Renasant (NYSE:RNST) Q3 2025 Earnings Call October 29, 2025 10:00 AM ET Company ParticipantsKevin Chapman - President and CEOCatherine Mealor - Managing DirectorJim Mabry - CFOMichael Rose - Managing Director of Equity ResearchKelly Hutcheson - EVP and Chief Accounting OfficerDavid Meredith - EVP and Chief Credit OfficerDavid Bishop - DirectorConference Call ParticipantsStephen Scouten - Managing Director and Senior Research AnalystJanet Lee - Stock AnalystMatt Olney - Equity Research AnalystOperatorGood da ...

Financial Data and Key Metrics Changes - The company reported third quarter GAAP net income attributable to common stockholders of $1 million or $0.01 per share, distributable earnings of $3.3 million or $0.03 per share, and adjusted distributable earnings of $21.2 million or $0.16 per share [3][16] - Current liquidity stands at $280 million, with $87 million in unrestricted cash [4][18] - GAAP net book value decreased to $7.53 per share from $7.65 in the previous quarter, while undepreciated book value decreased to $8.68 from $8.75 per share [17] Business Line Data and Key Metrics Changes - The loan portfolio currently stands at $2.4 billion across 85 loans, with an average loan balance of $28 million [11] - The watchlist portion of the loan portfolio is now 8%, with a total gross book value of $182 million, down from $411 million at the start of 2024 [11][8] - The company achieved net positive loan originations for the second consecutive quarter, originating 10 loans totaling $224 million during the third quarter [6][10] Market Data and Key Metrics Changes - The commercial real estate markets are showing continued improvements, with tightening credit and lending spreads contributing to increased loan inquiries [6][7] - The CMBS and CLO markets remain highly active, with solid new issuance growth [7] Company Strategy and Development Direction - The company aims to grow its loan book to approximately $3.5 billion, with a focus on resolving watchlist loans and increasing loan originations [8][9] - The strategy includes preparing for a new CLO securitization and generating liquidity through the sale of real estate owned assets [8][9][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the trajectory of the business, citing improvements in the commercial real estate market and a favorable interest rate environment [5][6] - The company anticipates that the coming quarters will be productive, driven by new loan originations and progress on watchlist loans [9][42] Other Important Information - The company recorded a specific CECL reserve of approximately $18 million related to the Oregon office loan, which was resolved during the quarter [16] - The general CECL provision decreased to $127 million, with a debt-to-assets ratio of 63% and a debt-to-equity ratio of 1.9x [18] Q&A Session Summary Question: Update on liquidity position post-quarter date originations - Management indicated liquidity is around $100 million in cash, with future originations expected from asset resolutions [21] Question: Pace of Q4 originations - Management expects a similarly active pace for Q4 originations, with a growing pipeline and increased loan inquiries [22] Question: Thoughts on net lease portfolio and potential growth - Management is satisfied with current assets and has no plans to enter the triple net market [25] Question: Impact of potential Fed rate cuts on demand - Management noted that the market sentiment is improving, with a dovish Fed and decreasing long-term rates contributing to increased transaction volume [26][28] Question: Growth of loan book and REO impact - Management believes they are at a point where the loan book can grow, with increased momentum in loan originations [32] Question: Contribution of San Jose Hotel to distributable earnings - Management anticipates a sub-$10 million NOI for the hotel, with significant events planned for 2026 [34] Question: Details on new CLO issuance - Management could not provide specifics on the size and timing of the expected CLO issuance [38] Question: Second office property for sale - The second property is one of the Long Island City properties, currently soliciting offers [39]

Financial Data and Key Metrics Changes - Overall net sales decreased 5% year-over-year to $1.11 billion from $1.17 billion [5][25] - Residential net sales declined 13% to $627 million compared to $723 million in the prior year [25] - Commercial and industrial (C&I) product sales increased 9% to $358 million from $328 million in the prior year [26] - Adjusted EBITDA decreased to $193 million, representing 17.3% of net sales, down from $232 million or 19.8% in the prior year [28] - GAAP net income was $66 million compared to $114 million in the prior year [31] - Diluted net income per share was $1.12, down from $1.89 in the prior year [32] Business Line Data and Key Metrics Changes - Home standby and portable generator shipments grew sequentially but were below seasonal expectations, with a mid-teens decline year-over-year [5][6] - Sales of residential energy technology solutions grew significantly, driven by energy storage systems in Puerto Rico [13] - C&I product sales growth was driven by domestic telecom customers and initial shipments of large megawatt generators to data center customers [26][19] Market Data and Key Metrics Changes - International sales increased 11% to $185 million, benefiting from favorable foreign currency impacts [30] - The backlog for large megawatt generators doubled to over $300 million in the last 90 days, indicating strong demand in the data center market [20][6] Company Strategy and Development Direction - The company is focused on expanding its presence in the data center market, with plans for capacity expansion and investments to support growth [22][23] - New product rollouts, including next-generation home standby generators, are expected to drive future sales growth [12][14] - The company plans to recalibrate investment levels in response to a contracting market environment in 2026 due to reduced federal incentives [16][34] Management's Comments on Operating Environment and Future Outlook - Management noted that the low outage environment has negatively impacted demand for home standby and portable generators, but structural trends indicate future growth potential [23][53] - The company anticipates a contraction in the solar and storage market in 2026 but remains optimistic about long-term opportunities due to rising electricity prices and declining technology costs [16][56] - Management expressed confidence in the company's ability to capitalize on the growing data center market and improve operational efficiencies [22][76] Other Important Information - The company expects free cash flow of approximately $300 million for fiscal 2025, providing flexibility for future investments [36] - Adjusted EBITDA margin expectations for the full year 2025 have been reduced to approximately 17% due to unfavorable sales mix and operating expense deleverage [35] Q&A Session Summary Question: What have you learned about the data center market opportunity? - Management highlighted a structural deficit in backup power supply for data centers and ongoing productive conversations with hyperscalers, indicating optimism for future orders [43][45] Question: How should we think about 2026 with the current moving parts? - Management noted that while the residential product category faced challenges due to low outage activity, they expect growth in 2026 with improved close rates and a return to normal outage levels [51][54] Question: What are the biggest challenges in adding capacity quickly? - Management acknowledged the challenges in supply chain and manufacturing operations but expressed confidence in their ability to bring new products online effectively [79][81]

Financial Data and Key Metrics Changes - The company reported revenue of $530 million for Q3 2025, a 12% year-over-year increase, and Adjusted EPS grew by 11% to $0.48 per share [4][17] - Adjusted EPS for the quarter was $0.48, reflecting a year-over-year increase of 10.8% [20][21] - Revenue for the first nine months of 2025 was $1.55 billion, up 14% year-over-year on a constant currency basis [21] Business Line Data and Key Metrics Changes - Data and AI-led revenue grew 18% year-over-year, accounting for 56% of total revenue [4][5] - Digital operations revenue increased by 6% year-over-year [5][41] - The insurance segment grew 9% year-over-year, contributing a third of total revenue [5][18] - Healthcare and life sciences segment grew 22% year-over-year, representing the fastest growth [6][18] - Banking, capital markets, and diversified industries grew 12% year-over-year [7][18] Market Data and Key Metrics Changes - International growth markets segment generated revenue of $92.8 million, up 8.4% year-over-year [19] - The company maintained a high renewal rate of over 75% for existing contracts, indicating strong client retention [9] Company Strategy and Development Direction - The company is focused on expanding its data and AI capabilities, launching the EXLdata.ai solution to help clients make their data AI-ready [9][10] - The strategy includes embedding AI into client workflows to enhance operational efficiency and drive growth [8][11] - The company aims to leverage its strong sales pipeline and existing client relationships to sustain double-digit growth into 2026 [9][24] Management's Comments on Operating Environment and Future Outlook - Management noted a positive demand environment, with clients increasingly seeking to innovate and transform their business models [8][30] - The company raised its revenue and EPS guidance for 2025, anticipating revenue in the range of $2.07 billion to $2.08 billion, representing 13% year-over-year growth [23][24] - Management expressed confidence in sustaining double-digit growth due to the strong performance of data and AI-led services [31][24] Other Important Information - The company reported a net cash position of $38 million as of September 30, with cash flow from operations improving to $233 million for the first nine months of the year [21][22] - The company received several industry recognitions for its AI services and solutions, validating its leadership in the market [15][16] Q&A Session Summary Question: Change in overall demand environment - Management characterized the overall demand as very strong, with a significant shift towards AI-led operations becoming visible in financials [30] Question: Sustainability of growth rate - Management indicated that the growth rate is sustainable due to the increasing demand for AI solutions and the company's ability to win market share [31] Question: Expectations for digital operations - Management explained that digital operations growth is impacted by the shift of revenue to data and AI-led categories, with a net growth of 6% for the quarter [41] Question: Top client strength and sustainability - Management noted that the penetration rate with top clients remains low, indicating significant growth potential [42] Question: Client relationship management changes - Management highlighted the need for account managers to be proficient in AI and data to engage clients effectively [47] Question: Revenue per employee growth - Management expects upward improvement in revenue per employee as AI is applied, with slower employee growth compared to revenue growth [51] Question: Healthcare segment growth outlook - Management expressed confidence in the healthcare segment's growth potential, citing the enormous market and data-rich environment [56] Question: Margin expectations for next year - Management anticipates stable margin growth in 2026, with a more balanced performance compared to the current year [59] Question: Landscape for EXLdata.ai - Management acknowledged competition in the data management space but emphasized the unique AI-driven approach of EXLdata.ai [63] Question: International segment growth acceleration - Management is investing in marketing and talent to accelerate growth in international markets [65]

Financial Data and Key Metrics Changes - The company raised its adjusted EPS guidance range for 2025 to $3.40 to $3.50, representing a 31% increase from the previous year and over 60% from 2023 [2][24] - Bookings for the quarter were $1.2 billion, a sequential increase of over $130 million and a 1% growth year-over-year [4][3] - Adjusted gross margins increased by 240 basis points to 34.8%, while adjusted operating margins rose to 14.8%, driven by incremental margins of 115% during the quarter [3][14] - Adjusted earnings per share was $0.90, a 45% increase compared to the prior year [3] Business Line Data and Key Metrics Changes - The aftermarket franchise delivered strong performance with bookings exceeding $600 million for six consecutive quarters, and two of the last three quarters saw aftermarket bookings above $650 million [4][6] - Excluding engineered pump original equipment bookings, bookings growth was 9% across the remaining portfolio [6] - The FTD segment reported bookings growth of 24% and sales growth of 7%, with adjusted operating margins expanding by 230 basis points [15][16] Market Data and Key Metrics Changes - Power and nuclear markets showed strength, with nuclear bookings reaching over $140 million, a record for the company [5][10] - Mining project activity increased over 60% year-over-year, indicating a positive trend in that sector [7] - The company expects a book-to-bill ratio of approximately 1.0 times for the full year, supported by a strong project funnel [7] Company Strategy and Development Direction - The company is focused on driving sustainable growth, expanding margins, and enhancing cash flow, with a commitment to capital allocation that supports growth opportunities [12][26] - The Flowserve business system is being leveraged to drive margin expansion and operational excellence [12][19] - The company is strategically positioned to capitalize on the growth in the nuclear sector, with expectations of significant opportunities in the coming decade [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the aftermarket business, citing strong refinery and chemical plant utilization as key growth drivers [31] - The geopolitical and macro environment needs to stabilize for operators to gain confidence in project investments, but management remains optimistic about growth in 2026 and beyond [35] - The company anticipates continued strong performance in nuclear and power markets, with potential for double-digit growth [10][12] Other Important Information - The company announced a divestment of legacy asbestos liabilities, which is expected to simplify capital structure and enhance cash flow by $15 million to $20 million annually [23][62] - Free cash flow conversion was reported at an impressive 174%, with a focus on improving working capital management [22][64] Q&A Session Summary Question: Can you provide context on the operating environment and pipeline? - Management noted strong aftermarket performance and a constructive project environment, with expectations for continued growth in power and nuclear sectors [31][33] Question: How is pricing in the marketplace? - Pricing has been stable, with the aftermarket business showing strong price retention despite tariff impacts [37][39] Question: Can you elaborate on the margin improvements in FTD? - The integration of MOGAS has positively impacted margins, with operational excellence and the 80/20 program contributing to overall margin improvements [43][48] Question: What is the expected market share for the nuclear flow control opportunity? - The company has content in 75% of the existing nuclear reactors and is well-positioned to capture a significant share of the projected $10 billion opportunity [52][54]

Financial Data and Key Metrics Changes - For Q1 fiscal year 2026, total revenues reached $1.35 billion, an increase of 18.5% year-over-year, with consolidated comp sales up 18.8% [16] - Adjusted diluted EPS for the quarter was $1.93, up from $0.95 last year [16] - Restaurant operating margin improved to 16.2%, a 270 basis points increase year-over-year, primarily driven by sales leverage [17] - Adjusted EBITDA for the first quarter was approximately $172.4 million, a 54.4% increase from the prior year [19] Business Line Data and Key Metrics Changes - Chili's reported same-store sales growth of 21.4%, driven by a 13.1% increase in traffic, a 4.3% positive mix, and a 4% price increase [16] - Maggiano's experienced a decline in comp sales of -6.4% for the quarter [17] Market Data and Key Metrics Changes - Chili's outperformed the casual dining industry by 1,650 basis points in same-store sales growth [5] - The customer base for Chili's is growing across all income levels, with the fastest growth seen in households earning under $60,000 [9] Company Strategy and Development Direction - The company is focusing on stabilizing and improving Maggiano's through the "Back to Maggiano's" strategy, which emphasizes classic recipes, improved service, and guest-facing repairs [12][14] - Chili's is ramping up its reimage program and expects to complete four remodel pilot restaurants by the end of the quarter [20] - The company aims to return to positive net new unit growth for Chili's and stabilize Maggiano's performance [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to maintain strong sales growth despite economic uncertainties and anticipated higher commodity inflation [22] - The first quarter is expected to be the strongest year-over-year, with more moderate gains anticipated in subsequent quarters [23] - Management remains focused on long-term growth and strategic investments, despite challenges in the macroeconomic environment [24] Other Important Information - The company repurchased $92 million of common stock under its share repurchase program [20] - The adjusted tax rate for the quarter increased to 18.5%, driven by higher sales [19] Q&A Session Summary Question: How does Chili's plan to leverage tokenized consumer data to enhance engagement? - Management plans to track monthly cohorts of new guests to understand their repeat visitation and the impact of menu initiatives on guest frequency [26][28] Question: How is the value platform performing against expectations? - The value platform is performing well, with significant lifts observed from recent advertising campaigns, particularly the $10.99 burger deal [30][31] Question: What insights can be shared regarding younger consumers? - Younger consumers are returning as frequently as other guests, and marketing efforts are focused on maintaining relevance with this demographic [39][40] Question: What is the status of the food renovation journey? - The company is progressing with food renovations, including a chicken sandwich platform and plans to bring back the old skillet queso due to customer demand [42][43] Question: How is the North of Six initiative progressing? - The initiative is yielding positive results, with improvements in scheduling and operational efficiency being implemented across the system [71][74] Question: What are the expectations for Maggiano's turnaround compared to Chili's? - The turnaround for Maggiano's is expected to be slower due to its smaller size and less national marketing presence, but management is optimistic about stabilizing and growing the brand [80][83]

Financial Data and Key Metrics Changes - VITAS net revenue was $407.7 million in Q3 2025, an increase of 4.2% compared to the prior year period [11] - Adjusted EBITDA for VITAS, excluding Medicare cap, totaled $70.4 million, a decline of 3.8% year-over-year [12] - Roto-Rooter revenue increased by 1.1% in Q3 2025 compared to the same period in 2024 [7] - Adjusted EBITDA at Roto-Rooter totaled $49.4 million, a decrease of 12.4% compared to the prior year quarter [15] Business Line Data and Key Metrics Changes - VITAS admissions totaled 17,714, a 5.6% improvement from the same period in 2024 [5] - Average revenue per patient day for VITAS was $205.08, up 2.98% from the prior year [12] - Roto-Rooter branch residential revenue increased by 3.4%, with residential plumbing revenue up 8.2% [13][8] - Revenue from independent contractors declined by 4.7% in Q3 2025 compared to the same period in 2024 [14] Market Data and Key Metrics Changes - The percentage of total admissions from hospitals in Florida was 44.5%, above the preferred range of 42% to 45% [6] - The average daily census for VITAS was 22,327 patients, an increase of 2.5% [17] - Hospital-directed admissions increased by 10.4%, while nursing home admissions declined by 8.9% [17] Company Strategy and Development Direction - The company aims to mitigate potential Florida Medicare cap billing limitations for fiscal 2026 [5] - VITAS is focusing on increasing hospital-based admissions to ensure long-term stability [6] - Roto-Rooter is implementing operational initiatives to stabilize and return to predictable growth [10] Management Comments on Operating Environment and Future Outlook - Management believes there will be no Medicare cap billing limitation related to the Florida program in 2026 [6] - The company is encouraged by the performance of both businesses in Q3 2025, with VITAS on track to resolve the Medicare cap issue [10] - Management anticipates a seasonal increase in demand and revenue in Q4 2025 [23] Other Important Information - The company has cleared hurdles to open a new location in Pinellas County, expected to open in early November [7] - The Medicare cap billing limitation for Q3 2025 was $6.1 million, slightly better than estimates [11] Q&A Session Summary Question: Insights on demand and cost trends for Q4 - Management noted that Q4 is typically stronger due to seasonal factors, with VITAS' margins expected to spike from the new rate increase [23][24] Question: Concerns about receivables and cash collections - Management indicated that elevated DSO is primarily a timing issue related to Medicaid payments, not a deterioration in collection efforts [31] Question: Growth rates and margins for 2026 - Management speculated on revenue growth in the 8% range and margins at 17.5%-18% for 2026, pending Q4 performance [37] Question: Sustainable margins in Roto-Rooter - Management indicated that while marketing costs are under pressure, they expect to absorb these costs through operational improvements [53] Question: Clarification on VITAS' Medicare cap liability - Management explained that the focus on hospital admissions and a favorable rate increase gives confidence in managing cap liability [65][69]

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