the intrinsic growth of the portfolio, which we're not -- that will just be year-after-year growth because I think these assets, by and large, have a higher skew of quality than just the Simon-only portfolio. So they skew a little higher growth than we do -- we did historically. So we would expect our comp NOI growth to accelerate because of adding that in. So that -- hopefully, that impacts -- if you really are focused on the 12%, not including the operational enhancements, we're in the 6.25% to 6.5% cap rate if you just want to focus on that 12%. Do you want me to explain it? Alexander Goldfarb: Yes, that -- it's what we thought initially, but obviously, all the pieces adding up to get us how you think about that. David Simon: I told you a lot more -- only a few, I told you a lot more information than I normally would, okay? Alexander Goldfarb: I'm sure Floris will ask a lot more details than I have. So... Operator: Our next question is from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: Congrats on the quarter and recent announcements and yes, welcome Eli, to the earnings call. Maybe on the sales results, they increased in the quarter, which was great to see. Could you give any detail on how widespread that was? Did a couple of tenants drive numbers one way or the other? I know you have initiatives to upgrade the tenant base, maybe shrink where it makes sense. So just whether we're starting to see some impact from those initiatives? Brian McDade: Caitlin, it's Brian. Quite honestly, throughout the quarter, you saw a widespread increase across all 3 platforms. And the tenant base certainly was productive in the quarter. You saw certain categories outperform. You saw luxury come back a bit. Certainly, athleisure outperform, even the apparel category. So certainly, the back-to-school season was a robust one for our business and our portfolio. Even you saw some positive inflection in some of the tourist-oriented centers. So we are starting to see it kind of widespread across the totality of the portfolio, sequential improvement, both in traffic and in sales. David Simon: Yes, Caitlin, I would only add that I think like I said last quarter, I believe we're still not from a sales point of view, hitting on all cylinders. What I did -- what we did see is that the kind of the higher-end consumer, obviously, I don't have to -- you have as good data as we do at Goldman. But clearly, we're in this K-shaped kind of situation. So we did skew better results in the higher income-oriented centers. The value-oriented centers were more flat to kind of inching along. So you didn't see the entire portfolio. Brian is right. The quarter was okay, at least stabilized. So it's not hitting on all cylinders, but it's okay. Florida remains to be very strong. The one area that we're seeing, and I think everybody is seeing is that your -- Las Vegas from a tourist market is underperforming. You see it from the casinos. Obviously, we have a lot of properties, great properties, but they're not comping the sales growth that we would expect. And then Brian is right, we did see stabilization in the luxury, which is good. But -- and again, the higher income properties are doing better. The one caveat is, as you know, our Vegas properties skewed toward that, and they were not -- their comp sales were intact, I think a little down. I don't have the number off the top of my head. So we're seeing underperformance. Look, we don't worry about that because Vegas assets are great and Vegas does go up and down. And you've clearly had Canadians that don't go to Las Vegas and other people that are not going at the frequency that's happening, but no concern there. But right now, it's kind of in the trough. Operator: Our next question is from Samir Khanal with Bank of America. Samir Khanal: Brian or David, you've generated very strong NOI growth year-to-date, 5% for the quarter. I guess given the solid leasing environment you're seeing, just trying to see if you can keep up this sort of same-store momentum in '26 or even do better, assuming a sort of a similar retailer sales environment. Curious on your thoughts. David Simon: Well, the team is doing our -- I think we invite Alex. So we invite you and then disinvite you, but the team is going through the property-by-property root canal, okay? So I'm glad to report no cavities, no need for root canal. We feel really what I'm being told and what I'm seeing from the numbers are really positive. The team is juiced, energized, so we feel -- I'm not going to give you a number, but we feel really good about '26 in terms of our ability to produce comp NOI growth. As you know, we'll do that in February with our earnings guidance. But the team is feeling good that we'll have another -- obviously, there's external factors that we don't -- even we don't control, I'm kidding. But we're feeling really generally positive about what we're seeing, right? Brian? Brian McDade: Yes. No, that's the report back. We're in the middle of grinding out. We'll get back to you in February, but I think there's an optimism. Eli, you've been going through all these. Eli Simon: Yes. And it's across the portfolio, not just the powerhouse centers, but really across the portfolio, a lot of exciting new things in store for next year. Operator: Our next question is from Greg McGinniss with Scotiabank. Greg McGinniss: So from our perspective and despite our expectations, tariffs have had seemingly little impact on shopper or retailer behavior to date. And David, I know you previously mentioned that maybe the holiday season is when we start to see some impact to retailer financials, but we were hoping for an update on what you're seeing in your retailer discussions and regarding your expectations on any impact to leasing and/or tenant behavior? David Simon: From the tariffs, right? So look, I think the news that President Trump and President Xi had on the Chinese discussion is positive for our retailers, even though a number of them have moved some of their production out of China, but that's a positive. I do -- I continue to believe that tariffs will have an impact. We have not yet seen all of it. And I think some of that will -- as I said last time, I mean, it's a pretty consistent story. Some of that will be passed on to the supplier. Some of that will be eaten by the retailer and some of that will be passed on to the consumer. So there's just, in many cases, the inability for retailers to eat that entire tariff. So they're going to have to pass it on or renegotiate better vendor deals. And I still believe we still haven't seen the full impact of it. So I think your question is appropriate. I think it's still -- now baseball goes to, what is it, 18 innings now, I mean 18 innings. So I'm not -- let's assume it goes to Stage 9. I think the tariff -- if I had to put an inning on it, I'd say 5 to 6, just a gut feel, so it's not scientific. So we'll have to see. And I do worry that it will put more pressure on the smaller retailers, not the mammoth retailers that we all think about, right? Because they have the ability to handle it and try and use this as an opportunity to squeeze and increase market share. So we're still in the middle of the game. It is not over. Hopefully, it is a 9-inning game. It doesn't go to 18. But I don't think the final chapter -- how about all these analogies. But I don't think the final chapter has been there. So we're still cautious on that. Let me just end by saying from a supply and demand point of view, just from our leasing, we see absolutely unequivocally no change apart from the retailers that are looking to grow their footprint. Operator: Our next question is from Craig Mailman with Citi. Craig Mailman: David, maybe going back to your comments earlier about the value mall, kind of the foot traffic going on there versus your higher-end mall. As you look at '26, I know you guys said you feel very good, but -- and the tenant demand. As you guys approach conversations with tenants who are looking at both high end and kind of the value segment from some of that crossover, do you feel like you guys are losing a little bit of momentum in the ability to push net effectives at the value side of the portfolio? Or the inflation over the last couple of years just pushed OCRs to a point where you still feel like you're able to get pretty good upside relative to maybe where you're pushing in the luxury or the higher-end malls? David Simon: Yes. Let me just say, traffic for the kind of the value-oriented centers is up. So it's not the traffic. It's just really the conversion. I think that consumer is being a little more cautious. But I think you pinpointed it. I mean we have low OCRs there. The demand -- again, the retail demand on that portfolio is still very positive. So no change of -- no different point of view. But we do have to be sensitive because the lower-income consumer, which, again, we don't skew to -- even in our outlet centers, they're skewed toward the higher-end retailers, around the higher-end consumers, I should say. So it's not where we skew. But again, demand is good, and it's not a -- there's really no change of mood or potential there, but it is -- sales are not moving as -- they're not increasing at the rate that the full-price better higher-end centers are. That's it. So I think that the outlet consumer is being a little more cautious. But let's see what happens this Christmas. I mean you still got things going for the lower-end consumer, lower gas price, hopefully lower electricity prices for the time being until all these data centers get built, and that's another interesting thing we need to talk about as a country. But I think it's -- again, it's -- we're just -- the sales are not hitting like Vegas, like a couple of the border, northern borders thing. We're just not hitting on all cylinders. And the reason we say that is to show you that there's more juice in the orange, right? Is it orange or lemon? Orange. Lemon sounds good, right. So there's more juice there. It's just we're not getting all of it at this point. Operator: Our next question is from Michael Griffin with Evercore ISI. Michael Griffin: I wanted to ask on the new leasing in the quarter. Brian, I think you mentioned it was about 30% of the total leases executed. Is this you all proactively looking to get ahead of leases that might expire in a year or 2 and upgrade the credit quality? And can you also give us a sense if you're seeing more of those new-to-mall concepts coming in the portfolio? And lastly, anything you can comment on leasing spread for that would be helpful. David Simon: Well, I'll just let Brian answer most of it. But I'll say the new-to concept, I mean Meta is opening a store. We're in discussions with them. Google is opening stores. We're in contact with them. Netflix, Eli is going to be opening tomorrow at King of Prussia -- next week. So Netflix is -- I encourage everyone to go check it out. They're opening their flagship destination store at King of Prussia next week. So there's more and more year-end Labubu. Eli Simon: Pop Mart, Edikted, Princess Polly, a bunch of tenants. And what they see is they can open a bunch of stores with us. And so we're having really great conversations in our new business leasing. David Simon: So -- and I'll let Brian get to the rest. But -- so the new idea, new experiential stuff, we're doing new Apple stores as well. They opened in Del Amo. That's a good example. We've been working that deal for 5 years or so. So I think it's very encouraging what we're seeing on the new storefront. We're still doing a lot of new restaurants with high-end operators. So that's going very well. We opened Formula 1 at Forum Shops. One of their second or third operations, 2-level flagship store, a bunch of people there for the opening. It's terrific, saw pictures. So just on the new concept, the new store front between the restaurants and the Metas of the world, the Netflix, the Googles that are all working on that. I think it's very, very positive, very positive. So lots happening on that front. Brian McDade: And Michael, it's -- the 30% statistic is new leases. So it is not picking up old stuff. What you've got is just the unabated demand for us to continue to add interesting and new uses. We're also seeing big demand from the existing kind of retailer base, and we're slightly out ahead of '26's expirations. And so I think it's coming from a variety of places. Certainly, on the last several calls, you've heard us talk about improving the merchandising mix. And that 30% statistic is really encapsulating our desire and ability to do that. David Simon: So -- and I'll give you a simple example. We have a great mall. I probably shouldn't -- I'm not going to name the tenant, but I'll give you some breadcrumbs. But it's a great mall in a great Southeastern city, a great Southeastern city, not Atlanta. That's a great Southeastern city, but another great Southeastern city, not Atlanta that we're -- and this goes to your point, are you -- even if you have a lease, are you satisfied? The answer is no. So we're taking one tenant that has a lease. We're actually downsizing them, moving them to another space and putting a leading high-end retailer in there, and I'll leave it at that. I was going to give you a little bit more breadcrumbs, but I don't want people yelling at me. So -- which is a good example of even though we had leases on both spaces, we're taking one, downsizing one tenant moving, bringing in another one. And that's what our folks do. That's one of the great things that we see in the TRG portfolio. And we'll be a lot more aggressive in doing that because you're never -- we should never be satisfied that we've executed the mix at the rate that you've always got to change it. For instance, talk Forum Shops, I think it just recently opened. We had an H&M store there. We replaced it with Zara, beautiful store, big investment that they had, and that changes the whole kind of the center point, they're familiar with the asset, which is truly exciting. So absolutely, and that's one of the -- like I said, one of the interesting things that we see in the TRG portfolio and then in our assets across the spectrum, whether it's the outlet centers or the full-price malls. Operator: Our next question is from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just hoping maybe to talk a little bit about technology. A lot of things in society seem like they're in flux and retail is not excluded there to talk about ChatGPT agents or agentic agents that can do some of the shopping bypassing people. Just curious on how you guys are trying to position for this and your thoughts on how this may evolve and if you see it as a risk or an opportunity or both? David Simon: Well, you have to assume everything is a risk. So I do think bringing AI into the equation will have a pretty big impact on how e-commerce is done. But we offer something much broader than e-commerce. If e-commerce was going to put us out of business for the last 20 years and here we are standing. Just to give you an example, I saw Palantir had EBITDA this quarter of like adjusted EBITDA, whatever that means, of $400 million and our EBITDA this quarter was $1.6 billion. So now Palantir's market cap is $500 billion, ours is $65 billion, if you include the units, right, Tom. So that's pretty good math, right? So again, I do think the people that shop -- the e-commerce shoppers are definitely going to use AI to -- eventually to use AI to replace the way they shop online today. And the key for us is to create like we have for 70 years. Remember, we've been in this business 70 years, okay? Not 5, not 20. But in this -- we have survived. This product has survived 70 years. And I will tell you, our half-life is greater than the newfangled data centers that are being built today because I think they'll figure out how to do them smaller and more efficient 3 to 5 years from now, okay? And I know nothing, but that's my gut feel. I know nothing, but that's my gut feel. So going back to your question, so it will have an impact on e-commerce. I think it's going to absolutely continue to make us great at what we do and that we're going to have to create real shopping -- holistic shopping environments. And another way to look at it is, look, so there's a lot of talk about going to -- and I was at the CEO Summit the other day, which was kind of interesting. But put that aside, there's a lot of talk that people are going to be working 3 days a week. So -- and the potential GDP impact of AI could be $15 trillion or trillions of dollars, right? So the way I look at it, I look at actual positive. So if you -- let's say we all work now, I'm going to still work 5 days, 8 days a week, right? Lord, I'm going to make work at least 7, 8 days a week. But let's just hypothetically take the point that it's only 3-day a week work, okay, 3 days a week that you work. You're going to have a lot more free time. We've created this great wealth. Our GDP goes from $18 trillion to $25 trillion to $30 trillion. That means money in people's pocket. I think we're going to go to the mall to shop. What else are they going to do, okay? So they can only yell at their kids that much when they play New Soccer. So they're going to go to the mall to shop, eat, spend their newfound wealth that's going to eat through this economy. Now what we have to do is just create these great environments. And ultimately, we'll use AI like everybody else to enhance our loyalty, to enhance our ShopSimon to enhance our search efforts to connect with the consumer. And we'll talk to ChatGPT and ask them what we've heard or did, whatever, what we could do to them all to make it better and do all this stuff. But I'm looking at it positively. We lasted 70 years. We're only going to work 3 days a week. We're going to create $12 trillion of value and people are going to go the mall to shop because what else are they going to do, okay? Do you see what I'm saying? Juan Sanabria: Yes. Hopefully. Simon? David Simon: So in any event, but we're experimenting how to do it. We are -- we've got a friend called Harvey that we may create the first AI CEO. Now I'm not saying he's going to replace me, but he could replace one of our divisions or elsewhere. So stay tuned. We'll use it effectively like we've used everything else. Operator: Our next question is from Vince Tibone with Green Street Capital. Vince Tibone: I wanted to follow up more time on the Taubman cap rate. Just specifically, if you -- look, the way I'm looking at it is just the purchase price is just over $1.5 billion if we use Friday's close for the OP unit value plus incremental debt. And then trailing 12-month NOI is right around $77 million for 12% of Taubman using your supplemental. So that's more like a low 5s cap rate on a trailing 12-month basis. So I mean, is it really that much synergies to get to the second quarter, second half? David Simon: Yes, we told you -- we called out -- we told you the numbers. Vince, at this point in our career, we're not going to mislead you or the public. Your cap rates are too low for certain assets, but not too high for ours. And we told you where the cap rates are. And we told you where the accretion is, and we told you everything there is to tell you about that deal. They've got a lot of growth this year. They've got growth next year. And we told you everything that there is to tell you. I will tell you, I think your cap rates for our asset base is too high. I think your peers at Green Street have a product that is too low compared to ours. Our growth is better. And the longevity of our asset base, you don't factor in our assets last 70 years. Operator: Our next question is from Haendel St. Juste with Mizuho Securities. Haendel St. Juste: David, good to hear from you. Eli, welcome to the call. My question is on corporate structure. Congrats on the internalization of the remaining part of TRG. But I'm curious if there are any changes or shift in how you're thinking about your investment in your European platform, Klépierre. Earlier this year, you bought an asset in Italy off balance sheet outside of Klépierre. So I guess I'm curious if you're happy to own more assets outside of Klépierre. But then I also wanted to add, it seemed like recently you opted to convert some of the Klépierre exchangeable note holders into stock, not cash, which might suggest you have a longer-term hold for that stock. So maybe help us reconcile those 2 dynamics and how you're thinking about the Klépierre platform. David Simon: Well, we bought the mall, which has nothing to do with the -- which is a luxury outlet center in the middle of the two. It's actually on balance sheet. It's on balance sheet. Yes. So that has nothing to do with Klépierre. Klépierre, look, it's been a great investment for us. We evaluate it all the time. We did get some -- as you know, we issued the convert. Did we do it 3 years ago? 2 years ago? 3 years ago. We got conversion notice. We did settle in shares. And we look and evaluate that investment continually, and we'll continue to do that. But it's been a very good investment. We've added a lot of value to that organization. I think, again, the market should appreciate where Klépierre go back -- let's turn the clock back 10 years ago where Klépierre was and look at where it is today and for our strategic input vision, guidance created the new Klépierre that exists today that's positioned to succeed in European full-price retailer with the best. And that's all -- I mean, again, the management team did a great job, but we hired the management team, okay? So -- but at the same time, we have a fiduciary duty to continue to add value to Klépierre while we're on the Board, while I were on the Board. At the same time, we have a fiduciary duty to our Simon shareholders to look at all of our investments to see if that's the best allocation of our capital, and we will continue to do so. Haendel St. Juste: I appreciate that, David. I guess I just wanted to clarify because I mentioned the asset in Italy you bought because you bought it on balance sheet and not in Klépierre . So I guess I was curious if you were happy owning more assets outside of Klépierre in Europe? David Simon: Yes. We would probably -- I'm sorry, if I misunderstood. So we would probably only look to -- we've kind of decided that the full-price -- again, this could always change, right? But we've kind of decided that if there are full-price assets to acquire while we continue to hold our Klépierre investment and stand the Board, that Klépierre would do that. On the other hand, if it's in the outlet world, because we look at outlets worldwide, we have outlets in Asia, obviously, North America, both in Mexico, Canada, U.S., obviously, several countries in Asia, that we would look at those for our own accounts, the signing accounts. Okay. I'm sorry, I misunderstood your question. Operator: Our next question is from Mike Mueller with JPMorgan. Michael Mueller: So Taubman has used a secured debt strategy for the portfolio ever since the '98 restructuring. Do you think you'll be unencumbering a number of those assets over time? And as a follow-up, are there any parts of that portfolio that look like they're sale candidates today? Brian McDade: Michael, it's Brian. You're right. They did go to a secured strategy over time. I would expect that over time, we will unlock that and use our unsecured capital to unencumbered assets in due course to further improve our unencumbered asset base, which is already incredibly powerful. As far as the portfolio on balance today, I think we're comfortable where it sits, but we naturally evaluate things frequently. And so that could change over time. But for now, I think we're in a good place. Operator: Our next question is from Ronald Kamdem with Morgan Stanley. Adam Kramer: It's Adam on for Ron. I think we had always looked at the dividend sort of post-COVID as I think you guys are sort of targeting getting back to that pre-COVID dividend level. You're now past that. So I guess just sitting here today, how do you sort of stack rank the capital allocation priorities? I know you've talked about sort of development of -- obviously, of the Class A assets, but also, I think you've talked in recent quarters about some of the Class B or B+ development opportunities or redevelopment opportunities as well. So just sitting here the different options in terms of capital allocation, how do you sort of stack rank those dividend buybacks potentially development, redevelopment, et cetera? David Simon: Actually, thank you for -- I forgot we passed our COVID? We did? All right, good. Well done. So look, I think one of the things that you'll probably -- we do have a buyback open, right? Obviously, we can't buy that now. But one of the things you'll see from us most likely, which is not in the numbers, but we issued 5-million-unit shares. So we'll look to quarterize that over -- we're not issued -- we don't -- we have a balance sheet that does not need to issue equity. So now as part of the deal, Taubman family really wanted units, equity. So I think over time, obviously, subject to market conditions, we'll look to quarterize, i.e., at least want to get our share level back to kind of where it was pre-issuance for the TRG deal. Now that's subject to market conditions. We'll be very smart about it and we do everything else. But that -- so that has moved up the -- I still think we're going to want to grow our dividend. And obviously, I think I said last time, the development stuff does take time to put the capital to work. We don't move as fast as these data centers that just go up 9 months. But I think quarterizing that $5 million issuance has moved up to the top of the charts. But that does not mean that the capital redeployment in the portfolio slows down. We're very -- and you're rightly pointing out that we all get in these classifications of A-, B+. We're going to put it where the capital is accretive to that property value. Now we don't use Green Street cap rates. We use David Simon's cap rates. And over my career, I've been more right than wrong. So we could do a ChatGPT pull of who's got the better cap rates. I'm going to go with David for the time being, but I've been proven wrong. So we're blowing and going, and we've got some really exciting big things on the horizon to do with capital. And just to name a few, we bought out Seritage at Boca, which is a huge, massive thing to a great center, which should be a 4.5% cap rate. But don't worry, we're not going to -- our development yield is going to be greater than that, much greater than that. But we've got Fashion Valley. We've got Boca. We've got Barton Creek. These are just 2 or 3 that are popping. Later in the week, the team will be announcing a really landmark deal in Nashville at a great site in a great city that we have a very important presence in now, complemented by the TRG assets that we now have full operational control with, which is a very good asset in Opry Mills as an example, which is a very good mill and a distinct trade area. So that will be our new ground-up development that we're really excited about. So it's pretty much status quo other than we're going to be moving up the -- I don't want another 5 million shares outstanding. Okay? We're going to run a little bit over. We got 2 more questions. Operator: Our next question is from Floris Dijkum with Ladenburg Thalmann. Floris Gerbrand Van Dijkum: I know we're running late. David, great to hear your voice. Eli, again, I'll not be the first one to welcome you, but good to have you on the call as well. And David, I love your passion. Question for you. I'll try to keep it relatively short here, but your S&O pipeline, could you talk about that? And I note that Kering has dropped out of your top 10 tenants list. Presumably, they haven't closed any stores. Is that just you haven't signed new leases or they haven't opened new stores in the portfolio? And maybe talk a little bit about in that S&O, how your luxury is trending or how you expect that to trend maybe? Brian McDade: Floris, it's Brian. So the S&O pipeline is 310 basis points as of 9/30. And you're right, Kering did drop out of the top 10. It's just simply because we opened up more stores with other retailers and forced them above the Kering ranking. So it's really a reflection of the robust activity that's on the ground from a leasing perspective. Kering is still a very important tenant. And over time, we would expect to continue to see them move around to the top rankings. As you look at that 310 basis points, there is a substantial amount of luxury in there. It's probably to the tune of about 50 to 60 basis points of the total 310 basis points. So the luxury cohort of tenants continues to favor our portfolio and continue to see growth with us. David Simon: And again, we've got -- we're -- our occupancy is pretty high, but we're -- a lot of this new stuff is re-tenancy. And obviously, Forever 21, is having -- re-leasing all that space is having an impact on the S&O, right? Operator: Our final question is from Tayo Okusanya with Deutsche Bank. Omotayo Okusanya: Eli, congratulations. Welcome aboard. In regards to OPI, just curious what you guys are -- how you're thinking about that business again, is a little bit more value-oriented. I'm just kind of curious if there's opportunities to kind of monetize that? Or is just the world too murky right now to really have an opportunity? David Simon: Well, we'll see how that transpires. But I will compliment the team at Catalyst. They're doing really terrific work at a number of the brands, not all -- some of the brands are -- again, it's not perfect sailing, but they're doing a great job at JCPenney, great job at Aeropostale, a great job at Brooks Brothers, a really good job at Lucky. So we've been very pleased with how Catalyst has integrated with the various brands. That merger is really -- this is the first 9 months. If you go back, it really happened in early '25. So they're doing a terrific job. It's stable, good results. Obviously, out of Forever 21, which was as much as we tried to say that we couldn't primarily because of the de minimis, now that -- we would have a fighting chance had we not suffered from the de minimis, but we couldn't overcome that. Now thankfully, it's changed and at least it puts domestic retailers on an even footing with certain foreign retailers. So long story short, Catalyst is doing a terrific job. And like everything else, look, if I would say we'll always look at what the best options are. But for the time being, it's in good stead. And again, they skew toward -- a few of the brands skew towards the lower income. And I will say this, the lower income and the higher income as well is they're looking for value. So value can be -- value is in the eye of the beholder, but you got to give the consumer today value, whether they're a high-income consumer or a lower income consumer, value is the name of the game. And I think Catalyst has recognized that and are providing it at a high end like the Brooks Brothers and at the kind of the more moderate Aero and Penney. So it's all good. Operator: There are no further questions. I would like to turn the conference over to David Simon for closing remarks. David Simon: Okay. We had a very active quarter. We're going to have a very active fourth quarter. So more good stuff to come. And thank you very much for your interest and your questions. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Hello, and thank you for standing by. Welcome to Magnachip Semiconductor Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Mike Bishop. You may begin. Mike Bishop: Thank you. Hello, everyone, and thank you for joining us to discuss Magnachip's financial results for the third quarter ending September 30, 2025. The third quarter earnings release was issued today after the close of market and can be found on the company's Investor Relations website. The webcast and replay of today's call will be archived on our website shortly afterwards. Joining me on today's call are Camillo Martino, Magnachip's Chief Executive Officer; and Shin Young Park, our Chief Financial Officer. Camillo will discuss the company's recent operating performance and business overview, and Shin Young will review financial results for the quarter and provide guidance for the fourth quarter. There will be a Q&A session following the prepared remarks. During the course of the conference call, we may make forward-looking statements about Magnachip's business outlook and expectations. Our forward-looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today and therefore, are subject to risks and uncertainties as described in the safe harbor statement found in our SEC filings. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as otherwise required by law, the company does not undertake any obligation to update these statements. During the call, we'll also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended as supplemental measures of Magnachip's operating performance that may be useful to investors. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our third quarter earnings release in the Investor Relations section of our website. With that, I'll now turn the call over to Camillo Martino. Camillo? Camillo Martino: Thank you, Mike, and good afternoon, everyone. It has been approximately 2.5 months since I was appointed Interim CEO. Magnachip is a company with a rich history of innovation, a reputation for high reliability and quality and strong customer relationships. With that said, for the past couple of years, I believe we have failed to execute on our promises. I know our shareholders are frustrated and naturally upset. We are moving quickly to improve financial fundamentals and deliver long-term shareholder value. There are 5 very critical objectives for both Shin Young and myself. Number one, to reposition our product portfolio to be significantly more competitive; number two, to rightsize our OpEx structure for a pure-play power business; number three, conserve cash; number four, increase our transparency with our shareholders; and number five, explore strategic alternatives. Consistent with our communications back in August, our Board continues to review all strategic alternatives. At the same time, I see tremendous potential here, especially with the lineup of a new generation of products either recently launched or to be launched soon and with a very strong product roadmap ahead. I believe we can execute our product strategy to deliver on that potential. After joining the management team, we undertook a complete bottoms-up analysis of the company to highlight ways to correct course and put us on a path to recovery. We identified some significant changes in the near term and medium term that will require precise product planning and execution. I would like to present on this call our findings so far and outline the initial steps in our plan to address our issues and also our opportunities for the short term. My goal today and going forward is to be transparent about where we stand and where we are headed, the challenges we will likely face along the way and our plans to address them. Let me first share our high-level results of Q3. Q3 revenue came in at $49.9 (sic) [ $45.9 ] million at about the midpoint of our guidance range. And gross profit margin was 18.6%, which was at the low end of the guidance range. These results reflect 3 realities: one, the pricing pressure on our legacy products is especially intense in China, some business we actually had to walk away from. Number two, lower fab utilization as a result of this pricing pressure and also due to the higher level of months of inventory at the end of Q3, especially in China. On the positive side, we did see significant strength in the Communications segment with revenue increasing 34% sequentially quarter-on-quarter and 95% year-over-year. Regarding fab utilization. While we anticipate fab utilization rates will decline again in Q4, we believe that the Q4 fab utilization rate is likely to hit the low point of around the mid-50s to manage the mid-50 percentile to manage higher levels of inventory in the channel, and we expect to execute a $2.5 million incentive program to try and address it. In the meantime, we cannot afford idle capacity. And so we are pursuing every opportunity to aggressively load the fab with existing products to sustain operating leverage and stabilize and then improve gross profit margin until our new generation products contribute more meaningfully. After Q4, we expect utilization to begin to recover, and we believe the new generation products will improve this metric in the future. These financial and operating results and the results of our analysis led us to create 5 objectives that I stated earlier, and I would like to elaborate on each one of these now. Our first objective is to reposition our product portfolio to be significantly more competitive. Magnachip's results clearly show the headwinds we are facing. Our competitive product position in China's industrial markets and the global consumer TV sector has significantly worsened over the past year. Intense price competition, coupled with an aging product portfolio have taken their toll. Despite that, the engineering foundation here at Magnachip is solid, and we are taking decisive actions to stabilize our competitive position that we can then build upon. Namely, we are fast tracking new-generation product development to improve our competitiveness and achieve revenue growth, margin expansion and a return to improved rates of fab utilization. Areas of focus for these new generation products are our low and medium-voltage MXT MOSFET products, our Super-junction MOSFETs products and also our IGBT products. We are well underway with this initiative. During the first 9 months of 2025, we have released 30 new-generation products compared with only 2 new-generation products in the same time period for 2024. In Q4 2025, we currently expect to launch at least another 20 new generation products, giving us a total of at least 50 new generation products in 2025 as compared to only 4 new generation products in all of 2024. Generally speaking, we consider a new-generation product is one in which we achieve a greater than 30% improvement in performance per unit area. The challenge is the revenue ramp time for these new-generation products to impact our financial results. New-generation products will take multiple quarters or more to meaningfully contribute to the income statement, depending on the market segment. However, we are already seeing the initial results in Q3 as 2% of the total revenue came from new-generation products. We expect that number to be approximately 10% in Q4 and 2026. We are also very excited about our IGBT announcement today. We have signed a strategic licensing agreement with Hyundai Mobis regarding the use of IGBT technology, which stands for Insulated Gate Bipolar Transistor technology that we have been developing this together for many years now. We believe this agreement will enable us to expand our IGBT footprint beyond automotive markets into industrial, AI and renewable markets. Industry analysts forecast the IGBT market, which will reach nearly $17 billion by 2029, up from $11 billion in 2024. Hyundai Mobis is a global auto parts provider focused on delivering differentiated mobility solutions that combine software and hardware together. And it is also associated with Hyundai Motor company, the world's third largest automotive manufacturing company. This partnership is still in its early stages, but we expect to see qualification results in 2026 and currently expect initial revenue to start in 2027. Moving to the second objective to rightsize our OpEx structure for a pure-play power business. We have initiated multiple OpEx cost reduction programs, including workforce streamlining that will generate approximately $2.5 million of annualized OpEx savings. We will see the early impact of these actions in Q4 2025. With the current shutdown of the display business and the execution of this workforce reduction program, our overall headcount is expected to be reduced by more than 20% when comparing the end of 2025 versus the end of 2024. And for our non-factory employees, we expect the headcount reduction to be nearly 40% when comparing at the end of 2025 versus at the end of 2024. These initiatives that I just referenced are foundational to our third objective. The third objective is conserving cash. We have reduced our CapEx investments to both conserve cash and lay the groundwork for our recovery. As we have already announced, among the first actions being taken in our plan is cutting capital expenditures for our Gumi fab upgrade by more than 50% over the next 2 years as we prioritize capital allocation. Our deliberate investment in CapEx for our Gumi fab was made to support the growth of our new generation power products that are critical to our financial recovery. I can say now that with these actions we have implemented, I believe we are moving in the right direction. Now let me comment briefly on our fourth and fifth objectives involving being transparent and being -- and exploring strategic options. Let me assure you that I am personally committed to being transparent with our investors. Finally, the Board and management team are fully aligned as we explore all strategic options available to us. Moving to my final thoughts here. During my years in the semiconductor industry, I've held executive roles in several chip companies, including as CEO of a publicly held semiconductor company. I have also lived and worked in Asia for many years as a senior executive for a global chip company. And so I'm very familiar with what it takes to compete here. With that said, I will be blunt. Turning Magnachip around will take time and require an all hands-on deck approach with intense focus from our management team. The next few quarters will remain challenging as our legacy products decline and our new-generation products begin to ramp. But we also have several reasons for optimism. For example, I really believe we have a strong engineering team, led by an intelligent CTO who is driving our entire product roadmap, a growing customer base and in addition, a clear product roadmap that targets higher-margin power segments. We are planning to have more definitive details on our go-forward operating strategy during our Q4 call early next year. With that said, I will hand the call over to Shin Young for more detail on the financial results and guidance and then come back for final remarks. Shin Young? Shin Young Park: Thank you, Camillo, and welcome, everyone, on the call. Let's start with key financial metrics for Q3. Total Q3 consolidated revenue from continuing operations, which includes Power Analog Solutions and Power IC was $45.9 million, which was about the midpoint of our guidance range of $44 million to $48 million. This was down 13.3% year-over-year and down 3.5% sequentially on an apples-to-apples basis. This compared with equivalent revenue of $53 million in Q3 2024 and $47.6 million in Q2 2025. Revenue from Power Analog Solutions was $41.5 million. This was down 12.7% year-over-year and down 1.7% sequentially, primarily due to the competitive pricing pressure on our older generation products, which was especially intense in China. Revenue from Power IC was $4.4 million. This was down 18.9% year-over-year and down 18% sequentially. The sequential decline was due mainly to pull-ins by customers in Q2 from the second half of the year. In Q3, consolidated gross profit margin from continuing operations was 18.6%, which was at the low end of the guidance range of 18.5% to 20.5%, down from 22% year-over-year and down from 20.4% sequentially on an apples-to-apples basis. Year-over-year decline was primarily attributable to an unfavorable product mix, driven mainly by ASP erosion, particularly in China, and filling our fab with lower-margin products and a lower utilization rate. The sequential decline was mainly attributable to a lower utilization rate. The Company's Display business has been classified as discontinued operations from Q1 2025. And from Q3 2025, we've additionally classified certain expenses incurred outside of Korea as discontinued operations. All of the following figures reflect results from continuing operations and the prior periods were reclassed to be on an apples-to-apples basis. Q3 SG&A was $8.3 million as compared to equivalent SG&A of $9.5 million in Q3 2024 and $9 million in Q2 2025. Stock compensation charges included in SG&A were negative $28,000 in Q3 as compared to $1.4 million in Q3 2024 and $0.8 million in Q2 2025. In Q3, $0.7 million was reversed as a result of the prior CEO separation and the related stock forfeiture. Q3 R&D was $7.8 million as compared to equivalent R&D of $6.5 million in Q3 2024 and $6.5 million in Q2 2025. R&D in Q3 increased due to the acceleration of new product development. We expect at least 20 new-generation product introductions in Q4. In Q3, we recorded onetime charges of $4 million, of which $2.6 million represented the package cost for the employees we let go under the voluntary resignation program that we completed at the end of Q3 and the remainder primarily related to the separation payment and certain cash benefits disclosed in our prior CEO separation agreement. Before I go into the details of our non-GAAP results, please note that our GAAP financial results are available in our Form 8-K filing with our third quarter earnings release. Our non-GAAP results are as follows: Q3 adjusted operating loss was $7.4 million compared to an equivalent adjusted operating loss of $2.9 million in Q3 2024 and an adjusted operating loss of $4.8 million in Q2 2025. Q3 adjusted EBITDA was negative $4 million. This compares to an equivalent adjusted EBITDA of $0.8 million in Q3 2024 and negative $1.5 million in Q2 2025. Adjusted operating loss and adjusted EBITDA deteriorated year-over-year and sequentially, mostly due to the lower gross profit amount and higher R&D expense as explained above. Our non-GAAP diluted loss per share was $0.01. This compared with equivalent non-GAAP diluted loss per share of $0.20 in Q3 2024 and non-GAAP diluted loss per share of $0.05 in Q2 2025. This is due in part to the recognition of income tax benefit of $4.2 million in Q3 and $4.1 million in Q2 2025, whereas the recognition of income tax expense of $6.1 million in Q3 last year. Our weighted average non-GAAP diluted shares outstanding for the quarter were 35.9 million shares and 37.5 million shares in Q3 2024 and 36.1 million shares in Q2 2025. Before we talk about some balance sheet items, let me provide some comments regarding the company's discontinued Display business. The sale of the end-of-life Display product resulted in cash inflow of a little over $3 million in Q3, and we booked the onetime charges of $5.2 million due mainly to certain additional expenses incurred outside of Korea, of which about 40% was a noncash item, and we are in the process of reviewing and negotiating the remainder to reduce the cash outlay. Moving to the balance sheet. We ended Q3 with cash of $108 million as compared to $113.3 million at the end of Q2 2025. The main cash outflow in Q3 was $4 million of net cash CapEx after subtracting $3.6 million, which was the Q3 funded portion by the previously announced equipment loan. At the end of Q3, our long-term borrowings amounted to $38.9 million, which included the $10.4 million of the equipment loan. As noted in August, when Camillo joined the management team to conserve cash, we've reduced upgrade CapEx for Gumi fab to be in the range of $30 million to $35 million by over 50% from the previously forecast range of $65 million to $70 million through 2027. Of the $30 million to $35 million range, we invested approximately $14 million in the first 3 quarters of 2025 and expect to spend approximately $6 million in Q4 2025. We view this investment as a requirement to support the development of the new-generation of power products. For the full year 2025, we expect approximately 85% to 90% of the $20 million upgrade CapEx to be funded by the equipment loan to which an interest rate of less than 3% per annum will apply. Because the available amount of equipment loan ties to the total CapEx amount, which we reduced it by over 50%, the previously disclosed $26.5 million is now expected to be around $20 million. Including the maintenance CapEx for the full year 2025, we expect the total CapEx to be in the range of $29 million to $30 million and the related net cash impact to be in the range of $11.5 million to $12.5 million, which netted the funded portion by the equipment loan. Additionally, in connection with the voluntary resignation program that we completed by the end of Q3, we paid in October the onetime package cost of $2.5 million that I mentioned earlier and $1.5 million of statutory severance, which was net of the deposits that made outside of the company's accounts for the Korean labor law. With the execution of this headcount reduction, we reduced an additional 5% of our total headcount after the shutdown of the Display business. With this additional 5% reduction, we target to achieve annual OpEx savings of approximately $2.5 million beginning in Q4 2025 with a payback period of about 1.5 years. With the cash outflows in Q4, mainly from CapEx and the payment timing of voluntary resignation program-related amounts as described above, we currently expect our cash balance at the end of 2025 to be in the level of mid-$90 million. Now moving to our fourth quarter and full year 2025 guidance. While actual results may vary, for Q4 2025, Magnachip currently expects consolidated revenue from continuing operations, which includes Power Analog Solutions and Power IC businesses to be in the range of $38.5 million to $42.5 million, down 11.9% sequentially and down 17.1% year-over-year at the midpoint on an equivalent basis due in part to a onetime $2.5 million incentive program we expect to execute in Q4 to reduce higher levels of inventory in the channel. This compares with equivalent revenue of $45.9 million in Q3 2025 and $48.9 million in Q4 2024. Consolidated gross profit margin from continuing operations to be in the range of 8% to 10% due to the above described onetime incentive as well as a lower fab utilization rate. We expect this incentive program to be a 600 basis point negative impact. This compares with equivalent gross profit margin of 18.6% in Q3 2025 and 23.2% in Q4 2024. For the full year 2025, consolidated revenue from continuing operations is expected to be down by 3.8% year-over-year at the midpoint of Q4 revenue guidance on an equivalent basis. The equivalent revenue in 2024 was $185.8 million. Consolidated gross profit margin from continuing operations is expected to be between 17% to 18% and the above described onetime incentive program in Q4 is expected to have an about 100 basis point negative impact in the full year consolidated gross profit margin. The equivalent gross profit margin was 21.5% in 2024. As I approach my fourth year as CFO, I must acknowledge this year's financial results have been disappointing. As Camillo noted earlier, we must regain investors' confidence, and therefore, my focus as CFO will continue to be on heightened financial discipline and cash preservation. While there is clearly more work to do, I feel good about a number of actions we and the Board recently executed, which are expected to result in a reduction of annual OpEx by about 35% year-over-year and a reduction in headcount by more than 20% when comparing end of 2025 versus end of 2024. With these actions, we'll be better positioned to enter 2026. Thank you. And now I'll turn the call over to Camillo for his final remarks. Camillo? Camillo Martino: Thank you, Shin Young. This quarter really reflects the realities of our transition into a pure-play power products company. Our Q4 guidance is much lower than what we would have liked to see because of the onetime incentive program. As a result, I felt it was necessary to provide you a little bit of color on Q1 as well, which is very abnormal and not something we would typically do. But I would say that we expect in Q1 2026, the top line revenue to sequentially grow by double digits. We acknowledge our failure to deliver on prior promises, and we certainly share the disappointment and frustration of our shareholders. Our priorities are very clear, including to explore strategic alternatives. The actions we have taken to reduce CapEx and OpEx and to revitalize our power product portfolio are repositioning Magnachip for long-term recovery and success. I want to thank our employees for their continued hard work and dedication and our investors and partners for their patience and support as we move through this important phase. I will now turn the call over to the operator to open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Suji Desilva with ROTH Capital. Sujeeva De Silva: So I appreciate all the updates here. So the incentives that you're doing, the impact, should we understand that, that will be an impact that happens through the December quarter and is cleared? I appreciate the 1Q guidance of up double digits. So should we think of that as being a 1-quarter event, Camillo, in terms of the effort there? Camillo Martino: Well, we expect, as we mentioned, to have the impact this quarter, that financial $2.5 million impact this quarter. And we hope that our strategy, at least is that the inventory that we talked about in the channel will come down over time. But this is really a program to really encourage the sales channel to move the existing inventory. That is what is intended for. Maybe Shin Young, you have any additional financial comments. Shin Young Park: We are trying to give our kind of channel guy to be price competitive. So we are booking this onetime thing as the expense, onetime expense, meaning the reduction in revenue in Q4. That's why it has an impact on the gross margin. But as Camillo explained, I mean, just make them as price competitive, we are hoping they're going to move their old kind of inventory. Sujeeva De Silva: Okay. I appreciate the color there. And then just thinking about the gross margin impact there. If we take the 4Q guidance of 9 and then we add back the 600 bps, should we think of that as a trough level looking into '26 for gross margin? Or maybe you could give us some sense of the puts and takes, maybe utilization along with that to think about the trends there? Shin Young Park: Right. So the Camillo kind of during his prepared remarks that Q4 is likely to be the lowest point of our gross utilization rate being mid-50 percentage points. So there's a time lag between when you produce the product and when you recognize revenue, and that's kind of impacting your gross margin. So I mean it's probably a little early to give out the entire 2026 guidance, but kind of this lower gross margin utilization rate is kind of impacting the current quarter and also the next quarter in Q1 a little bit. I mean, setting aside the onetime incentive program. So we'll have to see until the new-generation product can meaningfully contribute, but we said about 10% of our revenue like when we -- in Q4 2026, what that means is actually, we still have quite a bit and the largest chunk of the old generation product, which we are going to continue to feel some pricing pressure. So we think we're going to see as the new-generation product composition is kind of increasing and our margin we're going to be improving gradually with that pace. But until then, I think we are continuing to see the pricing pressure on our older generation products. Camillo Martino: And it's fair to say -- just to add to that, it's fair to say that, look, 2026 is obviously going to be a challenging gross margin period of time for us because this pricing pressure doesn't go away at the end of the calendar year. It is there right now and our new products that we're planning is what we use to compete against that, but that will take time. So clearly, 2026 will be a challenging gross margin story for us as well. Sujeeva De Silva: Okay. Appreciate all that color. Maybe you can talk Camillo about the Hyundai Mobis agreement and just the genesis of it, kind of how it came about and if we should think about there being more agreements like that to target more product end markets beyond industrial IGBTs. Camillo Martino: Yes. It's -- I've got to be a little bit careful as to what I say just from a confidentiality point of view. But Hyundai Mobis, as I mentioned, is part of Hyundai Corporation. We have been working on this development for a number of years, already. And this specific licensing agreement or this specific agreement is really giving us the use to license this technology for our own purposes. And obviously, Hyundai has their own strategy with this part as well. And I'm not going to comment on what their plans are to announce it or in what capacity. But it's a very close relationship between us, and we expect to focus this -- our strategy on this licensing technology to the industrial markets in particular is what we said. And so we look forward to revenue starting to contribute from this licensing deal sometime in 2027. As we get closer to that time frame, we'll give more details and more color to our shareholders. But we're very encouraged. I mean, we're very excited. I think that was the only time I used the word excited in the entire script. I am very excited about this relationship. Sujeeva De Silva: It's always a balance. And then puts and takes. And then lastly, just I'll pass it on. The communication strength you saw there, I presume some of that's consumer smartphone. I'm wondering the sustainability of the wins and the strength you're seeing there. Camillo Martino: That is a very good relationship we have with our key customers here in Korea. We've been working with them for a long time. The technology is very, very competitive, as we mentioned, and that's why we see an increase. There was a couple of years ago, we lost our competitive way, and now we've regained it with new products. So that actually is a perfect example of what happens when you have a competitive product, right? You have a competitive product, you can go out there and play the game to win, and we did that well. And so now we need to do that with our entire other product portfolio that we talked about -- and so the 50 new-generation products that we've launched or planning to launch this year is very, very critical for our future financial recovery. And -- but that's not the end. As you can imagine, we plan to launch a whole bunch more next year. And in our Q4 call early next year, we'll provide more details on what is our new-generation product plan for 2026. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Mike for closing remarks. Mike Bishop: Thank you. I would like to thank everyone for participating on our call today. We appreciate your continued support of Magnachip. This concludes our third quarter 2025 conference call. Operator: Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to BWX Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Chase Jacobson, BWXT's Vice President of Investor Relations. Please go ahead. Chase Jacobson: Thank you. Good evening, and welcome to today's call. Joining me are Rex Geveden, President and CEO; and Mike Fitzgerald, Senior Vice President and CFO. On today's call, we will reference the third quarter 2025 earnings presentation that is available on the Investors section of the BWXT website. We will also discuss certain matters that constitute forward-looking statements. These statements involve risks and uncertainties, including those described in the safe harbor provision found in the investor materials in the company's SEC filings. We'll frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the Investors section of the BWXT website. I would now like to turn the call over to Rex. Rex Geveden: Thank you, Chase, and good evening to all of you. I'm excited to report another strong quarter for BWXT showcasing the effectiveness of our battle plan strategy and our leading position in nuclear solutions for the global security, clean energy and medical end markets, all of which are enjoying unprecedented demand. Third quarter financial results exceeded our expectations driven by focused execution and revenue growth in both Government and Commercial Operations. We delivered 12% organic revenue growth and roughly 20% adjusted EBITDA and earnings per share growth alongside a robust free cash flow generation. Book-to-bill was a stout 2.6% this quarter driven by large multiyear national security contracts for the production of defense fuels and high-purity depleted uranium in our Special Materials line of business. This led to a total backlog of $7.4 billion, up 23% from last quarter and up 119% year-over-year. Our year-to-date financial results, deep backlog and unprecedented end market demand position us to enter 2026 from a position of financial strength. Our preliminary 2026 outlook calls for another year of record financial results with a posture to exceed our medium-term financial targets. Turning to segment results and market outlook. Government Operations revenue was up 10% and adjusted EBITDA was up 1%, both ahead of expectations. In the Naval Propulsion business, our teams are intensely focused on meeting delivery commitments for submarine and aircraft carrier programs and driving operational excellence. In addition to traditional process optimization strategies, we are finding new ways to leverage artificial intelligence and advanced manufacturing to drive efficiencies around quality control and workflow in our facilities that will lead to improved productivity, throughput and margin performance. Technical Services is on a growth trajectory, powered by a win streak that unfolded over the last several years. Our team began transition for the strategic petroleum reserve M&O contract in early October and the BWXT-led joint venture, which includes Kinectrics, is in the preferred bidder period, which is the transition period for management and operations of the Canadian Nuclear Laboratories. We expect to assume full operational control before the end of the year. In microreactors and advanced nuclear technologies, the market is evolving positively. We are currently manufacturing the reactor core for Pele, which is on track for delivery in 2027. Related to Pele, last month, the Army announced the Janus program, which aims to deploy a nuclear reactor on a military installation no later than September 2028, building on lessons learned from Project Pele. BWXT's qualification should be a differentiator for Janus and other important national security projects that are within our cost and capital risk tolerances. During the quarter, we announced a collaboration with Kairos Power to commercially optimize TRISO nuclear fuel production. We are excited to have a partner that is aligned with Google. BWXT is currently producing TRISO fuel for Project Pele and a variety of other customers and we'll continue to evaluate options to enter the commercial market on a larger scale as the demand for advanced reactors grows. Lastly, over the last several quarters, we pointed to our Special Materials business line, having some of the most exciting growth opportunities within the company. I'm pleased to say 2 of these opportunities, both within the NNSA materialized during the quarter. First, we were selected for the defense fuels contract valued at $1.5 billion to establish a domestic uranium enrichment capability for defense purposes. We booked the first task order under the contract and are building a centrifuge manufacturing development facility in Oak Ridge, Tennessee. Over the next several years, our focus will be on centrifuge manufacturing and designing and licensing a plant for defense uranium enrichment. Second, we were awarded a $1.6 billion 10-year contract to supply high-purity depleted uranium to the NNSA. This is a direct result of our foray into special materials and our deliberate strategy of expanding into the depleted uranium assay through the AOT acquisition. Under this contract, we will build a manufacturing plant adjacent to our existing facility in Jonesborough, Tennessee, capable of producing up to 300 metric tons of high-purity depleted uranium per year that will be used for multiple defense purposes. These are both exciting long-term projects for BWXT, not only for the revenue growth, but also the demonstration of trust our customers put in BWXT to execute on mission-critical national security programs. Turning now to Commercial Operations. Reported revenue grew 122% and organic revenue grew 38% year-over-year, driven by the Kinectrics acquisition, strong growth in commercial nuclear power and medical isotopes. BWXT Medical revenue grew double digits, driven by PET and other diagnostic product lines for which the outlook remains favorable. We expect this trend, along with the increasing therapeutic isotope sales for clinical trials to support continued revenue growth in 2026. Consistent with our commentary last quarter, the tech-99 development is progressing nicely and is on track for an FDA submittal in the near future. In the therapeutics market, Kinectrics commissioned 4 new electromagnetic isotope separator units that increased production capacity of ytterbium-176, the precursor material for lutetium-177 to over 500 grams annually. This expansion reinforces our role as a global supplier of highly enriched stable isotopes needed for cancer radiotherapy. Turning now to Commercial Power, where demand is very strong and our opportunity set is expanding across various geographies and with many of the leading reactor technology OEM providers. In the CANDU market, we have a deep backlog of heavy nuclear components supporting life extensions in Canada, including the 48 steam generators for the Pickering life extension, which are driving significant revenue growth this year. Beyond that, BWXT and Kinectrics are tracking opportunities for international CANDU life extensions, the Canadian new builds we have discussed in the past, other large-scale opportunities, including the Westinghouse AP1000 and multiple SMR projects. In the SMR sector, we are a key partner with the majority of leading technology providers in this rapidly expanding market. To this point, we recently signed a contract with Rolls-Royce to design steam generators for its SMR along with an MOU for the manufacturing phase, highlighting the power of our merchant supplier position in the market. With that, I will now turn the call over to Mike. Michael Fitzgerald: Thanks, Rex, and good evening, everyone. I'll begin with total company financial highlights on Slide 4 of the earnings presentation. Third quarter revenue was $866 million, up 29%, driven by both segments. Excluding contributions from acquisitions, organic revenue was up 12%. Adjusted EBITDA was $151 million, up 19% year-over-year, driven by robust double-digit growth in Commercial Operations, a modest increase in government operations and lower corporate expense. Adjusted earnings per share were $1, up 20%, driven by strong operating performance. Nonoperating items were neutral on a net basis. Our adjusted effective tax rate in the quarter was 23.6%, and we continue to expect a tax rate of approximately 21% for the year. In 2026, given a greater percentage of international earnings following the Kinectrics acquisition, we expect our tax rate to be slightly higher year-over-year. Third quarter free cash flow was $95 million, driven by solid earnings performance and timing of cash receipts from major awards. We anticipate free cash flow in 2025 to be approximately $285 million, the high end of our previous outlook range. Capital expenditures were $48 million in the quarter and $114 million year-to-date. We anticipate full year CapEx to be approximately 6% of sales, indicating an increase in the fourth quarter due to timing of spend on growth initiatives, including capacity expansion for commercial nuclear and a number of smaller projects in our government business. In 2026, we expect CapEx to remain at 5.5% to 6% of sales, supportive of our longer-term growth outlook. Moving now to the segment results on Slide 6. In Government Operations, third quarter revenue was up 10%, driven by Naval Propulsion, Long Lead Material Procurement, Special Materials and a roughly 3% contribution from the AOT acquisition, partially offset by a decline in microreactor volume. Adjusted EBITDA of $118 million was up modestly compared to last year, resulting in adjusted EBITDA margin of 19.2%. We expect Government Operations revenue to be up mid-single digits organically in 2025, plus just over 2% contribution from the AOT acquisition, slightly ahead of our previous outlook, and we continue to expect adjusted EBITDA margin of approximately 20.5%. Turning to Commercial Operations. Revenue was up a robust 122%, driven by contribution from the Kinectrics acquisition. Organic revenue growth was 38%, driven by strong year-over-year growth in our Commercial Power business and double-digit growth in Medical. Adjusted EBITDA in the segment was $36 million, up 163%. This results in adjusted EBITDA margin of 14.2%, a nice improvement compared to our first half results and up from the 11.9% in the same quarter last year. Margin expansion was driven by solid operational performance and more favorable mix compared to recent periods. We now anticipate 2025 commercial revenue to be up approximately 60% compared to last year, driven by high teens organic growth and contribution from Kinectrics, which is performing slightly ahead of our expectations since the closing of the acquisition in May. We expect segment adjusted EBITDA margin to be approximately 13.5%, the low end of our previous range due to the timing of the recovery of higher material procurement costs, which acutely impacted our results in the first half of the year. Turning to our consolidated guidance for the remainder of 2025 and our preliminary outlook for 2026. In 2025, we anticipate adjusted EBITDA to be approximately $570 million, the midpoint of our previous range. However, we now expect adjusted earnings per share to be $3.75 to $3.80, up $0.075 at the midpoint given the benefit from nonoperating items, including foreign currency gains and slightly lower interest expense. Looking to 2026, we anticipate another year of strong financial performance with low double-digit to low teens adjusted EBITDA growth, yielding high single-digit to low double-digit adjusted earnings per share growth given modest nonoperating headwinds. This should lead to another year of solid cash generation, although near-term working capital investments related to the significant growth in our business will likely lead to flat to slightly higher free cash flow. In our segments, Government Operations revenue is expected to grow in the mid-teens, led by growth in Special Materials and supported by higher revenue in Naval Propulsion and microreactors. Of note, the defense fuels program in HPDU will account for over half of the segment's growth in 2026. This growth includes a significant amount of what is essentially customer-funded CapEx to build the unique infrastructure required for these programs, meaning they are expected to have below average margin in the first phases compared to the rest of our Special Materials portfolio. As such, we anticipate Government Operations adjusted EBITDA to grow in the high single-digit percentage range compared to 2025, ahead of our medium-term outlook for mid-single-digit growth in this segment. In Commercial Operations, we anticipate another year of robust revenue performance with low double-digit organic revenue growth plus contribution from Kinectrics. We anticipate adjusted EBITDA growth to outperform revenue growth driven by better margins due to the favorable mix and solid execution. Overall, we had a strong quarter, and we are well positioned for another year of record financial results. Our backlog is robust. We have good visibility into the future, and we remain focused on driving improved margin performance and cash generation in our business. With that, I will turn it back to Rex for closing remarks. Rex Geveden: Thanks, Mike. It is an exciting time for BWXT. The secular trends of decarbonization, electrification and data center power demand, combined with an increasing appetite for nuclear solutions in the national security space are meaningful tailwinds to BWXT. We are proud of our strong market position and the customer trust we have earned, built upon the expertise of our workforce, our differentiated infrastructure and credentials and our strategic organic and inorganic investments. We are winning in our core businesses and expanding into new and exciting areas. During this period of exceptional growth, we are doubling down on operational excellence focus and expanding its application across the entire BWXT enterprise. We are driving further process improvements and increasing the use of industrial automation and artificial intelligence to optimize cost structure, product quality and cash generation to maintain our winning position and drive shareholder value. And with that, we look forward to taking your questions. Operator: [Operator Instructions] First question comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: Nice quarter. I guess for anyone, I guess, certainly on an absolute basis, this is one of the bigger revenue beats of consensus that you guys have ever had, I think. So I just wonder if you could clarify, did you book any revenue on the 2 new contracts in the quarter? I know it went into backlog, but did you book any actual revenue on those 2 new ones? And then just kind of the modest full year sales guidance increase implies a fourth quarter that will be down pretty sharply sequentially? So I wonder if you could explain that also. I don't know if there's some conservatism or something else. I'll stop there. Michael Fitzgerald: Yes. Thanks, Pete. So as it relates to the new contracts, very, very modest contribution, so not a big driver here. One of the things I think that you're seeing a little bit, and we've seen this trend this year in the second and third quarter is the seasonality around some of our large material procurements. If you remember, what we've discussed in the past is as we enter into our pricing arrangements, we ultimately will work to get some of those long lead material procurements done as quickly as possible to lock in pricing. And so we've been working to try to do that in the second and third quarter. We had -- we were able to accomplish that a little bit earlier this quarter in comparison to when we had originally forecasted it in the fourth quarter. So that is why you're seeing a large beat this quarter, but ultimately a little bit of seasonality in the fourth quarter just as some of those material procurements have shifted to the right. I would say, outside of that, we're seeing really strong performance in the shops, and we're continuing to see them outperform both on our Government Ops and our Commercial Ops segment. And so we're very encouraged by that and highly focused on driving continued operational excellence initiatives within the factories. Peter Skibitski: Okay. Just one last one for me, maybe for Rex. Rex, on the new Janus program, it seems like this is supposed to be kind of a co-co arrangement, which I know you guys typically don't like to actually operate reactors in the field. So I'm wondering kind of what the approach is going to be for BWXT here. Maybe it's just a simple teaming agreement is all that's needed, but I was curious as to your thoughts on that? Rex Geveden: Yes. Pete, we certainly do intend to compete for that Janus program, very interesting. The government is obviously looking at putting a number of reactors at a number of different sites. And I think they'll pick at least 2 contract teams for that. Yes, we typically don't own and operate reactors. That's normally the job of the nuclear utility. So it will be a matter of finding the right teammates to go after that opportunity, but we'll do that, and we'll go in and compete hard for it. Operator: Our next question comes from the line of Robert Labick with CJS Securities. Will Gildea: This is Will, on for Bob. With 6 months or so under your belt now, what are the key takeaways from the Kinectrics acquisition? And what are some of the new market and revenue synergy opportunities? Rex Geveden: Well, as I said on the call, Kinectrics is outperforming so far. In fact, I might speak more broadly and just say the 2 acquisitions that we did this year, the Jonesborough acquisition, AOT and the Kinectrics acquisition are both outperforming. And I think, frankly, we created a lot of value there. We bought both of those businesses well within our multiples, and both of them are doing quite well for us. For Kinectrics itself, the outperformance relates to the transmission and distribution business, which is growing very smartly right now because of -- there's 2 things going on there. One is the aging infrastructure requires a lot of testing. So we're doing that. And then we've got a nice business in offshore wind cable testing, particularly focused in Europe. So we're seeing outsized growth there. The life extension programs at the Pickering plant are creating a lot of opportunities that Kinectrics is well suited for. So we're attacking that one. And then finally, we're seeing some business -- sizable business around licensing support to the Canadian nuclear utilities for the new build large projects -- large reactor projects in that market. And I find that encouraging from multiple perspectives, obviously, for Kinectrics itself. But I think that demonstrates the seriousness of the nuclear utilities to proceed with their plans for large nuclear reactors. So a lot of goodness in the Kinectrics business, and it's a really great match for BWXT. I might add that, by the way, that medical business of theirs is doing very nice, and there's a lot of talent in that part of the business, which has been helpful and synergistic to BWXT Medical. Will Gildea: And just one more. With the exponential increase in the focus on energy production and security, where are the biggest and nearest-term opportunities for BWX to participate in the growth in nuclear energy? And how are you prioritizing investment into so many opportunities? Rex Geveden: Yes. I'd say we have -- we see demand everywhere. We see it on the commercial side of the business. We see it on the government side of the business. If you're speaking to Commercial Power in particular, I'd say the opportunities in order are kind of small modular reactors everywhere. And you know that we face the market as a merchant supplier, and we participate on the X300. We participate on the TerraPower Natrium reactor. We did a deal with Rolls-Royce. So we're supporting that reactor and steam generator design and ultimately manufacturing. And that's -- and the geography is Canada, U.S., Europe and Poland and the U.K. and other places. So that one is super interesting to us. I do expect to see SMR announcements in the U.S. in the fairly near future. I'd say the large reactor opportunity is expressing pretty strongly based on what I just said about the plans in Canada. I think they'll build at least 8 CANDU derivative large reactors at Wesleyville and at the Bruce site. And then obviously, the Westinghouse announcement for $80 billion worth of reactors in the U.S. is, I think, quite a positive sign for the industry as it relates to capacity and the need for that. We're actively bidding on AP1000 components kind of every day. So that's in the commercial side of it. Now Pete mentioned the Janus program, which is a kind of a quasi-commercial program because it's contractor-owned, contractor-operated facilities for U.S. military sites. So that one is interesting in itself. And of course, we see commercial outlets for TRISO and growth in nuclear medicine. So it's everywhere. Operator: Next question comes from the line of Peter Arment with Baird. Peter Arment: Nice results. Could you -- Rex, on the 2 large contracts that you booked in the quarter, the uranium enrichment and then the depleted uranium awards, I think Mike mentioned that there's just going to be some government-funded CapEx to help stand some of that up. But how does the revenue kind of cadence roll out when that -- when both of those programs kick off? And I guess related to that, Mike, you said it would probably initially come in at some lower margins. Just how long of a period does that last? Michael Fitzgerald: Yes. So for both of those contracts, they're kind of over an extended period of time. So I think for HBDU, we announced 10 years. And in DUECE, we've talked about that being a roughly 10- to 15-year program. We will see a little bit of front-loading as we build up kind of the infrastructure investments on those in the early parts of the year. But generally speaking, they're pretty distributed over the life of the period of performance. So maybe a little bit waiting early, but certainly not significant. So it will be relatively distributed over those 10 or 10 to 15 years depending on the contract that you're talking about. Those contracts are structured as fixed price programs. As you know, we typically will enter into kind of a base level margin percentage and then ultimately work to outperform those over a period of time. Our Special Materials business has had a long history of being able to outperform. And so typically, we do not make any of those kind of large-scale adjustments from an EAC perspective until we're probably around 25% or more on the contract. So I would expect the kind of lower margin to last for the first couple of years. And then ultimately, we would be highly focused on driving improvement in that EAC and being able to recognize a higher profit. Peter Arment: Appreciate that color, Mike. And then just Rex, just on Project Pele. Could you just give us the latest update on how that's going? Because it sounds like you said delivery in '27. I thought that was -- is that later than previously planned? Just could you give us any more updates there? Rex Geveden: Yes, Peter, that is later than the contract originally called for. That said, the requirements for that program have been evolving, particularly the role of the National Labs in that, and so it's not unexpected. And the program is doing very nicely. We are assembling the reactor core down in Lynchburg, Virginia right now and do expect to deliver that reactor and that fuel to Idaho National Laboratory in 2027, and they'll fire it up and test it out there. So program is going great. Operator: Next question comes from the line of Jeffrey Campbell with Seaport. Jeffrey Campbell: First of all, congratulations on the strong quarter. Regarding DUECE, the press release announcing the $1.5 billion award said that the pilot plant will demonstrate LEU production for defense missions before being repurposed to produce HEU for Naval Propulsion applications. To be clear, will the capabilities to produce HEU be accomplished in the current appropriation or will it require additional funding? Rex Geveden: So that initial tranche of funding is about licensing, Jeff. Licensing in preparation for the high enriched uranium cascade, which ultimately will be based at our fuel services business in Erwin, Tennessee. That combined with a centrifuge manufacturing development capability that we're doing up in Oak Ridge, Tennessee. So that actually -- the first tranche of funding does not relate to the production of the material itself. Jeffrey Campbell: Okay. And regarding the 4 new second-generation electromagnetic isotope separator units that you announced being commissioned by Kinectrics, does the entirety of that 500 kilogram of ytterbium output now belong or will it belong to BWXT Medical? And were there any noteworthy differences between the first and the second-generation EMIS units? Rex Geveden: Yes, that's 500 grams of output, the ytterbium-176, which, of course, is the base material for lutetium-177. So it's an important precursor for that nuclear medicine product. It is -- there's no essential difference between this generation and the prior generation. It's really just an increase in capacity of about 500%, by the way. So it's an impressive capability. We haven't integrated Kinectrics Medical business into BWXT's Medical business for some good reasons. But those businesses are supporting one another, and we're finding strategic and -- we're finding strategic synergies there that are pretty powerful. Operator: Next question comes from the line of Scott Deuschle with Deutsche Bank. Scott Deuschle: Mike, could you slice up the shipset value of the steam generator content you won with Rolls-Royce? Michael Fitzgerald: So we haven't given specifics around that, I think, Scott. When we talk about the SMR opportunity with Rolls, we've discussed kind of similar to the rest of our SMR in the $50 million to $100 million range. I think we're squarely in the middle of that as it relates to the Rolls content. So we feel comfortable kind of being in that range from a rolls perspective, but we haven't disclosed the specifics. Scott Deuschle: Okay. And then the press release announcing that win discussed the localization plan for future manufacturing work. I think most of what Rolls-Royce is currently bidding on is for reactors in Europe. So is the implication here that you may elect to build out a manufacturing footprint in Europe if the demand is there? Rex Geveden: Yes. I think, Scott, we are evaluating that and other opportunities for localization. That seems to be the trend in commercial nuclear power. So we certainly are considering it. Scott Deuschle: Okay. And then last question, sorry to be a pig. But Mike, can you walk us through the puts and takes on 2026 free cash flow that resulted in that guide of flat to slightly up? I heard some of the pieces in the script. I was just curious if you could put a bow on it for us? Michael Fitzgerald: Yes. So I think we've seen a pretty significant step change over the last couple of years. As we mentioned in our Investor Day, our kind of medium-term outlook was to see continued kind of one day in, call it, cash conversion cycle days, which is the internal metric that we use. That's roughly about a $10 million improvement each year. We've seen a sizable improvement going from '23 to '24 and then from '24 to '25. If you remember, we started the year at low end of the range of $265 million. Now we're guiding to $285 million, approximately $425 million. So part of this is driven by some of these investments in the newer contracts. We are able to negotiate some milestones on DUECE and HBDU that are hitting in the fourth quarter of '25, which is good, but it creates a step function as you look into next year in just the timing of when you get to that next milestone. And so that's a little bit of what we're seeing. In addition to that, we do have -- we're going to be on a little bit higher end of the range on CapEx. We went up to 6% for this year. We'll be 5.5% to 6% of revenue for next year. So you're seeing a little bit of CapEx as we continue to invest in our growth initiatives across the board. And so when you kind of take a look at that, you're seeing that basically, we're going to end up flat based on -- even though we'll have a probably 1 day working capital improvement that's going to be offset by, call it, $10 million to $15 million of timing related to kind of milestones payments for some of these larger new contracts. Operator: Next question comes from the line of Jeff Grampp with Northland Securities. Jeffrey Grampp: I'm curious, when we look at this '26 outlook, what do you guys view as kind of the main risk to achieving that outlook? And then maybe this is more of a '25 discussion point, but does an extended government shutdown represent a risk at all to this year's or next year's outlook? Michael Fitzgerald: Yes. So I think I'll start with the second question just on the government shutdown. And just to clarify that the majority of the impact of our government shutdown is specific to our technical services part of the business within government operations, where we run different joint ventures with external partners to do MNO and other environmental cleanup on DOE sites. I think the teams have done a great job of managing funding. Those majority of our sites are fully operational still at this point. And we're kind of making sure that we're continuing with the mission. I would say we have not contemplated a long-term shutdown in our guidance. And so to the extent that we're seeing an extended shutdown, I don't see that as a major driver for 2025, but I would say that, that would create some risk if it extended into '26 for an extended period of time. As far as kind of the puts and takes from next year, I would say the -- from an opportunity perspective, we continue to focus on operational performance and OpEx initiatives, which we've discussed a lot. When you look at our kind of guidance for next year, we are still working through some of the old pricing agreements. I mentioned last quarter that I anticipated some of that to continue through 2026. So to the extent that we can drive continued performance in the business and we're able to see that productivity, we could have some upside as it relates to opportunities in EAC potential write-ups. We have not assumed a substantial amount of EAC write-ups in our prudent guidance. In addition to that, based on the timing of some of the new special materials contracts, we've seen earlier this year, we had strong performance in those contracts. We'll continue to focus on performing well in that part of the business. And so that could result in ultimately some opportunities to the guidance that we've laid out. From a risk standpoint, I would say a lot of this relates to just kind of the overall timing of our commercial nuclear opportunities. We're seeing a flurry of activity in RFP and RFIs, and we certainly have a decent visibility into when the timing of those orders are. But if you had some delays in the timing of those orders, it could have an impact or create some risk for next year. And then we always will highlight just defense spending. We haven't seen a major impact on that, but that's always a potential risk. And I mentioned the extended government shutdown that could be also a potential risk. So those are the big puts and takes. Jeffrey Grampp: Awesome. I appreciate that thorough answer. That's really helpful. And it kind of ties into my follow-up. So Rex, you mentioned this demand market as being unprecedented. It seems like the last couple of quarters have been more headlined more on the government segment of the business. I'm curious how you see the commercial side playing out, the potential acceleration there. I mean it sounds like that the pipeline is robust. And so maybe is this something that you guys think kind of materializes or accelerates from a kind of order backlog standpoint over the coming quarters? Or do you have that level of conviction or insight at this point in the cycle? Rex Geveden: No, I do think, Jeff, that we'll see that order start to accelerate. I think, obviously, the Westinghouse announcement was maybe the first domino to fall. If you look at small modular reactors, OPG seems committed to building out those 4. We'll see who the next -- we'll see what the next announcement for SMRs is in the U.S. I think that should be Tennessee Valley Authority or another nuclear utility. There's a lot of chatter about that. I do fully expect the nuclear utilities in Canada to go forth with the large builds pretty soon. Like I said, we have task orders, contracts already to study the licensing for those CANDU derivatives. And so yes, a lot of things are falling into place, a lot of announcements, a lot of demand. And so I think next year for this business will be more about commercial orders and commercial announcements than about government orders and announcements, which characterize '25. Operator: Next question comes from the line of Michael Ciarmoli with Truist Securities. Michael Ciarmoli: Maybe Rex, not to derail things, but maybe talk more about the, I guess, the boring portion of your business. No one's asked about Navy subs, shipbuilding and just kind of general thoughts. Mike, I heard you talk about the CapEx. I think we still have a commitment to AUKUS out there. But any kind of general update on kind of what you're seeing in terms of VA, Columbia cadence? How you're thinking about whether or not AUKUS flows in at some point, you need more CapEx or more capacity? Rex Geveden: Yes. Thanks for the question, Mike. I think it's taken quite a positive turn here in the last quarter, our boring business in Naval Nuclear Propulsion. AUKUS had been in question because it's being examined by the Department of Defense, but you saw the sort of lovefest between the Australian Prime Minister and the President. It looks like AUKUS is absolutely going forward now. We're also seeing -- at the same time, we're seeing positive things at the shipyards at both GD and HII seem to be turning the corner on production, and I think that's quite a positive for all of us. And then, of course, there's an announcement -- a surprise announcement about South Korea and the idea that the South Koreans have built a shipyard for nuclear-powered submarines in the U.S. Now that thing was -- is not well formed from my perspective, but we don't know what that looks like yet. But to the extent that the U.S. is involved in the nuclear propulsion system, that could be an interesting opportunity for us. And so I see a lot of upside in the business relative to a couple of quarters ago. We do need more capacity to meet the demand for the AUKUS program. And we do have CapEx projects that are underway with our customer and naval reactors for that purpose. So there's a bit of that going on already. So full steam ahead. Michael Ciarmoli: Got it. Got it. And then just one more, Mike, I think I've got this. I mean the implied government EBITDA margins look to be down next year. It sounds like it's just the front-end loading of some of that lower-margin work and maybe even some of the other pilot progression projects. But is anything changing with that core Navy business? Or is it really just kind of some lower-margin start-up contracts that's weighing on the margins? Michael Fitzgerald: No, that's exactly right. If you look at 2026, most of it is mix pressure, half of the revenue growth is driven by DUECE and HPDU. And as we mentioned, we start off a pretty low margin and then would anticipate higher positive EACs in the future. I would say, in addition to that, we are still dealing with a little bit of just the burn off of the pricing arrangements that we had entered into shortly before COVID before we saw significant labor costs and those types of things. And so -- as I mentioned before, that mix will start to change next year. And as we work through that and into the new pricing arrangements that we just recently entered into. So we're hopeful that we're going to focus on that. The other thing I would just say is we're highly focused on operational excellence initiatives, and we have a large focus on margin improvement that we're going to be driving into the business, and we continue to focus on that every day. So we'll continue to make investments to drive performance in the business. And hopefully, we'll be able to outperform and see some positive EACs next year. Operator: Next question comes from the line of Jed Dorsheimer with William Blair. Jonathan Dorsheimer: I'll echo the other sentiments. Congratulations on a great quarter here, guys. I guess just first one, if I just kind of unpack the commercial growth, I noticed that you had separated out growth from Kinectrics. And specifically in your radiopharma business, that supply with Novartis, it looks -- Pluvicto got off-label from -- to pre chemo, which expands. And so my question is, were you supply constrained in the quarter in terms of at the precursor or for the lutetium-177. And previously, you had talked about, I think, 30-plus Phase III. So I'm just wondering how we should expect radiopharma growth and whether or not that was limited by the capacity? Rex Geveden: Yes. I don't -- Jed, I don't think we were supply constrained for that product. We're pretty far downstream. We do the base material, the ytterbium-176 and lutetium-177. We don't produce the active pharmaceutical ingredient that goes to a customer upstream of us. But we -- no, we don't feel -- we're not in a position of supply constraint for that product. As to how that's going to grow, I do expect lutetium growth to continue to accelerate. I can't predict that one for our business right now. But certainly, there will be higher demand in the future. Jonathan Dorsheimer: Got it. And then just sticking with commercial, but switching to the reactor side. It sounds -- if you received an RFP for a Rolls SMR, for example, just as an example here or even for an AP1000, that would obviously drive the backlog, but wouldn't contribute anything to growth next year. Is that correct? I just want to make sure that it seems like that would be the case, but just wanted to confirm it? In other words, '26 is a year of RFPs, wins and while most of the reactor side would be Bruce and OPG up in Canada, correct? Rex Geveden: Yes, that's correct. Michael Fitzgerald: Yes, that's correct. Rex Geveden: Yes. We don't have a lot of that kind of scope in the forecast, if that's what you're asking. Jonathan Dorsheimer: That was what I was asking. Rex Geveden: Right. From my perspective, the growth numbers that we put out there for '26, those kind of early targets for growth, I don't see much -- I mean, I frankly don't see much risk on the revenue side because we booked so much business in naval reactors, special materials and even on the commercial side and on the medical side. So it's a low-risk outlook from the standpoint of revenue. We just need to drive margins. But yes, anything that we would get on the commercial side, say, from the AP1000 be additive to that. Operator: Next question comes from the line of Andre Madrid with BTIG. Andre Madrid: Could you maybe give us a status update on DRACO? I know you said last quarter, it kind of lives on through NASA, but we did see you guys call out some weaker micro reactor volumes in the quarter, and I wanted to know if it was attributable to this? Rex Geveden: Yes, that's exactly right. So the DRACO program evolved into single agency support. It was a DARPA and NASA joint program. Now it's a NASA nuclear thermal propulsion program called Sentry. And the funding hasn't really shaped up for that in a meaningful way yet. We do have some task orders under that contract, and we're able to keep our team together, but it's a lower level of revenue. And it's hard to predict what the outcome of that will be. Certainly, NASA seems to be focused on lunar efficient surface power right now, and we've assembled the team to go attack that opportunity. But nuclear thermal propulsion is still a need on the civil space and national security side. So I do think that program goes forward in some form in the future. It's just hard to predict right now. Andre Madrid: Got it. Got it. No, that makes sense. And Mike, on -- I think you called it out earlier, but on the $80 billion nuclear partnership that was recently announced, I mean, what gains could be captured there, if any? I mean, how do we assess that opportunity for you guys if it is an opportunity? Michael Fitzgerald: Yes. I don't think -- I mean, we haven't given specific guidance on what the size of that opportunity is at this point? Rex Geveden: I would just add to that, the opportunity there is for component manufacturing, which is obviously right in our sweet spot. So it could be steam generators, reactor pressure vessels, those kinds of things. And so I think the opportunity set is pretty interesting, but it's not specific yet. Operator: Next question comes from the line of Ron Epstein with Bank of America. Alexander Christian Preston: This is Alex Preston, on for Ron today. I was just curious on M&A, right? Obviously, talked through a couple of times AOT and Kinectrics performing really well. Curious if you could just walk us through a little bit about the environment you're seeing, any appetite going forward for more investments. It seems like you'll be well within your sort of 2 to 3x leverage range going even to the end of the year? Rex Geveden: Yes, maybe I'll make a broad comment about that and then flip it over to Mike. We've been historically pretty picky about doing acquisitions because our philosophy there is to go and get things that amplify our strategic intentions in the nuclear space. And so I think that means you're necessarily limited on the number of targets. That said, we did a couple of really good ones this year with Kinectrics and AOT, and we've done some very good ones in the past. Nordion was a good acquisition for us. The GE Hitachi assets in Canada, a very good acquisition for us. I would say that we are interested in acquiring right now because, as I said on the call, or as I said in one of the answers, we certainly can get assets within our multiple. So you've got an opportunity to create value there. So we're continuing to look. I think it's super interesting, and we'll acquire if it matches what we're trying to do strategically. Otherwise, we'll stay away from it. Michael Fitzgerald: Yes. And I think we feel comfortable where we are from a leverage standpoint. One of my priorities is to continue to clean up some of the balance sheet and create some capacity and dry powder to be opportunistic about acquisitions going forward. Operator: Next question comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: Just a quick housekeeping question, I guess, for Mike. Mike, the $15 million step-up in D&A in 2026, this is a small EBIT impact. But I was just wondering, does that relate to the 2 new contracts in government or from tech-99 or something completely different? Michael Fitzgerald: It's -- not related to either. I mean part of this is the timing difference between when we get recovery under cost accounting standards and financial accounting standards. But no major step change as it relates to tech-99. That won't happen until that, that program has gone through full approval. And then from the initial investments that we've been doing related to the new contracts, we're starting to spend that, but those aren't placed in service. So you're not going to see a significant step-up of that in '26 that will kind of bleed in over a period of time. Operator: And our last question comes from the line of Scott Deuschle with Deutsche Bank. Scott Deuschle: All right. I saved this question from the end of the call because it's probably where it belongs. But Rex, is rare earth handling or processing at all an area of strategic interest to the company given your existing experience in the handling and processing of hazardous materials? Rex Geveden: So I don't think so, Scott. Our capabilities are around special nuclear materials and the materials handling and accountability systems that go with that. We just aren't involved with rare earths typically, I mean, apart from ytterbium-176, but just not in our playbook. And so I would say the answer to that is broadly no. Operator: That concludes the question-and-answer session. I would like to turn the call back over to Chase Jacobson for closing remarks. Chase Jacobson: Thank you, Desiree. Thank you, everybody, for joining us today. We appreciate your questions. We appreciate your interest in BWXT. We look forward to seeing many of you and speaking with you in the coming days and weeks and seeing you at investor events. If you have any questions, please reach out to me at investors@bwxt.com. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: John Howe: Thank you, operator, and good afternoon, everyone. We appreciate your time and your interest in Transcat. With me here on the call today is our President and CEO, Lee Rudow; and our Chief Financial Officer, Tom Barbato. We will begin the call with some prepared remarks, and then we will open the call for questions. Our earnings release crossed the wire after markets closed this afternoon. Both the earnings release and the slides that we will reference during our prepared remarks can be found on our website, transcat.com, in the Investor Relations section. If you would please refer to Slide 2. As you are aware, we may make forward-looking statements during the formal presentation and Q&A portion of this teleconference. These statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the news release as well as in the documents filed by the company with the SEC. You can find those on our website where we regularly post information about the company as well as on the SEC's website at sec.gov. We undertake no obligation to publicly update or correct any of the forward-looking statements contained in this call, whether as a result of new information, future events or otherwise, except as required by law. Please review our forward-looking statements in conjunction with these precautionary factors. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We've provided reconciliations of non-GAAP to compared GAAP measures in the tables accompanying the earnings release. With that, I'll turn the call over to Lee. Lee Rudow: Okay. Thank you, John. Good afternoon, everyone. Thank you for joining us on the call today. Transcat delivered strong performance again in our second quarter of fiscal 2026. The key to Transcat's ongoing success is the consistent execution of our unique strategy, which includes the diversity of our product and service portfolio. As a reminder, there are 4 key elements to our strategy: organic service growth, inherent operating leverage in our service platform, strategic acquisitions and growth in our highly profitable rental channel. The combination of all 4 creates a unique and proven resiliency in our business model, which can be seen clearly in the first half of our fiscal 2026 year. And in the second quarter, despite continued economic uncertainty and volatility, consolidated revenue increased 21% to $83 million. Stable calibration revenue driven by customer retention, strong performances by our 2 recent acquisitions, Martin Calibration and Essco Calibration and significant growth in our rental channel drove double-digit revenue growth in both our service and distribution segments. In addition, in the second quarter, consolidated gross profit grew 26% and gross margins expanded 120 basis points. Our differentiated strategy also enabled adjusted EBITDA growth of 37% with 160 basis points of margin expansion. Amidst macroeconomic uncertainty and continued headwinds, the team did an excellent job finding ways to win, grow and position the company for sustainable long-term growth throughout both segments. Turning to the service results in the second quarter. Service revenue increased 20% and recorded its 66th straight quarter of year-over-year growth. Early results of our most recent acquisition, Essco Calibration have been very strong. As expected, Essco is a perfect fit, and as we like to say, right down the fairway for Transcat. Essco, like the Martin Calibration acquisition earlier in the fiscal year, demonstrates our ability to attract and acquire highly sought-after calibration companies that expand our capabilities, geographic footprint, leadership and most importantly, our ability to deliver long-term organic service growth. Transcat's reputation as a strategic acquirer of choice in the calibration industry continues to be an important differentiator. We firmly believe our methodology and culture around integration and synergy capture is second to none. The acquisitions of both Essco and Martin have made Transcat a very difficult company to compete with. Turning to distribution. In the second quarter, distribution revenue grew 24% from high demand, especially in our rental channel. Gross margin expanded 530 basis points versus prior year, driven primarily by an increase in the mix of higher-margin rental revenue within the Distribution segment. The strength of our balance sheet continues to support Transcat's proven growth strategy. Our new syndicated credit facility nearly doubles Transcat's resources to execute on proven acquisition and growth strategies, automation and many new AI programs in the works. We expect AI to generate new data streams and associated insights that will benefit both sales and operations from productivity to capacity planning, from marketing to customer retention. We are engaged in a new level of data management and delivery. Overall, we're pleased with our second quarter performance, which like the first quarter, remains strong despite continued economic headwinds. With that, I'll turn things over to Tom for a more detailed look at the second quarter financial results. Thomas Barbato: Thanks, Lee. I'll start on Slide 5 of the earnings deck, which provides detail regarding our revenue on a consolidated basis and by segment for the second quarter of fiscal 2026. Second quarter consolidated revenue of $82.3 million was up 21% versus prior year as both segments grew double digits. Looking at it by segment, service revenue grew 20% despite continued economic volatility. Distribution revenue of $29.4 million grew 24%, primarily due to strong performance from the higher-margin rental business. Turning to Slide 6. Our consolidated gross profit for the second quarter of $26.8 million was up 26% from the prior year. Service gross profit increased 17% versus prior year. We continue to leverage higher levels of technician productivity and our differentiated value proposition. That said, service margins continue to be pressured by lower than historic levels of organic growth as well as lower year-over-year Transcat Solutions revenue. Distribution segment gross profit of $9.8 million was up 48% with 530 basis points of gross margin expansion, driven primarily from the performance in our rental channel. Turning to Slide 7. Q2 net income of $1.3 million decreased $2 million versus the prior year, driven by higher interest expense and increased tax rate within the quarter. Q2 net income was negatively impacted by both onetime expenses related to the company's CEO succession plan and a higher effective income tax rate. The income tax rate was impacted by higher-than-anticipated excluded compensation expenses also tied to the CEO succession plan. Diluted earnings per share came in at $0.14. We expect additional onetime CEO succession costs and a similar resulting impact on the company's effective tax rate in the second half of fiscal 2026. We report adjusted diluted earnings per share as well to normalize for the impact of upfront and ongoing acquisition-related costs. Q2 adjusted diluted earnings per share was $0.44. A reconciliation of diluted earnings per share to adjusted diluted earnings per share can be found in the supplemental schedules attached to this presentation. Flipping to Slide 8, where we show our consolidated adjusted EBITDA and adjusted EBITDA margin. We use adjusted EBITDA, which is non-GAAP, to gauge the performance of our business because we believe it is the best measure of our operating performance and ability to generate cash. As we continue to execute on our acquisition strategy, this metric becomes even more important to highlight as it does adjust for onetime deal-related transaction costs as well as increased levels of noncash expenses that will hit our income statement from acquisition purchase accounting. Second quarter consolidated adjusted EBITDA of $12.1 million increased 37% from the same quarter in the prior year with 160 basis points of margin expansion. Please note that segment non-GAAP results are now labeled adjusted operating income, but the calculation did not change. As always, a reconciliation of adjusted EBITDA to operating income and net income can be found in the supplemental section of this presentation. Moving to Slide 9. Operating cash flow was up 5% versus the prior year, and CapEx is in line with expectations and continues to be centered around service segment capabilities, rental pool assets, technology and future growth projects. Slide 10 highlights our strong balance sheet. At quarter end, we had total debt of $111.9 million, $38.1 million available for borrowings under our secured revolving credit facility and a leverage ratio of 2.25x. We were pleased to close the Essco Calibration deal in the second quarter. Essco was a coveted calibration company that is highly synergistic and fulfills all of our strategic acquisition drivers. Our expanding adjusted EBITDA margin will drive a lower leverage ratio in subsequent quarters. Lastly, our Form 10-Q will be filed November 5, after the market closes. With that, I'll turn it back to you, Lee. Lee Rudow: All right. Thank you, Tom. As I mentioned earlier, our diversified portfolio of products and services, along with a strong financial profile has generated consistent results over an extended period of time and through various economic cycles. This should not be understated as our business model continues to demonstrate its resiliency. In addition, we will continue to leverage technology as a competitive advantage by investing in state-of-the-art capabilities, systems, processes and AI, all of which drive sustainable growth and efficiencies into our business model. This is the Transcat way. As previously discussed, we expect to return to high single-digit organic service growth in the second half of fiscal 2026. In addition, we would expect margin expansion as we return to historical rates of organic growth. We have a strong acquisition pipeline to support an increase in our geographic footprint, capabilities and overall market share. And where it makes sense, we will continue to expand our addressable markets through acquisition. Our leadership team across multiple levels of the organization continues to get stronger and is a major contributor to our ability to continue to deliver sustainable long-term value for our shareholders. And with that, operator, we can open the call up for questions. Operator: [Operator Instructions] We'll take our first question from Greg Palm with Craig-Hallum. Greg Palm: I wanted to start with just in terms of the quarter, distribution was, I think, the highlight again. So maybe a 2-parter. But number one, what's driving the rentals acceleration? I don't know if it's -- how much is market-related versus company-specific that you're doing to drive incremental sales? And are you able to give us kind of the mix of what was rentals in the quarter as a percent of distribution? Thomas Barbato: Yes, Greg, it's Tom. So, I think when we talk about rentals, I think there's 2 things driving the growth there. I think one is -- and we've talked about this before, right? I mean, we acquired Axiom Test Equipment about 2 years ago, and we made a conscious effort to focus last year on really accelerating the integration of that business. And I think part of what we're seeing is that, that integrated team is performing at a very high level. I'll just say, winning more opportunities that are presented to them and really helping to drive some of the growth we're seeing. I think there is some rent versus buy impact to the results as well, given some of the macroeconomic challenges that exist. But I think this one is heavily weighted towards execution on our part and the benefits of the integration work we did last year. And I think year-over-year, the Becnel rental business is also performing very well on a year-over-year basis, and we're seeing consistent demand there as well. Greg Palm: What kind of visibility levels do you have for the second half in that business? Because obviously, the revenue growth in the first half is -- from a number standpoint, is pretty incredible. Thomas Barbato: Yes. I think we started seeing in the second half of last year, we started seeing some of the benefits of better performance, better execution post integration. So, I think it's not a reasonable expectation to think that we're going to continue to see the growth rates we saw in the first half of the year. But I'm still expecting reasonable margin expansion, not to the tune -- on a year-to-date basis, we're seeing north of 500 basis points of margin expansion year-over-year. I think we'll continue to see margin expansion, probably something more in the 250 to 300 basis points. But you should expect to continue to see good performance. Greg Palm: And then on the service side, I think by my math, still kind of low single-digit organic decline. What gives you the confidence to sit here today and still say, yes, we're going to return to high single-digit organic in the back half of the year because it strikes me going from a low single-digit decline to a high single-digit, that's a pretty big move, pretty big uptick. Lee Rudow: So, I'll take this one. Greg, this is Lee. So, if you factor out solutions, we like to look at it both ways. The growth was probably in the 1%, 2% range. And we're going to call that pretty stable given this environment. We have no real issues on the retention. The customers that we have today continue to do business with us as they have in the past. Where we've struggled a little bit in this fiscal year has been on closing new business and starting new business. I think the economy is such that the longer time to close has become more normal. The incremental cost for our customers to change vendors at this particular time with some of the uncertainty has been a challenge. But the reason why we're still quoting in the high single-digit range is because a number of accounts have been won recently and will come to fruition, and we expect revenue as we drive through the third quarter into the fourth. And so, I think there's enough there that we have a fairly good sight line into more growth than we've experienced in the first half, which, by the way, is what we've been guiding to softly for the last several quarters is what we thought would happen, and it's not too far off from original expectations. Operator: Our next question comes from Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: Congrats on the quarter. Maybe just a question towards Essco, maybe looking back 90 days since you guys acquired them on the 5th of August. Maybe are there some things with that acquisition that have become more of a positive than you originally thought? And then maybe on the other hand, some negatives that you -- or maybe some obstacles you've run in with the Essco acquisition as well? Lee Rudow: Yes. This is Lee, Max. Very, very few obstacles. I mean we -- in addition to acquiring the company, we acquired a really good management team. They understand their business. And that business has done really well. We don't really count in our organic growth numbers when our acquisitions grow in the first year, but we've had really impressive growth from Essco. Actually, we have from Martin as well. So, both those companies are in the double-digit range for growth since we acquired them, and I expect that to continue. And as far as negatives, I really can't think of any. I mean, there's always some challenges just trying to get to know people. But most of the planning sessions have gone well. Our sales are integrated almost day 1 without any real issues whatsoever that have been -- at least come to my attention. I think it's been as smooth as we've experienced. And I think you're going to get that with the better-quality companies, and we saw it with Martin, and we're seeing it again. That's almost commonplace. It's part of you get what you pay for, and we've been pleased, really pleased. Maxwell Michaelis: Yes. And I guess kind of go back to sort of the question Greg had just with the back half of the second -- second half of the year with service returning to organic growth. And you talked about some economic uncertainty, barring any economic uncertainty further obstacles. I mean, like what is that. Like how would you define that like this economic uncertainty stalling you guys from growing in the second half of the year? I mean, just kind of getting a gauge on like what is kind of what we should be looking for, I guess, to kind of model out the second half of the year for service growth. Thomas Barbato: Well, I think what we're alluding to, Max, is maybe kind of more of what we've seen in the first half of the year. A lot of uncertainty around tariff levels and where things are going from an interest rate environment standpoint. I think it's got some of our customers reacting a little slower than what we normally see. And I think with recent news, I think we're expecting that to improve some, but it just seems like in this environment we're operating in, things are subject to change at any point in time. Maxwell Michaelis: I mean have you seen customer sales cycles shrink since maybe 3, 4 months ago up until now? Lee Rudow: I don't think the sales cycle has shrunk. I think we've -- for the last half a year to 3 quarters of a year, we've had consistent delays for customers who originally expressed, yes, we're going to go with Transcat. We like the value proposition. Here's when we're going to make the change, and then it seems to get delayed and delayed again. And so, I've seen this before. It's not uncommon. It's why we try not to focus quarter-to-quarter, try to look at the bigger picture of who we are, where we're headed, where we've been in terms of a service company. We love the position we're in. But you're going to have economic cycles like this that are just going to be a little bit softer than you like. But our revenue and retention -- our revenue relative to retention has been solid. We've made 2 terrific acquisitions in the space, 20% growth in services. This is what you want. And to do it in an economic environment like this, I think, says a lot about our company, which I tried to allude to in the script. So, we're right on target. And I consider it's really good performance given some of the headwinds we have. So, we'll see how it all plays out. We are seeing sight lines. We are seeing signs of customers actually giving us the go on new orders, and that's where the confidence is coming from in the back half. Operator: Our next question comes from Ted Jackson with Northland Securities. Edward Jackson: I want to -- just -- it's not really a question, but it is a question. But just with regards to rental, the rental business has been going really well. You keep it buried in distribution. What's going to get you to break that out? And why I ask is, I mean, it's becoming a pretty important piece of business, and it's an important piece of your CapEx. I don't -- I mean if I'm not mistaken, I don't think you even -- you break your rental CapEx out, but the CapEx is substantially larger than it was before. You're clearly investing in your rental assets. I mean, at what point do we get to where you're going to start showing a little more about that so you can get a better handle on the return you're getting on that investment rather than deciding it just be a growth driver on the top line? So that's my first question. Thomas Barbato: Yes. Ted, it's Tom. So, one of the beauties of the rental business, right, and part of the way that we got this business started, right, is that to a large extent, we're renting equipment that we would otherwise sell through the distribution channel, right? So, there was a low cost of entry, right? We could take something off the distribution shelf and put it on the rental shelf. And if there was a customer that was willing to pay to rent it, we would be able to do that in a kind of seamless way. And what that -- the kind of the beauty in having that flexibility and be able to execute that and grow that business from nothing to something is also -- internally, there's a lot of, I'll just say, blurred lines in terms of we have the same people supporting like in our warehouse, right? It's the same people supporting distribution and supporting rental. We're working with the same vendors. There's a lot of overlap between those businesses. And so, it's not easy to necessarily kind of break it apart. And I think at some point in time, we may be there. But currently, it's kind of operated as one business internally from a resource standpoint, so on and so forth. I think when we talk about CapEx, I would just think in the context of about 1/3 of our CapEx budget is allocated towards rentals. And when we talk about rentals, you got to think about CapEx from a net standpoint, right? Because any time you have an effective rental business, you also have to have a way to identify slow-moving equipment and have a used program to churn that equipment out, generate cash and reinvest it in assets that do have demand, right? So, I would just say on a net basis, it's about 1/3 of our CapEx. Edward Jackson: And what is it in terms of a piece of your PP&E? I mean it would not be in your inventory; it would be in your -- Thomas Barbato: I don't have that number off the top of my head, but I could follow up with you. Edward Jackson: I mean you get where I'm going with it. I mean it's turning into like it's important -- turning into an important business driver, and I just think there needs to be some more metrics around it. That's all. The next question is on the solutions business, I mean, it's been -- I mean, now we have all these new headwinds, but prior to the election and everything that's taken place, it's been a drag for the business for quite a bit of time. And you've signaled in the past that it's come to a point where it's stabilized. I mean can you give a little more color? I mean when you look at that solutions business for the third quarter, what was it relative to the second quarter? How did it come in? What was it relative to the prior year period? And kind of how is it performing vis-a-vis your expectations when you went into the quarter? Lee Rudow: Yes. This is Lee, Ted. I think it's in line. I'll say it's within a pretty close range of our expectations. We wanted the business to be stable, meaning it had gotten to a certain point. There was a significant drop-off. And now we're not seeing drop-offs anywhere near what we saw back a year ago. That's what we're shooting for. From a sequential standpoint, if you look from Q1 to Q2, you did see stability, which is what we expected, what we guided towards. If you look year-over-year, you still see declines, but I'm going to say, and characterize them within the range of what we thought were the possible expectations. So that business, it's an important business because in time and over time, it will help us drive organic service growth, and we like it for that reason. But we would expect, once we get to the place where we think the business can go, its growth rate should be similar than our normal -- than what our typical overall growth rates are for calibration services. We'll see. But right now, it's close, and I would say it's in range of the expectations that we set a year ago. Edward Jackson: So, if we -- let's just say it was flat sequentially and it just trends flat. I mean I'm not saying that that's your expectation or anything. But if it did that, at what point would it stop being a drag with regards to growth metrics on the top line? Lee Rudow: Yes. I mean if it was a flat business, then it's a business that if we're going to maintain a flat business, it's going to be for one reason only, and that is that it's a means to an end and it drives calibration business for us. And therefore, it's a channel that we see value in. We don't see it today as a flat business in the long-term. I think once we get it stabilized and get everything lined up the way we think we're capable of doing, that should be a growth business. Edward Jackson: No, no. I preface my questions with that. I'm just kind of where I'm driving to is do the analysis at what point does it stop being a drag with regards to top line growth. That's really stabilize. Lee Rudow: Yes, very soon. I mean as we get through this fiscal year and the back half of the year, that's exactly what we would expect. So, we shouldn't be talking about the solutions business like we've talked about it for last year as we get through third and fourth quarter. This is the time when we saw the declines. This is when we thought we get stabilized, we're close. So, I think, yes, that conversation is going to be over the next quarter or 2. Edward Jackson: And then the last thing, with regards to your transitions and stuff, and the kind of added expenses and tax and tax stuff, that's not in your pro forma calc for earnings at all still going through the bottom line in your pro forma calc? Or is that being removed? Thomas Barbato: It's adjusted out of the -- it's adjusted out for the adjusted EBITDA number, and it's adjusted out for the adjusted EPS number for the reconciliation. Edward Jackson: I just want to make sure that -- yes, so that -- what is it, $0.44 of adjusted earnings that has that removed. That's what I was asking. Thomas Barbato: That's correct. Operator: Our next question comes from Martin Yang with Oppenheimer. Martin Yang: So, I want to make sure I understand the different growth dynamics between newly acquired Essco and Martin and then your other service business. Other services overall have organic growth rate at low single-digits. But you also mentioned Essco and Martin still on double-digit growth. So, what's created such different growth profiles? Anything you can do to bridge the 2? Lee Rudow: Okay. So, I guess the question is why are those businesses doing well? Martin Yang: Yes, so much better than the rest of your service. Lee Rudow: Right. So, there's probably a couple of reasons that I would point towards, Martin. First and foremost, it really depends, like, for example, Essco is in the New England area, which is their strength. And there are certain life science customers that are doing very, very well. And we do a lot of research. We do we churn a lot of data to figure out which customers are growing, which ones are descending, which ones have troubles, which ones are building plants, which ones are not. And we knew in due diligence that their portfolio of customers was a really strong portfolio. We expected them to grow. Some of the ones that we have are just a little bit different. We have some of the same customers, but in some cases, they're different. And part of what made Essco Essco is that the strength of their customer base and their trajectory of growth. So that has not come to us -- that's not surprising to us. Really the same thing with Martin, too. In the particular region that they're in, which is Minneapolis, the life science companies that are there and the med device primarily that are there are companies that are performing really well. So, as you go around the country, I mean, we have 34 commercial labs. I would say 80% of our -- don't hold me to this number, but a large percentage of our commercial labs are growing. It's just we have different pockets in different regions for different reasons where we've got some headwinds, and that's normal. So, we bought those companies for a reason, and we expected them to grow even with these headwinds, and they're doing that. So, they're meeting our expectation. Martin Yang: Another question on the next quarter. So, part of the Martin's performance will be characterized as organic growth come next quarter, correct? Lee Rudow: That's correct. Thomas Barbato: At the end of the quarter, yes. Martin Yang: Are you able to quantify how much that can contribute to your organic growth target? Thomas Barbato: I would just say, Martin, it's $25 million on a base of -- on a full year on a base of $225 million or $230 million of service revenue, right? So, it kind of gets diluted because it's 10% of the total. But yes. I don't know how else to characterize it. Martin Yang: Would you expect Martin and Essco to sustain their double-digit growth? Thomas Barbato: I think we expect them to continue to perform well. But I'm not sure how comfortable I am saying that they're continuing to perform double-digit growth, right? I mean, because every year you do that, the base gets larger and at some point, what Lee just said about their customer base, we could see some slowdowns there. But we expect them to continue to perform well. I'm just not sure we could say that they're going to continue to perform in the double-digit range. Operator: And we do have a follow-up from Greg Palm with Craig-Hallum. Greg Palm: Just a couple of follow-ups. On distribution, I feel like every year, it almost sort of builds throughout the year. And so, I guess my question is, I mean, from a seasonality standpoint, do you expect anything different this year? Or is there anything -- any reason why you would have maybe higher than normal first half revenues? I don't know if that's just timing or what you sort of see right now based on visibility levels, but just kind of curious how you think distribution plays out more specifically in the second half. Lee Rudow: You're right. I think we're going to see it continue to be strong. I mean, typically, third quarter is a strong quarter historically for distribution. But when we look at Pulse, so Pulse for us would be things like daily quotes and activity levels and so on and so forth. And the Pulse for distribution continues to be strong into the third quarter, which is what we expected. And I don't see anything right now on the radar, and I'll defer to Tom as well, that would lead me to believe there's a drop-off coming from the strong performance we've had. Thomas Barbato: Certainly not a drop-off. But I think, as I mentioned earlier, I think when we talk about rentals and some of the benefits that we're seeing from the execution and as a result of our integration, we started to see some meaningful acceleration in growth towards the back half of last year. So, I think as we look ahead to the second half of this year, I don't think -- we're certainly not going to see things reverse, but I think the growth will moderate a little bit. And that's why I'm also not expecting 500-plus basis points of margin expansion. I think something, as I mentioned earlier, 250 to 300 is probably more reasonable on slightly lower growth. Greg Palm: Fair enough. And then I was wondering if you could comment at all on the competitive landscape in the service segment with a couple of things going on. I don't know how that sort of relates to your expectations of accelerated organic service growth, but just kind of curious to get your thoughts there. Lee Rudow: Well, when you look at the competitive landscape, there's a group of traditional customers that we've always competed against. You're talking the CIMCO, the Tektronix, the Trescal. And from the information that we gather from the marketplace in at least a couple of cases, those companies are struggling a bit with these particular headwinds that we have. And there's reasons for that. I mean, over the longer-term, Transcat has been so committed to the calibration market. We've invested year in and year out, not only in our people and our training, but the assets that we put in capabilities, the types of acquisitions we make. The competitors that I just referred to have not done that. They haven't acquired companies and increased capabilities. They have not put a lot of capital into their businesses. So, when you hit -- look, this is my opinion from the information that I have. And so, when you come up against headwinds, we're much better suited to withstand them than that group of competitors. And I think we've done an excellent job doing that. I'm very proud actually of the organization. And yes, maybe our organic growth is in a flat or low single-digit range. But I think relative to others that are traditional. Better positioned, better diversified. I used the word diversified a couple of times in my script for that very, very reason, Greg. Now we also compete these days with -- there's a new group of competitors. There's some private equity in our business space who have sort of consolidated several, in some cases, smaller companies. But again, longer-term, if you don't integrate those companies and you can't take advantage of the synergies, particularly the growth synergies, I think we're going to end up with the same scenario. So, if you invest the way we invest, you integrate the way we integrate, acquire the types of companies we acquire, I think we're going to continue to fare well with the old competition, which I described and the new competition, which is more PE-backed. I like the position we're in. It doesn't mean we're not going to face headwinds like everybody else. I just think we're going to fare better. And in the longer-term, we're going to be better positioned. And we've proven that over time, and I think we're proving it right now. Operator: And this will conclude our Q&A session. I will now turn the call back to John Howe. John Howe: Thank you all for joining us on the call today. We have a number of upcoming conferences in the month of November. On November 11, we will be attending the Baird 2025 Global Industrial Conference in Chicago. On November 17, we will be attending the Raymond James Sonoma Small Cap Summit in Sonoma, California. And finally, on November 19, we will be attending the Stephens Annual Investor Conference in Nashville, Tennessee. For those attending the conferences, we look forward to seeing you there. Otherwise, feel free to reach out to us at any time. Thanks again for your interest in Transcat. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Hello, and welcome to Nuvation Bio's Third Quarter 2025 Financial Results and Corporate Update Call. Today's call is being recorded, and a replay will be available. [Operator Instructions] Now I'd like to turn the call over to JR DeVita, Executive Director of Corporate Development and Investor Relations at Nuvation Bio. Please go ahead. Robert DeVita: Thank you, and good afternoon, everyone. Welcome to the Nuvation Bio Third Quarter 2025 Earnings Conference Call. Earlier today, we released financial results for the quarter ending September 30, 2025, and provided a business update. The press release is available on the Investors section of our website at nuvationbio.com, and a recording of this conference call will also be available on our website following its completion. I'd like to remind you that today's call includes forward-looking statements, including statements about the therapeutic and commercial potential of IBTROZI and safusidenib, the components of our anticipated product revenue, expected milestone payments and our cash runway. Because such statements deal with future events and are subject to many risks and uncertainties, actual results may differ materially from those in the forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly reports on Form 10-Q that are filed with the U.S. Securities and Exchange Commission. Joining me on today's call to discuss our quarterly results are our Founder, President and Chief Executive Officer, Dr. David Hung; our Chief Commercial Officer, Colleen Sjogren; and our Chief Financial Officer, Philippe Sauvage. David will provide an overview of our key business updates. Colleen will provide details on the commercial launch of IBTROZI, and Philippe will discuss our financial and operating updates. David will then conclude with closing remarks. Now I'll turn the call over to Dr. David Hung. David? David Hung: Thanks, JR. Good afternoon, everyone, and thank you for joining us. I'm pleased to share our third quarter results with you today. As a reminder, our lead product, IBTROZI, received full approval from the U.S. FDA on June 11, making the third quarter our first full quarter as a commercial stage company. We are thrilled to report that momentum from the U.S. launch of IBTROZI continues to build in a meaningful steady manner. On our last earnings call, we announced that 70 new patients had started IBTROZI between FDA approval and the end of July, which represented approximately 10 new patient starts per week. Going forward, we will report key performance indicators and sales on a quarterly basis. This allows for a direct apples-to-apples comparison of quarter-over-quarter growth regardless of when we report our results. Today, we can tell you that 204 new patients started IBTROZI in the third quarter, which represents over 15 new patient starts per week during this period. We are seeing and hearing strong physician appreciation and support for the durable efficacy, robust intracranial activity and excellent tolerability profile we've discussed previously. Importantly, what we're seeing in the field reflects exactly the cadence we were hoping for at this stage, supported by a real-world real-time patient treatment need. While rare disease launches are always complex, we are quite encouraged by the number of patients we have been able to help with IBTROZI at this point in our launch. To put our performance in context, repotrectinib or Augtyro was approved by the FDA on November 15, 2023. For retrospective IQVIA data, just 34 new patients started Augtyro during its first 3 full months after approval. While we realize IQVIA does not capture all patients that start therapy, this represents less than 3 new patient starts per week from December 2023 to the end of February 2024. As evidenced by the volume of new patient starts to date and defining characteristics of its product profile, we believe that IBTROZI is on track to become the new standard of care in ROS1-positive non-small cell lung cancer. This sentiment is already reflected in the practicing physician community as evidenced by a recent article published last month in CUREtoday by Dr. Geoffrey Liu, one of the most prominent KOLs in the ROS1 lung cancer space on the data we recently presented at the 2025 World Conference on Lung Cancer, or WCLC. Since its launch, IQVIA data also shows that Augtyro has been unable to displace crizotinib or XALKORI and become the standard of care in this disease. We believe XALKORI should not be the standard of care because it does not cross the blood-brain barrier. About 36% of newly diagnosed patients with advanced ROS1-positive non-small cell lung cancer have tumors that have already spread to their brain and another 50% of patients previously treated develop brain metastases upon progression. This viewpoint has been echoed by multiple KOLs we have interacted with in the field. Per data published in the Journal of Clinical Oncology, or JCO, IBTROZI demonstrated a confirmed overall response rate or ORR of 89% and a median duration of response or DOR of 44 months in TKI-naive patients. And importantly, a 66% confirmed intracranial response rate in patients with brain metastases who were TKI pretreated. Data published in JCO was based on pooled analyses from the TRUST-I and TRUST-II studies using a June 2024 data cutoff. And today, we are delighted to report that the median DOR of TKI-naive patients treated with IBTROZI in the pooled analysis has now increased to 50 months from 44 months with additional follow-up from a more recent data cutoff date of August 2025. These new data are being prepared in a supplemental NDA to support a label update that we plan to submit in the coming weeks. And we also plan to provide a more fulsome update from the August 2025 data cutoff at a medical conference in 2026. These long-term data appear to represent the greatest patient benefit to date in ROS1-positive non-small cell lung cancer. It is also important to note that unlike ongoing studies of other ROS1 TKIs, our pivotal studies did not exclude patients with other concomitant oncogenic mutations, making the results with IBTROZI, we believe, representative and applicable to real-world patients. To our knowledge, we have not seen any approved therapies in any solid tumor oncology indication that have shown efficacy data like those of IBTROZI’s combined response rates and durability in the first-line setting. Only lorlatinib or LORBRENA for ALK-positive non-small cell lung cancer has shown a longer median PFS of greater than 5 years in its CROWN study, but for its label, LORBRENA's confirmed ORR is 76%. Just as it would be a challenging and significant investment over many years to achieve much less surpass the median PFS of LORBRENA in ALK-positive non-small cell lung cancer, we feel it will be equally difficult and lengthy an investment to demonstrate durability data close to that of IBTROZI in ROS1-positive non-small cell lung cancer. We also published important new data at both WCLC in September and the European Society of Medical Oncology or ESMO in October. At WCLC, we shared updated IBTROZI data from both the pivotal TRUST-I and TRUST-II studies that supported the data in our label. This included both additional details, which emphasize the consistent durability of IBTROZI’s efficacy profile and a more thorough characterization of IBTROZI’s well-tolerated safety profile. Specifically, while our presentation did not summarize all adverse events detailed in our prescribing information, it instead focused on the 6 most common adverse events seen in clinical studies of IBTROZI. These were increased aspartate aminotransferase or AST, increased alanine aminotransferase, or ALT, followed in order by diarrhea, nausea, vomiting and dizziness. Of note, out of these 337 patients with ROS1-positive non-small cell lung cancer treated with IBTROZI in our pivotal studies, the number of patients who discontinued IBTROZI for any of these top 6 adverse events was 1. This represents a discontinuation rate of just 0.3% for the 6 most common adverse events. In addition, the published data showed that IBTROZI’s clinically apparent adverse events, diarrhea, nausea, vomiting and dizziness were transient, majority Grade 1 and resolved in 1 to 3 days. Again, the combined efficacy, durability and tolerability of IBTROZI are unprecedented in this disease. Additionally, at the ESMO conference, we presented data on IBTROZI’s efficacy in patients who had failed Rozlytrek or entrectinib, the only CNS penetrant first-generation ROS1 TKI. IBTROZI’s confirmed ORR post-entrectinib failure was 80%. We are not aware of any ROS1 agents approved or in development that can match this response rate. Also notably, all 10 patients who failed entrectinib in this study failed for progression, not tolerability. This is an important distinction because showing an 80% confirmed ORR after progression is a much higher bar to achieve than an 80% ORR in patients who failed entrectinib for tolerability, but whose tumors are not progressing on entrectinib. This data is particularly important because, as I noted earlier, intracranial metastases develop in 50% of patients progressing with ROS1-positive non-small cell lung cancer and Rozlytrek was previously the most tolerable of the currently approved earlier generation brain-penetrant ROS1 TKIs. We believe these results following progression on Rozlytrek helps solidify IBTROZI’s differentiated profile and activity in the central nervous system. We believe that IBTROZI’s robust and durable systemic and intracranial response rates may be due to its unique combination of activities against 2 important targets, ROS1 and TrkB. As we have previously mentioned, IBTROZI is 11 to 20-fold more selective for ROS1 over TrkB. It is strikingly potent against ROS1 with picomolar level inhibitory activity. However, we believe that modest and tolerable inhibition of TrkB by IBTROZI may also contribute to intracranial disease control. For published studies, TrkB signaling has been associated with larger tumor size, higher clinical stage, higher probability of distant metastases, including in the CNS and worse survival across multiple solid tumor types, including lung cancer. Our view is that IBTROZI strikes the right balance between potent inhibition of ROS1 combined with measured and tolerable TrkB activity. Interestingly, as I just mentioned, the only other approved TKI with a PFS longer than that of IBTROZI is LORBRENA used in ALK-positive non-small cell lung cancer, which also inhibits TrkB to a measured extent. We do not believe this is a coincidence. ALK-positive non-small cell lung cancers also frequently metastasize to the brain and LORBRENA's TrkB activity may be one of the key features in its striking durability. We believe that IBTROZI’s ability to hit ROS1 very hard and TrkB modestly may drive its unique systemic and intracranial response durability and its tolerability profile. We also continue to execute on IBTROZI’s life cycle management. We recently dosed the first patient in TRUST-IV, our randomized placebo-controlled Phase III study evaluating taletrectinib as adjuvant therapy for patients with resected ROS1-positive early-stage non-small cell lung cancer. Surgical resection remains the standard of care for early-stage lung cancer, yet recurrence is unfortunately common and patients with ROS1 infusions have no approved targeted therapy options in the adjuvant setting today. TRUST-IV is designed to address this gap building on the proven efficacy and safety profile of IBTROZI in advanced disease with the goal of delaying or preventing disease recurrence after surgery. We are the first approved ROS1 therapy to initiate a clinical trial in the adjuvant setting, providing an important opportunity to address a key unmet need for patients. The fact that we and the dedicated investigators participating in our adjuvant study believe IBTROZI’s safety profile is well tolerated to the point that we can help patients earlier in the disease is a particularly positive reflection of this program. Finally, in partnership with Nippon Kayaku, we were pleased to receive regulatory approval of IBTROZI in Japan, further expanding access to patients with ROS1-positive non-small cell lung cancer outside the U.S. We view this milestone as an important step in bringing IBTROZI to patients and providers around the globe following its approval in China earlier this year. In short, we believe our launch performance, the latest updates reconfirming IBTROZI’s efficacy and tolerability profile and the additional development and regulatory achievements all show why IBTROZI is poised to be the new standard of care for patients with ROS1-positive non-small cell lung cancer. We also made important progress on the rest of our pipeline. Allow me to turn briefly to safusidenib. Safusidenib is a mutant IDH1 inhibitor being developed for diffuse IDH1-mutant glioma, a devastating brain cancer for which there are very few treatment options available today. Each year, there are approximately 2,400 new cases of IDH1-mutant glioma in the U.S., split almost evenly between low grade, including grade 2 and high grade, including grades 3 and 4. An important difference from ROS1-positive non-small cell lung cancer is that patients newly diagnosed with low-grade and high-grade IDH mutant glioma live approximately 10 to 15 and 3 to 7 years, respectively. Therefore, patients may benefit from an approved therapy for many years. And as a result, the market opportunity is materially larger. The only treatment option available for patients with IDH1-mutant glioma is vorasidenib, which is approved by the U.S. FDA in August 2024 for only grade 2 patients. In its pivotal INDIGO study, which again included only grade 2 patients with non-enhancing disease, vorasidenib demonstrated a median PFS of 27.7 months and an ORR of 11%. Strikingly, the launch of vorasidenib has greatly surpassed analyst expectations by approximately 20-fold. For background, vorasidenib is commercialized by Servier, a private company who acquired the program from Agios. Although Servier does not report sales of vorasidenib, they can be gleaned from the royalties received and reported by Royalty Pharma, who in May 2024 paid Agios $905 million for a 15% royalty on net sales of vorasidenib in the U.S. Royalty Pharma recently disclosed in an investor update that U.S. net sales of vorasidenib were over $550 million since launch compared to analyst projections of approximately $30 million over the same time frame, including $223 million in net revenue in the second quarter of 2025 alone. Based on this, vorasidenib is quickly approaching an annual run rate of $1 billion in U.S. net sales. We believe this is consistent with what we have said is significant commercial opportunity for our IDH1 inhibitor, safusidenib. As a reminder, vorasidenib is approved in grade 2 IDH1/2 mutant glioma, and there are no therapies approved in the IDH1-mutant high-grade or high-risk lower-grade settings. While we acknowledge the complexity of cross-trial comparison, in a clinical study run by our partner, Daiichi Sankyo, safusidenib showed an ORR of 33% in patients with recurrent low-grade IDH1-mutant glioma, which is 3x the ORR vorasidenib showed in its pivotal INDIGO study. More importantly, safusidenib demonstrated a 17% ORR in high-grade IDH1-mutant glioma, including 2 complete responses lasting multiple years. These complete responses include a GBM or glioblastoma multiforme, the worst of all gliomas, which is now referred to as grade 4 astrocytoma. To our knowledge, no other IDH1 inhibitors have demonstrated responses of this kind in high-grade IDH1-mutant glioma, and we believe this speaks to the emerging and promising clinical profile of safusidenib. Based on data generated to date, we have begun dosing patients in a global randomized study, evaluating the efficacy and safety of safusidenib versus placebo for the maintenance treatment of high-grade IDH1-mutant glioma following standard of care treatment. Specifically, we define the population as patients with newly diagnosed IDH1-mutant grade 3 astrocytoma with certain high-risk features or grade 4 disease. Following a successful meeting with the U.S. FDA, we're actively preparing a protocol amendment to modify the trial into a pivotal Phase III study by increasing the size to approximately 300 patients, which should support potential regulatory approvals. Please refer to clinicaltrials.gov for additional details on the study design. Other important elements coming from the FDA meeting include: agreement on PFS as the primary endpoint, which could support full approval, agreement on the dose of 250 milligrams BID without further need for dose optimization in this setting and agreement on the defined patient population with the potential to also include patients with IDH1-mutant high-risk grade 2 or low-grade gliomas, a patient group that might not be best served by vorasidenib given its pivotal INDIGO study design. For example, the INDIGO study excluded grade 2 patients with enhancing disease. Enhancing disease is known for having a higher risk of progression. Considering the high unmet need and the exciting profile of safusidenib, we are optimistic about the speed of recruitment in this trial. That said, we want to be transparent on the length of this study. Given the agreed-upon PFS endpoint and natural history of disease, this study will take years to complete. In addition, I'd reiterate that the blinded protocol will prevent us from disclosing public updates until enough events have occurred. We estimate that the study will be completed in 2029. Finally, we want to share an update on our discussions with FDA regarding development of [ alectinib ] in grade 2 IDH1-mutant glioma, where vorasidenib is approved. These discussions were incredibly collaborative, but it was clear that to receive approval, we would need to demonstrate a PFS benefit of safusidenib in a single randomized study with sufficient representation of U.S. patients. This would naturally result in including vorasidenib as the control arm given any other control arm in the U.S. would be considered unethical. While vorasidenib may be approved or achieving approvals in ex-U.S. regions, accessibility and reimbursement is highly variable, and it would take too long to enroll a study supported by a PFS endpoint solely in the U.S. An alternative is for us to supply vorasidenib, but the cost would easily exceed $100 million, which is simply not a financially prudent business decision. Therefore, we've decided not to pursue a head-to-head low-grade glioma study on our own at this time and to instead focus our resources and efforts on the high-grade maintenance study. However, as we've alluded to above, some grade 2 subsets were excluded from the vorasidenib INDIGO pivotal study, such as high-risk grade 2 patients, which are still low-grade gliomas. We will, therefore, likely enroll grade 2 or low-grade subsets with high-risk features, which still represents an unmet need with no approved therapy. We will continue to explore whether there are other pathways to pursue development in a portion of the low-grade population or other IDH1-mutant glioma patient subsets that could potentially benefit from safusidenib and also remain flexible around further partnerships in the development of this program. Lastly, NUV-1511 is the first clinical candidate from our Drug-Drug Conjugate or DDC platform and represents a new modality in targeted cancer therapy. We plan to provide an update from our Phase I dose escalation study in difficult-to-treat solid tumors in the near term. We remain confident that we have the team, strategy and mindset to execute our program successfully, build lasting value and most importantly, serve patients. With that, I'll turn it over to Colleen. Colleen Sjogren: Thank you, David. Today, I am excited to share that due to the efforts of our incredible field team, our launch of IBTROZI continues to build impressive momentum. Since approval on June 11, our team has effectively executed our launch plan across the organization. Specifically, the precise execution of our launch strategy by our sales, marketing and market access team has helped providers quickly identify appropriate patients and ensure these patients have timely access to this important next-generation therapy. In our first full quarter of launch, 204 new patients started treatment with IBTROZI, equivalent to over 15 new patient starts per week. That is 5x greater than the next most recent therapeutic benchmark in this indication. This underscores that a significant medical need in ROS1-positive non-small cell lung cancer still exists. Even in these early days, it is clear to us that IBTROZI's compelling efficacy and safety profile is addressing this need. While ultra-rare disease launches require a multifaceted approach, this early momentum demonstrates that we have the right team, the right plan and strategy and a practice-changing therapy with a differentiated clinical profile in IBTROZI. There is swift adoption from prescribers across the country in all channels, including independent delivery networks, or IDNs, academic centers and large community practices. Through the end of the third quarter, providers across 98% of our 47 sales territories had written prescriptions for IBTROZI, including multiple repeat prescribers. At this point in our launch, we have engaged nearly all of our Tier 1 and Tier 2 target accounts, and our field-facing interactions and results reinforce that physicians are quickly gaining comfort prescribing IBTROZI for their appropriate patients. On the market access front, payer engagement continues to be constructive and effective. As of the end of the quarter, IBTROZI was covered by payers representing more than 80% of covered lives, up from 58% just 2 months prior. The incredible effort of our market access team is reflected in this truly phenomenal growth in coverage. Our patient support program, NuvationConnect, continues to play a critical role, supporting patients beginning treatment quickly while reimbursement is being secured. We are encouraged that while our free trial program was intended to last up to 1 month, we continue to convert patients in a matter of weeks, highlighting both payer receptivity and prescriber conviction. Now let's look at some of the backgrounds of key segments of patients who have been prescribed IBTROZI as they highlight the broad potential of this therapy. First, we are seeing use from providers in both academic and community settings nationwide. To date, nearly 75% of our new patient starts have come from academic centers or independent delivery networks. This is to be expected as these centers are typically quicker to adopt new and innovative products, while community centers, where the majority of ROS1 patients are located, are just now starting to come online. Over time, we expect the majority of new patient starts to come from the community setting, in turn, supporting prescription growth and continued momentum. In addition, IBTROZI is being prescribed across both TKI-naive and TKI pretreated patient populations. We have limited visibility into the characteristics of all patients on our therapy, but we do have insight into patients that come through our support program, NuvationConnect. And our data shows encouraging signs that the percentage of TKI-naive patients prescribed IBTROZI is increasing. We were expecting a higher proportion of TKI pretreated patients to make up the majority of new patients at launch, but the greatest opportunity for long-term patient impact and treatment with IBTROZI remains in the first-line setting, which is further bolstered by the latest data cut providing for a 50-month median duration of response based on pooled data from TRUST-I and TRUST-II studies. In the second-line setting, consistent with what we reported on our last earnings call, we continue to see switches from all 3 of the other therapies approved for this indication. Reasons for this have included disease progression, toxicity, brain penetrants or HCP preference. In addition, multiple key opinion leaders have shared that IBTROZI's efficacy profile, specifically the prolonged durability in TKI-naive patients is best-in-class, and they have elected to switch their TKI pretreated patients as a result, even if they had not progressed or had toxicity issues. Since launch, we are learning that IBTROZI’s clinical efficacy profile is resonating strongly with physicians, and they also appreciate that IBTROZI's safety profile is well defined, manageable and most importantly, allows patients the possibility to remain on therapy for years and stay ahead of their disease. Looking ahead, we are focused on deepening adoption in the U.S. and continuing to raise awareness of the importance of oncogenic driver testing. Today, DNA-based testing identifies roughly 3,000 advanced ROS1-positive non-small cell lung cancer patients annually in the U.S. And as the field shifts towards RNA-based testing, which publication suggests may detect approximately 30% more ROS1 fusion, the annual addressable population could potentially expand to roughly 4,000 patients in the U.S. alone. So given IBTROZI's median duration of response of 50 months, we would expect the theoretical maximum number of patients treated with IBTROZI to potentially be over 16,000 patients early in the fifth year post approval. IBTROZI's unprecedented durability in ROS1-positive non-small cell lung cancer turns a small incidence population into a substantial prevalence population, generating an opportunity to help a much larger patient population than we had previously articulated. This example is based on first-line patients only and does not count any patients in the pretreated population, which further increases the addressable population over this time frame. As David noted, we recently initiated the TRUST-IV study to evaluate IBTROZI as an adjuvant therapy for patients with resected ROS1-positive early-stage non-small cell lung cancer. From my standpoint, this is important for 3 reasons. First, thoracic thought leaders have encouraged us to pursue approval in earlier-stage non-small cell lung cancer. This speaks to the efficacy and importantly, the safety profile of IBTROZI as taking a medicine for many years requires that to be tolerable. Second, potential approval in the adjuvant setting can further expand the number of patients we can support with IBTROZI. And third, success in this study can solidify IBTROZI as the leader in ROS1-positive non-small cell lung cancer as we are the only company to have pursued an adjuvant study in the ROS1 patient population. To give you an example in this field, I would point you to osimertinib or TAGRISSO in EGFR-positive non-small cell lung cancer. Following its approval in the adjuvant setting, there was an exponential increase in prescriptions of the medicine. In fact, it became one of the most widely prescribed lung cancer treatments globally. Finally, I want to highlight the efforts of our remarkable field team. Their deep experience in rare disease and dedication to oncology, coupled with IBTROZI's outstanding efficacy and safety profile have led to the fastest ROS1 launch in history. We believe this early adoption of IBTROZI supports our conviction that it is quickly emerging as the new standard of care in ROS1-positive non-small cell lung cancer, delivering meaningful benefit for patients. Now, I'll turn it over to Philippe. Philippe Sauvage: Thanks, Colleen, and good afternoon, everyone. For detailed first quarter 2025 financials, please refer to our earnings press release, which is available on our website. Now, let's go over some important highlights from the quarter. We are so proud that this is our first full quarter reporting as a commercial stage company. And I'm pleased to inform you that in the first quarter, we generated $13.1 million in total revenue, which includes $7.7 million in net product revenue from IBTROZI. While there was some channel stocking at the start of the launch, growth is now purely driven by treating new patients with IBTROZI as our limited distribution model keeps inventory proportionally in line with new levels of prescription. Today, stocking no longer makes up a material amount of our product revenue, and we expect that to be the case from here on out. This is important when comparing the launch of IBTROZI to other medicines on the market where channel stocking and not new patient starts did make up a material part of revenue in the first few quarters post approval. Lastly, while some patients have been enrolled in our free trial program, we will expect nearly all patients on this program to generate full commercial revenue in their second month on IBTROZI at the latest. Our approach to access has been extremely successful with a very high level of coverage this soon post approval. Our level of gross to net has naturally increased based on contracting in the vicinity of 20%. We expect this level to slightly increase over time and then stabilize based on our balance of business with commercial, Medicare, Medicaid and 340B plans and the limited amount of free medicine provided to date. As of the end of the quarter, more than 80% of lives are covered across the U.S. payer label, an outstanding number this early in the launch, which gives providers strong confidence in coverage for IBTROZI. Adding to that, IBTROZI is very favorable profile, we have everything we need for continued prescription growth and success. The remaining revenue comes from our collaboration and license agreements, including product supply, royalty revenue and research and development services. While our current royalty revenue comes from our commercialization partner in China, Innovent Biologics, we expect to begin receiving additional royalty revenue from our partner in Japan, Nippon Kayaku, following approval in September of this year. Notably, we expect IBTROZI to be approved for reimbursement within the fourth quarter, which will result in a $25 million milestone payment from Nippon Kayaku to Nuvation Bio and the start of our royalty payments. We are also in late-stage discussions with potential IBTROZI commercialization partners in Europe and other ex-U.S. territories. This will further reinforce our revenue and cash position. We will report key performance indicators related to IBTROZI and corresponding net revenue on a quarterly basis from now on. To us, the real metric of success is the number of patients we can help with our differentiated therapy, and this is what we will focus on in the near term. We are not yet providing net revenue guidance but plan to at the appropriate time. Still, it is important to note that if we consider our new patient starts in the quarter, we are already at a level of annualized net revenue of more than $55 million if these patients were to remain on IBTROZI just for the next 12 months. However, given IBTROZI’s 50-month median DOR, we believe there is a considerably larger commercial opportunity ahead of us. On the expense side, R&D expenses for the quarter were $28.8 million as we continued investment in IBTROZI and in our clinical stage pipeline. SG&A expenses were $37.4 million, primarily driven by support for commercialization. This includes personnel-related expenses tied to commercial operations as well as strategic investments in medical education, payer engagement, patient support programs and marketing. We have rightsized our field team with 47 oncology account managers. We do not expect field and commercial team numbers to go up. Turning to the balance sheet. We ended the quarter with $549 million in cash, cash equivalents and marketable securities. An additional $50 million is available to us under our term loan agreement with Sagard Healthcare Partners until June 30, 2026. As we have stated previously, we believe our cash balance is sufficient to fund operations through profitability. Our previous projections included the cost of a head-to-head study of safusidenib against vorasidenib. After discussion with the FDA, we decided to not conduct this study and instead focus on executing a registration-enabling study in the high-grade IDH mutant glioma setting while also including patients who have high-risk low-grade tumors. This was a prudent financial decision based on a careful evaluation of the cost and time needed to complete a fully powered head-to-head study to support U.S. approval and generates significant flexibility for us to allocate the sales funds elsewhere. Given the substantial cost of the head-to-head study against vorasidenib that was previously in our budget, this should lower our operating expenses and further support our ability to reach profitability. This expanded runway gives us further flexibility as we continue to pursue additional attractive, underappreciated and undervalued assets that can make an impact on patients' lives. Operationally, we remain an agile organization with the flexibility to redirect resources as insights emerge into both commercial launch, development of our pipeline and evaluation of other exciting external opportunities. That discipline, combined with the early IBTROZI performance and a robust cash balance positions us to execute on our 2025 objectives while we plan for 2026 and beyond. We have one of the sector's best teams, a special therapeutic in IBTROZI with more to come, combined with the right structure, resources, flexibility and agility to continue to grow and make an impact. I'll now hand it back to David. David Hung: Thank you, Philippe. Before we move to Q&A, I want to emphasize how proud I am of our team and the progress they have made. We are encouraged by the strong early adoption of IBTROZI across patients with advanced ROS1-positive non-small cell lung cancer, the feedback we're hearing from physicians and patients and the momentum we are building as a commercial company. This is only the beginning. With IBTROZI’s differentiated profile and growing adoption, coupled with the breadth of our pipeline and a robust cash balance, I believe we are well positioned to create meaningful impact for patients and long-term value for shareholders. With that, I'll ask the operator to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Kaveri Pohlman of Clear Street. Kaveri Pohlman: Congratulations on the progress. Maybe just a couple on IBTROZI. With more clarity and experience, curious if you would be able to provide any guidance on sales for this year? Also, how do you see the current and future trends in usage between treatment-naive or first-line and second-line settings relative to your expectations? And what key factors or strategies could influence greater uptake in first line? And I have a follow-up. Philippe Sauvage: Kaveri, thanks for listening to us. As we said in the past, we are not going to provide any guidance on our numbers, but we are very comfortable with the level of consensus today. And we think that what we accomplished in Q3 with $7.7 million in net sales in the U.S. is a very, very strong number for Q3 and therefore, for year. David Hung: And Kaveri, to answer your second question, clearly, we're seeing an uptake in all lines of patients. But because the PFS of patients in the second line is going to be shorter than the PFS in the first line, over time, as we get turnover of patients, we are going to see increasing proportion of first-line patients. So we would anticipate that to grow. And we're capturing a significant number of patients at this stage of our launch, and we would expect that to continue to grow and accelerate. Kaveri Pohlman: Got it. And for expanded access program, first, can you tell us how many patients were on that program? And could you provide insight into overall impact and future direction of EAP and the fast access program or the free trial program, specifically how you see these initiatives evolving? And what potential do they have to support adoption as physicians gain more experience with the commercialized drug? Philippe Sauvage: Thank you, Kaveri. So for expanded access program, you might remember, we told you in the last quarter that we had only 6 patients on these EAPs that were converted to commercial IBTROZI, only 6 of them. We didn't convert any patients from our clinical trials because they're still on trial. As David pointed out, with a very, very long duration. We expect them to stay on trial for a very long time. So it's only 6 patients that convert to EAP. And I wanted to come back to another point I was making back to your question about consensus. Obviously, as we said, if patients were to stay for the full year on IBTROZI, you're looking at roughly $55 million. So that should help us and help you to document the kind of sales for next year. Operator: Our next question comes from the line of Farzin Haque of Jefferies. Farzin Haque: Congrats on the quarter. Can you provide some color on the gross to net and payer mix and then timeline for submitting the supplemental NDA to update the label for IBTROZI? Philippe Sauvage: Thank you, Farzin, for your question. I'll start by the gross to net and the payer mix. So we communicated about our gross to net of roughly 20% so far because we are starting to see the various payers coming online. We believe that we would have something in the vicinity of 40% coming from Medicare, a little bit less than 10% from Medicaid and maybe 20% additional from 340B, it's slightly lower right now. And obviously, all of those payer mix, Medicare, Medicaid, 340Bs are taking the rebates to certain levels. Some of them are being, as you know, legal, like 23.1% in Medicaid. So all of this to say that with the collection of payer mix that we see and we expect looking ahead and the contracting that we've done, we have for the quarter about 20%. We think it's still going to go a little bit higher over the next few quarters, and then it will stabilize. David Hung: And Farzin, to answer your question on the timing of the sNDA, we anticipate submitting that by the end of the week. Farzin Haque: Got it. And then on the IDH1 program, are you saying more on the powering assumptions? And then like I know the prespecified stratification, but perhaps something on the crossover provisions for the high-grade glioma study. Philippe Sauvage: I'm not sure I captured the second part of your question, but we haven't given detail on the powering assumptions except to say that we anticipate a trial size at [ 150 ] per arm will enable us to get registration. Farzin Haque: Got it. So it just 2029 data best expectations. So number of events, you're not saying how many number of events to accumulate to get to that? Philippe Sauvage: That's correct. Operator: Our next question comes from the line of Soumit Roy of Jones Research. Soumit Roy: Congratulations again on the quarter. On the projection of the -- so right now, you are getting almost 15 patients every week, so 60 a month. Could you give us some guidance on -- is that a fair number for next couple of quarters to go with? Or following the initial excitement, we should trim the total number of patients -- new patients a little bit? And any color on the TRX number or refilling of the prescription, if you can provide? Philippe Sauvage: Soumit, thanks for your question. I mean, as we said, there is no bolus. So we expect this is going to be a continuous growth for us. There was no bolus of patients. There are new cancer patients, unfortunately, every day. And for ROS1 positive lung cancer patients, we believe IBTROZI is the best drug out there. So this will continue to increase. This is a rhythm. As we discussed in the past, unfortunately, the number you can get from IQVIA today are still not accurate for us. We expect this is going to get better probably in the next quarter, maybe sometime in February, March. That's what they told us. But today, obviously, you cannot get those numbers in a very good manner from IQVIA, which is why we're communicating about it. In terms of growth, as Colleen was saying, there is still a lot of potential for us to grow because the majority of the patients are in the community setting where we are doing a lot of efforts to promote IBTROZI because today, despite the majority of patients out there, we still get a majority of patients from university center, like very, very academic centers, specialized centers. So there is still a lot of patients out there for us to put on IBTROZI or to help them with our drug, and that's what we're trying to do right now. David Hung: And I would also emphasize that growth is going to come from several areas. Number one, as Philippe said, we're going to organically grow as we penetrate the market more and more. But also, we are making efforts to increase our testing awareness, and I think that should also increase the commercial opportunity. But finally, as you know, given the durability of IBTROZI, after a year, the patients who continue on IBTROZI are going to start to get revenue stacking. So independent of new patients just having patients past the 1-year mark, continue to stack revenues and with our median now DOR of 50 months, now we're talking about stacking into the fifth year, not just the fourth year as we had previously discussed. So I think there are a number of avenues for growth. Soumit Roy: Got it. And you mentioned briefly on the -- you are in the final stages for a European partnership. If you -- is that something we should expect in fourth quarter, finalization of the deal? Any nature you are looking at co-partnership cost revenue share? Or is it going to be completely out-licensed royalty-based with the upfront payment? Philippe Sauvage: So we are in very advanced conversation. And honestly, we are very advanced in our conversation right now. So I would expect that we could give you all the details you need sometimes in Q4. Soumit Roy: Okay. And one last one. The Nippon, the $25 million milestone, is that something we should include in the fourth quarter or more in the first quarter? Philippe Sauvage: No, this is a fourth quarter event because this is not the approval from a regulatory perspective, but the reimbursement list. So this is imminent considering the typical time line to negotiate price in Japan. Operator: Our next question comes from the line of Leonid Timashev of RBC Capital Markets. Leonid Timashev: I wanted to drill down a little bit more on the first-line versus second and later line use. I guess in the real world, I guess, practically, how many patients are truly treatment naive? And I guess what I'm asking are, are there patients that are switching early and that might be somewhere in between what you would consider a first-line and a second-line patient and sort of how you think that might impact the real-world duration of response that you might have? And then maybe from a commercial perspective as well, if competitors come on the market later with later-line labels, how effectively you might be able to corner off the market by being in first line? Or is there some wiggle room in what is truly a second-line versus a first-line patient? Philippe Sauvage: So first of all, if you just look at DNA testing, based on DNA testing alone, there's an incidence of 3,000 new patients per year in the U.S. alone. By definition, a new diagnosis means they are treatment naive. So -- but that's what's already out there. We would expect -- given our data that we would expect to become the treatment of choice for those patients. For the prevalence pool of ROS1 patients that are already out there who have been diagnosed in previous years and who have taken other therapies, other TKIs, as you've heard from Colleen, we're already seeing patients -- those patients being switched to IBTROZI either for progression or for tolerability and in some cases, for nothing just because our data are better. So we will eventually capture -- we believe we will capture the vast majority of all TKI experienced patients. But as we completely capture that pool, then we will continue to grow the market by new patients, which we think will be -- if the standard of care just remains DNA testing, that will be 3,000 new patients a year in the U.S., we think the standard of care is going to change to RNA testing, and that's going to go to about 4,000 new patients per year, and we would expect to capture the majority of that. Operator: Our next question comes from the line of Yaron Werber of TD Cowen. Yaron Werber: Congrats on a really nice start. So also a couple of questions. So we're kind of backing into, let's say, 108 patients sort of on average on therapy, and you started 208 -- I'm sorry, 204. So it almost seems like we're in a pretty good run rate. You can actually grow fairly substantially in Q4. And it sounds like you're comfortable with consensus for next year. I don't know if you can share with us what you think consensus is next year? And then secondly, it looks like you're doing $4 million to $5 million, $5.5 million in collaboration license revs quarterly. Is that sort of a good run rate to take into the next quarter and next year? Philippe Sauvage: Thanks, Yaron. I'll start with the collaboration point. So a large chunk of our collaboration revenue from the quarter comes from our deferred revenue with Nippon Kayaku. So when we did the deal, we got basically deferred revenue that we recognize now because we have executed everything that we needed to do because basically they are approved, right? So that's as simple as that. So this collaboration revenue from that part of purely R&D collaboration revenue will go down. But on the other hand, as you pointed out, we will start to get more and more collaboration revenue driven by royalties. So far, royalty have been only coming from China with Innovent. And as I pointed out in previous calls, because they were not on the NRDL list or if you prefer not reimbursed, those royalty revenues were typically small. Now they're going to increase if they get NRDL list. At the same time, on royalty revenues coming from Nippon Kayaku will increase as well because it will be on the market. And finally, if we conclude during Q4, our partnership in Europe, we will have other collaboration revenues potentially coming from that. So this part of our collaboration revenue from this quarter will disappear, but we'll have a lot of other things coming up in the terms of royalties. I think to your point about consensus, what we have for consensus in 2026 is about $115 million. And as I pointed out, if we were to keep all the patients that we have seen starting on IBTROZI in Q3, so 204, this is an annual revenue of $55 million already. So considering a very, very long duration of response that even typically our second-line patients will be on therapy for more than a year, the fact that our therapy is so tolerable that we don't believe that people will just go on this and then go to something else. All of this accumulates revenue for next year. $55 million is just patients that have started in Q3 staying on therapy for a full year. So that's all the reasons why we're very comfortable with consensus next year. Operator: Our next question comes from the line of David Nierengarten of Wedbush. David Nierengarten: Just a couple from me. First off, as you know, there's a competitor around the corner who will be filing for approval. And I was just wondering how you're preparing marketplace and your sales force for that? And then on the sales force also, is it fair to assume that your sales force and marketing efforts are fully built out at this point with incremental adds over the next year? Or do you continue to plan on building out sales and marketing efforts? Philippe Sauvage: So David, I will respond to your first question by saying that there actually are no data from any drug either approved or in development that have been able to match our metrics. A 50-month DOR is unprecedented in the space. As I said, in the history of oncology, there's only one other drug that has a PFS or DOR that long, and that drug has a response rate that's 76%. You might recall, our first-line response rate was 89%. So I would say that we feel extremely confident. If you look at the rate of our launch, we're capturing all lines of therapy, but we would anticipate by next year, we will have captured a very sizable chunk of the second-line market. And next year, there are no new competitors in the first-line setting. So our only competitors in the first-line setting will be agents that are not being currently actively promoted and at which we have data that I would just say there's really no match on any metric. Our sales force is built up. We don't anticipate any increase. Operator: Our next question comes from the line of Silvan Tuerkcan of Citizens. Silvan Tuerkcan: Congrats also from me on the quarter. Just maybe to Colleen, what will be the added benefit of the marketing basically the day after you get the new label with this new long DOR that you're showing? And maybe could you characterize also today with these 15 patients -- new patients per week that you're adding, what is that in terms of market share versus the competitors that are approved out there right now? Colleen Sjogren: Yes. Thanks for your question. Well, the new label gives you opportunity, as you know, to be in front of your health care providers again with new information. And it's just going to solidify the story of IBTROZI and what we're hearing anecdotally from many of the HCPs already, and that really is becoming the new standard of care in these ROS1-positive patients. So for us, it just adds to the collection of positive data we already have and the efficacy and safety profile. But with such a durable response now, as David mentioned, we don't know of any other oral oncolytic in any space with this type of DOR. So it's just the opportunity to continue to make sure that the HCPs are updated on this data. It's really exciting for us, and it's great to have something new for the OEMs, the oncology account managers go in on. Secondly, you asked about market share. So I'm going to turn that to you Philippe, for you to take that one. Philippe Sauvage: Yes, it's difficult to compare market share right now for all the reasons we said about the limitation of IQVIA. So this is something that over time will get better once we are really on a comparable basis with the other guys. What is clear is that when you look at our launch and our history of launch, we are doing much better and much faster than any other drug launch in that space. We -- after just 3 complete months, again, 2 or 4 patients starting in pre-complete launch, that's 5 or 6x better than the latest launch in the space. So this is increasingly really the dominant player in terms of new patients. Silvan Tuerkcan: Great. And maybe one follow-up, if I may. On Nuvation -- NUV-1511, your Drug-Drug Conjugate, the data that we expect by year-end, do you -- how insightful will that be? How needle moving for the company? And what will you be able to tell us with that data? Philippe Sauvage: And we'll just present the data we've accumulated to date in our clinical trial. Operator: There seem to be no questions waiting at this time. So I'll pass it back over to the management team for any closing or further remarks. David Hung: I want to thank you all for dialing in. We really look forward to keeping you apprised of our progress, and we'll report again next quarter. Thanks so much. Operator: Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your lines.
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