Aura Q3 2026 Earnings Call - VITRIA TECHNOLOGY INC

Ladies and gentlemen, thank you for joining us and welcome to Aura Q3 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star1 again. I will now hand the conference over to Kane Hannon, head of IR. Please go ahead. Good morning and good evening to everyone on the call. Welcome to Aura's third quarter 2026 earnings conference call. All participants will be in a listen-only mode until the question and answer session. As a reminder, we will make certain statements that constitute forward-looking statements regarding future events and potential or assuring financial performance or potential growth of the company during this call, which are subject to material risks and uncertainties that can cause actual results, levels of activity, performance, or achievements to differ materially from such statements. We will also present both GAAP and non-GAAP financial measures. These non-GAP measures should not be considered in isolation or as alternatives to or substitutes for or superior to our GAAP financial data in our financial statements. We encourage you to consider all measures when analysing our performance. Please refer to our results presentation for the applicable reconciliations. We'd like to provide some context on the basis of presentation for today's results. Because the acquisition of Quoria closed on July 17, the statutory requirement is that our financial statements reflect the combined entity from the time of the transaction closed, which excludes the Quoria results from July 1 to 16. To provide context on the company as it is presently operating and to provide comparability to the pro forma results we announced for second quarter 2026, we will reference unaudited pro forma summary financial results for the merged group for the full quarter we've also included standardized operating kpis for the combined entity this includes a consolidated view of our direct-to-consumer business inclusive of both the legacy or a direct-consuming business and custodio and certain operating metrics for our employee benefits and education businesses as mentioned we filed our third quarter results presentation with asx this morning and is now posted on our investor relations page we will begin with an overview of results and a business update from our Chief Executive Officer, Hari Ravichandran, then our Chief Financial Officer, Brian DiCenzo, will walk through the Q3 2026 financials. Hari will return with final remarks before we open up the call for Q&A. With that, I'll turn the call over to Hari. Thank you, Cain, and thank you all for joining us for Aura's third quarter 2026 earnings call. This was a defining quarter for AURA, Our first since completing the acquisition of Quoria in July. We delivered strong results on our pro forma basis, growing GAAP revenue 24% year-over-year while generating positive adjusted free cash flow for the quarter. We're also reaffirming our 2026 guidance which Brian will walk you through. As we outlined last quarter, our strategy is anchored by three core priorities. To provide individuals and families with the most proactive, intelligent, digital safety tools. To integrate those tools across everywhere life happens, particularly home, school, and work. And to pursue this mission within a business that demonstrates financial excellence. We made meaningful progress on all three this quarter. Beginning with product, we continued to strengthen our core Aura offering. In September, we launched Trusted Family Access, extending Aura's protection to aging parents and the relatives a family looks after. In October, our data broker removal service surpassed 500 brokers, a significant step forward for our privacy offering. But our most significant milestone came this week when we introduced Solstice, the proprietary AI engine that will power every Aura product, along with the new Aura, the first product built on it. SolstICE has been years in the making, built on an understanding of how fundamentally the threat landscape has changed. Generative AI is making scams cheaper to run, easier to personalize, and harder to spot. In the U.S., cybercrime losses reached a record $20.9 billion last year. These risks impact people across the age spectrum. Older adults face particular challenges distinguishing authentic content from AI-generated material. In Aura's survey of 2,000 U. S. caregivers, more than half reported that an aging, loved one had shared AI-generated content believing it was real. For children, AI is raising new concerns about well-being and safety online. Research by Aura and the University of North Carolina found that violent themes and sexual role-play each appeared in approximately 15% of the daily chatbot activity of records studied, while around 3% involved children seeking support for sadness, anxiety, or similar difficulties. Meanwhile, incidents like the IDscan.net breach in September, which reportedly exposed more than 153 million driver's licenses, reveal systematic infrastructure weaknesses that create widespread and long-lasting identity fraud risks for people of all ages. Today's digital threats are connected, fast-moving, and increasingly personalized. Reactive point solutions that respond with another alert simply can't keep up. For decades, the consumer digital security solutions have acted as a fire alarm, pushing the hard work back onto the customers by making them sift through alerts, investigate what they mean, and fix problems themselves. Our goal at Aura has always been different. We aspire to be the trusted protector that watches over a family continuously and brings them in only when it matters. To be able to achieve that, we need two things that technology could not support until recently. First, intelligence that deeply understands each family. Advanced system AI now allow us to reason across signals from every part of the household's digital life, learning what normal looks like for that family and separating real threats from noise. And the advent of agentic AI gives us the ability to help act on the family's behalf. Solstice delivers both. It brings signals from across a family's digital live into a single, continuously updated picture of each household. It applies specialized models trained for specific threats, from scam calls and texts to unusual transactions and signs that a child may be struggling. And it is anchored by a foundation model we built in-house, trained on more than 16 billion household security events, so it can recognize how threats unfold over time and identify potential risk earlier. On top of that sits a network of specialized AI agents that execute safety tasks on the family's behalf, from locking credit files and managing parental controls to requesting the removal of their personal information from data broker sites. For our users, the experience changes fundamentally. Instead of pushing alerts and to-do lists back to the household, Solstice delivers a cohesive system that helps do the heavy lifting, offering seamless protection for the whole family in one place. The best way to understand the difference is to see it. Here, we'll pause our remarks for a short look at the new aura built on Solstice. Safe used to mean a hand to hold, a light left on, someone who knew where you were. Then our whole lives moved online, our children growing up there, our parents growing old there. We went there the way we go everywhere, open, trusting, human. The internet was built for us, just not to look out for us. For 40 years, security protected everything in our lives, except the people in them. So we built something else, intelligent safety with you at the center that does the work for you. The hard part was two things nobody had built, a mind that learns what's normal for your family and hands that can act. So we build our own, a graph that remembers your household, a model trained on 16 billion real moments like yours, agents that do the work. We named it Solstice, the point in the year when the light turns, and the first thing we built on it is the new aura. home today school devices next with korea work through aura business aura online confidence everywhere life happens The new Aura is available to select users in limited beta with additional capabilities planned for the fourth quarter and broader availability expected in early 2027. Turning to our second priority, strengthening our strategic home, school, and work ecosystem. Today, our footprint spans over a million consumer subscribers, thousands of K-12 districts, and thousands of employers. Our on-device presence across that footprint puts us at the center of a family's digital activity, from a child's school laptop to a parent's phone. That vantage point helped make Solstice possible, and Solstic will in turn make each part of our ecosystem stronger. Across the business, each channel tells a similar story. Solid progress today, with deeper integration across channels and the benefits of Solstices as the next levers. Our direct-to-consumer channel showed continued strength this quarter, with total subscribers up 13% year-over-year to 1.12 million. By diversifying our channel mix, we're reaching more families more efficiently. At the same time, we are deepening the value of each customer relationship as our inside sales and lifecycle teams drive stronger conversion, upgrades, and renewals. Employee benefit continues to perform well, with totally employers up 31% year over year. We're also encouraged by how the 2027 selling season has shaped up and the roster of retained and new employers we have as we enter the 2026 open enrollment season. Solstice will make its initial impact in direct-to-consumer through the new Aura Suite before extending to the employees and families we protect through employee benefits who will gain access to the same core product. A product that does more of the work for families gives us a stronger foundation for acquisition and retention across both channels. In K-12, we continue to expand both our footprint and our share wallet, with total districts up 5% year-over-year to 7,000, and average revenue per district up 12%. And in October, we acquired Securus, a small, profitable UK-based school monitoring technology provider, further strengthening our position in on-device monitoring. Looking ahead, Solstice will strengthen our K-11 position by infusing our student safety products with advanced intelligence and enabling more effective school-to-home conversion. Where schools and families choose to opt-in, Solstice will merge school and home signals, giving parents the continuous visibility needed to resolve daytime concerns quickly and ensuring no issue gets lost in the gap between the school device and personal device. In our MSP channel, while we're still in the very early stages, we're building the foundation to scale and beginning to see early momentum. In October, we announced a new distribution partnership with Climb, a global specialty technology distributor, and we continue to expand what Aura Business can do for MSPs, including broader platform compatibility. Solstice will further augment the offering because stronger protection for each employee means stronger protection to the business. Solstic is also the foundation for a new partner distribution offering we are preparing to launch, which will allow enterprises to embed our Intelligent Protection Engine directly into their own products. This represents a powerful expansion of the way we deliver our capabilities to the world. We recently brought on an experienced leader to build out the effort through an intellectual property licensing sales motion. We look forward to sharing more next quarter. Ultimately, continued progress across our channels, amplified by Solstice, will turn our footprint across home, school, and work into a compounding advantage with better protection in each channel, deeper connections across them, and a platform that gets smarter as it grows. I'll now turn it over to our Chief Financial Officer, Brian DiCenzo, to discuss our strategic priority of financial excellence and take us through the results for the quarter. Thanks, Ari, and thanks everyone for joining the call today. As a reminder, the financials I'll be referencing today are unaudited for the third quarter, prepared on a pro forma basis unless otherwise noted, are based on U.S. GAAP accounting and denominated in U. S. dollars. Before walking through the detail, I'd like to note two updates relative to the Appendix IV-C we filed on October 29th. First, ARR. After quarter end, based on updated reporting we received from one of our partners our subsequent auditor review, we have chosen to reclassify $200,000 of GAAP revenue from recurring to non-recurring. As a result, Q3 ARR is $355 million, up 24% year-over-year compared with the $357.4 million previously reported. GAAP Revenue is unchanged and this has no impact on our year-end guidance second adjusted free cash flow in our second quarter earnings and the 4c adjusted free cash flow was adjusted for ipo readiness and acquisition related costs on an accrual basis consistent with how we define adjusted ebitda however we acknowledge that this introduced a timing disconnect between recognized expenses and actual cash outlays to eliminate confusion and provide a clearer view of in-period cash flows and run rate performance we are simplifying our definition to a strictly cash-based methodology moving forward we will add back only the transaction expenses actually paid in cash during the quarter based on this cash- based methodology we generated 12.4 million in adjusted free cash flow for the quarter and 13.7 million from the the time of closing. Now, turning to the results. As Hari noted, our third strategic priority is financial excellence, defined across three pillars. To rapidly grow and scale our customer base and revenue while maintaining discipline around unit economics, to generate free cash flow in each annual period, and to maintain a balance sheet that supports the growth ambitions of the business over the medium to long term. Regarding results and activities since our last update in August, four highlights. We continued our momentum on the top line, increasing quarterly gap revenue to 87.9 million, corresponding, as I mentioned, to ARR of 355 million, both up 24%. We demonstrated strong year-over-year improvement in both adjusted EBITDA and adjusted free cash flow. We improved our balance sheet with a $7.3 million improvement in our net debt position and a reduction in our outstanding borrowings to mitigate interest expense. And post-quarter end, we executed the first phase of our post-merger reorganization plan, which resulted in annualized run rate cost savings of $10 million actions to date with additional savings identified. Going deeper on each of these highlights, starting with revenue, we saw broad-based growth across the business this quarter, resulting in a $15 million increase in ARR quarter-over-quarter. Enterprise contributed just under 60% of that step-up, benefiting from the seasonal step-ups in K-12 performance. The remainder was driven by continued growth in our combined direct-to-consumer business. Direct-to consumer unit economics performed well this quarter. Blended ARPU across Aura and Custodio grew 11% year-over-year and 2% sequentially, thanks to sharper marketing targeting, optimized SKU offerings, and higher expansion amongst existing customers. Customer acquisition costs came in right where we expected, demonstrating year-ever-year declines on a consolidated basis. Our go-to-market strategy focused on higher-value, higher-retention suite units, while allowing us to test initial brand building campaigns across TV and influencer channels. Retention also stayed strong, with net revenue retention near historical highs. As we've stated several times in the past, over the longer term, we expect our direct-to-consumer NRR to settle into the low 80s. Based on these factors, and in response to excess demand caused by the IDscan.net breach to re-mention, we chose to unlock incremental performance marketing dollars within the quarter in line with our stated philosophy to invest for growth when we see good unit economics and can otherwise satisfy our other stated goals, in particular, free cash flow generation. We also unlocked brand spend during the quarter, testing into off-peak television inventory, with the goal being to expand our top-of-funnel brand awareness and create a multi-quarter lift in our acquisition capacity. It is also important to note that we are now managing one budget between Aura and Custodio to optimize spend across the product portfolio. And as we have brought the businesses closer together, we have recently started testing Aura upsell offers into the Custодio base of customers, the first step into longer-term plans to capture revenue synergies. Looking ahead to the fourth quarter, we expect ongoing growth in our direct-to-consumer business and are excited about momentum in our new partner channel. Our enterprise channel will also include a small benefit from the previously mentioned Securus acquisition. Shifting to profitability metrics, our defined adjusted EBITDA was negative 14.9 for the quarter. This represents a $12.4 million improvement year-over-year, reflecting both revenue growth and reduction in our cost base year-ever-year. It is, however, a $2.3 million decline from Q2 2026. A few factors contributed to this quarter-over-quarter decline. First, as I mentioned, we unlocked an incremental $3 million of performance and brand marketing spend in the third quarter versus the second quarter. Because marketing costs are recognized in period, whereas the revenue associated with the customers acquired is realized on a monthly basis as the service is delivered, investing in future growth in our direct-to-consumer channel will tax the adjusted EBITDA in a given period. It is further worth noting here that while we only recognize revenue on new customer acquisitions on a monthly basis as the service is delivered, we collect 100% of the cash for the subscription term, typically one year, up front, resulting in a mitigated impact on working capital. Second, our definition of adjusted EBITDA is burdened by severance costs. These accrued costs totaled $2.7 million in the third quarter, which was $1.3 million higher than our second quarter accrual severance cost, creating a further drag on quarter-over-quarter adjusted EBIDDA. It is also worth noting that those severance cuts were associated with a reduction in force we executed just after quarter-end, meaning that we have created a sequential improvement in our cost structure that wasn't captured in the third quarter. I'll discuss the magnitude of that action later in my remarks. Moving to free cash flow, as discussed earlier, our adjusted free cash flow for third quarter was $12.4 million, an improvement of $15.5 million year over year. On a post-closed basis, consistent with our guidance framework, adjusted free cash flow was $13.7 million. Regarding our balance sheet, in our second quarter earnings, we showed a net debt position of $9.9 million and liquidity of $124 million, fully burdened by the estimated transaction expenses. During the third quarter, positive cash generation contributed to strengthening our capital position, partially offset by certain financing activities. The net effect is that we improved our net debt position to $2.6 million and our total liquidity to $128 million. Given our intention to be free cash flow positive on an annual basis, we expect to improve both of these metrics in each year going forward. Shifting gears from where we're at today to what we are building, we're pleased with our revenue and cash flow performance in the third quarter, but our main focus is on maintaining our revenue trajectory while integrating into a single organization in streamlining operations for an AI-enabled world. Since the transaction closing, we have made important progress on this front. We have completed a substantive reorganization of our product and engineering organization, breaking down organizational and product silos. We have consolidated all of our marketing activities across go-to-market channels into a single team and budget to maximize the coordination, reach, and efficiency of our efforts. and as previously mentioned we have begun managing a single consolidated budget across or a direct-to-consumer and custodial performance marketing while making important strides on team integration rebranding and cross-sell activities these and associated actions will provide a go forward impact on our cost structure in october we communicated a reduction in force with immediate effect that will result in just under $10 million in annualized run rate savings. This is just the first step in a longer, more comprehensive reorganization plan. As part of this initial review, we have identified an additional $5 million annualized run rate saving that will take effect in the next two quarters. Further, we announced a voluntary transition program for employees that choose not to move forward with the company. most importantly over the past eight weeks we have been working with a third-party consulting firm that specializes in organizational design and spans and layers management to help design a more streamlined go-forward organization we anticipate this review to complete by year-end with resulting changes occurring in the first half of next year separate from headcount expenses we have also begun making progress on contract renegotiations and vendor consolidation Based on contract renegotiations, we have already reduced our run rate direct costs by $1 million, taking effect October 1st. And while contract-based expenses will take longer to impact, we have identified likely areas of cost savings to be captured over time. We will provide further specificity on these activities and the resulting financial impact in subsequent events. To close, our momentum has continued and our targets remain intact. In February, we provided guidance on three financial targets for 2026. These are to grow ARR by 20% for 2027, to be free cash flow positive from closing through the end of 2026, and to take the cost actions to achieve this free cashflow target and set the business up for free cashflow generation in the future. We are once again reaffirming that guidance. The 24% ARR growth the business has delivered to September 30th puts us on track to deliver on our 20% growth guidance. The cash generation in the third quarter puts us in a position to achieve our stated free cash flow goals, and we have already actioned or planned in excess of the $55 million year-over-year cost reduction target we established, with an additional $10 million in run rate savings achieved post-quarter end. With that, I'll turn it back over to Hari to wrap up. Before we open the call for questions, let me leave you with four takeaways. First, the business is growing and generating cash. ARR grew 24% to $355 million. Adjusted free cash flow was positive. We're reaffirming 2026 guidance and are increasingly confident in the pathway to our previously stated medium-term ambitions. Second, Solstice gives us a clear product advantage, a more proactive, more intelligent way to protect families, and an engine that strengthens every dimension of our strategic ecosystem, allowing for a greater monetization across each channel. Third, we're running the company with discipline. Integration is moving quickly and our cost savings of $66 million are well ahead of the $55 million target we set at announcement, while providing a greater recurring benefit beyond this year. As we move forward, driving further operating leverage remains a central focus. Finally, consistent with our objective of maximizing long-term shareholder value, we're considering a dual listing in the U.S. alongside our ASX listing. As we've discussed, we are secure in our liquidity position, but believe this path can expand our investor reach and create incremental liquidity for investors. Any potential dual listing would remain subject to ORA board approval and the completion of a number of required processes. We'll update the market in due course. Our job now is to execute, deliver best-in-class protection, strengthen the ecosystem, and achieve our growth and free cash flow targets. Cain, let's open it up for questions. Thanks, Hari. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. Please stand by while we compile the Q&A roster. Your first question comes from the line of James Bicinella with Unified Capital Partners. James, please go ahead. Hi, Ari, Brian, Cain, congrats on the results. Just a couple of questions from me, just the first one around Solstice, just curious in terms of how that's going to be monetized when it's released for general availability in early 2027 you know will it be a premium tier price increase or more so retention defense just keen to hear a bit more color on that thank you uh good good to talk to you again um happy to give you a little color on the app we're still going through our limited beta uh testing at the moment And the broad launch of it, as we've mentioned, would be in Q1. Multiple avenues for monetizing sort of taken in parts. The first one is, given the genetic nature of the business, we believe that we can actually get more customers at lower CAC on top of funnel. So as an example, if you have a very specific situation that you're trying to get some safety around or security around, we would have the ability to go advertise every specific situation that's there for a family. It could be anything from a particular scam that somebody's searching for all the way to something that is much more prevalent. The benefit of that is you can actually bid on keywords and you can work with affiliates and content creators around specific issues that tend to be cheaper. So you're going into the long tail of spend, which is not as expensive as fighting on things like identity theft or scam or security type of items. So that's one. The second one is with existing customers, the product, as we roll it out, and hopefully we'll show this to folks next week while we're on the road in Australia, is several stair steps ahead of anything that is in the market, and I would say several stair steps ahead of where the current Aura product is as well. As a result, we think that there is a lot of opportunity from existing customers on the pricing side. We also think there's going to be a lot bundles available, for example, an AI threat defense bundle that might be available where a customer of a part of the stack today could actually leverage that to be able to drive some more additional revenue per user. we think is another area, because the key difference here with the product is that it has the ability to actually do work on your behalf. You're no longer just sending people alerts, et cetera, but you're actually doing work on their behalf. There's a lot tighter connectivity across the family as well. And it's our experience that when people have multiple folks turned on inside a family, the retention rate goes up a lot. So we think there's some good opportunity there. And the final one, we kind of alluded to that a little bit in the remarks. This also opens up a new enterprise channel for us, which is something that we'll announce in the next little bit here. But it has that ability for us to embed a lot of the things that we've already built behind the scenes inside larger enterprises' existing products. So, for example, if you're an insurance company and you've got a product that is around a kind of protection for your customers, you can now leverage our product and embed that inside your existing product and be able to drive more revenues for yourself. That opens up another alternative stream of revenue, and we're seeing some very exciting momentum on that channel as well. So the combination of those four things we think will drive a pretty significant upside for the business. Okay. Thanks, Harit. That all makes sense. And next question, just kind of around the PCP brand and marketing expense. it looked like that was pretty elevated in the fourth quarter of 25, and it looks like there's a large step down expected at $14 million going into 4Q26. Can you talk maybe a bit more towards, I think you might have touched on it during the call, the makeup of that stand in PCP, and then your confidence in growing subs and achieving growth targets next quarter, just in light of that step down? Sure. So we've discussed this in the past, you know, in particular in the March call, where we put out the numbers for Q3 and Q4 of last year. And what we've highlighted before and said again here is there was testing that we were conducting around, you know this this notion that we call gateway units that impacted Q3, and Q four of last year, there was also some incremental brand marketing spend versus what we would anticipate spending this year in Q4 of last year as well. And so I think the more relevant numbers to look at is sort of the sequential spend on the performance and brand marketing side that we've seen in 2026, because the way that we are targeting customers in the third quarter and now into the fourth quarter is consistent with the way we've been doing that throughout the course of the year with a, you know, a heavier focus on our suite units than we would have seen last year. One other thing to note about the numbers that you see in the presentation related to the performance and brand marketing spend for both last year and this year, and for all of the direct to consumer numbers, everything is now being presented on a consolidated basis between Aura and Custodio. In the past, we had oftentimes presented the Aura standalone numbers. So we we consolidated that for the first time here and we will do that going forward just so everybody has that context great thanks brian and maybe just last one from me just note there's 10 million dollars of direct and operating comp costs that were actioned during the quarter um and you did include some of those severance costing the adjusted eva data number which is conservative so i suppose my question is a lot of moving parts when should we expect kind of the cost benefits to be fully run rating and kind of a cleaner OPEX space for the business to start coming through? Yeah. So just harking back to the remarks on the call, I'd say we were very much in midstream as it relates to the reorganization plan for the company. So I would consider the $10 million that we actually, it was actually just after quarter end. So in early October, I bring that up because it's important to note that none of those savings would have impacted the Q3 numbers that people see. They will impact Q4. I would consider that to be the first step. We've identified additional savings, but as I noted on the call, we are working with a third-party consulting firm to think about overall organization design. And as we've said in the past, we would view these things as kind of 12-month processes from beginning to end in terms of getting the organization fully at its run rate state. So we'll have more updates for people in the first quarter, in the February results, I should say, around how we are trending on identifying cost savings and actioning cost savings, I would anticipate that you'll see a couple more quarters of activity on a reorganization basis. Okay, excellent. That's it for me. Thank you. your next question comes from the line of annabelle coon with evans and partners annabell please go ahead good morning guys thanks for taking the questions a couple from me uh first just starting on solstice um yeah great to see the presentation for that product product but yeah keen to sort of hear your broader vision for how salt is going to look across the entire product stack and maybe just progress on how you're going on unifying your as well. Thanks. Yeah, happy to take that one. So we think of this as sort of the platform behind the scenes. Our vision over the course of both the next few quarters into the course of next year is the external platform. And then there's how we think about operating the business from an internal platform perspective. Both of those we think can be unified and be driven off one surface so on the external side uh given that the way that solstice is constructed it has the ability to um i think there's a diagram in the uh in the presentation uh where all of the data we collect is separate from how the graphs get laid out separate from the machine learning stack from the foundation model from the agentic plane etc so that what that means is that we can now bundle many of those features whether we're selling into the msp whether we are selling into the k12 channel whether we're selling into uh enterprise like like i was just uh talking about earlier or the d2c uh side so it now will have all of the benefit of the platform uh compounding across multiple channels uh externally so a simple example might be uh we have in this in this uh uh platform the notion of a brain and the brain is something that kind of looks at all of the different um signals that are happening for a particular family and comes up with things that look uh different or unique now that brain can be very useful at a school level where if you are the sister of the school you come in you're looking at where there are different patterns what's going on with the kids uh also from a wellness perspective if you're somebody that's on the wellness side of the school school side which now creates some bundles that we're able to go now take to the school as a potential add-ons to our existing suite similar use cases for msp etc i'll say just a few words on the internal platform we have uh invested quite heavily over the last year year and a half and we're starting to see that inflect now around how much of our work is happening much more automatically with internal systems that ranges everywhere from our finance department to certainly the coding side uh the the level of code that's getting generated via ai and uh through agentic systems is increasing pretty dramatically uh every quarter and as the frontier models are getting smarter that we're getting the benefit of that too because the systems are wired up for that so when brian talked about the spans and layers it is sort of a re-imagining of the business where um you know the cost structure of the business in the older setup versus what we think it'll be inside the new setup is fairly dramatically different so i think uh both solstice on the outside and getting everything together into one platform makes our life a lot easier in driving the business on the inside as well right um sorry yeah yeah just annabelle i might add a couple things maybe summarizing a lot of what barry said um i think when it comes to solstice um you know the first thing that we think about is really user experience and user efficacy but then when we when we peel it back from a business standpoint underneath that i think we We believe that this can help us capture more demand in each of the channels that we we operate in on the direct to consumer side. You know, as we've talked about in the past, we're obsessive about how do we get better unit economics? How do we higher price, better retention and do that with lower upfront investment in CAC? We think Solstice can deliver across those things. And then the third piece of it, I would say, is, you know, if you think about the thesis for the Coria transaction, a lot of it is about stitching together the different contexts of our lives, the school context and the home context. And obviously at Aura, we already had working on the work context. And Solstice really gives us that fabric to be able to stitch those contexts together and provide a seamless experience to the user. So I think I want people to take away that overarching message that it's, you know, first and foremost about providing the user with a better and differentiated experience. And then there, you Know, we believe that there can be these business outcomes as a result. Great. Yeah, maybe you just sort of want to touch a bit closer on parents. Maybe, yeah, how is the sort of integration of the Aura Parents products and the Custodio product going and any progress on building out the home-to-school channel? Yeah, we're making a lot of progress there, actually. There's many parts of the C custodio products that are now integrated with the Aurea product on the back end. We think in the first half of next year, there will be one version of the parent view that's a fully integrated Custodia plus Aure product that's available to all existing customers. That also is the basis of the community product, which is the one that connects personal devices with school devices. We're making a fair amount of progress there with some kind of lofty goals, I would say, going into the first half of next year. And the teams are working quite well together, and we see a lot of opportunity there on the school-to-home channel as well, which, again, would be very beneficial from a CAC perspective if we're able to get good momentum there. Yeah, and in terms of some specifics on school to home, as we've studied the motion, I think the first thing that we believe is important is to have brand notification across the different channels, such that a parent can identify Aura as the product that they're seeing in school, and then it's the same sort of brand name or brand halo that they see coming into the home. So we took the first step against that on October 1st. We added Aura to Custodio, so it's Custodeo by Aura now. We will take a similar motion with LineWise and SmoothWall beginning in the new year. And, you know, that's really the first steps around this brand unification that we think will give us better connective tissue between the messaging that parents are getting about what's happening in school and what's happened in the home. And then as Haris said, I think we are taking a very fresh look at the entire process, all the way from the way that we communicate through the school or around the school into the home, and then what the parents see from an onboarding perspective with respect to the technology, as well as the different offerings that are available to them, versus just the community product, putting other offerings, particularly the Aura Suite offerings in front of them earlier on. Great. Maybe if I could just ask one last one. Can you just sort of hear a bit of an update on the K-12 product unification as well, and a little more about the acquisition of Securus in the UK? Yeah, happy to. So on the, uh, K- 12 product, there's obviously, there was an existing effort called Connect, which was basically the ability to, um, integrate a lot of the features that were already available inside the K12 product and have it be available globally, which is uh on track i think that going into the first half of next year uh that will be integrated as we sort of roll a lot of schools into the the more central unified platform the benefit of that is that it's a very uh uh logical place to connect uh solstice of the aura platform into the k-12 world by connecting those two platforms together which is work that's underway at the moment and so we will once once that starts working like the thing that you can kind of imagine now is a family that has Both the home side of it and the school side of it can look at everything in one surface where you can see all of the information about your kids at school, your family at home. If you have a senior that you're taking care of or an elder in your family, having them integrated inside the same setup as well with Solstice now makes it quite a bit easier for it to get that integration done. So we're pretty excited about the progress there. Yeah, and then in terms of Securus, this is a nice small tuck-in that really complements our UK schools business. Securus has a broad footprint in UK schools around very comparable products to our monitor product with Smoothwall. And so the goal there was really to consolidate in the school's footprint that they have. We will migrate those users to our technology just to consolidate the backend technology stack and continue to provide the service to them. we think it opens up a you know a monetization surface for us to be able to engage with those schools and offer them more of you know the smooth wall product thanks for the questions guys your next question comes from the line of owen humphries with canaccord owen please go ahead Good day, guys. Can you hear me okay? We can. Good one. Thanks for taking my question. So just a quick one, just to understand the ARR adjustment from recurring to non-recurring, which division was that sitting inside? It related to our employee benefits business, so enterprise. Okay, good one. Just diving deeper in the drivers of that third quarter result, Well, you had a 15 call in that third quarter. Can you kind of just give a bit of a breakdown into what was the drivers of the 15 around enterprise versus Oracle? Sorry, can you say that again? Can you break down the 15 mil increase in ARR between the enterprise and Oracle? Yeah, so I think we mentioned it on the call. is about 60% related to the K-12 business as they go through their seasonal selling cycle. And just to remind people that are familiar with Coria from the past, based on our ARR definition, the vast, vast majority of ARR step up for the annual selling cycle will happen in the third quarter. Yeah. And then just kind of going to the fourth quarter there, the 14 mil that's required to hit gardens. um obviously a much lower marketing spend versus the pcp again can you just kind of illustrate where you expect the drivers to be of that is it is it um well kind of the core uh enterprise kind of step back down to that in a more normal level four to five mil and the rest being being um aura yeah so i think what you'll see so again we're going to present the direct to consumer business consolidated so this will include custodio as well um i think we would expect more of the step-up in ARR in the fourth quarter to come from the direct-to-consumer business or a plus custodial. I do think we'll see a, we'll call it a modest increase in our enterprise channel, so the EB and the K-12 business in the forth quarter, so we do expect some contribution from that. We expect a small contribution from the Securus acquisition, which we mentioned. It's a small tuck-in, but one we're excited about from the from a strategic perspective. And then Hari mentioned the partner motion of embedding our technology into other people's distribution and product. And so we are, you know, we're working on something that we think can contribute to fourth quarter ARR growth there as well. Gotcha. Okay, it's not just requiring a steady state, but a big step up in ARR or Accor. There's a few other initiatives at play here. A quick one, in the past you guys had a big, I guess you could say, NRR uplift. Normally when you post the large customer acquisition cycle, which was 12 months ago, are we expecting NRR to step up into the fourth quarter? Yeah. I mean, if you looked at the last year, Q4, you'll see that there was a pretty sizable step up from an ARR perspective in the Aura core in December. So clearly when you should go back and work the math on that, a lot of those customers be coming back in for renewals as well so i think looking at the d2c on a purely uh sequential basis might lead you down the path of numbers that may be a little uh a little a lot conservative and just understand freak and free cash flow here um the big guy are uplifting you know into the fourth quarter which given the working capital cycle normally helps you guys are we expecting free cash flows to therefore be positive into the fourth quarter i think the current view is the second half of the year we will be positive uh and then going into next year on an annual basis will be fcf positive as well i think it's it's a little harder to get it very granular given the amount of integration there's obviously uh things like severances or changes that are happening so getting very granular into a small time window it's always a bit tricky um but uh but i think from the perspective of second half the year and then on an annual basis uh we feel comfortable on the potential perspective Good one. Thanks, guys. Your last question comes from the line of Evan Karatsas with Jefferies. Evan, please go ahead. Oh, good day, guys, thanks for taking the time. Look, it might be a bit early here, but you sort of touched on calendar year 27 there. So just want to get some initial thoughts and detail from you on the building blocks you're thinking about to be able to sustain ARR growth at this 20% plus type levels in calendar year 27? We can give you some broad strokes there, again, because we're still kind of going through the planning cycle. The broad strokes of it, obviously, on the EV side, we made some comments in the prepared materials that we feel very encouraged because you get some very early signal over the course of the year in terms of what logos you've signed up, who's coming back up for renewal, et cetera. So we get we get an early glimpse into a step up going into Q1, which we feel very encouraged around. I think on the DTC side, obviously, they're steady state of the business. And as I mentioned to one of the questions that somebody asked earlier, we see a lot of opportunity for existing customers upgrading into the Salsas driven or a product which we plan to roll out in Q1. We do see some incremental retention benefits there as well from the from the new product. The enterprise channel, again, it's very early, but the early indicators are there's a lot of really good momentum around that as well. So we feel encouraged around that. K12, there's a lot more product updates, upgrades, et cetera, that are going to roll out into that going into Q1, Q2. So, we're hopeful that there's a good uh there's a good step up there as well and msp so very early that's the aura business side of it but it does feel like we now have a really good motion to go all the way from signing up an msp into getting endpoints enabled so we're starting to see some early traction there as well so that's something that really hasn't contributed both the enterprise side and And the MSP side has not contributed much this year. So we think there's some really good momentum behind those. And obviously Solstice and the aura driven from Solstic is something that we're pretty excited about, too, as opportunities for next year. And the one thing to keep in mind as you think about all of these, by the way, is the unit economics only get better. Because when you look at Solstices, if there's pricing opportunities, obviously a lot of that goes to flow through into the business. If your cap goes down because there's more referrals coming in, that's, again, better unit economics. And things like the enterprise channel, et cetera, tend to be quite high. I mean, there are slower cycles, but there are much higher margins than direct-to-consumer from a free cash flow and burn perspective. And the one last thing I'll mention, I think Brian sort of alluded to this a couple of times, which is just given the amount of investment we've made in AI and how we're thinking about the organization going forward, we think there are some pretty sizable opportunities there. as Brian mentioned, we're working with a third-party firm. A lot of work happening there going towards the first half of next year as well, which we think can be good contributors of free cash flow to the business that should be visible over the course of the year. Yeah, okay, good one. Thanks for all that detail. And just one final one. So it just feels like, to term this excessive solstice here, it feels like customer engagement or frequency of customer engagement will be a key metric in order to help reduce churn or improve your nrs is it possible for you to give us i guess a baseline level of average customer engagement of the current aura app so we can think about measuring the contribution or the benefits from solstice over the next you know 12 to 24 months i think there's a from a solstices standpoint there's obviously both the engagement element of it and then there is which again the retention piece of it for us today uh we do have some aspirations for it but that's not the majority of the uptick going into next year i think a lot of the optic comes from uh what we've been testing quite well on the marketing side on the front of on the frontal funnel an existing customer demand for a product like this is quite high so those will be the bigger driver going to next year but that being said we do look at a lot different metrics inside the business uh everything from for a new customer what's time to value how quickly can you get to a place where they get engaged with the product And then depending on what the use case is, you know, like somebody that's using it for family safety with kids, you see them logging in three to five times a week, you know, for something that's much more security-related, could be a little bit less. So we tend to look at it function by function, and we could consider giving some additional details on that as the product adoption goes up quite a bit. As Brian said, in early testing, we also tend to look at things like early churn in the first 30 days, what's happening with churn, how much are people engaging with alerts, et cetera. So all those metrics have been testing quite well as we get ready to roll this out. Okay. All right. That's interesting and helpful. Thanks, guys. We've reached the end of the Q&A session, and this concludes today's call thank you for attending you may now disconnect thank you all thanks