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Operator: Good day, and thank you for standing by. Welcome to the Superior Plus 2025 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Chris Lichtenheldt, Vice President of Investor Relations. Please go ahead. Chris Lichtenheldt: Thank you. Good morning, everyone, and welcome to Superior Plus conference call and webcast to review our 2025 third quarter results. On the call today, we have Allan MacDonald, President and CEO; Grier Colter, Executive Vice President and Chief Financial Officer; and Dale Winger, President of Certarus. For this morning's call, Allan and Grier will begin with their prepared remarks, and then we'll open the call for questions. Listeners are reminded that some of the comments made today may be forward-looking in nature and information provided may refer to non-GAAP measures. Please refer to our continuous disclosure documents available on SEDAR+ and our website. The dollar amounts discussed on today's call are expressed in U.S. dollars unless otherwise noted. I'll now turn the call over to Allan. Allan MacDonald: Thanks, Chris. Good morning, everyone. Welcome to our Q3 call. Now my opening comments may surprise some of you, but let me start by saying I'm incredibly pleased with how far Superior has come in just 2 quarters. Changing an organization, in fact, reinventing an organization is very difficult. I'm pleased to say, at Superior, our reinvention is very much in progress. We've made permanent moves and abandoned old operating models, structures and tactics, which had us focused on surviving instead of thriving. Now transformation isn't linear, and it's regrettable that our impressive progress isn't apparent in our Q3 results, but that has not dissuaded us in any way or tempted us to change course. Superior Delivers is a generational reinvention of our company, and I couldn't be more proud of what the team has accomplished so far. At our Investor Day in April, we shared a plan to transform Superior's Propane business through 2027. We outlined our goal to serve our customers better by operating safely, never running people out of gas, delivering fuel at competitive prices in every market we serve, acquiring more customers and keeping them longer and using modern technology such as AI to better manage our business, predict trends and deliver more efficiently to our customers. As we discussed at that time, this transformation would impact all areas of operations from our assets and locations to our distribution capabilities, pricing and organizational structure. An ambitious effort, yes, but the team here at Superior has remained committed to our goal, and as a result, we've changed the way we operate more in the past 2 quarters than the past 2 decades. As of Q3, I can proudly tell you that we've changed how we deliver fuel, manage churn, set our prices, and we've restructured the organization. We've centralized functions and introduced advanced tools that allow us to operate more efficiently. We've restructured our teams and reduced headcount to remove duplication in the U.S. and Canada, and created key centers of excellence in pricing, marketing, distribution and service, to name just a few. And in keeping with our recognition that leadership is a key enabler of our future, we announced our new Chief Commercial Officer, Deena LaMarque Piquion, who joined on November 3. Deena most recently served as Chief Growth and Disruption Officer at Xerox. With more than 20 years of global leadership experience in marketing and operations, she shares our bold vision and recognizes the potential at Superior. I'd like to formally welcome Deena, who is here with us today as she takes on the challenge of advancing our commercial strategy and growth initiatives. One of our biggest initiatives over the past 2 quarters was the introduction of a completely new distribution model, which moved us from local ad hoc scheduling using rudimentary tools to a single, optimized distribution approach based on AI-driven algorithms. We're now employing a company-wide tool, which has the ability to create tens of millions of potential routing combinations per day, allowing us to plan better routes, avoid low-fill volumes, predict customer consumption and ultimately deliver more fuel with fewer trucks and fewer miles driven. No small feat, especially in such a short period of time, and such change inevitably comes with some challenges, especially when we were restructuring the company at the same time. But our team saw the bigger picture and took on this challenge, determined to build a new Superior, and I'm incredibly proud of their efforts. But as you'd expect, with change initiatives of this magnitude, not everything goes perfectly. We've had our share of missteps and have learned some valuable lessons along the way. For example, as we sought to optimize Propane Deliveries, we had a period of several weeks where we avoided inefficient fills while still working through the rationalization of our fleet. This meant some underutilized capacity and deferred volumes. While not ideal, as it would impact our quarterly results, we stayed the course because it was the right thing to do for the long-term success of the organization. These changes aren't about chasing short-term wins, they're about building a resilient, data-driven and customer-centric business that delivers sustainable shareholder value. It's a foundational shift. And while complex, we're confident the benefits will be enduring. Before we dive into the numbers for Q3, I'll connect our transformation story to our current performance in propane. The changes we've made are starting to show up in how we operate. As I've stated, a key focus within Superior Deliveries has been improving delivery efficiency, specifically, increasing volume per delivery and decrease in reducing frequency. To achieve this, we deferred many deliveries that would typically occur in Q2 and Q3 to optimize efficiency for our upcoming peak season. Now part way through Q4, volumes are increasing in line with expectations. And while our business is well positioned to benefit from improved efficiency going forward, we likely won't recoup all of these deferred profits during 2025. We appreciate that it's difficult to see these operational achievements based solely on our financial disclosures. So I'd like to share a few key performance indicators that demonstrate our progress. First, within our customer growth initiatives, so far in the fourth quarter, we are seeing more than a 300-basis-point improvement in the percentage of sales leads that we convert to new customers as our improved engagement and competitive pricing are gaining traction. Second, within our cost to serve initiatives, we're also seeing a 5% improvement in the number of labor hours incurred per 1,000 gallons of propane delivered. Third, as I mentioned, we're seeing improvements in our fill rates as our new approach to scheduling deliveries is increasing the number of gallons delivered per stop, setting us up to benefit from a more efficient and cost-effective structure in the future, which will ultimately benefit the customers and the markets we serve. Of course, there's still more work ahead of us. For example, in customer growth, we're now working to increase our total sales leads to capitalize on this improved conversion. With churn, our prediction tools are gaining traction, but customer attrition is inherently lagged. So it will take some time until the benefits of our new programs are fully realized. For cost to serve, while efficiency is improving, we continue to refine our models across our single North American delivery platform. Finally, as noted in our press release, we reduced our non-field workforce by 12% during the quarter as part of Superior Delivers, realigning to 1 North American propane business. These changes resulted in some onetime costs, but will drive further benefit to our organization in the long run. While the impact of transformative change takes time to become visible in financial results, especially with a seasonal weather-dependent business, we are on track. I am incredibly proud of this team. We're staying the course and not reverting to the sins of the past, pulling forward deliveries or raising margins to meet short-term pressures at the expense of the future. Turning now to Certarus, our CNG business. Q3 reflected a challenging pricing environment with EBITDA declining relative to last year. Well site business activity remains subdued, and we recognize that the timing of a recovery remains uncertain. But Dale and the Certarus team have done an incredible job managing some very significant headwinds. Rather than speculate on market shifts, our focus is firmly on what we can control, driving cost efficiency, maintaining our market share, advancing opportunities in new markets and allocating capital with discipline. Despite these pricing challenges, we've maintained EBITDA Margins over 25%. We've reduced operating costs per MMBtu by approximately 5%, and we've increased free cash flow with our disciplined capital investments. Certarus remains very profitable, and we're using this period of adversity to push ourselves so we exit the cycle stronger and more competitive. In September, we mobilized equipment for a data center project with a major hyperscale operator. Early commissioning of power generation equipment began on schedule, typically at a rate of 1 or 2 trailers per day. We are now ready and expect regular flows to commence later in Q4. This project highlights the unique capabilities of our team, including end-to-end project management and the flexibility of our equipment platform, notably, our ability to deploy dozens of mobile compression trailers with just a few weeks' notice. In addition, we were awarded a standby supply for a second data center in a separate region and successfully mobilized in October. We also continue to expand our network. This quarter, we executed site and gas supply agreements for a new hub location in Florida, which is expected to be fully operational before year-end. Deliveries to our first customer have already begun, and we have opportunities with utility, pipeline and other industrial applications in the region. In Houston, we've executed a letter of intent for a new hub site and are completing diligence and expect to have that location up and running in the first half of 2026. Our commercial strategy for Certarus is delivering results. We remain disciplined in our capital allocation and confident in our ability to deliver sustainable value regardless of the pace of recovery in well site activity. Industrial revenues were up 24% year-over-year, and renewable revenues grew 42%, reflecting the strength of our value proposition and Certarus' strategy to drive growth in these markets. Now despite the progress we've made this year, the pricing headwinds we faced within CNG, combined with additional costs associated with our new delivery technology and a wholesale supply disruption related to a refinery fire in California have caused us to lower our expectations for 2025. However, nothing fundamental has changed in our business, and we remain well positioned to deliver our long-term goals for the company. As I've said, transformation isn't linear. In closing, I want to leave you with a few thoughts. Success depends on having the right people in the right roles, engaged, focused and energized. Our teams are embracing this challenge and leaning into change with a commitment to excellence. We're undertaking something truly complex at Superior. Transforming a business model that's been in place for decades is no small task. It requires bold decisions and disciplined execution. The changes we've made are permanent. They're impacting our business positively and they will benefit us for years to come. And finally, I'd like to thank our teams across North America who are helping us get there. Your resilience and dedication are the foundation of our progress and the reason we're so confident about the road ahead. Thanks very much. And with that, I'll pass things over to Grier. Grier Colter: Thanks, Allan, and good morning. I'll start by recapping our consolidated financial results for the first 9 months and the third quarter specifically. Year-to-date adjusted EBITDA was up 2% due to modestly higher adjusted EBITDA from U.S. and Canadian propane, partially offset by a small decline in CNG. Q3 adjusted EBITDA of $7.6 million decreased $9.8 million compared to Q3 2024, driven by lower volumes in U.S. propane and pricing pressure in CNG, partially offset by a $1.2 million reduction in corporate operating costs. Year-to-date adjusted EBITDA per share of $0.91 increased by 15% due mainly to higher adjusted EBITDA, lower interest costs and a 7% decline in the diluted weighted average shares outstanding. Adjusted net earnings per share of $0.04 increased by $0.11, and free cash flow per share of $0.51 tripled for the same reasons, with lower capital expenditures also contributing to free cash flow growth. For Q3, adjusted EBITDA per share of negative $0.05 decreased $0.02 because of lower adjusted EBITDA from our propane and CNG operations, partially offset by lower interest costs. Adjusted net loss per share of $0.41 was down $0.05 from last year due primarily to lower adjusted EBITDA. Free cash flow per share of negative $0.32 decreased by $0.03, driven by lower adjusted EBITDA and partially offset by reductions in CapEx and interest expense. Third quarter is typically the lowest free cash flow quarter of the year due to seasonality in propane and in CNG. Turning now to the businesses. For the first 3 quarters of the year, adjusted EBITDA in our overall propane business increased 3% to $213.8 million, driven by strong volumes and favorable weather in Q1, followed by EBITDA declines in second and third quarters, as we had expected and we discussed on our last call. Looking at the regions, in the first 3 quarters, adjusted EBITDA in our U.S. propane division increased by $4.0 million or 3% from higher volumes in Q1. In the third quarter, U.S. propane adjusted EBITDA was down $6.1 million from last year. The decline was driven by lower retail sales volumes as customer in-tank inventory levels continue to decline. We anticipate replenishing these volumes during the fourth quarter. However, doing so will bring added costs, which have been reflected in our revised guidance for Superior Delivers. The U.S. propane business also continued to be affected by an outage at the Martinez Refinery in California, which also negatively impacted our margins. Canadian propane generated adjusted EBITDA of $64.2 million in the first 3 quarters, representing approximately 4% growth, primarily due to higher sales volumes benefiting from colder weather in Q1. In the third quarter, Canadian propane produced adjusted EBITDA of $2.5 million, a decrease of $0.3 million versus Q3 2024, primarily due to weaker economic activity and more competitive pricing within industrial and commercial sectors, particularly in Western Canada. Like the second quarter, weather trends are not a factor in the third quarter as heating demand is essentially absent until colder weather returns in Q4. Our propane transformation, Superior Delivers, contributed $5 million to results in the first 9 months and is on track with our longer-term goals. However, Superior Delivers contribution to results in the third quarter was nominal after netting out the impact of declining customer and tank inventory levels. As I indicated, the reduction in inventory levels is temporary in nature and will normalize over time. This has caused us to lower our in-year forecast for Superior Deliveries from $20 million to between $10 million to $15 million. During the quarter, we incurred approximately $20 million of restructuring and other costs related to Superior Delivers. The largest portion of this expense related to the 12% reduction in our non-field workforce that Allan had mentioned, resulting in one-time severance costs of approximately $11 million, and the balance of the costs are related to executing Superior Delivers, including third-party consulting costs. This workforce restructuring was not incorporated within our original Superior Delivers targets, and therefore, is incremental to the $10 million to $15 million of per year onetime cost we originally had expected. Furthermore, we have increased our 2027 run-rate Superior Delivers target from $70 million to $75 million to reflect the incremental savings associated with this restructuring. Certarus adjusted EBITDA of approximately $108 million over the first 9 months was roughly in line with last year as increased activity in industrials and renewables, along with reduced operating costs were offset by lower prices in the well site business. Notwithstanding these challenges, Certarus is making significant progress in several areas, including a 5% reduction in operating cost per MMBtu in the quarter and continued execution on its growth strategy in new markets. These achievements, coupled with our continued discipline on capital, drove significant free cash flow during the first 9 months of the year as EBITDA was stable while CapEx was down by more than $50 million compared with the same period last year. We remain very focused on maximizing returns on our capital and positioning the business for long-term success. Third quarter adjusted EBITDA in CNG was down $4.6 million to $25.7 million, again, mainly driven by pricing pressure in the well site business. Moving to guidance. As Allan mentioned, we are revising our 2025 expected adjusted EBITDA growth target from 8% down to 2%, driven primarily by lower well site pricing in CNG, the unexpected onetime costs associated with the implementation of our new delivery tools in propane and the temporary wholesale supply disruption. Consolidated capital expenditures for the first 3 quarters were $76.7 million or approximately half of our full year CapEx guidance, largely due to the timing of receiving equipment in the propane business, but we continue to expect our CapEx to be approximately $150 million for the full year. For the quarter and year-to-date, corporate operating costs were $6.6 million and $20.4 million, respectively, and were relatively in line with our expectations. Our leverage at the end of the third quarter was 3.9x, down slightly compared with the year ago quarter. We expect to finish the year with leverage around 4.0x, up from our initial target of 3.6x due to the downward revision of adjusted EBITDA as well as a stronger Canadian dollar, which has impacted our Canadian dollar debt. We remain focused on reducing leverage and expect to achieve 3.0x by the end of 2027. We continue to believe that share repurchases are an excellent use of capital. During the quarter, we repurchased 1.8 million shares or approximately 1% of the outstanding common shares, below our run rate for the year as we ran through our NCIB. We have now repurchased over 10% of the company's equity and plan to renew our NCIB in the coming days, and plan to resume our repurchases in line with previously indicated plans of approximately CAD 135 million per year. Despite some of the challenges we faced this year, we remain on track to deliver value to our shareholders through substantial growth in our per share metrics. While EBITDA growth forecasts for the year have moderated, we have maintained sharp focus on capital efficiency and have continued to benefit from what we believe is an exceptionally attractive share price by executing our repurchase program and maxing out our NCIB. When factoring in our reduced share count, lower interest costs and growth in adjusted EBITDA, we expect 2025 EBITDA per share to grow by 15%. When adding this to our CapEx reductions, we expect free cash flow per share to grow by approximately 70% with 2024 -- compared with 2024. We continue to make progress in the transformation of our business and positioning the company for continued growth in the years ahead. And with that, I will turn it back for Q&A. Operator: [Operator Instructions] And our first question would be coming from Gary Ho of Desjardins Capital Markets. Gary Ho: Maybe just on the guidance change here. So I get the Certarus piece, which is due to softer pricing. But other reasons were kind of the onetime costs related to unexpected implementation of the new delivery technology. And then I think we already just mentioned the temporary wholesale supply disruption. Can you maybe elaborate on these 2 specifically? I would have thought kind of the onetime would be backed out of unusual costs. And also, are you able to kind of quantify each of these different components? Grier Colter: Gary, it's Grier. Let me take a shot at this, and maybe Allan will have some additional comments. So yes, we're looking at roughly a $30 million type adjustment. The vast majority of this or at least half of this is the Certarus. I think that's probably relatively clear. So just to be a little bit more helpful on the delivery tool technology. So if you think about this tool that we're implementing, it's obviously -- it's pretty sophisticated. It's got a lot of inputs like things we're trying to optimize and things we're trying to prioritize. So if you think of fill percentage on a tank, for example, it's a lot more efficient to go out and fill the tank 70% of the way versus 30% of the way. If you have more miles per 1,000 gallons, that's a bad thing. And so that's an input. There's capacity utilization, which is a circular thing, it's input. So I could go through this. There's a huge list of things that would impact your efficiency. And as we fine-tune or calibrate the tool, what you're doing ultimately is kind of prioritizing or having what trumps what. It's very complicated. And so what we found in the third quarter is we didn't have it perfectly calibrated. As a result, some of the things that you might have prioritized were kind of not in the right priority and got more of a waiting. So we are really efficient in some categories and less efficient in other. Ultimately, what we did is we didn't utilize the capacity that we had, which probably should have had more weighting. And as a result, kind of had a lower in-tank inventory and lower margin. You could see it in the volumes as well in Q3, and that was largely due to the delivery tool calibration we are doing. So you recalibrated in fourth quarter, we think we'll get the majority, if not all of this back in fourth quarter. So that's great. You get the margin back. The reason why the cost increase is because you're utilizing a much higher percentage of your labor capacity at that point. And obviously, demand for colder weather is also peaking up. And so you dip into overtime and some of the other categories of utilization of your labor force and that has a cost versus the capacity that you didn't use in Q3. And so that's -- so you'll kind of get back to the same inventory level, let's say, by the end of Q4. You'll get all that margin back. But as I say, the increase in the kind of cost per hour of labor is kind of where you lose that. And we're not sure exactly what that will be. We've kind of said, hey, like maybe that will be $5 million, $6 million. And so that is the change in the estimate for Superior Delivers. So that's the second component. And then the third component, this is really in the base propane business is largely the Martinez issue, which so far this year has kind of cost us better part of $3 million, and we kind of think for the full year, it will be a $4-ish million type thing. So if you kind of -- and then there's maybe some other routes and miles there, but those are the main components. So hopefully, that helps you a little bit. Allan MacDonald: Yes. Can I -- Gary, it's Allan. This inventory question is a complicated one for sure. If I were to say it really plainly, as we went through Q3, we had -- we came out of Q3 with lower in-tank inventories at our customer premise. Now that meant fewer deliveries. We didn't lose those customers. We didn't lose that volume. We just didn't deliver it in Q3. And we'll regain that volume in Q4 and Q1. What we did do though is we incurred the cost of some latent capacity in our distribution network in Q3. So when we talk about the cost, I mean, if you think about the volume, we'll recover the volume, we'll recover the gross margin that goes along with it. But we can't go back into Q3 and recoup the cost that we incurred for that excess capacity that we carried. When you're making changes of this magnitude, as I said in my comments, while you're restructuring the organization, you're going to have lessons learned. And we're making changes to an organization. And because of the seasonality of our business, our window, our sort of, our go period to make changes in the company is actually really small. You can't make changes and you got to basically black out in Q4 and Q1. So that gives you 2 quarters to make changes. We -- a 3-, 4-week delay in these kind of initiatives is not unusual, but for us, it has an impact. And that's really all you're seeing here is just the variation of those tank levels. And -- but rest assured, we did not lose those customers. We did not lose that volume, and we'll recover it. Gary Ho: Allan, while I have you, you mentioned words like reinvention, transformation, et cetera, in your prepared remarks, hired a new CCO. Can you maybe talk about high level the culture change, what's been some of the challenges you faced and early successes you see internally? And I have noticed that several of these hires are outside the propane industry. So what's the trade-off between bringing perhaps a new perspective versus industry experience? Allan MacDonald: That's a really insightful question, Gary. The pre-work that we did for Superior Delivers really started with challenging convention. At its core, this is a business that's operated kind of in isolation. It hasn't really had a lot of external disruption. And I can tell you that we have -- the fundamental things you already know, we have low market share when you compare us to the entire addressable market, and our customers are incredibly profitable. Yet, we were working in a pretty dated operating model that was very local and very manual. And you think where the benefit of scale was never really capitalized on. When you have a generation of employees that have worked in the propane business for 20, 25 years, trying to rally them to embrace the potential within this business is really hard because they know what they know, and they're really good at what they do. So I think the biggest first piece of the culture change was saying, look, if we start to look at the business a little bit differently, and we allow our colleagues to do complicated things like pricing once, do complicated things like route optimization once on behalf of the whole company, we can employ some really impressive tools that will get us some efficiency. That was a journey because that's like not dissimilar to all of you, that's a show-me story. I can tell you that as we move through that, the shift that I've seen from anecdotes and legacy thinking to data-driven decision-making is pretty astonishing, really astonishing actually. And I can't give our team enough credit. And we've asked them to do all of these Superior Delivers initiatives when we were restructuring the organization and bringing all of these groups together to a single propane company. So in the disruption of having a new boss and having new responsibilities, we're also using new tools, and we're working in new geographies. So I wasn't being in any way disingenuous when I said I'm incredibly impressed with the progress that we've made. In terms of strengthening the leadership team, there's a couple of things at play there. We're -- in the greater scheme of things, we're not the largest company. So we have to always balance talent that we're promoting from within, which is about 70% or 80% of the changes that we've made in the organization with introducing people from outside who have different experiences and skill sets. Within the propane sector, you're unlikely to find someone who has a sophistication in AI-driven algorithms around customer engagement, or someone who's -- there's not a lot of people who've worked on optimizing customer experience with call centers and sort of other digital engagement technologies. So what we're trying to do is not only bring in fresh points of view and leadership talent that's got a fresh perspective, but also acquiring skills that aren't resident within the industry. That married to people with great depth of experience in the industry like Tommy and others, has really had a big -- very positive impact on the organization. So I hope I answered your question. I'm not -- it's probably a longer answer than you're looking for, but everything begins with culture, and we wouldn't be where we are if we hadn't seen a marked change in terms of our cultural engagement here. Operator: And our next question will be coming from Daryl Young of Stifel. Daryl Young: I wanted to switch gears a little bit to Certarus and just get a sense of how you're thinking about the oil and gas exposure into 2026, maybe shifting of the fleet or maybe what you're seeing from a potential rationalization of the competitive landscape currently just given the oil and gas market seems like it's going to be weaker for a while? Allan MacDonald: Daryl, it's Allan. Let me offer a couple of strategic comments, and then I'll let the people that run the business actually talk. Dale is sitting here right next to me. The one thing I'll tell you about Certarus that I'm incredibly pleased with is Dale and his team are running this business so that they exit the cycle stronger and more competitive than they ever have before. And Dale and I were just talking before the call started. And sometimes, through periods of adversity, afterwards, you reflect on them and say they might have been a blessing in disguise. The success that Dale and his team are having in expanding this business into new markets, into adjacent categories, I don't think would have happened if it weren't for the challenges in the oil sector. They've restructured the business, so it's much more competitive at lower price points, and that's opened up the opportunity to explore other markets and have them be really attractive. So I can't say enough good things. This company is getting stronger and stronger through this last 12 months, and they're just -- they're on a great trajectory. I couldn't be more pleased. Having said that, obviously, there's a lot of questions about the oil sector and Dale, I'm sure he will share with you. Dale Winger: Daryl, as Allan said, we're extremely proud of the way the team is working to deliver for our customers safely and reliably while also improving our efficiencies and driving down our cost structure. And so as you probably know, just from an overall oil macro, which drives a lot of the North America activity, we were enjoying oil prices north of $70 in the first quarter of the year. I think recently, those have dipped below 60%. A lot of our customers have not provided a kind of spending forecast into 2026 yet. And so it's difficult for us to say exactly what to expect in that space. What we are -- many have talked about maintaining production or maintaining spending. And so we know that the blue chip folks are going to be in the best position to provide work. And so we have a very account-focused strategy where we're using our capabilities, our experience, our fleet size, our hub network, our digital tools to be the best provider, to be the most reliable provider at a cost-effective price point. Of course, they're all interested in reducing their operating costs, and we're in a great position to help them do that. And so as Allan mentioned, we've focused on our own procurement, and we focused on our own efficiencies to take advantage of the market circumstances to improve our competitive position. There hasn't been a lot of change in the sort of the competitive environment. We're still -- as you can see from the margin pressure, it still remains intense, and we're very focused on kind of building the capabilities and strengthening competitive advantage to maintain market share and be the best able to serve and whatever the competitive environment unfolds. Daryl Young: And then in terms of just the ERP route optimization tool, effectively, I guess, if I were to summarize it, has it led to an under or an incorrect fill rate that you're now playing catch-up and effectively paying overtime wages to execute? And I guess, is there a risk that customers are underfilled coming into the winter heating season that could result in more customer churn in the future? Allan MacDonald: Daryl, it's Allan. No, I wouldn't describe it as playing catch-up. We have some capacity, some sort of in-tank level that's slightly lower than it was last year. But the catch-up, in Grier's comments were how fast you sort of return to normal or more historical tank levels will be a factor of the winter that we face. If we -- we're going to do everything in our power, obviously, to make sure we don't run customers out of gas and put people in any kind of jeopardy and that's our first priority. And very much conversations we're having, as a matter of fact, as soon as this meeting ends to make sure that's not the case. The speed of recovery that we have will depend on the winter that presents. If we have a fairly normal winter, we'll recover the lion's share of it. If we have a heavy winter like we did in Q1 of last year, some of that volume will get deferred to later in 2026. But make no mistake that making sure that customers' tank levels are sufficient to get them through their season of demand is really important. The one thing I would sort of add to that is we've made a big shift away from -- we monitor customer tank levels, of course. But no two customers are the same. So in our vernacular, it's -- while that's an important metric, we've added to it days to empty because you can have 2 customers at 30%. One has 5 days to empty and one has 5 months to empty. So this is kind of a little bit of insight into the complexity of just how far we've come. There will be customers that -- we're calculating every customer's days to empty and there'll be customers we're reacting to with a lot of urgency, and there are other customers that we know that we can fill on a regular basis when the routes -- when the capacity allows and when the routes are in their vicinity. So we're trying to be very, very calculating and mindful of how we sort of recover this volume gap. Operator: And our next question will be coming from Nelson Ng of RBC Capital Markets. Nelson Ng: So I think in some of the commentary, you talked about mitigating customer attrition by -- with price management. Can you just give a bit more color on that initiative given that, I think, it's one of the headwinds. Like are a lot of customers -- like will lot of customers require like a lower propane price or margin to retain them. And is it more on the retail side or in industrial side? Allan MacDonald: Nelson, good to talk to you. Well, there's a few things going on there. Number one, the biggest contribution that we've made to improving retention is not raising our prices, which we've historically done year-over-year, which our competition continues to do. So we haven't had any price increases sort of categorically in the last, 12, 18 months. So that's step number one. The impact that has on churn is it doesn't necessarily -- price increases agitate churn, so we've removed that, but it doesn't necessarily improve churn. So what we've done following up from that is, in centralizing our call center and customer experience group, we've now got a group that are completely dedicated to customers who are at risk of churn. We've got some predictive models that were -- that are in place now that we continue to refine that predicts customers that are at risk, and we have interventions where we reach out to those customers and discuss issues, whether they be pricing-related issues or service-related issues, and we have some remedies in place to make sure we retain those customers. We've implemented, in some instances, price match guarantees, where when customers are calling in and having been offered at a better price, depending on our new pricing models, which allow us on a per customer basis to be able to calculate our optimal return and our optimal pricing based on their distance, their volume, their density of the community they live in, we're able to be much more aggressive. All of these things are sort of single instance tools that you apply to each customer. And so we're getting much better at remediation. Where I think the next stage in our evolution is doing that at scale and really tackling the churn opportunity that we have. I don't want -- what I said in my remarks was that these changes churn lags these changes. Often, customers are considering moving suppliers because of a price increase that happened maybe 12 months ago or a service incidence that happened 12 months ago because bear in mind that when we fill a tank, customers don't anticipate a change until they, for the most part, empty the tank. And if you're a seasonal customer, that could be 12 to 24 months. So that was really the comment about the lag between these changes and the impact we have on churn. But I don't want to leave you with the impression that churn has in any way changed materially in the negative over the last year because that isn't the case. Nelson Ng: And do you have any KPIs on churn and attrition? Or is that something more for -- given the lag, is that something you'll look to disclose at a later date? Allan MacDonald: Yes. It's something we'll look to disclose at a later date because I think one of the things we talked about historically was around the work that we've done, rationalizing our tank inventory in field, cleaning up old data sources that have inactive customers that, for all intents and purposes, haven't been a customer for years, but we're still included in our customer accounts, normal things you have when you grow through acquisitions. So getting that data up and getting reliable trending data and year-over-year comparative data is still a work in progress. We're getting there, but it's not completed yet. So it will be a while yet before we're able to share reliable churn data. Nelson Ng: And then just switching gears to Certarus. Can you just talk about the market dynamics in the sector? I think previous commentary mentioned that there was like an ample supply of MSUs in the market, particularly for like Q2 and Q3. Can you just talk about how we'll utilize the fleet was in Q3? And was the reduction in EBITDA partly due to losing some market share? Or it's mainly reducing price to maintain market share? Dale Winger: Nelson, it's Dale. It would be the latter. So price reductions required to maintain a consistent market share. The utilization of trailers was very similar to second quarter. So the fleet was not fully utilized in the third quarter. So we have trailers we can put to work. And as you know, the seasonal demand as it relates to winter type work and applications picks up for us in the fourth quarter and first quarter. And we will be in a sold-out position as we head into the heavier season. Nelson Ng: And then just one other one on Certarus. So I think, Allan mentioned that you guys are serving or will soon be serving 2 data center sites. Can you just talk about how long the expected contract term would be? Are we talking about a few months or a few quarters? Dale Winger: That's -- yes, we're really excited about the data center and had a press release in the quarter, getting one under our belt and demonstrating to the industry that this is a viable option to deal with pain points that they're experiencing in terms of getting power and fuel to get the data center up and running, you're probably seeing a bunch of things about that. In terms of your question, months to quarters is the right way to think about it. I mean everyone is going to be a little different. And of course, there -- the first that we talked about, there is a plan to have pipeline supply fuel there sometime in 2026, but they're ready to go sooner than that. And so as Allan mentioned, we've got a unique set of capabilities to be able to go after an opportunity that requires that much fuel, requires a fleet of trailers, it requires mobile compression, it requires end-to-end project management. And so we're really excited about how we're positioned in that space. As you know, there's a lot of capital flowing into the construction of data centers. And there are discontinuities in fuel supply and energy supply that we're well positioned. And so these will, in many cases, not be permanent supplies. They'll be looking for permanent infrastructure, but we have a really unique solution that we can kind of step in and be able to alleviate some pain points and at a cost-effective way that really kind of brings an end-to-end solution all the way from experience and having sort of the fleet of gear that can be mobilized on a time schedule that provides value for the customers. And so we're -- our focus right now is doing a great job in sort of building a strong reference case and sort of becoming better known in that ecosystem and further developing that pipeline. Nelson Ng: And then just one last question, and maybe it's for Grier. So it looks like you're a little bit behind on deleveraging this year. I know deleveraging is a combination of like outright debt reduction and EBITDA growth. But in terms of capital allocation, like does it make sense to allocate some capital from buybacks to debt reduction? Or how do you prioritize the two? Grier Colter: Yes, Nelson, no, I think no change, right? I think we're still very committed to share repurchases. But it is a balanced plan. And we -- as I said in my remarks, we are still very committed to the leverage. Our plan is to get to 3.0 by the end of 2027. As you know, that was previously kind of mid-2027, and with the cash -- the reduction in cash flow from kind of the lower EBITDA this year is a factor. They'll take a little bit longer, but that is still a very important goal for us. But I mean, look, the share repurchases so far have been very good, and we'll continue to do that. We think it's an important part of the overall strategy. So I don't know, obviously, no change. We're still committed, but debt reduction and the overall leverage reduction is still very much a priority. So we believe that we can balance both these. There's really -- there's no change in that regard. Operator: And our next question will be coming from Robert Catellier of CIBC Capital Markets. Robert Catellier: I wanted to ask that capital allocation that Nelson just asked, but maybe I'll ask the other part of it, and I don't want this to sound any more dramatic than it is. But in terms of capital allocation, do you see any further risk to the dividend? Or you're just looking at the other levers and trying to balance repurchases and leverage? Grier Colter: Rob, it's Grier again. Look, I think the dividend is not something that we're discussing here at all. It's part of the overall return to our shareholders. And we think that's an important part of the overall mix here. So yes, no, that's just not a topic that we're discussing right now. So you can assume that, that's part of the go-forward plan. And as I said to Nelson earlier, I think the strategy here is the same as what we would have said at Investor Day. I mean the allocation, the percentages, the things that we're focused on, there is no change whatsoever. If you think of what we're talking about today, we're talking about things that are temporary in nature, some well within our control, some less so. But in the longer run, we still are very much on the same path here. And all the things that we've been saying all along, we're very much along those paths. So yes, no change. Robert Catellier: Yes. No, I'm surprised to hear it. And then just on the MSUs and specifically in 2026, what is the outlook really for adding more MSUs to the fleet given the amount of pricing and margin pressure? Dale Winger: We haven't taken a decision on adding MSUs, as we mentioned, like we'll be in a sold-out position as we go through the winter season. And if there's opportunities to make high -- make good returns on capital adding to our fleet, we may need to do that as we open up additional hub locations. As Allan mentioned, we signed agreements for a piece of real estate and a gas supply in Florida. We're in process of moving gear to that location. We have a customer there already, a few others that will be coming online over the course of the next 90 to 120 days. And so as we -- and we anticipate opening additional hubs in early 2026, but too early to say specific plans for MSU adds for '26. Robert Catellier: And last one for me. As you guys look forward, obviously, the plan you're executing on Superior Delivers is not measured in months or quarters. But as you look through the fullness of that plan and you achieve your objectives, is there a permanent reduction in working capital to the business? Grier Colter: Yes. Maybe I'll start, and Allan may have some comments as well. It's being completely honest, I think it's probably a little too early tell. But what we've baked in our plans is that any working capital changes would be insignificant. I mean look, this is obviously something we'll continue to look at if there are great opportunities to be better there. And I think they probably are. But we're focused on the bigger prizes at this point. There's a lot here, right? I think like this -- when you look at the list of initiatives that we're focused on, one of the battles here is to try to not take on too much. And there's a lot there that can go on for a while. I think when you get further down the list, are there some working capital things in there? I would say that's highly likely. Are they bigger than the things we're working on today? I think you could confidently say probably not. But yes, maybe at the margin, there are some things, but I don't have anything more intelligent than that to say at this point. Operator: Our next question will be coming from Patrick Kenny of NBCM. Patrick Kenny: Just back on the leverage discussion. I know we've talked in the past about asset sales as a potential plan B to help shore up the balance sheet. Just wondering if given some of the challenges being experienced in California on the propane side, or obviously in the Permian within Certarus, if you're maybe reconsidering high-grading the portfolio at all, not only put the rightsized leverage over the near term, but also just to set these businesses up for perhaps less volatility down the road? Grier Colter: Pat, it's Grier. Yes. No, look, we feel really comfortable with the capital allocation plan. We think it's a great use of capital to continue buying back shares at this level. But keep in mind, it was always a balanced approach we are very focused on also bring the leverage down. The switch in the dividend, which basically went kind of straight to share repurchases almost for kind of dollar for dollar. But keep in mind, we're also driving more cash flow through the business, particularly in the case of Certarus where we brought the CapEx down significantly. That business will produce a bunch of cash flow. So there are a bunch of things we're doing here. Like in the next 6 months, we're going to see quite a lift in the EBITDA and cash flow from the propane business. And so, no, I mean, we're very much along the same path. I hear what you're asking for sure. We discussed it regularly. The reduction in leverage is really important to us as well. But there are other priorities here, and we're still on the same path here and committed to that. Patrick Kenny: And then I guess on Certarus specifically, and we've all seen the oil and gas customers pullback in terms of Permian drilling activity and overall CapEx. But just wondering on the Canadian side of the border, if you might be seeing any signs of customers accelerating activity, just given the added egress across the basin as well as LNG projects being declared in the national interest now? So just wondering how your team might be able to I guess, capitalize on this Canadian growth story over, say, the next 3 to 5 years? Dale Winger: Thank you, Patrick. This is Dale. No, great observation. We have the leading market position in the Canadian well site business, have multiple hubs that serve that market, have very good relationships with some of the folks that you're talking about that are involved in those. And while a smaller market, of course, in relative size to the Permian, an important one for us. Of course, the business was established in Alberta. And we feel really good about our position there and are continuing to invest in competitive advantage to grow with those opportunities. Operator: And our next question will be coming from Ben Isaacson of Scotiabank. Ben Isaacson: Just one question for me and about the bigger prize that you mentioned. You talked a lot today about everything being on track and confidence in delivering value. As you reflect on some of the setbacks though, to balance sheet leverage or Superior Delivers, can you talk about your confidence level in achieving 2027 free cash flow at USD 1 to USD 1.10? And then what is the cadence or the path to get there? Because presumably, it seems that the slope is a little bit higher to meet that target, but that's also in the face of headwinds that you mentioned. So I was just hoping you could connect the dots. Allan MacDonald: Ben, it's Allan. I'm going to just offer a comment on the trajectory of Superior Delivers, and then I'll let Grier take the hard part of the question. I said in my opening comments that transformation isn't linear. And it's always super frustrating when you can't see what I see, and I know it's frustrating for you guys, too. The fact that we were able to change wholesale, our distribution model here at Superior in 2 quarters, for me, it's an incredible accomplishment. People said we'd never be able to do it. And you're all smart people. You know these things aren't like a light switch where you're flipping on, everything works perfectly, and we'd be misrepresenting ourselves as we said it was. But it's in place, it's working. We're continuing to refine it, and we're starting to see the results. So in terms of, honestly, I think some of the biggest challenges that Superior Deliveries represented, we've tackled in 2025. Culture shift, bringing the organization together as a single business is much more complex than the average person would appreciate. And then really tackling our distribution model, being able to get our hands around pricing, bringing on new Chief Commercial Officer is a huge win for us. So I don't see the overall program being in jeopardy. In fact, we're all having to operate with a lot of discipline to not be distracted by some of the short-term challenges that invariably come with the transformation of this size and then the headwinds that we -- that are created that we don't control and remaining enthusiastic and determined about what the ultimate price is. And I'm as comfortable now as I -- probably more comfortable now than I was in April to be perfectly honest. But you had a specific question that Grier is going to answer for you. Grier Colter: Yes. So Ben, I would agree with everything that Allan said. So if we look at kind of what's changed between Investor Day and today, it's really kind of 3 things, right? And the CNG business obviously hasn't performed to our expectations. And largely, that's been the oil markets and completion activity, which has had an impact. And so in our model, in the long run, to get to 2027, if I look at what needs to happen, do we need to get back to the same oil prices and the same level of activity that was happening at the start of this year, certainly it would help, but we don't need to have that. If you listen to what Dale has said, we're trying to make this business better. The team has done an incredible job trying to make things more efficient, be better at what we do and diversify. And there's a couple of pretty good examples of diversification, and we'll continue to do that. So the business will be better. And I think -- so to get to 2027, I'd say we've made this business better since when we talked at Investor Day. And so in a stable environment, if the -- all this activity in the oil prices were the same, I would actually say that would probably be performing even better than what we said for 2027. But a lot of it is dependent on what happens in markets that are very difficult for us to control, but what we can control is making this business better. So that's the first thing I would say. On Superior Delivers, this is onetime thing. We will get -- as I said, we'll get this volume back most likely in the fourth quarter. There's onetime cost there, but if you look at the exit rate leaving this year, it's very much intact with what we originally said. So if you look at the health of the program, the size of the prize at the end, the inventory, the sale -- like the funnel that we use, like this stuff is all very healthy. And I would say we feel as good today as we did back at Investor Day. So I'd say that's the same number. I mean we -- yes, we brought the number up slightly, it's not that big. But I think hopefully, that will show the level of confidence that we have in the program and what we think will be achieved in 2027. So I'd say no change on that. The third item, Martinez, this has been a pain for us this year. Latest I've heard is that this will come back online start of next year, and so that should go away. Look, would there be potentially other refinery things that may come along? I mean, we'll always have to continue to evolve this business and assess things that are kind of coming at us and do the best things. But no, I think we're not going to get into like the fine-tooth comb of like pluses and minuses here or there or whatever. I would say, largely, no, the 2027 stuff is very much intact, but with that, I would say it is somewhat dependent on what happens in oil and gas markets. That will have an impact and maybe... Ben Isaacson: That's helpful. Allan MacDonald: And those are market pressures that blow both directions. Do you think it just as easily because of the same eventuality and the positive being overachievement. But to Grier's point, we're just focused on running the best business we can and thinking about the future. Sorry, Ben, did you have another question? Ben Isaacson: No, that's it. Appreciate it. Operator: And our final question will be coming from Aaron MacNeil of TD Cowen. Aaron MacNeil: I can appreciate the comments in the prepared remarks, including the clarity on the miss on the guide this year, but Superior is now missed 2 years in a row. So just in that context, can we expect that Superior will employ more conservative guidance assumptions in 2026? An obvious one for me is just the assumption of 5-year average temperatures, which historically overstates heating degree days. Again, I know you can't get into specifics, but -- maybe you could highlight the broader approach and your appetite for potentially starting the year with a lower growth rate that you can increase as the year progresses if things play out as you expect? Allan MacDonald: Aaron, it's Allan. My surprise you. I'm going to jump in on this one before we'd like to talk. First of all, thanks for joining us, and we wouldn't end the call, of course, without getting everybody. One of the -- you're absolutely right. Guidance has been real tricky for us. But our guidance is tied to our budget, and that's been really tricky for us. And part of the genesis of Superior Delivers was sophistication with which we ran the business. So if you start with how easy is this business to predict, right out of the gate, you've got the cyclicality in the propane business and the weather factor. I hate 5-year average, by the way. So I'm with you on that one. And then you have cyclicality in the oil and gas sector, which is incredibly difficult to predict. So those two things are not a great starting point. Historically, our capability to predict the performance of the business, I think, has been really challenged by understanding the relationship between price, margin, customer acquisition and your cost fluctuations. So a lot of the work we've been doing, and Grier and his team have done a great job at this over the past 1.5 years is understanding our business better. And when you understand it, you can predict -- it becomes more predictable. So I think what you've seen over the last year is a combination of a business that's tough to predict, but also one that didn't have very sophisticated tools at its disposal. We're not in the ninth inning on that yet, but we're much better than we were historically. So I think you'll start to see that our ability to forecast our own performance is markedly improved. Our ability to predict what happens in the external market, of course, is always going to be an X factor, but Grier and I both are much more leading on the conservative side than the ambitious side in that regard. Grier Colter: Yes, for sure. I would agree with everything that Allan said, I look, at the end of the day, we're trying to create realistic internal budgets that are not super easy and sandbag type things, but at the same time, things that are realistic and achievable. We save for these things, it's very hard to see some of these external factors happen, right? To be fair. And so we put the thing together with the best information that we had, and we'll continue to do that. It is somewhat difficult to see things that are, as I say, kind of from the outside. The Superior Delivers one is one that really I would kind of focus on that was more on us, right? And that's a big program. There's a lot of stuff in it, and we didn't see that. And so yes, do we maybe add a reserve for things like that? We'll certainly have more sight line though. Like if you think of where we are today versus where we were back in February when we announced our guidance, we didn't know nearly as much about Superior Delivers as we know today. So that will be quite helpful. But that -- the base business is actually -- we've been quite close so far. If you look at where we are kind of year-to-date, the base business estimate has been very close to right on. Now having said that, we had a good idea what the weather looked like in first quarter and second and third quarter, the weather is not as much of an impact. So we'll see what kind of happens in the fourth quarter. But yes, look, we did our best. I think that's -- I would say we'll do our best again and trying to give our people here a shot at realistic targets and letting the market kind of see what we see, but it is difficult to anticipate all these things. I kind of look at the 3 major factors here. And the 2 external ones were pretty tough for us to see. The internal one, it's a big program, that's complicated. Should we may be seeing that, I guess, maybe you could say that. But we'll know a lot more for sure, as I say, going into next year. And I think the budget will be different. But from my perspective, it's not -- I wouldn't say, yes, we're going to set a way easier budget next year, numbers that are easier to hit. I think we'll continue to try to set what we think are realistic targets and try to have our people motivated to do great stuff and also give the market the best idea of what we think the business is going to do. Allan MacDonald: Yes. And it's funny because Q2 and Q3, they are so unforgiving, they're so small. That anything -- in a lot of companies, your margin of error would be negligible in a quarter, but because of the way our business comes in, it's really unforgiving to the smallest of miscalculations or external factors that you don't control, which is frustrating. But I mean, it's a business we're in, so we have to live. Aaron MacNeil: Okay. Fair enough. All very good points. Dale, maybe just another one for you on Certarus. I just want to confirm that the current data center opportunities today contemplate gas delivery only. And if the answer is yes, what's your appetite to sort of branch out to electric power and sort of just given the several other competitors are starting to do that with the quarter? Dale Winger: Yes, Aaron, confirming that it is for gas supply only. And I mean really the full system to provide fuel to whatever their power generation of choice is. And as you know, providing -- actually providing the power is a different capital profile than what Certarus has right now. And there are a number of people that are doing that already. And so our approach has been to build relationships with those people, the people that have the power generation assets, and be able to provide a complementary service that helps them operate reliably when pipeline supply is not available. Operator: I'm showing no further questions at this time. I'd like to hand the call to Allan MacDonald, President and CEO, for closing remarks. Allan MacDonald: Thanks, operator, and thanks all of you for your time and attention. And you've all been on this journey with us, and we're continuing to persevere. Something that Grier and I talked about earlier this week that's not lost on me is, it's always easy to focus on the challenges in front of us, and sometimes we forget to reflect on how far we've come. Our results so far in 2025 certainly aren't as -- they didn't meet our expectations. Having said that, year-to-date, this company is growing and it's growing despite the challenges that existed in the business. And when I joined 2.5 years ago, this was about, "Hey, how do we transform Superior into an organic growth story?" So this company is growing without acquisitions, without raising margins, without pulling deliveries forward. And I'm incredibly proud of the team. For us, that is -- that was a really big milestone to pass through. Now we still have another quarter to go, and that's okay, but we're well on our way in this journey. And I think when we reflect on it, we'll say it wasn't easy, and there were difficult times through it, but perseverance was what made the difference. So you can rest assure that you have a management team that is incredibly focused on the long-term health of this company. So with all that, thank you all very, very much and look forward to talking to you in our next quarterly call in between. Take care. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Carolina Senna: Good afternoon, everyone. I am Carolina Sena, Cemig's IR Superintendent. Welcome to Cemig's Third Quarter 2025 Earnings Video Conference Call. This video conference is being recorded, and it will be available on the company's IR website at ri.cemig.com.br, where you also find the full package on our earnings call. [Operator Instructions] We will now start Cemig's video conference call with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Luis Cláudio Correa Villani, Chief Information Officer; Sergio Lopes Cabral, Chief Commercialization Officer; Sérgio Pessoa de Paula Castro, Chief Legal Officer; Carlos Camargo de Colón, Gasmig's CEO; Iuri Araújo de Mendonça, Cemig SIM's CEO. For their initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho. Reynaldo Filho: Good afternoon, everyone. Welcome to our earnings call for the third quarter. It's always an opportunity and a pleasure to be able to bring to you our results and our efforts in another quarter. This is a quarter in which we have more difficult news. Of course, I would like to highlight some important topics that show the strength and the resilience of Cemig's earnings. About specific news on the quarter, we had distribution results that were affected by large clients that left the network. They migrated to the basic network about trading. We tried to decrease some positions. Also, that involves the submarket prices that have affected the results. What's important, and you know that when we look at our net position, it is very favorable in the scenario that we have for pricing today. The same thing happened with generation because of the difference in the GSF and the need to offset that with the spot price. This is what I would like to highlight. And despite of these topics, we moved on with a recurring EBITDA, proving the company's resilience, and we have confirmed the AAA rating by Moody's. We have 2 agencies now guaranteeing us a AAA rating, showing our resilience capacity to any type of scenario. We also had an award by a magazine called Veja Negócios, as the best energy company in Brazil in the top 30 award. And we also had the approval of our health care plan for retired employees. So we finalized a collective agreement with the union and that allows us to look for a positive structural solution that will preserve a positive transition to all of us. Therefore, they can keep their health care plan and also we'll be able to guarantee the company's sustainability. And the final topic, and Andrea is going to go over the details, which is our investment program. We are, once again, making the largest investment program in the company. For this quarter, we have BRL 4.7 billion, a significant increase when compared to last year. I believe we have a very positive message here, and we are maintaining our investment plan. And that means very positive results for the tariff review situation when that comes. So here, we have BRL 3.6 billion in distribution by itself. If we multiply that by the WACC, we know that the results bring additional revenue of a little over BRL 500 million just for that 9 months. So these are very cautious investments in regulated areas that when they get mature and the agency recognizes that we are going to have very positive results for the company. This is what allows us to have resilience today, and this is what allows us to have very positive results in the future, whether by these investments or by a very favorable position in the trading business in the near future. These are my initial remarks. Obviously, we are here to take your questions after the company's presentation. I'll turn the floor to Andrea, but I would like to stress the strength of this company and that we are very confident that we are going to move on with this investment plan and maintain the company's debt levels and the covenants and therefore, to keep on investing, keep on generating value. And this is going to get more mature according to the regulations and tariff regulations as expected. Thank you very much. Andrea de Almeida: Good afternoon, everyone. It's also a pleasure to be here with all of you today, going over our third quarter earnings. Now moving on, talking about our investments, as Reynaldo mentioned, we invested in the 9 months of 2025, BRL 4.7 billion. And this is how they break down BRL 3.6 billion in distribution, focused obviously in substations. This is a milestone and we have some pictures to show you the substations that we had in the quarter, but also 5,349 kilometers of low and medium voltage networks, which are very important to bring good service to Minas Gerais. For generation, we also mentioned our participation in the GSF credit auction with BRL 199 million. That's very nice. It guaranteed the extension of our concession in some of our plants. But also we had investments of BRL 149 million in expansion and maintenance. For transmission, we have our Verona project, around BRL 30 million, and we are still investing in reinforcements and improvements, and we are going to mention some of those and how the allowed annual revenue is performing in transmission. For Gasmig, the centralized project is the most representative one, around BRL 180 million being invested in the project. And for Cemig SIM, the delivery of new photovoltaic plants and 31 megawatts of installed capacity. Moving forward, we have the pictures of the 5 new substations, the ones this quarter, Andrelândia, Coronel Xavier Chaves, João Pinheiro, São Tiago, Fronteira. These are our highlights of new substations for distribution. Now turning to transmission. We see where in our operation we had improvements: Taquaril, Três Marias, São Simão, Itajubá, Volta Grande, Lafaiete. And we were able to add over the year, BRL 32 million of allowed annual revenue in our transmission business. And of course, this brings great results as well. Moving over to the figures. As Reynaldo mentioned, we have BRL 1.5 billion of EBITDA, and we see a drop in our EBITDA in around 16.3% when we analyze the recurring EBITDA, and I will talk about the recurring numbers, and then I'll talk about the nonrecurring events of last year, which were significant. We can talk about them as well. In generation, we already mentioned we had the effects of a lower GSF. We had to buy energy to cover for the GSF. So we had an impact of BRL 54 million. In the trading business, there was an impact here. And we already had the reduction in margin in the trading comparing '24 to '25. And we ended positions. We closed positions and of course, came from our exposure and other positions that were also open. So the closing of these positions and the purchasing of energy and the prices -- the spot prices that we have seen ended up having this impact of BRL 136 million for distribution. In '24, we had a change in the methodology, which was a reversal of our ADA and that reverted how we provisioned our ADA. We didn't have that in 2025. Therefore, there is a negative delta effect in distribution. And you will see that the market also has reduced it. And as Reynaldo mentioned, some clients left and went to the basic network. Therefore, this impacted distribution. Now turning to our net profit, the major investment that we are making has a greater depreciation impact than the funding, the increase of the interest rates, and of course, the increase of leverage of the debt also affects our net profit, the recurring net profit, and we realized that there was this drop of around 30.2%. For nonrecurring effects of last year, just let me remind you, they were very relevant. We had BRL 1.6 billion of the disposal of Aliança last year. Of course, this is not happening this year, and the tariff review for the transmission business of BRL 1.5 billion. These did not show in 2025. That's why we have also this relevant delta here. Let's move on. Here, zooming in, in GSF, when we compare GSF of 2024, we see the performance of July and September. GSF for 2024 going from 0.8 to up to 0.7. So we did have to purchase to deal with the hydrological risk and also the level of the energy price that we see this year. Of course, higher levels than what we have seen last year. Just September of last year, we had higher prices than this year, as you can check in the charts. So this is the impact. Now operating costs and expenses. We are growing below the inflation rate. And outsourced services, which is what draws our attention, we have an increase in areas where distribution has to invest more efforts to guarantee the improvement of services, whether maintaining, installations or in technology, and we still are working on the improvement with smart meters. We have to invest in that. And we have to fund technology. We have to prune trees and also clear the pathway. So that's where we have a higher increase in other expenses. Also, we had the sale of a plot. For personnel, we see a performance -- a good performance here. But here, we have in-sourcing of employees. We are bringing in our own teams so that we can cater to our clients faster in specific regions. And we really want to be more efficient in our service in regions. And we know that Minas Gerais is a largest state. So we want to be quicker serving further away areas. So we have an increase here in personnel in our headcount. Moving on, in line with our capital structure, we, yes, need the debt to fund our investments, but our leverage is at very safe levels. We are at 1.76 or net debt over recurring EBITDA. That's why we have our best rating in history. As Reynaldo mentioned, two AAAs and one AA+, and we are structuring our debt in a way to increase the average tenure. We reached 5.7 with the average term -- as average term. And the cost performance, we see the fact of the high cost of the interest rates, which affect all of us in the market and as well as Cemig, of course. Now for our cash flow. This is how we have been financing our activity, our investments. We start with cash. This is for 9 months, okay? So we start with cash of 2024 at BRL 2.3 billion. We have cash from operations of BRL 3.4 billion. We have the debentures issuance in May of BRL 5.1 billion, the debentures payments, of course, obviously. These are prior debentures of BRL 2.4 billion. Dividends and IOC, BRL 1.7 billion. Our activities for investments of BRL 4.5 billion. Earmarked funds here, BRL 187 million. We have to have this amount aside. So we come to our final cash of BRL 2.3 billion. For Cemig D, everything is more or less explained already. But effectively, we show a drop in EBITDA of 4.7%, especially because of the market reduction, whether it is by economic activity, once it's not that positive and also the temperature that was mild and the market dropped. Once again, the client that has migrated in the second quarter to the basic network. And of course, now in the third quarter, we see the full impact of this migration. In addition to that, we have the reversal of the constitution that I said of the ADA, as I mentioned before. And of course, in the net profit for Cemig D, we see the effect of our fundings and also the interest rates affecting that result. Talking a little bit now about the energy market. We had a drop of 4.4%, and we see the full effect in all the different markets and our distributing company coming from the rural, commercial, industrial, all the effects coming from all the markets. And in fact, here, we see this drop being caused by this client that has migrated for the basic network. Our operating indicators show that our collection is still very strong, focusing in the digital channels and Pix, our payment method is the cheapest. And now we are going to have the auto Pix as well. And we will be able to have campaigns so that people choose this payment mode, which helps us all and also reduces our costs. And this is growing as a good option of payment. And now our ARFA, the receivables collection index is at good, stable levels, and our regulatory OpEx and EBITDA show that we are within the regulatory standards. In terms of regulatory losses, we are also within the standards. There was a change in the criteria which already happened. We are now are integrating the effects of micro and mini generations that are distributed. So we are continuing to work. We have always keep working on losses. We have to install the armored meeting panels. We have to install the smart meters. And all the actions that we have to keep on taking so that this indicator is within the regulatory limits. For Cemig GT, once again, we talked about it. GSF was the main impact. We had to purchase energy to tackle the hydrological risk and the recurring net profit. Here, you can see the results as well. And Cemig GT was the one that had the main nonrecurring effects from 2024. So the major impacts are there represented last year. Therefore, we had a higher EBITDA in 2024 effects that are not replicated in 2025. And Gasmig, that also had impact for EBITDA reduction because there was a drop of 6% in the market and also the clients that migrated to the free market. This, once again, effect on Gasmig. And on this page, we have Cemig's recognitions. Reynaldo already mentioned, and that we are very proud to be recognized as the best energy company in Brazil by Veja Negócios. And there are other recognitions. We are also recognized as the best financial team in the infrastructure and energy sector by FILASA. We also got the transparency award from ANEFAC. We have always room to improve, but it's already great to be recognized by the 19th time by ANEFAC. And there is a new one, the ESG award. Cemig has thousands of awards in sustainability. And we are very proud, and it's always great to have another one. So ESG from ANEFAC in this category, Transformative Internship category. Therefore, I end my presentation, and I turn the floor back to Carol to ask -- to open the Q&A session and take your questions. Carolina Senna: [Operator Instructions] Our first question is from Victor Sousa, Genial Investimentos. Vitor Sousa: Hello, can you hear us? Carolina Senna: Yes, we can hear you, Victor. Go ahead. Vitor Sousa: My question is about Technical Note 53 that changes how you post losses in the distribution sector. I would like to understand if there is a possibility of republishing the level of losses that Cemig had. Now looking backwards here, I would like to understand if this change can end up generating any accounting retroactive effect regarding the application of this technical note if your concerned amount receivables, provisions and other adjustments, or is this just a prospective impact, just an accounting impact? And another question still on this note. How would have been the level of losses for distribution if this technical note did not exist? So in the same comparison base, what would have been the performance of Cemig losses? Would they have increased, decreased, or they would have been the same? I think this is important to understand for the process of assessing the distributing companies. Reynaldo Filho: Thank you, Vitor, for your question. Denis Mollica, our Strategy, Innovation and Sustainability Officer. Please, Dennis. Denis Mollica: Thank you for your question, Vitor. About the method used for calculation of losses. The method, even having it being reviewed, it does not -- it's not applied to past calculations. Even if we were to simulate that in the prior losses and the older losses, we would still be within the limits. So for practical accounting effects, adjustments have done from now on. And as it was said already, we are still within the regulatory losses, both before and after this technical note. So we have major actions to manage and to fight our losses, and they are within the limits with no effects that might affect accounting at all. And of course, yes, we also have here a positive effect on the tariff once we have the recognition of the impacts of the DG in the method of calculating losses. Carolina Senna: [Operator Instructions] Our next question is from Luiza Candiota from Banco Itaú. Luiza Candiota: It is about your trading strategy. Analyzing the changes in the energy balance in this quarter compared to the prior one. I would like to go over the details of the rationale regarding the short exposure when we look at '25, '26 and '28. What could be explaining this change that we see? Reynaldo Filho: Thank you, Luiza. I'll turn the floor to our Chief Trading Officer, Sergio Lopes. Sergio Cabral: First, thank you for your question. We have been doing a great effort to close our positions. Of course, we have some marginal sales that we are executing with clients that are strategic, but our position is not to open more positions. We want to close, as Andrea has mentioned. For this quarter, we could close positions in these past months. And also, we have the impact of gold that ended up making us go to the market to buy energy, but we are not opening positions. We are rather than that closing them. Carolina Senna: There are no further questions. We thank you all very much for your participation. And the superintendents of IR is available to take any other questions you might have. Therefore, we end Cemig's third call -- video conference call. Have a nice afternoon, and thank you very much.
Operator: Thank you for standing by, and welcome to Peyto's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to President and CEO, JP Lachance. Please go ahead. Jean-Paul Lachance: Thanks, Latif. Good morning, folks, and thanks for joining Peyto's Third Quarter 2025 Conference Call. Before we begin, I'd like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory set forth in the company's news release issued yesterday. Here in the room with me is Riley Frame, our COO; Tavis Carlson, our CFO; Lee Curran, our VP of Drilling and Completions; Todd Burdick, our VP of Production; Mike Collens, our VP of Marketing; Derick Czember, our VP of Land and Business Development; Crissy Rafoss, our VP of Finance; and Michael Rees, our VP of Geoscience. Before we discuss the quarter, on behalf of this group here and the management team, I'd like to sincerely thank the entire Peyto team, both here in the office and in the field, for their contributions to yet another strong quarter. And we had a busy quarter. It's carried on through into Q4. July was a little wet, somewhat unusually wet, and that slowed our activity in the month down a little bit. We had some plant turnarounds. We built and started up a new field compressor in Sundance. We added a fifth rig. We shut in some gas in September due to low prices. And most recently, we extended our credit facility. And that's just to name a few things. Quarterly production per share was up 5% compared to Q3 last year, relatively flat quarter-over-quarter production at approximately 130,000 BOEs a day. But cash cost of $1.21 per Mcfe or $1.13 per Mcfe without royalties were down to their lowest level since we purchased the Repsol Canada assets in the fourth quarter of 2023. And that's not just unit cost due to some production dilution. That's absolute costs as well. AECO 7A prices averaged a mere $0.94 per GJ or about $1.08 per Mcf when you account for the [ e-content ] of our gas for the quarter. But our strong hedge book added $87 million of gains or about $1.38 per Mcf for gas, and our marketing diversification contributed another $1.11 per Mcf, yielding $3.57 per Mcf all-in realized natural gas price, which equates to about 3.3x that of AECO for the quarter. Putting all these elements together resulted in funds from operations of nearly $200 million or $0.98 per diluted share, and that's up from -- up by 29% from Q3 last year or 26% on a per share basis. We also achieved a top-tier operating profit -- or operating margin of 72% with a profit margin of 29%. And which at the end of the day, we feel is the most important. I mean, after all, it's generating profits, right? And it's those profits that we can return back to our shareholders in the form of dividends, which we paid out $0.33 per share in the quarter or a total of $66 million. We spent $126 million of capital in Q3, up from previous quarters. So that's mainly due to the addition of the Sundance compressor station, the addition of a fifth rig later in the quarter and the Oldman plant turnarounds. Nevertheless, our payout ratio was just under 100%, and we were able to pay down a little more net debt of $20.5 million, bringing our year-to-date net debt repayment to $126 million. And I think more importantly, the increase in capital activity in late Q3 allows us to increase production into Q4 and Q1 and capitalize on improving winter pricing. Okay. Let's talk a little bit about our operations during the quarter and so far into Q4. We had a couple of minor production interruptions in the quarter with planned Oldman turnarounds and some gas that we elected to shut in when prices went negative. But we also brought on a new field compressor in Sundance, which added some gas by pulling down the gathering system pressure. We brought on another rig in Sundance to help us catch up on the activity delayed from the wet July. And our drilling program shifted to the potent Notikewin, Falher and Bluesky species in the third quarter, and we're now drilling and completing what we think we expect will be the most productive wells of the 2025 program. We don't amortize individual well rates, but we expect that these -- the wells that we just drilled in the second half of 2025 will -- to outperform those from earlier in the year, such that our full year vintage production curve should look a whole lot like 2024. And that really relates to the complexion of the species in the second half as compared to the first half. Of course, it isn't just the rates that matter. It's also the amount of capital that we deployed to achieve them, and we expect that these wells will rank as some of our highest rates of return projects this year. So what does all this mean? I expect we're going to set a new production record for the company in November, and we're well on our way and very comfortable to reaching our target of 140,000 BOEs per day exit for December, which correlates to the midpoint of our guidance of capital spending. Also subsequent to the third quarter, we renewed and extended our credit facility for another 4 years. We rolled in what was left of the term loan that we put in place for the Repsol acquisition. So our new revolver -- revolving credit facility now stands at $1.05 billion, of which were drawn -- we were drawn $745 million on closing of that extension. We still have approximately $491 million of long-term private notes that mature at various times over the next 9 years. When you take all this together, it provides Peyto with a strong liquidity position to execute our business plan. It also shows the support of our lenders to Peyto's business plan and to our strategy. I mentioned that we shut in some production in September, not because we were exposed to low AECO prices, our hedging and downstream diversification protects us from that. But because it made sense to have someone else pay us to take their gas, which we then use to fulfill our physical contracts and preserve our gas for better pricing in the future. Our diversification to other markets allowed us to gain a premium price of $1.11 per Mcf, as I mentioned earlier, over AECO, and that's net of the cost to get to those markets. Our physical and synthetic service to Henry Hub, Chicago, Dawn/Parkway, Venture and the Alberta power market all contributed to this gain, and we expect them to continue to contribute meaningfully into '26 based on the current strip. We've released our preliminary capital budget for 2026. We plan to invest between $450 million to $500 million of capital next year to drill between 70 to 80 net wells. This program should add between 43,000 to 48,000 BOEs per day by next December and more than replace our estimated 26% to 28% corporate production decline over the year. If this sounds a lot like '25, it is. I guess the key difference here is that we plan to continue drilling with 5 rigs in the first half of '26, which should change the production profile and the capital profile to be a little more front-end loaded than in the past years. We can apply the brakes and slow down the program in the second half if prices or the business environment warrants it. Conversely, we can keep it going with 5 rigs and aim for the high end of the guidance, if that makes sense. And this plan is consistent with our outlook on natural gas prices in 2026. The preliminary program had us spending about 80% on new wells, with the rest going towards pipeline and plant optimizations. These projects will be undertaken to improve plant reliability, lower our costs and debottleneck field gas gathering systems to accommodate new drilling. We also have some minor plant turnarounds planned for later in Q3 next year, when prices tend to be the weakest. And maybe we'll get Todd to expand on -- with some details on that later. We will firm up the capital budget in February with our reserves release, which should also coincide with the full ramp up of LNG Canada if it all goes well. So in closing, we think it was an excellent quarter, and we look -- as we look forward, we are well positioned to grow modestly, 5% to 10%, with enough cash flow not only to fund the capital program, but to return dividends to our shareholders and to continue to pay down debt over the next year. This is thanks to our prudent business strategy to keep the costs that we control as low as possible while protecting the revenues in the near term with our disciplined hedging strategy and derisking our sales markets to gas demand regions. This is manifested in stable long-term returns to our shareholders over the last 27 years, and we aim to continue that. I don't think there's been a more optimistic time in the natural gas market with all the positive demand growth from both recent and future LNG build-outs in North America and the increasing appetite for power generation from gas in both U.S. and Canada. Heck, it looks like we've even got support from our federal government to the industry. And I think Peyto is well positioned to take advantage of these exciting times. Okay. I think there's some -- probably some questions, Latif, for us. We can go to the phones if there's anybody waiting. If not, I do have some questions that have come in through email overnight. Operator: [Operator Instructions] And sir, I don't show any questions at this time. Jean-Paul Lachance: Yes, I will go to some questions I've received via e-mail. This one comes from Chris Thompson of CIBC. He couldn't make the call here this morning. One of his questions is, would Peyto continue to hedge gas volumes on forward strip given AECO basis remains wide for the foreseeable future? And do you believe that the basin is entering a period of increased production discipline given producer hedge books are rolling off and operators have an increasing exposure to AECO? So I'll answer the first part of that. I normally would look to Mike. Mike has also got some -- having some trouble with his voice this morning. So I'll try and do my best. Mike, you can squeeze in if I miss an important point. But I think when we look at the business, we've always run the business prudently. And I think when we think about the business of hedging, we're going to continue to be -- our disciplined risk management program. We're going to navigate the stormy waters of AECO with care. We know this is a volatile market. So our hedging strategy, we don't plan to change our hedging strategy. As everyone knows, we have the guardrails, which we can land on between -- when we get to a certain season. So we'll continue to run the hedging program as we always have. I don't know about the increased production discipline. I can't speak to other producers, and I don't know about other producers' hedge books and whether they're rolling off and what their exposure is or isn't to the market. But I do know that we don't change our strategy year-over-year around that. I guess we have some minimums that we like to accomplish, Mike. And I think that's obviously, minimum prices that we want to see. So we recognize that future prices are down a little bit from where we've been able to hedge. We've still taken some of that off the table. It's a price that works for us. But we'll continue to do that. So I would say our hedging strategy hasn't changed and won't change in the near future. Another question Chris had was on our 2026 goals for cash costs and what we're thinking and what we -- how we achieve those goals. Maybe I'll turn that over to -- I think -- well, I think simply, there are two things that we're going to work on here. One is OpEx, and one is -- we'll always work on OpEx, it's the relentless pursuit of reducing those costs. The other one is just naturally interest costs will come down as we pay down debt. Over the next year, interest costs will come down on a per unit basis. But maybe, Todd, do you want to elaborate? We've got some plans for next year on our facility capital. Maybe you can tie that into maybe how that helps us reduce our costs. And I would say all the target that we're looking at for cash costs for next year should be somewhere around 10% reduction, excluding royalties, of course. But maybe, Todd, do you want to comment on the operating costs? Todd Burdick: Yes, sure. So obviously, we have a number of facility and projects -- pipeline projects on the go for next year, which will allow us to, I guess, see as much of the new wells that are drilled, which will help, obviously, OpEx dilution just through the increased production. But as well, we've been working on a lot of labor, I guess, efficiencies with the Edson plant and some of the other integration pieces that we've been able to spread out some of the labor amongst the field, which we're starting to really see bear some fruit. As well, we've seen chemicals kind of come down a little bit. We're hoping that, that's going to continue or at least stay flat, which has really helped. Weather has helped a little bit. But obviously, through the winter months, when pricing typically goes up through this time, we're kind of seeing things hold flat, which is a good sign in the chemical market. So with those two things and sort of, I guess, our ongoing little pieces that we work on, we expect to see a pretty good drop, like you say, around 10% over next year versus what we've seen so far this year. Jean-Paul Lachance: Thanks, Todd. I see there's a question there. Do you want to go to the phones there, please, Latif? Operator: We have a question from the line of Amir Arif of ATB Capital. Laique Ahmad Amir Arif: Just had a quick question on that fifth rig. I think if I heard you right, in the capital budget, it's essentially in the year for half a year. And I'm just curious, what kind of spot gas price you need sort of to keep it for the whole year? And if you do, how much additional capital we can think about or additional production we can think about if the rig is extended from half year to full year? Jean-Paul Lachance: Yes. So I think the difference in our capital program for next year than this past year is that we're going to front-end load a little bit more. I'll maybe get Riley to speak to what that means. But essentially, what we're suggesting, we're very happy, first of all, with rig and ops operating. So we feel like keeping it running. Last year, we had a rig out to do -- sorry, we got a rig on a window, had to drill a couple of wells, but it couldn't stay there because we would have filled up that plant and couldn't really effectively use it. We're down in Sundance right now. Things are going well. We'd like to keep it running. So we're going to do that. And that just changed the complexion of the loading. Maybe we'll talk about that first. The price trigger, I think there's so much more than just the price. It's what have we been able to hedge, what have we -- what are our cost situations. So there's a lot that goes into that. I wouldn't say there's necessarily a price trigger. But if we kept the 5 rigs going all year around, that -- all throughout the whole year, that's the high end of the guidance, essentially. So we're moving it somewhere in the middle of the year, should we decide to, would be -- would get us towards the midpoint, I would suggest. But Riley, do you want to talk about the complexion of the program and maybe how it's loaded? Riley Frame: Yes. I mean, the complexion of the program from sort of an area and species perspective is going to be very similar to what we did this year. And JP alluded to the [ DCP ] and [ non-DCP ] capital. Allocation is very similar. But as it pertains to sort of the capital program for the year as we're towards that midpoint of guidance, we'll see it being sort of 55% capital front-end, 45% capital back-end loading. And then, yes, depending on kind of how the year goes and obviously prices playing a role in that, that could shift to 50-50 if we end up going to the high end as we bring on more activity in the back end with [indiscernible]. Jean-Paul Lachance: So the production profile will then sort of look that, and similarly as opposed to in the past, we've had more of a decreasing production profile in the sort of middle quarters because of activity. Now we're going to probably be a little more -- build that production profile a little steadier over the year, which is what I think you see in our corporate presentation materials for '26. So if that helps. Laique Ahmad Amir Arif: Absolutely. No, that helps, JP. And then just a follow-up question. Just on -- in terms of the cadence of the operating cost improvements you're thinking for '26, is it more tied to the looping projects at Sundance? Like, is it going to be more of a step change at a certain point in the year? Or is it sort of gradual as the year unfolds? Jean-Paul Lachance: We have some projects that are planned that are optimization of the plant. Those are the ones that will typically help with that, other than the production growth itself, considering -- but we were stunned a little bit in Q2, as we didn't expect -- government costs now are roughly 30% of our operating costs, which is significant, right? That's the AER fees. That's the fees to pay the Orphan Well fund, that's property tax and that's a carbon tax. So we didn't have enough in our budget for the property tax in Q2. So we went up in Q2. So I don't know what surprises are around the corner. But as far as what we control on that side, it will be the projects that Todd discussed. Typically, costs go up in Q1 because it's cold and we have -- we use more chemical. And costs decline as the rest of the year progresses, and that's what I think you can expect on the profile. Go ahead, Tavis. Tavis Carlson: I can add on your point on government costs and fixed costs in general, which is a lot harder to drive down yearly, they're 60%, 65% of our total OpEx. So we've only got 35% of that OpEx that we are really able to play with. And when you look at $0.50 op cost, that means you're talking $0.15, $0.16 that you can really control a lot more effectively than things like property tax going up higher than you thought or Orphan Well levy or AER, things like that. Laique Ahmad Amir Arif: Okay. And then just to clarify, should we be thinking about a 10% reduction to your average cost from this year, which is $0.54? Or 10% reduction from your current cost of $0.51? Jean-Paul Lachance: I'd say the all-in cost for the year, year-over-year. We don't -- quarter-on-quarter is a tough one to call, right, like I just mentioned, because it can vary. So year-over-year. Laique Ahmad Amir Arif: Got it. Jean-Paul Lachance: Okay. I have another question. If there isn't a question on the phone, I have another question that came in, which is more like -- we had some pretty low royalty rates. And I think that's one of the things we'd like to highlight. It was obviously, what was it -- 2.6%? For the quarter? I just want to ask Tavis how that -- how we see the complexion of our royalty rates going forward and what's sort of behind that 2.6% because it's obviously pretty low, one of the lowest in the industry. Tavis Carlson: Yes, JP, there are a few factors that contributed to the low royalties for the quarter. Firstly, low AECO. Again, we were $0.90 on a 7A basis, I think -- or $0.94. I think AECO was $0.60 per GJ. And AECO is really what drives the Alberta reference price that the Crown uses to charge us royalties. And then secondly, we have a lot of our volumes diversified away from AECO. So we're getting really strong prices in the U.S. Midwest in Dawn and Henry Hub. So -- and those additional revenues that we're getting really aren't royaltied the same as the AECO stuff, right? Jean-Paul Lachance: Yes, sir. Tavis Carlson: Next would be increased gas cost allowance credits. Those went up in Q2, and we're going to see those for the next 3 or 4 quarters. And then we also had lower NGL royalties from the decline in WTI and NGL prices. And I guess lastly would be just we have lower other royalties. We haven't done any wide sweeping, overriding royalty deals on our lands. So our other royalties are probably less than 0.5%. Jean-Paul Lachance: Well, we haven't encumbered our lands with other -- besides Crown royalties, we're not encumbered with other royalties. So I think that's a testament to the way we run the business, pay me now, pay me later scenario, I guess, when you think about it if we had done that. So I guess we always think of royalties as not being a controllable cost. But in that sense, it would be if we were to burden our lands with a bunch of overriding royalties to others. So -- and that's 0.5% you said, roughly, run rate? And what's our overall run rate going forward here, do you think is a reasonable expectation given the strip? Tavis Carlson: Yes. I think for Q4, we're going to be in the 4% to 4.5% range. Next year, though, with the pricing strip, we're probably modeling more like 5% to 6%. Jean-Paul Lachance: Okay. Right on. So back to the phones. If there's another call on the phone, we can take that. Operator: Our next comes from the line of Mike Beall of Davenport. Michael Beall: This is sort of a macro question, but part of our bull story for natural gas is the increased North American exports of LNG. There's also some talk of a surplus later in the decade of LNG. Would that ever work against us in terms of North American pricing? Jean-Paul Lachance: Well, I guess if you're referring to the fact that you might have too much LNG and it gets backed up onto the continent, then of course, that would have a negative impact on pricing in the future, if that's where you're going. And I think we've seen -- certainly, the U.S. producers have a lot of discipline in that regard to reacting to that with supply cuts and whatnot. So that's -- I mean, that's the big market, right, that will be affected. In Canada here, we're working towards more export capabilities to help our local market. And that's encouraging as we think forward beyond just this year, we've got LNG Canada slowly getting going here, but we also have other projects on the come. So it's good for the overall future out there. But that's one of the reasons, Mike, we think about hedging, and we think about taking that risk down and we want to be exposed to different markets so that we can weather those storms, and we feel that they'll be shorter term, and we can weather those storms when we've had an active and continue to have an active hedging program. We still believe gas will be one of the most volatile markets, and we want to be able to smooth those revenues out, right, smooth out that volatility. Michael Beall: Right. Okay. Jean-Paul Lachance: Okay. Any more questions on the line? Operator: I show no further questions from the phone lines at this time. Jean-Paul Lachance: Okay. Well, thank you very much for participating in the call. I appreciate the engagement and the involvement, and we'll see you next year. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Nauticus Robotics 2025 Q3 Earnings Call. [Operator Instructions] This call is being recorded on Friday, November 14, 2025. I would now like to turn the conference over to Kristin Moorman. Please go ahead. Kristin Moorman: Thank you, and good morning, everyone. Joining me today and participating in the call are John Gibson, CEO and President; Jimena Begaries, Interim CFO; and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our financial and operations results. Following that, we will answer questions. We have now released our results for the third quarter of 2025, which are available on our website. In addition, today's call is being webcast, and a replay will be available on our website shortly following the conclusion of the call. Please note that comments we make on today's call regarding projections or our expectations for future events are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, please refer to the reconciliations provided in our earnings press release as we may discuss non-GAAP metrics on this call. I will now turn it over to John. John Gibson: Well, thank you, Kristin, and good morning, and thanks to all of you for joining us this morning. This quarter marked a turning point for Nauticus. Across the organization, we saw progress that reflects the company moving beyond early stage development into scalable commercial deployment. Our field operations, technical milestones and customer response all signal real traction for the company. Now rather than previewing the details, I'm going to let the team walk you through the accomplishments of Q3 and outline the road ahead. I think you'll enjoy it. With that, I'm going to turn it over to Dr. Yamokoski, our CTO, to begin the updates. JD? John Yamokoski: Thank you, John, and good morning, everyone. As we've noted in prior quarters, we remain committed to securing new government contract awards. We continue to work closely with both long-standing and new partners across the industry as we evaluate opportunities that align with Nauticus' long-term strategic road map. I have had the distinct pleasure of serving Nauticus for over a decade. With that historical perspective, I can say that Nauticus has pursued a deliberate strategy, combining private investment with government-funded research to accelerate the development of advanced autonomous robotics. Having been here through that journey, I'm excited to say that the result is a mature technology foundation now ready to scale commercially and lead the maritime industry's transition towards autonomous operations. Today, that foundation is converging into a clear vision for the future of ocean work. We're moving beyond single vehicle autonomy toward coordinated teams of unmanned systems, surface and subsea, working together to execute complex missions. Our previously announced partnerships and collaborations in the surface maritime autonomy space represent early steps in bringing this vision to life. Another major trend reshaping our market is the reduction of personnel deployed offshore, driven by safety, sustainability and cost considerations. This shift plays directly to Nauticus' strength. Our [ surface ] vehicles require a level of autonomy that will enable remote to provision and control from land-based centers, dramatically reducing the need for personnel at sea. We recently announced a new $250 million equity facility that strengthens our ability to pursue other emerging opportunities, such as those in the deep sea mining sector. The same autonomous capabilities that have defined our defense and asset integrity work are directly applicable to this market where safe and cost-efficient operations are critical to success. This strategic expansion underscores the versatility of our technology and its relevance across multiple ocean industries. In defense, this strategy aligns directly with evolving operational priorities, distributed and persistent maritime presence without the risk of crew deployments. In commercial markets, it opens a door to entirely new cost structures for subsea asset integrity, maintenance and nearshore monitoring, domains that have long been constrained by the economics of large manned service ships. We remain confident that we are building the infrastructure and technology base for a new era of intelligent ocean operations, one where autonomy amplifies human capability, reduces offshore risk and fundamentally changes the economics of working in the sea. I will now turn the call over to Jimena for to update our quarterly financials. Jimena? Jimena Begaries: Thank you, JD, and good morning, everyone. I will now discuss our financial results for the third quarter of 2025. Revenue for the third quarter was $1.9 million, which is down $0.1 million sequentially and up $1.6 million from the same quarter last year. Against our original expectations, revenue in the third quarter was slightly lower than Q2. The revenue shortfall in Q3 was a strategic decision of the company made in cooperation with customers to defer work. Daniel will elaborate later on the call. We observed an increase in customer base, which Steve will cover later in the call. Operating expenses for the quarter were $7.8 million, which is up $1.9 million from Q3 2024, but down $0.6 million sequentially. G&A costs for the quarter were $2.9 million, which is a decrease of $1.4 million sequentially and a $0.1 million increase compared to Q3 2024. Nonrecurring transaction costs related to the SeaTrepid acquisition weighed down in the first half of 2025, but G&A costs are now trending back to pre-acquisition levels. Net loss for the quarter was $6.6 million. This is a $0.8 million decrease in net loss sequentially and a $24.5 million increase in net loss from Q3 2024. This large variance is attributable to the gains in fair value of our convertible debentures reported last year. Adjusted net loss for the quarter was $6.7 million compared to $7.4 million for the second quarter of 2025 and $6.4 million for the same quarter in 2024. Cash at the end of Q3 2025 was $5.5 million compared to $2.7 million last quarter. This is driven by funding received through an at-the-market offering. During the last week of October 2025, we reissued our at-the-market offering and raised further funds to support our ongoing operations. In October, some of our lenders converted a portion of our outstanding debt into equity, further deleveraging our balance sheet. In addition, we received a letter of intent from another lender willing to do the same if needed, to address any shareholder equity requirements. These actions, along with the ATM, put us in a solid position to maintain our NASDAQ listing. We entered Q4 financially stronger, thanks in part to the confidence shown by our lenders and our long-term strategy. I will now pass the call back to John. John Gibson: Thank you very much, Jimena. I'm not losing any sleep over the delisting. We have a plan, we have support, and we're executing that plan, and we're on track. So now I'd like to turn it over to the sales and operation leads to discuss activities in their departments. First is up, Daniel Dehart, our field operations lead for an update on the 2025 commercial season and plans for the remainder of the year. Daniel? Daniel Dehart: Thank you, John. In the third quarter in cooperation with our customers, we made a strategic decision to defer near-term revenue in order to enhance the vehicle for specific deepwater workflows that position us for longer-term contracts. A major highlight this quarter was completing our deepest subsea test to date, successfully operating our Aquanaut system to 2,300 meters water depth in the Gulf of America. This milestone demonstrates the operational advancement and industry differentiating capability of our platform in complex underwater environments. We believe we are the only company operating an untethered drone down to these depths. Our customers remain fully engaged and excited about the technology. While some 2025 project work has been pushed into 2026, we've seen continued enthusiasm and commitment from our clients who want to be part of this next phase of success. We are currently working on defining even more capabilities for the Aquanaut system. We have one vehicle located in Stuart, Florida, and the second will be on its way soon. In collaboration with Sea Robotics, we have identified a lake that is ideal for testing the capabilities of the Aquanaut and at a fraction of the operational cost that it takes to test offshore. The cost of testing at the lake is an order of magnitude less than the cost of operating a vessel. We mobilized and began testing in October. One of the key targets being worked on is a launch system design that can be easily used to launch and recover the Aquanaut from shore, which leads directly into conducting inspections offshore without the use of a vessel. We are refining operational procedures to disintermediate vessels for nearshore operations, which will provide material cost reduction for our clients. We are now integrating specific customer-funded workflows into our lake testing for commercial implementation in 2026, specifically focused on autonomous mooring line and riser inspections. There are numerous clients that will be joining us in Florida over the next several weeks to witness the advancements that have been made that will directly impact the scope of works offshore. There will be opportunities over the next few months to host more clients to visit and witness the revenue-generating workflows that will be brought to the market in 2026. We're making real progress in improving our technology, expanding our operational capabilities and building momentum for a strong year ahead. With that, I will now turn it over to Steve Walsh, our sales lead for an update for our offshore commercial pipeline. Steve Walsh: Thank you, Daniel, and good morning. During the third quarter, our customer base continued its growth in our ROV systems delivering consistent results, with customer feedback being overwhelmingly positive. We are seeing growing interest in our solutions from the commercial and government sectors, and our sales team is actively converting that interest into long-term engagements. In fact, our 2026 pipeline is beginning to fill and the early signs are encouraging. We're seeing stronger demand signals, deeper conversations and more strategic alignment with partners who recognize the value of autonomy and subsea operations. We continue to sharpen our go-to-market strategies. The sales team is focused on expanding into adjacent markets, accelerating commercial adoption and ensuring that Nauticus Robotics is positioned not just as a technology provider, but as a trusted operational partner. At this point, I would like to mention how excited I am to tell you of the successful integration of new technology into our existing ROV fleet. The Nauticus ToolKITT operating system has been installed and tested in the field with great results. Jason will discuss later in this call how this enhancement to our current ROV fleet will increase our abilities and differentiate us from our competitors. With that, I'll turn it over to Jason Close, our software lead, for an update on Nauticus ToolKITT progress. Jason Close: Thank you, Steve. The experience and data we collected during ultra-deepwater testing led to targeted software improvements that are already being tested on the Aquanaut. We continue to have strong support from our existing customers, and this quarter will demonstrate new functionality for them, making meaningful progress in improving Nauticus ToolKITT's reliability and performance to meet their commercial needs. Additionally, this quarter, we worked closely with customers and partners to enhance our simulation environment to improve our testing and reduce overall testing costs. Importantly, we also achieved a major milestone in Nauticus ToolKITT's product expansion beyond Aquanaut. Following the quarter close, we successfully demonstrated Nauticus ToolKITT operating on a third-party ROV, completing pool testing, open water testing and the first deployment of our autonomy software on a world-class vehicle performing a commercial operation. The system performed exceptionally well, validating our approach and opening new opportunities for software licensing and partnership. Our ROV operators are excited to continue to use the current implementation of Nauticus ToolKITT and also to test and deploy additional autonomy to these legacy ROVs. This success underscores Nauticus ToolKITT's flexibility and scalability, key elements of our long-term successful software growth strategy. Our recent technical success has strengthened the foundation for 2026 with a more capable product, broader platform reach and a clear path towards recurring software revenue. I'll now hand it over to Ameen Albadri, our engineering lead, for an update on Aquanaut and electric manipulators. Ameen Albadri: Thank you, Jason. In the third quarter, our team achieved a significant milestone with a successful deep dive of the Aquanaut to 2,300 meters. This operation provided us with an invaluable amount of data and operational experience, further validating our technology and expanding our capabilities in ultra-deepwater environments. The mission also helped us identify key areas for improvement as we continue to mature this new technology. Our engineering and operations teams are now working diligently with both suppliers and industry experts to enhance Aquanaut's efficiency and reliability, particularly in the harsh and dynamic open water environment. On the manipulator front, our engineering team made significant progress in the design of the new manipulator system. We have officially begun parts and tooling procurement, making an important step forward in our mission to bring the next-generation manipulator into testing. Global trade turbulence continue to pose risk to our procurement and logistics efforts. However, our team has taken proactive measures to mitigate these challenges. We have identified high-risk, long-lead components and are working closely with suppliers to secure critical spare parts well ahead of the 2026 offshore season. This proactive approach will help ensure operational readiness and minimize disruption to project time lines. The insight [indiscernible] our deepwater operations, coupled with ongoing technological improvements and strategic supply chain management position us well for the future. I will now hand the call back to John. John Gibson: Well, thank you, team, and I'm really excited. And before we move to questions, I just want to acknowledge this entire Nauticus team. The achievements we've discussed today from deepwater operations to ToolKITT expansion to our growing customer pipeline are a direct result of their commitment and capability. We have a very talented workforce here at Nauticus that I'm proud to be a part of. And we've made so much progress, and we've got the customer visits lined up in Stuart, Florida, that we're excited to tell you that we're planning for early 2026 an Investor Day that we think we'll also have in Stuart, where we'll invite you to come down and see this equipment, this software, this technology at work. I think it's an eye-opening opportunity and takes us from listening to us on calls to those that are available to come down and really see it put through its paces. Now we are entering the final quarter of the year with more momentum than at any point in the company's history. The foundation is in place, the technology is maturing and our customer confidence is growing. We still have work ahead, but the trajectory is clear and it's upward. With that, operator, I'd like to turn it over to you for questions. Operator: [Operator Instructions] One moment for your first question, which comes from Peter Gastreich, Water Tower Research. Peter Gastreich: Peter Gastreich here from Water Tower Research. So congratulations to John and the team on your results and execution. Like last quarter, I really do appreciate hearing from your whole team on these calls. I think it's very effective to hear straight from the horse's mouth, so to speak. So thank you very much for that. Just a few questions from me. First, it's great to see your successful integration and first paid operation of ToolKITT on a retrofitted ROV. This does look like a very critical step in your capital-light strategy. I just want to ask, when compared to the full stack newbuild vehicle sales like Aquanaut, how should we think about the enhanced margin potential for these software-only retrofits? John Gibson: Well, it's good to have you on the call, Peter. Software is going to be a big part of our future. Gross margins on it are in the 80-plus percent range. As a result, it doesn't take nearly as much of that for us to get to cash flow breakeven as it does for the services side of the business. And so we're very excited. The ToolKITT implementation on an ROV that we completed and did commercial work with, we've identified a market of 300-plus vehicles that can benefit from it in the very near term. And so we're working on the go-to-market strategy for those 300 vehicles and a tremendous opportunity for us. So very excited about software. The other good part about it is that it's not the full implementation of ToolKITT it's only a portion of the ToolKITT that's necessary to bring this tremendous advantage to the ROV operators. And the validation of this software comes from the ROV operators and not just a customer or our view of the market. It's just how much easier this made them for them to be able to do their jobs and how much improvement that they're going to see in terms of loss of nonproductive time and the fatiguing part of just simply holding the vehicle in place, we take that over, and we basically provide all the hovering and maneuvering of the vehicle when it's near the bottom. So a very exciting opportunity for us. Clear customers that we know to go and sell to. So this is a straightforward strategy for us to execute through the end of the year so that they can be ready to deploy this software for the coming '26 season. So I think the software sales efforts where you see us focused in the near term. Peter Gastreich: Okay. My next question, you do have a pretty long lead time to build the quant. Taking what you've just discussed, would you be able to accelerate scaling your operations by acquiring existing vehicles in operation? You mentioned the 300 or so that are out there now, like it may not be quite as good as your Aquanaut, but maybe they can do the job. Would that be a possible use of funds? John Gibson: Yes. Well, the 300 are actually ROVs, world-class ROVs that we're looking at just selling software to and they're not -- they're tethered as opposed to being untethered like the Aquanaut. But there are some vehicles available that are untethered that don't have all of the capabilities of Aquanaut that we are investigating whether we could acquire some of those vehicles and put them to work in our fleet in order to scale quickly as opposed to waiting on the bills. As fast as we may be able to do it could be 9 months to 18 months in terms of depending on supply chain building additional Aquanauts. The demand for what we're doing and the success of the software leads us to believe that acquiring other vehicles that may not be quite as capable, but allow us to jump in the market and grow our market share is something that we should pursue. So we're pretty excited about talking to some of what you might think are competitors. But when we're excelling at this and doing better than anyone, it could be an opportunity for us to simply scale the business quickly. So we are looking into that, Peter. Peter Gastreich: Okay. That's great. In your second quarter call, you talked a bit about some supply chain risks and tariff risks. I just want to ask sort of as we've moved on here into the third quarter, what does that environment look like today, especially for those long lead items? And how is the company addressing tariff and supply chain risks? John Gibson: That's probably the toughest part of being in this business is the supply chain management. A lot of this comes from international suppliers. Extremely pleased, Ameen and his group have taken a very active approach to it. And we have on order the parts that we need and believe that they're going to be delivered, but you're looking at having to order today for parts that you need in May. And if you haven't already made those decisions, it's basically too late. You're going to end up showing up with the parts that you need later in 2026. So everything is on order. And we believe we've got what we need and are excited about having really managed a tough supply chain. I think it will get easier as we get larger and have scale and scope and can move up in priority with some of the suppliers. But it's -- in our particular case, we've had to take an active approach to it. We've used some of the capital to actually purchase the spares that we need, so we can ensure that we can have a good commercial year in '26. Peter Gastreich: Okay. That's very clear. Just regarding the SeaTrepid acquisition, now a few months into that integration, which expanded your ROV capacity. Clearly, you have a lot that's working very well there. Have there been any unexpected bottlenecks that you've needed to address in that integration? John Gibson: Not enough equipment. I mean we've got more demand than we have ROVs at this point, but we focus more on moving into autonomy and tetherless. If we had more ROVs, we would have more revenue. So it will get down to a question of does the autonomous ROV really an opportunity to expand that fleet as well to demonstrate to people why they should be using our software. I think we'll be sought after more than those people that don't have this autonomy. So our ROV should see a really full season next year because we'll be advanced over other suppliers. So I'm excited about that. But in terms of SeaTrepid, we're really blessed to have Bob and Steve on board. I mean, it is our sales force today, and Steve Walsh and his team. Bob brings tremendous industry knowledge, many decades of experience and difficult problems in the maritime world and has enhanced our knowledge and is incredibly practical. He gets things done. So -- and in fact, he's been at the Ocean Minerals Conference this week. And so we're really coming up to speed on how we could expand what we're doing into ocean minerals right now while the market is hot and there's some opportunities for us to take a look at how we could address it. Peter Gastreich: Okay. Great. On that, I'd like to ask some questions about the deepsea rare earth exploration strategy. The first one is just in terms of how we should think about the customer type. Are these going to be private contracts you're going after with exploration companies? Or is this government contracts? How should we think about the customer type in this instance? John Gibson: Where we excel really is in inspection and observation, and we're not into the mining equipment. And the first phase of anything in ocean minerals is going to be trying to identify those resources that can be produced economically. And so we're investigating how we can use our software and how we can expand our hardware platform to the vehicles that go to the depths that they require. That's another reason for us looking into investing in potentially some deeper vehicles that aren't quite as capable, but give us the ability to go to the depths that the ocean minerals exploration companies are exploring. And so we are doing that. I think we have some really unique capabilities and the ability to potentially sample while we're on the seafloor, add that capability to a vehicle to enhance the exploration phase, which I believe will go for the next decade and then before you really get the infrastructure in place to begin the mining. So we're going to focus on what we think is immediate and where we think we can add value. And we think there's some good opportunities for the company to look at that. It does sort of point to why we got the ELOC. If we see something that is a perfect fit that has immediate accretive value to us from an ocean minerals bolt-on technology capability, we'll have the ability to pursue that if we choose. Peter Gastreich: And on that, how should we think about the time line and road map to commercialization? So for example, you have oil and gas and wind energy opportunities that are right in front of you today. And then you talked about the future opportunities in things like carbon capture and sequestration and space analog missions. Where would the deep sea mining sit in a time line with these other opportunities in front of you? Is it do have imminent opportunities today? Or is this something more that's going to take a bit more time to kind of get there? Because you mentioned about, for example, needing to potentially test deeper with your Aquanaut and so forth. John Gibson: So it's a great question of priorities. Right now, the workflows that we're building in Florida associated with mooring lines and risers have immediate customer opportunities and contracts that are pending. And so I don't want to take our focus off that. So our primary focus is going to be on booking all of the time that we have available to doing what we know people are ready to pay for. On the ocean mineral side, there's great opportunities for us to enhance other people's platforms. And so we'll be exploring that and seeing how to partner with people. But we've got a really strong customer support for the work that we're doing, and we want to go out and take long-term contracts on doing that in 2026 as opposed to chasing new opportunities. We're really focused on let's execute with what we've got now that we've gotten the maturity of the platform. Peter Gastreich: And is this a U.S. strategy? Are you talking with people globally? Sort of what will be your focus going forward? John Gibson: Well, that's an insightful question. Let me think about how to answer right quick, Peter. The international telephone is ringing. And so the bat line here to the cave is lit up. A lot of interest in this platform internationally, a lot of potential financial support internationally. And so we're looking into that, but we don't have anything that we have that is imminent. And so -- but we are looking at the growth and interest that we've sort of gone from really focused on the Gulf of America to having a lot of international interest in the platform and what we're able to do, both in the defense side as well as in the commercial side. Peter Gastreich: Okay. Got it. I'll just ask one more question here, if I may. So just regarding -- you mentioned the equity line of credit, which is $250 million, quite substantial. Given that's kind of structure for financing the growth and acquisitions, are there any specific milestones or triggers that investors should be thinking about in terms of the optimal timing for drawing down that capital? John Gibson: We have an ongoing effort where we brought in a consultant that is doing the acquisition planning for us. And the main thing that you should take away from the ELOC is unless we see something that's immediately accretive and cash flow generating for us, that is the very first filter that it has to pass before we would consider using the ELOC. So we are not looking at anything that is futuristic or has a 2-year R&D lead time or any of that. This is about being accretive to the business now, right? And so that's our focus on the ELOC, and we're not going to pursue anything that looks like it enhances technology. We're no longer in the technology business. We're in the moneymaking business. Operator: Our next question comes from Robert Mendrala, private investor. Unknown Attendee: This is Bob Mendrala, I'm a shareholder, and thank you for the update for the quarter. And specifically, I wanted to ask on the compliance -- NASDAQ compliance issue. What is the plan and/or steps to cure that noncompliance issue? And specifically to another part of that is one of the requirements is a market cap of $35 million. Currently, it sits at $8 million. So what can be done to achieve that benchmark? John Gibson: So 2 things. Excellent question, Robert, I'm happy to answer. First, the market cap that you're looking at doesn't reflect the total number of shares that we have out. And so you're probably somewhere around 12%, 15%. We're in that range depending on the share count at the moment because we're doing the conversions, and so it improves our market cap. Also on the maintaining a listing, there is market cap, and we haven't focused on that one. That one's harder to control because it's related to share price. And so -- and with the market going up and down, that's sort of out of your control, right? You look at the macro environment and you go, that affects what the market cap is. What we can control and what we're focused on is shareholder equity. And when Jimena was walking through the discussion, she was explaining to you that we have the number of converts in place and a commitment letter to convert the remaining necessary for us to achieve compliance with the shareholder equity level, which is $2.5 million if you look at the rules. And so we're executing the plan to get to $2.5-plus million in shareholder equity. We have support from lenders to do that. And that's the plan that we're executing to maintain the listing. It's straightforward. It's within our control, and we have commitments so that is something that we just need to execute. Unknown Attendee: Okay. What is the time line? Do you have a hearing coming up with the NASDAQ? John Gibson: The NASDAQ hearing sometime in early December, but I think we will get all the information to them before then. Everything that we're doing, including the ELOC supports our ability to maintain the listing. Unknown Attendee: Okay. And then last question. The company is doing some wonderful stuff. I really don't think that the capital marketplace out there understands it. And so what can be done to improve the communication with the capital markets and specifically Investor Relations. I mean, the share price shouldn't be sitting at $1.35 a share. I mean, come on. John Gibson: Well, no, I want to agree with you in a very strong way. It's -- we haven't been in the promote mode. We really are trying to maintain a focus on delivering and not on overpromoting. Every time you start promoting in a new venture company, you end up getting out over the ends of your skis and taking a tumble. So we're really disciplined. We are beginning to put out more. I think we've put out quite a number of press releases here over the last 6, 8 weeks. The better thing to put out is the adoption of it, and that's what we're really focused on is announcing the adoption of the technology and the contracts, Robert. So announcing more technology is probably not what we're going to see. We've got more technology than anybody in this space now. I don't need more of that. What I need is really the beginnings of commercial adoption of breakthrough technology that disintermediates current legacy systems. And I think we're on path to do that, and we've got an exciting '26 ahead. So -- and then to your point, though, it's the reason I'm excited about the Investor Day in Florida. I think it's going to be better to let people see it firsthand. You can talk about this, but I'm telling you, it's hard to imagine just how breakthrough this is compared to current legacy systems, both the software and the hardware and our operational skills. So we think getting people down there and getting an announcement out on that will be -- on the Investor Day will be probably a big event in terms of getting people to know what we're doing. Unknown Attendee: Yes. And Peter brought up -- yes. Okay. Well, I appreciate the invite, John. But Peter brought up some great questions around milestones. And I do think to communicate more effectively with the investors who really don't -- I mean, they probably don't have the big picture that I'm seeing and you're seeing, but to have Investor Relations just maybe put out PRs a little more frequently around milestones and it doesn't have to be -- oh, we have this, we have this, but just communicate more effectively because the share price personally, I think, should be at least $10, if not higher. I mean it's way undervalued. Yes, a similar robotics company in comparison. I mean they have less revenue than Nauticus does, and their market cap is tremendously higher. What are they doing differently? John Gibson: Probably a more attractive CEO. I don't know. I'm not very photogenic. There is -- I guess I'm in this -- to say it like this, Robert, I'm in this for the long term and not just a pop and pump. I'm not doing that at all. And I take your comments and your suggestion, and we will see if we can't do better. But the main thing for us is we're not trying to promote the shares. We think that if we can start delivering results that we'll get a sustainable upward trend in the shares, and it's not going to be something where it goes way up and then we disappoint on a contract not being as big as people thought it should be or wanted. I think we're on the right trajectory. We're trying to stay disciplined about it. And when it starts up, I think it just keeps going up. It's not going to be something where we're trying to have just bumps as a result of people getting excited about technology. But your comment is taken under advisement. We -- you can always do better. I would never say otherwise. And so let's see if we can improve in that category as well. Unknown Attendee: Yes. And last comment. I agree, and I look forward to regaining NASDAQ compliance and keeping it that way because the last 2 splits wasn't good. Anyway, I'll leave it at that, John. John Gibson: You're quite welcome. And I would agree with you. I do not like doing reverse splits. I had taken most of my remuneration in shares. So it hurts me just the way it hurts you, and you can assume I don't want to do that. It just -- it's absolutely necessary. Otherwise, we wouldn't have executed it. Unknown Attendee: Yes, I'm always here to help, John. So just let me know. Operator: [Operator Instructions] Our next question comes from Jason [ Nicolini ], private investors. Unknown Attendee: Thanks for doing this conference call. Appreciate it. It sounds like a lot of exciting things are going on with the business. But my question has more to do with the previous callers about the share price and the investment I have a lot of shares that averaged about $1 a share before the reverse split, which means they should be worth $9 plus a share. And since then, they've lost 85% of their value in about a month. So the reverse split didn't actually help anybody out because the shares were trading around $1 anyways. And then we've got this -- my concern is how are we going to -- how are you guys going to get that stock price back up because I see this $250 million investor that is obviously going to want to make money on their investment as well, the potential there and is going to want to buy their shares at $0.10 or $0.01 a share compared to the $1.35 that it's sitting at today. How do we protect or how are you guys going to protect your current investors? Because right now, your stock price has to increase tenfold just for us to get our money back from just a month or 2 ago when the reverse split was announced. And there's about 6 million shares outstanding currently, but I saw an SEC filing that you guys increased the amount of shares, unbelievable amount. I think it might have been 6 billion shares or something like that, that could be now sold. So my concern, and I'm not very keen on this. That's what I'm asking you guys for your wisdom and understanding. My concern is the price is going to drive all the way down to hardly nothing, a penny stock for this $250 million investor to invest $50 million or $100 million. And then when the price quadruples or it goes up 10x to $0.10 or $1 or whatever it is, that's when they're going to make their money and the rest of us are going to be lost in the mix from this. So that's my concern, and I just need insight on what's going on. John Gibson: Well, Jason, I appreciate you dialing in and the directness of your question. And when you say the rest of us, that us includes the management team that's sitting here and me as well. So we look at it in exactly the same way you do. Our goal is to create shareholder wealth. The ELOC, it is good to have it in place but using it needs to be done with great discretion. Unless it's going to increase the share price and all shareholders make money, I don't intend to go out and call the ELOC. And so the -- it's -- because I firmly agree with you, we're not going to execute that unless there's value to all shareholders. It should not be just for the holder of the ELOC. And so we are being really disciplined in our assessment of what would we use it for. And don't expect the use of it immediately because we haven't found exactly the right things that fit. And so we're going to be very disciplined in the use of that. Now it's a good question. I think there are a lot of opportunities with regard to similar companies, similar size that have great technologies that we can engage with that could actually begin to roll up some of this technology and having the shares available to do that if we see one that's going to move the share price up, we just want to be positioned for it. So a lot of what you see in terms of our registration of additional shares, et cetera, is all about being positioned in the event that something emerges that makes a lot of sense for all shareholders, including the management team and myself here as well as you. So Jason, I think we're fully aligned on wanting to create wealth for you as well as ourselves. So I hope that answers your question. Unknown Attendee: Partly, I'll follow up with it a little bit. I do appreciate that. I know that I own my own business as well, and there's a difference between my share value of the business versus my income from the business, right? So you and the rest of the employees and things like that, you're gaining income, so to speak, from working there day in and day out. But the share price, from my understanding, the last time you guys did a reverse split back in '22 or '23, it was kind of the same thing. It was around a couple of dollars and then it reversed, it went up to $2 and then it went all the way back down to this $1 and now the reverse split happened again. So there's this constant dilution of the value of the business. And I'm trying to think how -- because I know you guys have to get to the $35 million. In my mind, I'm going, okay, just like the previous caller said, the current value, you said it's different than what we can see online because of the shares not all shown there or something. But let's just assume that this is correct that the market capitalization that I'm looking at on trading view right now is $7.5 million. You guys have to increase that by 5x at least in order to stay NASDAQ compliant at the $35 million. And so if this investor is -- either you have to sell -- you have to either multiply your number of shares that are outstanding by 5 to get -- and they stay at the exact same price or your price value has to go up 5x. And I'm questioning how is that going to happen in a couple of months so you guys don't get delisted without getting this loan, so to speak I imagine this $250 million loan, if somebody comes in and says, okay, I'll buy $35 million worth of your shares. And yes, they can drop back down and then you get the warning from NASDAQ to get delisted and then you kind of play this game, so to speak, of trying to stay compliant. So I'm just not understanding how you're going to be able to stay compliant without taking advantage of the loan. But if they buy -- right now, there's 6 million outstanding shares. If you sell 6 million shares, then that reduces -- the dilution itself takes our $1.40 down to $0.70. You follow my train of thought, I can't comprehend how you're going to become NASDAQ compliant and all that good stuff. John Gibson: Yes. So let me -- I'll walk you through it again. First, I don't have any control over these bulletin boards, et cetera. And they don't keep up in real time, to be honest with you. And I'm not sure they're even designed to, but the number of shares outstanding is slightly over 15 million. And so it's not the number you show. So the market cap is going to be more in the $20 million ZIP code than it is depending on where the share price goes today, than it is in the $7 million ZIP code. So the gap to close to get to $35 million is not as large as you think. But that's not what we're doing. There's in compliance for NASDAQ listing, it's an either/or. You can either have $35 million or you can have $2.5 million in shareholder equity. The $2.5 million in shareholder equity is something that is within our control working with our lenders. And it doesn't require taking money to do that at the moment. Some converts can do it as well, and it just -- which improves our balance sheet and reduces our debt. And so we continue to work on reducing debt, and I think we've made great strides over the last 2 years in working on debt reduction and conversions. And so we're improving the balance sheet. We're strengthening the company with regard to our balance sheet and the debt. And our compliance, if you go take a look at the either/or, look at the shareholder equity and see that, that's something that is within our reach and within our control, and that's what we're executing. So on the delisting, the reverse splits, okay, I'm not going to ever be a great advocate for reverse split. It typically means the other criteria for listing is to have a bid price above $1. And so we're having to use the reverse splits to maintain the $1 -- plus $1 listing. And then we're using the conversions in order to improve the cash position so that we can meet the shareholder equity requirement. It's those 2 triggers. We feel like we're in good shape on that. And we think that our plan going forward is something where we can see improvements in the share price as a result of our execution throughout 2026. I don't know if that helps, but that's how we think about it. We are aligned with you. We would really like to see this company begin to take off. And we are shifting from being a venture capital type company into the -- to a position where we've got commercial products, and we're not just doing R&D., we're beginning to get in the field and deliver this. And I think that's the -- where we need to get the momentum. Unknown Attendee: Okay. What do you mean -- and maybe I just need to do my own research, and this might be an ignorant question, so I'm sorry for that. I understand the concept of the value of the company is worth $35 million or $20 million or whatever it is. What's the $2.5 million shareholder equity? What's that difference? I don't follow that. Do you mean individuals? Or -- because obviously, if it's worth $7.5 million, then you already meet that shareholder equity or $3 million... John Gibson: That's market capitalization, which is number of shares times share price. Shareholder equity is actually the cash on the balance sheet and then the asset values, et cetera. It's taking a look at our solvency really as opposed to looking at -- our market cap. And I'll tell you what, that's probably a longer discussion. If you wanted, reach out to us and our CFO, Jimena Begaries, will be happy to walk you through that. Jason, no problem at all. Unknown Attendee: Okay. I understand now. I can follow that train of thought. I appreciate you taking the hard questions, John. I know it's [ not fun ] getting beat up. John Gibson: I'd tell you, if I could get people to take a picture of me now, I've lost 150 pounds, they'll stop calling me fat pig. I'll be happy, Jason. Everything else, it doesn't bother me. I do this for a living, and we're -- this is probably one of the best future platforms. I've ever had an opportunity to be with, and I've turned a lot of companies around. And this one is beginning to get in a really good position to take advantage of the year ahead. So I'm excited. I hope I can get everybody excited about it. And I think our results in '26 will really underpin that, and that's where we're focused. Unknown Attendee: Perfect. Well, maybe how long have you been with the company, John? John Gibson: Well, I've been in the role here about 2 years, and -- but I've been around the company for close to 10. Not as long as our CTO, but -- who's here from inception and brings corporate memory, but I've been associated with the company and assisting or advising for quite a long time. But I took over to really bring it to commercial. We need to sort of shift from a technology driven to commerciality. And so it's been a bit of a road. It is a venture capital company that was listed and getting everything to maturity to where we can get out and execute reliably because customers don't want breakthrough technology. They want reliable disintermediation of current platforms. And I think we're there. We just -- we've got a really solid platform, got a solid software platform, pretty exciting to see where things are going. It's no longer in development. We're sort of in deployment at this stage. Unknown Attendee: Got you. Well, maybe I agree then with the previous caller as far as to say maybe you guys need to do some additional marketing or something along those lines to make people aware of who you are and what you're doing because that's obviously why we always -- we all invested in the company is because we're like, wow, this looks amazing. But it all is about volume and who knows about you who these different influencers are and different things like that, that can get the name out to go, hey, here's a way undervalued business that you can invest in, which would then obviously drive the share price up. John Gibson: I've noted. I won't disagree. We will see what we can't do to communicate more frequently. Operator: Okay. This concludes the question-and-answer session. There are no further questions at this time. I'll now turn the call over to John Gibson. Please continue. John Gibson: Thank you. I appreciate everybody that joined us on the call today. And I particularly want to thank our team here. Enduring through this is a challenge. And this is an incredible team who are focused on delivering results, and they benefit from the results. They also are interested in the equity value of the company as well. And so I appreciate our team here, and I appreciate all of you that own shares. I mean, I look at this as a long-term strategy, and I've got shares and I'm holding them. And you'll notice there's no sales for me of any of the shares that I hold. I am here until we get this thing where it can be. And it's a great privilege to be here and to work with this team of people. We look forward to bringing you an update at the end of the year. And so thank you, and take care, and be safe. Operator: All right. Ladies and gentlemen, this concludes the conference for today. Thank you so much for your participation. You may now disconnect.
Romeo Maione: Good evening, wherever you're tuning in from today. I personally am joined live at Deutsche Goldmesse in Frankfurt, Germany by Contango CEO, Rick Van Nieuwenhuyse; and CFO, Mike Clark, to discuss Contango's Q3 reporting. Gentlemen, how are you? Rick Van Nieuwenhuyse: Good to see you here in Frankfurt, Romeo. Romeo Maione: Awesome. And I wish we're in the same room, but we're several feet away just because of the practicalities of movie magic on webinars. But here's how today is going to work just for the folks in the room. I've got a number of questions to go through, just eager to get into these pretty great Q3 reports. And then I'm eager to take questions from the live audience. So if there is any questions that you got during today's event, there is chat button in the bottom right of your screen. Please jump in at any time. Anything I don't get to, we're going to be a pretty short event today. But any questions I don't get to, I'll be sure to get to both Rick and Mike and the Contango team afterwards, and they'll be able to get back to you as quickly as possible. Romeo Maione: I wanted to jump right into the protein as quickly as I can. Rick, obviously, looking at record operating income of $25 million this quarter, while I think almost as impressively or more impressively maintaining AISC below that $1,625 target at $1,597 per ounce. So 2 comment and a question. First, that's a lot of money. Congratulations. And what's kept ASIC in check? Rick Van Nieuwenhuyse: Well, I think, yes, it's a lot of money. It's a record for us. That was our Q3 production level was above plan by about 2,000 ounces. And importantly, the AISC is coming in lower than the 1,625 that we guided to. And obviously, we got our guidance from Kinross. So I think a big reason behind that is we're -- the mine plan that we outlined, we're delivering into or exceeding that. And I think that's somewhat typical of Kinross as a big company. They like to underpromise and overdeliver. That's good because that means we're not going to get too far ahead of our skis. And I think the other thing overall that we see that's really helped our project specifically is the fact that the oil price is low and diesel prices have not gone up. We all know that an increasing gold price environment is telling us that inflation is still there regardless of what the government officially tells us. We know that's what it is anticipating. But this -- what is different about this time around is that we don't see that going -- the oil prices going up in Alaska. We've had the same pretty stable diesel price at the pumps for several years now. So that's a good thing. It's specifically a good thing for our projects, obviously, with the transportation aspect of transporting the ore from the mine site to the mill, it's a significant part of our cost structure. So I think that -- and I think the other thing is, look, Kinross is doing a great job just delivering into the plan that they've outlined. So when you're kind of firing on all cylinders is the way I like to express it. Romeo Maione: No, makes a lot of sense. And Mike, I want to get you in here for some of the dollars and cents questions. I know the cash position jumped from $20 million at year-end 2024 to an eye-popping $107 million as of September 30, with $87 million distribution received from that Peak Gold JV to date. I hope you could walk us through just capital allocation priorities. So now you've paid down a bunch of debt, you settled carry trade. What's the strategic thinking behind those moves? J. Clark: Yes, it hasn't changed much from the last couple of periods. Our objective all along has been to deliver into the hedges, get those paid off as quickly as possible, pay down the debt on schedule. And so to date, we've had -- we're always about a quarter ahead on our production. So we're always delivering about 3 months in advance. And so that's why we're using the carry trade in a rising gold market, that has saved us. I think this quarter, we saved about $2.4 million as a result. So the strategy is working. And so we're going to continue doing that. I think we're delivering the December hedges right now. And the goal is we'll basically try to get these delivered into you all by September of next year. So we're waiting for the '26 plan for Manh Choh, but that is currently what our target is internally. Romeo Maione: No, I appreciate that. And Mike, one thing I noticed you added adjusted net income this period. Just for folks in the room and for me, too, to be honest, can you provide some insight into that? What are we looking at here? J. Clark: Yes. You can thank Rick for that last minute. Basically, we continue to report a very strong income statement, and you keep having these derivative hedge losses that kind of muddy the waters. And really what that is, is an unrealized loss on the derivatives, which is a function of the forward curve of the gold price. And because it went up so much in September up to like $4,300, the derivative loss went way up. And so that had a $30 million impact on our P&L, which took us from what really would be a normal reoccurring net income position to a net loss. So we put it in there so that shareholders could kind of see what the business would look like once those things are gone and what our normal business looks like. Rick, anything to add to that? Rick Van Nieuwenhuyse: Yes, I'll just add kind of I find the accounting rules somewhat inaccurate when they're describing this and how they sort of force describe things. So it's unrealized, meaning that if we don't deliver that gold and future gold, yes, we're in trouble. We've got to come up with either go buy gold in the market or whatever because it's a contract that we have to deliver into. That's why it's unrealized. I would have preferred something like potential loss or something like that. But anyways, the accounting rules are what they are. We're just a little company, we're not going to change them. So we can -- we try to make it at least clear to the shareholders what the reality is... Romeo Maione: No, I appreciate that very much. I think that's.... J. Clark: The unrealized is the remaining hedges that are on the books at September 30. And then for any hedges we delivered into during the quarter and recognize that loss, those are going to be recognized losses. So it was about 50-50 split, about $50 million each during the quarter. Romeo Maione: Great. No, I do appreciate that. One thing, Rick, I wanted to ask you about, one interesting thing in the PR is the test batch blending Manh Choh's low-grade oxide ore with the Fort Knox ore achieved 94% recovery, and it's going to add about 1,300 ounces in Q4. To me, that looked like a pretty significant technical achievement. So I'm looking for your perspective on what does this successful met test tell us about the potential to process additional Manh Choh material that might have been uneconomic in a previous era. Rick Van Nieuwenhuyse: Well, the short answer is we don't know yet because all we know is the net result of the test. We processed 44,000 tonnes at a rough grade of 0.1 ounces per tonne, which is 3 grams. So when we say low grade, it's low grade relative to the 8 grams per tonne that is the average grade. So we have to sort of put that in context. But you're right in the sense that we're doing this test to see what that marginal ore would be like if we just blended it with Fort Knox. And it is oxide material. And there's a fair bit of this low-grade material because you have to go back to the original mine plan, the feasibility study mine plan, and that was done at a $1,400 gold price, what, 3 years ago or so. So obviously, with the gold price, it's down today kind of hard, but it's still above $4,000. That's just a different mine plan. And so testing this low-grade roughly 3-gram material is the start of taking a look at how -- is there another way of working on processing this low-grade material, just blending it with Fort Knox. And so the Fort Knox ore, which is much, much lower grade, is somewhere in the 0.6, 0.7 grams per tonne. That's the typical Fort Knox ore. And it's not really oxide ore Fort Knox. It just doesn't have any sulfide. So taking our oxidized low-grade 3-gram material and blending it, when you're doing that, you're running the mill at 2,500 tonnes a day. That's when they run the mill for Fort Knox, that's what you're doing. When we run it for Manh Choh on a batch basis, it's down at 10,000 tonnes a day. So it's looking for those economies of scale. We don't have the results for all that and the consumables and the cost, the power costs, all the details of what go into determining your milling cost. But in the next month, we should have those and we'll make some decisions on going forward if this is -- this makes sense to process this low-grade material on a blended basis versus just a batch basis. But the batches will continue. That's on higher grade and -- we're down in the sulfide part of the... So the material we're talking about is all sitting on the surface in stockpiles, the oxide, the low-grade oxide. Does that make sense? Romeo Maione: Yes. No, absolutely. And I appreciate that. I understand a little better. And I know at Manh Choh, you processed 287,000 tonnes that 0.214 ounces per tonne, 92.5% recovery in Q3. How does this compare to reserve grade expectations? And what's your visibility into the ore body to sequence through that mine plan? Rick Van Nieuwenhuyse: Yes. So we'll have a detailed mine plan for 2026 here probably in another few weeks. Once we've had our budget meeting and we've approved the budget and that mine plan, we'll certainly put that out to the public. So I think stay tuned for that. But basically, the grades a little lower than the feasibility grade, which was close to 8 grams per tonne, but that's because we're blending it with lower grade material because the gold price isn't $1,400, it's $4,000. So we're going to -- the tendency of that when you're adding more low-grade material in there is to lower the overall grade, but you're making more money because the gold price is more than twice as high as what you plan for. So I think the most important thing is to stay tuned for the 2026 mine plan. Now in -- if we go back to the feasibility study itself, that was always going to be the lowest gold production year for the entire mine life. Now we've done a few things. We've purchased some additional trucks where we have -- we're obviously blending -- looking at this blending strategy. So we'll see what the mine plan is in the next couple of weeks, and we'll have to have another podcast interview on the platform here to explain... Romeo Maione: No makes sense. Appreciate that. Now I know you mentioned in the PR sustaining capital for tractor replacements and ongoing exploration drilling at Manh Choh contributed to the AISC increase. Is this new baseline for sustaining costs? Or would you expect those to moderate as we kind of complete the capital replacement cycle? Rick Van Nieuwenhuyse: Yes. I think this is -- I mean, you might want to answer this from an accounting perspective. But from a mining perspective, this was always part of the plan, looking at ways to optimize the transportation aspects of the project. J. Clark: Yes. I don't -- I think these are probably -- we'll wait for the '26 budget to see what is next year. But I think for now, I think it's a good benchmark to follow. And again, this is always -- it will become less at the end of the mine life. But yes, I think we're going to continue to be below $1,600 AISC this year and next year, probably consistent, but then come much lower in the later years of the mine life. Rick Van Nieuwenhuyse: Maybe just to add on to that. I mean, one of the things in the feasibility level mine plan, we're wrapping up mining on the North pit. And then so that means you're starting to mine more on the main pit. So you're getting your layback in, right? So there's a lot of pre-stripping that you're doing to do that. So I think that's why our all-in sustaining costs are on the higher end of the average. And then '27, '28 are grade going to be lower. Romeo Maione: Awesome. I do want to get into Lucky Shot just for a quick second because I know you've mobilized the drill rig for that 15,000-meter underground infill program, looking at, as I understand, the feasibility study in 12, 18 months and a production decision as quickly as '27. With production estimates of 30,000, 40,000 ounces annually using the classic Contango DSO approach, how does Lucky Shot fit into your larger portfolio? And what makes you kind of confident in this really cool, but aggressive time line? Rick Van Nieuwenhuyse: Yes. I mean look, this isn't the biggest mine in the world, but it is really good grade. We've done enough drilling. We put out a modest resource. And I know 100,000, 110,000 ounces of resource doesn't get -- everybody [indiscernible] can get wound up. But the grade should get them wound up it's 14 grams per tonne. And so we're underground. We've got the underground infrastructure in place. We've been carrying and maintaining the mine all year. So we've been waiting for getting this cash buildup that we have. Now we can execute the plan that we have in place to get the drilling done. The drill is actually on site. I don't know if it's actually drilling today, but if it's not today, it will be in the next day or 2. And the plan is to drill 15,000 meters underground. Give us about a year to get that done. These are relatively short holes, and we drill kind of what I call a fan shot from underground from a near vertical hole to about a minus 10, 20 degrees. You're basically just spraying the -- the vein is sitting here and you're just drilling into it. 30-meter holes on average. And so we should start having drill results by the middle of January. We're basically using a photon assay. The lab is in Fairbanks. So we basically just put the rocks in the box and hang, take them up to the lab and get them analyzed. So I think we'll start releasing results in, say, middle of January sometime. And it will be kind of constant all year long. So we'll be able to know and the market understand that our objective here is outline 400,000 to 500,000 ounces. This mine produced 0.25 million ounces of very high-grade 40-gram per tonne average grade. That was mined the old style narrow vein mine that, frankly, wasn't terribly safe. We're going to be mining on a 3-meter average width and diluting that grade over that width. So we're expecting a grade more like 10 to 12 on a mine diluted basis. We're fully permitted. And so basically, give us a year to get the drilling done, another 6 months to get a feasibility level mine plan. And I call it feasibility light because, again, we're not building a mill on a tailings facility and a power plant. It's basically just a mine plan and a transportation plan and the transportation plan is to haul it down to the railroad and then we can decide if we're going north to Fort Knox or if we go south to [ Steward, ] and we've had interest from overseas to take this to a smelter. That might work out as good or better than taking it up to Fort Knox. So we've got a lot of choices. And that's the thing when you have grade, you have a lot more choices. And the other thing I like about our DSO model is we focus on things that have grade. They're not necessarily the biggest gold mine in the world, but they're going to make our shareholders money. And I think that's the business we want to focus on being in is having mines that actually make money and can get into production quickly. And the DSO model allows us to do that. Romeo Maione: Great. And I also still think we should make rocks in a box T-shirts. I just think that's a fun idea for the future every time you say it. But I want to talk about Johnson Tract really quickly because it represents potentially the highest grade asset in your portfolio based on historical drilling at least. Can you provide us just an update on the permitting process for that underground exploration drift and the transportation infrastructure CIRI. What's up next basically? What are the critical path items that determine where this project is going towards... Rick Van Nieuwenhuyse: Yes. So look, I mean, Johnson Tract, it's a great project. We bought it a little over a year ago with the acquisition of HighGold. We're on the boring part of the Lassonde Curve. This is about permitting. We've been working with the state government on permitting the underground tunnel. So basically sort of being exactly what we got through doing with Lucky Shot, get the underground tunnel in place. We have to permit that first, and those are permits with the state of Alaska. They're basically 2 fundamental permits, a mine operating permit because technically, you're a mine. We're still doing exploration, but technically, it's a mine. And then because you have a mine, you have a potential of water discharge, you need a water discharge permit. So those 2 permits, we expect to receive between -- by Q1 of next year. Assuming that, then we would mobilize next summer, we'd be mobilizing the equipment. to build the road. It's about a 5-kilometer or 3-mile road between the camp and the proposed portal site. There's a couple of bridges to put in place. Again, these are temporary bridges because, again, still exploration. And we use this water called Bailey bridges. They just basically go across the creek and you get your stuff to the other side. We're not -- this is not -- we're not permitted for mining operation at this point for the road. That will come next. And then we want to get the equipment mobilized to start building the tunnel, and we want to winterize camp, so that we can operate year-round. That's about a $20 million program. And again, we're funded to do that. And so that's our plan. You'll -- obviously, as we -- when we receive the permits, we'll be announcing that and as we start mobilizing equipment next summer. A lot of work to do on all that. And then while all that's going on, we're in the process of permitting with the federal government agencies, the transportation road route on the transportation easement and the port site easement, which is for us a barge landing site. We're also in the process in a parallel fashion to permit the road and the barge landing site. So lots of work going on in the background, and we're excited to get the drills turning to do the drilling and blasting to build the tunnel next -- starting next -- probably September is probably what we're pushing for. And getting the camp is a very important step so that we can work around. Romeo Maione: Great. No, I think that's really helpful context for that project. Now I do want to zoom out here a bit before I get to the questions from the audience. I'm going to gas up Contango more than I usually do while we zoom out. But we transitioned the company from an explorer to a cash-generating producer, $107 million in the treasury at this point, minimal debt and 2 development projects advancing. So as you're looking at the next 5 years with the potential to extend into a longer plan, what does success look like? Are you focused on organic growth through Lucky Shot and Johnson Tract? Or does this new financial position allow you to consider consolidation options elsewhere? Rick Van Nieuwenhuyse: Yes. I'd say the way I'd like to express it is I think we have a really solid executable 5-year plan, and we have the money to execute. So that's why I say it's executable. We have the team to do it. We know Alaska, this is our backyard. We know how to get stuff done here. And -- now we're starting to think, okay, well, that's a great 5-year plan. Why don't we put a 5-year plan into a 10-year or 20-year plan. And so -- and to do that growth, we want to be looking at M&A. And so we're taking a look at opportunities. We're not going to stray too far from home. So Alaska, BC, Yukon, that's kind of our backyard. We know how to work there. We've all worked there before. So that's where I would say we're looking, and we've got half a dozen different opportunities that fit the DSO model. They're all going to fit this model. We like this model. This is -- we've demonstrated that it works. And so we see another half a dozen opportunities like Johnson Tract, like Lucky Shot type opportunities to continue to invest in and continue to grow the company beyond the 5 to 7 years out with the existing resources. And don't want to forget -- I mean, we're not going to forget about doing exploration at Johnson Tract and Lucky Shock. There's -- we can have a 5-year plan at Lucky Shot, and we can have a 5-year plan for the next 10, 15 years, just like the Kensington mine has said, they've been operating for 25 years, and they've never had more than 5 years of mine life ahead of them. So just that's how an underground mine works. And so don't -- we will be spending money doing exploration once the mine is up and running. First thing is get the mines up and running. Romeo Maione: Awesome. That's very helpful. I was like seeing what the plan is for the future. And Mike, I'm going to get you in on one. I promised you 6 months ago, one question about hedges maximum per webinar. So here's your one question about hedges. And that's somebody from the chat asks, when do you expect the old hedges to be fulfilled and get to 100% of market price? J. Clark: Yes. So our objective is to get these hedges paid off as early as possible. And so any shipments that are coming out, we're delivering 100% into these kind of carry trades because we're always a quarter ahead. So assuming we can have a 50,000 ounce '26 year of gold, the objective is to try to deliver into those hedges by September -- all of them by September. So they all technically -- the last ones mature in mid-'27, but I think we should be have the cash to kind of support that approach. And so I think we can deliver into these and then be done with them by September, assuming the '26 budget is where we think it will be. Does that answer your question? Romeo Maione: I reconciled. And there, that's it for hedges. You can relax no more hedge for the rest of this webinar. Somebody else from the chat as -- and this, I think, is also for you, Mike. How large is the net operating loss carry forward? J. Clark: Losses, there is -- they're a little more complicated in the states because there's these nonoperating losses that you can only apply 80% of against net income. But we are set up in a way where we can -- any costs incurred as a Lucky Shot can be offset against Manh Choh profit. So no, we don't anticipate being in a -- we're not going to -- we don't anticipate paying taxes this year or next year. I think -- and as we move forward on Johnson Tract, the idea is to offset those costs. So my hope and my goal is that we will never actually have to pay taxes related to Manh Choh. But that will -- if we want to actually achieve that, we're going to have to be continuing to spend on Lucky Shot and JT. But right now, we don't anticipate anything this year, and I'd be surprised if we had to pay next year, but we are starting to dwindle down on our loss positions in the states. So at some point, we will be -- we will be taxable, but that's a good problem to have because it means we're making money. Rick Van Nieuwenhuyse: Paying taxes is -- I mean you're making a lot of money. So I'm good with it. Romeo Maione: It's a champagne problem to some degree, for sure. Looking at the last question that just came in, is there going to be a Q3 earnings presentation as somebody just asked. J. Clark: We updated the presentation on the website. There's not going to be anything else. Rick Van Nieuwenhuyse: You take a look at the website, we just recently updated that with the Q3 results. It might be -- yes, that's -- just take a look at the website, it should be on there. J. Clark: And I think we'll hopefully be able to give guidance in December for '26. And at that point, we'll update it and probably have a call at that point. Rick Van Nieuwenhuyse: As always, if you have questions, you can e-mail us at the generic info@contangoore.com. If you've got our addresses, I'm going to put them out there in public. But if you've got addresses or phone numbers, just give us a call. Romeo Maione: One question from Jan in the chat. And there's 1 or 2 things he probably met with us, but he asked how many ounces were there in Q4 2024. So I'm not sure if you recall total ounces from 2024. J. Clark: Well, I know how many ounces we produced in '24. I think we produced about 42,000 ounces in 6 months. We did 2 batches in the Q4. I don't know the actual number, but I just know over the 2 quarters, it was 42,000 ounces. Rick Van Nieuwenhuyse: And just keep in mind, we started mining almost a year before that because we opened the mine and then we weren't hauling with all the trucks right away. So you're building up a stockpiling, you're starting to haul ore. So we had a fair bit of ore built up for that first half year of production. And what I would describe now in the 60,000 ounces is more of a steady state plan. And so we -- again, next year, 2026 was always going to be a low year because of the stripping going on at the main pit. But we'll have the details on that 2026 mine plan here in a few weeks. So stay tuned for that. Romeo Maione: I know this is meant to be a short event today, so I'll wrap up with one real quick one. And that's Rick, what are you most excited about coming up? What's keeping up with excitement at this point about Contango Ore? Rick Van Nieuwenhuyse: It's great to be drilling underground Lucky Shot again. I mean, look, we think Lucky Shot, again, it's a small -- it's not going to be the biggest mine in the world. We'll never tell anybody it will be, but we think it's going to make a lot of money. The drill is turning. And so stay tuned for the drill results. It's always exciting to see free gold in the quartz chain underground. So yes, as a geologist, this is what it's all about. So stay tuned. Romeo Maione: Awesome. Appreciate it very much. And thanks, everyone. This is a big audience today. You guys don't know how difficult it is to set up stuff at a conference, but Rick and Mike do, and thank you for joining us very much being able to get this done today and answer everybody's questions. I really appreciate your time. And if anybody has any additional questions, make sure to shoot them through. But otherwise, I hope everybody has a great end of the day. Rick Van Nieuwenhuyse: Thanks, Romeo. Romeo Maione: Cheers.
Roger Dent: All right. Well, it's 10:00 so -- hold on I'm just going to mute people here. All right. Well, welcome, everybody. And please welcome to the third quarter Quinsam Conference Call. I'm going to assume that everyone's already looked at the results and probably read the press release. So I'm not going to go into what's already there. Third quarter, basically, we were slightly in the black, which is not terribly dramatic one way or the other. And there wasn't a lot of activity in the quarter. So really, the key update is what's going on here in Q4. We have 2 of our private investments that are both at this stage, looking to list. The largest one, we've carried it under the name Peninsula. It's announced to go public financing with a syndicate of large investment dealers here in Toronto under the name of Renterz. It's a U.S. single-family rental business. It's out there in the market now trying to raise funds at $1.90, our carrying value is quite a bit below that. At this stage, they're in marketing. I understand that it's going sort of okay. We're hopeful that the transaction will complete. There's probably, I'm guessing, some risk in the $1.90 price, but we'll see. That's an important development for Q4. And obviously, we hope that it goes ahead. The other go public that we're looking at here in Q4 is a company called Electro Metals. That is -- it's a relatively traditional Canadian mining story, copper, gold properties. And the market, obviously, for mining is relatively good right now. They are awaiting final approval from the exchange to list. I understand they're down to the short strokes and that they expect to get final listing approval in the next week or 2. And once they have that listing approval, they believe that they have the funds lined up to close and then commence trading. So those are probably the 2 big things in front of us for Q4. Between the 2 of them, there's about $0.02 of NAV that are in play here. So we hopefully will see the amount of liquid investments move from the $0.06 level up to $0.08 and obviously, hopefully beyond that with the expected listing prices of both Electro Metals and Peninsula above where we're carrying them. Unknown Analyst: Excuse me, Roger? Roger Dent: Yes. Unknown Analyst: Quick question. Electro Metals, what are they into? Roger Dent: Well, it's a fairly traditional mining story. This is actually a company that we bought quite a long time ago as a cannabis company. Back in the day, it was called Ancient Strains, and it was run by Daryl Hodges, who used to run Jennings Capital. And he was a mining guy in his -- for most of his life. He's a geologist. He always focused on mining companies. And when the cannabis market turned, he decided to reposition it as a mining play. So he's been working with that for the last 2 or 3 years. He tried to list about 18 months ago, but obviously, mining markets were much less favorable than they are today. And that attempt did not go ahead. He couldn't get the money. But obviously, now we're looking at a much more favorable mining market. Unknown Analyst: What's the -- is it gold or is it... Roger Dent: It's copper, gold. It's sort of... Unknown Analyst: Copper, gold. Roger Dent: It's -- most of the NAV is copper, but it's got a significant gold byproduct. Both of those commodities are quite strong at this stage. And it's a pretty -- it's a very conventional asset. It's Ontario. It's got a resource in place, like it's a pretty conventional story, and it should be able to complete its financing and list. It's just a question of value, I would say. So those are on the private side, the 2 visible situations right in front of us. The other one that is progressing well, I would say is A-Synaptic, which is about $0.02 of NAV. A-Synaptic is developing a CBD treatment for epilepsy, and it's about to start a clinical trial. It's been approved by the FDA and Boston's Children's Hospital is going to do the trial. They also have been working informally on a second indication to use the same treatment for Parkinson's. And they've actually been given a $3 million grant by the Michael Fox Foundation to take it from its sort of informal trial. It's now like basically being given to some patients and has been for about a year outside of a formal trial with very good results. So the Michael J. Fox Foundation is funding it to go into a formal trial for approval for Parkinson's as well. So that -- it's progressing well. We hope to start doing a U.S. go-public process this year. It's not going to happen, I don't think, by year-end, but hopefully, early in the new year, that will begin its march to being public. Otherwise, as far as Q4 is concerned, we have one company, Newlox Gold, which it's under a cease trade at present because its financials are late. And we decided to be conservative to take it to a valuation of 0 in Q3. We definitely do not expect it ultimately to be valued at 0. It was trading around $0.05 or $0.06 before it was halted and it raised money at $0.07 as recently as about 6 weeks ago. So we expect it to be back and trading at those sorts of values in and around the end of the year. But to be conservative, we took that down. So that hopefully is money in the bank for Q4. We also have a few companies that are at this point, even with the sell-off of the last day or 2, above where they were at the end of the quarter, BluMetric, NeoTerrex, Royalties Inc. which won its lawsuit appeal and City View Green, which is now a cryptocurrency play, no longer a cannabis play. So with any luck, Q4 will be a decently profitable quarter. But obviously, there's volatility out there, and we'll have to see what happens over the next 6 weeks or so. And with that, I'll open it up to questions. If anyone's got a question, just take yourself off mute. Unknown Analyst: Question, Roger. Anything coming forward about a transaction? Roger Dent: Transaction. So we've had some very good discussions this quarter with a company that we're quite interested in. It's an American-based company. And because of that, there are some income tax complications for the main shareholders, like they obviously don't want it to be a taxable event, but there are some problems in making it not a taxable event for them. So they are kind of mulling some structural and tax issues. But it is quite promising. It's a company that's in a very interesting business. It makes nice cash flow. The valuation is reasonable. And their funding requirement is quite appropriate for us. It's -- they don't really actually have a funding requirement. They're a cash flow positive business. So really for them, what they find attractive is the ability to raise for them a relatively small amount of money with a small amount of dilution and have a company that would have a very tight float that they would be in a position to influence the share price of. So for us, it's quite interesting because we think we would get a quite decent win coming out of the gate. But this tax issue is something that -- it's got to be solved because if it can't be solved, then they're not going to basically take their whole company value into income tax -- into income and pay tax on it on go public. It's just not viable. Otherwise, I would have to say there's not too much going on. I mean we certainly could go and do a mining transaction, I think, quite easily if we chose to. It's really not what I would want to do. I'd much rather get into an operating business with cash flow or very, very near-term cash flow. Don't really want to go into a mining exploration situation where it's significantly cash flow negative and you're just kind of hoping for geology to work out your way. So that's something that it's certainly fine for an investment or 2. Happy to make those sorts of investments, but not sure I want to bet the whole portfolio on one mining situation. Unknown Analyst: Yes, I would have to agree with that. All right. That's good for me. Roger Dent: Any other questions? There's no further questions. Thanks for attending, and we'll talk to people later. Unknown Analyst: Thanks, Roger. Roger Dent: Bye-bye. Unknown Analyst: Thank you.
Operator: Good afternoon, everyone, and thank you for joining us today for Nagarro SE's Q3 9 Months 2025 Earnings Call. [Operator Instructions] With that, it's my pleasure to hand you over to Michael. Michael Knapp: Great. Thank you, Sami, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q3 2025 earnings release, you can find it as well as a copy of today's presentation in the Investor Relations section at nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter. Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our earnings release. Additionally, please refer to the release for important information regarding non-IFRS measures. And with that, I'm pleased to hand you over to Manas. Manas Fuloria: Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. We are taking a slightly different approach this quarter and hosting just 1 combined call so that we can expand on our prepared remarks a little and still have time to address your questions. We'll start by briefly highlighting our strong Q3 results, but perhaps even more importantly, underscoring the important and sustained actions we have been taking to address investor concerns, improve corporate governance and enhance our financial reporting and transparency. I also want to discuss how we have set the stage to drive better shareholder returns through improved execution and a disciplined capital allocation strategy. The operational changes we have made are already driving measurable improvements in our results, which perhaps have been overshadowed a bit at this time by a subdued demand environment and FX noise, but we believe we are still at the very early stages of showing the benefits from some of these new initiatives and processes that we have put in place, especially on the sales execution side. I'd also like to talk more about the future and in particular, about our vision of Fluidic Intelligence. We would like to explain that to you. We are promising our clients significant productivity improvements by unlocking the intelligence that already exists within their organizations. We are removing barriers for our clients between their people, their data, their decisions, creating low-friction enterprises that adapt faster and execute with clarity. And I'm excited to say that we're already seeing a very positive response from our clients around this promise, this theme of productivity improvements, and we will present an example of this. And finally, we'll be happy to take your questions. Now we are pleased with our execution in Q3, which demonstrates the strength and resilience of our business model despite all the ongoing macroeconomic challenges. Our teams delivered exceptional service to our clients, and we focused intently on operational discipline. During Q3, our revenue growth accelerated and is tracking to the guidance we provided last quarter. This is a testament to the stability of our customer base and the confidence our loyal customers place in us. Importantly, we're also seeing significant outperformance in profitability. Both our gross margin and adjusted EBITDA margin are ahead of expectations, reflecting the positive impact of the efficiency measures that we have implemented. In fact, the adjusted EBITDA margin of over 17% is the highest level we have seen since 2022. This margin expansion positions us well to generate strong earnings and cash flow moving forward. Over the past few quarters, we have prioritized making fundamental structural improvements to the way we operate. To that end, we have taken a number of decisive actions to improve corporate governance, financial reporting and transparency. We're already seeing tangible improvements in our internal process and operations. I'll talk more about this shortly. But these changes are not simply about meeting regulatory requirements. They're about building a world-class company about strengthening the foundation of trust and operational excellence that will support our growth ambitions for years to come. Our success is directly linked to our client success, and we are intensifying our efforts to deliver quantifiable business impact to help them win in their markets. We are actively showing clients how we drive significant measurable improvements to their businesses. We aren't just selling hours. We are pitching outcomes. And importantly, clients are responding. The quality of our relationships is improving, evidenced by the increase in client satisfaction scores and a strong pipeline of new high-value contracts. This focus on value creation ensures that our services remain essential and deeply embedded in our clients' strategic initiatives. Finally, in line with our disciplined approach to capital allocation, we remain committed to enhancing shareholder returns. We are pleased to announce that we are extinguishing approximately 75% of our treasury shares. We're also buying back EUR 20 million worth of stock. We believe there's a clear disconnect between the current share price and the intrinsic value of our share. The current share price even after today's jump does not reflect our strong financial performance, our expanding margins and improving operational structure. We believe the buyback program is one of several tools we are using to deploy capital, while signaling our confidence in the company's long-term outlook. We are confident that as we continue to execute on our strategy, the market will recognize the sustainable value that Nagarro has been building and in fact, has been building for a couple of decades now. Digging a little deeper into the numbers, we are pleased to report that our Q3 revenue growth reached 9.4% year-over-year at constant currency. This solid performance in a subdued demand environment keeps us on track with the revenue guidance we provided earlier. Turning to profitability. Our focus on operational discipline continues to yield impressive results. Our Q3 gross margins came in at 33.1%, which is over 300 basis points better than the guidance that we have provided. This significant outperformance is a direct consequence of our increased focus on margin expansion through targeted initiatives, including the successful implementation of the margin support program that we have earlier talked about. This program has optimized resource allocation, improved utilization rates and driven efficiencies across our organization. Our Q3 adjusted EBITDA margins were over 17%, which is above the high end of our guidance range. These strong margins are a clear highlight of our quarter and underscore our deliberately improved operational efficiency and our ability to translate top line growth into meaningful bottom line results for our shareholders. And all in all, we are maintaining the guidance we provided last time. But when you look at our tracking to our guidance for 2025, please also keep in mind the significant headwind presented all year by foreign exchange rates, especially the conversion between dollars and euro. To put this in perspective, if we were to adjust our revenue for the full 9 months to account for the foreign exchange impacts from the dollar and euro, our revenue would be approximately EUR 719 million, which would have placed us right near the midpoint of the initial 2025 full year guidance that we had issued back in January '23. Further, as you will see on the next slide, if currency exchange rates have not moved, our adjusted EBITDA would also have been at or above the midpoint of the initial 2025 full year guidance we issued in January. This ability to deliver what we promised at the start of the year despite the highly volatile environment, underscores the fundamental strength of Nagarro's business and the fundamental strength of Nagarro's positioning in the market and the fundamental strength of our relationships with our clients. Beyond these financial metrics, our long-term focus on delivering a superior client experience remains the primary driver of our sustained success, our commitment to our intimate partnership, innovation and measurable outcomes for our clients. By deeply understanding their strategic challenges and exceeding their expectations, we ensure that our services remain indispensable and embedded in the long-term digital transformation road maps. We believe the quality of our client relationships is our most valuable long-term asset. We believe that we can double our revenues well within this decade simply by doing more for the 187 clients we already have today that generate more than EUR 1 million in revenue each with us. Operator: We have lost connection to Manas, please bear with me regaining connection. Manas Fuloria: Coming out of this -- let me just talk again on the slide, and I hope, I'm not repeating my words too much. I want to take a few minutes to provide a clearer view of our underlying profitability. We recognize that our reported adjusted EBITDA figures for recent quarters have been significantly impacted by fluctuations in foreign exchange rates, specifically related to noncash impacts on loans between different companies within the Nagarro Group. Here, I want to highlight what our adjusted EBITDA margins might have looked like for the past 3 quarters, if we had corrected for this FX impact on intercompany loans, the resulting adjusted margins would have been materially higher and more representative of our sustained and resilient operational efficiency. We believe that this adjusted view provides a better picture of the fundamental robust earnings power of our business than the numbers that we have reported. This is also tangible evidence that the margin discipline we have been driving throughout the business is taking hold. We have now started to work similarly to elevate our sales execution. We are confident that as we continue to embed these operational improvements, the strength and stability of our business will shine through regardless of market conditions. Now as you know, we have taken a number of actions over the past several quarters to address investor concerns to improve our corporate governance and enhance our financial reporting and transparency. I want to highlight some of these by putting them all on one page. First, KPMG was appointed as Nagarro's external auditor. KPMG approved the 2024 annual financial statements without qualification, hopefully putting to rest many of the allegations that have been made against the company since we have been public. Working with the Tier 1 auditor has also led to enhanced reporting and disclosures, including how we account for purchase price allocation for deals and a combined management report that aligns to the specific broad topics defined by GAS 20. Then we developed new programs to drive a basic level of profitability across our business units and introduced an expanded bonus component for senior people, linking compensation directly to the company's margin performance. And now we are expanding that incentive linked to growth. Then we added 3 new members to the Supervisory Board with outstanding backgrounds as leaders at global companies. Martin Enderle is an experienced Chairman. Jack Clemens is an excellent Chair for the Audit Committee, and that's having an impact. And then Hans-Paul Bürkner has been an excellent mentor, a sparring partner for me in his role as the Chair of the Strategy Committee, and all of this change has been fantastic. Next, we have outlined a commitment to a disciplined capital allocation policy that included share buybacks, dividends and M&A. We have done all of these. We bought back EUR 52 million worth of stock to date. We intend to buy back another EUR 20 million as we announced this morning. We also paid out a EUR 12.6 million dividend and continue to pursue smaller tuck-in acquisitions. We are on track to announce soon a very small, but meaningful acquisition in the Japan, India tech services corridor. So that's that. And then we have some more good news this week, just a couple of days ago, our sustainability commitment was validated by an EcoVadis Gold Star rating, which is up from bronze that we had. This places our sustainability management system in the top 5% of assessed companies. And I would like to congratulate the Nagarro team that worked on this. We continue to uphold our dedication to becoming a more sustainable organization through ambitious science-aligned climate targets following the science-based target initiative. We have run a CFO search process and should have good news for you soon on that front. And finally, Nagarro has been developed from the first day on strong principles of ethics and full regulatory compliance. But in order to ensure that even in the decades to come, we are continuing to maintain the highest standards of integrity, compliance and operational resilience, we are further enhancing our processes and governance frameworks across the organization. Now our customer diversification across industries continues to provide both growth and stability. But in the meantime, there has been an evolution in our thinking given the tighter market conditions that have now persisted for a couple of years. We are going to be a bit more deliberate about targeted growth and more deliberate about where we place our bets. We're going to give a little extra emphasis in terms of sales efforts, where we have the right to win in those verticals and topics where we feel we can go big. While we do this, we continue to explore meaningfully our big secular growth opportunities that we have outlined in past calls in Japan and for Japan Inc. around the world. German Mittelstand in hardware and IoT and now in a fledgling way in the supply chain. We are developing playbooks around many of these topics and are improving our discipline around these. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in Nagarro's evolutionary journey. Just a few words on our geographies. You know that our diversification extends to geographies as well. The U.S. and Germany remain of top importance for us. The Middle East has been a nice addition to growth in the last few years. We fully expect Japan to play this role in the coming years. Michael, with that, do you want to now discuss the balance sheet and cash flows? Michael Knapp: Absolutely, Manas. Thanks. The chart on the left shows our financial position at September 30, 2025. Financial liabilities were EUR 301.2 million and lease liabilities were EUR 70.8 million. Our cash balance remained strong at EUR 129.4 million, implying net liabilities of EUR 242.6 million, which leads to a net leverage ratio of 1.7x. The company's liquidity position at the end of the 9-month period was comfortable with working capital of EUR 223.5 million. In the interim consolidated statement of cash flows for 9 months of 2025, Nagarro has included the unrealized loss on intra-group loans within the Nagarro Group of EUR 15.8 million that was formerly under other noncash income and expenses into net cash flow from operating activities. And this is leading to a positive impact on it and a corresponding decrease in effects of exchange rate changes in cash and cash equivalents. For Q1 and first half 2025, this reclassification has a positive impact on net cash inflow from operating activities with a corresponding negative impact and effects of exchange rate changes on cash and cash equivalents of EUR 7.4 million and EUR 15.9 million, respectively. The numbers for comparable periods in 2024 are not material. Overall, there's no change in cash and cash equivalents and total changes in cash and cash equivalents in the statement of cash flows for Q1 and the first half of 2025. Cash flow for the 9-month period ended September showed a total cash outflow of EUR 49.2 million versus an inflow of EUR 33.1 million for the comparable period last year. Operating cash flow for the current 9-month period increased to EUR 77.1 million versus EUR 64.9 million for the comparable period last year. This was primarily due to other noncash incomes and expenses of EUR 7.2 million. Days of sales outstanding improved from 88 days at year-end 2024 to 85 days at the end of September. Kindly note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 9-month period was an outflow of EUR 8.9 million, and CapEx was EUR 6.1 million. That's less than 1% of 9-month revenue, which reflects our asset-light model. Cash outflow from financing activities for the current 9-month period was EUR 117.4 million, mainly due to purchase of treasury shares amounting to EUR 50.1 million, net repayment of bank loans of EUR 24.3 million, lease payments of EUR 16.6 million, interest payments of EUR 13.8 million and the dividend paid during the period amounting to EUR 12.6 million. Turning to our capital allocation initiatives, which are designed to create shareholder value. We bought back a total of 684,000 shares that amounts to EUR 50.1 million. And we are pleased to announce this morning that we're continuing the buyback program and intend to acquire up to EUR 20 million worth of shares. In addition, we plan to redeem approximately 75% of the roughly 1.1 million treasury shares currently held to enable further share buybacks and adjust capital levels to appropriate levels for the company's business needs. We announced and paid a dividend of EUR 1 per share amounting to EUR 12.6 million or 13.1% of 2024 EBIT. This was declared during our AGM in June, and we expect to sustain our dividend policy of distributing between 10% and 20% of our EBIT annually. Our inorganic growth strategy remains highly disciplined, and it's focused on synergistic tuck-in opportunities rather than large transformative M&A. These smaller strategic acquisitions are crucial for filling specific technological, geographical and client-specific gaps. And we believe this measured approach ensures rapid integration, minimizes operational disruption and provides a clear path to immediately enhance our service portfolio and deepen client value. And with that, I'll hand it back to Manas. Manas Fuloria: Thank you, Michael. Now we spent the first half of this call talking about all the good work we have done in the recent past. I would like to shift gears and look towards the future a bit. We believe that in the next few years, every company in every industry will have to find significant double-digit productivity gains. Competition around this will heat up. A company without a clear path to realizing these productivity gains with AI will be lost. It will be a bit like a consumer company without a website in the '90s or 2000s or today, a consumer company without a social media presence. So this productivity movement is a big transformation ahead of us that will cut across each and every industry. Now as you know, Nagarro has been a big proponent of agile, and we have helped a large number of our corporate clients make the move to agile. In the next years, we're going to help them make the move to what we call Fluidic Intelligence. Let me spend a few minutes explaining what we see as Fluidic Intelligence. When we say Fluidic Intelligence at Nagarro, we are describing a fundamental shift in how individuals, technology and enterprises will operate in the age of AI. It's a deep rethinking of how human judgment and machine capability will come together to create step change outcomes. So let's start with individuals and take the example just of engineering and software engineering. So there's a big revolution ongoing in the software front, as you know, where engineers are no longer just writing code. They're orchestrating entire systems alongside AI assistants and agents. They're debugging complex distributed systems faster. They're exploring architectural options that they may not have considered otherwise and shipping micro services in days instead of weeks. But the real shift is that the nature of work has changed. The engineer is now the decision maker, the strategic decision maker setting direction, applying judgment, teaching the AI what good looks like in that project's context. And the result is a seamless and fluid collaboration between the human engineering nutrition and the AI capability. And we believe that this is the way the future will work and all individuals and teams that are not working this way will be simply too slow to compete. And this is what we call Fluidic Intelligence at the individual or small teams level. But if you look then beyond this at technology inside large enterprises, most organizations sit on 10, 20, 50 years of operational knowledge. Much of it is scrapped in systems that only some experts understand or it's in the head of -- heads of managers or experts or buried in some spreadsheets or logs. And when an issue takes place, whether it's a quality issue, supply chain issue or whatever, the disruption just has to trigger teams spending days piecing together this tribal knowledge from here and there to diagnose what's going on. With Fluidic Intelligence, AI can surface the right insight at exactly the right moment by understanding every bit of adjustment, anomaly, recovery pattern that's stored across the enterprise historically. So the real unlock isn't just data, it's the accessible contextualized decision-making knowledge. And this is the technological dimension of Fluidic Intelligence. And it goes beyond technology to the enterprise itself. Most organizations are like cities that grew organically. They are built with a certain old context in mind, the departments that don't talk to each other, they work in silos. They have independent objectives, independent incentives, independent budgets, workflows create friction and information moves slowly. And even a simple change to a simple topic may take weeks or months and may require many changes to many systems. And in this friction-free future enterprise that we see powered by Fluidic Intelligence, that same scenario is intelligently orchestrated end-to-end in minutes or hours, pulling context on the right systems, checking constraints, routing decisions to the right humans, automating everything else. So Fluidic Intelligence for us in some is at one level, human AI collaboration, at one level, the knowledge fluidity across different technology platforms. And the third is like the friction free flow at the enterprise across departments. And we think it's the architecture of how the next generation of intelligent organizations will operate. Now given Nagarro's own context of not only being an agile software engineering company, but trying to build an agile company, given our deep engineering expertise, given our history of engaging with clients on the agile transformations and other complex and challenging cultural topics, I think this is work we are uniquely positioned to deliver. Now in a minute, I'll show an example of what Fluidic Intelligence looks like in practice because it's the best way to understand it is to actually see an example. But first, a few words on how we are going to deliver it using special intellectual property that we have developed. What we are doing is we have, in the past several months, centralized our IT investments that used to exist in the BU silos. We have consolidated them all these AI accelerators and platforms into a portfolio that we call the Fluidic Forge. At a high level, it includes 4 streams of activity broadly. The first is the operational intelligence to run the business where work actually happens. This is a front line with orders and fulfillment and exceptions and incidents, and you want to bring predictability to the messiest part of operations, which is this. The second is more around decision planning intelligence. This is where strategy and map come together to improve the business. The third is around the technology integration and orchestration across the ERP, CRM, order management, warehouse management, finance, HR and whether it's legacy mainframes or the latest data platforms by using agents that work across systems and inside every workflow. And the final pillar is the modernization of the mission-critical core of data across legacy mainframes as well as data platforms. So this vision is about what an organization needs to do to move to this new world. It's not about small pilots in some corner, but rather about transforming the enterprise end-to-end. And we feel that Nagarro is just the right size. We are big enough and embedded enough at our clients to take on such transformational work, but we are also technical enough and agile enough to work on every little piece that needs to come together for this transformation at our clients. Now let's take a real-world example of how this transformation is achieved. And this example is the example of Dublin Airport and of modernizing Dublin Airports operations. And I believe most of us would be frequent travelers, frequent air travelers, so we will be able to relate to this example. Dublin Airport is Ireland's national Gateway and the 12th largest airport in Europe. It handles over 30 million passengers annually. It operates in a highly dynamic system with thousands of different processes with interdependent, airside logistics coordination, retail management, security, ground transportation and so on. And every decision impacts passenger experience, safety and operational agility. Now despite its evidence and the scale of the airport, it has faced frequent disruptions and challenges in decision-making. Data critical decision-making is scattered across silo systems, baggage handling, for example, passenger information, for example, gate management, air traffic control, ground operations and many more. And this fragmentation resulted in delayed awareness, reactive operations and inefficiencies. And a lot of the operational intelligence of the airport was not in the systems, but facet knowledge held by experienced staff insights that were not captured or shared across teams. And to manage this complexity as the airport plan to scale, it needed to evolve into a Fluidic system, where data decisions and intelligence flow seamlessly across teams and technologies. So this is what Nagarro did. We came in, mapped the airport as a single connected system. We revealed the fragmentation across these different operational and decision-making layers. We identified these critical knowledge assets and key friction points that were limiting the agility and cross-functional decision-making such as challenges with operational command visibility and unified control into flight operations, passenger operations, the limited ability to anticipate passenger flows or peak loads or queue congestion and not being able to drive retail and other non-aeronautical revenue and leaving money on the table and not being able to optimize the utilization of pavement and assets stands, taxiways, runway users and so on. And we use the Fluidic Forge AI accelerator that I just talked about to address these friction points, creating this sort of connected intelligence and predictive control and optimization with measurable business outcomes. Now I won't go into the details, but the airport has now much more data streaming, real-time event-driven dashboards, AI models for flow prediction, for congestion alerts. And these are integrating all kinds of data, like weather data or airline schedules or how people are coming through security and so on. There's agent-based modeling for dynamic workforce planning. There's a digital twin of airfield operations, there's AI maintenance schedulers and so on. So -- and the outcomes are, of course, how -- everything is optimized, how airlines use the airport, how the revenue and yield from retail locations is optimized, efficiency and ground handling, better experiences for passengers. And if you think about it, it's also going to drive better regulatory compliance and also agility to respond to things that may happen in the environment, which all comes from this unified data fabric with intelligence sitting on top of it. And this collaboration with Dublin Airport is not a one-off thing. It continues as the airport expands its AI native capabilities from passenger flow forecasting and retail intelligence and so on to sustainability analytics and other new frontiers setting this global benchmark for frictionless airports of the future. So in this example, we talk about how we brought Fluidic Intelligence to this airport, to Dublin Airport. But from the vantage point of where Nagarro sits, we have like hundreds of such clients. We have this opportunity to deliver similar results on data and AI to many great clients across various industries. And as you know, we are privileged to work with some of the world's most recognized and forward-thinking companies, companies that are not just leading their industries today, but actually reimagining what the future will look like across how we live, how we move, how we work, how we bank, how we connect and so on. And these are loyal clients. These are not just one-off partnerships. These are loyal clients who work with us year after year. They include, for example, 3 of the top luxury car manufacturers, 3 of the top 5 global leaders in industrial automation, 5 of the leading global retailers, 2 of the top 3 global hotel groups, 2 of the leading global cities. And then there are these niches like half -- almost half the top banks in the Middle East. 3 of the top 4 management consulting companies and so on. I could just go on and on, right? So there's a huge base of loyal clients where we can bring these capabilities to them. And with these clients, we will work towards the future, we work towards inventing what comes next. And with that sort of like a little bit of framing of where we sit and to speak into how we see Nagarro evolving into the future, maybe we transition to the Q&A. Maybe the operator can switch to Q&A. Operator: Our first audio question comes from Nicolas David from ODDO BHF. Nicolas David: I have a few questions. The first one is regarding the overrun environment. Manas you said that the demand is still soft. But I understand that this comment is more on a 9-month basis because, I mean, you showed a pretty good Q3, both on a year-on-year basis, but also on a quarter-on-quarter trend. So did you see, nevertheless, an improvement in the trend recently? And how do you see Q4? Do you see further improvement? Or are you worried about potential big furlough by the end of the year? So my first question would be around the overall environment. And regarding that, also, could you comment please on the pricing environment. Some of your competitors have been mentioning further pricing pressure be it linked or not to the AI evolution? And my last question is regarding the profitability. So if we take the midrange of your annual guidance, it implies a 14% EBITDA margin. Excluding the write-off of your intercompany loan, it would be like 15.8%. Is this profitable level sustainable for the next years? Or do you need some investment? Or is that something that could push downwards the margin for the next year? Manas Fuloria: Thank you, Nicolas, for these questions, and I'll take them one by one. I think that the demand environment is still soft, but I think the degree of clarity and confidence that now exists about where AI is going to take us, has not been there for a long time. So it's difficult to predict how the quarters will look, but I think the 3-year, 5-year horizon is really bullish now, I would even say bullish because the transformation is here. I think we had this period when the technology had been introduced. There were lots of questions about whether it would be capable enough to bring about changes, how it would impact the IT services sector and so on. I think these questions are by and large, behind us. I think there is a fair amount of tangibility into how the future will look. Q4 is a quarter with fewer working days typically. So there is some of that. And again, I would not want to predict quarters, but I think that in general, the outlook is bullish. In terms of pricing pressure, I think there's pricing pressure in large multiyear deals because there's some doubt about where the productivity improvements will take us. But I think that in general, Nagarro's business is still majority T&M business, and we don't see that much pricing pressure there as maybe in multiyear managed services deals. Finally, in terms of profitability, I think a couple of years ago, we had said that we believe that when we spun off the company, we said that 15% adjusted EBITDA was our target. And a few years later, we said 18% is where we want to gradually get to, I think that's where our target is. I think that we will need to make some more investments, but we also see still a lot of opportunities to rationalize our costs and to pool our resources and make more targeted bets. So I think that we will -- we do expect profitability to keep improving in the years to come. Nicolas David: And if I may, regarding the outlook, you mentioned more the AI visibility driving the demand. It's you really believe that it's really technology and AI, which has been driving up and down. It's even more than the macro itself? Or macro has still an important role to play. And if so, what is your view regarding the macro? Is it really unchanged there or slightly better? Manas Fuloria: That's a great question, Nicolas. I think that there have been periods in this -- in the last few years, where the macro has played a role but in general, I think technology is seen as a must invest, when it becomes critical to competition. And I think we are entering a phase where it will become a must invest when it comes to productivity improvements. That's why I'm very bullish about this. I don't think that companies will pare back their budgets only to spend more money in terms of reduced productivity. So I think the technology changes will prompt the macro. That's my personal reading. Operator: Our next question comes from Fabio Holsch from M.M. Warburg. Fabio Holscher: Starting with maybe can you confirm that the sequential margin improvement now in Q3 was mainly driven by FX in the other operating results compared to Q1 and Q2? And then how we should think about FX revaluation risk going forward? That's my first question. And then second question, can you comment on what drove the decision to redeem the 75% of treasury shares now? And how aggressive you plan to be with the EUR 20 million buyback? Manas Fuloria: Sure. So the margin improvement is -- I mean, it's a secular trend. The underlying margin improvement with the reported adjusted EBITDA margin because we don't correct for this revaluation of intracompany loans, it has shown a weakness in the first 2 quarters, but with the adjustment, you can see that there's a secular trend of being over 15% and now in a 17% range. So I think that the revaluation risk remains because if the dollar drops dramatically to -- against the euro, then the adjusted EBITDA margin that we declare will be affected. On the other hand, if it rises, it will be affected. But I think we're also going to be talking to our auditor about potentially restating our adjusted EBITDA to account for this intracompany loan topic because we think it's not -- we think it's distracting and doesn't fully reflect the operations of the business. So that's that. I think in general, the margin improvement is not predicated on FX. It's actually the underlying effect is really about all the operational efficiency that we're working towards. On the redeeming the 75%, we keep looking at our balance sheet from time to time and monitoring it and seeing what's best. And at the moment, we have I mean, currently, we have decided to redeem 75%. And the share buyback, I think we have certain regulatory, I think how much we can buy on any single day, but we will be trying to buy this EUR 20 million as soon as possible. Fabio Holscher: Okay, perfect. And if I may squeeze in 1 more. Can you elaborate on your growth plans and Fluidic Intelligence, how that is concentrated in the specific verticals or geographies, which ones you maybe prioritize? Manas Fuloria: So we are actually in the middle of a strategic review, and we will have more clarity by the beginning of next year. But in general, we -- if you look back over the last years, we have seen that the U.S. and Germany continue to be our largest market. And we see excitement across the Middle East and Japan. So I think these are the markets where we have the real focus. And outside that, in terms of verticals, we are doing very well in industrial, and we're doing well in retail and CPG, life sciences. So there are a few verticals that we can easily see that are bucking the trend and then there are some verticals which are really big for us and really important, like banking, for example, or automotive, to some extent, even if they are not doing very, very well at this particular moment. So I think that in general, we are -- we have already started to shift away from some of the verticals that we used to report like horizontal tech. I think from -- for the last 5 years, we've been kind of shifting away from that. But there may be a few others that we decide at least not to invest too much in. It's not that we shut down accounts or anything like that. I think it's just that we don't want to be -- we want to be playing in a tight market where we have a very good chance of winning. And that's the philosophy going forward. So the company has been a very entrepreneurially driven company, but we also have the ability, I believe, to be strong and to take decisive decisions centrally to steer it in certain directions, and that's kind of what we have been kind of playing out in the last few months. Operator: [Operator Instructions] And I'd now like to hand over to Michael for text questions. Michael Knapp: Great. Thanks, Sami. So first question, Manas. Congratulations on strong quarterly results and clarity of the presentation, wanted to ask about the recent significant reduction in equity through the cancellation of treasury shares. Can you elaborate on the strategic objective behind this move? And how we should interpret it in the context of your future capital allocation policy? Manas Fuloria: Well, I think it's just -- thanks, Michael. I think it's just an assessment of the levels of capital needed to run the company, and that's the reason for the exhibition of the shares. And our capital allocation policy continues along the lines of what we have described before, we will take a good look at it as the new CFO in place and come out with a fresh update. But at the moment, this is our -- we are on track with our -- we're in line with the current capital allocation policy. I don't see this as a departure. Michael Knapp: Great. Thanks, Manas. The next question is in 2 parts. First is can you please elaborate on your strong expense control, noting that your SG&A declined by EUR 12 million sequentially. And then secondly, can you explain what changes were made to the stock compensation and incentive plan, which was called out as EUR 11.5 million in your quarterly report. Were those related in any way or discrete items? Manas Fuloria: So on the first, I think the main change that we have made is to try to push towards a certain minimum margin in every business unit. And what this has led to has been streamlining of the spend that we have in practices, which are mainly sales and presales oriented. I think that when we spun off in 2020, our target was that we were aim for 15% EBITDA and really invest in practices and capabilities to drive a global footprint across different industries. Because that was the nature of the situation, we found ourselves beautifully placed to ride the wave of digital transformation, and we felt that we should take full advantage of that wave to build out as many footprints as possible across different industries and different verticals, different offerings. And what this is, is a little bit more of a rationalization. It's also a realization and recognition that the AI revolution is going to be a lot more common to different industries. So it's better to invest in a central way than in all these different practices across the BU. So that's the main theme. On the stock compensation and incentive side, my guess is that's coming from just revaluation based on stock options, et cetera, but I'm not totally sure maybe we can reconnect separately and go over that line item. Michael Knapp: Great. Next question is a 3-parter. Do you have any visibility on returning to double-digit growth in 2026? And then what free cash flow conversion target do you have for the coming quarters? And do you have an estimated net debt level by year-end? Manas Fuloria: Sure. So we don't like to predict the short-term future. It's always more difficult and volatile -- but I think that double-digit growth in the medium term is absolutely where we need to be at. And we don't know, when it will come, but the company is just gearing up to ensure that no matter what the market conditions, we are able to deliver that. And that's the first part. It involves a lot of different changes that we are making to the way we run our business units, but also the way we run our different geographies and the way we run key accounts and the playbooks we use and how sales is organized. But that's definitely something in our future. In terms of FCF, we are not -- we don't talk to set targets because the faster you grow, the more your cash flow suffers. So we are really focused more on growth and margins rather than FCF. And in terms of net debt level, we have obviously an outer bound that we have always declared of 3x adjusted EBITDA, but typically, we like to steer at the 2x EBITDA level to keep that as a -- and maybe go up a little bit beyond that. But 3x is the outer bound. We don't expect the net debt level to change. I mean, let me not give a prediction for the year-end, but that's a general approach to stay around the 2x mark. Or rather, actually also a question of how much cash you want to keep. And typically, we're trying to keep between EUR 100 million to EUR 125 million of cash across our different offices. So that's kind of where we kind of end up with the net debt. Michael Knapp: Great. Thanks for that, Manas. Next question would be you're seeing big tax implications that the dividend payment had this year? Are you exploring ways to improve this? Manas Fuloria: Yes, we have been obsolete transferring cash that was at different parts of the organization upstream towards the [ SE ] and there have been some tax implications of that. And yes, we are definitely working on how to reduce those and normalize those in the years to come. Michael Knapp: Okay. The next question is the current narrative for the sector seems to be that AI could disrupt the IT sector, implying clients are focusing most on their budgets, most of their budgets on hyperscalers, meaning that could be less for companies like Nagarro. Could you please share your view on this? Manas Fuloria: No, I don't think that's the right way to think about it personally. I think that if you want to use more compute and do more things with technology, you need to know what you are doing, right? So the challenge is not in -- it's not just a question of harnessing more chips. But as each one of us knows enterprises are horribly complex. And the example of Dublin Airport totally is one example that we all can relate to, but I think we see similar frictions in every experience that we have, whether it's on a hospital chain or insurance or banking or there are all these different frictions that we have or in cities and governments and so on. And I think the opportunity to actually drive change with AI and with what we call Fluidic Intelligence, is going to be dependent a lot on the people who get it done, who have done this many other companies, and they can bring it to you and they can tell you how it's done, what works, what doesn't work, and that can actually design it in a way that doesn't lock you in as a customer, that keeps you flexible to jump on the next wave of innovation that happens. So I don't at all believe that IT services is -- or the IT services sector is going to be depressed. I think it has good room to grow. There's, of course, intermediate adjustments that we have been seeing in the last couple of years. But I don't think that this -- I'm very excited about the medium-term outlook for the sector. Michael Knapp: Okay. The next question is, should we expect the head count to keep on rising in the following quarters? Manas Fuloria: We try to -- again, I'm always very wary of giving predictions. I think we do -- personally, I would say, I guess, head count will keep rising gradually. But it's a lot more about what we do with people than the number of people that are deployed. So there is a big change to retrain, to improve the productivity, the people we already have and then to choose a different kind of person when you are hiring. So for example, in India, our fresher hiring, which we hire the most people fresh from colleges has now moved to the AI business unit so that the people that we are hiring are all AI native. And we see that there is a whole new level of capabilities that people like that can bring. So I think it's a reorientation of how people are added to a company, but I don't think it's an end of people growth. We do expect the growth to be a bit more conservative in the next few quarters, but maybe picking up after that. Michael Knapp: Perfect. Thanks for that. The next question is what impact will the potential higher act in America have on your business? Manas Fuloria: At the moment, we don't expect any significant impact, but we keep waiting and watching. We don't expect any significant impact. Michael Knapp: Okay. And the next question is how much growth is expected to come as a percent of revenues from joint ventures in Japan? And when will we start to see them contributing to revenue? Manas Fuloria: That's an interesting question. So whether it's joint ventures or partnerships, I think we are going to have like double-digit millions next year. And hopefully triple-digit millions by -- in a 2 years, right? So we have a very strong pipeline. It's -- as you know, the Japan is a complicated environment to work in because there are cultural nuances, there are language topics. And that's why the acquisition that I just mentioned briefly is important because it allows us to work with -- work globally with the language trained workforce, for example. So I think we're putting the pieces in place, and we have the pipeline, and we expect it to take off in the next year or 2, but I must say that at this moment, we probably have already a 3-digit number of leads and opportunity for separate projects that we are looking at. Michael Knapp: Great. And the final question is around conversations with your clients for 2026 digital transformation spending, how are those evolving so far? I know it's still early and companies are finalizing their 2026 budgets. But according to conversations so far, they are still conservative? Or do they look more optimistic about ramping up projects next year? Manas Fuloria: I think that in general, it is better than it's unit for the last few years. But I won't say that spring is here and summer can't be far behind. I think that it is definitely a stronger base than we are projecting out than we have had in any of the last few year ends, but let's wait and see. I don't want to be -- go out on the limb and forecast a recovery, but it does look better than it has been in the last years. Michael Knapp: Great. Well, thanks for your feedback on those points, Manas. I want to thank everyone for joining us today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon. Manas Fuloria: Thank you very much. Operator: Thank you, everyone. This now concludes Nagarro's Q3 2025 earnings call. You may now disconnect your lines.
Operator: Greetings, and welcome to Hyperion DeFi's Q3 '25 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Jason Assad. Thank you, Jason. You may begin. Jason Assad: Good afternoon, and welcome to Hyperion DeFi's 2025 Third Quarter Earnings Call. Joining me today are Interim CEO, Hyunsu Jung; and CFO, David Knox. Before we get started, please note that our remarks today may include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. During this call, we may use words like anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions, which indicate forward-looking statements. For a more comprehensive discussion of these and other risks, please refer to our filings with the SEC available on sec.gov and in the Investor Relations section of our website at hyperiondefi.com. We'll also reference certain non-GAAP financial measures today. Please refer to our earnings release and earnings supplement on our website for a full reconciliation of these non-GAAP measures to the most comparable GAAP measures. We will start this morning's call with prepared remarks from Hyunsu and David, followed by Q&A. [Operator Instructions] I'll now turn the call over to our Interim CEO, Hyunsu Jung. Hyunsu Jung: Thank you, operator, and good afternoon, everyone. Welcome to Hyperion DeFi's Third Quarter 2025 Earnings Call. Our first full quarterly earnings call since completing our strategic transformation from a biotech company to the first U.S. publicly listed digital asset treasury company focused on the Hyperliquid ecosystem. Now before I dive into our Q3 achievements, I want to acknowledge that this has been an extraordinary year for Hyperion DeFi. We successfully executed what I believe is one of the most significant corporate transformations in recent public market history, pivoting from Eyenovia's ophthalmic technology focus to establishing ourselves as a premier institutional gateway to DeFi innovation. Today, Hyperion DeFi stands as the first U.S. public company building a strategic HYPE token treasury. We're not simply holding digital assets. We're actively participating in the sustainable growth and governance of what we believe will become the backbone of next-generation financial services, the Hyperliquid blockchain. Our thesis is straightforward. Traditional finance is undergoing its most significant transformation since the advent of electronic trading. Hyperliquid represents the convergence of institutional-grade performance with decentralized innovation, offering up to 100,000 transactions per second with sub-second finality, all fully on chain. As institutions increasingly recognize the utility of blockchain adoption, we believe Hyperliquid's infrastructure advantages position it to capture significant market share in not only the extensive derivatives market, but also as part of its larger role as a sustainable layer 1 blockchain ecosystem. Let me briefly outline why our conviction on Hyperliquid is so strong and why we decided to establish a digital asset treasury focused on HYPE, its native token. All information is as of October 31, 2025, and based on external resources. Hyperliquid is the #1 revenue-generating blockchain and #11 cryptocurrency by market cap, both figures excluding stablecoins. Hyperliquid generates annualized revenue of approximately $1.3 billion based on an October 2025 observed run rate of $3.5 million per day. Additionally, platforms built on Hyperliquid earn approximately $2 million in fees per day, bringing the total fees to approximately $5 million per day across the blockchain and platforms. Approximately 99% of Hyperliquid revenues are used by the Hyperliquid assistance fund, which has cumulatively purchased and owned 34.25 million HYPE tokens with a market value of approximately $1.45 billion. There have been over 800,000 cumulative Hyperliquid marketplace users since inception. Hyperliquid's token maximum supply is $1 billion, of which circulating supply is approximately $337 million and corresponds to a market capitalization of approximately $14.3 billion. Daily trading volume on Hyperliquid exceeds $12 billion, cumulative Hyperliquid fees have exceeded $700 million since inception and cumulative cryptocurrency perpetuals trading volume on Hyperliquid has exceeded $3 trillion since inception. With that in mind, what sets Hyperion DeFi apart from other digital asset treasury companies is our comprehensive ecosystem engagement strategy. While companies like MicroStrategy pioneered the corporate Bitcoin treasury model and others have followed with various token strategies, our approach with Hyperliquid goes far beyond simple accumulation. The market opportunity we're addressing continues to expand rapidly. Upcoming network upgrades, such as the recently announced HIP3 are expected to create new opportunities for users ranging from retail to institutions to participate in the ecosystem. For example, the requirement for 500,000 HYPE stake to launch new perpetual futures market has generated and is expected to continue to generate natural demand for large long-term token positions, which is exactly what we've worked to build through our strategic accumulation. Our competitive positioning is unique. As the first and largest public company focused on HYPE, we believe we have advantages in capital access, regulatory compliance and institutional credibility that will be difficult for competitors to replicate. We also continue to develop what we expect to be long-term relationships with various participants in this space, ranging from protocols to major market makers and execution counterparties. One of our most significant Q3 achievements was launching our first HYPE Asset Use Service agreement with proprietary trading firm, Credo Payment. This innovative structure allows institutional clients to utilize our stake HYPE position to reduce their transaction costs on Hyperliquid while both parties share the resulting fee savings. This model demonstrates how our treasury position can create unique revenue opportunities that extend far beyond simple token appreciation. We're essentially monetizing our stake in the network infrastructure while maintaining full ownership of our underlying assets, a business model that we believe has no equivalent in traditional finance. Our vision extends beyond generating robust revenues on our treasury assets. We're actively supporting the build-out of institutional infrastructure to bridge traditional finance and decentralized finance. The appointment of David Knox as our Chief Financial Officer exemplifies the strategy. David previously served as both Head of Capital Markets and Head of Finance for Global Credit and Financial Services at PayPal. He brings deep experience in scaling institutional financial product, and we believe his expertise in structured products and capital markets positions us to develop sophisticated financial services built on Hyperliquid's infrastructure. It may be difficult to recognize now, but Hyperion DeFi is in the early phases of building out a unique strategy that we anticipate will benefit from a flywheel effect that circulates both on and off chain. We're not waiting for others to start this flywheel. We're accelerating it day by day alongside other ecosystem builders, developing institutional-grade products and services that leverage Hyperliquid's unique blockchain technology while meeting the regulatory and operational standards that traditional institutions require. Our financial strategy is designed to create long-term shareholder value through multiple pathways. First, direct exposure to HYPE token appreciation as we expect the Hyperliquid ecosystem to continue to grow and capture market share in decentralized derivatives. Second, we anticipate recurring revenue from our growing portfolio of DeFi services, including validation, asset use services and future product offerings. Third, the potential for strategic partnerships or acquisition opportunities as we expect traditional financial institutions to seek exposure to DeFi infrastructure. And fourth, optionality around our legacy assets, including the potential for UFD monetization through strategic partnerships. I want to provide a quick rundown of our 6 business activities in Q3. Number one, staking rewards. This starts with our Kinetiq x Hyperion Validator. The company stakes its HYPE to its Validator and earns HYPE rewards. Number two, Validator commissions. The company operates its Validator under a Joint Validator Operators Agreement together with Kinetiq and Pier Two, earns commissions on rewards delivered to third-party tokens delegated to the Validator. Number three, yield enhancement. The company pursues accretive strategies to enhance yield earned on its tokens. In Q3 '25, this included the launch of the company's HiHYPE or Hyperion Institutional HYPE liquid staking token, gains on covered call option strategies included in the realized and unrealized gains on digital assets income statement line items and certain liquid staking activities. Number four, DeFi monetization. The company supports and monetizes DeFi activity on the Hyperliquid blockchain with practices we believe to be sustainable and scalable. In Q3 '25, this included the launch of the company's proprietary HYPE Asset Use or HAUS platform, which allows its clients to unlock unique utility on Hyperliquid while generating fee income for Hyperion DeFi. We expect to be able to generate new revenue streams on top of staking, something that simply isn't possible with traditional treasury assets. The company announced its first HAUS transaction with Credo in September 2025, which enables Credo to receive the benefit of lower trading fees on the Hyperliquid decentralized exchange with Hyperion DeFi receiving a portion of those savings as income while continuing to earn staking rewards. The company's second HAUS transaction was announced with Felix in October 2025, enabling Felix's launch of new financial markets on the Hyperliquid blockchain with Hyperion DeFi receiving a portion of fees generated from their markets, again, while continuing to earn staking rewards. We have initiated a partnership with native markets to support their qualification of USDH, the Hyperliquid native stablecoin under the network's Aligned Quota framework. We expect the partnership to go live in the fourth quarter and to hold some USDH on our balance sheet. Number five, ecosystem rewards. Through our active participation in the Hyperliquid DeFi ecosystem, we believe the company positions itself for the receipt of future potential token air drops, protocol incentives and other rewards that may become available periodically. In Q3 '25, the company's Validator received over 3 million tokens delegated from the Hyperliquid Foundation. We also anticipate an ecosystem rewards opportunity near term with Kinetiq. Kinetiq is the largest institutional liquid staking protocol on Hyperliquid with over $1 billion in total value locked. As a reminder, through our co-branded Validator partnership with Kinetiq, Hyperion DeFi directly contributes to network security while generating staking yields on both our HYPE as well as HYPE delegated from other network participants toward our Validator. With them, we have created our own liquid staking token used to participate in offchain strategies and in Hyperion DeFi. We have Kinetiq points, and we anticipate being eligible for their token generation event. We expect additional clarity on this topic in Q4. And number six, Life Sciences. Hyperion DeFi continues to develop its proprietary Optejet User Filled Device. As we enter the fourth quarter, we're focused on several key strategic initiatives, expanding our HYPE asset use service offerings, deploying assets into additional DeFi products on HyperEVM and continuing to strengthen our position in supporting HIP3-enabled market launches, which we expect will require significant long-term HYPE stakes. We believe the fundamentals supporting our strategy continue to strengthen. Hyperliquid holds a position as a leading decentralized perpetuals exchange with over 60% market share as of October 31. Daily average revenues continue to exceed $3 million, supporting the buyback mechanism that has sequestered over 30 million HYPE tokens. Our treasury position has grown to over 1.7 million HYPE tokens as of the end of Q3, positioning us to participate in the network's anticipated continued expansion. We believe this is just the beginning of our transformation in the same way that this is still the beginning for Hyperliquid. We're building what we believe is the new category of financial services company, one that combines public market accessibility with cutting-edge DeFi innovation. We hope that you all are as excited as I am for what's to come. With that, I'll turn the call over to David to walk through our third quarter financial results in detail. David Knox: Thank you, Hyunsu, and good afternoon, everyone. I'm pleased to join Hyperion DeFi as Chief Financial Officer and participate in my first earnings call with the company. My appointment became effective on September 29, so I've been able to observe our Q3 results from both an external and internal perspective. Having spent my career scaling financial services businesses at institutions like PayPal, SoFi and Cantor Fitzgerald, I believe Hyperion DeFi represents a unique opportunity to participate in the institutional adoption of blockchain technology. The company's strategic positioning and asset base are expected to provide multiple pathways for value creation that simply do not exist in traditional financial services. This was a very positive quarter for us. Let me hit the highlights. We achieved income from operations of $4.4 million and GAAP net income of $6.6 million, both of which are record highs for the company. This results in net income per common share on a basic and diluted basis of $0.26 and $0.05, respectively. We started the quarter with $45.5 million invested in HYPE tokens. We purchased another $20.0 million worth of HYPE, and we recognized GAAP accretion of $7.1 million this quarter. Separate from our treasury gains, our revenues from digital assets businesses, which we just launched in the quarter and are only beginning to scale exceeded $300,000. We also achieved $8.0 million of adjusted EBITDA, which removes some large nonrecurring tailwinds to the quarter, such as debt extinguishment, plus reverses some GAAP nuances on our liquid staking tokens, which otherwise would have resulted in additional mark-to-market gains in the quarter. I'm going to go through in detail our newly established key operating and financial results table, which is included on the first page of our earnings release and the third page of our earnings supplement, both of which can be found on our website. These are metrics that we think matter most to our business. Given the very recent initiation of our digital assets treasury strategy, we do not express any of these non-GAAP measures for periods prior to Q3 '25 as we don't think those comparisons would be useful for investors or for us as management. At the end of the quarter, about half of our digital asset treasury was in HYPE tokens and the other half was in HiHYPE, that's HiHYPE, which is our company's liquid staking token. To keep things simple, in this call, I'm going to refer to our HiHYPE as LST our liquid staking token. Liquid staking means that we can earn staking yields on our LSTs while also deploying them into certain parts of the Hyperliquid DeFi ecosystem and also into some off-chain strategies. For example, in the third quarter, we used some of our LSTs as collateral when we entered into covered call strategies on the price of HYPE, which netted us some profits in Q3. As mentioned by Hyunsu earlier, LSTs also help us in optimizing our positioning for certain potential ecosystem rewards, including the upcoming Kinetiq airdrop. For the avoidance of doubt, we are also able to deploy our HYPE tokens into certain DFA activities, including our HAUS agreement with Credo announced in September and our HAUS agreement with Felix announced in October. The point is we have chosen to own both HYPE and our LSTs for different business purposes, and it's important to understand how the accounting treatment is different between the 2 and how we adjust for those differences in our non-GAAP measures. So when you look at the first row of this table, HYPE digital assets, that is a GAAP measurement of our HYPE tokens in isolation and does not include our LSTs. HYPE tokens are held at fair market value, which was $38.0 million at the end of Q3 on 840,000 tokens and a HYPE price of $45.19. HYPE tokens are remarked each quarter for any mark-to-market changes. In contrast, our LSTs are considered digital intangible assets and are carried at the lower of cost basis and impaired value. To put it simply, we cannot mark up our LSTs. However, sometimes we are required to mark them down from a GAAP perspective. This means that from time to time, our balance sheet carrying value on LSTs could be lower than the market value if we had converted all our LSTs back to HYPE. And in addition, while we accrue HYPE tokens as staking rewards against our LSTs, the balance sheet and income impact of those rewards are not recognized in period from a GAAP perspective until the LSTs are converted back to HYPE. We estimate that the combination of these two factors, both the unrealized market value accretion on our LSTs plus our unrealized staking rewards on our LSTs would have added $4.9 million to our balance sheet and net income if we had elected to convert all our LSTs back to HYPE at the end of the third quarter. Therefore, in the second row of this table, we show our first non-GAAP measure gross HYPE Holdings of $77.8 million, which is the estimated market value of our combined HYPE and LSTs, inclusive of the $4.9 million LST pro forma REIT conversion. And this corresponds to 1.7 million tokens shown in the next row and a HYPE price of $45.19 at the end of the quarter. Next, we show the number of tokens delegated to our Validator as of September 30, which was 8.2 million HYPE tokens. This information is publicly available real time on the Hyperliquid blockchain and website interfaces when you look for the Kinetiq x Hyperion Validator. Therefore, we are also showing this figure as of October 31, which was 13.2 million tokens, representing 60% month-over-month growth versus September. While we expect the total number of tokens delegated to our Validator to increase over the long term, there are multiple forces that could impact this number, and we expect the figure to be volatile going forward. Net asset value, another non-GAAP metric, is meant to cover our estimated liquid digital assets less net debt totaling $74.5 million at the end of the quarter. It is calculated as our HYPE digital assets as adjusted to gross HYPE Holdings plus all current assets minus all current liabilities minus notional outstanding debt. Said another way, in the third quarter, our net asset value was $3.2 million lower than our gross HYPE Holdings as a function of outstanding net debt. Moving on to the next section in the table. We generated $303,000 of revenue in the third quarter completely from the digital asset strategy and none from our life sciences segment. This consisted of staking rewards, Validator commissions and our first HAUS agreement with Credo. Our revenue this quarter was substantially higher than the less than $2,000 of revenue realized in the third quarter of 2024. In order to provide a more consistent view of our staking activities in period and our non-GAAP measure adjusted revenue, we take GAAP revenue and add in the unrealized staking rewards on our LSTs, which gives us the next figure in this table of $361,000 of adjusted revenue in Q3. Our Q3 GAAP income from operations of $4.4 million, a record high for the company, includes $7.1 million total GAAP accretion in our digital assets treasury, including yield enhancement from our covered calls in Q3. In terms of our operating costs, research and development expenses decreased 89% year-over-year from $3.5 million in Q3 '24 to $374,000 in Q3 '25. And selling, general and administrative expenses declined 30% from $3.7 million in Q3 '24 to $2.6 million in Q3 '25. Keep in mind, our company has been through an extraordinary corporate transition over the past year. One year ago, in November 2024, the company provided an update that the Phase III CHAPERONE study on our proprietary drug device combination was not meeting its primary 3-year efficacy endpoint. The company then proceeded to execute significant cuts, which drove the operating cost savings that I just described. Today, we are continuing to pressure test every single expense line item, but we are also continuing to invest in having the right people, systems and processes to ensure that our digital assets treasury and DeFi business lines are both sustainable and scalable. As we continue scaling and diversifying our DeFi operations, we are implementing comprehensive risk management frameworks appropriate for our expanded activities. This includes enhanced treasury policies, operational controls and regulatory compliance procedures. Our Board composition and governance structure have been strengthened to provide appropriate oversight of our DeFi strategy. We are committed to maintaining the transparency and accountability that public market investors expect while operating at the forefront of financial innovation. Back to R&D. We continue to make progress in our development and testing of our next-generation Optejet User Filled Device, and we continue to be on track to have an active registration and listing with the FDA in the coming months. We previously announced that we expect operating costs to further decline once we achieve that milestone. We are also continuing to evaluate various strategic alternatives with regard to the future commercialization of the Optejet. The next row in this table is $6.6 million of net income in the third quarter. This was another record high for the company and compares to a net loss of $7.9 million in Q3 2024. In Q3 '25, other income was boosted by $2.4 million due to reductions in life sciences liabilities, which we do not expect to be recurring. In the third quarter, we had a $795,000 dividend payment to preferred shareholders, resulting in net income attributable to participating securities at $5.8 million. Before we get into per share metrics, let me remind everyone of our capital transition over the last 6 months. In June 2025, we received a $50 million PIPE investment involving the issuance of preferred shares and warrants, and we used the net proceeds primarily to establish our HYPE digital assets treasury. There are important conversion restrictions and other investor considerations related to the PIPE investment, which are more fully described in our SEC filings. However, if warrant holders choose to exercise their warrants for shares of common stock of the company, we would anticipate using a substantial portion of the related net proceeds to buy more HYPE tokens and generate more revenue and income. With all that being said, based on 6.0 million basic weighted average common shares outstanding and 29.0 million diluted weighted average common shares outstanding, net income per common share in the third quarter on a basic and diluted basis was $0.26 and $0.05, respectively. For the last row on this table, we are showing the non-GAAP measure adjusted EBITDA of $8.0 million in the third quarter. There are some important reconciliations from net income, so let's go point by point. Stock-based compensation is removed from our adjusted EBITDA. In Q3, stock-based compensation was negative $1.3 million, meaning it was a tailwind to Q3 net income. This was unusual. It happened primarily because of the timing of certain stock-based awards in connection with recent changes in the company's leadership. Next, we removed $223,000 interest expense in the quarter. Then we removed the $2.4 million of nonrecurring Q3 gains from reductions in life sciences liabilities. These were extinguishments or reductions in liabilities which we held on our balance sheet as of Q2. We also back out a few other nonrecurring items totaling $56,000 of GAAP gains, including gains on sales of life sciences equipment. Finally, we add the same $4.9 million LST pro forma reconversion that I mentioned earlier. From an operational perspective, we aim to optimize our HYPE versus LST holdings for long-term shareholder value and not for near-term income recognition implications. Within income from operations, total accretion on our digital assets was $7.1 million in Q3. But if we had converted all our LSTs back, we believe this figure would have instead been $12.0 million. Over time, we expect this line item on LST reconversion within adjusted EBITDA to cumulatively net to 0. If, for example, all LSTs are reconverted in Q4 '25, we would anticipate a positive $4.9 million tailwind to Q4 net income and would expect an offsetting negative $4.9 million in our Q4 adjusted EBITDA on this line item. That closes out my discussion on the key operating and financial results table. I am now going to briefly touch on cash flows, liquidity and guidance. Net cash used in operating activities decreased from $24.0 million for the 9 months ended September 30, 2024, to $10.7 million for the 9 months ended September 30, 2025. And in the past 3 months, net cash used in operating activities was less than $3 million. Owing to our successful corporate and financial transition over the past year in management's view, the company now has a very solid liquidity profile. At the end of the quarter, we had $8.2 million of cash and cash equivalents. Our outstanding loan owed to Avenue Capital is carried on the balance sheet at $7.7 million, which is net of $599,000 of unamortized debt discount, meaning the notional balance owed is $8.3 million. This loan is in an interest-only period at 8% fixed rate per annum until principal payments begin in 2027. And in addition, only half of the interest is payable in cash and the other half is payable in kind, increasing the balance of the loan, meaning the cash interest expense on this loan effectively at 4% per annum is expected to be less than $90,000 in the fourth quarter of 2025. On the preferred shares, we have a quarterly fixed dividend of $795,000. And while we recently elected to pay this in cash, we also have the option to pay in common shares instead. Our operations and cash flows are more fully described in our filings, but summing up a few items I just mentioned. About $3 million operating cash outflows, plus about $90,000 cash interest plus $795,000 in dividends, which don't need to be paid in cash, equates to approximately $3 million to $4 million combined at Q3 run rate versus $8.2 million of cash and cash equivalents at the end of the quarter. And in Q3, we raised $21.8 million net of expenses via our at-the-market equity offering program or ATM, which we believe demonstrates our ongoing ability to raise funds needed. Quickly highlighting investing and financing cash flows. Net cash used in investing activities increased from $161,000 for the 9 months ended September 30, 2024, to $65.6 million for the 9 months ended September 30, 2025, primarily to purchase HYPE Tokens. In June, we purchased $45.5 million worth of HYPE funded by our PIPE investments. In the third quarter, we raised $21.8 million net proceeds from our ATM and purchased an additional $20.0 million worth of HYPE. Since the end of the third quarter, we have continued raising funds via our ATM, and we have kept buying more HYPE tokens, including during mid-October following the broad market sell-off. We plan to continue to operate with a balanced approach regarding our fundraising and our HYPE purchases, and we'll continue to weigh all relevant financial and liquidity factors, including our opportunities to deploy any HYPE that we purchase. Looking ahead to Q4 2025, we expect continued growth in our DeFi-related revenues. Our pipeline of potential HYPE asset use service clients is robust with several institutional clients expressing interest in similar arrangements to our Credo and Felix partnerships. Staking and Validator revenues are expected to continue to increase as the Hyperliquid network expands and our staked and delegated positions grow. Our Kinetiq x Hyperion Validator currently sits among the top 10 Validators by stake with 13.2 million HYPE delegated as of October 31. On top of our option strategies, we are also exploring additional yield generation opportunities through HyperEVM DeFi protocols, though these remain in early stages. This is now the first time in the company's history that we are initiating financial guidance. As we consider our metrics that matter, while we have a strong point of view that HYPE is the most compelling digital asset and that buying HYPE may produce outsized returns to investors over time, we don't consider it useful to provide near-term price predictions. Instead, given the growth we are anticipating across all our business lines, we are pleased to give guidance focused on our operations. We anticipate Q4 '25 adjusted revenues between $475,000 and $515,000, representing a 31% to 43% quarter-over-quarter increase versus Q3. We expect our adjusted revenue growth rate to continue to accelerate into 2026. We are already off to a great start in Q4 with 2 new DeFi monetization partnerships already announced, plus 60% month-over-month growth on tokens delegated to our Validator from September to October. The other guidance we are providing is that we anticipate our operating cash flow to turn positive in 2026, meaning we aim to achieve a run rate where we don't need to raise funds, draw down on our cash or sell HYPE tokens in order to fund ongoing company operations. We are highly convicted on the opportunity ahead of us. And while 2025 has already been a remarkable year of firsts for the company, we believe that achieving operating cash flow positivity in 2026 will be one of the most important inflection points for our company. We are already engaging in 5 unique digital assets business strategies less than 6 months after establishing our digital assets treasury, and we expect all of them to achieve scale in 2026. As a reminder, these are staking yields, validated commissions, yield enhancement, DeFi monetization and ecosystem rewards. We believe our flywheel effect to compound our HYPE Holdings is simply unparalleled. With that, I'll turn it back over to Jason, and we look forward to answering your questions. Jason Assad: Thank you very much, David. [Operator Instructions] Here's our first question. How did the crypto liquidation event on October 10 impact your business? Hyunsu Jung: Yes. While October 10 was a very unfortunate event that created substantial economic losses for many market participants, it really demonstrated the resilience of on-chain smart contract platforms. So Hyperliquid's centralized exchange suffered 0 downtime or outages and the applications on HyperEVM, including lending and borrowing, worked perfectly without incurring any bad debt, which was not the case for other exchanges. More specific to Hyperion DeFi, none of our business operations were affected given that we have not taken on any leverage positions with our HYPE assets. As we mentioned before, our focus is on deploying natively staked HYPE to secondary yield-generating mechanisms such as HIP3. And we also saw more importantly, that even after this flush out of risk, trading volumes and associated fees quickly returned to Hyperliquid, which demonstrates market that there is demand for participants to continue to position their strategies on decentralized exchanges. Jason Assad: Thank you. What do you think of recent regulatory developments and their impact on DeFi and your business? Hyunsu Jung: Yes, great question. So we are currently in an extremely dynamic regulatory environment that is broadly favorable due to the current administration. And we would expect to continue to see clarity around how crypto and DeFi will interact with existing financial infrastructure. The passing of the GENIUS Act, for example, encourages continued innovation in stablecoins under a more clear regulatory framework, which serves as a tailwind for the development of Hyperliquid native stablecoins like USDH. David, it would be great, too, if you want to add your thoughts here. David Knox: Absolutely, and thanks, Hyunsu. We place ourselves on the cutting edge of financial innovation. And because of that, we believe that we have a duty and an obligation to operate responsibly. This means choosing to operate in ways where we believe we can navigate various regulatory outcomes, and we welcome any additional clarity with regards to cryptocurrency, digital assets and DeFi regulation. Jason Assad: Thank you, David. This investor asks, are you considering an additional capital raise? Hyunsu Jung: Great question. So after raising $50 million for our PIPE back in June, we moved very quickly to purchase HYPE and establish the foundations of our business, which, again, as a reminder, is our Validator and the development of the proprietary HAUS platforms and other additional initiatives to engage with and support Hyperliquid. Now these efforts support the growth of the ecosystem, and our focus is not simply buying and holding the assets, but to build and scale real businesses on chain. So we've established that foundation and the focus would be to continue to accumulate HYPE and refining what we've built. I'll hand it off to David here just with regard to capital markets activity. David Knox: Sure. Thanks, Hyunsu. We believe that HYPE is the most compelling digital asset and that over time, we are going to purchase more. As we think through how we might contemplate an additional raise and additional fundraisings, we're going to consider important financial factors like liquidity, like market conditions and like how we think we can deploy our HYPE tokens most effectively throughout our various business strategies. As mentioned previously, we did raise $21.8 million via our ATM in the third quarter, with which we bought back another $20.0 million of HYPE tokens and use cash for other purposes. And we have continued raising funds via our ATM in the fourth quarter. Jason Assad: Thank you, David. This one is on Aster and Lighter. They're asking, do you see it as a credible threat to Hyperliquid? Hyunsu Jung: So there have been on-chain perpetuals markets before, like GMX and dYdX, and we expect that others may continue to come in the future. In our opinion, none of them are like Hyperliquid. So holistically, it is true that when a new entrant like Aster or Lighter join a market that is seeing a lot of attention, users may be interested in trying the shiny new thing. Competition is healthy because it encourages everyone to refine their product and be better, and it also helps the pie grow bigger, in this case, on-chain derivatives. But beyond this, Hyperliquid has done so many things differently. It's entirely self-funded with no VC capital. It's distributed over 30% of its token supply to early users. It remains credibly neutral. It's even refunded user funds when network issues have emerged. And more importantly, its rate of innovation is unmatched. It seems that those that are coming into the perpetual debt space now are playing a little bit of catch-up, whereas with Hyperliquid, with products like HIP3, which enable the permissionless launch of non-crypto assets and also aligned quota assets, it creates new demand things for HYPE and expands the universe of participants to Hyperliquid, and that's where we, at Hyperion see the opportunity. Jason Assad: Great. Thank you. Robert asked, is mNAV a useful metric to you? Hyunsu Jung: So we believe mNAV was an appropriate metric during the first generation of digital asset treasuries when there wasn't a proper way to measure the value of the company besides the value of the assets in the balance sheet versus its market cap. We see this kind of changing now with new strategies from the, call it, the second generation of digital asset treasuries with strategies like staking, restaking derivatives. None of them, however, are able to do so far what Hyperion has done within the Hyperliquid ecosystem with real revenue-generating businesses built on top of our treasury asset HYPE. So not to reiterate the point too much, but the HYPE Asset Use Service products are ways of not only just earning the native staking yield, but compounding those returns through mechanisms that also support the growth of new products, expanding the user base to Hyperliquid and also onboarding and scaling financial activities. And so we see a world where companies like ours are actually measured by a combination of both the asset value and future cash flows. Jason Assad: Great. Thank you, Hyunsu. This one is regarding how do we -- what measures do we take to secure our tokens? Hyunsu Jung: So self-custody infrastructure using infrastructure provided by Anchorage Digital Bank. There is also ways to utilize the native multi-sig offered on Hyperliquid to build secondary level protections on top of our existing HSM and MPC infrastructure. And it's our job to continue to diligence other service providers, infrastructure providers to ensure that we are always up to date and using the best mechanisms possible to protect the HYPE assets on behalf of the company and our shareholders. Jason Assad: How would we differentiate ourselves from other [ debts ]? Hyunsu Jung: The simple answer is that we do not just buy and hold our treasury assets. It seems that staking to the network and contributing to security should just be baseline. Now Hyperion runs our own top 10 Validator with over 13 million HYPE stake to it, which does become real revenues for Hyperion. But more so than that, we have so many mechanisms to use that stake HYPE and redeploy it into the ecosystem. And these strategies not just compound yield and generate sources of revenue, but they also help create the flywheel effect that brings more users and activity to Hyperliquid. And as we mentioned before, with the Hyperliquid assistance fund, we have a precedent where the more fees and revenues that are generated within the ecosystem, 99% of them are going back to purchase back HYPE. And so we think this is a really powerful mechanism, and it's our role with Hyperion to continue to innovate financial products that enable this to continue. Jason Assad: Thank you. This one is regarding the Kinetiq airdrop. Is that baked into our forecast? Hyunsu Jung: David, do you want to speak to this one? David Knox: Absolutely, and thank you for the question. So here is what we know. We have Kinetiq points. We believe we will be eligible for the token generation of airdrop. We do not know what the financial implications will be, nor do we have a reasonable basis to take a view on if it's going to be material or not material. But there's 2 important points that I want to make here. The first is we have not adversely positioned our balance sheet or our operations to try and take advantage of this opportunity. Our joint Validator agreement between us and Kinetiq and Pier Two is a top 10 Validator on the Hyperliquid blockchain with north of 13 million tokens as of the end of October, which is 60% month-over-month growth. In addition, the activities that we do with Kinetiq include our liquid staking HiHYPE token, which provides real utility to us in terms of being able to stake our HYPE, deploy into HyperEVM and use in off-chain situations like when we used HiHYPE as collateral for our Q3 covered call option strategy, which netted some profits in Q3. So this is why in our earnings supplement, we present these various business activities as compounding on top of each other, staking yields plus Validator commissions plus yield enhancement plus DeFi monetization plus ecosystem rewards. Because we really do believe that this all adds up together. And the second point that we want to make here, we don't know when or if there's going to be other opportunities like this, but we've only been doing this less than 6 months, and there's already been 2. The first was when the Hyperliquid Foundation delegated to our Validator 3 million tokens in the third quarter. And the second now with this Kinetiq rewards, for us, this shows that our flywheel effect is really beginning to work. We are building these businesses on the Hyperliquid blockchain, which both promote and monetize Hyperliquid's use. And now the ecosystem is rewarding us back. So this gives us even more conviction in our core thesis that HYPE is the most compelling digital asset, that the Hyperliquid blockchain is ripe for innovation and monetization. And we're very, very pleased to be simultaneously supporting and sharing in the upside of this growing ecosystem. Jason Assad: Thank you. Jonathan, one of our legacy shareholders asked, why have we not sold the Optejet? Hyunsu Jung: Thanks for the question. Yes, with regard to the Optejet, we're taking a rational approach to that side of the business. It has commercialization potential. We maintain both patents and IP developed over the years. We are still completing R&D and testing to reach a position of commercial viability. So we've had a number of conversations with people in the industry, and we're taking it one step at a time. David, feel free to add some color here. David Knox: Thanks, Hyunsu, and that's right. All of our knowledge and conversations support our thesis that the best financial outcome for the company is to continue towards that next milestone of having an active registration and listing with the FDA. And in the fourth quarter, we've continued to do some testing towards that milestone. But we will continue to have a rational approach and evaluate options available to us. Jason Assad: Thank you. I think we have time for one last question. They're asking, are you going to hire more people? Hyunsu Jung: So Hyperion DeFi's mandate is to continue to accumulate and generate revenue on what we believe to be the most compelling digital asset type, so that our shareholders can benefit from this comprehensive exposure to decentralized finance. Now to accomplish that, we must continue to operate responsibly and minimize cost on the operating side. So currently, we do remain fully supported across key business functions, and we want to remain very lean as we continue to move forward. Now the beauty of blockchain-based businesses is that similar to SaaS or other Web 2 products is that once they are properly designed, they are almost infinitely scalable. Hyperion DeFi has long-term ambitions far beyond simply operating in DeFi actually. Our goal is to become the bridge between institutional finance and on-chain financial primatives. And that's going to take time, and it's going to require a team of really some of the best-in-class people across industries, which obviously we've already started to build. And so a very long-winded way of saying it's definitely in the road map, but we want to focus on our core business first, which is ensuring that we develop a robust revenue-generating business lines within this DeFi space built on Hyperliquid. Jason Assad: Thank you. So this concludes the question-and-answer session. If you have additional questions that we didn't get to, please feel free to send them to ir@hyperiondefi.com. And we, of course, will be happy to get back with you. At this time, I'd like to now turn the call back over to Interim CEO, Hyunsu Jung, for his closing remarks. Hyunsu Jung: All right. Thank you, Jason. As we conclude today's call, I want to emphasize the significance of what we've accomplished and what lies ahead. Q3 2025 was our first full quarter operating as Hyperion DeFi, and we believe the results demonstrate the viability of our strategic transformation. We believe our performance shows that a public company can successfully participate in DeFi ecosystems while maintaining institutional-grade governance and creating shareholder value. We believe our achievements this quarter were expanding our HYPE treasury to launching innovative revenue-generating services to appointing world-class financial leadership position us for accelerated growth in Q4 and beyond. We view the broader macro environment for institutional DeFi adoption as continuing to improve. In our view, regulatory clarity is increasing, institutional infrastructure is maturing and the performance advantages of platforms like Hyperliquid are becoming more recognizable. We believe Hyperion DeFi is positioned at the center of this transformation. Looking ahead, our priorities remain focused on 3 key areas: continuing to build our strategic HYPE position, expanding our portfolio of DeFi services and developing the institutional infrastructure necessary to bring traditional finance onto blockchain platforms. We're so grateful for the support of our shareholders throughout this transformation and excited about the opportunities ahead. Hyperion DeFi is building for the future of institutional finance, and we are just getting started. Operator: Thank you, ladies and gentlemen. And with that, this does conclude today's teleconference. We thank you for your participation, and enjoy the rest of your evening.
Operator: Welcome to the NIBE Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Eric Lindquist; and CFO, Hans Backman. Please go ahead. Gerteric Lindquist: Thank you very much. Good morning, everyone out there. Hans Backman: Good morning from me as well. Gerteric Lindquist: And just a few things when it comes to the order we are going to introduce, of course, ourselves and some figures afterwards, we have the Q&A sessions, and we will be pleased if there would only be 2 questions per individual and also try to end this Q&A session around 12 because we have other commitments shortly afternoon there. So with that said, once again, welcome to this conference call. And I think that the headline is that we are very proud to be able to present these figures as we are today. We've said several times that the organization that we represent, Hans and I, is very, very strong, very, very proud to have the ability and possibility to lead this organization. So that's the headline. Of course, it's a gradual recovery that we -- as you go through for the group. And of course, when comparing the situation in the world today, compare what it was when we started [Audio Gap] environment like that. And also the increased strength of the Swedish crown from many perspective, is very nice, of course. But when you compare figures, it's a little bit shadowing the real organic growth, which we, therefore, have explained very explicitly when separating it from the currency effects. And we gave a very bold promise from the very beginning of the year that we're going to be back at the intervals of the historic levels for each respective business area. And we are, of course, very proud that as far as we've come, and we are very transparent with where we are as we are with the targets. And of course, those disturbances that I just described, of course, they are causing some hindrances, but we are trying our best to give you some kind of a guidance where we possibly could land at the end of the year. You've seen them. We don't have to dwell so much about it. It's very pleasing, of course, that there is growth there well beyond the 1.2, like 4.6% organic growth. And what's also very pleasing is that we see that the gross margin is going up and the operating margin is moving in the right direction. And of course, moving into the quarter as such, the third quarter, then we see that the gross margin to be improving and the operating margin is now up to 11.3%, which is, of course, what we like when the margin that corresponds well to where we like to be. And if we just continue a little bit about the graphs that we typically look at, I mean we see now that the income is gradually coming back, and that's even more described perhaps in the next graph, where we see the curve is going in the right direction. And when we look at, again, it's an improvement quarter after quarter. And of course, it's a recovery all over, you can say, but in smaller portions, of course, where it's Germany and Sweden and Netherlands, particularly on the residential side, the U.S. remaining stable and also Italy, very much on the commercial side, which is very pleasing to see. We also see that there is a more traditional seasonal pattern, particularly with Stoves and with Climate Solutions. And it is also pleasing to note that all the efforts that we've done during the year despite the action program that we took, R&D remained at the same level and also the sales forces, and that is paying off now, of course. You can't look at things shortsighted. You have to be very determined long term to be successful. And here, we, of course, have now come up to the third quarter when it comes to the margin that is just in the right, can I say, level and the right span. And of course, we are giving a little bit of an indication here on this slide saying that, well, within margin of error, we should be close to the 13%. And that's, of course, again, a very bold statement, but you've been following us. We've been giving you very clearly the intervals. And now with 6 weeks remaining, it's very important we are into a quarter that is typically decent when it comes to invoicing and order intake. So we -- the best thing we can state is exactly what you read there, and that's also stated in the report. We are very cautious not to do anything or mention anything or do any saying here that wouldn't correspond to the report as such. So Hans, of course, is going to dwell a little more on the quarter as such on Climate Solutions. It's a good growth organically, and we've seen that, of course, and the margin here so far just south of 12%, whereas the quarter is coming in above the 13%. So it's a balancing act, a very delicate balancing act for the rest of the year. And coming into Elements, they, of course, at when the whole industry of heat pumps went down all over Europe, and of course, being a main supplier there of components, they also took a dive. They're a little bit behind [Audio Gap] but we also see now that, that is coming along. And electrification in general, of course, and also the rail segment, which is very pleasing to see. Industrial segment is more a reflection of somewhat cautious or subdued market, particularly in Europe. As a comparison, we can say that in general, Europe seems to be a little bit more cautious or subdued compared to the U.S. or the North American market. And if we just look at the same sort of forecast again if we dare to say or what we could offer as far as margin predictions, we say, well, it's going to be some close to the 8%, of course, but we also give a little bit of a buffer for ourselves depending on how the last weeks will look like. And particularly on the Element side, being a supplier or sub-supplier, we know that although the order intake could be good, but for obvious reasons, no customer wants to sit on too large inventories. It's always delicate to do the forecasting for the Element side. But looking at the figures there again, good growth. Operating margin is back at 6.8%. And when we look at the quarter as such, as Hans is going to come back to that. It's again, of course, on the higher level, up to 7.4% for the quarter. Quickly into Stoves. And there, of course, we noticed that had already indicated in the second quarter that, that would be difficult to arrive at the old or the interval of that we have been -- where we've been or where we used to be. So there, we need a few more quarters. And I think that is what we think that is more referred to -- be referred to the overall cautiousness, particularly in the European market. In North America, it's -- the markets are fairly buoyant, but there, we have difficulties with the manufacturing of stoves that's taking place in Canada and then being shipped into the U.S. So there, we take a hit when it comes to the margins. And there, we very consequently say that they're going to take us a few more quarters to come back to the span that we typically talk about between 10% and 13%. And there we see, of course, it's a thin margin and the quarter as such, that is around 3%. So it's not getting any worse. If we were bold enough, we could say that we've seen the bottom of also the stove market with the figures that we've seen during quarter 3 with a margin of 8%, which, of course, is not satisfying, but still is slightly higher than the previous quarter '24. And just a few concepts in here. I mean, Climate, it's a typical graph really on the pie chart here with climate being like 2/3 roughly and then Element and then Stoves. And on the distribution side, profitability, then we see that, of course, Climate Solutions coming out quite dominating here. And then geographically, not that much has happened. North America remains slightly above 30%. The Nordics, slightly below 20% and then Europe, of course, around the 45%. So no dramatic changes really there. So I think with those quick comments, I hand over to Hans, but I have a lot of eager people out there that would like to put questions to us. All right? Hans Backman: All right. Thank you, Eric. Yes, I'll try to be quick, but not rushing it, but to allow for questions, of course. Before we jump into Climate Solutions here, I would just like to mention from the main report, speaking for the tax rate. Some of you might have seen that the tax rate in the quarter is above 30%. And that is not a new normal as we see it. It's rather a matter of timing differences now, very much related to the introduction of the so-called Big Beautiful Bill in the U.S. where the rules and regulations around capitalization of R&D expenses has changed, and that has led to a couple of one-off effects, but that doesn't change anything in the long run really. That's the major reason for that tax rate going up. If we then move into Climate Solutions, I mean, Climate Solutions definitely shows a very robust performance in what still is a challenging world in a way. It's a very strong comeback from the challenges we faced last year and the profitability level at the time. We've been able now to grow sales with some 7% organically, but then, of course, current [Audio Gap] but due to increased sales and also our cost efficiency programs that we have undertaken, profit has improved by close to 50%, coming up from the SEK 1.5 billion to more than SEK 2.3 billion, landing in this operating margin at 11.9%, mentioned. And on a 12-month rolling basis, we are up to roughly that level, 11.8%. In the quarter, sales grew by some 8% and gross margin improved even further, coming up to 35.4%, up from 32.5%. So that's a good achievement as well coming from the volume that we get. And profit grew by another close to 29% or almost 30%, more than 29%, landing in the operating margin there at 14%. So it's a very robust performance and a robust and strong comeback from last year, showing our ability to adapt the cost levels when market conditions change and also to reap the benefits of a good volume that comes in. In terms of split of sales per geography, there is virtually no change at all from last year. It's very stable with Europe, Mainland Europe being 50%, our home turf here up in the Nordics being slightly north of 22% and North America with a solid quarter of total sales. NIBE Element has also shown a very robust in a challenging world. And here, we are really exposed, as you know, to many segments in many parts of the world. Organic growth here was above 6%. But then again, the Swedish currency took away a large portion of that, landing it in then at 2.9%. Gross margin took a jump up here from 19.8% to 21.1%. So that's a nice improvement. And then the profitability itself coming up with more than 30%, landing in on the 6.8%, which leads then to a 12-month rolling that is around that level as well. In Q3, sales actually grew even more organically, that is close to 9%, but again, with a headwind from the Swedish currency. Gross margin continued to improve and profitability again, and we came very close to at least the lower range in the interval for our historical profitability ranges there at 7.5% and a nice step in the right direction. Neither here have we seen any large changes in terms of split of sales per geography. So that's basically how it looked last year with North America being a very strong portion of that business. I would say when it comes to Stoves that despite these very challenging market conditions that they have experienced, first, an overconsumption, you can say, during the COVID period when everyone renovated their homes and then when Putin invaded Ukraine, leading to a lot of people wanting a freestanding and alone off the grid type of heating system. And after that, a period with low energy prices, higher interest rates, low new build. Despite all of those challenges, the business area has defended its position quite well. Despite, I mean, an organic decline there of 8% and more than 11% when you include currency, they have been able to generate a profit here and continue to spend time and money on interesting products and market activities for the future. Here, the -- yes, performance for the last past 12 months is just above 4% and far from where we're used to being, but not that we see that there is any in coming back to a stronger performance as soon as the market returns. And I think we see that a little bit in Q3. Here, sales dropped organically by 1.6%, so much less than before. With currency again, it's obviously a drop there, which is much larger than that. But despite this drop then of 7%, we were able to defend the operating profit from last year. So it remained on the same level, generating a margin there of 3%, which shows the ability also here to take out costs and of course, keeping a portion of them on board or a good portion to be able to meet an expected better demand going forward. In this area, we see a small shift or a clear shift in a way in the distribution of sales in the sense that North America has increased up to 37% from 32% of last year. That's the major change. And that shows that North America has actually, from a sales point of view, been quite decent. What then has hampered the picture for us is, of course, that we have our manufacturing in Canada, and this is where the tariffs have hit us from a profitability point of view. Moving then into the balance sheet. There are no major changes here. We have a fairly stable balance sheet. We've been able to amortize both on intangible and or depreciate rather -- intangible and intangible assets. The investment level has come down a little as well, which we will see on a slide later. On the liability side, you can see that both the interest-bearing -- long-term interest-bearing liabilities and the current interest-bearing liabilities, both have come down, which we also will see the effect of when we look at the net debt figure soon. The performance then and what we have on stock, so to speak, has an effect on the cash flow. We have had a good cash flow from the operating activities of slightly more than SEK 2.9 billion, up from just below SEK 1.8 billion for the corresponding period of last year. Then you see a change in working capital, which is negative with SEK 1 billion. That is solely related to an increase in receivables. It's the exact same situation we actually had -- inventories have been reduced and accounts payables have contributed in a positive way. So it's a result of us invoicing more, and we've not changed any payment terms really. So this should come eventually. And on the next line, you see that the investment in the current operations has decreased by some SEK 500 million, then leading to an operating cash flow, which is plus SEK 420 million rather than minus SEK 450 million of last year. And then we've had some amortization of loans and things affecting the change in liquid assets -- the currency change, we cannot do much about. A few comments here on the key financial figures. The -- we have a fairly decent amount of cash on hand, the unappropriated liquid assets. The number there is actually correct. I mean, the SEK 5,119, which was the exact same. But if you look into the report on Page 13, I think it is, you see that the composition is different. But it's a good portion of cash there. And then interest-bearing liabilities have come down and the net debt is now [Audio Gap] which is very pleasing to see. We typically amortize our loans and liabilities effectively after acquisitions. And what took a little longer this time was, of course, the acquisition of Climate for Life, one of the largest acquisitions we've made and then a market that took a very strong downturn after that. But we're definitely heading there in the right direction. And the equity assets ratio is solid as well, being above 45%. Just a quick comment there on the working capital. If we look upon it, excluding cash, it's also been improved from last year with more than a percentage unit. We are still targeting 20% as an intermediate target. So we still have some work to do imminently moving in the right direction. And moving in the right direction are also these key figures, although they are, of course, not where we want them to be yet, but they are heading there. Return on capital employed, now 9%, up from [indiscernible] return on equity also above 9% there, up from just below 7% and a profit per share that has increased just like equity per share. So things are slowly but surely moving in the right direction. And as always, we don't comment upon the share price, especially not today, I think I think. By that, I'm done. So, if you want to add something before we open up. Gerteric Lindquist: No, I think we open up now. And as we say, about 2 questions per individual and then we take it from there. All right. Operator: [Operator Instructions] The next question comes from Uma Samlin from Bank of America. Uma Samlin: Two for me, please. So first question is on the Nordic market. I was wondering if you could give us a bit more color on the lower growth in the Nordic this quarter. It seems like it's minus 1.5%. So what is the main drivers there? What are the trajectories do you expect in Q4? Gerteric Lindquist: Okay. So we should [Audio Gap] in general or you're referring to Climate Solutions now or you're talking about the whole NIBE group? Uma Samlin: Yes, the whole group is the one that you have reported. Gerteric Lindquist: Yes. Okay. That's fine. Well, I think that, of course, the contraction is substantial, as we said, in the Nordic when it comes to Stoves. That's very obvious. And also, we noticed that the industry as such is not that strong in the Nordic region when it comes to the heating element. And I think what's keeping it up at a decent pace is still the Climate Solution. So I think the consumer -- so cautiousness when it comes to Stoves, that's certainly an observation. Also that the industry in general is not that strong in performance, which is heating element where heat pumps are keeping up fairly decently. Uma Samlin: Okay. That's super. My second question is on your margin guidance. So I guess if you assume that Climate Solutions will reach the corridor of 13% to 15% for the full year with some margin of error, let's say, around 13%, does that indicate, I guess, significant upside in your EBIT margin profile in Q4? Would that be then like trending more close to 15%? So what would you expect to be the drivers of the step-up in Climate Solutions margins in Q4? Gerteric Lindquist: Well, I think that to start with, as we mentioned, the seasonal or the seasonality is back. So here is a little bit weaker and the second half is a little stronger. That's the traditional pattern that we've had prior to pandemic and the -- and those years with crazy, if I may call it, energy prices. So of course, quarter 3 and 4 traditionally should be stronger. And it's very difficult to predict anything, and we try our utmost to give you some kind of an indication that if we now say, as we say, regarding Climate Solution, of course, that is the best hint we can give you. It's impossible to say it's going to be so and so common. I think that's as far as we get -- the Stove side, of course, we saw after Q2 that it would be difficult, very difficult to arrive at within the span. And that's also clearly indicating now. That doesn't mean that we wouldn't have an uptick again. It's just that they came into this downturn a little bit later. First quarter '24 was not bad at all, whereas the other ones were really taking a hit. So it's more a matter of that has staggered a little bit when it comes to sales and profitability. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: The first one is just a follow-up to the margin here and especially if we think about Climate because historically, the fourth quarter's margin is on average lower than the third one. So if possible, if we take aside the seasonality effect here, I see volume is one thing, but what other drivers do you think could help the margin in the fourth quarter help you approach the full year target that you guide towards? Gerteric Lindquist: Things that are moving in the right direction when you talk about the strengthened productivity. I mean, that continues quarter after quarter. Productivity is one factor and also the ambitious program that we have across the business areas, Element and Climate Solutions. So I mean, there are no magic factors, but there are some factors that we feel will continue to assist the profitability. Karl Bokvist: Understood. Yes. Understood. The second one is on the receivables point that you mentioned, Hans. Historically, the kind of balance between receivables and payables have kind of yielded a net neutral situation. But the last couple of quarters, the receivables have increased more than the payables. So how long do you think this kind of gap will be before they normalize? Hans Backman: That's very hard to predict. I think the result of the increase in the receivables is a consequence of the seasonality kicking in and with us invoicing more, so to speak. And typically, the invoicing takes place in the latter part of each month as well. So it's typically weaker in the beginning and then a lot happens and that you don't collect it until the next period. On the payables side, we have a little bit more deliberately than before, begun reviewing payment terms without treating our suppliers bad in any way, but to make sure we have competitive terms. And when it's going to level out, it's hard to predict. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I'm going to follow up on the working capital side, if I may, and on inventories, 23.9% of last 12 months revenue. I appreciate we're improving quarter-on-quarter, but still above the sort of long-run average. I guess, firstly, do you anticipate a seasonally strong Q4 for inventory? And then longer term, how do we think about the inventory level required to support growth either as a percent of sales or perhaps on an inventory days basis? That's the first one. Gerteric Lindquist: Well, I mean, as Hans mentioned, of course, we like to drive down the inventories. And I think that there's been a little bit of cautiousness here now from sales because we don't like to have any disturbances when it comes to deliveries. We know that everyone is on the tip toes out there. And of course, it's very tempting to say we are -- now we're going to bring down the inventories. And I think that we and our colleagues, we really have to restore our, should I say, reputation in the market by really delivering promptly. And I think that the discipline is coming back. And I think the next step is keeping the discipline and then very diligently moving down inventory levels further. So there is a cautiousness on our side and also our colleagues, I'm sure, that no one wants to sit out there saying that, now we have like so many more weeks of delivery. That is no, no go for us. And I don't think that's -- I think that's pretty much a symbol for the whole industry. And that was my immediate answer... Hans Backman: No, no, absolutely. It's very correct. And if I just may add, I mean, what we are taking down also step by step. It takes a little bit longer, but it's a deliberate work to do it, level of component inventory. We -- as you know, we had delivery issues, so to speak, during COVID because we couldn't get products on board to the extent we needed. And when we could source something, we sourced it to the extent possible. And that inventory, given the strong shortfall that came afterwards, is now being used step by step and being reduced. So -- but without, as Eric is pointing out, disturbing any production that we have throughout the group or deliveries to the customer. Christian Hinderaker: Okay. So just to be clear, the pre-2020 levels is probably an unfair number to think about in the immediate term? Gerteric Lindquist: Well, I think it's the reverse picture. Then there was an enormous demand or if I say, quite a heavy demand. And then we were lagging. And then, of course, the figures turned out to be very nice, perhaps a little bit bigger than -- or better than we really deserved being viewed for or criticized for, evaluated for. And now we come from the other side. Now sales are picking up, we are cautious. So I think that we have to take it step by step and bringing it down perhaps to '20 at least and then take it from there. Christian Hinderaker: My second one is on the action program. In the Q4 presentation last year, you gave a summary of the potential split for those savings by segment. I suppose, firstly, is it fair to assume that the 73% of savings have come in Climate Solutions as was set out in that slide? Or has there been a sort of readjustment as we move through the year? Gerteric Lindquist: No. Hans, you... Hans Backman: Yes. No, I think that the calculations we made at the time and as the program evolved, so to speak, they were pretty accurate. And that's what we see has come in as well. And given that the stretch in the return to normality has dragged out a little, we've undertaken a few more saving actions. But that's all kicking in now, you can say, according to the program. And then -- well, running a business, you always have cost reduction initiatives. So it's -- but it's mainly related to the program, kicking in as we planned. Operator: The next question comes from Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I have a question starting off with the Climate Solutions, Eric, if you could. You talk about sort of demand being back to -- or demand for next year, you're talking about external consultants and they share -- or you share their view upon sort of the growth. There are a lot of reports out there on the heat pump market in Europe, especially. Could you sort of give some sort of ballpark range what is the sort of the underlying assumptions you are looking for or basically the consultants are looking for, which you agree with? Gerteric Lindquist: Well, as you say, there are so many reports out there. And some are very biased and some are more -- I don't know where statistics come from. But I think that you can get reports anything from 5% to a few double digits plus, like anything from 5% to 12%, depending on which report you read. But the common denominator is that no one foresees a decline any longer, but rather growth, but in various sizes or various numbers, whether it's 5% or 7% or 11% or 12%, it's very difficult to predict. But what we take away from all those reports is that we -- the tide has turned. We are back on a market that is getting or growing again, which is very pleasing. Then, of course, it's up to all the colleagues out there, including ourselves to do as much as possible out of those figures. But perhaps, as we said before, we all love when the growth figures are phenomenal, but not necessarily do the customers always benefit from that. I think that we believe that a growth in an orderly fashion is better for everyone because then the installation work is done professionally and the distribution flow works much better. So those figures indicated that I think that would, to us, mean that it's a healthy growth possibility, but still in a way that they're going to make things materialize in a profitable and decent way for us as manufacturers, but also for the installers out there and for the end users. Johan Sjöberg: That's very clear. And also just looking at the different segments in Climate Solutions also. I mean, looking at sort of what is heat pumps and of course, the different segments within the heat pump and also you got the water boilers. Is it a big difference between the growth rates right now between sort of -- if you take sort of the bigger sort of subsegments, not going out to sort of add to water or anything like that, but more sort of between the different bigger segments within Climate Solutions, it's a bigger -- it's a big difference in growth right now? Gerteric Lindquist: Yes. Well, I think that the water heaters, if you talk about them, they have a more modest growth, and that goes for all over, of course. And that's pretty much -- construction is down -- new construction is down, and that's where you typically, you install those and when you build new houses and so forth, although the houses themselves, they might have heat pumps or district heating. But you have those modules there we typically have 1 or 2 of those water heaters. When construction is down, it's also down. So the water heater market is very, very cautious, a few percentage units, but doesn't have the same growth at all as the heat pumps, but stable, decent margin. So it's not something that we should neglect by any means, but the growth pattern is strictly on, you can say, on heat pumps. Johan Sjöberg: Got it. Hans, also a few questions for you, if I may here. You mentioned in the report the impact on sales from the currency. Could you also talk about the impact on EBIT just to get sort of a feeling for the dilution, if any, from FX in the quarter, if that's something you can provide us with? Hans Backman: Yes. It's roughly the same. I mean the margin is not influenced to a large extent. Of course, you can convert less dollars or euro or what have you at a poorer rate, so to speak, or stronger or weaker rate, which has an impact. But in percentage-wise, it doesn't deviate too much from the effect on the sales side either. Johan Sjöberg: Okay. And also your comments on the Stoves business also, the tariff, of course, impacting -- of course, impacting even more now when you have a higher share of sales in the North America coming from Canada. But what are sort of the impact from tariffs in the quarter, if that -- just give us some sort of feeling? And also what are your -- how can you mitigate that? And how long time will it take before you can mitigate these tariffs? Gerteric Lindquist: It is substantial. We won't dwell on any [Audio Gap] of course, partly will be taken like -- in any case, will be taken by price increases. But we -- at the same time, we've said we're never going to put our position on the market in jeopardy by being ridiculous in that. We just have to trim and trim and trim and be more efficient, try to come back to a margin that is decent. So we have taken quite a bit of a hit during Q3 and of course, during the whole year, and we don't expect that to improve, but price increases takes away a little bit. And then we just have to be more efficient and streamlined. Those are the only 2 recipes. And then thirdly, you could possibly -- but that's more of a guess. I mean the American manufacturers might be tempted to increase their prices when they see that's difficult to import from other countries. But that's a speculation. I wouldn't dwell on that. So we are between a rock and a hard spot, as I say, but we're going to come back to a decent margin by streamlining and doing everything possible without jeopardizing our position in the market. That was a long answer to you, but because that is a little bit of a long answer to us. We are, of course, doing our utmost just to keep and increase our position in the U.S. because we are well positioned. And now it's really up to productivity and doing everything we possibly can to combat the difficulties with those tariffs. That was a long answer. That's it. Operator: The next question comes from Anders Roslund from Pareto Securities. Anders Roslund: Yes. I was curious about your thoughts about next year for Europe and heat pumps. I mean this year have been characterized by de-stocking coming to an end, and now it's the true market growth we are looking for. And at least in Germany are sort of coming with some growth into next year. How do you see structurally on Europe for next year? Gerteric Lindquist: No. As I said there, we assume that Europe will grow overall. And of course, Germany is going to be one important contributor to that growth. And then, of course, there are -- it's important to distinguish between those applications and the number of heat pumps really being installed because you have a sort of a period once you have the application in and is approved, you don't necessarily start to install the week after. You have an allowance or is it like how many quarters was it now like -- many months... Hans Backman: Yes, yes, I don't recall exactly. Gerteric Lindquist: And then, of course, the true figure is around 40% -- or well above 40% that's been installed, partly taken from inventories, of course, and partly from producers directly. And we believe strongly that there will be a real organic growth for the manufacturers next year because now we should be out of the inventory, has been dampening things. So the overall picture, I mean, now again, sitting here or standing here on the 14th of November making predictions for '26, but if you ask us, we look at the European market in a fairly positive way because also that the interest rate die or at least they come down, that is also sending a report to consumers or sending a signal to consumers that, okay, now it's more decent. They can start to build homes, which is very important when you start to build homes in a country. That's a driver for the whole economy. So without too many other disturbances, but then you never know about Europe what's going to happen. We believe that it's going to be a stronger year '26 than this year. And then, of course, that is a prediction. I don't know whether I answered your question, but I tried. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I boldly went back in the queue, so I'm surprised to be fit in for the follow-up, but I appreciate it nonetheless. Yes, I wanted to ask the Selmo acquisition you made in Italy during the quarter, I guess, interesting in terms of its components, focus, smart thermostats and so forth. How should we think about that transaction and the scope of your broader M&A priorities looking forward? Is that illustrative of the type of deals you're looking at? Or are you still balanced in terms of also reviewing sort of OEM type transactions? Gerteric Lindquist: I think that we have received a number of questions earlier on today in other forums, and we say we're always working on acquisition. Nothing has come down. Of course, '24 was a year when there weren't that many signings carried out. But I think this is a decent acquisition for Element with a turnover around EUR 20 million. It's not gigantic, but it's profitable. It's a company that we've known for a long time. It's a company that we've been working with for a long time. We don't foresee any [Audio Gap] issues if I had to say that because we know the founders and has a very good relationship. So it's one of those add-on acquisitions that we really like to do, family-owned companies, and they remain helping us, it's perfect. I don't know whether I answered that question fully, but we have similar activities within Stoves and within Climate Solutions, ideal partners and that we try to trim and try to bring on board. But everything is timing, just like anything else in life. And this Italian acquisition was something we've been discussing with them for a long time. And then all of a sudden, they say, we are fine. Should we really -- now we really go and then we are ready. An acquisition takes more than a quarter or 2 in our world, we like to come in on a friendly basis, not coming in as an intruder or -- yes, exactly like that. We like to come in as partners, and it takes time to develop that over years. So those are the most successful ones in our book. Okay? Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I was a little bit late, so apologies if this question has already been asked. But I wanted to come back a little bit on the topic of pricing. I mean we talked about this for roughly 2 years now. And I guess earlier this year, we were talking about inventory reductions amongst the distributors and increased campaigns on the back of elevated inventories. But now we hear, I guess, also from some of your listed peers that pricing environment on the hydronic side seems to have been improving here a little bit towards the latter part of the year. So I just want to hear your view here on sort of pricing in general and maybe if yourself have done any sort of definite price adjustments here in the latest months. Gerteric Lindquist: Well, I think that's one area we've been very cautious that we are one of the leading actors because to sell premium product, you can't devaluate the value because short term, they just deteriorates everything. So coming back again to the overstock situation, we had some of that. We've been very cautious of reducing prices. And therefore, it might have taken a little bit longer to reduce those inventories because you know that if you sort of spoil the market with lower prices, then that is very contaminating. But further on in the distribution chain, and I'm repeating this again, of course, when our distributors or installers have been sitting on inventories, knowing that also might have been refrigerants and stuff like that, they see a new wall coming towards [Audio Gap] well, and they have to be gone. Of course, it's very tempting just to free the capital tied up. And our own method has been sit still in a boat, be very cautious. And as far as price increases are concerned, monitor that very, very cautiously again, being very observant. Of course, we agree what you say. We also see that there is some signs of price increases in the market, which is very natural once it's been stabilized as it's been. And I think no one is the winner in the price war, just like any other war, all are losers. Carl Deijenberg: Fair enough. Then I wanted to ask also a little bit coming back to the balance sheet and sort of gross margin development. I mean, quite a good rebound here in Q3, but still, as you evaluated earlier on, you're still in the situation where inventories -- your own inventories are on the way down. And I just wanted to ask a little bit on the sort of internal production rates for you. Obviously, you've been adding capacity quite dramatically in the last couple of years. But would you say that sort of the shipments you are delivering on right now is the sort of utilization in sort of your base production sort of excluding the capacity expansion, is that fairly much 1:1 right now? Or are you still suffering quite tangibly on the gross margin from some utilization? Gerteric Lindquist: Well, I mean, we can't avoid depreciation. I think that's kicking in, of course. So of course, they're going to be lesser than what we sell. That's very obvious. But at the same time, on the other direction, those new facilities that we have, that's also offering better productivity. So it's not so easy to say that, okay, now we sit with a tremendous depreciation. Of course, it's going up. But they're also built for a reason, not only for volume increase, but also to do things more rational. So that's working in the other direction. I don't know whether I answered your question, but there was... Carl Deijenberg: No, no, no, but -- yes, yes, yes, absolutely. No, but I guess, I mean, my question was a little bit, and I understand there's multiple variable components to it. But I mean, assuming if you would see further volume support next year, it sounds like you could still have some upside on that gross margin development even now when we look at Q3, where you saw quite a good development year-on-year at least. Gerteric Lindquist: I think that we have to give you right there, yes. Correctly, so... Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: But I just wanted to go back to one thing that you've been very good at in the Nordics, which has been kind of heat pump products towards new buildings or new residential buildings. And if we think about both Nordics and Europe potentially seeing a bit of an uptick in new residential construction, how have you worked with that kind of product assortment in other areas than Sweden? Gerteric Lindquist: No, I think that if you talk about the exhaust air heat pumps, we've been working with that as well, but that comes to legislation -- the construction legislation and also preferences for what you can do. And I think that we see very positive view on our next generation of heat pumps where you also can -- like I'm talking about the exhaust air heat pumps now in well-insulated homes, that we also have a cooling capacity. When you come a little bit further south, then there's been a question, could you also possibly cool our facilities in the summertime. And I think that has given us quite a stir in demand. So that's one way of mitigating that. But of course, when you have lower standards, then you have to adapt to that when it comes to building standards. Here, we have a very tough situation up -- for instance, Sweden or that's pretty much the same, in the Nordic markets, you can say that you can only use 40 watt per square meter a year, and that limits your amount of energy of 6,000 kilowatt hours per year in house, and that's including tap water. So of course, that is -- that's quite a challenge. But that's also something we can -- we use when selling that to house manufacturers and customers when we go in other countries, ventilation and heat pumps in Holland or Netherlands, for instance, that's very, very important. So they are tagging along the same lines. And also in Germany, that is pretty much the standard that you have to recapture the ventilation air or the energy in the ventilation air. So the larger heat pumps, they are typically for renovation when you have -- when you're replacing a gas burning boiler or an oil burning boiler with an output of some 16, 20, 18 kW, then, of course, you have to have a larger heat pump and then you talk about a different vehicle or a different animal, but you still supply the same sufficient amount of energy to the radiators. But then you talk about refurbishment. I hope I answered your question. Karl Bokvist: Yes, partly one, I mean it is just that you've built up a strong position in the Nordics. And I mean, as you expand in the other countries, how you work to kind of get close to that level of relationship with the important stakeholders, house builders, et cetera, so that you're in their blueprint, so to say. Gerteric Lindquist: Yes, yes. Of course. And also working with house builders and giving them the upper hand, the advantage of using our products and demonstrating what can be achieved having the Nordic market as references. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Gerteric Lindquist: Well, once again, thank you for the disciplined way you've all times, you would like to have very, very much of a decimal, comma and so forth. And we, of course, couldn't do that. But I hope we've put some flesh on the figures in the report. So once again, thank you for calling in, and we see you, if not earlier, beginning of next year when we report the full year. Thank you again. Hans Backman: Thank you, everyone. Thank you. Bye-bye.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. I'd like to welcome everyone to the Canaccord Genuity Group Inc. Fiscal 2026 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being broadcast live online and recorded. I would now like to turn the conference call over to Mr. Dan Daviau, Chairman and CEO. Please go ahead. Daniel Daviau: Thank you, operator, and welcome to those of you joining us for today's call. As always, I'm joined by our Chief Financial Officer, Nadine Ahn. Our remarks today are complementary to the earnings release, MD&A and supplemental financials, copies of which have been made available for download on SEDAR+ and on the Investor Relations section of our website at cgf.com. Nadine will also be referring to our investor presentation available on our website and through the online portal for this conference call. Within our update, certain reported information has been adjusted to exclude significant items to provide a transparent and comparative view of our operating performance. These adjusted items are non-IFRS measures. Please refer to our notice regarding forward-looking statements and the description of non-IFRS financial measures that appear in our MD&A. And with that, let's discuss our second quarter fiscal 2026 results. During our second fiscal quarter, major equity indices posted strong gains and gold prices surged 17%, while improved certainty on trade-related matters, coupled with downward pressure on interest rates contributed to a substantially improved market environment for our core wealth management and Capital Markets activities. Consolidated revenue of $530 million increased by 24% year-over-year and by 18% sequentially, representing our strongest top line quarterly results announcing a substantial increase in our provision for ongoing U.S. regulatory matters. This reflects our revised estimate of the total monetary penalty related to the enforcement matters. First and foremost, I want to acknowledge how seriously we are taking these matters. Compliance and integrity are fundamental to the trust you place in us as shareholders. We are cooperating fully with our regulators, and we anticipate reaching a global resolution in the coming months. As this remains an ongoing matter, we are precluded from discussing in further detail. I want to reaffirm that over several years, our U.S. business has substantially invested in a comprehensive compliance transformation aimed at aligning with regulatory standards and remediating its existing program. In addition, as you've heard me say before, we've also invested in strengthening our compliance talent and infrastructure across all businesses and geographies. In keeping with our commitment to continuous improvement, we have also taken steps to meaningfully reduce our risk exposure while ensuring that we can continue to deliver exceptional experiences for our clients. In addition to the increased provision, we've recorded a noncash goodwill impairment charge of $110 million in our U.S. Capital Markets business. For several quarters, macroeconomic and trade-related uncertainties have tempered activity across our core focus sectors impacting revenue and profitability in our U.S. operations. Although advisory completions have rebounded from the trade-driven slowdown of the prior quarter and corporate financing activity has seen a meaningful uptick, the recovery for small and mid-cap segments within our core sector has been more gradual in this region. Nevertheless, we continue to execute against a robust pipeline, reinforcing our confidence in the stronger performance in the second half of the year. Together, these items contributed to an IFRS loss attributable to common shareholders of $204 million and a loss per share of $2.04. While this quarter's results are disappointing in light of these measures, we've confronted legacy issues head on and taken steps to strengthen the foundation of our business. Our core operations remain strong, our balance sheet is solid, and we continue to see encouraging momentum across key growth areas. I'm confident that the actions we are taking today will support sustainable value creation for our shareholders in the years ahead. And with that, I turn things over to Nadine. Nadine Ahn: Thank you, Dan, and good morning, everyone. I'll start with the performance highlights on Page 4 of our investor presentation. Firm-wide revenue of $530 million improved by 24% year-over-year and 18% sequentially, representing our strongest quarterly revenue since the third quarter of fiscal 2022. The increase was primarily driven by a meaningful improvement in firm-wide corporate financing revenue, which increased by 91% year-over-year to $108 million, in addition to higher commissions and fees revenue, which increased by 25% year-over-year to $257 million, primarily driven by our wealth management businesses. When measured on a fiscal year-to-date basis, firm-wide revenue amounted to $979 million, an improvement of 14% compared to the first 6 months of fiscal 2025. As Dan mentioned, we continue to make solid progress on our efforts to curb expenses, although certain costs remain elevated in the 3-month period. A detailed breakdown of the factors contributing to our second quarter compensation expenses can be found on Slide 7 of our investor presentation. The largest driver of the increase was related to fixed or less controllable expenses, which represented $7 million of the year-over-year increase. The impact of foreign exchange accounted for $2.4 million or 34% of this increase. Additionally, premises and equipment costs in connection with new flagship offices in several geographies represented $2.7 million or 39% of the increase. As previously noted, we expect that the year-over-year variance in premises and equipment expenses will begin to taper off in the second half of this fiscal year as we pass the 1-year occupancy milestones in each location. Professional fees remained moderately elevated due to our remediation efforts in the U.S. and we also incurred higher communications and technology expenses in connection with investments to support growth in our Canadian and U.K. wealth operations. Given the advanced stage of our remediation efforts and expectations for a unified resolution in the coming months, we expect that professional fees in this business will begin to taper off accordingly. The remainder of the increase was attributable to revenue or investment-driven expenses. Firm-wide compensation expense amounted to $323 million, an increase of $72 million or 29% year-over-year, broadly in line with the increase in incentive-based revenue. Our firm-wide compensation ratio was modestly elevated to 60.8%, partially due to changes in the value of certain unvested stock-based compensation awards during the 3-month period. Excluding significant items, our pretax operating margin for the 3-month period improved by 1.4 percentage points year-over-year and by 3.9 percentage points sequentially to 11.3%. Adjusted pretax net income of $60 million for the second fiscal quarter increased by 41% year-over-year, which translated to diluted earnings per share of $0.27. Turning to our segment results. Our Wealth Management division earned revenue of $269 million during the quarter and $512 million for the fiscal year-to-date, year-over-year increases of 24% and 19%, respectively. The second quarter increase was largely attributable to a $42 million or 25% increase in commissions and fees revenue to $211 million, reflecting record quarterly contributions from all regions. Additionally, revenue from investment banking activity earned in the Wealth division increased by $13 million or 240% year-over-year to $18 million, primarily due to stronger activity levels in our Canadian and Australian businesses. Excluding significant items, which increased by $17 million or 26% compared to the same period of last year. In addition to increased investment banking revenue, which improved by $8 million or 206% year-over-year. Client assets surpassed $49 billion in the second fiscal quarter, increasing 24% year-over-year and 10% sequentially, representing a new record for this business. As outlined on Slide 11, higher market valuations were a major contributor to this increase, supported by positive net flows. The business continues to advance its priority of growing contributions from fee-generating client assets, which amounted to 54% of total client assets for the fiscal year-to-date. The average book per adviser also reached a new record of $348 million, among the highest in the industry. On an adjusted basis, our Canadian wealth business delivered second quarter pretax net income of $18 million, a year-over-year increase of 54% and the strongest quarterly result since the first quarter of fiscal 2022. This brought adjusted pretax net income to $28 million for the first half of fiscal 2026, up 30% from the same period of last year. The adjusted pretax profit margin for the fiscal year-to-date improved by 1.5 percentage points year-over-year to 13.4%. Adding back noncash development charges, normalized EBITDA in our Canadian Wealth Management business was $25 million for the second quarter and $40 million for the fiscal year-to-date, year-over-year increases of 42% and 18%, respectively. And finally, second quarter revenue in our Australian Wealth Management business increased by 43% year-over-year to a record $28 million, bringing fiscal year-to-date revenue to $51 million, up 34% compared to the same period of last year. Revenue growth in this business was broad-based, reflecting increased client activity levels, IA recruitment and new client onboarding. Commission and fees revenue of $22 million for the 3-month period increased by 23% year-over-year and investment banking revenue of $5.5 million increased by more than fourfold when compared to the same period of last year. Measured in local currency, client assets in this business grew to a record $11 billion, an increase of 37% year-over-year and 11% sequentially. During the second quarter, we announced our acquisition of Wilsons Advisory, which was completed on October 1. The financial contribution from this acquisition will be included in the operating results for this business beginning in our third fiscal quarter. Second quarter adjusted non-compensation expenses increased by $0.6 million or 13% year-over-year, largely in connection with acquisition-related travel and administrative costs. Excluding significant items, pretax net income more than doubled to $3 million when compared to the second quarter of last year. The adjusted pretax profit margin of 11.2% increased by 6.5 percentage points year-over-year and represents the highest result for this business since the second quarter of fiscal 2022. Turning to our Capital Markets business. Consolidated Capital Markets revenue of $253 million for the second quarter increased by 25% year-over-year and 26% sequentially to the highest level since the fourth quarter of fiscal 2022. For the fiscal year-to-date, revenue in this division increased by 11% year-over-year to $453 million. The second quarter increase was primarily driven by our Investment Banking segment, which saw revenue rise by $39 million or 76% year-over-year to $91 million for the 3-month period. Notably, our Australian business contributed $51 million, representing 56% of total investment banking revenue for the quarter and achieved a remarkable 193% year-over-year growth, which was primarily driven by the mining sector activity. Investment banking revenue also meaningfully improved in our Canadian and U.S. businesses by 20% and 52%, respectively, when compared to the same period of last year. Following the sharp decline in advisory completion activity caused by trade-related uncertainties in our first quarter, Q2 advisory revenue rose to $79 million, a 62% sequential improvement as activity levels began to recover. Our U.S. business was the largest contributor to this result, generating $46 million in revenue, over twice the amount recorded in Q1. However, this figure remains 18% below the revenue earned in the same period last year as completion activity levels were still subdued at the start of the quarter. Our U.K. business also experienced a notable uptick with advisory revenue improving by 253% sequentially and by 73% year-over-year to $22 million. Consolidated commissions and fees revenue of $42 million improved by 22% year-over-year as new issues and client trading activity increased in all geographies. Principal trading revenue of $31 million increased by 12% year-over-year. The U.S. business was the largest contributor to this result with quarterly revenue of $27 million, largely attributable to the International Equities Group. As the sale of this business was completed on November 7, our third quarter results will begin to reflect the reduction in related contributions. On an adjusted basis, non-compensation expenses increased by 6% year-over-year, largely due to higher trading costs, which were in line with increased revenue. Additionally, non-comp expenses in our Australian business increased by $1.4 million due to conference expenses and costs associated with the previously discussed acquisition of Wilsons Advisory. Along with higher trading costs, expenses in our U.S. business remained elevated due to the increased premises and equipment costs noted earlier as well as professional fees in connection with our previously disclosed regulatory enforcement matters. I'll touch briefly on the goodwill impairment that impacted IFRS results for our U.S. business. Goodwill is required to be tested for impairment at least annually. As Dan mentioned, over the past several quarters, a combination of macroeconomic and trade-related uncertainties has moderated activity levels across our core focus sectors, weighing on revenue and profitability in our U.S. operations. As past performance would demonstrate, we continue to see substantial long-term value in our U.S. business, which remains a strategically important part of our global platform with a strong record of generating meaningful revenue and profitability under more typical market conditions. However, accounting standards require fair value assessment at what we believe to be the bottom of the cycle. The goodwill charge is a noncash accounting adjustment and does not result in any current or future cash outlay. I'd like to emphasize that this adjustment has no impact on the ongoing operations or our capacity to continue to invest in our U.S. business. On a consolidated basis, adjusted non-compensation expenses as a percentage of revenue for our Capital Markets division decreased by 4.7 percentage points year-over-year to 26%. The adjusted pretax net income contribution from our Capital Markets division increased by 71% year-over-year to $26 million. Improved contributions from Australia, Canada and the U.K. were offset by a breakeven result in our U.S. business. Aside from the previously discussed U.S. matters that impacted our profitability this quarter, our efforts to curb discretionary expenses are evident in our results. With activity levels expected to strengthen in the second half, we anticipate continued margin improvement into fiscal 2026. As we advance both our organic and inorganic growth initiatives and execute effectively for our clients amid improving business conditions, we remain confident in our ability to enhance firm-wide profit margins and achieve our targeted single-digit growth for the current fiscal year. Turning to the balance sheet. We maintain sufficient working capital to meet our regulatory commitments, support our strategic priorities and expanded business activity while preserving the flexibility to respond to outstanding regulatory matters and reallocate capital as market conditions evolve. With that, I'll turn things back to Dan. Daniel Daviau: Thanks, Nadine. We're having a very productive start to the second half of our 2026 fiscal year. We are seeing meaningful signs of recovery in the equity capital markets with small-cap indices signaling a renewed risk-on environment. Notably, the IPO market is showing early signs of recovery and private equity-backed IPOs have more than doubled year-over-year, underscoring the confidence in public exits. That said, activity remains selective. Our proceeds raised have increased by nearly 60% compared to the first half of the last fiscal year. The mining sector continues to dominate, but we are encouraged by strong pickup in technology, industrials and health care sectors, which should lead to a more diversified mix in the second half. Our Australian business is currently the top rank investment dealer in the region for equity financings, both by proceeds and volume, and we are also ranked third overall in the Canadian league tables. Capital Markets advisory activity is also gaining momentum, and our outlook for advisory completions in the second half is stronger than in the first. While our U.S. business experienced an abrupt slowdown in M&A completions amid trade-related uncertainties during the first quarter, it has since regained momentum. The team is executing on a robust pipeline of mandates while continuing to win new ones. M&A activity is improving in Canada and the U.K. as well, and we are also seeing good momentum from our Australian practice, which is still in the early stage of its development. On November 7, we completed the previously announced sale of our U.S. market making business. This transaction enables our U.S. operations to focus capital and resources on our core equities and M&A franchises, which are both higher-margin and capital-light businesses. Each of our wealth management businesses is delivering on their respective business plans and continues to deliver impressive growth. Our business in the U.K. and Crown Dependencies continues to advance its organic growth priorities with a focus on growing contributions from fee-based assets, which will continue to enhance the stability and quality of its earnings. We continue to see very strong growth potential in our Canadian wealth business. Driven by economic expansion and interest rate cuts, North America is outpacing the rest of the world in wealth creation with Canada offering particularly attractive opportunities for investors. With several domestic competitors having recently been acquired, the environment for independent wealth managers has become increasingly favorable, positioning CG to capture additional market share. And finally, as Nadine mentioned, we completed our acquisition of Wilsons on October 1, which will add approximately $7 billion in client assets to our Australian wealth platform, further strengthening our national footprint and brand in the region. Integration is progressing smoothly, and we look forward to delivering an enhanced offering to our combined Wealth and Capital Markets clients in the region. Looking ahead, our strongest opportunities lie in accelerating Wealth Management growth across all regions while leveraging our integrated equity and M&A capabilities to deepen our presence in core sectors poised for outperformance amid a more sustained market recovery. Assuming no changes to our operating environment, our results for the first half of this fiscal year give us confidence that we are on track to exceed our fiscal 2025 performance. Our Board of Directors has approved a continuation of our quarterly common share dividend of $0.085. With that, Nadine and I will be pleased to take your questions. Operator, please open the lines. Operator: [Operator Instructions] And your first question comes from Jeffrey Fenwick from Cormark Securities. Jeff Fenwick: So Dan, I wanted to start with the regulatory provision in the quarter, it is a pretty sizable amount. Could you just speak to capital position and your ability to fund that? Do you still require raising some debt here? Or how is that going to be managed? Nadine Ahn: hi, sorry just one moment, we are just trying to fix the microphone. Can you hear me now? Jeff Fenwick: I can hear you. Did you hear my question? Nadine Ahn: Yes, we do, apologies. I think you can hear my response. It's Nadine. I'm going to respond to your question, Jeff. So when we did put the provision, we set aside the cash and the capital, the moment that we made the provision for the regulatory matter. And we do have sufficient capital to continue with our U.S. operations and continuing to invest in the business. So there's no issue as it relates to our balance sheet. It's already been funded. Daniel Daviau: The bad news, Jeff, it took us 3 years to get us this far. The good news is we've known for 3 years that we've had to get something. So lots of time to accumulate capital that we require for this. Jeff Fenwick: That's helpful. And then obviously, alongside of that, as you mentioned, reorienting the business, trying to change some of the risk exposures. I think you referred to that comment. I assume that's in part related to the divestment of the trading desk, the wholesale trading group there. With that closing, is there any way you could provide us some color, even just backward looking on what sort of top line contribution that group made and the related expenses? Any sort of color you can add that might help us with modeling that going forward? Nadine Ahn: Yes. So the sale of the International Equities Group, we don't expect it to have a meaningful impact overall on our earnings profile. I think if you look at the U.S. for Capital Markets business as part of our disclosure, you see that principal trading revenue line number that would primarily have related to that business. In addition, when you look at the cost base associated with it, obviously, trading business is going to have a higher proportion related to that common tech cost. So as Dan mentioned in his remarks, as on a go-forward basis, we do expect that as we pivot to primarily the ECM and advisory business, we should start to see an improvement overall in the margins in the U.S. business. As well, we've also -- with the remediation work in the U.S., we're going to start to see a decrease in some of our pro fees. So overall, we expect that while the sale does not have a meaningful impact on the overall earnings profile, provided that we continue to see growth in our U.S. revenues, we expect to see an improvement in margins overall. Jeff Fenwick: And then in terms of responding to these market demand -- market conditions that are evolving, I know there's been a focus on expanding advisory. Is there more work to do in the U.S., maybe reorienting the focus of that segment now? Maybe cutting some areas and adding others? Or where do you feel you are in that process? Daniel Daviau: Yes, Jeff, we're always evolving the business, obviously. I mean, we operate globally in several core sectors. Those sectors are very important to us, and we'll continue to expand into those core sectors. The expansions generally we've done in those core sectors has been into the advisory channel. So when we bought Sawaya, when we bought Results, when we bought Petsky, that's not going to stop. We'll continue to look at acquisitions in our core verticals. So it's a little bit finding a needle in a haystack to find the right partner at the right price at the right time with the right culture. But we're in the market always looking for those areas. Yes, that's I think, the best I can answer that. Jeff Fenwick: Okay. And I can't leave without asking about U.K. Wealth Management. I know there's lots of rumors and speculation. Clearly, you're clearly featuring it in your slides there on the time line and giving us an EBITDA number that you obviously want us to zero in on. So just maybe it's a bigger picture question here. What are you and the Board thinking in terms of strategic direction going forward? If you were to surface value and exit a market like the U.K., that would be a very significant change for the continuation of the run rate of the business. So does that -- is there another area to focus growth on another market? It just -- you'd be giving up obviously the largest contributor to your earnings. Clearly, it's servicing some big value. But what would you think that would do with respect to the strategy going forward for Canaccord? Daniel Daviau: Yes, a great question. I don't think I'm prepared to answer at this stage, Jeff. But in general, on the U.K. -- the broader U.K. question, obviously, we're not going to comment on rumors and speculation. You know that we have a minority partner in that business, a financial strategic partner in that business. So we're obviously talking to lots of people all the time about a whole range of alternatives. So some of those involve external parties, which is what creates rumors and stuff in the marketplace. So I can tell you that on our broader wealth businesses, including our U.K. wealth business, we're incredibly pleased with the performance of all those businesses. I mean, record revenue, record earnings, firm-wide assets at record levels, $134 billion now. They're all contributing significantly. Our Canadian business is contributing well. Our U.K. business is obviously record levels of EBITDA and revenue. Our Australia business now is starting to contribute. Pro forma Wilsons will be at $17 billion in assets, made good money in that business. So that strategy that we started, whatever it was, 6 years ago, growing wealth and having it increase, it's working. Last time we had revenues like this, Jeff, 2/3 of them were Capital Markets and 1/3 of them are Wealth. Now we have revenues like this and more than half of them are coming from Wealth and certainly more -- way more than half of our earnings are coming from Wealth. So we like the Wealth strategy. I can't get to the second part of your question is, what if we do this and what if we do that, then what are we going to do? Those are all really good questions that the Board will assess at the right time. Operator: And your next question comes from Rob Goff from Ventum Capital. Rob Goff: Thank you Jeff for asking the tough questions upfront. So my question will turn down to Australia. Could you talk to the integration time line strategy with Wilsons? And you often build into momentum and the momentum is certainly in Australia. Can you talk to further inorganic growth in that region? Daniel Daviau: Yes. I mean, Wilsons is a big acquisition for us. Just 60 advisers, 8 offices to integrate into our broader platform. They had a small capital markets business that was integrated on day 1, literally. And then the Wealth businesses are busily integrating as well. Perth has moved. Sydney has -- Melbourne has moved. Sydney, we need to find some more space. But the businesses are going to quickly be integrated into our Wealth business. The back-office system will take a little bit longer than that, obviously, but it's a big chunky acquisition for us in that market. So it's going to take some time, which addresses your second question about what do you do next? Or is there other strategic things? Like right now, this is what we've done, and this is kind of what we're doing. And it will take time. We do continue to -- our existing plan, which was to hire more advisers, we continue to do that. And that's a similar strategy to the strategy we've had in Canada. We just hired 4 advisers from Morgan Stanley in Perth, for example, and that will continue to upgrade and up-tier our advisory offering there. So our principal strategy in Australia is an organic strategy, the same strategy we've deployed in Canada. Occasionally, we'll find the odd inorganic opportunity like we did with Wilson, and we'll do that as well. Rob Goff: And you mentioned in your remarks the rationalization of the Canadian wealth marketplace and where you're seeing opportunities. Could you perhaps talk to how that's impacting your efforts and pipeline? Daniel Daviau: Yes. I mean the recruiting pipeline is always kind of goes up and down and chunky. The truth is -- and again, I'm sure IA will do a good job with Richardson and all that kind of stuff. But at the end of the day, there's not as many -- truly independent platforms out there as there used to be. You can just look at the pace of activity, whether it's a pure kind of full-service wealth manager like us or other types of independent wealth managers, they're disappearing pretty quickly. And we remain a very, very strong independent wealth platform. We've got $49 billion in assets. We're making -- we made $25 million in EBITDA in that business this year, if you back out the development charges. So we've got a very, very strong business and one that we've invested a lot of resources in, and we continue to invest in that business. So it's a very attractive platform for advisers that want to leave their existing place to join. It's also a very attractive platform for existing advisers who are here to grow from. So we've got reasonable net new assets in the business. We continue to recruit in the business. We continue to bring on more advisers into the business, and we continue to feel incredibly confident about the future of this business. Operator: And your next question comes from Stephen Boland from Raymond James. Stephen Boland: Maybe -- Nadine, maybe you could just dig into the impairment a little bit. I know you're saying U.S. Capital Markets. But is it specific to one of the subsidiaries that you purchased, Petsky or Sawaya? Like I'm just trying to get an idea of is it just a widespread impairment or it's specific to certain segments? Nadine Ahn: No. So the goodwill that's sitting on the balance sheet as it relates to the U.S. is the aggregate of those acquisitions. And so essentially, when you're looking at goodwill impairment, you start out looking at your last 12 months baseline. And given the performance in the U.S. has been a bit slower than we initially anticipated starting out into fiscal 2026. You're kind of starting to jump off point and lower. And so we're still projecting good growth in the business overall, but I'm starting at a lower point, which impacts my carrying value, relative to valuation. So that's what the impairment is coming down. And we don't look at it. It's not a specific business line. It's really around the projections of the full U.S. Capital Markets business going forward. Stephen Boland: Okay. I mean when I look at the revenue trend, this is probably your second highest revenue quarter for the last few years, I think. Profitability seems to be tough to be consistent. So I'm wondering what you can do in the U.S. to -- there's still another $100 million of goodwill, I think, allocated to that division. So I'm just curious like how do you drive the profitability going forward? Like is $112 million of revenue kind of the breakeven number that you have to do just to breakeven? Or is there triggers that you can pull here? Nadine Ahn: Well, I think that what we're talking about in terms of the projections in that business overall, and we're starting to see it, and Dan can speak to it a bit more as it relates to our pipeline. But I think you hit on one of the other primary areas of focus, which is the cost base. And so as we started to look forward, in particular, with the sale of IEG and that having a bit of a higher cost base. But in addition, with the work we've completed as it relates to focusing building on our compliance program, that from a remediation standpoint, those costs are also going to be coming down. So we do expect to see the margin expansion in addition to a more favorable revenue trajectory going forward. Dan, do you want to add anything? Daniel Daviau: Yes. No, I think you hit on it pretty well. I mean we came off Q1. There was all the tariff stuff and really impacted M&A. It obviously came back in our Q2. We continue to see that momentum going forward. Our core M&A franchise is good or stronger than it's ever been. So I think that improves. The new issue environment, you saw great new issue numbers out of us. But to be honest, the big increases were in Australia and Canada, both of those tend to do a lot of mining deals. And I think mining has been pretty active. We see an expansion. We see the other sectors starting to expand beyond that, beyond just the resource sector. So -- and that's where we would tend to dominate in the U.S. The final thing is that government has been shut down in the U.S., and you know that impacts IPOs. In particular, we do disproportionately well in some of the IPO activity. So we expect that to turn on. So that will improve our business. So we think there's lots of upside in the U.S. Don't get me wrong. We were very excited about our prospects in the U.S., notwithstanding the goodwill write-down. And there was a time and a place, and it's still the same franchise that we have that we made a lot of money in the U.S. Like again, no one likes to refer to COVID times because no one likes to refer to them. But we were making $100 million a year in the U.S. So there's a real opportunity to -- we're not in the -- I won't use baseball analogies. It's way too soon, but we're still in the first period. I'll use hockey analogies now. We're still in the first period here. There's a fair amount of skating in front of us. Stephen Boland: Okay. That's great color. And then the second thing I just -- I'll turn to Australia. And obviously, the revenue is pretty strong, mostly mining. So I'm just curious on the financing, which accounts or jurisdictions are buying these deals? And the reason I ask is because I think in the past, you've said if Asian accounts are coming into buying Australian deals and especially mining deals, that's a very bullish sign and could kind of lengthen the time line of having a bullish market there. So I'm just curious if that's occurring. Daniel Daviau: It's a great question. I'm not sure I know the answer, and I'm not sure I was the one that said that. But maybe who knows? I can't remember what I had for breakfast. But the -- again, we've got a very integrated global sales desk. We're big enough to have a global sales desk. We're small enough that we can be integrated and operate well. So we'll sell U.K. deals into Australia. We'll sell Australia deals into North America, and the border kind of vanishes with us. So we're pretty good at that, having an integrated ECM platform, particularly in the mining square, where it's -- the companies are very, very similar, notwithstanding where they may operate. It's the key underlying dynamics. So we're good at distributing. That being said, I do think that the vast majority of the Australian equity flow has come from domestic accounts. You've got large superannuation funds. They continue to grow. There continues to be -- it's not a shrinking institutional pool of money the way you'd see in the U.K. or maybe even in Canada. It's a growing institutional pool and add to the fact that we've got a pretty significant retail distribution path in Australia now. We're becoming a more significant distributor of equities into our own retail channel. And you saw that through the new issue chunk of the revenue that flows through our Australian Wealth business, which I think was $4 million or $5 million this quarter. So we're becoming a serious distributor. And as I referred to in the prepared remarks, I mean we're -- like last quarter, we were #1 in the Australian league, not #1 in number of deals, like #1 in any measure. And even for the year, I think we're #2 overall in the dollars raised and #1 in the number of deals done. So we are a very significant Australian underwriter now, similar to our position in Canada. Stephen Boland: I'll ask one more just on the Canadian Wealth Management, the expansion in the margin. Revenue -- AUM continues to go up, revenue continues to go up, but the expenses seem to be managed pretty well. Is that something that we can continue to expect that, that margin will continue to expand? Nadine Ahn: Yes, absolutely. That was one of the areas of focus for us coming into fiscal 2026. In particular, we've seen just structurally that cost base had increased as we talked about related to our investments in new properties, both in Vancouver and Toronto. So what you're starting to see is that really that buildout and scale in that revenue and also quite a bit of discipline on our cost base to focus on that margin expansion, which is what we anticipate going forward as well. Operator: And your last question comes from Graham Ryding from TD Securities. Graham Ryding: I know we've talked about this a lot already, so -- but maybe I'll come at it in a different way. So the U.S. capital markets write-down, it just looks to me or us that commentary and data that we're seeing from the U.S. brokers broadly suggest activity is picking up, earnings expectations are rising. Your write-down at this time seems somewhat at odds with sort of the improving sentiment broadly in the U.S. Capital Markets. Can you just help me connect the dots there and why you're taking a write-down now at a time when the cycle looks like it should be picking up? Nadine Ahn: Yes. When you think about it, when you're looking at it from an accounting basis, right, like you do have projections in your model, and we baseline it off the last 12 months of cash flows. And so as I rolled into Q2, we didn't see quite the improvement in performance that we had anticipated. That's hitting my last 12 months of cash flows. And so we still are looking, if you look at our disclosure at a projection of 5% growth still in terms of that business. And so you're still seeing an anticipation that we're going to be of an improvement. But when you look at the impact from a baseline standpoint, that was impacting my overall valuation versus the carrying value. And so it's being able to support the $200 million of goodwill in that business, it wasn't sustainable given the projections going forward. So from an accounting perspective, while there's a lot of judgment in there, it became a bit of a mechanical exercise. But we do still anticipate strong performance in that business going forward, but the ability to hit the valuation based off of the last period was just becoming really challenging, which is why we didn't -- we took 50%. We were obviously still able to carry the extra $100 million. Graham Ryding: And did you consider sort of assessing this at the end of fiscal 2026, a couple of quarters to maybe get the potential... Nadine Ahn: Yes, it's a judgment call. But I think when you look at our disclosure previously, the U.S. business has been operating with reduced headwind or headroom, sorry, which is why we provided sensitivity disclosure every quarter relative to that business. So yes, you could have considered waiting another period, but it was becoming difficult to substantiate the growth trajectory off a lower base, which is taking into account the historical performance. Graham Ryding: Okay. Understood. And then you flagged in your MD&A, just confidence in achieving your profitability targets for fiscal 2026. Can you share with us what those targets are? Daniel Daviau: I'm not sure what it was, I'm going to go back and look at that MD&A. Yes, I'll let Nadine answer. How is that if I can't answer it. Nadine Ahn: No, we didn't provide any guidance as it relates to -- we did discuss it more around as it relates to our operating margin and the guidance we have provided was that a 1 point improvement overall. And I think you can see based on the trajectory that we've had on a year-over-year basis, we're well on our way to achieving that result. I think that's what it was in relation to the operating margins. Operator: And there are no further questions at this time. Mr. Daviau, you may continue. Daniel Daviau: Well, again, thanks, everyone, for joining us. I know we moved the time of this call. I appreciate this is a busy morning for everybody. So I appreciate your focus and attention to this. It's obviously an important quarter for us, and we have a lot of stuff going on. Certainly look forward to updating you next quarter. And always, we're available for questions. So operator, please feel free to close the lines. Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Good day, ladies and gentlemen, and welcome to AmpliTech Group's quarterly investor update call, where the company will discuss its second (sic) [third] quarter 2025 financial results. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to AmpliTech's COO, Jorge Flores. Jorge Flores: Thank you for joining today's call to review the progress of AmpliTech's growth initiatives and financial results and to answer investor questions. On the call today are AmpliTech's founder and CEO, CTO, Mr. Fawad Maqbool; the company's CFO, Louisa Sanfratello; and the company's COO, Jorge Flores. Following initial management comments, we will open the call to investor questions. An archived replay of today's call will be posted to the Investors Relations section of AmpliTechs' corporate website. This call is taking place on Friday, November 14, 2025. Remarks that follow and answers to questions may include statements that the company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect or words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press releases and in its filings with the Securities and Exchange Commission. Except as described in these filings, the company disclaims any obligation to update forward-looking statements, which are made as of place date. With that, let me turn the call over to our CEO, CTO, Mr. Fawad Maqbool. Fawad Maqbool: Ladies and gentlemen, good morning, and thank you for joining our Q3 2025 review call. Today, we'll reflect on our record performance in the third quarter of 2025 and the 9-month period ending September 30, 2025. We'll take the opportunity to discuss the company's growth outlook, market opportunities and provide additional financial guidance. Let's start with the Q3 2025 highlights and strategic progress. Quarterly revenue was $6.09 million, a 115% increase compared to $2.83 million in Q3 2024. Gross profit more than doubled to $2.96 million, representing a 48.6% gross margin, up from 47.5% in the prior year period, up about 40% from Q2 2025 gross margin. EBITDA positive of nearly $200,000, reflecting substantial improvement in operating performance and margin expansion. Net loss significantly narrowed to $188,000 compared to a net loss of $1.19 million in Q3 2024. Cash, cash equivalents and accounts receivables of nearly $12 million with zero long-term debt and working capital of $14 million as of September 30, 2025. Now the 9 months highlights year-to-date 2025. Overall, 9-month company's record revenue surged 171% year-to-date to $20.7 million compared to $7.7 million in the same period last year. Net loss reduced by nearly 50%, improving from $7.4 million in 2024 to $3.8 million in 2025. The growth driven by the successful integration of AmpliTech's 5G ORAN technology and strong momentum in low-noise amplifiers, low-noise blocks and 5G infrastructure systems. This is not just 5G ORAN, its true 5G and we are 5G. Continued investment in R&D, up 60% supporting the new product development in MIMO 64T64R ORAN Radios, private 5G network systems and cryogenic amplifier platforms for quantum applications. Now this isn't just random R&D. It's strategically focused on what the world needs, billion and trillion-dollar markets. Now operational and financial highlights. Integration of ORAN IP portfolio positions AmpliTech as a U.S.-based vertically integrated supplier for next-generation Open RAN 5G radios and private network deployment. Our third quarter shows to be an EBITDA-positive quarter, achieved through disciplined expense control, operational efficiency and growth in high-margin segments. This is a clear signal we are turning the corner and getting close to achieving profitability. Rights offering earlier -- it's an above market price shareholder-friendly rights offering priced at $4 per unit, providing growth capital for scaling ORAN product lines and expanding domestic production. We're going to go deeper into that a little bit later. But now I'll give some outlook and forward guidance. The company increased revenue guidance to at least $25 million for fiscal year 2025, representing a 160% year-over-year increase over fiscal year 2024, beating The Street estimates. We anticipate double-digit gross margins in Q4 2025 and 2026. As production costs normalize, onetime costs are reduced and higher-margin follow-on business ramps up. We project positive cash flow from operations and profitability to be achieved in fiscal year 2026, assuming continuation of current order pace and margin recovery. Company expects to receive follow-on orders from both publicly announced LOIs imminently as well as orders from new customers in 2026. Assuming continuation of the current order pace and based on forecast information received by the company, fiscal year 2026 revenue will be at least $50 million, effectively doubling that of projected record fiscal year 2025 of at least $25 million. With this all said, I'd like to focus on our current rights offering efforts, because I'm sure many people are confused. AmpliTech has an effective Form S-3 base perspective -- prospectus from which it intends to offer these securities -- registered with the Securities and Exchange Commission, for a proposed rights offering in which it plans to distribute to, a, stockholders and b, certain warrant holders 2 transferable unit rights to purchase up to the maximum of 8 million units at $4 per unit. Each unit will consist of 1 share of common stock, the common shares and 2 short-term rights to purchase additional common shares. These are rights -- short-term rights, not warrants. Under the rights offering, each stockholder and certain warrant holders as of the record date will receive as a dividend at no charge, 2 unit rights for each common share -- each common share subject to warrant owned on the record date. The distribution of the unit rights will occur on or around the record date. The record date for the distribution of the unit rights, the expiration dates for the units rights and related short-term rights and related pricing information will be included in the filing perspective. Holders who fully exercise their unit rights will be entitled to oversubscribe for additional units, if available, that are not purchased by other right holders, subject to potential pro-rata allocation of those oversubscribe units, for which they subscribe in proportion to the total number of oversubscription units. Now that sounds very complicated, but you can get the SWP that has been published publicly to get all the details. The company is aiming for a 25% to 30% annual revenue growth through 2030. This target is mainly driven and based on our ORAN 5G LOIs with two different customers. These LOIs were not binding are the results of months of technical meetings and our involvement as what is known as the industry -- in the industry as POCs or proof-of-concept. With this said, there is a predetermined price set up with these minimum quantities and specific delivery requirements set in place already, which have been supported by receiving forecast from both customers. We're executing on a visible pipeline, early repeat orders and capacity clients to support tens of thousands of radios over time. At retail, we expect operating leverage, better purchasing, tighter manufacturing cycles, which will contribute to lift gross margins. Put simply, 25%, 35%, 30% isn't a moonshot. It's what happens when a valid product line meets a secular upgrade cycle with a differentiated ORAN 5G supplier. Company's rights offering provides our loyal investors choice, fairness and alignment. In choice, a rights offering lets every existing shareholder decide if they want to maintain or increase their ownership on similar terms. No one is boxed out by a selective private deal. Everyone has access, hence it's pro-rata by design. If you participate, you can offset those. And if you don't, you're making asset portfolio decision, not suffering because we raised capital in a small group. Please take note the right are transferable. Holders can also use to sell their rights in the market as we do expect market makers will create a market for them to be traded. So again, not just fairness, but flexibility. Alignment, we picked this structure to strengthen the balance sheet without loading the company with expensive debt or entering into toxic financing transactions. It supports growth while expecting our valued long-term shareholders. It also sends a clear signal. We're raising capital to fund concrete opportunities, production, inventory turns, certifications and go-to-market. We are not raising capital plug hold. Bottom line, the right deal gives us our shareholders agency and keeps us aligned as we step into larger orders and programs. We're inviting our owners to come with us on the next leg of our growth on the same terms. The company will use the proceeds as a high-return near-term growth levers. There are 5 levers. Number one, scale production and working capital, fund inventories for committed and forecasted orders, shorten lead times and secure long lead components. The goal is faster, order-to-cash and the capacity to fulfill multisite rollouts without bottlenecks. Number two, certification and market assets, complete and extend -- complete these certifications and will extend certifications like CE and ISED, some are operator-specific. The field trials and interoperability testing. Each certification stamp expands our addressable market and removes friction for large buyers. Number three, product road map. Encryption and software. Advanced next-gen radios and RF front-end at AI-RIC adjacent peers improved manageability and hardened security. We also have a proprietary encryption for our networks. It's hardware-based, not firmware-based big difference, which we want to incorporate across our entire ORAN 5G product line. These additional products and features will lift performance and margin and create upsell paths across our installed base. These are valuable differentiators for us. We are not a me-too company. We have never been. Growth to markets -- number four, go-to-market expansion. The strategy is to add sales, engineering, carrier enterprise channel partners and targeted international presence where trusted highly secured ORAN 5G has become a mandate. We all know how important security is, and we're going to the next step, incorporating this into our networks. This accelerates deal velocity and conversion. And finally, number five, strategic flexibility. It keeps the balance sheet strong so we can pursue select tuck-in, joint ventures or capacity investments when they're clearly accretive. We're disciplined about ROI, dollars go where they unlock revenue, improved gross margin and reduce cycle times. That's how this rate translates into 25% to 30% growth trajectory, more importantly, durable value creation. In concluding, valued shareholders, we are firmly looking ahead with our company having a record fiscal year 2025, in which we expect to nearly triple the sales achieved in fiscal year 2024, a major milestone for the company. We have expectations of receiving additional orders to continue funding our LOIs with a healthy balance sheet, zero long-term debt and expanding portfolio of proprietary 5G and satellite technologies. We also have special cryogenic amplifiers to serve the growing needs of the quantum computing market, along with ORAN technology to support artificial intelligence and global 5G product certification is now in place. AmpliTech is now positioned to deliver successive quarters of growth, enhanced shareholder value and a significantly stronger IP valuation in 2026 and beyond. Thank you for your continued support. We will now open the call for questions. Operator, please proceed. Operator: [Operator Instructions] Our first question comes from the line of Vishal Mishra with Bard Associates. Vishal Mishra: So just want to -- I heard you right, which is that you do expect these rights to be traded when they're distributed, correct? Fawad Maqbool: Correct. Vishal Mishra: That's great. And second question, this is great momentum, congratulations. Do we -- I know I see double-digit gross margins. Or do we have any more like -- as you scale like -- and you also said that the gross -- like the margins, the quantities have been sort of solidified in the contract as you've been working on the POC. Do we know -- can you give me a more color on that? Is it like those margins, which has been agreed upon are like the gross margin like in the 20s, 30s, 40s or that's not something you can disclose? Jorge Flores: Well, this is Jorge, COO for AmpliTech Group. I'm going to be taking on that answer. We do have a mixed -- we have a mixed list of 4G and 5G products and every single one of them carries a different gross margin. All we can say right now, though, and also due to competitive natures, right, that we are not going to be able to disclose a specific gross margin information on our products due to competitive nature, of course. But that's why we are saying that at least we're going to be able to achieve double-digit gross margins on every of our products right now. Vishal Mishra: So I know historically, you've been close to 30%, 40%. Is that something historically you will be or like because these new products, they will be lower, higher or... Jorge Flores: Well, as you could see from our results in Q2, in which we had a lot of onetime cost driver, we have recovered very handsomely in Q3 with over 40% gross margins. So we are, of course, going to keep allocating capital, right, to improve on our margins, sometimes we might elect to go into a higher configuration of molding equipment and fixturing to be able to drive the cost down on every single item used in our radios. So -- we do expect, though, that we're going to have, as I said before, though, at least like gross margins in the double digits. Operator: [Operator Instructions] This concludes the Q&A session. I'll turn the call back to Fawad Maqbool for closing remarks. Fawad Maqbool: Thank you, everyone, who enjoyed today's call to hear about progress. We made the plan. We have to further our company's mission of providing the communication systems of tomorrow today. We look forward to updating you further on our full year financial results call next year. Until then, please contact us directly if you have any questions or wish to schedule a call with management. Our Investor Relations team can be reached at the contact information listed at the bottom of our press release. Thank you and be well. Operator: Today's conference call is now concluded. Thank you, and you may now disconnect your lines.
Frank Stoffel: Good morning, everyone, and welcome to Allianz's Third Quarter and 9 Months 2025 Media Conference Call. Thank you for joining us today. My name is Frank Stoffel, Head of Financial Communications and Valuation Relations, and I'm here at our headquarters in Munich with our Chief Financial Officer, Claire-Marie Coste-Lepoutre; and our Group Head of Communications, Lauren Day. Today's conference call is scheduled for 60 minutes. And as usual, we will answer your questions following our presentation. With this, it is my pleasure to hand over to our CFO, Claire-Marie Coste-Lepoutre. Claire-Marie Coste-Lepoutre: Thank you very much, Frank, and good morning to all of you. I'm very pleased to report on another very strong quarter for the group, which is building to an excellent contribution to the year and our 3-year plan. Our results are supported by both an ongoing top line momentum and an attractive margin development. Across the organization, we are working on our 3 strategic levers of smart growth, productivity and resilience, with first signs of materializations into our numbers. As you can see on Page A4, year-to-date, our business volume growth continues to be very strong at 8.5%. As previously, this growth is diversified from a segment perspective and within the segment across businesses and geographies, which gives us a lot of strength for the future. Our operating profit is now up by more than 10% year-to-date. The number FX adjusted would even be 13%. Here as well, we see positive developments in all our segments. Our core net income growth is accelerating compared to the first half of the year. Year-to-date, it grows by 10.5% or actually 8% adjusted for the disposal gain of the Life JV with UniCredit in Italy that we did book in the second quarter, and as well as the anticipated tax effect of the disposal of our stake in Bajaj that we did book in the first quarter. Our core EPS adjusted for this exact same 2 effects is now up 10%, which is very strong and ahead of our 7% to 9% target range. Similarly, our core ROE is above 18% and well ahead of our target level as well. Our solvency ratio emerged at 209%, and our operating capital generation continues to be very strong, which gives us flexibility for current and for future capital deployment. Given the excellent performance of the organization at the end of September, I'm very happy to indicate that we have adjusted our outlook upward yesterday night, and that we expect to end the full year at least at EUR 17 billion operating profit. Of course, the year is not over, and we can still see NatCat or market movements. But clearly, we are very confident with the overall outcome. Let me move to Page A5, and let's have a look at our P&C business. Here, we have another excellent quarter, which is building on previously excellent quarters. We are achieving another level of -- another record level of operating profit, now 15% up versus last year, as you can see on the right-hand side of this slide. Year-to-date, our total business volume is at plus 8%, which is excellent. This 8% growth is ahead of our assumed medium-term growth rate of 6% to 7%. Approximately half of the growth is volume and the rest is price. Compared to the first half of the year, the volume growth has been accelerated from both retail and commercial. Our internal top line growth for the third quarter is in line with what we have seen for the second quarter as is our rate change on renewal for the full book, which is now at around plus 5%. We have achieved a very good level of combined ratio at the end of the third quarter at 91.6%, with both retail and commercial performing, as you can see. Also, you can see in our material, how broadly spread the performance remains. In particular, I'm very happy with the development of our attritional loss ratio with more than 1 percentage point of progress year-to-date. This has been particularly driven by our retail business, with the benefit of the underwriting and pricing actions, which are earning through. Also, our constant focus on productivity continues to deliver with our expense ratio down by around 30 bps, just below 24%. And the third quarter was very mild from a natural catastrophe's perspective, but we booked no runoff overall. So we further increased our reserve confidence during the quarter. Overall, our P&C business is doing excellently. We see volume growth, which reflects a mix of strong ongoing developments, especially in retail and targeted growth in commercial as we manage the cycle. Our profitability is not just a reflection of more benign natural catastrophes, but also very strong attritional improvement, relentless focus on productivity and significant prudence when it comes to the recognition of runoff. Let me now move to Life Finance on Page A6, where you can see that we are fully on track to meet our targets there. The numbers are as well more impacted by FX and P&C. And you may remember that we have disposed the UniCredit JV, which is now showing up in the numbers as of the third quarter. Our value of new business is up 4% FX adjusted, with our PVNBP up 5% at a very stable new business margin, which is as well above our 5% ambition level. So we see good developments across the businesses. Our life new business can always be a bit lumpy. And last year, our third quarter was extremely strong, where we are benefiting from various promotions. You may remember that our U.S. life business was up 60% last year in the third quarter. And we also had some large ticket transactions, in particular at Allianz Leben last year in the third quarter. So I think to get a good sense of the fundamental growth in new business of our Life & Health portfolio, this is actually really good to look at the 2 years development between the 9M 2025 and the 9M 2023, where we have been growing by 20%, which gives us an estimated annual growth rate of approximately 10% FX adjusted, which we also consider is the right level of appreciation if you just purely were normalizing the number between 9M '24 and 9M '25. If you look in more details at the profile of our business development, you will see as an example that we continue to grow at 93% in our preferred line of business, that our health business in Germany continues to show exceptional momentum once again with year-to-date new business profit up 56%. Italy is also worth a special mention to highlight with a growth of 13%, excluding the UniCredit business with the vast majority of that business coming into united. Let's move to the contractual service margin. And as you know, the net CSM development is a much better indicator when it comes to the real reflection of the future stock of profit to be earned by us. The net CSM year-on-year is at 5% or is at 8% FX adjusted. This is clearly well on track for our targets as is the normalized growth of the CSM, which is just under 4% at the end of the third quarter. Our Life operating profit emerged at EUR 4.2 billion, growing 6% adjusted for FX. This puts us well on track against our targets. Overall, our Life business momentum is good. Our new business profitability is at a very attractive level, and our IFRS profitability is emerging as expected from a very diversified portfolio. Let's move to Asset Management on Page A7. And here, you can see how structurally our business is doing well at navigating the market environment, delivering outstanding net flows, performance and profitability. We had our best third quarter ever in terms of net inflows at EUR 51 billion, which brings the annualized year-to-date growth rate to around 7%, which is a very impressive level. Net flows in the third quarter are positive, both at PIMCO and AGI across various strategies, platform and geographies. Our asset management franchise continues to be supported by the performance we deliver to our clients with 92% of our third-party assets under management outperforming their benchmarks on a trailing 3-year basis at the end of the third quarter. If you look further in our material, you will see that our third quarter revenues are up 9% FX adjusted. The revenues are supported by the higher average asset under management, the continued resilience in fee margins at both our asset managers together with performance fees in solid territory. Overall, this leads to revenues at EUR 6.2 billion at 9M, which translates into EUR 2.4 billion of operating profit for the segment. This is supported by the continued focus of both our asset managers on productivity, which is fueled by cost discipline, the operating leverage as we grow our revenues, overall resulting in a cost/income ratio improving 60 bps year-to-date, now below 61%. So overall, on Asset Management, we see an attractive diversified franchise with growth momentum and profitability. Let me move to Page A8, where you can see the development of our solvency ratio, which is characterized by a continued very strong operating capital generation, which is fueled by the excellent performance of our P&C business in particular. This capital generation continues to support our attractive payout, both dividends and share buyback with some of our recent -- together with some of our recent capital deployment like the investment into Viridium or the partnership with the Royal Automobile Association in South Australia. As part of our Capital Market Day commitment, we are focusing on the implementation of our capital management framework, and we are confident to achieve our full year objective of more than 20% in terms of operating capital generation. Our sensitivities are almost unchanged at a low level and continue to offer confidence of the resilience of our profile. So overall, we are in a very good position, both in absolute level, sensitivities and our ability to generate solvency through our business portfolio. While we benefit from some positive one-offs in our operating capital generation this year, there are fundamentally a lot of positive elements to be appreciated there this year so far. Let's move to Page A9. And Page A9 is focusing on the special event we had this year. As you can see, we are celebrating the 25-year partnership between PIMCO and Allianz following the completion of our first investment into PIMCO back in 2000. We thought it's very worthwhile to do a zoom on this. And clearly, it has been an exceptional partnership we are very proud of, which has generated considerable value. Let's move to next page to have a look at that at some metrics. PIMCO has, for instance, grown its assets under management sevenfold, its operating profit ninefold, the latter now making up nearly 20% of Allianz Group operating profit. PIMCO is as well adding value through its strong management of almost 50% of the group's assets. PIMCO's franchise as a leading active fixed income manager has been underpinned by consistently strong investment performance. Here again, at the end of the third quarter, for example, 97% of our assets under management were outperforming on a 3-year basis. As I have already mentioned, PIMCO has seen outstanding flows this year and continues to capture a high market share of the flows seen by the industry into active fixed income strategies together as well with the support of some of the more recent initiative, as an example, the active ETF product that I also already mentioned in the second quarter. We continue to look for ways to further increase the synergies between PIMCO and the wider Allianz Group as we leverage the benefits of an integrated asset management and insurance group. The relationship is very symbiotic alongside PIMCO being a manager of our general account assets, Allianz insurance businesses can seek new strategies for PIMCO and help expand distribution as well. PIMCO as well is supporting and benefiting from our third-party capital optimization vehicles like Sconset that we have deployed for Allianz Life in the U.S. Beyond all of this and what may be less identified in the case of PIMCO is how innovative this business is. The success of PIMCO plays as well in its ability to constantly look across the business at new and better ways of acting or investing. You have many examples of that actually also in the presentation of Christian Stracke in the Capital Market Day presentation. So looking ahead and as we outlined at the Capital Market Day last year, we are very positive about PIMCO's future as a leading active manager with skills in both the public fixed income markets and across a broad range of alternative strategies, which are a first part of its business. The focus is there mainly on asset-based finance strategies that support the real economy, as an example, the investment in data centers. So after 25 years of success, we clearly look forward to many more years of working together, sizing growth opportunities and delivering excellent performance to our clients. Let me wrap up on Page A11. So clearly, we have an excellent year so far where our delivery momentum continues across all our segments. Here, I want to take a small pause to say a big thank you to all our employees for their work and engagement in delivering such results. Together, we are working on executing the Capital Market Day levers, including the focus on higher capital generation and the strengthening of the resilience. As part of that, both the fundamentals and the diversity of our business continue to give us confidence even if the environment can be volatile or uncertain. With all of this in mind and given the performance achieved at the end of the third quarter, we have confirmed yesterday in our ad hoc EUR 17 billion to EUR 17.5 billion range for the outlook. This is subject to the traditional caveats, but clearly, we are very confident. With this, I will be very happy to take your questions, and I hand over back to you, Frank. Frank Stoffel: Thank you, Claire-Marie. We are now very much looking forward to taking your questions. But before we start our Q&A session, let me, as usual, remind you of the housekeeping items. We will answer your questions in English. But if you are more comfortable to ask your questions in German, please feel free to do so, and we will repeat it back in English for everyone else on the call to understand. [Operator Instructions] The first question of the day comes from Michael Flämig, Börsen-Zeitung. Michael Flämig: Mrs. Coste-Lepoutre, Mr. Stoffel, I have 2 questions, please. You said it's an excellent year for Allianz. Mrs. Coste-Lepoutre, indeed, we are experiencing an extraordinary success story in the property and casualty insurance. What risk do you see for the current level -- high level of profitability? And the second one, the share buyback ended some weeks ago. You said there is more room for capital management. When we -- when will you decide about a new share buyback program? Claire-Marie Coste-Lepoutre: Well, thank you very much for your questions. Maybe let me start with the second one. So we have clearly highlighted in the Capital Market Day what is our total payout approach, which is made of 60% level of dividend and then minimum 15% additional payout, which can be under the shape or form of share buyback, obviously. That 15%, we want to give us flexibility, obviously, and we want to return back to our shareholders over a 3-year period of time. So that's our total payout approach. This is unchanged at this point in time. And we just finished -- we did just conclude our share buyback that we had announced together with our full year numbers. So it's definitely too early to discuss another one at this point in time. Then I think your second question was around P&C and basically, what are the drivers for the strong performance in P&C, if I am right, right? It was not in particular about rates? Michael Flämig: That's right. And what are the risks there in the future? Claire-Marie Coste-Lepoutre: Yes. So a very good question. I think like -- so what we see in P&C is, first of all, from my perspective, so we need to distinguish between retail and commercial. And maybe let me start with retail. I think clearly is a very strong driver for the performance in retail is the fact that we have been working very strongly on -- I mean, on addressing the inflationary effect on one end, which has led to us taking quite early initiatives, which have fueled both the underwriting, the rate development, but as well, simply the overall pricing action. So that's one driver of it. Clearly, we see that the way we have been able to do that is translating itself in particular into our attritional loss ratio. So that's why I'm always very carefully looking at that dimension. But that's only one part of the story, I believe. The second part of the story is that across the organization, there is a lot of focus on generating good growth and engaging both with our clients, but also working on higher retention and cross-sell, so basically working on the overall growth triathlon that we have been mentioning in the Capital Market Day, for which we see good early signs in some of the geographies like Germany, like France, like Latin America, like Australia or Switzerland. So we see across our portfolio that this focus on those actions are starting to come into actions, and I expect more of them to continue as we progress into our plan. The second dimension, which is very important as well for retail, is the fact that we did not go only with price increase, we have been working a lot on productivity and in particular, around claims, right? So there has been a lot of actions to optimize our processes, also leveraging AI, but also leveraging one of the company we have in-house solved to really secure that we are paying less for the spare parts and so on and so forth. So a lot of actions as well to minimize the pain associated to the inflationary trends and to basically enter that back into our pricing also to fuel the growth. So I think those will be some drivers on the current performance on the retail. Obviously, we had also good support or very good support from the mild NatCat environment. But as you have seen in our numbers, we have offset that almost entirely by a lower level of run-off. So clearly, that's not one of the driver of the overperformance. Maybe moving to commercial, which is a different dynamic. So commercial, as you know, first of all, our book is very different compared to our competitors. Our commercial business is very diversified. We have the large corporate and specialty business there, but we also have Allianz Trade. We also have -- sorry, Allianz Partners and our mid-corp business. So we see very good dynamic into our mid-corp business, which is fueled by the Allianz commercial initiative with also still good stability of rates. So I think for the future makes us confident in terms of focus. Then Allianz Trade continues its excellent trajectory. And on partners as well as part of our platform play, we continue to see very good development both in terms of growth and margin development. So that's also very supportive of the dynamic. Obviously, there is market softening for the large corporate and specialty business that we are maneuvering with, and we are cautious about that as well for the future. So now if we step back and you were asking about the overall dynamic, we are confident on the momentum we are on, and we will be also managing cautiously as it's planned for and as it was anticipated in the Capital Market Day when it comes to the cycle effect on the commercial side. Frank Stoffel: The next question of today comes from Jean-Philippe Lacour, AFP. Jean-Philippe Lacour: Yes, hello to Munich. Bonjour, Madame Coste-Lepoutre. Maybe can you again explain when Allianz sales performance has been supported by underlying improvements, can you explain what does that mean first of all, on the premiums policy, did they raise or did they remain stable? And on the exposure on the other hand, exposure to certain risks. So can you maybe elaborate on this? And one question I can maybe ask again is we have to understand when -- I mean, when the things are tough and there is a lot of claims, so we can understand that maybe the insurer has to write the premiums and then the things are going very well this year. So the profits are high. So how do you return this either to shareholders, we understand it. And on the premiums policy maybe for the clients. So that will be my 2 questions. Claire-Marie Coste-Lepoutre: Yes. Thank you very much, and bonjour. So maybe like starting on your second question, which is -- so I think -- maybe let's take the example, let's illustrate the example with the case of Germany. If you look at -- in retail, right, if you look at our price position in Germany retail, we are competitive in the German market. And this is also very clear when you look at the growth trajectory of our retail business in Germany actually. And then if you look at the overperformance of the German business currently in the third quarter, you have a couple of drivers there. The main driver is the fact that we have a very -- I mean, very significantly improved natural catastrophe experience, by 7 percentage point of combined ratio. So that's a massive effect, right? Obviously, there was no negative weather this quarter or actually this year on the German business. Does not mean that natural catastrophes are not going to materialize themselves either in the fourth quarter or going forward, right? So that should be part of what we are ready to cover our clients for. Secondly, there is an improvement, which is coming from the very, very strong focus of the German colleagues on productivity. So we have a better expense ratio, but we also have a lot of productivity, which is coming as an example, from the processing of the claims, from also the way we are managing the cost of the spare parts and so on and so forth, as I have already mentioned. And then basically, the fundamental effect of the actions which are needed, and I will come back to that in a minute in terms of having the offset of the pricing effect into the numbers is coming in the better attritional loss ratio, which has been improving year-on-year, but exactly as expected and as needed as well to meet the cost of capital that we have for our business. Now if you look at the inflation we see in our dedicated markets, it's a very different type of inflation compared to the headline inflation. So the inflation continues to be high. So typically, in motor, as an example, the inflation is still in the high single-digit level for -- in Germany, but actually across Continental Europe. So we need to reflect that as required in our pricing, but we try to dampen that effect via all the actions I have been mentioning so that we minimize the effect or the replication of that effect into our clients. So I think that's the way to think about the overall dynamic there. The topic of affordability for us, rest assured is a fundamental one, and we are very focused on this and working as extensively as we can as an organization on that aspect. No, go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Sorry. No, no, go on. Claire-Marie Coste-Lepoutre: No, no. Go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Please, the first question on the underlying improvement, yes. Can you maybe explain for [Foreign Language] what you mean with that? Claire-Marie Coste-Lepoutre: Yes. I think so the underlying improvement I was mentioning is exactly -- what I was referring to is the fact that when we look at our loss ratio, so loss ratio is the total level of losses we are paying against the premium we receive. We are tranching that loss ratio into different components. So that's becoming a bit technical, but we have what we call the attritional, which is a pure type of both frequency of severity of normal losses which are happening, and then we have what is related to the very exceptional losses and what is related to the natural catastrophes. So when you look at the pure technical development of the business, you need to look at what are the standard losses making. And that's a very important aspect in particular in retail because that's the way we are driving the portfolios. And here, what we see now is that with all the actions that have been taken, we see the improvement of this fundamental piece of our loss ratio. So that's what I call the fundamental improvement, and that's a very important aspect for us in terms of overall steering. Jean-Philippe Lacour: I have a question on New Caledonia. There are news to saying about the claim you had with others. And generally, are you still active in this market? Or did you retire from New Caledonia? Claire-Marie Coste-Lepoutre: So I think on New Caledonia, the key point on New Caledonia is what is the overall legal frame and environment into which we can operate or not when we are insuring. So I think it's very important for us when we are underwriting a contract with our clients, that we have clarity on how typically the state will react in a certain environment. So the issue we had with New Caledonia is the fact that while we were thinking there will be the state intervening in terms of riots, that did not materialize itself at all. So then you are in a different type of environment compared to the environment against which you were providing the insurance coverage. So that's part of the conversation if you want for us to decide this or no, in general, to be ensuring our clients. Frank Stoffel: Next question will come from Tami Holderried from Handelsblatt. Tami Holderried: Allianz was recently victim to cyber attacks in the U.S. in the summer and more recently in the U.K. Maybe you could comment on if you're planning on changing your cybersecurity efforts as a consequence? And if you're expecting, I don't know, financial impact from these attacks? Claire-Marie Coste-Lepoutre: So thank you very much for your question. So we have a very strong cybersecurity setup in place. We have always had. So I cannot share with your numbers, but you will be astonished if you were to know how many cyber attacks we are withstanding every day and basically coping with. So we have a very strong setup. Obviously, we always are revisiting our cyber prevention setup because this is a risk that is constantly evolving, and so we have to be on top of it as much as we can constantly, right? So maybe if you allow me on both the U.K. and the AZ Life attacks, those are very specific attacks on well-known or well-reported cyber attacks that went into specific systems. So the Oracle e-business suite for the U.K. and third-party cloud-based CRM system at AZ Life. Both events are absolutely isolated and did not and have nothing to do with the broader Allianz Group. So you need really to look at those 2 as independent event entirely separated. So that's the way to look at it. Maybe on the U.K. one, which is the most recent one, it has been -- it's an incident where we have obviously taken all the actions that are needed, where we have also reported to both the authorities and the investigation set up the matter very, very quickly. But the incident only affects Allianz U.K. and represents less than 0.1% of our total customer in the U.K. So it's a very, very small base. There is no operational impact. And obviously, the business did entirely continue as normal. As a result of that event, we have 80 current clients and 670 past customers. And obviously, we have notified them and we are engaging with them in case of questions. And as always, we are very sorry for what happened to them, and we are available to support them as required. But overall, clearly, completely isolated, completely separated, very small and as well, we are reactive to be ready to cope against those situations in general. Frank Stoffel: Our next question comes from Ben Dyson. Ben Dyson: I've got a couple of questions, if I may. What was just on the -- you mentioned earlier that the benefit from lower natural catastrophes that was offset by lower contributions from runoff. I was just wondering if you could say a bit more about why there was lower contribution from runoff. And if it was -- if that meant that you've been strengthening reserves in some areas. And if so, where -- what that was for? And then the second question I had was around the collapse of First Brands and Tricolor in the U.S., whether -- I just wanted to ask whether Allianz had in the exposure either on the investment side or on the underwriting side, for example, through Allianz trade to those collapses. Claire-Marie Coste-Lepoutre: Thanks a lot for your question. So on your question on NatCat and the runoff, so indeed, we have increased confidence in our reserve level as part of this offset. And then on your question on First Brands. So we -- as you know -- I mean as a matter of policy and also for trust and confidence of our clients, we never comment on individual exposures on a single-name basis. What I can just mention to you is that in the overall context of Allianz Trade, first of all, you have seen, again the excellent numbers of Allianz Trade. Allianz Trade is very good at maneuvering the type of environment we are into. And obviously, the automobile sector has been under quite some scrutiny in the current environment, given the tariffs in particular and also the various effects on the supply chain. So Allianz Trade is always very good at looking at early signs and acting proactively when it comes to this type of exposure. So that suggests the overall approach and the way that the Allianz Trade credit has performed as a business. Frank Stoffel: Thank you, Ben. A question from [ Maximilian Voltz from Plato ] has reached us via e-mail. I would just read it out for the benefit of everybody. The question about the business as a whole. In Germany, we are seeing many insurers increasing their share of European business at the expense of German business because the German market is saturated. How is this affecting you? Is the share of German business in your European business declining? And what is your strategy? Claire-Marie Coste-Lepoutre: So I think clearly, I was mentioning excellent momentum in our P&C portfolio. So Core Continental Europe, you can see that we benefit from a very strong level of growth across the portfolio, including for the German business that is performing extremely well, and has done a lot of work to secure and to leverage, I will say, the growth [indiscernible] that we see translated in sales into practice as we speak. So clearly Allianz France is seeing a very nice and positive development. We also see very nice and positive developments on our Allianz Direct business. So Allianz Direct has seen an internal growth of 14% into the quarter and actually 7% is volume into that business. So we are comprehensively on a good trajectory, I would say, in the overall setup. Frank Stoffel: I see in the line, a follow-up question from Tami Holderried from Handelsblatt. Tami, do you have a follow-up question? Tami Holderried: Yes. Sorry. Ms. Coste-Lepoutre, you mentioned the Viridium deal that just went through this summer. On that, do you plan on leveraging the Viridium IT platform and transferring life insurance policies from Allianz to Viridium in European markets? Maybe even without telling them, but maybe just using the IT platform and having Viridium manage some growth portfolios? Claire-Marie Coste-Lepoutre: So I think -- for Viridium, so for Viridium, maybe just overall, let me let recap a bit. So Viridium is an investment for us. First of all, I like this investment because it comes with good expectations when it comes to return, right? So that's a good investment on a stand-alone basis. The second aspect of the Viridium investment is the fact that it's part of our play between the asset management and the life insurance business, so basically offering good opportunities as well for PIMCO and AGI in terms of assets under management. And the last piece is indeed related to the fact that we believe, as a company and as an organization also together with other insurers, that we need to have a high-quality back book operator, a life back book operator available in Europe, and we believe we can support as part of that setup in doing so. And you are right that for some of our portfolios, there could be opportunities for us to be ourselves a client of Viridium, not in Germany because today, if you look at our unit cost, given the size of Leben, there is no interest whatsoever to go into that direction, but that can be interesting for some of -- some other European markets where together maybe with other insurers, we would also be interested in doing so. So that required to -- that will require to optimize indeed the IT system of Viridium, which is today a German market system. So you need to enhance the features of the system to make it working for other markets. So that's part of the strategic initiative that Viridium is looking at to balance investment into a new platform and the market opportunity. So I cannot speak for Viridium, but certainly that's the work they are doing at this stage. Tami Holderried: And I guess you cannot give more detail on what countries you're looking at specifically, right? Claire-Marie Coste-Lepoutre: No, not really, yes. But I think you could identify that fairly easily. As an example, if you were to look at our Capital Markets Day material, you will see some insights. Frank Stoffel: Thank you, Tami. We have another follow-up question from Ben Dyson from S&P. Ben Dyson: Okay. Thanks for taking my followup question. I just had a quick question on reinsurance. So almost with particularly property catastrophe prices coming down. I was just wondering if there's anything that you're going to change about your reinsurance buying strategy at January 1 this year. Claire-Marie Coste-Lepoutre: Thanks a lot. So indeed, we see the softening cycle on the reinsurance side, so which for us is a positive, as you mentioned, right, because we are a net buyer of reinsurance, so that's a good thing for us. I mean, at this point in time, we are really happy with our reinsurance program. You may remember that we actually had to adjust a bit our insurance program when the market -- when the reinsurance market did go into hardening, so we had to increase some of our retention and so and so forth, but now those retentions have not moved. So if you want the economic value -- the implicit economic value of the retention is down and up for us. So that's -- so we like overall the program. What we may do is that if the conditions are really good and if we see appetite from some of some -- I mean, from the reinsurance market for certain type of more optimistic coverage, which gives us maybe high level of risk return profile like trading, as an example, volatility against more certainty in particular at a lower return period, there we need -- we may adjust our reinsurance program. But overall, short answer would be positive for us, and we are not planning adjustments to our program. Frank Stoffel: This appears to be the last question for today. Thank you very much for your active participation during this call. Just as usual, for your calendars, we will report our financial results for the full year on February 26, and we look forward to continuing our exchange then. This concludes today's media call on our 3Q and 9 months' financial results. Have a great remaining day. Thank you, and goodbye.
Operator: Good morning. My name is Sergio, and I'll be your conference facilitator today. Welcome to Frontera Energy's Third Quarter 2025 Operating and Financial Results Conference Call. I would like to remind you that this conference call is being recorded today and is also available through an audio webcast on the company's website. Following the speakers remarks, there will be time for questions. Analysts and investors are reminded that any additional questions can be directed to Frontera following today's call at ir@fronteraenergy.ca. This call contains forward-looking statements, information within the meaning of applicable Canadian securities laws relating to activities, events or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions and beliefs of the company based on information currently available to it. Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information. The company's MD&A for the quarter ended September 30, 2025, and the company's annual information from dated March 10, 2025, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which is made, and the company disclaims any intent or obligation to update any forward-looking information, except as required by law. I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Mr. de Alba? Gabriel de Alba: Thank you, Sergio, and good morning, everyone. Welcome to Frontera's Third Quarter 2025 Operating and Financial Results Conference Call. Joining me on the call are Orlando Cabrales, Frontera's CEO; and Rene Burgos, Frontera's CFO. Also available to answer questions at the end of the call, we have Alejandra Bonilla, General Counsel; Renata Campagnaro, VP, Marketing, Logistics and Business Sustainability; Ivan Arevalo, VP, Reservoir, Reserves and Operations; and Andrés Sarmiento, VP of Corporate Sustainability and People. Thank you for joining us. During the quarter, the company generated $86.6 million in operating EBITDA from continuing operations, generated adjusted infrastructure EBITDA of $30.4 million and $115 million in cash provided by operating activities, extended its crude oil hedges through the first half of 2026 and ended the quarter with a strong balance sheet, including $172.1 million of total cash. The company also declared a quarterly dividend of CAD 0.0625 per share or approximately $3.1 million in aggregate and has bought 385,200 shares through its noncourse issuer bid program year-to-date. Over the past 12 months, Frontera has distributed more than $112 million to shareholders through dividends and share repurchases, including $66.5 million paid to shareholders in the third quarter via substantial issuer bid, reducing shares outstanding by 14% since the end of 2024. Additionally, the company successfully repurchased over $80 million of its senior unsecured notes due 2028, reducing the balance outstanding to $314 million, demonstrating a strong commitment to returning capital to all stakeholders. In addition, Frontera is pleased to announce it has been approved to trade on the OTCQX Best Market that increases the company's visibility in the United States and reinforces Frontera's commitment to strong financial disclosure and corporate governance practices. Trading in the OTCQX enhances the company's access to broader U.S. investor base, including the U.S. retail market, offering shareholders improved liquidity and supporting long-term value creation. Trading began today under the ticker symbol FECCF. Notably, OTC market activity has represented over 30% of FEC's total share trading over the past 5 years, highlighting the relevance of the U.S. market to Frontera's investor community. Access to this highest tier of the U.S. OTC market further strengthens Frontera's ability to reach a broader investor base and enhance long-term value creation. In regards to Guyana, the government of Guyana through its council, communicated its willingness to participate in a final without prejudice meeting with Frontera and its partner, CGX Energy, to discuss the matters in dispute. The government proposed November 25 or December 2, 2026, as possible date for this meeting. While expressly reserving all rights, the joint venture remains open to engaging in good faith discussions with the government. I'd like now to turn the call over to Orlando Cabrales, Frontera's CEO; and Rene Burgos, Frontera's CFO, who will share their views on our third quarter results. Orlando? Orlando Cabrales Segovia: Thank you, Gabriel. Good morning, everyone, and thank you for joining us for today's call. Let me open my remarks by underscoring the strategic significance of Frontera's decision to pursue the spin-off of the Colombian infrastructure business. Frontera has consistently drawn interest from investors and strategic parties who recognize the unique strengths and value propositions present in the upstream oil and gas and infrastructure businesses. While the upstream oil and gas and infrastructure businesses complement each other, each has its own operational profiles, life cycles and appeals to different investor groups. As part of Frontera's commitment to unlock shareholder value and enable future consolidation opportunities, the company has announced its intention to spin off its Colombian infrastructure business. The separation will create 2 focused independent companies, Frontera E&P and Frontera Infrastructure. Frontera considers the strategic separation an opportunity to surface value that is not currently reflected in Frontera's market capitalization. The separation will allow Frontera's distinct businesses to explore independent organic and inorganic opportunities and deliver superior returns for shareholders. The separation is expected to be completed during the first half of 2026 and will be subject to shareholder approval. Frontera's third quarter financial and operating results reflect the actions taken by our team to create value for stakeholders, maintain financial and operational flexibility and safeguard our strong balance sheet. Despite the price volatility, we are staying focused on what we can control. Continuous operational improvements and cost efficiencies, aiming to become a stronger and more resilient company. During the quarter, our production costs decreased by 5% compared to the previous quarter, mainly driven by the adoption of new field production technologies, ongoing optimization efforts, cost reduction in O&M contracts and digital process implementation. On the transportation side, costs have decreased by 1% quarter-over-quarter, resulting from optimized transportation routes and pipeline agreements, including the expiry of our long-term Take-or-Pay agreement Ocensa P-135. These improvements were partially offset by increasing energy costs as we process higher liquids volumes during the quarter. We have also simplified our corporate structure during the third quarter through a targeted reorganization initiative that will improve organizational and operational efficiencies, generating between $10 million and $15 million in expected savings in overhead going forward. I would like to thank our employees for their efforts and commitment to address the challenges during this year. In our Colombian operations, where we have seen our production decrease by 2% this quarter, mainly due to adverse weather conditions as well as related operational and logistical challenges, which have since been resolved. The 2025 rainy season has proven to be among the most severe in the past decade with rainfall significantly exceeding historical averages. With this in mind, we have revised slightly our 2025 annual Colombia production guidance to a range of 39,000 to 39,500 BOE per day. For the 9 months ending September 30, Frontera averaged 39,240 BOE per day of production, a 3% increase from the same period of 2024. We have also revised our 2025 capital expenditures guidance reducing the higher end by around $25 million to reflect the disciplined approach to capital spending and ability to identify ongoing operational efficiencies. On the exploration side, the high-impact Guapo-1 well at the VIM-1 block was spudded targeting natural gas and condensate with drilling expected to be completed by the end of the year. This well has the potential to significantly increase the company's natural gas reserves, including potentially providing much needed supply to the Colombian market in the short to medium term and helping to derisk nearby continued prospects. The company continues to make significant progress within its infrastructure business, which includes interest in ODL and Puerto Bahía, where together with its partner, GASCO, Puerto Bahía has reached final investment decision on the planned LPG project. The initial phase is scheduled for completion in the first half of 2026, aiming to address supply constraints in Colombia's domestic LPG market. The LPG project is expected to generate between $10 million and $50 million in yearly project EBITDA once it reaches its target capacity. We continue to see positive momentum in where ODL saw a strong quarter-over-quarter volumes and EBITDA growth, led by an increase in production associated with Ecopetrol's Caño Sur block. In Puerto Bahía, the ports operating EBITDA remained steady quarter-over-quarter despite lower liquids throughput volumes associated with our trader's exit from the country. The financial impact of the reduced liquids throughput volumes, however, was offset entirely by an increase in activity from our general cargo operations, which saw a strong growth in container volumes that exceeded 3,600 twenty-foot equivalent units TEUs in October. During the 9 months ending September, 11, 454 TEUs were handled at Puerto Bahía, representing a step fold increase compared to 306 TEUs handled during the same period in 2024, capturing volumes and supporting the growth opportunities in this market. Finally, in SAARA, the water management volumes are rising steadily, averaging about 157,000 barrels per day this quarter with a peak of 230,000 barrels of water per day. I would now like to turn the call over to Rene Burgos, Frontera's CFO. Rene Diaz: Thank you, Orlando and Gabriel. And good morning, everyone. Thank you as always for your interest and support of the company. I'd like to take a moment to highlight a few key financial aspects of our quarterly results. For the third quarter, the company recorded net income from continuing operations of $28.2 million or $0.38 per share. Our operating EBITDA from continuing operations for the quarter was approximately $86.6 million compared to $73.5 million in the prior quarter. Although the pricing environment remains subdued, we have seen favorable Colombian crude oil differentials. We also had higher sales volumes during the quarter and saw a decrease on our production and transportation costs, highlighting our operational discipline. Turning to our key operational performance indicators. During the quarter, we saw average Brent sales prices at $68.17. Demand for our heavy crude barrels remained strong in the third quarter. We saw also average Vasconia differentials on export sales remaining under $2 at $1.82 for the quarter compared to $1.69 in the prior quarter. Our purchased crude net margin associated with our dilution and transportation programs was $2.70, lower than the $3.65 for the prior quarter as a result of improvement in our [ VIM-1 ] purchasing strategy. Reviewing our operating costs, our production, energy and transportation cost per barrel for the fourth quarter totaled $25.74. This compares to $25.45 for the prior quarter. The increase in quarter-over-quarter operating cost was related to our energy costs, resulting from higher fuel consumption from higher process production liquid volumes at our facilities. In our infrastructure business, adjusted infrastructure EBITDA for the quarter was $30.4 million. This compares to $20.1 million in the prior quarter. The quarter-over-quarter increase was mainly a result of higher revenues from the ODL business due to higher volumes transported to the pipeline. As of September 30, 2025, the company reported a total cash position of $172.1 million, including $158.6 million of unrestricted cash and cash equivalents. In the quarter, the company invested $50.9 million in capital expenditures, drilling 16 wells in the Quifa and CPE-6 blocks, paying $66.5 million to shareholders through a substantial issuer bid, receiving $14.7 million in insurance compensation for the Sabanero block and $18.5 million in cash dividends from the ODL investment. Turning now to risk management. Our current risk management strategy supports our operations and planning. Frontera uses derivative instruments to manage exposure to oil prices and FX volatility. On the oil side, the company has entered into structured hedges, successfully securing up to 40% hedging ratio until June 2026. Our strategy has ceiling between 63 and 65 Brent, particularly against a drop in oil prices with through the spread at a price drop of $55. Frontera has also covered 20% of the company's expected peso exposure until the end of 2025 with floors at over COP 4,200 level. These hedges provide the company with cash flow visibility and help mitigate impacts from future fluctuations by allowing us to deliver on our targets. I'd like to provide more details on our infrastructure business spin-off. The separation will create 2 independent companies with clear strategic priorities. Frontera E&P, our pure-play upstream oil and gas exploration and production company. Over the last 12 months, Frontera E&P generated stand-alone operating EBITDA of $336 million. With approximately $220 million in net debt, Frontera E&P has a net leverage of 0.7x. Frontera Infrastructure, comprised by our interest in ODL and Puerto Bahía will emerge as a leading energy infrastructure business, leveraging robust cash flows from ODL and aiming to invest in near-term future projects at Puerto Bahía to deliver a growing and long-term revenue stream. Over the last 12 months, Frontera Infrastructure generated infrastructure adjusted EBITDA of $117 million and infrastructure distributable cash flows of $75 million, which is comprised of Puerto Bahía's operating EBITDA plus ODL dividends and distributions received. With approximately $154 million in net debt, Frontera Infrastructure has a net leverage against infrastructure distributable cash flows of 2x. For additional information, please refer to our press release issued today, including a description of our non-IFRS measures described here. Before moving on, I'd like to highlight again that this quarter, Frontera qualified to trade on the OTCQX Best Market. This upgrade includes access for a broader U.S. investor base, including the U.S. retail market and provide shareholders with a more convenient trading optionality alongside our primary TSX listing. OTCQX is the highest tier of the U.S. OTC market and aligns well with the TSX disclosure and government standards. The platform offers U.S. investors real-time Level 2 quotes and streamlined access to our disclosures at otcmarkets.com, improved transparency and visibility for current and prospective shareholders. The enhanced trading structure should also support tighter bid offer spreads and more effective execution as U.S. investors transact to the brokers they already use, while providing greater visibility into meaningful U.S.-based ownership positions. The U.S. market has already been an important source of activity for Frontera with more than 30% of our commercial volume over the past 5 years trading on the OTC platform. The OTCQX qualification builds on the success in demand and provides a cost-effective way to buyer participation, increase visibility and strengthen long-term engagement with our shareholder base. As always, please feel free to reach out to us at ir@fronteraenergy.ca if you have any questions. I would like now to turn the call back to Orlando. Orlando Cabrales Segovia: Thank you, Rene. Before I conclude today's call, I would like to highlight that the company continues to advance towards its 2028 sustainability goals as well as on the 2025 plan with progress made on almost every goal during the third quarter. On the sustainability front, in the third quarter of 2025, local suppliers accounted for 11.5% of total purchases, reflecting the ongoing commitment to local supportive economic development. Additionally, we maintained a strong performance in health and safety indicators, achieving a total recordable incident rate of 0.57 and also attaining a water reuse rate of 36% within our operational activities. In addition, Frontera achieved the level of excellence certified by Great Place to Work. I would like to congratulate Mr. Ivan Arevalo, who is assuming responsibility for Reservoir and Reserves; and Mr. Andrés Sarmiento, who transitioned to VP of Corporate Sustainability and People. These adjustments are aligned with Frontera's vision to enhance synergies, optimize processes and ensure a comprehensive approach to managing all aspects of our operations. With that, I would like to conclude by saying thank you to Gabriel and Rene for their comments, and thank you, everyone, for attending our call. I will now turn the call back to our operator. Operator: [Operator Instructions] Your first question comes from Anne Milne from Bank of America. Anne Milne: Thank you for all the information on the proposed spin-off. I was just -- I had a couple of questions on that front. Will these 2 new companies have completely independent management teams, which I assume they will. And at what point, I guess, it will be right afterwards, you will continue to provide financial information on the E&P section like you're doing the segment as you're doing right now? And then the second question is on the E&P segment. Could you give us at least some basic trends of what you're expecting for 2026? I know you probably can't give guidance, but maybe you have some general comments. Orlando Cabrales Segovia: Let me start with the last one. We are working on the 2026 plan. We are expecting to announce that early next year. So that is the first thing. The second thing is that details around the separation of the 2 businesses will be provided in due time. But yes, you can expect that the management teams are going to be different as 2 separated companies. And the other one... Rene Diaz: No, the last one, I think you should expect to continue to see the level of disclosure that we have. I think it's quite transparent to distinguish between one and the other. But we would appreciate any questions that anybody has, but we can continue to improve our transparency. But yes, you should continue to see the level of detail that can inform... Operator: Your next question comes from Tom Klamka from Gramercy. Tom Klamka: Can you confirm, it looks like in the press release, the capitalization of the 2 companies will essentially follow the existing capitalization, Frontera debt goes to Frontera and infrastructure goes to infrastructure? And is there any additional leveraging anticipated as part of this transaction? Rene Diaz: That's terrific question, Tom. Thank you for joining the conference call. I think the press release tries to make it as clear as possible. Today, our $530 million of investments are going to be divided into the appropriate lines. As you may recall, most of our debt sits into 2 unique transactions, one being the FPI loan, which covers our infrastructure assets and the other being the Frontera senior notes, which are effectively part of the E&P business. So that should follow in that path. As to any incremental leverage and any additional details, like Orlando said, this will be provided in due time. I think what we can -- what you can add to this is that our plan is to have this completed before the end of the first half of 2026. Tom Klamka: Okay. And then you show the debt service at infrastructure being about $56 million a year. I'm assuming most of that is amortization because the interest burden should be much lower, like, I don't know, 25, 30, something like that, correct? Rene Diaz: Look, that's right, if you look at our indebtedness, our debt is around 10%, 10.5% for the FPI transaction. And you got to also remember that we have turbo amortization. So even when we do capture -- when we have cash from the dividends generated, all those dividends go to pay. So the best way to think about pay down the debt, sorry. The best way to think about it is that we keep cash, that cash from that -- from the ODL transactions are going to very quickly amortize. So yes, to your point, look, when we started the year, we started around $220 million in May when we closed the transaction, right? Now we're close to $202 million. And today, we're sitting in ODL at around $30-something million. So you should expect a very quick deleveraging by the end of the year in December with the cash flow sweep, we should see FPI at around $175 million to $180 million of debt. Tom Klamka: Okay. And then just last question on the guidance changes. It looks like there's some production changes and you have some cost savings, but it looks like you're keeping your EBITDA guidance at the $270 million to $315 million at the lower Brent level, correct? Orlando Cabrales Segovia: That is correct. Yes. We are keeping the EBITDA guidance. Operator: Your next question comes from Oriana Covault from Balanz Capital. Oriana Covault: I have a doubt in terms of the LPG and the gas -- the associated gas deployment that would be needed. So if you could share any additional color on timing and commissioning for the project? And since when should we expect to see this incremental EBITDA generation? Rene Diaz: Oriana, can you repeat the question? I think you said -- let me try to repeat it. I think you said LPG project, you want to know the timing and when we're going to see the EBITDA generation, is that what you said? Oriana Covault: Yes. Sorry, can you hear me better now? Rene Diaz: Yes, that's better. That's better. Oriana Covault: Okay. Perfect. So yes, in essence, I just want to understand better on the dynamics of this LPG project. How would be the natural gas deployment associated? And just kind of curious if this means that you'd be interested in perhaps pursuing any potential increase in natural gas and drilling more in that sense, that would be helpful to understand. Orlando Cabrales Segovia: Yes, I think the -- I mean on the LPG project, we are working to -- on fast tracking the project via a first phase that we call our first phase, which is our ship-to-trucks mechanism that will come online in the first half of 2026. And this phase is to ensure we meet the market demand for LPG right now in the country prior to the construction of a permanent onshore refrigeration unit. That is expected to be online in 18 months 2027, sometime in 2027. When we announced this project, we are expecting an EBITDA range between $10 million and $50 million when we reach the maximum capacity of the project. That means when we build the refrigeration unit in 18 months. But that's for the project... Operator: Your next question comes from Isabella Pacheco from Bank of America. Isabella Pacheco: So my questions on the infrastructure were already answered, so I'll go to another front. After the Guyana impairment and your Ecuador exit, what are your plans to replace reserves? Are there any near-term drilling campaigns in Colombia that could materially impact 2026 production? Orlando Cabrales Segovia: I mean we are permanently looking at our portfolio. And when there are opportunities to sell to buy, we will see those opportunities. So we are currently looking at the market. And if there are opportunities that make sense, either to buy or to sell, we will look for that. So that is something that we do constantly. Sorry one last thing is that the drilling of Guapo, the Guapo well is a high-impact well is an exploration well and that could bring additional reserves to the company going forward. And as you know, the gas market is needing that additional supply. So there is an opportunity there. Operator: [Operator Instructions] There are no further questions at this time. Please proceed. Orlando Cabrales Segovia: Okay. Thank you, operator. Thank you, everyone, for attending today's call. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Welcome to Tivic Health Systems third quarter 2025 financial results and operational update conference call. This call has been prerecorded. This call is being webcast, and the replay will be available on the IR of the company's website for three months. Before we begin, let me remind you that during today's call, management will make various forward-looking statements. Investors are cautioned that these forward-looking statements are based on current expectations and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those indicated in our forward-looking statement. Please read the safe harbor statement contained in the press release that Tivic Health issued today as well as the risk factors contained in Tivic Health's filings with the SEC, including its annual report on Form 10-K of the year ended 12/31/2024 and the Form 10-Q to be filed with the SEC today as well as other companies' SEC filings. Hosting today's call is Jennifer Ernst, Tivic CEO, and Lisa Wolf, Tivic CFO. Now let me turn the call over to Jennifer Ernst. Thank you, and welcome to everyone listening today. Jennifer Ernst: I'm pleased to be reporting on the progress we have made during the third quarter in building a new Tivic. As many of you know, at the start of the year, we undertook a significant strategic transformation of Tivic Health Systems, Inc. Beginning in February, with the licensing of entolimod and related assets, we expanded from bioelectronics to biologic pharmaceuticals with a common focus on the immune system and the ways we can harness the immune system to improve clinical outcomes and save lives. We've accomplished a great deal in a very short time. In Q2, we built out the team and secured the first meetings with potential customers for Entelimod's use as a military countermeasure. We continue to deepen those connections and expect to be meeting with BARDA in the coming months to discuss stockpiling opportunities. While our commercial focus is squarely on moving Intaloupe through our first BLA with the FDA for acute radiation syndrome, we've also continued to enrich our pipeline. We licensed Entelimod and Entelasta for neutropenia and have begun discussions with leading institutions about conducting investigator-led studies in this area. We have filed new intellectual property, IP that supports the potential use of our TLR5 agonist as adjunctive therapies for immuno-oncology cancer therapeutics. We have completed the optimization study for our VNS device design, uncovering the key parameters that have the strongest influence on the autonomic nervous system activity. And we are completing the exit from the consumer health market, increasing focus on prescription therapeutics. Today, let me focus more on our fully licensed entolimod portfolio and report to you where this drug candidate stands from a clinical development perspective. Entalimod itself is a first-in-class late-stage, highly derisked drug candidate. And the first commercial opportunity for Tivic Health Systems, Inc. with entolimod is for acute radiation syndrome, which we are developing as a potential military stockpile drug. Entolimod for ARS is intended to be used as a countermeasure to exposure from lethal levels of ionizing radiation. Entelimod is of strategic value because its novel mechanism of action gives it the potential to treat radiation and cause damage to the GI tract, unlike the G CSF drugs that are currently stockpiled for ARS. We're focusing our efforts on building relationships with U.S. and allied governments and on entolimod's manufacturing readiness. Following the feedback we received from speaking with military officials at the Military Health System Research Symposium, and with the support of BARDA stakeholders, we requested a TechWatch meeting. Participating in a TechWatch meeting with BARDA and its interagency partners would give us further opportunity to discuss their interest in Entolimod for ARS and in the follow-on molecule Entelasta. Also this quarter, we completed the transfer of two entolimod INDs from Strattera to Tivic Health Systems, Inc. They cover the development of entolimod for ARS and for advanced cancer. The transfer of these INDs enabled us to move forward with entolimod clinical programs in neutropenia and lymphocyte exhaustion. With existing human safety data and prior dosing studies, we anticipate being able to move directly into Phase II clinical studies in both of these indications. We believe our TLR5 mechanism of action could yield a wider range of clinical benefits than the approved colony-stimulating factor or G CSF class of drugs. Importantly, this includes addressing radiation-caused and chemotherapy-caused damage to the GI tract. Specifically, the G CSF drug class stimulates new blood cell formation only, whereas Tivic Health Systems, Inc.'s TLR5 mechanism of action engages a pathway that prevents cell death, a mechanism that can unlock benefits across multiple organ systems, including the GI tract. Prior studies have shown that entolimod has the potential to be used prior to exposure, for example, in advance of a medical radiation treatment, to protect critical cells responsible for white blood cell production and the epithelial lining of the GI tract. These features of Entelimod open opportunities in the oncology space, and these INDs enable us to conduct clinical trials in these oncology-related applications. I'm also pleased to report the successful verification of the entolimod cell line. Working with our contract manufacturing organization, we successfully produced new Entelimod proteins. In vitro testing verified that the resulting protein structure and yields are suitable to move into larger batch production. This representative first production of any form of biologic represented a major manufacturing milestone that advances us along the path to current good manufacturing practices, or CGMP. Now CGMP is a required step in preparing for the biologics license application. Unfortunately, the contract manufacturer with whom we have been working has experienced financial stress in the wake of government actions earlier this year, actions that impacted several of their customers' programs. So while this has resulted in delays to our original schedule, we are working closely with the team and with our investors to establish stability and traction. At the same time, we've made good progress with other manufacturing partners to ensure we are able to meet our timelines and production requirements. And now just a few updates turning to our VNS program. This week, we announced the results of the findings from the optimization trial for our noninvasive vagus nerve stimulation program. The study served to isolate parameters that most significantly impacted autonomic system activity. And, admittedly, we had some surprise findings, ones that suggested we may be able to influence both sympathetic and parasympathetic activity, whereas our prior work had focused solely on the parasympathetic effects. Learning may cause us to reassess the initial commercial focus that we were targeting. Now our findings are particularly compelling because they advance the field of neurostimulation. Personalization of the stimulation frequency, the lateral placement of the stimulation electrodes, and the duration of treatment all impact the clinical outcome, and not necessarily in the expected ways. While modern implanted devices are often utilizing real-time data to tune treatment, our study confirmed the hypothesis that VNS stimulation parameters delivered noninvasively can benefit significantly from personalization as a means to increase responder rates and increase the clinical effects. Because of the greater understanding gained from this trial, we are evaluating alternative commercial opportunities that could be enabled. Now the program has taken a little bit of a backseat this year with our limited resources committed predominantly to the integration of our lead biologics candidate and its follow-on applications in oncology. We remain confident, though, that our noninvasive VNS approach has the potential to deliver clinical outcomes similar to or better than those of surgically implanted vagus nerve devices. And at this point, I'd like to ask Lisa Wolf to review the financial results for the quarter. Thank you, Jennifer. Lisa Wolf: For ease of listening, all of the financial metrics I will be comparing the third quarter ended 09/30/2025, to the prior year quarter ended 09/30/2024. And the nine months ended 09/30/2025, to the nine months ended 09/30/2024 unless otherwise stated. Financial results for the third quarter and first nine months of the year reflect our transition as a company with our focus towards the biopharmaceutical market and away from the consumer device market. As mentioned in our last quarterly call, we plan to exit the consumer device market by the end of the year. Toward that end, during the third quarter, we recorded reserves for excess and obsolete inventory of $230,000, which is included in the cost of goods sold. We also wrote off certain assets related to clear up, with a net book value of $117,000, which is included in other expenses. We do not expect to incur additional significant costs associated with our exit from the consumer device business. Additionally, we have now discontinued the allocation of any significant resources toward clear up sales. As part of this progression, the company launched a new corporate website that puts the emphasis on our transformed mission and expanded clinical pipeline. Revenue net of returns totaled $140,000 for the quarter, compared to $126,000 in the year-ago quarter. Revenue net of returns totaled $302,000 for the nine-month period compared to $600,000 in 2024. The increase in the quarter was a result of increased unit sales, driven by reduced selling prices as we push to reduce prior to exiting the business. The decrease for the nine-month period was primarily due to decreased unit sales resulting from reductions in our advertising spend as we focused our resources on the advancement of our TLR5 program. Cost of sales increased to $291,000 from $82,000 in the year-ago quarter primarily due to the $230,000 of inventory reserves recorded in 2025. Cost of sales decreased to $343,000 from $359,000 for the nine-month period primarily due to lower unit sales offset by the $230,000 inventory reserve. Gross margins, excluding the $230,000 inventory reserve, were 42% for the third quarter, compared to 35% for the year-ago quarter. Gross margins excluding the $230,000 inventory reserve were 37% for the nine-month period compared to 40% for the year-ago quarter. Operating expenses were $2,300,000 for 2025 compared with $1,500,000 for the same period in 2024. Operating expenses for the first nine months of 2025 were $5,900,000 compared to $4,400,000 for the first nine months of 2024. The increases for the quarter were due to increased research and development investments in our biologics program, increased corporate costs, and increases in advertising costs per ClearApp as we push to sell through that inventory prior to our exit from the consumer business. The increases for the nine-month period were primarily due to increased research and development investments in our biologics program and increased corporate costs offset by reductions in sales and marketing costs for CLEAR as we focused our resources into the advancement of the TLR5 program. Net loss was $2,600,000 for 2025 compared with $1,400,000 for 2024. Net loss for the nine-month period of 2025 was $6,000,000 compared with $4,200,000 for the same period in 2024. At 09/30/2025, cash and cash equivalents totaled $3,500,000 compared with $2,000,000 at 12/31/2024. We believe that these funds, along with remaining planned tranches of our preferred purchase agreement, will allow us to make meaningful progress toward GMP manufacturing validation for entolimod, which is a key value inflection point for the company. There's also no debt on the balance sheet. And with that, I'd like to turn the call back to Jennifer for closing remarks. Jennifer Ernst: Thank you, Lisa. So to recap, we started a process in February to transform the business. And today, this transformation is well underway. In the third quarter and subsequent weeks, we've transferred two INDs to Tivic Health Systems, Inc., completed the cell line verification required to enable a future BLA with the FDA, wound down the consumer health tech business, advanced discussions of potential pathways to deploying entolimod as a military countermeasure and stockpile drug, and last but not least, we closed additional tranches of the company's $8,400,000 financing for a total of $3,800,000 in net proceeds during the third quarter. So yes, the transformation progress is well underway. And I want to thank you for listening and for your continued interest in Tivic Health Systems, Inc. We look forward to continuing our progress in the coming weeks and months as we focus on advancing value creation activities on behalf of our shareholders, while at the same time working to bring life-saving and life-enhancing treatments to patients in need. And with that, I'll turn the call back to the operator. Thank you. Operator: This will conclude today's conference. You may disconnect your lines at this time, and have a great day. Thank you for your participation.
John Nesbett: Good afternoon. And welcome to the TOMI Environmental Solutions, Inc. Third Quarter 2025 Financial Results Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. John Nesbett of IMS Investor Relations. Sir, the floor is yours. Good afternoon. Thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's Chief Executive Officer and Chairman, Dr. Halden Shane, E.J. Shane, our Chief Operating Officer, and our Chief Financial Officer, David Vanston. A telephone replay of today's call will be available through November 28, 2025, the details of which are included in the company's press release issued today. A webcast replay will also be available on TOMI's website at www.steramist.com. Certain written and oral statements made by management of TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements should be evaluated in light of important risk factors that could cause our actual results to differ materially from our anticipated results. The information provided in this conference call is based upon the facts and circumstances known at this time. Please refer to our filings with the SEC, including our 10-Q for the quarter ended September 30, 2025, for a discussion of these risk factors. The company undertakes no obligation to update these forward-looking statements after the date of this call. Now, I will turn the call over to TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane. Please go ahead. Halden Shane: Thank you. Thank you, John. And good morning, afternoon, or evening to everyone from around the world. Thank you for joining us for TOMI Environmental Solutions Third Quarter Earnings Call. Today, we will share our third quarter 2025 results along with key updates and reasons we believe TOMI is on the cusp of a breakout. After a challenging start of the year, the third quarter marked a decisive turning point. We delivered a 95% sequential revenue increase driven by expanding recurring revenue streams and deeper customer engagement. A key takeaway from our third quarter performance is the increase in capital purchases of our mobile equipment as our service provider partners grew in number. This includes both well-known industry leaders and smaller, long-term players who are increasingly recognizing the value of clean tech and the superior advantages of our SteriMist IHP technology. Our vision remains steadfast: a future where sales of mobile capital equipment, IHP Corporate Service, our custom integration platforms, and, of course, our core BIT solution business model all grow in tandem. A new growth engine: recurring revenue. That's the theme. Building on the momentum, our third quarter revenue reached $2 million, marking a 95% increase over quarter two. This growth was driven by strong equipment sales and most notably recurring BIT solution sales, which have risen 21% year to date. In 2025, we placed significant emphasis on our existing customer base, ensuring implementation usage, and tailored protocol development for customers across all our industries. This focus has positively affected BIT's solution sales, which have seen stable and increased sales in each quarter. By sustaining this momentum, while ramping up capital equipment sales and successfully closing project bids for automation solutions, we will not only achieve our overall growth objectives but also enhance predictability, which is essential for scaling the business effectively. Another theme: momentum builds expanding pipeline and backlog. Our sales order backlog was $900,000 at the quarter end and grew further to $1.3 million by October 31, with approximately $3 million in pending integration contracts expected to close before year-end. Our active pipeline surpassed $15 million, encompassing both domestic and international customers across the industries we currently serve, as well as emerging sectors showing strong interest. These figures are more than just metrics; they signal the business opportunities we anticipate in the coming quarters and extending into 2027. Another theme: visionary markets beyond traditional boundaries. We are doubling down on investments in innovation and customer success. Our SteraMist IHP technology continues to gain industry recognition, this year being named the Disinfection and Decontamination Products Company of the Year 2025. Our platinum customer roster includes top-tier leaders across every sector we serve, further validating our solutions and positioning TOMI as a trusted partner in global health and safety. Regulatory developments are opening new markets. The FDA's broadened approval of hydrogen peroxide and our breakthrough demonstration of SteraMist efficacy against honeybee colony collapse position us to serve not only life sciences and healthcare but also agriculture, food processing, and environmental biosafety. The opportunity before us is vast, expanding the relevance and impact of SteraMist on a global scale. Strategic execution: laying the groundwork for 2026. To maintain and accelerate this momentum, as stated earlier, we are intensifying customer outreach through personalized engagement strategies, deploying targeted marketing campaigns that highlight real-world success stories, and forging deeper partnerships with key industry players. Our SteraMist Pro Certified program and learning management system are empowering the market with essential education while onboarding specialized service providers. We are also in the process of updating, improving, and adding to our training programs across all delivery systems. Looking ahead, heading into 2026, TOMI is sharpening its focus on biosecurity advancements that address evolving global challenges, from climate-driven health risks to supply chain vulnerabilities. We will prioritize scaling our automation integrations for high-efficacy environments, exploring untapped opportunities in sustainable agriculture and public infrastructure, and fostering collaborative R&D with academic and industry partners. This will empower us to deliver solutions that enhance environmental resilience, safeguard communities worldwide, and drive sustainable returns, ultimately positioning TOMI as the go-to innovator in a rapidly changing world. I will now hand the call over to our Chief Financial Officer, David Vanston, who will provide a brief overview of our financial results for 2025 compared to the same period last year. David? David Vanston: Thank you. Thank you, Dr. Shane. In 2025, our revenue was $2 million, a decline from $2.5 million in Q3 2024, representing a 24% decrease in sales. This was primarily driven by a timing reduction in the quarter of IronHP services sales from a key customer who reorganized its operations. This impact is expected to be temporary, and the customer's operations-related service activity is expected to resume to a normal level in the near future. Importantly, year-to-date service demand remains robust, with quote activity and pipeline volume up approximately 35% year over year in the life sciences and food safety area. This trend supports our expectation for continued growth in the fourth quarter and beyond. For the nine months ended September 30, 2025, solution revenue was $760,000, an increase of 21% year on year as earlier stated by Dr. Shane, compared to the same period in '24 as we continue to drive recurring sales of solutions within our customer base. A positive point was our gross profit remained strong at 61% as a percentage of sales for the three months ended September 30, 2025, and for the same period last year. The consistency of our gross profit margin underscored the resilience of our product mix and disciplined cost management. For the three months ended September 30, 2025, we experienced an operating loss of approximately $320,000 compared to an operating income of $149,000 in the same period last year. Our net loss for the three months ended September 30, 2025, was approximately $450,000 or 2¢ a share, compared to a net income of $58,000 or 0 compared to the same period last year. As of September 30, 2025, our financial position includes cash and cash equivalents of approximately $190,000, working capital of $2.5 million, and shareholder equity of $2.2 million. I will now turn the call over to our Chief Operating Officer, E.J. Shane, to discuss the upcoming business highlights. E.J. Shane: Thank you, David. Our previously announced active projects are currently on track for delivery by the end of the year, and we are currently negotiating an additional $3 million in custom and integrated contracts, with bids expected to close before the year-end. 2025 showcased TOMI's evolution into a trusted technology partner for regulated industries. Implementing experiments with agencies such as NASA and Fort Detrick alongside repeat orders from global leaders underscores SteraMist's position as a gold standard for contamination control. With major pharma companies investing in United States onshoring and sectional facilities, TOMI is ideally positioned to capture expanded opportunities in sterile automation systems. Automated, repeatable, and validated decontamination rooms and chambers remain in high demand as the pharmaceutical industry evolves. We believe our IHP technology is emerging as a benchmark for sterile environments, as evidenced by its adoption this year with premier companies. As of the third quarter, the onshoring of pharmaceutical production positions us favorably, specifically in Virginia for the next few years, particularly with major commitments from Merck, Eli Lilly, and AstraZeneca, who are establishing new production sites. As we build on the strong momentum we've shared today, the key question is obvious: How will we keep driving growth in BIT Solutions sales, IHP service, capital equipment, and custom integrations? As Dr. Shane noted earlier, our BIT solution gains come from growth in personnel and operations and better training for our current customers. We will keep this going to drive steady adoption and stronger reach in key sectors. We are nearly complete on updated training documents, rolling out a more comprehensive program that emphasizes ongoing recertification. This approach not only raises customer standards for implementation safety but also may generate additional revenue and deeper product adoption, strengthening TOMI's role as an essential partner. 2025 unfolded an essential chapter in TOMI's journey marked by breakthroughs that not only validated our recent innovations but also directly fed our pipeline of opportunities. It began in July with the installation and commissioning of our SISSA for a neighboring pharmaceutical company, which falls under our Ceramis Integrated System or SISSA platform of offerings targeting the pharmaceutical isolator market. A milestone that led to successful integrations into additional enclosures at Virginia Commonwealth University and the University of Miami, and a promising wave of future installations with both existing and prospective manufacturing partners. In the life sciences and manufacturing sectors, we see a powerful shift toward continuous bioprocessing, flexible facilities, and AI-enabled operations. These advancements demand decontamination solutions that integrate effortlessly with automation while minimizing downtime, precisely where our custom engineers system or CES excels, offering rapid, efficient sterilization to support production and operational efficiency. While our CES remains in demand due to its tailored approach, we recognize that its extended timeline from initial interest to full commissioning can be extensive. As the CES pipeline continues to expand, we are strategically prioritizing our hybrid and the SIS products, which offer faster close rates and quicker integration and implementation within facilities. This balanced approach ensures that all our custom automated advances at a comparable pace, with the hybrid and SIS lines serving as the ideal solution for automated integration segments, driving quicker revenue realization than the CES. Building on our Q3 momentum, August marked a significant step forward when our East Coast distributor, Aerie Science, helped us secure a new university client for our SIS platform, solidifying our presence in the academic vertical and opening doors to specialized applications in research environments. This progress carried into this week's ALAS conference. We collaborated closely with Aerie on promising upcoming projects and showcased our advanced product lineup alongside our enhanced engineering capabilities in programming and design. By engaging manufacturers of cage washers, decontamination chambers, and biological safety cabinets, or BSCs, we are expanding our partnership options for future integrations, strengthening our pipeline with diverse choices while positioning these collaborators as valuable resources to expand the SteraMist IHP brand and technology into high-potential sectors such as government agencies, universities, and animal research. Additionally, discussions with ALAS included a new potential representative company for the West Coast, as well as opportunities for complementary products that could generate fresh revenue streams by pairing seamlessly with our core technology. Stay tuned for updates on these developments as they might diversify our pipeline heading into next year. In healthcare, new initiatives like the Joint Commission's Accreditation 360 program, set to launch in 2026, may open new revenue streams for TOMI as well. The program will create a growing need for verifiable, auditable disinfection data, which SteraMist delivers through its advanced logging and reporting features, helping providers meet stringent standards and enhance patient safety. In quarter three, we celebrated a landmark addition to our roster of customers with a major player in the eye health industry. Bausch and Lomb rapidly adopted our mobile handheld surface units in two facilities in under four months and committed to open the solution orders for 2026, promising sustained revenue streams in a sector in need of advanced durability. In September, we made significant strides in capital equipment segments by onboarding a specialized service provider focused on healthcare and mold remediation, quickly followed by SteriClean and TAP purchasing mobile systems, with the latter expanding their thermos lines with foggers. We continue to speak with these three and other larger franchise service providers for a widespread adoption of SteraMist IHP technology across their networks. Our highly regarded SteraMist Pro Certified or SPC program continues to nurture a dynamic environment of partners and customers, enhancing implementation and long-term usage. Large contract cleaning, bioremediation, and restoration firms such as DareClean and TAC are scaling up their offerings to handle complex high-margin jobs in biohazard, mold, and mycotoxin cleanup using our advanced technology. This year has brought a transformative shift in our business development approach, with initial purchases of one or two units at select locations inspiring broader rollouts across entire organizations, a pattern that is starting to play out successfully in both the life sciences and commercial industry. To sustain this momentum, we continue developing these organic expansions, which is key to scaling our business and, of course, its model. A prime example is our growing relationship with Nestle, which is gaining traction, and they have expressed a strong desire to establish our technology as the global standard across their nutritional facilities worldwide. We have already deployed multiple Steripox to various branches internationally, setting the stage for substantial recurring revenue and further international growth. We continue to pursue the cannabis market under our food safety division, and quarter three sparked some significant interest domestically and internationally, opening doors to promising new partnership discussions. Our current distributor, Sterile Girl, continues to market and slowly gain traction, adding to the referral base and efficacy use data for the market. We have unofficially entered a collaboration with Smithers, the largest testing lab in the United States, which we expect to yield lead referrals soon and will soon begin a study in Morocco that positions us for entry into the European and African medical cannabis markets. A key quarter three highlight pertains to a regulatory change: the FDA's final order amending regulations to allow the use of hydrogen peroxide in food processing. This ruling is game-changing for SteraMist, validating our BIT Solutions food-grade hydrogen peroxide as the sole active ingredient and providing a clear regulatory framework with a competitive edge in the multibillion-dollar food safety market. By expanding applications beyond environmental disinfection to direct food-related protocols, such as in the ready-to-eat, or RTE industry, where convenience food like prepackaged meals and salads demand pathogen control, it positions TOMI to capture a significant share across the supply chain. With no residual concern due to SteraMist IHP's breakdown into oxygen and humidity, we can now disinfect equipment, processing lines, and facilities in food-present environments to target threats like salmonella, listeria, and E. coli, decontaminate packaging and storage areas to prevent cross-contamination, and sanitize transportation vehicles for end-to-end hygiene. This broadens our addressable market and drives revenue growth in high-demand sectors. Thank you, and I will return the call over to Dr. Shane for his closing statements. Halden Shane: Thank you, E.J. We remain focused on strengthening our organizational foundation, enhancing our C-suite, management, and division leadership, building out our sales and technical teams, and expanding our network of global distributors. The third quarter marked a notable period of recovery and reaffirmed the soundness of our strategy. We are seeing steady improvement financially, operationally, and strategically. Our team is dedicated to driving growth and innovation across all divisions, leveraging our expanding portfolio of products and services. We are encouraged by the opportunities that lie ahead. Our sales backlog remains strong, and the sales strategy implemented at the end of last year is beginning to deliver promising results. We are motivated by the progress in our strategic partnerships and the growing interest from clients seeking to improve their operations with our solutions. With continuous investment in infrastructure, technical expertise, and a stronger sales strategy, we believe we are well-positioned for a successful fourth quarter with momentum carrying into 2026. I'd like to highlight a recent strategic milestone that positions us for sustained growth. On November 5, we entered into an equity purchase agreement with Hudson Global Ventures, giving us the flexible right but not the obligation to sell up to $20 million in common stock over a twenty-four-month period. Full details are in our Form 8-K filing. The agreement provides the flexibility for on-demand access to capital without upfront commitments or heavy dilution, helping us fund the strategies, goals, and momentum we have described today, including our business development needs, hiring customer service specialists, technicians, programmers, trainers, and operational support to accelerate our pace while maintaining our strong reputation with customers across the industries we serve. It will also enable us to expand on key initiatives, such as advancing R&D, regulatory pursuits, and market expansion, ensuring we seize opportunities in clean tech and biosecurity while creating long-term value for shareholders. Thank you for your continued support as we unlock TOMI's next era of growth. We're excited about what's ahead. Now, operator, let's open the call to questions. Operator: Thank you, sir. Ladies and gentlemen, at this time, you'll be conducting our question and answer session. If you would like to ask a question, please press 1 on your telephone. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Please pick up your handset before pressing the star keys. Thank you. Our first question is coming from Sameer Joshi with H.C. Wainwright. Your line is live. Sameer Joshi: Hey. Good afternoon. Doc, David, E.J. Really good quarter. Congratulations on the nice turnaround and progress. One of the key things I think you announced was the FDA approval or clearance for the hydrogen peroxide usage. It opens the food, RTE, and prepackaged as E.J. outlined. What are your sales and marketing efforts towards this, and have you identified initial targeted customers that you would pursue? Halden Shane: So it's relatively new, this approval. And we foresee that the food industry in itself, both whether it's in processing, storage, packaging, transportation, etc., can be a key marketing vertical for us. And I'm really excited about it because, especially our type of technology does not have any residue. And it's gonna be a game changer. But you know, in order to go ahead and tell you how much and who, it's a little too early, I think. And I find that a lot of the food companies themselves are not aware of the change. But things are changing in this industry. They're leaning away from old established disinfection and parasitic acids and things like that, and dips, etc., that they've been using. And our technology is definitely should be on top of their list as a choice. Sameer Joshi: Yeah. No. It certainly makes sense for you. What you're saying. And I'm sure it will open up a big market. On the Q3 performance, again, as I said, congrats on the nice turnaround. The operating expenses were also contained, despite the nice revenue increase. Should we expect these operating expenses at the operating expense level as well as the gross margin level to continue to sort of improve financially? Halden Shane: So for your model, I think your expenses are gonna increase. And, you know, I think they're gonna be positive in relationship to revenue. David might have something to add to this if you'd like, David. David Vanston: Yeah. I think for the gross margin, you may get one or 2%, but nothing significant. Already seen that over the year on year, we're holding around the 60% margin. I mean, that helps us with the continuing solution sales that come in. So I don't expect our margin to be under too much pressure. But as Doc pointed out, if we're going to scale up, I would expect, you know, the revenue line will go up at the same time, but the percentage of the total operating expenses as a percentage of our total revenue will not significantly change. Sameer Joshi: Yeah. That is what I was driving at because I did out the R&D efforts and initiatives. They will increase, but you will still have leverage, and the revenues are probably going to increase faster. David Vanston: Yes. Correct. Sameer Joshi: Got it. Last question, on the international front, I think you did mention Morocco, Africa. What kind of sales effort is in place? Do you have representatives in these countries? How should we think about how the sales are going to be realized? Halden Shane: So we have different distributors in some of these countries that are focused on them. I think that a lot of our global partners, where we mentioned one in the food industry on the call earlier, is implementing this in many of their facilities globally. Similar to that, you see other types of partners that we have that have a global footprint in various countries that are interested in increasing their demand and use for SteraMist going forward. Sameer Joshi: Yeah. Hey, Doc. May I squeeze in one more? Because I think you had pointed out that your capital equipment sales increased, I think that bodes well for solution sales in coming quarters. Do you have visibility on what kind of solutions sales you will see in the coming quarters? Halden Shane: I don't. We, you know, again, think the first half of the year, we had about a 41% increase in solution sales over 2024. And in the third quarter, we were down to about, I believe it was in the mid-twenty 1%. So it averaged down a little bit. I think by the end of the fourth quarter, our recurring sales should pop up again because people wanting to get the solution in by end of year. And I think that's the key to this whole call is we get more technology out there. We do it via manufacturing, but also by increasing our sales and our sales strategies in these areas. And more equipment leads to more solution sales, which is the model that would drive a very successful business going forward. Sameer Joshi: Thanks, Doc. Thanks for taking my question. Halden Shane: Thank you for the questions. Operator: Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press 1 on your telephone keypad. Our next question is coming from John Nelson, who is a private investor. Your line is live. John Nelson: Thank you. Hi, Halden, and congrats to you and the TOMI team on the enhanced momentum that the company seems to be generating right now. I have continued to steadily add to my stock position since my latest 13G amended filing in July. So I'm very pleased with your results. And I know the efforts are superlative. So thank you. Halden Shane: Thank you, John. Questions? John Nelson: Oh, you're welcome. Questions. Is there anything updates you can give me on what's going on with servicing or trying to service the military and defense markets? Halden Shane: I don't have one. Maybe E.J. has something to say about that. E.J. Shane: Hey, John. Yes. This past quarter, a lot of our service was directly attributed to one key site. I can't really go into too much detail, but they are looking to replace formaldehyde and have been, and we're working with them. We did quite a few studies with them in Q3. We went there eight or nine times and had positive results. I don't expect that one to show a close before the end of the year, but we are definitely expecting it to be a pretty big deal in 2026. John Nelson: Okay. Good. Thank you. Any updates on the CAR-T cell disinfection business? Halden Shane: E.J.? E.J. Shane: No, Doc. Don't think we have anything, sir. John Nelson: Okay. You mentioned in the press release that you've now onboarded all three of the top major service provider companies in healthcare mold remediation? And I was curious as to any expectations that we should have for a rapid versus slow rollout by these parties? E.J. Shane: So yes, and I know you've been asking. You know, it wasn't ServiceMaster, but bringing on SteraClean and Tact and this other group was definitely a big deal in Q3. Especially with their quick assessment to add more units pretty quickly thereafter their initial buy. They do have a focus more on biohazard and mycotoxin remediation, and we expect to really keep working with them and gain live case studies to be able to bring on the rest of their facilities and then, of course, additional franchises. So I do see a dramatic shift in our service providership. I think it's the way we've now outlined the way we train and support them with the program and the learning management system we offer to them. And we're a little more aggressive in the correspondence and staying up to date with everything they're doing. It is proving good outcome. I'd expect more. John Nelson: Okay. Great. A lot of attention is being paid, and a lot of dollars is going to the data center market. Google just announced that they were planning on investing $40 billion in new data centers in Texas. So could you comment at all on any plans to try to penetrate the disinfection market for those types of facilities? Halden Shane: Sure, John. That's one of our reasons that we are expanding and want to expand our sales teams. In multiple verticals, and that's one that makes a huge amount of interest and potentially success for us because they do need disinfection. They're large facilities. And we will handle their materials tremendously. So we are gonna work on that. We just do not have the employees at the moment to focus on that. And that's one of the reasons for capital needs and to increase our existing sales force. John Nelson: Got it. And besides the data centers in planning stages for being developed, there's also the current existing market, and many of them are crypto data centers that are being basically converted to use by the magnificent seven. Halden Shane: Yeah. So that's true. Oh, and last question is, on the FDA, you know, broadening the permitted use of peroxide in the food industry, and I was wondering if you could maybe give us a few more details on how you're increasing your awareness for that market. Halden Shane: So we are doing it on social media. And we do have plans to increase it further. Like I said earlier, with the call from the analysts, we know who they are that need our product, and sometimes they don't even know they can use our product. So it's more in an educational mode at the moment. But I think that, you know, also in the medical supply, medical sterilization end of medical materials, medical processing, sites that have huge ethylene oxide sterilization. Our products are great replacements. So there's a lot of work. A lot of low-picking fruit for us to work at in those areas and those verticals. And as the team gets bigger and moves forward, we will be focused on them. John Nelson: Okay. And in marketing, are you targeting the companies that have had problems in the past? Halden Shane: Are you targeting companies first that have had problems in the past with infections and disease? E.J. Shane: We are, John, but we did start our initial beginning point was to start with our current database and the correspondence that we have had with food safety customers, probably the past year and a half or two that couldn't come on board because, prior to the ruling, it had different restrictions for the EPA label. So we're now in correspondence with those with the new FDA petition and reaching out how to create protocols under that guideline. So we did start with individuals that we were already talking with. John Nelson: Mhmm. Okay. Good. And then, one more that I just thought about is any progress or developments in the use of SteraMist for replacing ethylene oxide in the medical instrument sterilization market? E.J. Shane: Yeah. I mean, those kind of go hand in hand. With under both accounts, in food and in medical device treatment. The other partnerships that we're starting to build in device manufacturing will also lead to that replacement being able to have IHP streamlined into different enclosures to decontaminate these devices. And another large machinery that's used in both industries. So it's definitely all being high prioritized and discussed. John Nelson: Okay. Thank you very much. Halden Shane: Of course. Thanks, John, for the questions. Operator: You're welcome. Thank you. Ladies and gentlemen, this does conclude our question and answer session. So I would like to turn the call back over to Dr. Shane for any closing remarks. Halden Shane: I just wanna thank everybody for joining us today and for the continued support. And we will be speaking at our next earnings call. Many thanks. Have a wonderful day or evening, wherever you might be. Operator: Thank you, operator. Thank you, and thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good afternoon. And welcome to Dragonfly Energy Holdings Corp.'s Third Quarter 2025 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. I'll now turn the call over to Szymon Serowiecki, Investor Relations. Please go ahead. Szymon Serowiecki: Thank you, Operator. Appreciate you joining us for today's call. Joining me here today are Dr. Denis Phares, Dragonfly Energy Holdings Corp.'s Chairman, President, and Chief Executive Officer, and Wade Seaburg, Chief Commercial Officer. Tyler Borns, Chief Marketing Officer, is also available for Q&A. Before I turn the call over to Denis, I'd like to make a brief statement regarding forward-looking remarks. During this call, the company will be making forward-looking statements within the meaning of The United States Private Securities Litigation Reform Act of 1995 based on current expectations. These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Actual results may differ due to factors noted in the press release and in periodic SEC filings. Management will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release on the company's website. Note that all comparisons that will be discussed today are on a year-over-year basis unless otherwise noted. I'll now turn the call over to Denis. Denis Phares: Thank you, Szymon, and thank you everyone for joining us on this Friday afternoon. I know this is an unusual time for an earnings call, but as many of you have seen, we have had an exceptionally busy and productive period leading up to today's announcement. In the third quarter, we continued our return to strong year-over-year revenue growth with sales increasing 26% to $16 million. Our gross margin expanded by over 700 basis points to nearly 30% driven by operational improvements and positive product mix. Together with disciplined cost control, this led to a $3.3 million improvement in adjusted EBITDA. Just as importantly, this was a quarter defined not only by financial performance, but by business execution. Beyond our financial results, we successfully executed a comprehensive capital raising and debt restructuring that fundamentally reshaped our balance sheet and greatly improved our liquidity. Since July, we raised approximately $90 million in gross proceeds through three unstructured common equity offerings. Then in early November, we finalized a transformative restructuring of our term debt. This restructuring of our debt included a $45 million prepayment, $25 million of debt converted into preferred equity, and the forgiving of $5 million outright. As a result, our total debt principal now stands at only $19 million, which carries a significantly lower interest rate and extended covenant flexibility through 2026. Achieving this level of balance sheet improvement in just a few months reflected strong execution and confidence from both our lenders and investors. These decisive actions represent an important inflection point for Dragonfly Energy Holdings Corp. In addition to the financial benefits, we believe our improved balance sheet sends a strong signal to current and potential customers about the company's stability and long-term financial health as our previous financial condition influenced some customer decisions and adoption timelines. With these actions behind us and a strengthened balance sheet, we can now dedicate more time and resources to business growth. In short, we have established a much stronger financial foundation and significantly enhanced our capital structure. We are now positioned to allocate resources toward near-term revenue opportunities, strategic investment in our proprietary technology, and continued expansion into adjacent markets. For the first time as a public company, we feel we are playing offense. Now I'd like to turn the call over to Wade to discuss our activities and accomplishments in our key end markets. Wade? Wade Seaburg: Thanks, Denis. I'd like to focus on the strong momentum we are building in our OEM business and how our strategic approach is driving results in our key markets. In the RV market, we expanded our OEM footprint through several notable partnerships. Our partnership with Airstream, which we announced on our last call, continues to gain momentum. Battleborn batteries are now standard across Airstream's 2020 motorized models, reinforcing our position as a trusted supplier in the premium RV segment. We also announced two new important partnerships during this quarter. In August, we announced our partnership with Awaken RV, a newly launched manufacturer founded by industry veteran Scott Hubbell. Awaken selected Battle Born Batteries as the standard lithium power solution across their entire debut lineup of molded fiberglass trailers, recognizing our ability to deliver the safe, reliable, and long-lasting power that off-grid travelers demand. Then in September, we expanded our long-standing partnership with Ember RV, making Battle Born batteries standard across its 2026 Overland series with factory-installed systems delivering up to seven kilowatt hours of power. Ember has relied exclusively on our batteries since their founding in 2021, and this latest expansion demonstrates their continued confidence in our technology and our ability to adapt to continuously evolving OEM needs. Our RV partnerships span premium brands like Airstream, innovative new entrants such as Awaken RV, and established partners like Ember RV, underscoring our position as a leading provider of high-performance lithium power solutions across all market segments. Importantly, while the overall industry remains challenged, we are consistently gaining market share through deepening integration with existing partners and wins with new manufacturers. Turning to heavy-duty trucking, we continue to gain traction in a market where current capital investment remains constrained. Several fleets that completed pilot programs have expanded into additional units after experiencing measurable gains in idle reduction, fuel savings, and driver comfort. In particular, we recently began receiving production orders from a large nationally recognized fleet following a long-term pilot of our lithium power systems designed for idle reduction and hotel load support. These orders reflect the continued expansion of our solutions into real-world operations, with meaningful customer validation emerging from pilot programs. Expect to make an announcement soon. Our collaboration with PACCAR, one of the most respected commercial truck manufacturers in the world, and the only American-owned Class A truck manufacturer, is another important milestone in this segment. Earlier this year, PACCAR completed independent testing of our lithium power systems at their technical center. The systems were evaluated under the worst-case idle reduction conditions, and the results formed the basis of a jointly coauthored white paper focused on practical lithium power solutions that reduce idling, fuel costs, and maintenance for Class eight fleets. We debuted the white paper at the Battery Show, where it was reviewed by industry technology leaders, and it has continued to attract attention across the sector. At the ATA MCE Conference in October, it became a frequent topic of discussion among carriers and system integrators searching for commercially viable electrification solutions that can withstand real fleet demands. We believe this collaboration provides credible third-party validation of our technology under demanding conditions, and it has increased our visibility with large fleet operators who are exploring practical and cost-effective paths to electrification. As we have said before, we believe this significant adoption in heavy-duty trucking is a matter of when, not if, with growing validation from respected OEMs and leading fleets. We believe Dragonfly Energy Holdings Corp. is well-positioned to capture meaningful share as this market turns. Now I will turn the call back to Denis to discuss key technology developments, third-quarter financial results, and our fourth-quarter outlook. Denis Phares: Thanks, Wade. Our commercial traction aligns with continued advancements in our technology platform. During the quarter, we expanded our intellectual property portfolio with two newly granted United States patents. The first strengthens our proprietary DragonFly intelligence platform and enables more robust data exchange, improved system reliability, and advanced performance across mobile and stationary applications. The second patent advances our wake speed charge control technology and supports high-power vehicle-to-trailer charging and broader system integration. With approximately 100 filed, pending, or granted patents, our IP portfolio reinforces our evolution into a complete power systems provider. I also want to reinforce our domestic manufacturing capabilities, which continue to differentiate Dragonfly Energy Holdings Corp. in today's volatile trade environment. With final assembly completed at our Nevada facility, we maintain greater control over quality, cost management, and production timelines. During the quarter, we received recognition of our domestic manufacturing capabilities through a $300,000 grant from the Nevada Tech Hub. This non-dilutive capital is supporting modernization initiatives, including upgrades to key manufacturing lines, and is expected to generate six-figure annual savings while enhancing efficiency and scalability. As a Nevada-based company with a 400,000 square foot manufacturing facility in Reno, we are proud to contribute to the state's vision of building a complete lithium loop from domestic battery manufacturing to recycling. Now turning to our third-quarter results. Net sales grew 26% year-over-year to $16 million, reflecting a 44% increase in OEM net sales. Within our OEM segment, adoption trends in our core RV market remain healthy. Existing partners are integrating our solutions across additional model lineups while we continue to add new manufacturers to our customer base. Net sales to DTC customers totaled $5 million compared to $5.2 million, reflecting continued macroeconomic headwinds. Third-quarter gross profit increased an impressive 65% to $4.7 million, with gross margin expanding 710 basis points to 29.7%. This substantial margin improvement reflects increased volumes, product mix, and operational efficiencies achieved through our corporate optimization program. Operating expenses decreased to $8.5 million from $8.9 million. Net loss was $11.1 million versus a net loss of $6.8 million, and net loss per share was $0.20 compared to a loss of $0.98 per share. Adjusted EBITDA improved to negative $2.1 million from negative $5.5 million, reflecting continued strength in the OEM segment and gross margin expansion. Turning to our outlook for 2025. We expect net sales of approximately $13 million, representing a growth of approximately 7% year-over-year in our seasonably slowest quarter. We are forecasting adjusted EBITDA of approximately negative $3.3 million. While we had initially targeted adjusted EBITDA breakeven by year-end, we have made substantial progress toward this objective against a much more challenging backdrop than we anticipated, characterized by a volatile tariff environment that extended the freight recession, macroeconomic uncertainty, and the government shutdown that impacted our industrial customers, some of which rely on government funding. Despite these challenges, we have fundamentally strengthened our balance sheet and expanded our OEM footprint, providing a solid foundation for execution in 2026. We remain confident in our ability to achieve profitability as we continue executing on our growth initiatives. To summarize, this was one of the most strategically important quarters in our company's history. We strengthened our balance sheet, secured meaningful validation in heavy-duty trucking, expanded OEM penetration, and improved our margin profile. These achievements reflect disciplined execution across our commercial, operational, and financing strategies. With a stronger financial foundation and real momentum across our end markets, we are well-positioned to capture the opportunities ahead. We remain focused on operational discipline, margin expansion, and executing against a clear strategy that moves us toward profitability, and we are confident in our ability to create long-term shareholder value. Operator, we would like to open the call to questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press 2. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from George Gianarikas of Canaccord Genuity. Your line is already open. George Gianarikas: Hi, everyone. Good afternoon. Thank you for taking my questions. Maybe the focus first just on the guidance a little bit for Q4 as to which segment of the business is dragging down, like sequentially the revenue? Is it the OEM business that's sort of impacting the Q4 outlook? Thank you. Denis Phares: Hi, George. Thanks for the question. Yeah. It's an interesting economic environment we're in right now. And I would say, in terms of our OEM business, Q4 is always the slowest quarter by seasonality. We've got a number of days off on the holidays. So that's not unexpected. There may be a little bit less than what we expected in the OEM segment, but really, what's happening is we don't have as much visibility in the DTC segment. And DTC is typically strongest in the fourth quarter. We've got the Black Friday sales coming up. And given the macroeconomic conditions now and the low consumer sentiment, we're just trying to be cautious because we really don't have a lot of visibility there. Also included in the DTC segment, we have a number of industrial customers that have basically shut down due to the government shutdown. So just a number of things really led to us being a little bit more cautious with our guidance. George Gianarikas: Right. And maybe assuming a return not asking for '26 guidance necessarily, but assuming a normalization, the consumer is it fair to say we can look for significant growth in 2026? And how are you thinking about the year for us with the form and shape of 2026? Denis Phares: Yeah. We're pretty confident about 2026. Not only do we expect more of a return to normality, but we're also expanding into those new segments. So there's not a lot. For example, the trucking business that we're starting to break into right now is going to be the primary growth driver in 2026 for us. So obviously, when you're growing from a very low number into a completely new big business segment, that's where we expect to be the most tangible growth. George Gianarikas: Got it. And in terms of can you help us sort of right-size our mind in terms of where the balance sheet where the cash sits today after these transactions, where the share count sits today, to understand how to sort of have a real-time snapshot of your assets and your share count. Denis Phares: Well, I mean, my goodness. It's night and day from where it was. You know, our balance sheet, quite frankly, was a significant hindrance to us in terms of business growth. And I'm not even talking just our inability to invest as much as we wanted in near-term growth opportunities. But, you know, a lot of these new fleets, for example, or new customers that are these large fleets, they're public companies. And, obviously, they're going to look at our balance sheet, and that's going to influence their decision. And so everybody likes the products. Everybody knows we're an innovative company, and it's really difficult for them to really commit the way that it has been. And now with this turnaround, you know, for the first time as a public company, we've been able to alleviate the going concerns. It really puts us in a completely different situation, allows us to really invest in the growth that we've been expecting over the last, honestly, twelve months. George Gianarikas: Maybe just to understand the numbers though, Denis. Like, how much cash do you have on the balance sheet now? Because these transactions happened after the end of the quarter. So can you just sort of update us on the proper share count for our models, proper cash for our models as Denis Phares: So there's about 125 million common shares, 121 million shares. And a pro forma cash balance after the debt pay downs and everything is on the order of $30 million. George Gianarikas: Oh, $30 million. Okay. Denis Phares: Right. George Gianarikas: And maybe just to talk about be my last question. But some of the growth initiatives that you're able to put in place now that the balance sheet has been fixed essentially? Like, what are the sort of things that you were able to do from a customer perspective to expand your and accelerate your growth in 2026? Denis Phares: Well, for example, we've had a pretty lean outside sales team. And we've been trying to expand into these large markets, the trucking market, for example. But also we talked a lot about the oil and gas market for a long time. We have we believe the only Class one, DIV2 lithium-ion battery certification on the market. And we have not been able to invest in growth into that segment, which we believe is an enormous opportunity. And you know, there's been changes in the past. There were changes in how natural gas is treated. But nevertheless, even though it affected what we were doing in terms of methane reclamation, there are still large opportunities for storage in that segment because it's primarily dominated by lead-acid batteries. So there's a ton of meat on the bone that we really haven't been able to invest in in terms of specifically manpower. But also, we've been able to invest more in product development as well. And that's really where we put a lot of our cash this year to really try to get that new OEM business and try to accelerate trucking. So our product development will also be able to accelerate with new resources. George Gianarikas: Thank you so much. Congratulations on all the good work you did. You've done over the last couple of months. Denis Phares: Thank you, George. Operator: Your next question comes from Chip Moore of Roth Capital. Your line is already open. Chip Moore: Hey, good evening. Hey, Denis and Wade. Thanks for taking the question. Denis Phares: Hi, Chip. Chip Moore: Hey, Denis. You know, I wanted to echo congrats on debt restructuring, right? Clearly, understandable that that's been a hindrance on the commercial side. So maybe just expand on your comments about facing some headwinds there. I know it's early, right? It's only closed a week ago. So are you thinking about early feedback from potential customers, whether it's fleets or OEMs? Is this more so think about capital budgets for next year? And with this comfort, that really helps? Just what are the conversations you're having? Denis Phares: Well, it was like a flip of the switch, really. I mean, we were starting to get POs now. I mean, you've got to consider the fact that as a vendor, our balance sheet is going to be a large part of what customers look at. It's not just the product and the benefits of the product, but also our long-term viability as a company. And I think that what we've been able to accomplish in a very short period of time has basically taken that out of the conversation. And now the focus is on the product itself and on the ROI and driver comfort and the ability of fleets to operate more efficiently now. You know? It really is a game changer in terms of the fact that the conversations have completely changed over now to how do we get going with these projects. Chip Moore: That's great. And you know, a follow-up there, Denis, maybe you talked about EBITDA breakeven. Obviously, you need some more volume, but it sounds like the outlook here next year is getting better. You'll also have a bit lower interest expense as well. Right? So just you know, any more thoughts there? And then, you know, as you do hit breakeven, how are you thinking about some of the other growth areas, dry electrode, and some of those any update there? Denis Phares: Yeah. So you're right. We need more volume to get back to where we anticipated we would be. But the stage is set because we are getting better gross margins. We're operating more efficiently. We've gone through an optimization program to really set the stage for our ability to be profitable again. So all these things are very, very good things, and driving volume is our number one priority, and that's how we get back to profitability. Of course, we continue to make progress on the dry electrode. And even on the solid-state chemistries, but the top priority is getting back to profitability. And we're not going to jeopardize the long-term health of the company by overspending on those initiatives. But we are making progress. We continue to make progress. And, of course, with the extra resource that we have, that progress will be accelerated. Chip Moore: Very clear. Thank you. And maybe just the last one, just the government shutdown impacts, I imagine it's not massive, but has that abated here as things have opened up? Hopefully, we don't get another one shortly. But yeah. Thanks. Denis Phares: I think it's a little early to see what the overall ramifications are since we just opened up again. But we do have important customers that were unable to follow through with some relatively meaningful projects because of the government shutdown. So we're keeping an eye on that and obviously, we've taken that into consideration with the guidance for this quarter. Chip Moore: Okay. Thanks very much. Appreciate it. Denis Phares: Thank you, Chip. Operator: There are no further questions at this time. I would hand over the call to Denis Phares for closing remarks. Please go ahead. Denis Phares: Thank you for everyone joining us today. Look forward to sharing additional details with all of you in the coming quarters. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
Operator: Greetings. And welcome to Sidus Space, Inc.'s 2025 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note this conference is being recorded as of today, November 14, 2025. I will now turn the conference over to Adarsh Parekh, Chief Financial Officer. You may begin. Adarsh Parekh: Good evening, everyone. And thank you for joining us for Sidus Space, Inc.'s 2025 third quarter earnings conference call. Joining us today from the company is Carol M. Craig, Chairwoman and Chief Executive Officer, and myself, Adarsh Parekh, Chief Financial Officer. During today's call, we may make certain forward-looking statements. These statements are based on our current expectations with respect to the future of our business, the economy, and other events, and as a result, are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the forward-looking statements made on this call. These factors include our ability to estimate operational expenses and liquidity needs, customer demand, supply chain delays, including launch providers, and extended sales cycles. For more information about these risks and uncertainties, please refer to the risk factors in the company's filings with the Securities and Exchange Commission, each of which can be found on our website, www.sidusspace.com. We also expect to discuss certain financial measures and information that are non-GAAP measures as defined in the applicable SEC rules and regulations. Reconciliations to the company's GAAP measures are included in the management discussion and analysis of financial conditions and results of operations section within Sidus' 10-Q. Listeners are cautioned not to put any undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. At this time, I would like to turn the call over to Carol. Carol, please go ahead. Carol M. Craig: Thank you, Adarsh. Good evening, and thank you all for joining us. On our second quarter earnings call, we shared that Sidus Space, Inc. is evolving into a diversified space and defense innovator. Not just a satellite manufacturer, but a company with capabilities that span the full mission life cycle, from low Earth orbit to the lunar environment and beyond. In the third quarter, we continued executing on this strategy by expanding our vertical integration, advancing our LizzieSat constellation, and strengthening partnerships that support both commercial and defense customers. Our goal remains clear: to deliver full-spectrum solutions from design and manufacturing to on-orbit operations and data services, with the agility to meet evolving mission requirements. We are building a company designed for long-term sustainable growth driven by innovation, dual-use and software-defined satellites, all-domain computing solutions, and recurring data-as-a-service opportunities. Over the past eighteen months, we have proven our ability to design, build, launch, and operate advanced multi-mission satellites with extended design life and complex functionality. These are not CubeSats; they are precision-engineered microsatellites built to deliver mission-critical performance. Our vertically integrated model enables scalability and efficiency, allowing us to adapt our manufacturing facility quickly to new priorities. Like our products, our operations are designed for adaptability and speed. Sidus Space, Inc. is already a trusted part of the space supply chain, and our offerings now extend across civil, defense, and commercial markets. This diversification strengthens our ability to support national security programs, including Golden Dome, SDA's proliferated architecture, and NASA's Artemis initiatives. Our multi-mission all-domain approach represents a new model for how space companies operate, combining agility, integration, and strategic focus to meet diverse customer requirements. For those who are new to our story, Sidus Space, Inc. has consistently executed while adapting to a very dynamic environment. During the third quarter, we navigated uncertainty around government funding and shifting federal budgets. However, our diversified revenue model, which spans commercial, defense, and civil sectors, provides a built-in hedge against external risk. Having led through volatile environments such as this for over twenty-five years, I am confident that Sidus Space, Inc. is built to remain resilient and adaptable regardless of the external landscape. Over the last couple of years, we have strategically invested in our infrastructure, technology, and team to build capabilities comparable to larger competitors but with far less capital. The result is a lean, efficient company with a competitive cost structure. An example of that is our software-defined LizzieSats with their five-year design life and redundant systems, delivering high performance at $5 million or less per 100-kilogram satellite, including multiple sensors, and offering strong value for government and commercial customers. During this quarter, we made significant advancements towards completion of the Mobile Launch 2 contract. This program was originally approximately a $4 million contract that expanded to over $8 million over the last few years due to changing requirements and supply chain dynamics. Over nearly four years, we have built and will have delivered 57 complex electronic cabinets for installation at the Kennedy Space Center. With this program now nearing completion, we expect improved gross margins and stronger revenue visibility as well as a reconfigured facility ready for expanded satellite and defense manufacturing. At Sidus Space, Inc., we believe our vertically integrated model sets us apart from our competition. Few U.S. companies can design, manufacture, test, and operate their space hardware entirely in-house while maintaining lean operations. This vertical integration gives us unmatched speed, control, and flexibility, enabling rapid entry into new markets, development of recurring revenue streams, and leadership in the emerging multi-domain space economy as well as the all-domain defense industry. Our recent on-orbit progress continues to validate our approach. We completed commissioning of the AIS sensor on LizzieSat-3 and established communications with the customer site. We continued upgrading our flight software, integrating new algorithms, and activating additional payloads aboard LizzieSat-3. These advances strengthen our constellation architecture and accelerate technology maturation across all past and future LizzieSat-driven satellites. And we successfully demonstrated that our satellites can support multiple sensors on a single versatile platform with the expectation of delivering fused data products that will increase mission value for maritime, environmental, defense, and commercial customers. Our LizzieSat platform is increasingly software-defined, enabling rapid in-orbit reconfiguration and performance optimization. The next-generation hyperspectral and multispectral cameras that we have selected to deliver our data services can adjust spectral bands and imaging modes dynamically, allowing a single satellite to serve multiple missions from maritime awareness to environmental monitoring to defense intelligence. Combined with our onboard AI and our FeatherEdge edge processing suite, LizzieSat is designed to learn and adapt in orbit, improving data quality and operational efficiency over time. As global demand rises for resilient, secure, and cost-effective space capabilities, we believe Sidus Space, Inc. is well-positioned to meet that need. Our modular, multi-use solutions spanning satellites, onboard AI, and VPX SOSA line electronics enable customers to rapidly deploy and reconfigure systems for maritime, environmental, defense, and commercial missions. This flexibility shortens development cycles, reduces costs, and increases mission readiness. A key differentiator is the United States and allied governments prioritize distributed software-defined architectures. This quarter, we completed two successful capital raises with funds to be invested in commercializing all-domain product lines, expanding the LizzieSat constellation with LizzieSat-4 and LizzieSat-5, and advancing our Orlaith AI ecosystem. We also progressed our Fortis DPX computing suite designed for aerospace, defense, energy, robotics, and autonomous systems. The first three products, the Sidus single board computer, FeatherEdge 248 VI Edge computer, and precision navigation timing module are on track for year-end validation. The Sidus single board computer offers on-orbit and terrestrial edge computing. The FeatherEdge 248 VI features artificial intelligence and machine learning processors designed for extreme environments and size-constrained applications. The precision navigation and timing module integrates atomic clocks, M-Code GNSS, and IMUs for GPS-denied operations. This modular Fortis platform establishes a scalable all-domain command and control architecture complementing our space platforms and is expected to contribute meaningfully to revenue starting in 2026. From a program execution standpoint, we remain focused on expanding our technology portfolio and delivering solutions aligned with our long-term vision and mission. A key element of reaching our upcoming milestones is completing the Mobile Launcher 2 contract, which will allow us to shift additional resources toward higher-margin satellite and data programs. As noted earlier, we currently have two additional LizzieSat spacecraft in production for a planned late 2026 launch. These satellites will feature advanced software-defined imagers and increased onboard processing capability. Additionally, we are hosting multiple customer technologies. Customers for these missions and related prelaunch revenue include The Netherlands Organization, Lone Star Holdings, and additional data customers that we have not yet announced. Achieving this initial fast launch cadence was critical to our ability to learn, adapt, and advance our technology in real-time. In just over a year, we launched three Sidus-designed, Sidus-built, hybrid 3D-printed satellites with onboard AI and multiple sensors at a pace that allowed us to rapidly integrate lessons learned into each successive mission. Every launch informs the next, enabling continuous improvement, faster integration, and greater scalability across our architecture. This rapid cadence of innovation is not limited to low Earth orbit. It is foundational to how we are expanding capability across all domains and all orbital classes. Looking beyond LEO, we are developing a lunar-capable LizzieSat platform featuring higher power, advanced radios, and enhanced propulsion. Few U.S. companies can offer this level of multi-domain, multi-orbit versatility. We believe it positions Sidus Space, Inc. as a truly differentiated supplier for the emerging lunar and cislunar mission landscape. In summary, Sidus Space, Inc. continues to execute on its plan to deliver next-generation technologies from dual-use multi-mission satellites, all-domain computing systems, to AI-driven data architectures. Our progress this quarter reinforces the foundation for long-term growth, recurring revenue, and sustained leadership across the expanding space and defense ecosystem. I'll now turn the call over to Adarsh for the financial update. Adarsh Parekh: Thank you, Carol. At Sidus Space, Inc., we continue to build a scalable, vertically integrated company across space, technology, and artificial intelligence. Our focus remains on operational excellence, rapid innovation, and delivering cost-effective, high-impact solutions for our customers. Our investments to date have centered on expanding our satellite constellation, advancing innovation, and implementing a robust ERP system to support scale and profitability. Momentum from 2024 and 2025 carried into 2025, which reflects both our transition to commercialization of dual-use multi-domain products and the near-term financial impacts of scaling a deep tech space-based enterprise. During 2025, we continued our progress in establishing Sidus Space, Inc. as a mission enabler. Our rich space and defense heritage positions us to take advantage of opportunities across multiple sectors, with a combined focus on commercial space innovation and national defense priorities. Let's review our results starting with the nine months ended September 30, 2025. Total revenue for the first nine months of 2025 was approximately $2.8 million compared to $3.8 million in the same period in 2024. While this reflects a decrease of about $1 million or 27%, the change aligns with our strategic shift away from legacy contract work toward higher-value commercial space and AI-driven solutions. This repositioning is intentional and expected to generate more sustainable recurring revenue in future periods. The impact of milestone-based revenue recognition also influenced year-over-year performance and comparison. Cost of revenue rose to approximately $8 million, a 48% increase from $4.6 million during the first nine months of 2024. Key contributors to the cost of revenue included a $1.6 million increase in depreciation tied to satellite and software investments, a changing contracts mix requiring greater material and labor inputs, ongoing global supply chain pressures impacting manufacturing operations. Gross loss for the period was approximately $4 million compared to a loss of about $719,000 in the same period last year. This increased gross loss reflects increased depreciation, which is non-cash and directly tied to recent investments that position us for future revenue generation, the transition away from legacy high-margin contracts as we focus on long-term value-added offerings, a shift in contract structure, which is expected to yield greater returns in future quarters. When adding back satellite-related depreciation, gross loss for the period was $1.2 million compared to a profit of $485,000 in the same period last year. Selling, general, and administrative expenses totaled $13 million compared to $9.9 million in the prior year. This $3.1 million increase supported key growth initiatives, including strategic headcount additions to support scale and expanded employee benefits to remain competitive. Equity-based compensation and performance-based bonuses initiated during 2025 increased mission operations expenses to support our growing constellation, infrastructure investments in software tools, depreciation expense, and launch rebooking fees, as well as payoff of our Decathlon note payable as described further in the notes to the consolidated financial statement. To provide a broader view of our performance, we also report adjusted EBITDA, a non-GAAP measure we use internally to guide strategic decision-making. Adjusted EBITDA loss for the first nine months was $12.6 million compared to $8.3 million in the same period last year, reflecting ongoing investment in scaling our platform. The reconciliation table, interest, depreciation, fundraising, severance, and equity-related expenses, is included in our Q3 2025 earnings release. For the three months ended September 30, 2025, total revenue reached $1.3 million, a 31% decrease compared to about $1.9 million in Q3 2024. This reduction was primarily due to the timing of fixed-price milestone contracts, including projects executed through our related party, Craig Technologies. Cost of revenue for the quarter rose to $2.6 million, up 42% from the prior year. This increase reflects the $501,000 increase in satellite and software-related depreciation, higher input costs from more complex contracts, ongoing global supply chain cost pressures. Gross profit for Q3 2025 was a loss of $1.3 million compared to a profit of $38,000 in Q3 2024. The increase in gross loss was primarily due to higher depreciation from recently capitalized assets, which are essential to future revenue streams, contract mix evolution, reduced contribution from legacy services as we transition to higher-margin recurring revenue models. When adding back satellite-related depreciation, gross loss for the period was $277,000, compared to a profit of $559,000 in the same period last year. SG&A expenses for the quarter totaled $4.3 million, up from $3.2 million in Q3 2024. Key drivers included strategic headcount growth aligned with our move to higher-value offerings, expanded mission operations for satellite support, increased software infrastructure investment, accrued equity compensation, employee bonuses, and higher depreciation expense. Adjusted EBITDA loss for Q3 2025 was $4 million, a 62% increase from Q3 2024. The change reflects continued scaling efforts and is supported by full reconciliation details in our Q3 2025 press release. Net loss for the quarter was $5 million compared to $3.9 million in the same period of the prior year. As noted, this increase is primarily tied to strategic investments in infrastructure, personnel, and operational capacity, as well as non-cash depreciation related to our expanding satellite constellation. Turning to the balance sheet, as of September 30, 2025, Sidus Space, Inc. had $12.7 million in cash compared to $15.7 million as of September 30, 2024. During the quarter, we completed two public offerings of 16.9 million total shares of Class A common stock, from which Sidus Space, Inc. received approximately $15.5 million of net proceeds. As we move forward, we continue to manage cash conservatively while making strategic investments in our next-generation satellite builds and high-growth product lines. Additionally, by Q4, we expect to implement meaningful cost reduction activities and operating efficiencies to support long-term profitability. With that, I'll hand the call back to Carol for closing remarks. Carol M. Craig: Thank you, Adarsh. The milestones we achieved this quarter are more than operational wins. They create pathways to future revenue across commercial, civil, and defense markets. Each satellite launch, hardware delivery, and AI demonstration strengthens our track record and reinforces Sidus Space, Inc. as a trusted partner for critical missions. Sustaining that momentum requires constant innovation, which is why we continue to invest in internal R&D, advance new technologies, and grow our patent portfolio to protect our IP and increase the value of our platform. Our technologies, designs, and capabilities now span the full spectrum of space, from LEO to GEO to lunar missions, expanding our relevance and reach. Whether hosting government payloads in orbit, enabling Edge AI for real-time data delivery, or contributing to long-term lunar infrastructure, we are building a presence that touches every layer of the evolving space economy. Sidus Space, Inc. is not just building satellites; we are enabling the next generation of real-time intelligent data connectivity by linking sea, ground, air, and space into one integrated domain. This sea-to-space diversification strategy reduces reliance on any single market segment and is central to driving long-term sustainable growth. Our mission remains the same: deliver reliable, scalable, and intelligent solutions from initial design through deployment. Our vertically integrated model and culture of innovation give us a strategic advantage, allowing us to innovate faster, control quality across the life cycle, and bring advanced technologies to market more efficiently than traditional aerospace providers. And as you have heard today, Sidus Space, Inc. continues to shift from R&D and infrastructure build-out to commercialization and revenue generation. We have launched and begun commissioning our third satellite, established the foundation for a scalable micro constellation, and introduced a new generation of rugged dual-use technologies. Lean operations allow us to operate with lower fixed costs, offer competitive prices, and pursue strategically valuable contracts that may be overlooked by larger players. As we continue to build meaningful momentum and a stronger foundation for the future, we have strengthened our balance sheet, launched high-potential new platforms like Orlaith and FortisVPX, and are positioned to generate diversified revenue in 2026. The path forward is ambitious, but it is the right path for unlocking sustainable growth. Our all-domain multi-revenue model enables us to adapt quickly, serve diverse customers, and scale with demand. And now I would like to address some of the questions we received. The first one, how should we think about the commercialization timeline for Fortis DPX? While our first three VPX products remain on track for release to production in January 2026, we expect customer integrations and revenue contributions to begin shortly thereafter. Interest in the Fortis product line spans from defense, aerospace, robotics, and autonomous systems. Second question, can you update us on the commissioning timeline for LS-3 and how additional satellites change your revenue model? The LS-3 commissioning is progressing well. Because there are multiple payloads and sensors along with our integration of updated and enhanced software, it is not a quick process. But our satellites have a five-year design life and were manufactured with that timeline in mind. The additional satellites in production, currently LS-4 and LS-5, expand hosted payload capability, data ability, and on-orbit AI throughput. We have improved the data rates and added software-defined subsystems as well. Because of the nature of the software-defined imagers, we expect increasing data contributions from more industries and customer missions from LS-4 and LS-5. Next, are customers already evaluating FortisVPX or FeatherEdge? Yes. We have active early access programs with both government and commercial customers for our proven FeatherEdge platform, and several have already begun transitioning toward multi-year hardware agreements. We have also received positive market feedback in response to our conceptual introduction of Fortis VPX. What does your geographic revenue mix look like going forward? Well, we see strong momentum internationally, especially among allies seeking sovereign U.S. origin multi-domain capabilities. Within the U.S., greater budget clarity is helping stabilize and improve program timelines, which we view as an upside. Next question, how should we think about backlog composition? Our backlog is increasingly being driven by VPX SOSA hardware, engineering services, and LizzieSat integrations. These are multi-year high-visibility contracts with strong alignment to defense modernization priorities. How does the capital raise position the company? The recent capital raise funds a significant portion of our near-term product commercialization, LizzieSat scaling, and AI development. The capital is intended to accelerate innovation and fund growth. And a popular question is, can you expand on alignments with the DOD's Golden Dome vision? The DOD's Golden Dome vision centers on creating a resilient, distributed, multi-layered sensing and communications architecture that spans all domains: air, land, sea, space, and cyber. We believe Sidus Space, Inc.'s technology roadmap aligns directly with that need. Our strengths in autonomy, rapid deployment, ruggedized edge computing, and multi-mission sensing allow us to deliver space-based nodes that are capable of operating as part of a larger adaptive defense network. We also believe that our LizzieSat platform's ability to host multiple sensors, process data at the edge, and push actionable intelligence to users in real-time makes it ideally suited for Golden Dome-style architectures that value speed, survivability, and interoperability. As the department moves toward more proliferated and software-defined systems, we see increasing opportunity for Sidus Space, Inc. across both unclassified demonstrations and classified programs that require adaptable, resilient, and rapidly upgradable satellites. And lastly, what is the potential market for your lunar-capable Lizzie Lunar platform? NASA's Commercial Lunar Initiative and allied nations are all expanding lunar exploration and programs. There are very few U.S. companies that can provide smaller, cost-effective lunar buses, and we believe our early mover position creates a strategic opportunity. As we have already demonstrated, we have been selected to build lunar satellites for commercial customers. And with that, I want to thank our employees, partners, and shareholders for your continued trust and support. Look forward to delivering strong progress in the months ahead. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.
Luca: Good day everyone and thank you for joining us. And welcome to the Cineverse Corp. Second Quarter Fiscal Year 2026 Financial Results Conference Call. My name is Luca and I will be your moderator today. After today's prepared remarks, we will host a question and answer session. And star six to unmute. I would now like to turn the call over to Gary S. Loffredo, Chief Legal Officer, Secretary, and Senior Advisor for Cineverse Corp. Please go ahead. Good afternoon, everyone. Gary S. Loffredo: Thank you for joining us for the Cineverse Corp. Fiscal Year 2026 Second Quarter Financial Results Conference Call. The press release announcing Cineverse Corp.'s results for the fiscal second quarter ended September 30, 2025, is available at the Investors section of the company's website at cineverse.com. A replay of this broadcast will also be made available at the Cineverse Corp. website after the conclusion of this call. Before we begin, I would like to point out that certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All of the information discussed on this call is as of today, November 14, 2025. And Cineverse Corp. does not assume any obligation to update any of these forward-looking statements except as required by law. In addition, certain financial information presented in this call represents non-GAAP financial measures. And we encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. I am Gary S. Loffredo, Chief Legal Officer, Secretary, and Senior Advisor at Cineverse Corp. With me today are Christopher J. McGurk, Chairman and CEO; Erick Opeka, President and Chief Strategy Officer; Mark Wayne Lindsey, Chief Financial Officer; Yolanda Macias, Chief Motion Pictures Officer; and Mark Antonio Huidor, Chief People Officer. All of whom will be available for questions following the prepared remarks. On today's call, Christopher J. McGurk will briefly discuss our fiscal year 2026 second quarter business highlights. Then Mark Wayne Lindsey will follow with a review of our financial results. And Erick Opeka will provide further details on our business and operating results and new initiatives. I will now turn the call over to Christopher J. McGurk to begin. Christopher J. McGurk: Thank you, Gary, and thanks, everyone, for joining us here today. I'd now like to cover some important business highlights. And then Mark Wayne Lindsey will review our financial performance, then Erick Opeka will cover our operating progress, and new business initiatives in much more detail. We had a slightly down revenue quarter with strong margin improvement. Total revenues were $12.7 million, down 3% from the prior year quarter. During the quarter, we closed a $1.1 million licensing deal for the Toxic Avenger that will be recognized in future periods. With this license fee revenue, the revenues for the quarter would have been $13.4 million, up 5% from the prior year quarter. Operating margins grew by 7% from the prior year quarter to 58%. Net income and adjusted EBITDA in the quarter were impacted by the investments we have been making to build our technology sales force, grow our Matchpoint deal pipeline, and fill and market our theatrical release portfolio. We expect those investments to generate returns over the balance of the year and beyond. At the same time, we continue our intense focus to control costs and leverage the savings and efficiencies of Cineverse Services India to manage SG&A spending. The Toxic Avenger unrated released on August 29 did not perform as well as we hoped at the box office. However, our marketing campaign is helping the film perform very well in the ancillary distribution markets, particularly VOD, physical, and licensing with Amazon and Hulu. And the film will be profitable, with an expected IRR of 40%. We own the domestic distribution rights to this film in all media in perpetuity. And so we believe it will be a strong and valuable addition to our over 66,000 title film library. Now, the performance of The Toxic Avenger unrated is very instructive about the risk-reward profile of our portfolio film strategy. As much so as Terrifier two and three were. Two films that dramatically overperformed everybody's expectations at the box office and then in the ancillaries. Because we keep our all-in acquisition and theatrical releasing costs on our films to less than $5 million each, and because we utilize our fan-centric streaming channels, advertising technology, podcast network, and social media footprint to generate millions of dollars in media value with relatively little out-of-pocket marketing costs, our film portfolio has enormous downside protection. While, at the same time, our strategy sets the stage for upside breakout performances like Terrifier three, which opened to number one at the box office and ultimately did $54 million in ticket sales on opening marketing spend of only $500,000. I can guarantee you that none of our competitors with their traditional film releasing models would have achieved anywhere near a 40% return on investment on the Toxic Avenger unrated. In fact, I am very certain that all of them would have lost money on the release. And our next two releases, Silent Night, Deadly Night on December 12, and Return to Silent Hill, on January 23, 2026, follow the same blueprint to a T. Both are fan-centric IP-based films that have an all-in investment projected to be well below $5 million each. And also below our investment level in the Toxic Avenger unrated. Also of note, our IP-based family film, Air Bud Returns, is nearing the completion of principal photography and continues to generate much buzz on social media, the press, and late-night TV. We expect to release this film in late calendar 2026. Our unique film releasing approach and artist-friendly model have both been attracting more and more quality directors, producers, and agents to approach Cineverse Corp. as a film distribution partner versus the traditional studios and other independents. Nowhere is this more evident than in our announcement last week that we will be releasing the twentieth anniversary edition of Pan's Labyrinth. The horror fantasy masterpiece from acclaimed screenwriter and director Guillermo del Toro, who has had massive recent critical and commercial success with his visionary film version of Frankenstein. Pan's Labyrinth won three Academy Awards and has received over 100 other worldwide film awards. It is widely acknowledged as a classic visionary film with a strong message that is tailor-made for the world today. When it debuted at the Cannes Film Festival, it received a twenty-two-minute standing ovation. The longest tribute in the history of the festival. The film has been invited back to Cannes for a special anniversary presentation next May, which will kick off our marketing campaign for a late 2026 theatrical release, including large formats. We have a multiyear domestic distribution deal in all media on this movie, making it a terrific addition to our film library. And as he stated in his video announcing his partnership with us, Guillermo brought this classic beloved movie to Cineverse Corp. versus the majors and other independent studios because he wanted to take advantage of our unique nontraditional, artist-friendly approach to film releasing. Expect more announcements in the next few months as we meet with more key industry talent and evaluate multiple new film opportunities that fit our releasing model and ecosystem of marketing assets. And we just received an updated third-party valuation of our content library. The library is now valued at $45 million, significantly above the $3.2 million in book value on our financials. This valuation of just one of our key assets is strong evidence of our belief that we remain very undervalued given our current market cap. We also made very strong progress in building out our Matchpoint technology sales pipeline with dozens of potential partners, including large entertainment companies and major studios now actively evaluating our technology. We just recently announced we have already closed four of those deals. And we are also quickly moving forward on our high micro drama joint venture with Banyan Ventures. Preliminarily called MicroCo. With a goal of becoming the domestic market leader of this more than $8 billion rapidly growing worldwide business, we are very encouraged by the response to our plans by potential investors and strategic partners and by the creative community. We also have already received a funding commitment from a leading venture capital firm. So Erick Opeka will speak in more detail on all this in a minute. But now I would like to turn things over to Mark Wayne Lindsey for a financial review. Mark? Thank you, Chris. Mark Wayne Lindsey: As Chris noted, we closed on a $1.1 million licensing deal for the Toxic Avenger unrated that will be recognized in future periods in accordance with current accounting rules. In the prior year quarter, the company recorded $1.6 million from a similar Dog Whisperer license agreement. Excluding these timing effects, performance across the company's core business line continued to show solid underlying growth. For the quarter, we had a slight decrease in revenue, but strong gross margin growth with $12.7 million in revenue, $8.4 million or 3% decline over the prior year quarter, and a gross margin of 58% compared to 51% last year quarter. Materially above our guidance of 45% to 50%. For the quarter, we reported a net loss of $5.5 million and adjusted EBITDA of negative $3.7 million compared to a net loss of $1.2 million adjusted EBITDA of $500,000 in the prior year quarter. The decline in both numbers is primarily the result of SG&A expenses impacted by increased investments in sales, marketing, and technology to support our expanding theatrical and technology initiatives as well as startup costs associated with our newly formed MicroCo venture. We fully expect to see strong top and bottom line results in the remainder of our fiscal year as a result of these upfront investments and in fiscal year 2027 with the launch of MicroCo. We had $2.3 million in cash and cash equivalents on our balance sheet as of September 30, with $5.9 million available on our $12.5 million working capital facility. The decline in cash from year end is directly attributable to the payment of royalties during the quarter, majority of which was related to the Terrifier three two related to Terrifier three and advanced payments associated with our increased theatrical slate. We would also like to highlight the positioning of our current balance sheet with no long-term debt, no acquisition-related liabilities, outstanding warrants have been reduced to 700,000 shares, and $5.9 million available on our capital facility as of quarter end. In addition, our content library evaluation has been finalized reflecting an increase in the value of our library to $45 million compared to the current book value of $3.2 million as of quarter end reflecting material asset value not included on our balance sheet. Finally, coming off of fiscal year with record revenues and strong revenue and gross margin growth, this quarter, we believe the SG&A investment that we have made during the first two quarters of the year will lead to strong top and bottom line results for the remainder of the year. With that, I will turn the floor over to Erick Opeka to discuss our operating and strategic growth initiatives. Erick? Thanks, Mark. Erick Opeka: This was a strong quarter across streaming, distribution, technology, and our emerging businesses. Starting with streaming, total streaming viewers in the quarter reached 143.8 million, up 47% from last year. Total minutes streamed were 3.4 billion, up 45%. Fast minute stream were 3.2 billion of that, up 47%. And SVOD subscribers grew to 1.39 million, a 6% increase year over year. Several of our key channels delivered their best ever quarters in viewer growth. Our Barney channel more than doubled year over year. Dog Whisperer grew nearly 1000%. Screenbox TV increased 32% ScreenBox SVOD is up 27% since the launch of TerrorFire three. With Toxic Avenger unrated, we expect to see the majority of the impact in Q3, the current quarter. Secured a co-exclusive licensing deal with both Amazon and Hulu for the film. And as Chris noted, combined with the surge of direct-to-consumer subscribers on Screenbox, that we anticipate expect a healthy IRR that exceeds our baseline expectations of around 40%. We achieved this while minimizing downside risk through our theatrical model, and we plan to follow the same approach for our upcoming slate of horror, thriller, and independent films. Our Cineverse branded channel has now grown more than 6400% since its relaunch in January, in viewership. This reflects the strength of our fandom strategy and our ability to convert efficiently into long-term users. On distribution, our hybrid model continues to deliver. We are capturing strong licensing revenue while still preserving key windows on our own streaming platforms. That balance allows us to monetize content today while growing long-term recurring engagement and it continues to be a competitive advantage for our company. Turning to advertising. Environment this quarter was mixed. Bill rates in CPM were pressured as the market continues to adjust to large amounts of new inventory that Amazon, Netflix, and others brought online over the last year. Combined with macro concerns and tariff uncertainty, many core CTV advertisers remain cautious which create choppiness across the category. It was no different with us. Even so, our direct sold business performed well and repeat partners keep returning because campaigns on our platforms deliver results. What matters most is that our audience base continues to expand rapidly. Every new viewer and every new fast channel widens the funnel so that when conditions normalize, we have the scale to benefit disproportionately. And we are heading into that period into a period that tends to be favorable. Political spending begins ramping in our fiscal Q4, calendar Q4, and early fiscal Q1 calendar no. Sorry. Early fiscal Q1 calendar Q2. And, historically, that lifts our entire ad business. Easing interest rates should also bring more confidence in budget back in the market. So we are also preparing the next phase of our ad stack with the integration of Synacor, our massive AI-driven metadata repository into three c three sixty. This will allow advertisers to target audiences around specific shows, series, genres, and fandoms with far greater precision. The value prop is simple. Instead of buying a show directly on Netflix, an advertiser can buy the entire audience that loves that show or similar shows across the Internet at lower cost with better attribution. And we believe this will be a major differentiator. Next, turning to technology. Matchpoint had one of its strongest quarters yet. Added more than 20 new customers in the last hundred days, and launched Matchpoint three point o expanded internationally, and are now onboarded with a major Hollywood studio. Also secured new partners in APTN, The Asylum, Spark, and Waypoint, and expanded fast distribution across LG, ANZ, RockBot, and Roku UK. In addition, Matchpoint is currently under evaluation by a second major Hollywood studio as well as a major television broadcaster. As previously stated, these deals require a longer and more complex deal cycle but offer significant recurring revenue opportunities for the company and bring significant market validation which attracts additional large players. The acceleration is being driven by the state of the industry. As consolidation continues, library distribution needs keep increasing. Studios are under intense cost pressure, and everyone is trying to prepare their catalogs for the AI era. Most of the entertainment industry still relies on legacy systems, messy vaults, manual workflows, and antiquated delivery infrastructure that heavily rely on external manual vendors. Methods are no longer viable within this new streaming era as they cannot scale to the massive modern distribution demands. Matchpoint was built for this exact moment. It automates packaging, delivery, metadata, rights intelligence, and AI search into one system. So we are now evaluating strategic partnerships and selective acquisitions could accelerate expansion to ingest catalog transformation, QC, and AI native library preparation. Our goal is straightforward. We want Matchpoint to become the operating system for content libraries worldwide. And finally, MicroCo continues to build momentum ahead of plan, and I want to emphasize micro dramas are not a fad. Our research indicates that at maturity, microdramas could represent up to 20% of professional streaming viewing time. That would make the format central to the entertainment ecosystem and essential for every major streaming platform to be involved with. And we have a leadership team designed to build this category. Jenna Winograde, former president of Showtime, is our CEO. Susan Rovner, who led television at both Warner Brothers Discovery NBC Universal, is our chief content officer. Lloyd Braun, former chairman and president of ABC Entertainment behind hits like Lost and The Sopranos, serves as cofounder and chairman. The industry response has been overwhelming. We are seeing exceptional inbound interest from producers, creators, brands, studios, and institutional investors. The current short form market is fragmented, and no platform integrates professional production, creator tools, AI native work flows, discovery, and monetization. And that is what MicroCo will be designed to provide. We already have significant commitment from a leading venture firm and are actively engaged with additional partners. Developing on our initial development on our initial slate is underway, including live action, creator-driven series, new IP, and franchise-based projects. The platform is being built from day one to be entirely AI native, allowing us to move more quickly and deliver a modern experience. We expect to announce more details soon, including the name, platform features, partnerships, and launch timing. By combining our technology, our AI, and metadata systems, our automation capabilities, our phantom channels, and this leadership team, we believe MicroCo can create significant industry value and meaningful shareholder value extremely rapidly. Across the company, our focus remains the same. We are building for scale, for margin, and for durability. We now have multiple inches of growth that reinforce one another supported by technology, data, and a fast-growing audience footprint. And we feel very well positioned for the next several quarters and for the long term. With that, operator, we can open the line for questions. Luca: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, the first question comes from the line of Daniel Louis Kurnos with Benchmark. Your line is open. Please go ahead. Daniel Louis Kurnos: Yes. Thanks. Afternoon. One for one for Erick. Just Chris, you know, Toxy, not as good in the box, but great in the ancillaries. Obviously, the licensing deal, it is nice to see some of the pay window stuff. Does this influence either your expectations for your upcoming slate based on what happens? Just kind of more of an adjacent category to the traditional, horror And, also, just does it change how you view which films you go after? Obviously, you have your blueprint, but you kind of are it is going to take a little while to sort of settle in to see you know, what fits and and what kind of produces what kind of results. And then for Erick, just on Matchpoint, appreciate the incremental color. Just, you know, want to get a sense on timing of monetization. I know that while you said longer sales cycles, we got a new studio there. Sounds like you guys are looking to also accelerate the growth but it it seems like it is moving along nicely. So just any color you can give us on you know, contribution and sort of where you expect to be, say, like, you know, twelve to twenty-four months from now with Matchpoint would be super helpful. Thank you. So, Dan, this is Chris. Thank you. I will take that first question. Christopher J. McGurk: Well, I think as I said in my remarks, we really believe that Toxic Avenger validated our theatrical releasing strategy as as much as Terrifier two and three did. Because it showed the downside protection, the strength of our ability to market movies in the the ancillaries, as well as theatrical and the utilization of our marketing ecosystem. I will repeat again. I do not think anybody in this business that had released a movie other than us would have got anywhere near 40% IRR. On on that picture. But it is it is outperforming in the ancillaries. I do think one piece of key learning that we we got out of this is all of the other films in our release straight slight are straight down the middle genre pictures, horror pictures, family picture, fantasy now from Guillermo del Toro. This movie, Toxic Avenger, which we know, we picked up the rights forever. For a virtual virtually nothing. Was kind of a mixed genre movie. What was it, a superhero movie, a horror movie, You know, comic book movie? You know, a comedy was a little bit of all those things. And I think if there is one piece of key learning, that we take away from the release is movies like that are difficult to make work theatrically. So we are going to kind of avoid anything that is max of being a mixed genre movie in the future. Erick? Erick Opeka: Yeah. Thanks, Dan. So, first up on basically, we think about Matchpoint, one of the one of the first thing I will I will unpack the the the revenue cycle concept. So and I will and I will also, Tony is also on the call, and he I think he can provide some additional color. But I will first, I will give you so the the big the big picture. As I noted in the call, we are we are seeing a pretty rapid and overwhelmingly positive response to the product as we we take it out broadly to studios, broadcasters, and so on. All of them are seeing incredible margin pressure and, you know, really need to entertain cost cuts and efforts to sort of maintain their margins as, you know, some of those business are level setting, others are maturing, and others are entering a new phase of consolidation technology sort of centricity. So as we see that happen, all of them are expressing significant interest in using tech to to accomplish that. There really are not really you know, there is always been the promise of a unified solution in the market, but none none really exist that do what Matchpoint does. And so we are seeing incredible response think the biggest challenge is obviously number one, as these large companies are are highly bureaucratic and the cycle time from, you know, first conversation to you know, steady state operation you know, in its best incarnation, six months, up to nine months in its longest incarnation. You know, I and and I think I will I will I will let Tony really kind of talk about it more specifically with you know, the studio that we are working with. But other prospects on that front I would also say we are also in a lot of other businesses that have a high degree of cycle time that are are much faster return as you can see, you know, with new management in that unit that is experienced in the industry, we have been able to bring in 20 customers in, you know, in, you know, a little over a quarter and change. I think we are going to continue to see that And then the last thing I will add is is as you noted, we do see an opportunity in the market. You know, most of the competition in this space are at relatively low margins, but have strong established customer bases. So there is a thesis that you know, there there could be either partnership or M&A opportunity in the space that would effectively allow us to take relatively low cost and lower margin businesses you know, in the, you know, in the low twenties op margins to 20 to 30 gross margins and and take them up to the 80 to 90% software gross margins that we could get out of Matchpoint for most of the business lines. Tony, I do not know if there is anything else you want to add on the the sort of the cycle time and the prospect on the larger customer base. Tony Weedor: Yeah. Sure. Thank you, Erick. Yeah. Absolutely. As as reported, a quarter or two ago, we went into the pilot with a major studio. And as you would imagine, given the uncertainty within the Hollywood studio system, which consolidation, several studios being acquired or potentially being acquired It has created a sort of a ecosystem or this inertia within the industry where everyone is a little afraid of moving, not knowing where things are going. But in spite of that, as Erick pointed out, they are all under pressure to reduce costs, grow revenue, into new territories, and launch their services more widely. All of them rely on traditional legacy vendors who do this manually. So time to market is an important factor for them. And that is as we have discussed many times before, that is what Matchpoint excels at. So with the major studio that we just recently onboarded, it took us months just get into the financial systems. We are we are through that. We are in the process of finishing our first order. This was essentially a validation that we can actually do what we said we can do. That is going well. The feedback that we have gotten from the studio is if if this goes as well as they are seeing, they are they are completely interested in expanding the relationship taking away from some of the competing vendors that we are competing against. So what we see is the strength in the automation, the cost savings, the time to market, all the efficiencies that Matchpoint brings to us is a tremendous interest to the studios. At the same time, one of the challenges is what we do is so different that the the the sack and studio that is evaluating what we do, they they they understand what we are doing. But it changes how they do everything. But they see the benefits and and so that is a a process that is taking a little longer. But the upside to that is once we get accepted, this is we are not just a vendor. We really become part of their supply chain. And that is critical for what we are trying to do, where what we will do will be ongoing recurring revenue deep in the plumbing of a major studio. We expect that each studio could bring mid mid seven to low eight figure, revenue per year growing based on expansion. So our goal is as our pointed out, is to really be the operating system for the studio system. We feel there is no one else in the that has anything close. To what we do, and we feel we have a huge competitive advantage. One area that that we are working on is, offering more professional services, custom development, for the studios who are still trying to transition from legacy systems to automation. And that is an area that in the past we have not really focused on because of the high cost and low margin. But when we combine that with the automation, we really feel that we have an all-in-one solution to these studios who need a level of getting them up to speed and in order to leverage the automation that we bring. So with that in mind, I I think the to Erick's point, the feedback we get and have received across the market has been extremely strong and robust. You know, it it is it is I will not even go through all the comments and feedback we get. It it is stellar. And no one has seen anything that, comes close to what we have built. And that gives us a huge, technology moat that, you know, we feel very bullish about the future of Matchpoint. Super helpful. Thanks, guys. Luca: There are no further questions remaining, so I will pass the conference back over to Cineverse Corp.'s Chairman and CEO, Christopher J. McGurk. For closing remarks. Christopher J. McGurk: You all for joining us today and please feel free, if you wish, to reach out to Julie Milstead. With any additional questions you might have. We look forward to speaking to you all again on our next quarterly call. Luca: That concludes today's conference call. Christopher J. McGurk: Thank you very much. Luca: Thank you for your participation. You may now disconnect your line.
Rosalyn Christian: Ladies and gentlemen, greetings, and welcome to the Quantum Computing, Inc. Third Quarter 2025 Shareholder Update Call. At this time, all participants are placed on a listen-only mode. Following management's remarks, the call line will be open for questions. It is now my pleasure to introduce your host, Rosalyn Christian with IMS Investor Relations. Thank you. Yuping Huang: And I want to welcome everyone to the Quantum Computing, Inc. Third Quarter 2025 Shareholder Update Call. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements based on our current expectations and projections regarding future events and are subject to change based on various important factors. In light of these risks, uncertainties, and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. On the call today, we have Dr. Yuping Huang, interim CEO and chairman, and Chris Roberts, CFO. The team will provide an update on the business, followed by a question and answer session. With that, I would like to turn the call over to management. Please go ahead, Yuping. Yuping Huang: Thank you, everyone, for joining us today to hear about QSET's progress in 2025. The past few months have been pivotal for our company. We ended the quarter with a strengthened balance sheet, a growing portfolio of commercial relationships, and a clear disciplined strategy for scaling our technology. To date, in 2025, we have reached over $1.5 billion in capital, and we now have the resources to execute thoughtfully on our long-term vision of putting quantum technology into the hands of people. In the third quarter, we raised $500 million and subsequent to the quarter, raised another $750 million. This raises put us in a very strong position to drive our roadmap forward and make strategic investments in engineering, manufacturing, and sales. As many of you know, QSI's mission has always been centered around building quantum systems that are practical, scalable, and accessible. We're not just developing quantum technologies for laboratories. We are working to make quantum usable for a broader community of innovators, with the ultimate goal of having our technology as ingrained in society as cell phones. This is what sets QSI apart. While many quantum players remain focused on theoretical advances or systems that require complex cryogenic environments, our integrated photonic approach enables room temperature operation, compact form factors, and energy-efficient performance. These advantages not only reduce the cost and complexity of deployment but also make it possible to scale quantum solutions to a wide range of real-world settings, from aerospace and defense to telecommunications, finance, and data security. As the technology matures, we believe the key differentiator will not be who can build the most powerful quantum prototype in isolation, but who can scale quantum reliably and affordably. The challenge ahead is one of engineering and manufacturing execution, and that's where QSI's focus lies today. Our long-term goal is to move from prototype and small batch manufacturing towards volume production, and we see that transition taking shape by the end of this decade. To get there, our current three-year roadmap is focused on refining our processes, scaling small batch production, and expanding our team and facility to position QSI for industrial scale output. In other words, the technology is there. Our quantum machines and chips have been validated across multiple use cases. The next step is to scale the engineering and manufacturing behind them, and we now have the team, resources, facility, and a plan to make that happen. Let me take a moment to highlight some of the key updates from the third quarter. First, on the commercial front, we continue to see growing adoption of our quantum and photonic solutions across research, enterprise, and government sectors. During the quarter, we recorded revenue from our ongoing NASA LIDAR initiative, which uses our Direct3 quantum optimization machine to remove solar noise from space-based LiDAR data. This project represents a significant technical achievement and underscores the real-world value of QSI's quantum computing technology for scientific and environmental applications, as well as our initiatives to drive strong relationships within government programs. We also saw meaningful momentum in our commercial engagements. Following the sale of our ImmuCore reservoir computing device earlier this year to a global automotive manufacturer, in the third quarter, we completed a transaction with a major US financial institute, marking another important milestone in validating our quantum AI and security platforms in real-world settings. Our foundry operations in Tempe, Arizona, also continue to progress. As we have shared previously, this facility, also known as Step 1, is a small-scale manufacturing site designed to qualify processes and to support early customer programs in thin film lithium niobate photonic chips. This is an important first step in our broader manufacturing strategy. Since launch, our team has been refining the production line, expanding our operations staff, and building relationships with early customers across research, government, and commercial sectors. This engagement helps us fine-tune both process quality and device yield. Importantly, we are already in the early stage of planning for Fab 2, which we expect to begin developing over the next three years. Fab 2 will be designed to support higher volume manufacturing and serve as a cornerstone for scaling production to meet growing demand in telecommunications, sensing, and quantum information systems. As we advance this manufacturing strategy, our hiring efforts are ramping accordingly. Over the past quarter, we have added key technical and operations staff to strengthen our execution capabilities, and we expect that trend to continue as we prepare for higher production volumes. We have also continued to broaden awareness of QSI's capabilities within the quantum and photonic communities. Over the past several months, we have been active participants at multiple industry events and conferences, presenting our work and engaging both public and private sector partners. Those events include the IEEE International Conference on Quantum Computing and Engineering, the NYC Quantum Computing Meetup, Quantum World Congress, the Dutch Photonics event, the 51st European Conference on Optical Communication, Quantum Tech Europe, and the Quantum Innovation and Readiness Forum. We also recently joined the Quantum Economic Development Consortium and the Consumer Technology Association, aligning QSI with an expanding network of technology leaders and innovators. These memberships enhance our visibility and influence in shaping the future of quantum computing, cyber photonics, and AI-driven solutions across the consumer technology landscape. In September, we deepened our thought leadership presence in the photonics and AI community through a webinar hosted by Optical titled "Photonic Machine Learning for Time Series Program." The session highlighted how our ImmuCore reservoir computing platform and next-generation photonic architecture address memory and power consumption bottlenecks in modern AI workloads and underscored our thin film lithium niobate foundry capability for high-performance photonic systems. This engagement further expands our credibility in both academic and industrial circles and underscores QSI's increasing visibility as a practical quantum and photonic innovator. We have also been pleased with the increasing level of inbound interest from prospective customers and collaborators in academia and industry. The conversations we are having today reflect the momentum building behind integrated photonics and quantum-ready devices, where QSI has a clear first-mover advantage. QSI's approach positions us uniquely for the next phase of industrial evolution. While the broader quantum computing sector continues to grapple with scalability and stability challenges, our integrated photonics platform operates at room temperature with significantly lower size, weight, power, and cost requirements—the so-called SWAP-C advantages. These advantages become increasingly relevant as global energy constraints and the computational demands of artificial intelligence push existing infrastructure to its limit. We believe that energy-efficient, room-temperature quantum devices represent a critical piece for the next generation of computing, and QSI is positioned to deliver such solutions at scale. Over the next three years, our roadmap priority is small-scale, high-value manufacturing as we refine processes, demonstrate performance across customer applications, and establish supply chain and design partnerships. In parallel, we will be developing the foundation for Fab 2, which will enable volume manufacturing and allow us to bring quantum-enabled devices into wider use across multiple sectors. The quantum era is unfolding faster than most predicted, and QSI is determined to ensure QSI remains at the center of this transformation, delivering technologies that make quantum practical, scalable, and accessible to the world. With that, I will now turn the call over to our Chief Financial Officer, Chris Roberts. Chris Boehmler: Thank you, Yuping. And now let's review the financial results from the quarter. Revenue during our third quarter totaled approximately $384,000 compared to $101,000 in the same period last year. The increase in revenue was primarily due to increases in the number, size, and level of effort on research and development services contracts and custom hardware contracts. We also started to recognize some revenue for cloud-based access to the Dirac 3 quantum optimization system during the third quarter. Looking ahead, the company continues to build a healthy pipeline of sales and partnership opportunities, which we expect will support future growth as customer adoption of our products and technologies continues to increase. Our gross margin for the third quarter increased to 33% compared to 9% in 2024. However, it's important to keep in mind that with a small number of active contracts, some of which involve custom design work, gross margin is likely to be variable from one period to the next. As Yuping mentioned earlier, we have been active in the capital markets and substantially strengthened our balance sheet during the third quarter, closing on a $500 million equity financing in September 2025. As a result, we ended the third quarter with cash and cash equivalents of $352 million and investments of $460 million on our balance sheet at the end of the quarter. After the end of the third quarter, we also closed on an additional $750 million financing in October. As a result of the recent financings, we now have substantial resources to implement our TFLN fabrication and quantum machine development initiatives. In addition to organic growth plans, a key element of our long-term strategy is to evaluate opportunities that could help us accelerate our vision of putting quantum technology in the hands of people. Operating expenses for the third quarter totaled $10.5 million compared to $5.4 million in the same quarter last year. The increase in operating expenses is the result of substantial growth in personnel for research and development, engineering, manufacturing, sales and marketing, and administration as we position the company for long-term growth. We are scaling our organization across the board to support this expansion plan, including all functional areas of the company. As a result, SG&A expense is expected to grow in the near term as we invest in the necessary resources to advance our technology and execution capabilities. The company reported net income of $2.4 million for the third quarter or approximately $0.01 per share compared to a net loss of $5.7 million in 2024. The increase in net income this quarter was primarily due to a gain of $9.2 million from the mark-to-market of a derivative liability plus interest income of $3.5 million. For the nine months ended September 30, 2025, the company reported a net loss of $17.1 million or $0.12 per share, compared to a net loss of $17.3 million or $0.19 per share in the first nine months of 2024. As of September 30, 2025, total assets stood at $898 million, up from $154 million at year-end 2024. Since the end of 2024, cash and cash equivalents have increased by $273 million to $352 million, and total investments have increased by $460 million. Total liabilities at the end of the third quarter were $20 million, which is a decrease of approximately $26 million compared to year-end 2024. This decrease in liability is driven primarily by a $25.8 million decrease in the derivative liability related to the Q Photon merger warrants. Stockholders' equity rose to $878 million at the end of the third quarter, which also shows our strengthened financial position. Now it's my pleasure to turn the meeting back over to Yuping. Yuping Huang: Thank you, Chris. As we move into the final month of 2025, I wanted to take a moment to thank our employees, partners, and shareholders for their continued support. The technological and strategic progress we have made this year positions QSI for what I believe will be a defining period ahead. Our technology is maturing rapidly, and our focus remains on scaling our engineering and manufacturing capabilities, advancing customer programs, and continuing to strengthen our relationships across government, industry, and academia. With a solid balance sheet, a growing team, and a clear roadmap, we are well-positioned to drive this next phase of growth. Thank you for joining us today and for your continued confidence in our mission. With that, we will now open the call for questions. Operator, please go ahead. Operator: Certainly. Everyone, at this time, we will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Max Michaels from Lake Street Capital. Your line is live. Max Michaels: Hey, guys. Thanks for taking my questions. A few here kind of scattered around a couple of different topics. The first one is going to be I noticed that press release about POET Technologies. Was wondering if you could give maybe a little bit more detail on outside of just what was said in the press release and maybe think about sort of the long-term opportunities with them and then maybe some other partnerships you have in the pipeline similar to that POET Technologies. Yuping Huang: Okay. Sure. Thanks, Max. So on that front, we have actually been very actively talking with multiple parties on using our thin film lithium niobate technology for the next generation high-speed transceiver technology. So as you probably know, the industry is recognizing thin film lithium niobate as the next generation platform for much higher speed Internet. So this collaboration with POET is one of the agreements that we have discussed and has come to fruition. And we look forward to working with them and also with others to explore thin film lithium niobate for telecom and other applications. Max Michaels: Okay. And my next one is just sort of around that top five US bank you guys secured or purchase order you guys secured in the quarter around Quantum Security Solutions. Can you give some other sort of use cases you guys are having discussions with with other large opportunities, I guess, or other large firms outside of just security solutions? Yuping Huang: Yes. In fact, we have been talking with other firms, including the potential of putting our technology on photonic integrated chips so that we can really shrink the size of our current quantum communication systems, our quantum path chips, and our quantum random number generators to an inch square chip. So there are many sectors, including the wireless or Internet providers, so they can easily adopt. We have been in discussion also with some potential partners to see if we can apply our quantum communication technology to the aerospace platform so that it can solve the issue of the long-term quantum Internet challenge. Max Michaels: Then, Chris, I think you mentioned inorganic opportunities around M&A. And sort of how evaluations and multiples trended in that space as well as maybe adding on sort of the end markets or technologies you guys plan on going after when it comes to M&A? Chris Boehmler: Well, the M&A market continues to be volatile, and the valuations depend in good part on how the stock market's going. And right now, it's very unsettled. We are looking actively for acquisition candidates and evaluating them as they come up. Nothing formal we can announce at this time, but we are working very hard in that direction. As I mentioned before, we're looking at M&A as a way of doing two things. One is to acquire customers and revenue and product lines that can be moved forward and migrated forward with our technologies. And we're also looking to fill in some key aspects of our own technology roadmap so we can accelerate our commercialization. Does that help to answer your question, or do you have a different point in mind? Max Michaels: Nope. Nope. That's great. Thanks for taking my question, guys. Chris Boehmler: Sure thing, Max. One thing is let me just add to what Yuping said about the POET project. It's a perfect example of why we built Fab 1. Because we have the only fabrication facility in the US that can work with thin film lithium niobate. And this gives us the ability to do this type of advanced prototyping of product concepts that we can then, if we're successful, move forward into Fab 2 and produce in collaboration with a firm like POET for a larger market. This is a real validation of the idea behind the investment in Fab 1. Max Michaels: Okay. No. Perfect. Thanks, guys. Chris Boehmler: Oh, you're welcome. Thanks for joining the call. Operator: Thank you. Your next question is coming from Troy Jensen from Cantor Fitzgerald. Your line is live. Troy Jensen: Hey, gentlemen. Congrats on all the progress here. Maybe a couple of quick ones for Chris first. Can you tell us what is the remaining CapEx for Fab 1? Chris Boehmler: Roughly? Fab 1 is a good question. Yeah. Fab 1 is pretty much built out or it is built out, but I'm always looking at new equipment, but Yuping might be a better one to answer on that. I don't have anything I know of that's lined up near term. Yuping Huang: Yep. So right now, Troy, Fab 1 is fully operational, and we actually are making chips to deliver the 10 plus foundry service orders that we have so far. But we do have a plan to install a very high-speed measurement equipment in the foundry so that we can quickly test the property of high-speed electro-optical modulations on the chip. So there, we are looking at an additional CapEx of about $2 million to add this very high-speed testing equipment. Troy Jensen: Alright. That seems pretty modest. With respect to Fab 2, building that out, would you guys obviously, hopefully, be producing your own picks, but is the idea to outsource capacity to other people that need thin film lithium niobate capabilities? Yuping Huang: Yes. Yes. So we are scoping Fab 2 to both support our own quantum machine manufacturing as well as to serve the increase in demand for thin film lithium niobate chips. As the industry is becoming more and more interested due to the many nice properties of this interesting material for different applications beyond quantum. So, Troy, our goal there is that we hope that we can quickly establish a Fab 2 that can make hundreds to hundreds of millions of chips per year. So that will both support our own needs for our quantum machines and also substantially serve demand from others on the thin film lithium niobate manufacturing. Troy Jensen: Great. Okay. How about a quick one for Chris? Could you let us know what the share count will be exiting 2026? Chris Boehmler: Well, at the moment, we have 224 million shares outstanding and 250 million shares authorized. We're not expecting to do another financing, so it'll probably end up with another couple of million shares potentially if options are exercised. But it would not be a large number. Troy Jensen: Is that what you guys are offering? That just happened. Chris Boehmler: I mean, if you include the offering that happened here in Q4, any other I mean, yes. Including the $750 million offer that was included in October. We have 224 million shares outstanding. There are several million outstanding warrants and stock options, which I have no way of predicting when they may be exercised. But that gives you a sense of the range of possible outcomes at the end of '26. Troy Jensen: Great. So for a share count that we should be modeling, it should be that 224 number for Q4? Chris Boehmler: 224 for Q4. Yes. That's probably the best number I can provide. At the end of '26, that's a little harder because it really depends on market conditions and Troy Jensen: No. That's good. How about if I could toss in one more? For Yuping here? I guess I'd love to hear stats on your QPU with respect to Q account or Fidelity or maybe it's, you know, too early to talk about that now and, you know, maybe correct me if I'm wrong, but is the near-term opportunity more in sensing and other applications that you guys are targeting right now versus kind of the QPU type sales? Yuping Huang: Sure. I can talk about both. So on the QPU front, in fact, we have been upgrading our current Dirac 3 system. Some of our external users actually start to find some real nice advantages over classical computers. So we have some pretty exciting results there. And in the meanwhile, we are actually making great progress in building the next version of that, which is based on the same architecture and built for optimization. But we increased the speed by orders of magnitude. So we are making pretty good progress here for our quantum optimization machine. And in the meanwhile, as I reported last time, we do have the roadmap of going to gate-based machines. And we have done a lot of theoretical work and proof of concept in the lab. But we just got started on the hardware development because the gate machine requires very high-quality thin film lithium niobate chips. And as you know, we just finished the construction of Fab 1 in March and over the summer. So we gave out the recipe and set up the processes, and so the fun has just started, and with that, we will quickly get to the hardware of the gate-based machine. So on the quantum sensor part, yes. And as we reported, we did sell one of our quantum photonic wire vibrometers, and people are using it for different applications. And we also sold a quantum communication system to a US bank as we reported. And we have also made some sales on the AI front, and we continue to engage the community on thin film lithium niobate, and we have recorded more sales on foundry services. Troy Jensen: Gotcha. Alright, guys. Well, keep up the good work. Yuping Huang: Thanks. Well, I appreciate your calling. Operator: Thank you. Your next question is coming from John McPeak from Rosenblatt Securities. Your line is live. John McPeak: Hey, guys. Congratulations, Dr. Yuping and Chris on the momentum in the business and the bank deal. Yuping Huang: Thank you, John. John McPeak: Recently, there's been some new implementations of Shor's algorithm that suggest that pretty soon we're gonna be able to crack RSA 2048. I guess when I say soon, we're talking about years, at least kind of over the career of a CSO at a large company, so they can't just ignore it. And I'm just wondering if that might be increasing the pipeline of potential security deals, particularly in the financial sector. Yuping Huang: Yes. Definitely. So, John, one thing that we all have to keep in mind is that if somebody somewhere has a very powerful quantum computer to crack our passwords, they will not make a public announcement on that. Right? So we have to really deal with the cyber threat. We really have to think ahead and act fast and plan ahead. So far, as I know, the only truly secure cyber solution against the attack of the quantum computer would be using quantum itself to secure our Internet. So at QCI, our engineers are leveraging over ten years of R&D work in quantum communication, quantum encryption, quantum authentication, and now we are pushing our engineering effort to put our technology in a practical footprint. In fact, we have designed our technology so that it is fully compatible with existing fiber-based telecom infrastructure. So in order to use our technology, you can just buy some end units from us and hook them onto the fiber portal in your garage, and you will be able to enjoy quantum-secured Internet. And so you don't need to worry about if somebody has already a powerful quantum computer or not. So, yes, John. To answer your question, I think it is time. It is really, really time for us to start to adopt quantum Internet solutions. John McPeak: Thank you. So on the other side of the business, the optimization, you know, I guess the Dirac 3 is just starting to have revenues recognized this past quarter. How is that market trending right now? Is there more awareness of these solutions for optimization? Yuping Huang: Yes. Yes. And I would like to put it this way. Quantum computing is a pretty disruptive technology. And just like how other disruptive technologies are commercialized, we must address three hurdles before we can see wide adoption and very meaningful revenue. The first is that the customers really need to know and understand the technology itself. The second is that we need to see a clear path to be able to integrate and adopt the technology with their existing systems and solutions. The third is that we, as the technology providers, must lower the entry level so that people can quickly get to the technology. So that includes making the device very compatible, having a very easy user interface, and ensuring the price tag is reasonable. For the first one, we are ramping up our marketing communication, including pushing out more educational material on our website, publishing open access journals so that people can find the material to know and understand our technology. For the second, we are actually building and expanding our applications team to explore and help with potential customers to adopt our technology. Now for the third, we are actually in the phase of transitioning ourselves from a technology innovation company to volume production so that we can reduce the unit cost of our quantum computing products. So those are the three measures that we are taking that we are on now in order to quickly get our technology into the hands of people. John McPeak: Thank you. That's helpful. Yuping Huang: Thank you, John. Operator: Thank you. And once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Your next question is coming from Ed Woo from Ascendiant. Your line is live. Ed Woo: Yes. Congratulations on all the progress. I was just curious about international opportunities. It seems like most of your focus now is in the US. Do you have plans to focus on international opportunities? Yuping Huang: Yes. Yes. In fact, quantum is also very hot outside the US, and we have been very active in talking to and looking for opportunities, either partnering or providing our products and services to international institutes. For example, we actually sold our ImmuCore system, which is an AI device at Edge, and we sold our vibrometer to Europe, and we are working with a distributor in South Korea to explore the market there. And then our Dirac 3 actually has users from Singapore. Ed Woo: Great. Thanks for answering my questions, and I wish you guys good luck. Yuping Huang: Thank you. Chris Boehmler: Thanks, Ed. Operator: Thank you. That concludes our Q&A session. I'll now hand the conference back to management for closing remarks. Please go ahead. Yuping Huang: Thank you, everyone, for joining and participating in today's call. I encourage you to follow us on our social media channels, including LinkedIn.
Operator: Good day, and welcome to Modiv Inc. Third Quarter 2025 Conference Call. All please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks and then we will open up the call for your questions. To ask a question, analysts may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. And to withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to John C. Raney, Chief Operating Officer and General Counsel. Please go ahead, sir. John C. Raney: Thank you, Chloe, and thank you everyone for joining us for Modiv Inc. Third Quarter 2025 Earnings Call. We issued our earnings release after market close today, it's available on our website at modiv.com. I'm here today with Aaron Scott Halfacre, Chief Executive Officer, and Raymond J. Pacini, Chief Financial Officer. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our expected acquisitions or dispositions and business plans, are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Ks and 10-Q. With that, I'd like to turn the call over to Aaron. Aaron? Aaron Scott Halfacre: Thanks, John. Hello, everyone. Hope you're doing well. This time, we're gonna do it. We are doing everything a little bit differently. Certainly, I had the call on a Friday afternoon. I'm surprised to see if many of you dialed in as you did. Hopefully, you have a cocktail in your hand. But we're not gonna do prepared remarks. I put a little more context into the press release. So we're gonna prefer all questions, but I think what I'll say is kind of an iteration. I you know, it's really grindy, and I really like that. You know, we purposely waited toward the end of the earnings season because some of the early reporters, it was interesting to see them come out like, wow. It's pretty solid. And then, you know, they just got hit in the markets. And I was like, okay. We'll see what else works comes out. And then so it was really I really wanted to spend some time observing because I candidly, doesn't really move the needle when we come out. And typically when we come out, you know, we're you're stacked four deep, and you guys don't have a chance to breathe. And I wanted to give you a chance to breathe. And so that's the only reason. So there's nothing else into it other than that. We won't do this that often. But, you know, I feel, you know, generally optimistic. I mean, look. No one knows where Powell will be in December. You know, are they done or not? But I think we all probabilistically underwrite that, you know, there's gonna be a new Fed regime come May. And so and that regime has a high propensity to be easing. So at some point in the future, we should see easing. And so you know, Modiv Inc. share price is very easy to predict in a five-minute pattern, and probably on a five-year pattern, but not sort of in between. But if you think you've got easing, you think you've got a long period of capitulation, we started to see sort of non-equity when I say equity, I guess, we've seen preferred and debt deals being done. Which I think, you know, are key leads of capital market activity. Know, I think July, we saw I think I well, at least I got a palpable sense that there was some interest. And, you know, we saw, like, the deals, like, we saw with the fundamental deal, we saw the early the pre-version of the Plymouth deal announced, and we saw the sort of Elm Tree, and we were starting to see pipeline. And then it kinda went like sideways in late August, September, or early October where it's just, like, people got scooped and their shadows were seen. For instance, we saw we were we were in process bidding on a pipeline deal that we liked. And it was it was a company that was doing Prophco sell along with an Opco transaction, and they were, like, guns ablaze, and then they pulled it. We've seen some of that stuff, over the course of last quarter. So it was a bit of sort of a volatile quarter where people thought they had a look, and then the market gave them a head fake. And then they're like, oh, you know, pausing on the margin. But I think, you know, we get this real palpable sense there's still a lot of money on the sidelines. I think still right now, a lot of people just want like, you know, blood bath returns. They wanna they really wanna, you know, shiv people who they think that are desperate. And, you know, some of those people are being, you know, picked off. Right? We're seeing more read stuff that, you know, I think either they waved the white flag or they didn't have the wherewithal or whatever. But you know, and so I think that capital still really sort of let's just be patient and let's just only get the super, super sweetheart deals. But if we start to see real easing and we start to see some consistent trends for REITs, I don't know if that means we need you know, consolidation on the sort of the rest of the S&P and Nasdaq to get that or not. It's hard to say. Because you could argue that you know, until tech and some of these names cool off, then no one's really gonna ever consider you know, boring REITs. But at the same time, if they force correct, is that just gonna drag everyone back down? So it remains to see. It's pretty cloudy. But even despite that cloudiness, I feel pretty optimistic. About what I'm seeing. And, again, it's because I'm gritty and grindy, and I like that. So that doesn't mean, you know, we're off to the races, but it does feel like I mean, for us, I mean, we're like a goddamn cockroach that could survive a nuclear war. There's no real fundamental reason why we should be as durable as we are given how small we are now in the context. I mean, we there's a reminder. I said before. We came out two weeks before Putin invaded Ukraine, and we came out, like, what was it? Three and a half weeks before the Fed started raising rates. So the entire publicly traded existence of us has been, like, you know, dog shit. Yet I feel like our balance is stronger. I feel like our AFFO is better. I feel I just I have a much more clarity now than I did even a year ago. And so I think that leads to optimism. But enough of me rambling. Let's open up to questions, shall we? Operator: Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. And if you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star to the number two. We'll pause for a moment as callers join the queue. Our first question comes from the line of Craig Gerald Kucera from Lucid Capital Markets. Your line is open. Craig Gerald Kucera: So, Craig Yeah. Hey, guys. Good afternoon. Just a few for me. Were there any onetime revenue in your other property income, and how should we think about that going forward? Raymond J. Pacini: Yeah. It was a $300,000 fee that we obtained for terminating some ease of rights that are marked for property. And that's it. Aaron Scott Halfacre: So did you be add a little clarity to that? There so our north of property, which is in Melbourne Space Coast, there was a large piece of sort of underutilized near vacant land. And, you know, it was a former, like, I don't know, call it, like, a kids park or something like amusement park. And that's getting redeveloped into a housing project. You know, townhouse type of arrangement. And the prospective buyer had come to us because there were certain easements and they wanted certain rights. And so we negotiated it to a while, candidly. I would say we probably negotiated for nine to twelve months, and they basically gave us a fee for to sign a paper. And so what that that's that's what that was. Craig Gerald Kucera: Got it. Was that was that all recognized here in the third quarter, or will we expect any other additional fees? Going forward? Raymond J. Pacini: One time. Craig Gerald Kucera: Okay. Yeah. One time. Okay. Got it. It looks like you added another asset to the held for sale bucket. Can you give us some color on on what you're looking to sell here? And are you actively marking that for sale as well? Aaron Scott Halfacre: Yeah. So, obviously, we've had Costco in the help for sale up until this point. And then I guess, about six weeks ago, we formally engaged a broker to sell Clara. So Clara is held for sale. And in the process right now of, I think, our anticipation is that we would try to get this sold either by the end of the year or probably early early January. So that's the other property that's gonna help for sale. Craig Gerald Kucera: Got it. And speaking of the, the Costco property, I think KB Home was expected to extend a couple times until maybe December. Are you getting any change in sort of their viewpoint on the asset if they still expect it to close? Aaron Scott Halfacre: Yeah. So they they they did extend to December. We've had some conversations recently about they're wanting to time the closing for their for a demolition permit. But, you know, they've they've gotta go through their process. But as it stands right now, per the agreement, you know, we have not been heard if they're gonna extend beyond December 15. So they have one more extension that would take us through to, I think, February 15. But right now, it's through December 15. Craig Gerald Kucera: Got it. Am I over to bet my bet is is they'll close by then. Aaron Scott Halfacre: Okay. Fair enough. And just one more for me. I feel like last quarter, you were saying you were seeing an increasing number of acquisition opportunities. I'm just sort of curious, based on your opening commentary, it sounds like things are maybe more loosening up, but now sort of seized. What's your that sort of the your viewpoint currently, or do you think things are coming back? Aaron Scott Halfacre: Yeah. So it's interesting. So I would say that we were seeing, some some stuff in, you know, that sort of July time frame. And then we started throwing out some bids, and then it kind of kind of contracted because we got a little sideways. And I would say we've seen more in the last week and a half than we had probably in the prior month and a half. So I I don't know what it was about it. I mean, if the markets were just volatile, maybe because the end of summer, maybe it was because we knew we had the September decision. I'm I'm not sure. But, you know, it kinda we didn't see much. And now we're starting to see more. Like, now it actually feels look. I'm measuring it by quantity, not quality. It's starting to feel healthier. Like, there's a definitely I mean, I think John C. Raney, I'm thinking we've probably looked at you know, four or five deals in the last week. Right? John C. Raney: Yeah. At least. Quantity is Aaron Scott Halfacre: yeah, quantity is down I mean, quality is still challenging. Right? I mean, we I think the one thing that that I like, you know, if you imagine us as a as a as a steel blade or a knife, you know, we're constantly sort of sharpening and sharpening on a grindstone and getting better at what we want knowing better what we want. And so our box buy box has probably gotten a lot tighter and there's there's stuff that I probably would've you know, been willing to bid on two years ago. I'm like, man. Forget it. I'm out. I don't wanna bother. So we're we've gotten much more selective, but that that said, you know, I it feels right now at least, and they and it's usually odd because, candidly, you don't tend to see a lot at year end. You tend to see them waiting early January. Right? That's where pipeline tends pick up normally. Like, now you would generally think it's gonna slow down because you know, these take anywhere from thirty to sixty ish days to close, and so then you're, smack in the holidays, and you're like so think that's an interesting sign. I think some of I think what we are seeing sort of key lead wise is there's probably more PE activity going on. Which I think is always an indicator an early indicator. Right? PE and hedge funds sometimes can be you you you generally construe them as to be smarter capital, maybe not smart capital, than sort of you know, people who have just know, got long buyers or doing ten thirty ones or something like that where they they're forced by mandate to do something. These guys are looking for for something. So we we have seen a little bit of PE activity pick Craig Gerald Kucera: Okay. Great. Thank you. Operator: Our next question is from Gaurav Mehta from Alliance Global Partners. Your line is open. Gaurav Mehta: Yeah. Thank you. Following up on your comments on acquisition can you comment on where the cap rates are for the kind of properties you're looking at? Aaron Scott Halfacre: Cap rates are mainly seven handles. That's first year. Right? Some we've seen some eight, but mainly seven handles. Not not necessarily low seven handles, but seven handles. Like, I think brokers are certainly asking for for the moon, and that's their job, and I get it. On a weighted average basis, those are probably, you know, tens. Right? And so now I I I guess fairness, we've seen some wider ones, but you're like, I own that. You know? Have we seen any tighter ones at all? Raymond J. Pacini: Know that I have. Right now, to be honest with you. Gaurav Mehta: Okay. Thanks for that color. Second question on I guess, asset recycling as the acquisition market picks up for for your target assets? Should we expect that you may sell more assets to fund those acquisitions? Aaron Scott Halfacre: You should expect that we we will be deliberate and systematic about asset recycling. If you think back, right, so we did the the the asset recycling, the GIPR, which is a large bowl. And so just by for for everyone's education purposes, you know, generally speaking, if you sell if you do seven individual transactions, to seven individual buyers in a given year, that's sort of the limit. For an IRS perspective. If you go over that, you you kind to have to get what is called a private letter ruling to sort of get exemptive relief because otherwise, you might be deemed deemed traitor. You're dealing. Like and so when we sold that big bunch of you know, office and and dollar stores to GIPR, that was one transaction. And then you know, that was sort of kicked it off in earnest. We sold the the the one in Nashville. We sold one out in in California. And then, you know, it gets kinda got really super volatile, and we've been sitting on the KB thing for the Costco purchase for for a while. Looking forward to that closing soon. You know, as I said, OES has this purchase option, so we can't do anything with that until we actually have conversations with them and their process. Is you know, they have time on their clock. So that one is what wasn't gonna happen immediately. And then and then you know, the solar property, we've been with it's been four years of trying to get a to get a lot split. So San Diego is is, like, really difficult to work with in terms of doing anything. That's taken on. So it's felt really, like, long in the tooth. Like, we haven't really shown much recycling. And I think at the same time, we have other assets we could they would fly off the shelf. Right? They would just immediately go. And and what I say these other assets is, obviously, there's the Kia asset, which is a noncore, but we also have in our industrial bucket some legacy assets. Not all there's a handful one until they're, like, a that are not absolute trip I don't like because it's leakage and it's not scale efficient. Some of them are are just not the very focused sharpened knife blade of manufacturing that we want. And so those would have flown off the shelf in this period of time. But at the same time, we're saying, they're not hurting us. Very comfortable credits. Let's see if we get a little bit of a more stability in the cap rate markets. If cap rate mark if the cap rates start to start to tighten, then we can comfortably roll those off, and we're not, like, leaving a lot of chips on the table. And so I think what you'll see over the next period of time is we will continue to do that. Start recycling those, and it'll be systematic, and we'll use since those have a long legacy, that we'll have to we'll have in terms of a low basis, we've held them for a long time that they will be ten thirty one or they'll be tax sensitive. So we will be sort of timing rolling into new acquisitions. With the advent of those being sold. If that makes sense. Gaurav Mehta: Okay. Thanks for that color. That's all I had. Aaron Scott Halfacre: Cool. Operator: Our next question is from John James Massocca from B. Riley Securities. Your line is open. John James Massocca: Good afternoon. Hey. So as we think about maybe going? As we think about maybe over a longer time horizon, you know, the outlook for for, like, true gross. What's kind of interesting maybe as the the Fed dynamic changes a little bit in terms of sources of capital perspective. And I just maybe hop in on you know, your preferred stocks had a little bit of a run, There's been some smaller REITs that have been out there in the preferred market. But that would in some people's mind, be a leveraging transaction if you did raise in that market. So just kinda curious where we should be thinking about sources of kind of external growth capital in the future if and when the market gets a little more accommodative? Aaron Scott Halfacre: Well, I think when we know the market is accommodative, I think that that'll be a better time to ask that question. I think for us, and I've kind of alluded to this, is that, like, I that question predates that we have to grow, and we have to find sources for it. Right? And I kinda rebel against that question in general right now, and I don't I know I don't I know the answer is underwhelming. Like, well, if don't have external growth capital, you can't really grow. And I was like, yeah. I don't you know, we I have several assets that are you're gonna you know, can trade low sixes, and then we can rotate them into mid to high sevens. And so that's growth. Right? And that's something to do in the near term. Until it makes it clear that we're the trend know, you think about we're in a downward trend in REITs, or we have been, generally speaking, and, you know, it's correlated to rates. And so until we have clarity on where rates are, then I think we'll start to see you know, where pricing is. And another way I think a couple ways I think about it. Right? And I'll talk the preferred stuff too in a second. But you know, look at o or w b care. I mean, I think their dividend yields are, high fives. Right? Mid fives, high fives. You know? And we're, what, eight. So we're roughly 200 base 50 basis points off of them, two hundred two hundred fifty basis points. That doesn't seem terrible to me. I don't like it. I think we're certainly undervalued. Right, from a standpoint. But, arguably, everyone is. Right? I mean, it was always forever. It was, you know, sub four dividend yield. And they're trading fairly wide. I mean, that's much wider than a money market. And do they do they have a lot of risk in them? I don't I mean, they have risk that they may not grow. But so I think we need to see you know, the broader, more liquid, the more easily bought, the easily loved names, right, the big names to start to see some love. From the broader institutional community, which they haven't seen. Because flows into REITs has not been good. When you start to see that, then then the next sign would be, okay. Are we are we you know, we're we're we're the we're the tail. Do we start to see that? Right? So, obviously, price of our share our share price, if it's at a a a realm that's accretive, then then we would start to access that. But we're not there yet. And so until it is, I can't do anything with that. Right? The strategic capital stuff, look, we're always looking. I think like, we've had like, we've seen three preferred deals really in the last week. G m GMRE, we saw Pine, and we saw Frontview. I thought I thought the deal that Preston and Fitzgerald did was was really I like that. It was clever. Right? I'd love to have conversations with him and reach out to him and do it. But I think that was a clever deal. Right? I think that one is a constructive deal that'll cause growth. If I look at g m r GMREs and pints, look, I get it. It's cheaper. That that 8% preferred is cheaper than your equity loans. But you gotta step back. And then and so that answers the question. Which source of capital do I wanna use? And I wanna step back to the primary question and say, should I be using either of those? And if my if I have a hammer and the hammer says, you know, hammer every mill. That says growth on it. Then you're gonna use capital. But like, I mean, think about it. If you just pull back on a time horizon, and you under and you underwrite that we could be in an easy environment and that this time next year, our returns our our share prices could be better. As a as a category. Then won't it feel a little like a chump to have issued a bunch of perpetual preferred at 8%. When you could've just waited and your maybe your dividend deal and equity could've been issued at seven and a half or seven. But, clearly, I get that they will they will make that accretive. So it's not like it's bad. It's not like they're gonna destroy themselves by it. By no means. I mean, they're probably finding paper I mean, investments that are wider than that age. So it's gonna be accretive. But they are also just burdening their franchise with this thing that they gotta have to deal with. And so to me, I just wanna step back and say, hey. What is does it really make sense? Do I need to post you know, stats for the quarter Because that's what everyone else does. But that was kind of my framework about being a small read is the bigger guys, yeah, I get it. They got super low cost of capital. They do need to show activity. Right? But our smaller folks I mean, is that the right blueprint? So many small cap REITs just try to follow this bigger mantra of the normalized REIT, and they're just not. And and I know it's a it's a circular thing. Like, you said, well, if you don't grow, then you're never gonna get capital, and therefore, you're always gonna be small. And I'm like, maybe. But maybe you could actually create a really valuable franchise. That you know, people will buy. And you know? But that just that's it. That's an experiment that we're doing. I fundamentally take the view that if I improve the real the the durability and quality of the income coming in, and I sort of rightsize the balance sheet and make it stronger, not weaker, and that I continuously do the right things over time that you know, as I think Warren Buffett says, when the tide goes out, you know, you'll see who had have their swim trunks on. And so right now, I don't know where those buckets of I know that categories of where those buckets of capital is, but I don't have a line of sight to tell you, yeah. I'm I've got someone who's gonna give me equity It's $18 a share. Because if I did, I would just you know, I would take it, and I would go put it to work. John James Massocca: With the in place portfolio, just kinda broadly, what's the feeling amongst tenants as you reach out you know, given maybe we have a little more certainty even versus the last earnings call around the tariff outlook and it's still some uncertainty, but just kind of curious how they're feeling and if there's anything maybe notable from a tenant credit perspective worth calling out. Raymond J. Pacini: No. I look. Aaron Scott Halfacre: Most of these operators, you know, quarters don't move that Right? They they're they look annually. They look at cycles. They're getting orders. I think the tariff news is if anything, it's old. Right? I mean, the volatility certainly tempered. I mean, you tell me, I don't think we've heard of the the verdict yet on the supreme court. And even if we do, there's two other tariffs that he can implement. And so no one knows. Right? But what we do know is it hasn't there's there's no been there's no blood in the streets. And and and our businesses are operating. I mean, most of our businesses buy US and sell US. Right? We we own a lot of durable businesses. So we haven't seen anything we haven't seen anything new on the radar. Says, oh oh, no. This is you know, tariffs are are are gonna squeeze us. I think look. People would love to have clarity on tariffs. I think tariffs do economic impact you. But the near term noise is there's not really been anything. And, like, we kinda said, I think two quarters ago, that most of our the vast majority of our tenants learned from COVID and then the first Trump administration. You know, it's not the first time he's talked about tariffs. That they didn't wanna have dependencies on places that could get squeezed, aka China. Right? And and so a lot of the meds over the ensuing years have mitigated that risk in as this is good business practice, And that happens to look like a good reaction to the near term conversations about tariffs, but I we haven't heard anything recently. Or or at all. Since our first conversation, I think everyone was alarmed because, like, liberation day, people are, like, charged. Right? And now it's, like, yeah. Okay. Let's let's wait till we actually know something else, and then maybe that's then we maybe we can then sort of reforecast. But nothing yet. John James Massocca: K. And then on just kind of a line item by line item basis, you know, probably more likely into 2026, what's the potential impact to property operating expense maybe even typically like a net property operating expense from completing the former Costco headquarters transaction and even maybe even the Clara if you're able to sell Clara's former property. Aaron Scott Halfacre: So I would give you characteristics that, you know, right now, as we roll, we're I'd say that cost delta on operating expense vis a vis the fee. Right, so the extension fees, is we're probably running we're probably bleeding a about $40,000 a month. On that. On that property. Right? So you're not gonna so there's a there's a fairly amount of CapEx, but we have also gotten, you know, these extension fees that sort of offset that. From from an AFFO perspective. But there's probably about $40,000 a month bleed on that. How we think about it in sort of third quarter, Yeah. Cholera actually is know, it's been lumpy. It's, you know, know, you you got security fences in there. Things like that. I like, if we get that flushed out, I don't think you're gonna see, like, don't Ray, you correct me wrong. I don't think we're gonna see world changing property expenses go down just because those clear out. We we're fairly neutral on that, but, I mean, there's a little bit of movement. In in 2026. I think, you know, as we get rid of some of we have a hand like I said, a small handful of non absolute triple nets. I think on the margin that that could that could reduce property expense next year. Raymond J. Pacini: Well, I I think it'll go down a bit, you know, maybe a 100 k or so. But I think as we sell some of the other properties, as we do the recycling, There are some others that where there's some leakage. And so over time, it'll probably go down a little bit further. John James Massocca: That help? Aaron Scott Halfacre: Yeah. It's very helpful. Appreciate all the detail. That's it for me. Thank you very much. John James Massocca: Thanks. Operator: Our next question is from Stephen Chick from Sabis Garden Capital. Your line is open. Stephen Chick: Hey. Thanks. Guys. I'm wondering if you could or if you know of what the same store rental income would be, You know, rental income is down 2%, but I think there's an overhang, obviously, from Costco and solar is probably in there as well. Do you calculate what same store rental income would be? Or a figure like that? Aaron Scott Halfacre: It's we don't. And and I think the general view reason why because our there's so much movement in our portfolio that we have, you know, So but I think it's fair that once we complete a recycling that that would be and we think we're largely baked, particularly if we don't have external growth capital. I think it's fair that we would start implementing same store You know, we may try to run that for you and polish that sometime and before your end or something like that, but I I don't think we have it handy. Right? Do you Raymond J. Pacini: No. But I'd say that I you know, our overall average is two and a half percent rent growth a year just based on escalations in the leases. That gives you some idea of what's happening there. Stephen Chick: Yep. And I I would care Okay. Characterize it. Aaron Scott Halfacre: As we we recycle those, a lot of the legacy ones have the low lower bumps. Right? They're they're twos or or they're every five kinda thing. Every five years. So I think, you know, I think that if you look at there's a pie chart on our website, shows kind of the weighting of those. A lot of the the pro stuff that we put in the last two years or last three years to their average north of two and a half percent. But I think over time, that could you know, or same store could could trend that way. Stephen Chick: Okay. That's helpful. And then I can you say I I didn't catch it. On solar, did you say when you thought that property would would be resolved or sold? Aaron Scott Halfacre: We're a lot lot closer than we ever were. I mean, so we literally started this process in 2021. We engaged consultants and went through the process. And it's we're four years into it. We were doing some blast, so we had to, you know, to get the split and negotiate certain easements and then have the city look at it. And what ultimately I don't have the details a 100%, but at a high level, we had to we had to do some some modest construction work to the entrance of the driveway to be meet the new ADA compliance standards of the city. And so it took us a while to get them to give us the green light to do the construction. The construction is now underway. Asking which is, you know, not a very long job. It's probably a couple weeks But then we have to go back and then get approval of all that stuff. But, you know, my guess right now like, I'm like, it's been a debate internally. There are some people who think we can get it done by year end, and I generally sort of hedge the downside. So I think it's a first quarter event. Ideally, it's a early first quarter event, but who knows? But once it's once we're, like, locked and loaded, then then we'll we'll we'll that property will be taken to market, so that'll be another held for sale. And it's like, the tenant is just finished You know, they they left in September. They ended their lease in September. They cleaned it all out. It's a beautiful box inside. You know, it's good. You know, we've had people we've had brokers know, come and looking at it. You know, our intent is not to lease it, but it's to sell it to an owner user. And we think that's the best the best end result for that property. Stephen Chick: Okay. Alright. Thanks. That's helpful. Appreciate it. Operator: There are no questions at this time. I would now like I would now like to turn the conference back to Aaron Scott Halfacre. Please go ahead. Aaron Scott Halfacre: Great. Thank you, everyone. Appreciate what you've for you dialing and listening. We look forward to giving you updates as time goes ahead. Hope you have a great weekend. I hope you can all rest up for the for the Thanksgiving holiday, and for those who who are curious, we will not be at NAREIT. I don't wanna go to Denver Dallas in in December, and it's just not a you know, not relevant for us, I think, at this point. But, enjoy the conference, and I wish you guys all the best. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.