加载中...
共找到 14,560 条相关资讯
Operator: Good morning, ladies and gentlemen, and welcome to Enghouse's Q4 2025 Conference Call. [Operator Instructions] This call is being recorded on Tuesday, December 16, 2025. I would now like to turn the conference over to Mr. Sadler, Chairman and CEO. Please go ahead. Stephen Sadler: Good morning, everybody. I'm here today with Rob Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel. Before we begin, I will have Todd read our forward disclaimer. Todd May: Certain statements made may be forward-looking. By their nature, such forward-looking statements are subject to various risks and uncertainties, including those in Enghouse's continuous disclosure filings such as its AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations. Undue reliance should not be placed on forward-looking information, and the company has no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. Stephen Sadler: Thanks, Todd. Rob will now give an overview of the financial and business results. Rob Medved: Thank you, Steve. Good morning, everybody. Thank you for joining us today to discuss our results for the fourth quarter and fiscal year ended October 31, 2025. Fiscal '25 was shaped by considerable economic, technological and geopolitical changes from the fast-paced evolution of AI to increase global uncertainty caused by tariffs and international events. Many organizations contended with negative operating margins escalating costs and unpredictable demand. Amidst these challenges, Enghouse remained resilient, delivering steady results and advancing our strategic objectives. Thanks to our diversified business model and disciplined execution, we sustained stability and profitability in a market where many others have struggled. In the fourth quarter, revenue reached $124.5 million compared to $125.7 million in Q4 last year. For the full year, revenue totaled $498.9 million just slightly down from $502.5 million in fiscal '24. Our recurring revenue, comprised of SaaS and maintenance streams, made up over 69% of total revenue for both Q4 and the year, ensuring greater predictability and a buffer against wider market fluctuations. Adjusted EBITDA for Q4 was $33.7 million, representing a margin of 27%. For the year, adjusted EBITDA stood at $127.6 million with a margin of 25.6%. Net income for Q4 was $21.1 million, while for the full year, net income was $73.7 million or $1.34 per diluted share. We closed the year with $269.1 million in cash and no external debt, preserving the financial flexibility that defines Enghouse. Our Asset Management Group, or AMG, which includes our transportation business was a particular highlight this year. Q4 AMG revenue reached $55.7 million, a 9.3% increase from $51 million in Q4 last year and nearly matched Q3's $56 million. For the year, AMG revenue grew to $213.1 million, up more than 10% year-over-year. This growth was largely fueled by our acquisitions of Margento and Trafi, both completed in 2025, which expanded our offerings with scalable mobility-as-a-service platforms, advanced transit fare collection and account-based ticketing solutions. With these additions, our Transport division now provides a complete suite for transit agencies and operators from e-ticketing and automated fare collection to fleet routing and MaaS platforms. Turning to our Interactive Management Group, or IMG. Q4 revenue was $68.8 million, compared to $74.7 million in Q4 last year and $69.6 million in Q3 just passed. For the full year, IMG revenue totaled $285.8 million. While this was a year-over-year decline, it reflects expected churn in maintenance and SaaS streams as well as our ongoing transition to SaaS-based licensing models. The acquisition of Aculab this year has strengthened IMG introducing advanced communications and AI-driven technologies, such as voice and face biometrics and high-performance media processing. A key driver of our performance this year, particularly in Q4 was our proactive approach to cost management. In the second half of the year, we undertook a series of restructuring and cost-cutting initiatives across the organization, including streamlining operations, aligning our cost structure with current revenues and reducing operating costs, especially in areas affected by acquisition, integration and market shifts. Though these decisions were challenging, they were essential to keeping Enghouse agile and profitable. The benefits of these initiatives began to show in Q4, driving improvements in both adjusted EBITDA and net income. We anticipate these efficiency gains will continue into fiscal '26. We continue to look for opportunities to strengthen and diversify our business. Shortly after year-end, we acquired the Telecommunications division of Sixbell, expanding our presence in the Latin American market. This acquisition aligns with our strategy of disciplined, accretive growth and positions us to serve new customers and markets. At the same time, we remain committed to returning value to our shareholders. In 2025, we returned $61.8 million through dividends and a 16% increase over last year and repurchased $14.7 million of our shares. Yesterday, our Board approved an eligible quarterly dividend of $0.30 per common share payable on February 27, 2026 to shareholders of record at the close of business on February 13, 2026. These actions reflect our confidence in Enghouse's long-term prospects and our commitment to steady, reliable returns for our investors. In closing, I want to thank our employees for their dedication, our customers for their trust and our shareholders for their continued support. I will now hand the call over to Mr. Sadler. Stephen Sadler: Thanks, Rob. We continue to make progress with our new 2025 business unit structure. As Rob indicated, we maintain our strong financial position with a reasonable and improving adjusted EBITDA percentage to revenue. This was achieved in difficult enterprise business markets as customers attempt to understand how to best implement AI to monetize such -- their investment. We have found most of our customers are struggling to implement AI effectively to improve their return on investment. As we have been implementing in a practical manner using a small language model, SLM concept, we're setting up a group of our R&D and service staff in both our IMG and AMG segments to focus on AI professional services to our customers current and new. This is a new area that we are getting into, but we have done a lot in AI, much of which are being called AI now, but which is really being things we've done to improve our efficiencies over the years. And we believe taking this to our customers is a viable business opportunity. With respect to capital deployment, we are purchasing Enghouse stock using our NCBI, Normal Course Issuer Bid, and continuing our acquisition strategy with Sixbell's Telco division being acquired just after our fiscal year-end. As noted last quarter, we continue to see substantial acquisition opportunities, which will provide a return on our investment. We're looking to increase our acquisition team to increase our focus on capital deployment. I would now like to open the call for questions. Operator: [Operator Instructions] with that, our first question comes from Erin Kyle with CIBC. Erin Kyle: Maybe I can start with whether you can give us an update on the progress of the LifeSci solution from a go-to-market perspective. Now that, that solution has been revamped. So how have new bookings been trending there? Stephen Sadler: It just has gotten revamped, we're now taking it out, let's say, January 1. We had to eliminate some third-party products, which are making the cost too high. You'll see that as people go to SaaS sometimes the cost, especially if you're using the Magnificent Six and then plus NVIDIA because they do charge a fair bit for their services, and you got to be careful what products you put in there. So we just finished that now and look like we're going to be taking that forward starting in January. So that hasn't started yet, but we're optimistic on what improvements can be made with that system. Erin Kyle: Okay. That's helpful context there. And then I just wanted to ask -- so I recognizing the challenging environment for organic growth over the past several quarters. I was wondering if you could discuss how you're evaluating for future growth here and whether divestitures of any noncore assets or old acquisitions have ever been considered as a potential lever to enhance focus and improve the organic growth profile of the business here? Stephen Sadler: Sure about improving organic growth by divesting of assets because all our assets are pretty much similar type businesses, but we do see the opportunity in this environment for greater capital allocation and some of the things we're looking at doing with the new IMG software that we just talked about, we're hoping that will improve internal growth a little bit. But again, it's basically -- we're basically a capital allocator. We're basically not trying to get a lot of growth in a market that isn't growing, that would just cost us a lot of money. We emphasize the bottom line a lot, and we don't do things that detract from our bottom line. Erin Kyle: Fair enough. Maybe I'll just squeeze one more in here. Just on the Sixbell acquisition that you closed post quarter end. Maybe you can just give us any additional color on the size of that acquisition and any progress on integration so far. Stephen Sadler: It's a small acquisition. It's in an area where we're already in, in South America, and the integration is ongoing right now. Again, we just started it in early November. So we're continuing to make progress. We think it'll be like our acquisitions of the past and add to a little bit to revenue and certainly to EBITDA to give us the return that we expect. Operator: And the next question comes from David Kwan with TD. Salman Zia Rana: This is Salman Rana on behalf of David Kwan. So the commentary on your results, it mentions that you expect further efficiency gains going forward. So without making in any additional M&A, could this imply that margins could be higher versus the 27% you delivered this quarter? Stephen Sadler: Yes. Salman Zia Rana: Okay. And on the restructuring that you undertook last quarter, did you realize the full $2 million, $2.5 million benefit in Q4 from that? Was that fully baked in? Stephen Sadler: No. I don't know what extra color you need, but I just -- sorry to be brief. Salman Zia Rana: That's fine. And as a follow-up to that, on the subsequent restructuring that you also announced on the call and in your results, how much of that was reflected in Q4? And how much of that is expected to save you guys going forward? Stephen Sadler: A lot was in Q4, but in some countries, you've got to give a lot of notice and you've got to go through procedures. And so there were several -- some of the expenses have -- weren't even in Q4, okay? So they're still coming a little bit. And we're also reassessing some of our areas and there could be future reductions as well to streamline operations, especially in the IMG group. We match cost to revenue. We do it all every day. So we're still looking at that to see if we can improve the bottom line further. Salman Zia Rana: That's great color. And on M&A, again, you mentioned there are substantial M&A opportunities out there. Where -- in your pipeline, do you think you still have a lot of transformational assets because you've spoken about them over the last couple of years. So curious to get some color on that. Stephen Sadler: Yes. I mean it's a good pipeline. Of course, you've got to get deals done. We want to make sure that they're going to add to our EBITDA profitability. So we're very careful. There's a lot of companies struggling, as Tom -- as Rob said, I get all the names mixed up. As Rob said, based on the environment out there today, they don't know where tariffs are going. It doesn't impact us, but it impacts our customers, which impacts us. So that's still an issue. And I think, it will continue for a while. Salman Zia Rana: Understood. And if I could just squeeze one more in. As part of your M&A pipeline, would AI acquisitions be something you'd be interested in? I think that would also augment what you're doing internally. So any thoughts on that? What kind of multiples you could potentially pay out there for those assets? Stephen Sadler: So the answer is that would be a potential acquisition. Aculab was basically doing acquisitions. The trouble is we can't really find any that make money. They actually can't monetize their AI investments. That's a real struggle for a lot of companies. That's why we're setting up these 2 professional services groups because we've done a lot of it ourselves for ourselves. So we think we can take some of that expertise through the professional services area to take it to our customers, because it doesn't tie in general sense to everybody. Everything has to tie into their models or their data and that's why we set up a small language model because we're generally in that mid-market. We don't do the real big guys who go to large language models. So we've done that. We've got the expertise in-house we thought, why not see if we can monetize it in a different way. So we are starting that in January. We've got the group set up. The Aculab person, who is running Aculab, she teaches AI at the University in the U.K. So we've got some good expertise in the area. Let's see if we can monetize it in a slightly different way. Operator: And the next question comes from Kevin McVeigh with UBS. Kevin McVeigh: Great. Congratulations on the continued execution. I wonder, could you give us a sense of, I guess, a couple of things, could you continue to execute really well. Any sense of -- and it may be a little hard to dimensionalize, but how should we think about inorganic versus organic contribution over the course of '26? And any sense of when you would expect an inflection point in the revenue? And just tied into that, are you seeing a little bit more certainty amongst clients, as they're reacting to kind of Gen AI or any shift at the margin just given Obviously, it feels like some of the euphoria is coming out of the broader Gen AI. Just are clients seeing any bit of just more certainty that allows you to react to that? Stephen Sadler: First of all, we have several areas, and it's interesting. Everyone talks about contact center and AI, but our networks business and revenue is just about the same as our contact center now, okay? So that's not discussed very much. They're bigger customers, and we can do some Gen AI there. And that's why we also set up a group separately for them versus our contact center as of in January for AI, that's first of all. Second of all, in our customers why we're doing that is because none of them seem to be successful in using AI at this stage. You've got to learn it. It's early innings, but we've learned a lot doing it for ourselves, so we want to bring some of that expertise to our customers. Remember, they're not the real large customers who are spending tons of money in some ways, bleeding themselves to that. We have middle-range customers who are more careful with their spending. So we think we can bring a practical approach to it. That's why we're setting up these 2 groups with the expertise that we have and we use ourselves. So we have people who could do it. So why not use it to help our customers do a little bit better. So that's how we see it as for the internal growth side, we're in tough markets. There's no doubt about it. I would think 2026 fiscal year will be a good, stable year. It should be a better year because we got a two-pronged approach. So with this tough markets with limited internal growth, it's good markets for acquisition growth. So we intend to get back to redeployment of our cash on acquisitions to a greater degree, and we're hiring some extra staff to do that, which we're in the process of doing now, but are not hired yet, expect also in January to expand that group a little bit to handle some of the many opportunities that are out there right now, again, because of the same markets. I just talked about where it's really what Rob mentioned, which is very difficult right now in many ways, people are uncertain to spend because of all those rates. It's not because of any particular, but tariffs what's going to happen down the road and they're quite uncertain in the market, all that does is freeze spending a little bit. So I'm not really pushing very hard on the internal growth for fiscal '26. We'll take what we have. We've got good products. Our new product is ready to go. It's been developed. We've taken out a lot of the third-party costs, which makes it great to sell, but if the third-party costs are high, you don't make money. So we want to make money. So we had to do that first before we go out there and put in a lot of places to lose money. So that's what we virtually have finished. And again, January should be interesting because there's a lot of things starting from the work that was done this year. Kevin McVeigh: It's very, very helpful. And then just one quick one, and I'll get back in the queue. In terms of terrific pacing of the dividend, should we expect the same percentage or absolute dollar amount, well, not the dollar amount, but cents increase in the dividend in '26? And how are we thinking about that just relative to the capital allocation on the M&A? Stephen Sadler: So it's an interesting question. Of course, it's up to the Board of Directors to decide, and we usually look at that at the AGM in -- yes, in March. My guess would be and what I was considering and recommending to the Board is to still increase the dividend, but very slightly and spend more on buying back our own stock. We think that is a better opportunity for our capital deployment, doing acquisitions and repurchasing our stock. So we're in a normal course issuer bid. We'll continue in a very organized manner to protect our stock in any way because the environment is uncertain, and it could get worse, not necessarily for us, but in general. So I would think you should expect less of an increase in the dividend, and more of our capital allocation going to acquisitions and our current stock, which we think is a reasonable investment right now. Operator: [Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets. Paul Treiber: Just a question on the 2 groups, the professional services groups you're setting up. Is that primarily to generate professional services revenue? Or do you expect that there will be a longer-term attach in addition to professional services with potentially higher software revenue, both in IMG and AMG? Stephen Sadler: So what we are going to do, and again, it's a bit of a new area, we are going to use it even with new sales to offer new customers, who purchased our software that we will give them some AI expertise, probably at a very good price. As we learn more, what all our customers are looking at. And from that, we could develop software that we might sell. But I don't think you'll see that in 2026. I think that's a setup year to go forward from there and depends on how that works out. As you probably know, a lot of people are trying AI. It isn't -- it's hard to monetize people are having difficulty. They understand it personally to get some productivity, but how do you do it into software has been a very challenging event for -- especially for enterprises. Enterprises have a hard time doing AI. And there's a lot -- let's just say, we believe there's a lot more promotion of AI into the actual results being achieved from it in enterprises. But we think the professional services will help our customers with the expertise we have and will also lead us to believe which are the best applications that we can monetize going forward. Because right now, it's difficult to see it in all our business units, transportation, networks and contact center. So we want to get a little bit more on what everyone is thinking about and a little bit, let's say, getting paid for trying out some different things for our customers to help them and also to give us a bit more knowledge on proof of concepts, et cetera, which might be able to work. Right now, it's hard to see how you can make it work other than selling the services in the markets we're in. Remember, we're in a small business, smaller-sized contact centers. The large telcos are doing their own thing, and we see how we can help them. And transportation, again, we're finishing off our major projects we had in the Netherlands. And so we're going to see some additional profitability from those going forward in '26. So we're pretty well positioned, but as slow as she goes, it's no home runs there. There's just as steady she goes, continuous progress, and we see the same in '26. Paul Treiber: And then what do you see is that the gap or the challenge with enterprises deploying AI? And then how do you hope to help your customers address that? Stephen Sadler: That's a tough one. That's what I'm trying to find out. All I know is it isn't working anywhere. I don't see -- if you look at any real studies, not promotional studies, they'll tell you, I think 95% of CEOs see no return from the AI work they're doing. There's something there. We've got to figure it out. The best way to do it is, let's do it with our customers, and see if we can monetize it a little bit as we go forward with that. Set up a group to do it. We have many solutions internally that we use. They're very exciting, but they're all based on, let's say, the SLM, small language model, like you only have your data for a week or two and to analyze an agent, for example, to analyze who you think customers might leave. There's a lot of stuff that we've done that we think others can use. They call it AI. Some of it is using the AI software. Some of it is just things that we've been doing for a while, but people are now calling AI anyway. It's like they say translation of voice from one language to another really now for 10 years, but now that's AI. So we're trying to sort it out, and we're going to try and sort out with our customers, and we believe this is a way to do it to help them, help us understand and maybe -- if I understand, I'll be able to answer your question better in the future. But right now, it's very difficult to see enterprises monetizing AI, although the potential to do so in the future is there. Operator: And I'm showing no further questions at this time. I would like to turn it back to Mr. Sadler for closing remarks. Stephen Sadler: [indiscernible] is well positioned for the future to add shareholder value. Thank you for attending the call and your continued support. Have a Merry Christmas and a happy holiday season. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Enghouse's Q4 2025 Conference Call. [Operator Instructions] This call is being recorded on Tuesday, December 16, 2025. I would now like to turn the conference over to Mr. Sadler, Chairman and CEO. Please go ahead. Stephen Sadler: Good morning, everybody. I'm here today with Rob Medved, Chief Financial Officer; and Todd May, VP, Legal Counsel. Before we begin, I will have Todd read our forward disclaimer. Todd May: Certain statements made may be forward-looking. By their nature, such forward-looking statements are subject to various risks and uncertainties, including those in Enghouse's continuous disclosure filings such as its AIF, which could cause the company's actual results and experience to differ materially from anticipated results or other expectations. Undue reliance should not be placed on forward-looking information, and the company has no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. Stephen Sadler: Thanks, Todd. Rob will now give an overview of the financial and business results. Rob Medved: Thank you, Steve. Good morning, everybody. Thank you for joining us today to discuss our results for the fourth quarter and fiscal year ended October 31, 2025. Fiscal '25 was shaped by considerable economic, technological and geopolitical changes from the fast-paced evolution of AI to increase global uncertainty caused by tariffs and international events. Many organizations contended with negative operating margins escalating costs and unpredictable demand. Amidst these challenges, Enghouse remained resilient, delivering steady results and advancing our strategic objectives. Thanks to our diversified business model and disciplined execution, we sustained stability and profitability in a market where many others have struggled. In the fourth quarter, revenue reached $124.5 million compared to $125.7 million in Q4 last year. For the full year, revenue totaled $498.9 million just slightly down from $502.5 million in fiscal '24. Our recurring revenue, comprised of SaaS and maintenance streams, made up over 69% of total revenue for both Q4 and the year, ensuring greater predictability and a buffer against wider market fluctuations. Adjusted EBITDA for Q4 was $33.7 million, representing a margin of 27%. For the year, adjusted EBITDA stood at $127.6 million with a margin of 25.6%. Net income for Q4 was $21.1 million, while for the full year, net income was $73.7 million or $1.34 per diluted share. We closed the year with $269.1 million in cash and no external debt, preserving the financial flexibility that defines Enghouse. Our Asset Management Group, or AMG, which includes our transportation business was a particular highlight this year. Q4 AMG revenue reached $55.7 million, a 9.3% increase from $51 million in Q4 last year and nearly matched Q3's $56 million. For the year, AMG revenue grew to $213.1 million, up more than 10% year-over-year. This growth was largely fueled by our acquisitions of Margento and Trafi, both completed in 2025, which expanded our offerings with scalable mobility-as-a-service platforms, advanced transit fare collection and account-based ticketing solutions. With these additions, our Transport division now provides a complete suite for transit agencies and operators from e-ticketing and automated fare collection to fleet routing and MaaS platforms. Turning to our Interactive Management Group, or IMG. Q4 revenue was $68.8 million, compared to $74.7 million in Q4 last year and $69.6 million in Q3 just passed. For the full year, IMG revenue totaled $285.8 million. While this was a year-over-year decline, it reflects expected churn in maintenance and SaaS streams as well as our ongoing transition to SaaS-based licensing models. The acquisition of Aculab this year has strengthened IMG introducing advanced communications and AI-driven technologies, such as voice and face biometrics and high-performance media processing. A key driver of our performance this year, particularly in Q4 was our proactive approach to cost management. In the second half of the year, we undertook a series of restructuring and cost-cutting initiatives across the organization, including streamlining operations, aligning our cost structure with current revenues and reducing operating costs, especially in areas affected by acquisition, integration and market shifts. Though these decisions were challenging, they were essential to keeping Enghouse agile and profitable. The benefits of these initiatives began to show in Q4, driving improvements in both adjusted EBITDA and net income. We anticipate these efficiency gains will continue into fiscal '26. We continue to look for opportunities to strengthen and diversify our business. Shortly after year-end, we acquired the Telecommunications division of Sixbell, expanding our presence in the Latin American market. This acquisition aligns with our strategy of disciplined, accretive growth and positions us to serve new customers and markets. At the same time, we remain committed to returning value to our shareholders. In 2025, we returned $61.8 million through dividends and a 16% increase over last year and repurchased $14.7 million of our shares. Yesterday, our Board approved an eligible quarterly dividend of $0.30 per common share payable on February 27, 2026 to shareholders of record at the close of business on February 13, 2026. These actions reflect our confidence in Enghouse's long-term prospects and our commitment to steady, reliable returns for our investors. In closing, I want to thank our employees for their dedication, our customers for their trust and our shareholders for their continued support. I will now hand the call over to Mr. Sadler. Stephen Sadler: Thanks, Rob. We continue to make progress with our new 2025 business unit structure. As Rob indicated, we maintain our strong financial position with a reasonable and improving adjusted EBITDA percentage to revenue. This was achieved in difficult enterprise business markets as customers attempt to understand how to best implement AI to monetize such -- their investment. We have found most of our customers are struggling to implement AI effectively to improve their return on investment. As we have been implementing in a practical manner using a small language model, SLM concept, we're setting up a group of our R&D and service staff in both our IMG and AMG segments to focus on AI professional services to our customers current and new. This is a new area that we are getting into, but we have done a lot in AI, much of which are being called AI now, but which is really being things we've done to improve our efficiencies over the years. And we believe taking this to our customers is a viable business opportunity. With respect to capital deployment, we are purchasing Enghouse stock using our NCBI, Normal Course Issuer Bid, and continuing our acquisition strategy with Sixbell's Telco division being acquired just after our fiscal year-end. As noted last quarter, we continue to see substantial acquisition opportunities, which will provide a return on our investment. We're looking to increase our acquisition team to increase our focus on capital deployment. I would now like to open the call for questions. Operator: [Operator Instructions] with that, our first question comes from Erin Kyle with CIBC. Erin Kyle: Maybe I can start with whether you can give us an update on the progress of the LifeSci solution from a go-to-market perspective. Now that, that solution has been revamped. So how have new bookings been trending there? Stephen Sadler: It just has gotten revamped, we're now taking it out, let's say, January 1. We had to eliminate some third-party products, which are making the cost too high. You'll see that as people go to SaaS sometimes the cost, especially if you're using the Magnificent Six and then plus NVIDIA because they do charge a fair bit for their services, and you got to be careful what products you put in there. So we just finished that now and look like we're going to be taking that forward starting in January. So that hasn't started yet, but we're optimistic on what improvements can be made with that system. Erin Kyle: Okay. That's helpful context there. And then I just wanted to ask -- so I recognizing the challenging environment for organic growth over the past several quarters. I was wondering if you could discuss how you're evaluating for future growth here and whether divestitures of any noncore assets or old acquisitions have ever been considered as a potential lever to enhance focus and improve the organic growth profile of the business here? Stephen Sadler: Sure about improving organic growth by divesting of assets because all our assets are pretty much similar type businesses, but we do see the opportunity in this environment for greater capital allocation and some of the things we're looking at doing with the new IMG software that we just talked about, we're hoping that will improve internal growth a little bit. But again, it's basically -- we're basically a capital allocator. We're basically not trying to get a lot of growth in a market that isn't growing, that would just cost us a lot of money. We emphasize the bottom line a lot, and we don't do things that detract from our bottom line. Erin Kyle: Fair enough. Maybe I'll just squeeze one more in here. Just on the Sixbell acquisition that you closed post quarter end. Maybe you can just give us any additional color on the size of that acquisition and any progress on integration so far. Stephen Sadler: It's a small acquisition. It's in an area where we're already in, in South America, and the integration is ongoing right now. Again, we just started it in early November. So we're continuing to make progress. We think it'll be like our acquisitions of the past and add to a little bit to revenue and certainly to EBITDA to give us the return that we expect. Operator: And the next question comes from David Kwan with TD. Salman Zia Rana: This is Salman Rana on behalf of David Kwan. So the commentary on your results, it mentions that you expect further efficiency gains going forward. So without making in any additional M&A, could this imply that margins could be higher versus the 27% you delivered this quarter? Stephen Sadler: Yes. Salman Zia Rana: Okay. And on the restructuring that you undertook last quarter, did you realize the full $2 million, $2.5 million benefit in Q4 from that? Was that fully baked in? Stephen Sadler: No. I don't know what extra color you need, but I just -- sorry to be brief. Salman Zia Rana: That's fine. And as a follow-up to that, on the subsequent restructuring that you also announced on the call and in your results, how much of that was reflected in Q4? And how much of that is expected to save you guys going forward? Stephen Sadler: A lot was in Q4, but in some countries, you've got to give a lot of notice and you've got to go through procedures. And so there were several -- some of the expenses have -- weren't even in Q4, okay? So they're still coming a little bit. And we're also reassessing some of our areas and there could be future reductions as well to streamline operations, especially in the IMG group. We match cost to revenue. We do it all every day. So we're still looking at that to see if we can improve the bottom line further. Salman Zia Rana: That's great color. And on M&A, again, you mentioned there are substantial M&A opportunities out there. Where -- in your pipeline, do you think you still have a lot of transformational assets because you've spoken about them over the last couple of years. So curious to get some color on that. Stephen Sadler: Yes. I mean it's a good pipeline. Of course, you've got to get deals done. We want to make sure that they're going to add to our EBITDA profitability. So we're very careful. There's a lot of companies struggling, as Tom -- as Rob said, I get all the names mixed up. As Rob said, based on the environment out there today, they don't know where tariffs are going. It doesn't impact us, but it impacts our customers, which impacts us. So that's still an issue. And I think, it will continue for a while. Salman Zia Rana: Understood. And if I could just squeeze one more in. As part of your M&A pipeline, would AI acquisitions be something you'd be interested in? I think that would also augment what you're doing internally. So any thoughts on that? What kind of multiples you could potentially pay out there for those assets? Stephen Sadler: So the answer is that would be a potential acquisition. Aculab was basically doing acquisitions. The trouble is we can't really find any that make money. They actually can't monetize their AI investments. That's a real struggle for a lot of companies. That's why we're setting up these 2 professional services groups because we've done a lot of it ourselves for ourselves. So we think we can take some of that expertise through the professional services area to take it to our customers, because it doesn't tie in general sense to everybody. Everything has to tie into their models or their data and that's why we set up a small language model because we're generally in that mid-market. We don't do the real big guys who go to large language models. So we've done that. We've got the expertise in-house we thought, why not see if we can monetize it in a different way. So we are starting that in January. We've got the group set up. The Aculab person, who is running Aculab, she teaches AI at the University in the U.K. So we've got some good expertise in the area. Let's see if we can monetize it in a slightly different way. Operator: And the next question comes from Kevin McVeigh with UBS. Kevin McVeigh: Great. Congratulations on the continued execution. I wonder, could you give us a sense of, I guess, a couple of things, could you continue to execute really well. Any sense of -- and it may be a little hard to dimensionalize, but how should we think about inorganic versus organic contribution over the course of '26? And any sense of when you would expect an inflection point in the revenue? And just tied into that, are you seeing a little bit more certainty amongst clients, as they're reacting to kind of Gen AI or any shift at the margin just given Obviously, it feels like some of the euphoria is coming out of the broader Gen AI. Just are clients seeing any bit of just more certainty that allows you to react to that? Stephen Sadler: First of all, we have several areas, and it's interesting. Everyone talks about contact center and AI, but our networks business and revenue is just about the same as our contact center now, okay? So that's not discussed very much. They're bigger customers, and we can do some Gen AI there. And that's why we also set up a group separately for them versus our contact center as of in January for AI, that's first of all. Second of all, in our customers why we're doing that is because none of them seem to be successful in using AI at this stage. You've got to learn it. It's early innings, but we've learned a lot doing it for ourselves, so we want to bring some of that expertise to our customers. Remember, they're not the real large customers who are spending tons of money in some ways, bleeding themselves to that. We have middle-range customers who are more careful with their spending. So we think we can bring a practical approach to it. That's why we're setting up these 2 groups with the expertise that we have and we use ourselves. So we have people who could do it. So why not use it to help our customers do a little bit better. So that's how we see it as for the internal growth side, we're in tough markets. There's no doubt about it. I would think 2026 fiscal year will be a good, stable year. It should be a better year because we got a two-pronged approach. So with this tough markets with limited internal growth, it's good markets for acquisition growth. So we intend to get back to redeployment of our cash on acquisitions to a greater degree, and we're hiring some extra staff to do that, which we're in the process of doing now, but are not hired yet, expect also in January to expand that group a little bit to handle some of the many opportunities that are out there right now, again, because of the same markets. I just talked about where it's really what Rob mentioned, which is very difficult right now in many ways, people are uncertain to spend because of all those rates. It's not because of any particular, but tariffs what's going to happen down the road and they're quite uncertain in the market, all that does is freeze spending a little bit. So I'm not really pushing very hard on the internal growth for fiscal '26. We'll take what we have. We've got good products. Our new product is ready to go. It's been developed. We've taken out a lot of the third-party costs, which makes it great to sell, but if the third-party costs are high, you don't make money. So we want to make money. So we had to do that first before we go out there and put in a lot of places to lose money. So that's what we virtually have finished. And again, January should be interesting because there's a lot of things starting from the work that was done this year. Kevin McVeigh: It's very, very helpful. And then just one quick one, and I'll get back in the queue. In terms of terrific pacing of the dividend, should we expect the same percentage or absolute dollar amount, well, not the dollar amount, but cents increase in the dividend in '26? And how are we thinking about that just relative to the capital allocation on the M&A? Stephen Sadler: So it's an interesting question. Of course, it's up to the Board of Directors to decide, and we usually look at that at the AGM in -- yes, in March. My guess would be and what I was considering and recommending to the Board is to still increase the dividend, but very slightly and spend more on buying back our own stock. We think that is a better opportunity for our capital deployment, doing acquisitions and repurchasing our stock. So we're in a normal course issuer bid. We'll continue in a very organized manner to protect our stock in any way because the environment is uncertain, and it could get worse, not necessarily for us, but in general. So I would think you should expect less of an increase in the dividend, and more of our capital allocation going to acquisitions and our current stock, which we think is a reasonable investment right now. Operator: [Operator Instructions] The next question comes from Paul Treiber with RBC Capital Markets. Paul Treiber: Just a question on the 2 groups, the professional services groups you're setting up. Is that primarily to generate professional services revenue? Or do you expect that there will be a longer-term attach in addition to professional services with potentially higher software revenue, both in IMG and AMG? Stephen Sadler: So what we are going to do, and again, it's a bit of a new area, we are going to use it even with new sales to offer new customers, who purchased our software that we will give them some AI expertise, probably at a very good price. As we learn more, what all our customers are looking at. And from that, we could develop software that we might sell. But I don't think you'll see that in 2026. I think that's a setup year to go forward from there and depends on how that works out. As you probably know, a lot of people are trying AI. It isn't -- it's hard to monetize people are having difficulty. They understand it personally to get some productivity, but how do you do it into software has been a very challenging event for -- especially for enterprises. Enterprises have a hard time doing AI. And there's a lot -- let's just say, we believe there's a lot more promotion of AI into the actual results being achieved from it in enterprises. But we think the professional services will help our customers with the expertise we have and will also lead us to believe which are the best applications that we can monetize going forward. Because right now, it's difficult to see it in all our business units, transportation, networks and contact center. So we want to get a little bit more on what everyone is thinking about and a little bit, let's say, getting paid for trying out some different things for our customers to help them and also to give us a bit more knowledge on proof of concepts, et cetera, which might be able to work. Right now, it's hard to see how you can make it work other than selling the services in the markets we're in. Remember, we're in a small business, smaller-sized contact centers. The large telcos are doing their own thing, and we see how we can help them. And transportation, again, we're finishing off our major projects we had in the Netherlands. And so we're going to see some additional profitability from those going forward in '26. So we're pretty well positioned, but as slow as she goes, it's no home runs there. There's just as steady she goes, continuous progress, and we see the same in '26. Paul Treiber: And then what do you see is that the gap or the challenge with enterprises deploying AI? And then how do you hope to help your customers address that? Stephen Sadler: That's a tough one. That's what I'm trying to find out. All I know is it isn't working anywhere. I don't see -- if you look at any real studies, not promotional studies, they'll tell you, I think 95% of CEOs see no return from the AI work they're doing. There's something there. We've got to figure it out. The best way to do it is, let's do it with our customers, and see if we can monetize it a little bit as we go forward with that. Set up a group to do it. We have many solutions internally that we use. They're very exciting, but they're all based on, let's say, the SLM, small language model, like you only have your data for a week or two and to analyze an agent, for example, to analyze who you think customers might leave. There's a lot of stuff that we've done that we think others can use. They call it AI. Some of it is using the AI software. Some of it is just things that we've been doing for a while, but people are now calling AI anyway. It's like they say translation of voice from one language to another really now for 10 years, but now that's AI. So we're trying to sort it out, and we're going to try and sort out with our customers, and we believe this is a way to do it to help them, help us understand and maybe -- if I understand, I'll be able to answer your question better in the future. But right now, it's very difficult to see enterprises monetizing AI, although the potential to do so in the future is there. Operator: And I'm showing no further questions at this time. I would like to turn it back to Mr. Sadler for closing remarks. Stephen Sadler: [indiscernible] is well positioned for the future to add shareholder value. Thank you for attending the call and your continued support. Have a Merry Christmas and a happy holiday season. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by, and welcome to Navan's Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Vice President, Investor Relations, Ryan Burkart. Please go ahead. Ryan Burkart: Thanks, operator. Good afternoon, everyone, and welcome to Navan's Third Quarter Fiscal 2026 Earnings Conference Call. With me on the call today are Ariel Cohen, our Chief Executive Officer and Co-Founder; and Amy Butte, our Chief Financial Officer. Before we begin, during the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our prospectus dated October 29, 2025, filed with the SEC on October 31, 2025, and our other filings with the SEC. In addition, on today's call, we will refer to non-GAAP income and loss from operations, non-GAAP operating margin, non-GAAP gross margin and free cash flow, which are all non-GAAP financial measures that provide useful information for investors. Reconciliations of these non-GAAP financial measures to their corresponding GAAP financial measure to the extent reasonably available can be found in our earnings press release. With that, it is my pleasure to turn the call over to Navan's CEO and Co-Founder, Ariel Cohen. Ariel Cohen: Thanks, Ryan. Good afternoon, and welcome to Navan's first earnings call as a public company. This is a new beginning for Navan, but our mission is unchanged to make travel easy for every frequent traveler. That has been our obsession from day 1. Travel is complex. It is fragmented. It rarely works the way business travelers need it to work. We have spent more than a decade rebuilding this category from the ground up. Our IPO confirmed the market's belief in both our platform and our strategy. As a public company, we operate with even greater discipline and transparency, and we are committed to delivering substantial high-quality growth for our shareholders. Before we get into our results, I'd like to take a moment to discuss Amy's departure. As announced, Amy will leave as Navan's CFO on January 9. Amy first joined Navan as a Board member in early 2024 and a few months later, joined our management team to serve as our CFO as we prepared for the next step in our evolution. Much like the role she played earlier in her career at the New York Stock Exchange, Amy helped build out our finance organization and prepare the company for the public markets. With our listing now complete and the business carrying strong momentum, it was the right time for her to move on to find her next opportunity. We wish her the best. Amy will help support a seamless leadership transition and will continue to serve as a strategic adviser to Navan while the Board conducts its search for the company's next CFO. Anne Giviskos, the current SVP, Strategic Finance and Chief Accounting Officer, will assume the role of an interim CFO. Now let's talk about our business. Q3 was a strong quarter that demonstrated both the power of our platform and the operating leverage we are unlocking with AI. Revenue grew 29% year-over-year. Non-GAAP operating margin reached 13%, up nearly 9 percentage points year-over-year, reflecting both AI-driven gross margin expansion and the underlying leverage in our model. Our execution momentum continues across our $185 billion addressable market. Our sales-led growth motion remains strong, especially in enterprise, where we signed the second largest European deal in our history with a CAC40 company. We also closed deals with Frasers Group and Axel Springer and recently launched major customers, including Visa, ENGIE and Fortune 500 health care company. Our PLG motion continues to grow rapidly in SMB and while still a small part of our mix, the velocity and efficiency are in line with what we've expected when we've invested early here. Customer satisfaction hit a high of 97% with NPS rising to 45, far above an industry average of 5. This reflects one thing. frequent travelers love the Navan experience. Travel and expense is critical infrastructure for modern businesses. It is how companies connect, sell, support customers, train teams and build culture. Navan exists for the people who make this happen, the road warriors, the finance teams and the CFOs who need visibility, control and savings. We are the only fully integrated end-to-end platform that solves fragmentation across 3 stakeholders. Business travelers enjoy a tailored and seamless experience with average booking times of just 7 minutes. There is no need to waste time filing expense reports after returning from a trip. Everything is handled quickly and efficiently. from booking the trip to receiving support on the road, minimizing the time spent on expense management. Customers get real-time visibility of employees' safety and spend, built-in policy compliance and 15% median savings. Our suppliers and partners get direct access to high-value, frequent, predictable travelers. This creates a self-reinforcing flywheel. Higher adoption generates more data. More data trains our AI. Better AI improves experience, savings and control. Stronger performance increases adoption again. This is why we win and why our lead keeps growing. And our leadership in this space is being noticed by some of the largest organizations in the world. We are winning significant deals with global enterprises driven by structural tailwinds that continues to be strong. First, the network effect. As more companies adopt our platform, experience our ease of use and see the savings it delivers, the word gets out, and we see more and more opportunities. Second is industry consolidation. There has been a lot of consolidation in the space among some of our competitors, and there is speculation of more. Consolidation is great news for us because it forces companies to reevaluate their solution, and we do very well when companies compare our modern platform to legacy solutions. Finally, the AI native nature of our platform is a big tailwind because it puts us on everyone's list. If a company wants to leverage AI to drive greater efficiency and deliver better employee experiences, and that is essentially every company today. We must look at Navan as the AI leader in travel and expense. The Visa launch this month was a good example. It was one of our largest launches ever. Visa, a world leader in digital payments, chose us as they seek to provide an innovative experience and high service levels for the Visa travelers globally. Frasers Group, Axel Springer and many others did not choose Navan for incremental improvement. They chose us because the old model no longer works for global enterprises. They want AI-driven experiences, real-time data, fewer offline bookings, smarter controls and a platform their employees actually use. These wins reflect structural tailwind and our accelerating enterprise leadership. AI is reshaping the travel and expense category, and Navan is leading that transformation. AI has been at our core since our earliest days when we built machine learning to personalize inventory. When LLMs emerged, we immediately recognized the opportunity, but also the limitations. Travel is not answering a password reset. Travel is dynamic, personal and high stakes. Mistakes have real consequences. Generic LLMs hallucinate, they decay over time. They cannot reason over inventory, policy or travel logic. That is why we built Navan Cognition. Cognition is our homegrown AI agentic framework designed specifically for travel. It allows us to train and deploy unsupervised agents that handle complex travel tasks. We have proven this at scale for more than 2 years. Ava, our AI support agent powered by Cognition, handles over half of all of our users' interactions with customer satisfaction at human levels. That reliability is why our non-GAAP gross margin expanded from the low 60s to over 70% today and hit 74% in Q3, an all-time high. This is a transformation for both service quality and margins. Only Navan can do this today because only Navan built Cognition. There are 3 AI advantages we have that will define our future. First is Cognition itself, our agentic AI architecture. Second is data. More than 10,000 customers complete millions of bookings per year on one integrated platform, giving us a category-defining data set. Third is the Navan Cloud, our global real-time inventory network. It was built by over a decade of face-to-face negotiations and thousands of direct supplier connections. We believe nothing in the market can match its depth or its integration with AI. These assets position us to build the AI-powered travel booking experience of the future, which we call Navan Edge. It is in development now, and we look forward to sharing more soon. This paired with the support of real human agents during unexpected issues provides the ultimate travel solution for frequent travelers. We are an AI-first travel solution designed for frequent travelers and their companies. Over the next year, our focus will be threefold: first, driving sustained high growth across all customer segments, channels and geographies; second, accelerating innovation, especially around AI, meetings and events and VIP. Third, maintaining the right balance between growth and profitability. We will deploy capital where we have conviction such as payments, expense and foundational AI innovation while continuing to expand efficiency across the business. Our investment in Navan Cognition and Ava 3 years ago is a great example of this approach, deliberate, strategic, proprietary and driving meaningfully better margins for our business today. Our success is directly tied to the frequent travelers experience and the customers' strategic goals. That alignment is the core of our model. To the Navan team, thank you for your execution and discipline. To our new shareholders, thank you for your confidence. This is just the beginning. With an integrated platform, a global travel network and an AI core, Navan is uniquely positioned to lead the future of travel and expense. Before I hand the call over to Amy to review our financial results I want to thank her for everything she has done to position Navan for success. Amy Butte Liebowitz: Thank you, Ariel. I'm really proud of what we were able to accomplish at Navan, including completing the IPO, and I wish the company and the leadership team continued success. Now I am happy to report that Q3 was a strong quarter that demonstrates our ability to deliver significant top line growth while simultaneously improving our profitability profile. As a reminder, we are a seasonal business. While we are reporting Q3 today, when we think about our business, we think about it annually over an entire fiscal year. Referencing our Navan business Travel Index, Q3 is seasonally strong. Let's start with some thoughts on the current environment. First, it's important to note that we have not seen an impact to our business from travel disruptions related to the government shutdown. We saw no impact in October during the height of the shutdown. In fact, it was a record month for Navan. As a seasonal business, we plan for a slowdown around the Thanksgiving holiday. Just before the normal holiday slowdown, we saw a very minor volume impact for about 4 days, beginning on November 11 when the FAA announced flight cancellations. There was an offset here as we benefited from higher airline ticket prices as a result of the reduced capacity. The net of these 2 offsetting impacts was not material relative to our outlook for Q4. Volume rebounded to normal levels immediately following the end of the shutdown. The current business travel environment remains robust, and our expectation is that these conditions will persist through the remainder of our fiscal year ending January 31. Again, it is important to remember that business travel is seasonal and per our usual, our fiscal Q4 is expected to be seasonally lower than fiscal Q3. Now let's review the detailed results. Our revenue performance was excellent across the board. Total revenue for the third quarter was $195 million, representing a strong 29% increase year-over-year. Drilling down, usage revenue was up 29%, while our subscription revenue grew 26% year-over-year. Gross booking volume reached $2.62 billion in the quarter, growing 40% year-over-year. Usage yield was 6.9%, down from 7.5% in Q3 fiscal year '25. As a reminder, usage yield can vary by quarter depending on the timing of supplier volume bonuses, quarterly mix and travel activity and trends in our higher-yielding R&M business. Year-to-date usage yield is 7.1%. Payment volume processed through Navan cards was $1.13 billion, up 12% year-over-year. Payment volume is a place where we think we can increase attach over time as we put some of our IPO proceeds to work. Revenue from international customers represented 37% of our total in Q3 and is 38% year-to-date. Moving on to profitability. We continue to drive meaningful operating leverage in the business. Our non-GAAP gross margin expanded by approximately 200 basis points year-over-year to 74% in the quarter. This sets a new high watermark for Navan, driven primarily by the continued automation of customer support through our virtual agent, Ava and efficiencies gained through scale. Again, Q3 is our strongest quarter seasonally, and we would expect gross margins to compress in Q4, in line with normal seasonal trends. Historically, non-GAAP gross margin has come down 300 to 400 basis points between Q3 and Q4. Year-to-date, non-GAAP gross margin is 73%. Our non-GAAP operating margin was 13% in the third quarter, a substantial improvement of 870 basis points year-over-year. This expansion was driven by the strong gross margin gains I just mentioned, combined with increased efficiency across all 3 of our operating expense lines, sales and marketing, R&D and G&A. We are committed to disciplined spending while investing for long-term growth. Finally, free cash flow was negative $11 million in the quarter, an improvement of 30% compared to Q3 fiscal year '25. Before I provide our financial guidance, I want to take a moment to remind everyone of the key structural growth drivers underlying our business and which give us confidence in our outlook. I will also review our strong balance sheet. First, let me walk you through our growth algorithm. Despite operating on a usage-based model, we have a high degree of visibility into our expected revenue growth for the following year. Our net revenue retention was above 110% in fiscal year '25. This means that the first 10 points or so of annual revenue growth has come from our existing customer base historically. This expansion is driven by 3 factors: underlying organic growth in our customers' businesses, leading to higher travel spend, some degree of travel price inflation and increasing product attachment. As of the end of fiscal year '25, 36% of our customers attached to 3 or more products. We are focused on attaching more payments, online meetings and events and on-platform VIP services in the future. The next component of our growth comes from what we call the customer ramp. If we were to include the impact of customer ramp in our net revenue retention calculation as some other usage model companies do, our NRR would have been greater than 120% in fiscal year '25. The average time to launch and ramp across our customer base is 60 days and 5 months. Enterprise has the longest ramp and growth customers have the shortest in days. We are actively working to shorten the time across our channels and across our customer segments. Finally, we achieved the remainder of our annual growth from new customers, and we are seeing momentum across channels, customer segments and geographies, as Ariel already talked about. As I mentioned at the outset of my remarks, our successful IPO has significantly fortified our balance sheet. We have streamlined our capital structure to improve our cost of capital and reduce our interest expense going forward. We believe we will be more efficient because we expect to get better terms as a public company and the health of our balance sheet lets us extend our capacity. We expect this to play out in growing payments revenue longer term as we are able to extend credit to more customers when we choose. As a reminder, we do not provide credit to SMBs. As of the end of Q3, we held $809 million in cash and cash equivalents and $207 million in debt. We anticipate continued strong capital-efficient growth across our entire business, and our balance sheet is ready to support our global expansion. With that, let's move on to our financial guidance. Today, we are providing guidance for the fourth quarter and the full fiscal year 2026. We will provide guidance for fiscal 2027 when we report our Q4 and full year 2026 results next year. For the fourth quarter, we are raising our guidance and now expect revenue to be in the range of $161 million to $163 million, which would represent year-over-year growth of 23% at the midpoint. Non-GAAP loss from operations is expected to be between $15.5 million and $14.5 million, representing a non-GAAP operating margin of negative 9% at the midpoint. For the full fiscal year 2026, we are raising our guidance and now expect total revenue to be in the range of $685 million to $687 million, up 28% year-over-year at the midpoint. Non-GAAP income from operations is expected to be in the range of $21 million to $22 million, representing non-GAAP operating margin of 3% at the midpoint. Please keep the following modeling notes in mind as you update your forecast. As I mentioned earlier, we operate in a seasonal business. Historically, business travel tends to be strongest in the fall and the spring, which aligns with our fiscal Q3 and Q1. Conversely, business travel typically slows down over the major holiday season and the summer months. Given this, you should expect fiscal Q4, which we are currently in, to be seasonally slower in volume than the Q3 we just reported. Correspondingly, margins in Q4 tend to be lower than Q3. These expected seasonal effects are fully reflected in the guidance we have provided. Given our commitment to maintaining the right balance between growth and profitability, we expect to be free cash flow positive for the full year of fiscal 2027. Finally, I would also encourage all of you to monitor the Navan Business Travel Index, which is published quarterly. It serves as a strong national and global indicator of the strength of the overall business travel economy. While the index only tracks a subset of activity on our platform and is based on calendar quarters, not our fiscal quarters, it remains an excellent resource for monitoring directional trends in the macro business travel environment. Thank you all for your time today and for the continued support of Navan. We are excited about our position in the market and confident in our ability to execute on our growth strategy with continued financial discipline. We are now ready to open the call for your questions. Operator: [Operator Instructions] Our first question comes from the line of Steve Enders of Citi. Steven Enders: Good to see first quarter out the gate here. I guess maybe just to start, I want to get a better sense for what you're seeing on the enterprise side of the business and how you're kind of viewing the opportunity to maybe capture some share from some of the managed incumbents at this time? Ariel Cohen: This is Ariel. We actually see strong momentum across all of our segments, but enterprise is really accelerating. And we're actually thinking that there are 3 reasons for that. The first one, we just have more customers that are happy with the service, with how efficient we are making their employees while they're on the road, but also from the savings from the platform's visibility and so on. So we really see these customers becoming ambassadors of Navan and bringing more customers in. The second is we just see consolidation in the marketplace, which is a great thing for us because the real competitor of Navan is actually do nothing. And when there is consolidation, customers, companies are reevaluating their solution. And when this is happening, our modern solution that is driven by AI compared to the old model, we always win. So that's the second reason that we see enterprise acceleration. And the third one is actually AI. We are the only vendor in this space that is actually using AI to make the trip, the travel experience more effective, but also to allow a major savings, 15% in average for customers that are using us. So there are a lot of initiatives of AI right now in the enterprise, and we will always be there when companies want to use AI. So these 3 different things are really creating enterprise acceleration. And you can see customers that we won recently, a major CAC40 customer in Europe. We see Axel Springer in Europe again. We just launched Visa and also a major health care provider. So we see a lot of enterprise momentum. Steven Enders: Okay. That's great to hear. I guess for a follow-up, yes, I guess really good to see the gross bookings volume come in and accelerate. And I think it looks like the best growth that we've seen at least in our model here. Can you just help us maybe think through what drove the strength within GBV this quarter and maybe how to think about factors that maybe impacted usage yield this quarter as well? Amy Butte Liebowitz: Sure. Thanks for the question, Steve, and thanks for noticing the robust growth. I think it's really the overall go-to-market motion and strength across our channels and our segments. So the growth in GBV, if you kind of recall and think about our growth algorithm, there are really 3 parts, right? One is the NRR of our existing business, which has been over 110 in fiscal year '25. So as Ariel mentioned, customers are growing and they're attaching. Second is the ramping. So seeing the benefits of the customers we signed 6 to 12 months ago. And then the growth algorithm, which is the momentum of new customers, which will add on and ramp into next year. So all of that is leading to the GBV. When we think about mix of business and we think about yield, we think about all of the different components, right? There are trip fees, there's supplier yield, which is dependent on mix of how much is hotel, how much is air, how much is car, how much is rail as well as our ability, I think, more into the future to attach incremental products such as more payments and expense now that we have an expanded capital structure and strong balance sheet to do that and a focus on moving more of the meetings and events and VIP services from kind of that more traditional to our platform. So it really just speaks to the overall momentum in the business. Operator: Our next question comes from the line of Noah Naparst of Goldman Sachs. Kasthuri Rangan: Can you hear me? Yes. It's Kash Rangan with Goldman Sachs. Congrats on your first quarter as a public company. Good to see the GBV growth, overall top line growth and also gross margin and operating leverage. So I have a couple of things that I would like to ask you about. One is with respect to the large enterprise deals that you signed on, is it a complete enterprise-wide implementation? Or is it just a part of it? I'm curious if you could talk about how the revenue recognition of all the GBV lifetime value in these clients will flow through to the business? And as a follow-up question, if I could, the margin leverage you saw on the gross margin operating leverage line in this quarter, how sustainable is it? And if you can also talk about the sustainability of yield since it was 6.2% and the year-to-date is 7%. Are we right in expecting a bounce back in the yield in Q4? Congrats once again. Amy Butte Liebowitz: You've got a lot of questions in that. Kasthuri Rangan: This is my last call, right? My last call as a analyst. So I got to pack it all in. Amy Butte Liebowitz: But let's just talk about the large enterprise deal. I think it shows momentum in enterprise that Ariel mentioned. I would also say that most of the enterprise deals that we're signing are attaching not just travel, but attaching multiple products at the same time right at launch. They also show that the time between signing and launching is stable, if not getting shorter and that we are accelerating our ramp even faster, which is a real focus for our account management team. In terms of the second question on gross margin, that is really our ability to leverage Ava, we're deflecting 54% of customer support interactions using our Ava support -- AI support agent as well as just general efficiency in the business. And what I think is fascinating is that we're doing this at the same time, we're investing in added support even for enterprise customers. So I remind you, once again, it's seasonal. Q3 is always the highest gross margin. But all of it is playing together into the future. In terms of OpEx, you're right, we saw only a 17% growth in OpEx versus 29% growth in revenue year-over-year in the third quarter. I think, look, we've said to you before to everyone that fiscal year '27 is really a year for investment right? We will continue to invest in the business when we have conviction, such as examples like Edge, where we feel we have a competitive advantage and can take outsized share in this large TAM. At the same time, we are committed to showing the scale and profitability and efficiency in the model as a public company. We expressed this in committing to being free cash flow positive in fiscal year '27, even during a period of investment. And I think there are lots of levers to pull across sales and marketing efficiency, across G&A and across R&D. Ariel Cohen: Yes. And just to clarify something, when we are saying that we won an enterprise, it means the entire enterprise globally. So a company like ENGIE with a market cap of $30 billion, this is for the entire 15,000 employees. Same goes with Visa, the company that I've mentioned in the health care space and the recent wins in Europe. And it's really, really important because it's actually rare to have an entire enterprise adopting so fast. It's something that is important for the company, but that's what's happening in the case of Navan. The entire enterprise is adopting us globally. Operator: Our next question comes from the line of Siti Panigrahi of Mizuho. Sitikantha Panigrahi: Great. Congrats on first quarter as a public company. I want to ask about -- you mentioned about the investment side, specifically, Navan is mainly going into that PLG motion. Could you talk about your investment plan at this point? When should we think about any kind of revenue contribution from that? And interesting to see that free cash flow positive by '27. What kind of margin impact we would see from that investment? Ariel Cohen: Yes. So I'll start with the Navan Edge and maybe Amy will take the second part. But Navan Edge is based on Navan Cognition, which is our AI platform. This is a Navan homegrown AI platform that is based on our data, our models. It's basically an [ energetic ] platform that was designed to support complex travel use cases. So everything that we've learned as a company in the last 10 years, you can really see it in Cognition. On top of Cognition, we've built Ava, which, as Amy mentioned earlier, is now deflecting or supporting 54% of the interactions when it comes to you need to change your flight, you need to apply unused credit, you are stuck in the airport and you need support. All of these things are done by Ava with really high satisfaction of around 80%. And then the second big application of Navan Cognition is going to be Navan Edge. Navan Edge is really us going after the frequent traveler, making sure to hyper service them, first of all, with AI. So it will be a completely different experience. But then augment it with travel agents when they need to kind of intervene. So it's really, really after these high-end clients, which we believe that we are positioned to gain a massive share on that market. Amy Butte Liebowitz: So when it comes to investments, we started leaning into that investment probably the second half of fiscal year '26. We'll continue to make those investments in '27 and would look to see top line contribution more into fiscal year '28. Sitikantha Panigrahi: Great. And then one quick follow-up. You talked about some of these large deals that you signed. So what do you factor into your guidance when you guide for, let's say, 4Q at this point? Do you factor in kind of the ramp in that customer? Or you want to see kind of their usage before you include that in the guidance? Any kind of color on the guidance philosophy will be helpful. Amy Butte Liebowitz: I think the guidance philosophy is we think about the forecast as it relates to our active customers. That's why it's so important. We use machine learning to really understand not just what we think is going to happen in the future, but what we think is going to happen in the future based on what has happened in the past even under different scenarios. We do not -- we incorporate all of those customers that are existing customers ramping customers and if they're new, when we expect them to launch and ramp. So we take all of those factors into play when we think about our guidance. When we look out into the future, we're also looking at some of those new initiatives. We're looking at our expected go-to-market return, particularly in SLG and PLG as a whole. So we take all of it into account. Operator: Our next question comes from the line of Samad Samana of Jefferies. Samad Samana: I will echo the congrats on the IPO. And Amy, it was great working with you and wish you the best in your future endeavors. We'll miss you. But maybe a couple of questions. I guess, first, I know we dug into what drove the upside in the quarter, and I heard Siti's question about guidance. But just as we think about the trends that drove the upside in F 3Q, how much of that did you maybe carry that trend line over into the F 4Q guidance and/or maybe where maybe some of the conservative nodes? And then I have a follow-up question as well. Amy Butte Liebowitz: Sure. I think all of the trends are in effect that are positive, right? We had strong results, good momentum across all our go-to-market channels and geographies, no impact from the shutdown, and we feel good about the trends we're seeing across the business. However, it wouldn't be an answer to a question if I didn't say, remember, we're seasonal and maybe take a look at the business travel index, both historically as well as we'll have the calendar fourth quarter come out in January. The fourth quarter for us, our fiscal year is seasonally lower. And when we think about our guidance, we take -- we are taking a prudent approach. And you know, probably because you all have encouraged us to build a track record and credibility early in this public company cycle and that we'll continue to kind of remind you of the seasonality in our business, the usage-based revenue in our business and all of the trends kind of taking place in travel as well. So we're going to try to be prudent and conservative and continue to prove out this durable growth model. Samad Samana: Great. And then, Ariel, maybe one for you. Just with the company now public, and I know it's only been a short amount of time, but have you noticed an impact on the profile or the visibility of the top of the funnel that you're seeing on the enterprise side and what that's done from either a competitive standpoint or helping the profile of the company or just even deals that maybe you're waiting to close? Just trying to extrapolate any changes now that you guys have a higher profile. Ariel Cohen: Yes, 100%. We definitely saw it as a kind of market awareness boost. What I'm hearing from our sales teams is that they get much more -- much less questions, right, about us in the long term. So this is really important. They are also just getting more leads as we are becoming more and more relevant in the marketplace and credible. And to add to this, definitely raising the money in the IPO helps us to be much more aggressive in the payments space, which helps us to create a complete solution. So we see it across the board. Actually, we definitely see a boost there. Operator: Our next question comes from the line of Chris Quintero of Morgan Stanley. Christopher Quintero: Amy, it's been a pleasure working with you, and I wish you all the best in this next part of your journey here. Maybe just to double-click on that CFO transition change. It is a pretty quick switch here. So could you provide us a bit more context? Is this always part of the plan here for you, Amy, to move on after the IPO is completed? Or has something else changed here? Ariel Cohen: Yes. Maybe I'll take it and Amy can add. So I will just reiterate, we are very fortunate to have had Amy as our CFO in the last 1.5 years. And it was really during an important time in our history as Amy was playing a critical role of building our finance organization and making our company ready for being public. But we kind of -- we felt or Amy felt it with our listing now complete and momentum underway, which we just shared with you across the business, and you can see it in the results, Amy decided that it's time for her to move on to our next opportunity. Me and the Board supported it. But we are definitely happy that Amy will stay as a strategic adviser and also promoting Anne to the new role. So that's kind of the transition and maybe Amy can add to this. Amy Butte Liebowitz: Look, I am so proud of what we've accomplished. The financials are in incredible shape, the capital structure in great shape, the team, the business. So it just seemed like the right time. So thanks for the question. Christopher Quintero: Understood. And maybe as a follow-up, one of your competitors, Corporate Travel Management is going through some issues right now. So curious if you're seeing that act as a tailwind to help boost the enterprise momentum for you all? Amy Butte Liebowitz: I think just in general, Chris, any time we see consolidation, anytime we see uncertainty across the competitive spectrum, anytime we see particularly legacy players questioning kind of where they stand in the marketplace, that is basically a signal that Navan is taking share, right? And it's an opportunity to take share. As Ariel mentioned in his opening remarks, the flywheel effect is really moving, and I think that goes to the overall momentum that we're feeling in the business. And the other thing that I would say -- sorry, if I can. I think the other thing I would say, which is really important, we're also seeing a lot of companies talk about -- maybe Ariel wants to talk about this a little bit more. We're seeing companies talk about using AI to attract travel. And for us, we also feel very comfortable about our moat, right? Anybody can make an itinerary using AI, but not everyone can make the AI into an actual booking and into an actual experience. You need the whole integrated platform to do that. So we feel very comfortable about our competitive positioning overall, not just in legacy and enterprise, but also relative to new entrants and new opportunities to take share. Operator: Our next question comes from the line of Scott Berg of Needham & Company. Scott Berg: Nice quarter. I will echo the sentiment, Amy. We wish you well. Two questions for me. I guess let's start off with the usage yield in the quarter. I guess I can appreciate the puts and takes in any quarter. I think we've discussed that a couple of different times in length. But are you seeing anything in the business, I guess, in the last quarter that would suggest on an annual basis going forward that, that take rate shouldn't be right around 7% plus or minus? Amy Butte Liebowitz: So we still feel comfortable with thinking about kind of a 7% rate. Remember that we have headwinds and we have tailwinds going into that. So the headwinds are Reed & Mackay, our more traditional legacy business has higher yields because it has a higher percentage of meetings and events and VIP. It is growing slower than our on-platform business. Therefore, as it becomes a smaller percentage of our total revenue base, the yield impact is a headwind to our overall usage yield. In addition, PLG's growth, particularly outside the U.S. is faster growing. It's the opposite and has a smaller yield than that 7%, something that we're looking at, can we attach more products rather than just travel on to that PLG or growth customer. On the opposite side, on the tailwinds, we think about greater hotel attach. So if you remember, hotels have a higher yield than air, car and rail. As well as the ability to attach more products over time to the existing customer. And in particular, short term, we're looking at being able to attach more payments, being able to leverage the improved capital structure and balance sheet. For example, immediately after the IPO, we sat down with our enterprise account management team and talked about where we could extend more credit to customers, where it made sense, how we think about terms so we can be more competitive in the marketplace. And as we've mentioned, with the improved capital structure, we are lowering our overall cost of capital, and we're getting better terms with our partners, and we think that will be an uptick to our usage yield. So for now, we feel comfortable we have work to do, and we feel very comfortable with that 7% rate. Scott Berg: Understood. And then from a follow-up perspective was actually on the credit kind of expectation and that scenario. I guess how do we think about the timing for the deployment of the extra cash for some of the credit payments and obviously have a -- that will have a positive impact to the business. Is this going to be like a big bang impact that you're going to be able to extend and use enough of this cash here in the short term and we see a pretty quick kind of impact on the P&L in the next quarter or 2? Or is this something that kind of phases in over a multi-quarter time frame? Amy Butte Liebowitz: I would say it's more the latter. It's more phasing in over fiscal year '27, seeing the impact into '28. Remember, it's not just about the capital. It's also about the product as we work to improve the product as well and meet what our customer needs are in that area. So I would say you kind of think about more once again as investing in '27, accelerating in '28. What is more short term is improved economics from our partners and lower cost of capital. So you'll see a decrease in our interest expense below the line. That should come down to approximately only $4 million per quarter now. And incrementally, we should be able to add a decent amount of basis points to our net interchange rate, our net interest income. Operator: Our next question comes from the line of Jed Kelly of Oppenheimer & Co. Jed Kelly: Congrats. And Amy, good luck. Just zeroing back on that 40% bookings growth, really strong. Can you talk about how the increase in direct connections with suppliers? Are you seeing higher conversion, better merchandising? Can you just talk about how the higher direct mix is kind of boosting your bookings growth? Ariel Cohen: Yes, 100%. So if I remind you, Navan, the entire product and offering is based on 2 platforms that we've developed. One is our cloud connectivity, which is basically the connectivity to airlines, hotels to any type of content that is out there, and we do it globally. And direct connections to airline, what the industry will call NDC really allows us to merchandise better to assure the right prices. So it creates a lot of trust with the travelers and the customers. It's kind of common in the industry that the traveler will look at a system and will say, I can actually find something cheaper outside, why you are making me booking and using this platform. You don't see it at Navan because of our connectivity to everything. So if it's out there, you will see it on the Navan platform. And when you kind of connect it with our AI platform, Cognition, you are making sure to show to our travelers the right things for them. So if I'm using a certain airline all the time, if I'm using a certain hotel all the time, the platform will actually tune all of this content to me, making sure that it will take no time to book something. In 7 minutes, you can book an entire business trip on our platform. So the connectivity and NDC and connecting directly to airline hotels is a major, major part of why we win. Amy Butte Liebowitz: Yes. And I love the story of the multi-city booking, right? It's a great example of having those direct connections using Cognition as a platform, but also just the ingenuity of people here at Navan and the engineers, right? Everyone said you couldn't do it on platform. That would be one of those things you'd always have to pick up a phone. And now we can do it on platform. So I think that's a great example of using all 3 things, the people, the AI and the supplier connections. Jed Kelly: Great. And then just as a follow-up, just around M&A opportunities, can you just talk about strategy going forward and just some of the efficiencies you can get now from better tech platform? Ariel Cohen: Yes. Well, first of all, you notice that we've acquired in the past, and we've done it successfully. So as a company, we are always looking for opportunities. And when I'm looking at this, I'm looking at 2 things. First of all, what else can we bring on platform. We've talked in the past about the opportunities in the meeting and event space in VIP travel and so on. But also a major, major focus of the company today is continuing to iterate on Navan Cognition, our own AI platform and then to introduce it in Ava, but also in Navan Edge. And I want to iterate on something that Amy mentioned earlier, which is we are not planning here some demo to build an itinerary or something that is really an eye catcher. We are talking about a platform that will use AI with Navan Edge to book your entire trip, to plan your stay when you're on the go to get support when you're coming back to make sure that you did it in the most efficient way. So this is really advanced. And in this space, although we looked a lot of should we buy something, we actually didn't see something mature. The use cases are very, I would say, early naive, does not reflect the 10 years of experience that we have with Navan team. So all in all, we are always looking for opportunities to accelerate our growth. But right now, in the space that is the most important for us where we see the biggest opportunity, which is AI, we actually think that what we are developing in-house is significantly better than what you can find outside. Operator: Our next question comes from the line of Andrew DeGasperi of BNP Paribas. Andrew DeGasperi: Also for me, congrats on the IPO and the first earnings call. And Amy, good luck to you as well. I just wanted to maybe ask a question on the SAP Concur Partnership with Amex GBT. Just wondering if you think this is a response to the success you've had in [indiscernible] market share. And otherwise, could you give us some context on what you make of that? Ariel Cohen: Yes, maybe I can take it. I think that the old model of like connecting stitching together a lot of things, taking a booking tool like Comcare and then a travel agency and to try to kind of connect them together is so antiquated. You basically -- you start to search for something in Comcare, then you're finding yourself calling an agent. And in the era that people are expecting for everything to be online for -- to see machine learning to see AI kind of really driving efficiency, making sure that the experience is great, you're finding yourself there with a completely different model calling an agent. So I think it's becoming completely irrelevant and comparing it to what we are doing in Navan is like it's night and day. So if the question, are we worried about it or do I even care about it, the answer is no. Andrew DeGasperi: That's helpful. And I guess maybe just Visa leaving Amex as well. I mean I thought that was pretty interesting and pretty groundbreaking. Just wondering what -- can you elaborate a little bit on the conversations you had with them? Like what won them over [indiscernible] platform? Ariel Cohen: Yes. I think it's exactly what we are talking about. Think about it. Visa is one of the biggest fintechs in the world, and it's a modern company. And they are [indiscernible] here in the Bay Area. And for them to tell their employees to pick up the phone to book a trip, it's kind of -- it doesn't make any sense. So Visa saw our product, saw our vision, so that they can save money by using Navan, so that they can save a lot of time with their employees globally and decided to join this journey. And I think that when you are referring to the market and consolidation there and so on, at the end of the day, we are the disruptor in this space. We completely changed the business model. We've changed the technology. And I think that we are making an impact, and that's the pressure that you see in the marketplace and then all of these enterprise wins that you see. Amy Butte Liebowitz: I will tell you one of my favorite pieces of Visa is that, one, we were able to launch relatively quickly for such a large-scale enterprise. But more importantly, the adoption is really fast. And so they're ramping much faster than we expected, which validates their enthusiasm, and it also validates our focus on launching faster, ramping faster, particularly for these large enterprise customers. Operator: Our next question comes from the line of Mark Schappel of Loop Capital. Mark Schappel: Congrats on your first quarter as a public company. Most of my questions have been answered, but just one here, Amy, I wonder if you could just repeat your comments in your prepared remarks around the slowdown you saw before Thanksgiving. Amy Butte Liebowitz: Sure. So we did not see a slowdown in October. October was actually a record month. We actually saw about 4 days of slowdown versus what we anticipated before Thanksgiving, which was right about November 11 when the FAA actually restricted the number of planes that were flying. But after that, we had planned for a slow Thanksgiving week, and we're seeing activity rebound as anticipated in December. Operator: Our next question comes from the line of Blair Abernethy of Rosenblatt Securities. Blair Abernethy: Best of luck to you, Amy. Ariel, just on the payments, back on the payments question, I'm just wondering if you could provide a little more color on sort of how you're approaching this market now that you have some more capital to put into it? And where are you pushing sales to drive new business? And sort of what does an ideal customer look like for you? Ariel Cohen: Yes. First of all, we had payments across the board in all segments but SMB. And it's actually a great enterprise and mid-market addition. The reason is that when payments is part of the program, employees can submit expenses in no time, and they will not see any issues around payments when they -- around the hotels, flights and so on. So it really gets back to our vision to make travel easy for frequent travelers and payments is part of this. We see more attach in the enterprise space. We see more attach in the mid-market space. And having this capital available for us right now will actually allow us to see acceleration there. But from a demand perspective, we always had demand in this space, and now we have the capital to actually meet this demand. Blair Abernethy: That's great. And then just if I could, one more on -- just on Navan Edge. Is this an upsell? Is there a revenue opportunity here? Or is this more just driving more stickiness, more activity on the platform? Ariel Cohen: Navan Edge is actually unlocking more of the TAM. So if I'm taking a step back, you have in the TAM part that is managed. This is when we come and replace -- we take a customer like Visa and we replace the incumbent. And then there is the nonmanaged. These are either customers that never managed travel before or employees that are just out there in the road. And Navan Edge is really going after them. So this is unlocking more of the TAM. And in terms of the business model, exactly like our current business model, we make money from booking fees and partners and suppliers fees. So it's the same business model. It's just unlock part of the market that we believe that we can actually be a winner there. Operator: Thank you. Ladies and gentlemen, we have reached the end of Navan's time. This does conclude today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Duluth Holdings Third Quarter Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Steffes with Duluth Investor Relations. Please go ahead. Chris Steffes: Thank you, and welcome to today's call to discuss Duluth Trading's third quarter financial results. Our earnings release, which was issued this morning, is available on our Investor Relations website at ir.duluthtrading.com under News Releases. I am here today with Stephanie Pugliese, President and Chief Executive Officer; and Heena Agrawal, Senior Vice President and Chief Financial Officer. On today's call, management will provide prepared remarks and then open the call for questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. And with that, I will turn the call over to Stephanie. Stephanie Pugliese: Good morning, everyone, and thank you for joining us today. Earlier this year, we outlined a plan to reset the business, focusing on improving gross margin through reducing promotional depth, controlling costs and inventory levels and being more effective operation, all with the goal of delivering on our responsibility to our customers and shareholders. I am proud of the team's commitment to these efforts, and as evidenced by our Q3 results, they are yielding benefits. We are pleased to have delivered a consecutive quarter of improved profitability, building upon our earlier progress from Q2. Let me elaborate further on the areas of improvement. Building upon the momentum we established in the second quarter, we saw success with our pricing strategies by focusing on the balance of promotional frequency and depth. We reduced our global promotional days by more than half compared to last year. And while year-over-year sales declines were consistent with our Q1 and Q2 results, we experienced higher profitability per unit sold. Furthermore, to mitigate the impact of tariffs, we raised prices on select products in July and August. And in Q3, we maintained the sales volume on those styles, further reflecting our improving ability to strategically balance demand and retail. Now let me provide an update on some of our third quarter product wins. Within men's, denim was a strong performer for us, and our decision to amplify this Duluth core product through national advertising led to a 9% growth in sales at higher margins. Men's AKHG was also positive, driven by innovations like After Sweat, AlpineFlex Pants and Renew Bamboo. Within women's, our Heirloom Garden collection continues to be a foundational part of our wardrobe. And we were also pleased with the results of our relaunch of another core Duluth staple, women's denim featuring asset management heritage denim and our Double Flex work silhouette. At Duluth, we take the quality and functionality of our products very seriously, but we also like to have fun, and our customers love it when we put our own Duluth personality into the season. Our Highland Cows print was featured in October and was one of our most successful prints across several product categories. More recently, our November Hasbro collaboration put Mr. and Mrs. Potato Head, Tonka trucks, Tinkertoys and Lincoln Logs on to our best-selling Buck Naked underwear, bralettes and socks. Customers love the nostalgia leading into the holiday shopping season as it became one of our fastest selling collaborations ever. Turning to our marketing efforts for the quarter. We saw success with a full funnel approach, highlighted by our Q3 men's denim branding efforts, anchored by strong creative on our Double Flex denim and coupled with the strategic linear TV plan that focused on premier college football games within priority store markets. We saw a significant lift in brand consideration. Further, our sponsorship and investments in other media like Spotify and targeted podcasts have increased our brand perception and moved a new audience toward trial of Duluth. Our new mobile retail experience, more affectionately known as the Big Dam Van, visited the Sturgis Motorcycle Rally and NASCAR Cup Series event at the Kansas Speedway, and our 2 new store openings this quarter. In its first 3 months, we've engaged with 650,000 customers and the initial response has been overwhelmingly positive. And speaking of our customers, while total customer counts were down in the quarter compared to last year, primarily as a result of our strategic pullback on promotions, we are seeing key customer metrics remain strong. Sales per customer and margin dollars per customer are up year-over-year as our average order values and units per transaction, reflecting our shift towards higher value customer engagement. Moving on to our retail portfolio. Store sales increased slightly year-on-year, driven by the opening of 2 new stores in priority markets, Kansas City, Kansas and Maple Grove, Minnesota. In those stores, our traffic has exceeded our expectations, and we are seeing a nice flow of new customers who are discovering the brand for the first time. Our retail stores are vital to both our brand identity and the customer experience. The in-store experience continues to drive a high conversion rate among new and existing customers who report 5-star reviews on satisfaction and are purchasing with increasing average order values. Now moving on to our operational improvements. We are dedicated to ongoing process improvements to optimize both current and future productivity while reducing costs. I am pleased to report that we are on track to exceed $10 million in cost savings in fiscal 2025. In addition to cost reductions, our sustained focus on inventory management and enterprise planning has resulted in more streamlined operations. A key outcome of this cross-functional initiative is a 17% reduction in our Q3 ending inventory, primarily achieved by rightsizing receipts. We expect these continued efforts combined with planned reductions in SKU and style counts for upcoming seasons to drive more clarity in the assortment, more efficient cash utilization, stronger inventory turns and improved margins. And now I would like to turn to our fourth quarter and the results we have seen to date. The holiday season is our most important period, driving customer engagement, revenues and profitability. Leading into this time frame, our focus remains on our turnaround efforts and executing with a clear sense of urgency. Through rigorous preparation and the alignment across all functions of the business including our marketing and merchandising strategies, inventory positioning, systems and supply chain preparedness and customer communication, we entered peak poised to exceed our customers' expectations. First, we implemented enhanced operational protocols and planning processes to optimize unit inventory distribution and depth across our fulfillment center network. This approach has allowed us to capitalize on efficiencies and meet customer demand, specifically by maximizing the output of our fully automated facility in a day or so, which has shipped over 60% of units to customers thus far in Q4, over a 20-point increase from last year's peak season. In addition, we increased our in-store inventory levels, improving availability and enabling healthy conversion rates on foot traffic over the Black Friday weekend and in the weeks leading up to Christmas. Regarding our merchandising plans, we have continued with a disciplined approach that we established over the last several quarters. This means offering focused promotions through more impactful events and maintaining shallower discounts to enhance margin performance. Our commitment to inventory discipline will continue into next year with an enhanced focus on product that is core to Duluth. We have also made adjustments to our advertising mix, strategically rebalancing our marketing spend between branding and conversion. This refinement has improved our traffic and conversion trends in addition to brand awareness, consideration and purchase intent. And on an exciting note, we appeared a few weeks ago on Good Morning America as part of their season of gifting. It was the first time we were live in the GMA studio, which allowed us to highlight some of our best gifts of the season during Cyber Week and drove over 200,000 first-time visits to our website. I am pleased with our holiday performance to date, and I am so proud of the team who has worked together to get us here. Our sales are in line with our expectations. Our gross margin has greatly improved and our operations are smoother. The team continues to serve our customers with a spirit that makes Duluth great, treating each transaction as unique and each person as a valuable part of our family and brand. In summary, we are pleased with our Q3 results and our peak performance to date. These outcomes reflect the initial phase of our turnaround efforts and are a direct result of the actions the team has been executing on. As we look forward, we are committed to building on this momentum by focusing on the core durable products our customers love and deepening our relationship with long-standing Duluth loyalists while attracting new brand fans. And we will continue to restore price integrity, rightsize our cost structure and most importantly, deliver with excellence on our promises to our customers. Now I'll hand it over to Heena to discuss our financial results for the third quarter and our outlook for fiscal year 2025. Heena Agrawal: Good morning, everyone. Echoing Stephanie's comments, we are pleased with our Q3 and peak results. At the beginning of this year, we set clear goals to reset our promotions, restore price integrity, improve cash and inventory management and strengthen operational execution. In addition, we successfully mitigated the impact of tariffs through a combination of targeted price increases and cost reduction. By staying disciplined on these goals throughout the year and mitigating macro headwinds with agility, this team has delivered consecutive quarters of gross margin expansion and SG&A leverage. In addition, we have maintained healthy liquidity and lower borrowing costs by effectively managing working capital and moving to an asset-based lending facility. This quarter, our inventory balance improved sequentially and is down 17% versus last year. We ended the third quarter with a strong liquidity position of over $88 million. I couldn't be prouder of the team's unwavering commitment to our goals and their agility in developing solutions to navigate tariff pressures. We are successfully executing Phase 1 of our turnaround, significantly improving our financial position with enhanced profitability, free cash flow and liquidity. Building on this strong foundation, our turnaround strategy will continue its momentum focusing on 2 key areas: reinvigorating our customer base and streamlining our product selection to emphasize our core offerings. Now to provide a more in-depth update on our third quarter results and peak performance. Today, we reported third quarter 2025 net sales of $114.9 million, down 9.6%, with gross margin expansion of 150 basis points versus last year to 53.8% and SG&A leverage driven by cost reductions. Our reported EPS loss is $0.29 and adjusted EPS loss is $0.23, favorable to last year by $0.21. Adjustments to EPS include tax valuation allowance of $2 million. Adjusted EBITDA for the quarter is negative $0.7 million, an improvement of $5.5 million versus last year. Starting with the top line. As we reset our promotional depth to drive greater profitability, our Q3 net sales declined 9.6% versus last year and declined 10.1% excluding wholesale. Direct channel sales excluding wholesale saw a 16% decrease, primarily due to a decline in web traffic, partially offset by double-digit growth in average order value from higher AUR and units per transaction. Mobile sales penetration increased by 70 basis points versus last year. Retail store sales increased slightly by 0.4% as we opened 2 new stores late in the quarter and saw growth in average order value driven by both a higher average unit retail price and more units per transaction. As we reset promotions, men's sales declined by 8.7%, partially offset by growth in fall transitional outerwear, denim and AKHG. Women's sales declined by 12.8%, partially offset by strength in the Heirloom Garden collection. Profitability improved across channels and product categories with shallower promotions and higher average prices. Gross margin rate for the quarter was 53.8%, expanding by 150 basis points compared to last year, driven by a rebalancing of promotions to restore price integrity by reducing the depth of discount, the flow-through of lower product costs resulting from our direct-to-factory sourcing initiative and tariff mitigation actions. Average unit retail increased 6% this quarter as we implemented targeted price increases at the beginning of the quarter in addition to shallower promotions and a greater penetration of full-price sale. Average unit cost increased as tariffs offset the benefit of direct-to-factory sourcing. The cost of tariffs was limited to $3 million this quarter with proactive receipt management and cost negotiations with vendors. SG&A spend was $70.7 million, which is $11.6 million or 14.1% lower than last year. SG&A as a percentage of sales improved by 330 basis points to 61.5% compared to last year. Advertising costs were 11.8% of sales in Q3 compared to 9.3% of sales in the first half as we ramped up spending ahead of our peak selling season. This was favorable to last year by 340 basis points, driven by the timing shift of college football media spend from Q3 to Q4. Variable costs were higher and deleveraged by 150 basis points, driven in part by reticketing labor to reflect price increases coupled with a greater mix of retail sales in the quarter. Overhead leveraged by 150 basis points from reduced personnel and depreciation expenses. As Stephanie mentioned, we are on track to exceed our target of $10 million in cost savings this year as we rightsize our expense structure. Inventory at quarter end was $192.2 million, a 17% or $39.2 million reduction compared to prior year. This decrease follows a 12% year-over-year reduction in Q2, and is the result of better balancing of inventory receipts. The improvement was driven by a 15% decrease in year-round products and a 7% decrease in fall/winter goods. This was partially offset by a 27% increase in spring/summer goods. In addition, effective inventory allocation drove a 300 basis point improvement in in-stock position in stores and maximization of inventory in our fully automated Adairsville fulfillment center heading into peak. Key actions included raising minimum presentation levels in stores and responding with additional replenishment to backfill high-velocity SKUs. Enhanced processes like enterprise planning have instituted greater discipline in optimizing inventory receipts to manage cash and inventory positioning to drive greater availability. At the end of the third quarter, our inventory mix included 92% in current products and 8% in clearance goods compared to 3% in clearance last year. This compares to 22% in clearance at the end of July and 16% at the beginning of September. To build upon the progress, as Stephanie mentioned, we are focusing our assortment to reflect more of our core durable products. We reduced SKUs by 5% in fall/winter 2025. We are on track to reduce SKUs by more than 20% in spring/summer 2026, and are targeting an additional double-digit SKU reduction in fall/winter 2026. Our capital expenditures through Q3 were $14.3 million compared to $14 million in the prior year, primarily driven by the opening of our 2 new stores. We ended the quarter with net liquidity of $88.6 million and net debt of $36.4 million. Our cash and cash equivalents were $8.2 million with borrowing on our credit facility at $44.6 million. As we actively manage our inventory levels, we have improved our net liquidity sequentially in the last 2 quarters. As of this week, post the majority of the peak selling season, we are out of the credit facility with a net liquidity of approximately $125 million. Now turning to our outlook for fiscal year 2025. We are affirming our 2025 adjusted EBITDA guidance range to the higher end of our previous guidance of $20 million to $25 million to now $23 million to $25 million. This takes into account several factors. Sales range for the full year of $555 million to $565 million versus an initial range of $570 million to $595 million. This reflects the impact of our pricing actions, promotional strategy and our commitment to the long-term quality of sales. Tariff impact for the full year is now projected to be down from $15 million to $12 million. This is planned to be offset by targeted price increases implemented at the end of the second quarter, management of inventory receipts and cost negotiations with vendors. Cost savings from rightsizing our overall expense structure with the current scale of our business is now expected to exceed the $10 million target and be closer to $12 million. We plan to maintain our investment in advertising above 10% of sales. Regarding our balance sheet and capital expenditures. First, we are maintaining our projection for a double-digit decrease in inventory levels at year-end compared to the previous year, driven by ongoing SKU reduction and rightsizing of receipts. Second, we are maintaining our capital expenditure plan at approximately $17 million for the year. This includes investment in the 2 new stores, Manhattan omni fulfillment software and regular maintenance. Finally, our asset-based lending facility remains a key resource for increased flexibility and access to cash. In closing, we are encouraged by the significant progress we've made in key areas, restoring price integrity, enhancing inventory management and strengthening our operational execution. We've implemented comprehensive measures to offset the impact of tariffs, are making decisive moves to optimize our expense structure, and under Stephanie's direction, are keenly focused on refining our product assortment and strategic brand marketing investments. We have successfully navigated an uncertain environment, emerging in a stronger financial position across free cash flow, profitability and liquidity. With 2025 coming to a close, this team has built a solid foundation, both operationally and financially as we lead into 2026. With that, we will now open the call for questions. Operator: [Operator Instructions] The first question today comes from Jonathan Komp with Baird. Jonathan Komp: Yes. Stephanie, maybe stepping back, a bigger picture question. You referenced some encouraging customer and profitability metrics. How are you assessing the progress on your strategy to be more profitable and prioritize higher-value transactions? What are the key metrics that you focus on the most? And how do you expect that to play out into the holiday period, which typically is more promotional for the industry? Stephanie Pugliese: Jon, thanks for the question. So we look at some metrics that I think everyone would be familiar with around order transactions. So average order values being up year-over-year, our gross margin rate being up year-over-year. And we're also looking at longer term, our sales per customer or revenue per customer over a period of time. And so what we're seeing and we're encouraged by is our average order values continue to be stronger year-over-year. We are achieving the sales that we have with relatively fewer units. And so it's making the whole machine, if you will, more efficient. When we look at customers and how we are thinking about them or how we're -- what the reaction we're seeing in fourth quarter, you're right, fourth quarter tends to be and is more promotional than other quarters. But we're seeing those same dynamics kind of play through quarter-to-quarter. So we're encouraged by the fact that at the end of the day, while our revenues are down and they've been consistently tracking, if you will, to the down 10% or so year-over-year, it continues to be at a higher quality rate of sale, both on the customer level and on the order metrics. Jonathan Komp: And maybe one follow-up. I know last year, there was some execution and operational challenges. Just any thoughts as you cycle over some of those periods, how the business is performing? And then maybe stepping back, how long are you thinking that roughly down 10% type run rate continues? Or said differently, when do you start to cycle some of the factors that could start to mitigate those sales declines? Stephanie Pugliese: Sure. So let me start with some of the proof points, if you will, that we have around our operations. And the comment that I made in our prepared remarks about being smoother, right, in Q4. So just to highlight some numbers, our Adairsville fulfillment center has shipped over 60% of our units to customers so far in this quarter, which is a 20-point increase in terms of percent of total to last year. And we know that when we ship from that facility, we're more efficient and are able to get the packages to our customers faster in many cases and fulfill that obligation that we have to our customers. We have -- our on-time delivery this year has been above 90%. Wait time in our call center calls has been less than 5 minutes on average. And our retail in stocks on Black Friday were 97%. So all of those numbers are numbers that the team is really proud of, most importantly because they serve our customer better than we have in prior years. So those are the places where when I talk about fulfilling promises to customers, it's about building relationships and long-term credibility with the people that we serve. And those numbers, I think, really exemplify the work that the team has done to build that relationship with our customers long term. To answer the second part of your question around the sales declines, we're in this -- for the past 2 quarters since I've been back, the focus of the business has really been around creating a more stable base for long-term growth. And that has been focused around things that we've already talked about, the promotional reset and creating higher value customer interactions as well as orders, cutting costs in the other parts of the business so that we can be more efficient and productive on the bottom line longer term, smoother operations that I just mentioned. And then as we look forward, we know that in order to build the -- continue to build the base for long-term growth, the next part of this is focusing our assortment. As we've talked about before, we have -- we are planning in both spring and fall of 2026 a 20% reduction in our SKUs and styles so that we can be more effective in our messaging, and we can be clearer to our existing customers and future customers what this business stands for and we're able to continue to invest in marketing to help us stand out in the marketplace. So those are the things that we are focusing on right now. I'm proud of the fact that we have strengthened the base and the cost, kind of the cost structure of the business is coming more in line, certainly still have work to do there. But I think that it gives us at least the platform for the future growth that we can build on. Heena Agrawal: And I would add that as we look at our last 2 quarters' performance, our retail portfolio, we saw a positive comp in Q2 and flat to slightly positive in this quarter. So we see a more stable environment in retail as we reset the promotions. On the online side, there is a greater elasticity with the promotional reset. But we are continuing to see the impact of various marketing efforts around increased traffic that we hope to capitalize on as we move forward. Jonathan Komp: Okay. Great. Maybe just 2 last ones from me then, Heena. On the fourth quarter implied adjusted EBITDA looks significantly higher year-over-year, maybe as much as double year-over-year. Could you just highlight the factors driving that improvement? Heena Agrawal: Yes. As we've been doing the promotional resets, the biggest reset is really coming from the Black Friday Cyber Week, 50% off that we had last year that we did not comp this year, and it was down to 30%, with some 50% Dam Busters. And that's really what's driving the gross margin improvement and gross margin dollar improvement. In addition, because of the smoother operations and how the team has worked on positioning inventory, leveraging and maximizing Adairsville, we are also seeing a greater flow through on the contribution line. And on top of that, the cost savings estimate that we had of $10 million is expected to exceed and be at $12 million. So all of those factors are coming together, and the greatest impact is in Q4 that we are seeing, which is driving that higher adjusted EBITDA in the Q4 estimate versus last year. Jonathan Komp: Okay. Great. And then just last one, balance sheet. I might have missed this in your remarks, Heena. Did you mention having fully paid down the line of effectively 0 debt currently in the fourth quarter here? Just to clarify that. And then any commentary you have looking forward on capital needs. Heena Agrawal: Yes, we are -- we have had a successful peak and it's been more profitable and smoother, and that's helped us pay down our debt fully. As of this week, we are out of our credit line, and we have liquidity of approximately $125 million. So we are looking forward to continuing that momentum through the end of the fiscal. Operator: The next question comes from Dylan Carden with William Blair. Marcus Belanger: This is Marcus Belanger on for Dylan. During the quarter, I believe you said you cut days of sales in half. So can you tell us the overall depth of promotional activity or maybe what your percentage of full-price sales were? And then how far do you think you are from an optimal level of promo? Stephanie Pugliese: So I will -- I'll take the second part first, Marcus, around how far we think we are from optimal promotion. At the end of the day, this has been a huge reset for the business. And I just want to highlight one number when you look at the gross margin improvement year-over-year that we saw in Q3, considering the fact that as we reported in last quarter, we came in with significantly more clearance inventory coming out of Q2, and it was the first quarter where tariffs were a part of the gross margin. For the team to be able to achieve 150 basis point improvement, I think, is kind of shows how far along the journey that we've come so far. We do still think there's continued promotional reset as we go into early next year, for example, in the February time period, we were up against a very heavy promotional time or clearance time in our Big Dam Birthday event last year. So that's a place that you will continue to see promotional resets, and we'll be tweaking that along the way. So our goal ultimately is to provide the best value for our customer to recognize that there are times of the year where value is a driver, like fourth quarter that we talked about just a few minutes ago, but to really build back in full price as a core premise of our business outside of those big promotional kind of milestone moments, if you will. So that's how we're looking at the business overall. And we'll continue to refine and tweak those as we go forward. Heena Agrawal: And Marcus, just to add, to clarify the number of days of promotion we were on in Q3 is what was cut in half. And to Stephanie's point, we are looking to continue resetting promotions. And this time, as we look forward, it's going to come more through reduction in markdowns as we've improved our assortment and inventory buying receipts. We expect to have higher sell-throughs on our products, which will reduce the markdowns and the discount that you see on our products. So we will continue on the promotional reset, but entering kind of Phase 2 where we have greater emphasis on markdowns and higher sell-throughs through a tighter assortment and buying. Operator: This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to the CSPi's Fiscal Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Michael Polyviou. Sir, the floor is yours. Michael Polyviou: Thank you, Matthew, and hello, everyone, and thank you for joining us to review CSPi's financial results for the fiscal 2025 fourth quarter and full year ended September 30, 2025, as well as recent operating development. Today, with me on the call is Victor Dellovo, CSPi's Chief Executive Officer; and Gary Levine, CSPi's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we will then open the call for questions. [Operator Instructions] Statements made by CSPi's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as those identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate and continue as well as similar expressions are intended to identify forward-looking statements. Forward-looking statements should not be met as a guarantee of future performance or results. The company cautions you that these statements reflect the current expectations about the company's future performance or events and are subject to several uncertainties, risks and other influences, many of which are beyond the company's control that may influence the accuracy of the statements and the projections upon which the segment and statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made and management's good faith belief as of the time with respect to future events. All forward-looking statements are qualified in the entirety by this cautionary statement and CSPi undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise after date thereof. With that, I'll turn the call over to Victor Dellovo, Chief Executive Officer. Victor, please go ahead. Victor Dellovo: Thanks, Michael, and good morning, everyone. We had a strong finish to the fiscal year. Overall fourth quarter revenue increased 11%, while our overall gross margins increased by more than 800 basis points to 37%. We significantly increased our profitability during the fiscal fourth quarter from the same prior fiscal quarter, while continuing to invest in building the deal pipeline and new customers of our highly differentiated and award-winning AZT PROTECT cybersecurity offering for the full fiscal year, maintained our strong balance sheet and positioned ourselves for increased momentum and growth in fiscal 2026. Once again, our Technology Solutions business drove our fourth quarter and full year growth. We expanded relationships with existing customers while gaining new customers due in large part by the exceptional customer retention track record we have earned in a wide variety of industries, including finance, manufacturing, oil and gas, health care, aerospace, education, utilities, telecommunication and maritime. Technology Solutions increased increases the efficiency and effectiveness of our customers' IT investment in networking, wireless, mobility unified communication and collaboration, data center and advanced technology security and continues to be a major driver of our service business growth. During the fourth quarter, our service revenue grew 63% over the same prior year quarter and represented approximately 44% of our total revenue. During the year ago fourth quarter, service revenue represented approximately 30% of total revenue. For the full year 2025, service revenue represented 36% of total revenue as compared to 33% a year ago. Managed cloud and MSP services are increasingly important part of our offering. And during the fiscal 2025, this business grew a healthy double-digit rate. One of our key objectives in fiscal 2026 is to build on that growth rate. To achieve this, we are allocating more resources to these opportunities, including adding more sales reps. Our MSP/cloud service strategy has been especially positively effective in the maritime industry. We are expanding installations during the fiscal 2025 and then gain contracts who service these installations the result of which will begin in realized in fiscal 2026. In addition, we entered our fiscal 2026 with backlog for cruise ships, installs and upgrades, which we hope to convert revenue over the next 12 months. Growing our service business benefits our shareholders in 2 important ways. First, the revenue tends to be very sticky given our strong service track record with customers and our unique position in the marketplace. Second, our service revenue earns higher gross margins than our product revenue. We are quite excited about the results generated from our service segment during the fiscal 2025 and are even more excited about our potential entering the fiscal 2026. Turning to the HP segment. We continue to gain traction with our strategic partners and distributors and their customers for AZT PROTECT cybersecurity offering. Over the course of the past fiscal year, our go-to-market strategy led to dozens of new AZT customer installations as well as it continuously expands pipeline for our new customers. Working through our gold star resellers, including the Rockwell Automation largest North American distributors. Our strategy is to successfully implement our solution at an individual site with the customers' operations then pursue other installation opportunities within the organization. We have recently executed this sales approach with several customers as we speak and are actively working on purchase orders with our partners to deploy AZT PROTECT at additional sites. To date, we have customers in the steel, energy, manufacturing, water utilities, pharmaceutical, food, telecommunication in other industries, all with multiple installation potential. Many of these potentials to become a 6- or 7-figure dollar relationship for our company. We have deployed case studies of the results achieved by AZT PROTECT within most of these industries and Rockwell distribution channels are aggressively taking these results to market. We believe this approach is working as we exit the year with a significant increase in the number of AZT PROTECT deployment deals in the works. In addition, in the fall of 2024, we participated in the Rockwell Automation Fair in Anaheim, which was a first step into the Rockwell Automation channel. We participated again this year at the Rockwell Fair in Chicago that was held a few weeks ago and isn't an exaggeration to say the booth was busy throughout the entire fair. Operational technology customers continue to lack the effective cybersecurity protection at the level AZT PROTECT provides. We continue to believe we have a strong competitive advantage in this space and also believe that the market now sees us as a substantial resource. Our objective is to convert this building momentum into sizable AZT PROTECT sales in fiscal 2026. We are quite excited about the direction in the fiscal year 2026 prospects for our business as we expand our focus to protecting industrial IoT devices. The devices in this space have traditionally been difficult to protect due to the types of processes used and limited resources available that typically don't support conventional IT-based endpoint protection solutions. AZT PROTECT has had an initial success in being selected and deployed in such environments. We are optimistic that this opens a new market for the product. Many AZT PROTECT installations require an approach to simply simplify mass deployments. That means our team has had to enhance our software to allow for easy integration into the industrial IoT products supplied by other vendors. To date, we have overcome these integration challenges without exception. There is still more work to be done to streamline the approach. However, this ability to integrate the deployment of AZT PROTECT into the industrial IoT companies existing systems is a major driver behind our growing pipeline into this large unserved industrial edge compute market. In summary, our service business exited the year on an extremely strong note. And our product business is gaining momentum. We believe we are on a trajectory to generate consistent profitability improvements for the fiscal full year 2026 as we built the infrastructure and made the investment required to support significant expansion of our business. As a result, we believe that we are in a position to significantly leverage revenue growth going forward. With that, I'm going to turn the call over to Gary to provide you with some more details about our recent financial performance. Gary? Gary Levine: Thanks, Victor. For the fourth -- fiscal fourth quarter ended September 30, 2025, we generated $14.5 million in revenue as compared to $13 million for the year ago fourth quarter. Our products revenue decreased $1.1 million. Service revenues increased $2.5 million or 63% compared to the year ago period. Gross profit for the fourth quarter was $5.3 million compared to $3.7 million for the fourth quarter of fiscal 2024. The exceptional service revenue growth during the quarter drove the gross profit margin increase. Gross margin for the fourth quarter was 37%, which was more than 800 points higher than the same prior year quarter. The strong increase in service revenue drove the increased margin. On the expense side of the income statement, comparing the fourth quarter of fiscal 2025 to the same prior year quarter. Research and development costs increased 13% as we brought to market new features for AZT PROTECT and develop software solutions to engage and integrate of our solutions into customers' operations. Our SG&A expenses for the quarter were essentially flat as compared to last year. Our operating loss for the quarter was $0.5 million compared to $2 million operating loss for the same period of the prior year quarter. We reported a net loss of $191,000 or $0.02 per diluted share of common for the fourth quarter compared to a net income of $1.7 million of -- or $0.18 per diluted share for the year ago period. As of September 30, 2025, our balance sheet remains strong with cash and cash equivalents of $27.4 million. Our cash position is down about 10% from our cash position a year ago. However, we continue to provide revenue financing to qualified customers and you'll note that our financing receivables level doubled over the course of the past year. In addition, we invested in the growth strategy of AZT PROTECT. We also used cash to pay the $0.03 share dividend and repurchased 19,500 shares of our common stock during the fourth quarter for a total cost of $234,000. As we noted in the press release this morning, we will be paying a $0.03 a share dividend on July 15, 2026, to shareholders of record on December 26, 2025. Turning to the full year ended September 30, we grew the revenue by 6% and grew gross profit by was $18.5 million or 32% of sales compared to $18.9 million or 34% of sales. We reported a net loss of $91,000 or $0.01 per share of common compared with a net loss of $326,000 or $0.04 per diluted share of common for the prior year. I will turn the call over to the operator for your questions. Operator: [Operator Instructions] Your first question is coming from Joseph Nerges from Segren Investments. Joseph Nerges: My quick math here. You mentioned that the service revenue in the fourth quarter was like $0.44 of total sales. So that -- if my math is correct, you're close to $6.4 million in service revenue in the quarter alone. Am I correct? Am I wrong on that math? Gary Levine: Yes. I mean, overall, as a company, yes, that's approximately... Joseph Nerges: Yes, you said, I don't know, 44% of $14.5 million. That's where I'm coming up with the number. So that's a terrific number. I mean, being at the annual meeting several years ago, and Victor mentioned that he gets called all the time, trying to purchase our managed services operation. So if we continue with that, we're talking about a plus $20 million a year service revenue just in managed services alone in the TS division. So that's really terrific. But let me get on to a question. I really think this -- the last press release you guys issued on the IIoT expansion of AZT PROTECT is really -- you used the term -- Victor used the term game changer when you first introduced AZT PROTECT. And I really believe that this expansion is a game changer. Now as an example, I guess this all started basically with our -- am I correct, the cell tower customer in South Africa, where we deployed that and then we began deploying it through other suppliers in that environment. And then we keep talking about the black box. So as an example, if you have a cell tower customer with, let's say, 1,000 towers, what's the what is our potential for the endpoint -- how many endpoints can we possibly sign up if it's fully deployed and accepted by customers on the line? What are -- let's say, size of 1,000 towers? Victor Dellovo: Well, if you look at the 2 press releases that we've done before, right, we started off with the black box that's inside the cell towers and then we opened it up to the cameras that are on the cell towers also. So those are the 2 press releases that I had released probably 6 months ago or so. And it's not 1,000 towers, it's tens of thousands of towers that we're talking about. I think the first round was like 15,000 and then it will continue to grow as they move out. And I had mentioned on the last call that it took some time to get the product to be able to integrate into those systems and with significant testing. And that has already gone through the testing, in approval process with the customer. And as we said on the other call and in press releases, we're trying to do a seed unit type of environment. And then we did that and we already get the second order for the cameras for additional cell towers. And as they continue to grow and expand, there should be further purchase orders throughout the year next year. Of what magnitude and what exactly that looks like too early to tell. Joseph Nerges: But obviously, we're just talking about 1 cell tower customer here. How many other customers could we possibly integrate? Have we signed -- have we currently signed any OEM agreements in the IIoT environment? I mean the -- the guy that's -- the supplier of the black box, he would be, I assume, a potential OEM supplier for the IIoT market. Have we signed contracts with these people as of yet? For OEM deployment... Victor Dellovo: Not yet. Joseph Nerges: Not yet? So that would be the next stage. And I'm assuming that's a priority for our sales team going forward. Is signing up as many of these OEM suppliers as possible. Victor Dellovo: Of course. Joseph Nerges: Am I correct? Am I wrong in that? You would be focusing on... Victor Dellovo: No, you're correct. Joseph Nerges: Well, I think the numbers are great. I realize I know what the problem is, is simply we need the time to get rollouts -- full rollouts in some of our customers. I'm assuming our only full rollout of AZT PROTECT is in our pharmaceutical company. Most of the other... Victor Dellovo: That's correct. Joseph Nerges: Customers we have, have deployed it in individual plants or equipment, but not fully roll them out. So when you're saying you're expecting the full rollout over the next year to 2 years, I assume that's what you're talking about. Victor Dellovo: Yes. In some cases, we're talking to different companies about doing like an enterprise agreement where centralized purchasing would purchase it and then roll it out to all the locations. And in some cases, I think I mentioned on the last call, we have to talk plant by plant. So since we had one initial plant that we sold to quarter, we sold it to a second one or a third one. So it just takes time based on just having to talk to 50 or 80 or 120 plants individually. So that takes time getting to -- it's easier than getting the first one in, but it's still a sales process. And then in some cases, we're talking to companies at the purchasing level where they want to cut one potential purchase order for all locations, which, of course, makes our life a lot easier and speeds up the time frame on when we can get the purchase order over the line. Joseph Nerges: One more follow-up on that. And I'm assuming that all of these potential customers already have contracts signed in their OT environment cybersecurity contracts. So am I correct in some of these customers might be waiting for that contract to expire before they enter a new contract with a new supplier like us? Victor Dellovo: In some cases, yes. In some cases, yes. So sometimes that the competition may not be supporting older versions of software. So one of the energy companies we sold to, that's what happened. They stopped supplying the product that they're currently using, which I don't want to mention, they stop supporting older versions of Microsoft. So we took over those couple of thousand devices because there -- they're not willing at this stage to throw them out completely, but at least we're in there and we're picking at it slowly. Joseph Nerges: All right. I appreciate the answers. Good luck going forward. It sounds like '26 could be a really good year for us. Victor Dellovo: Did you enjoy the show, Joe? Joseph Nerges: Yes, except for one thing. I came back with a cold and I still have it. I'm still trying to get rid of the cold. But the show was really good. A lot of customers came by and they seem pretty well engaged. Now closing these guys is another story, but the numbers are there to from what I saw to hopefully get some pretty serious contracts in the not-too-distant future. So Yes, I appreciate inviting me to the show anyway. Operator: Your next question is coming from Will Lauber from Visionary Wealth Advisors. William Lauber: Just had a couple of questions. I guess I was at that Rockwell show as well for, I guess, a day and a morning. I didn't get to see the whole thing, but definitely saw quite a bit of traffic and the time was there. If I kind of remember right, most of the customers that you guys have gotten over the last year the connections were made at that Rockwell show a year ago. Is that true? Victor Dellovo: That is correct. Yes. Most of the orders that we got all came from the Rockwell. So that's been our biggest way of getting leads. William Lauber: Okay. And then can you kind of quantify the number of leads you got last year versus this year and then I guess, along with that, maybe the quality of leads, I assume it's probably better this time because I noticed a number of your distributors bringing their customers to the booth. So that's a lot better than just some random person walking by your booth and talking to you. Victor Dellovo: Right. Yes. I'm glad you noticed that the distributors, the CDs, the Sonepar, the Rexel. They -- this year being comfortable with the product, having closed some opportunities that were way more comfortable. It was an introduction last year at the show, where this year, we have a relationship. So they brought a lot of their customers. There's been a lot of follow-up already. There's been a lot of appointments already set up our initial calls. Unfortunately, the timing of the show is like you got Thanksgiving right off of the following week. So everybody kind of takes that week off. So it's been the last 2 weeks where we we're able to get in touch with a lot of the individuals and set up initial meetings and their follow-up meetings right after Christmas. Just because we're back to back on these holidays as you see fit. But yes, we probably got a 50% increase in leads this year than over last year. I have -- we haven't gone through all of them yet at this stage, but they seem to -- we definitely have a lot more initial meetings than we did it quickly based on the relationships we do have with the Rexels of the world in CDs and Sonepar, but to set up meetings immediately for us. So yes, we're very optimistic that we closed a lot of deals last year because of this show. My goal is to close double if we could, right? We have about 50% more of the leads, and I think we have a better relationship with them. We have a better reputation. They kind of know us now. We have a lot of installs. So yes, I'm looking forward to 2026. William Lauber: Yes, that was more leads than I thought. So that's good. Victor Dellovo: Yes. You were there. Our booth was always full, right? You never saw no one that -- we had 2 demos going almost all day for the whole 8 hours that the show was there. William Lauber: It was good. And then I know -- I mean, you guys have probably one of the smaller boosts and I'm sure that costs you quite a bit. But I think it's probably money well spent generating all those leads. Victor Dellovo: Yes. Definitely, definitely. Operator: Your next question is coming from Mike Price. Unknown Analyst: You didn't mention Acronis, and I was wondering if AZT is being integrated into Acronis' software, is there not predictability as far as revenue is concerned? And if that's the case, can you give us an idea of what that might be? Victor Dellovo: Well, it is being integrated about what the projections are on that, I think it's too early to tell. We're working diligently to get that done over the next few months. But as soon as I have some information I can share, I definitely will. Unknown Analyst: So how soon do you think we start seeing some revenue? Is this something a couple of months late 2026, some kind of time frame? It seems like it should be a pretty significant number. Is it not? Victor Dellovo: I think it's too early. Our hopes for both parties is that it's going to be significant for both of us. We fill a gap that they have. So that's kind of how we put this together, but what revenue looks like, I think it's just way too early for me to even guess at this point what that is, but our hopes that it's going to be significant for both parties. I don't think Acronis as being as big as they are, would team up with us if they -- and waste their time if they didn't think it was worth their time and effort. Unknown Analyst: Okay. And last conference call, I asked you about the relationship with some of the resellers. Specifically UFT where with the original press release, they have 16,000 customers in the water and wastewater area. And you said that there are things in the works that would be discussed later. Do you have any more light on that? Victor Dellovo: I do. So the powers to be at UFT wanted to get 3 sites implemented and then do case studies on those 3. So that's what's happened over the last couple of months. Their customers move slower than they would like, but we are on weekly calls with updates. And then in the new year, it's a full steam ahead to a lot of their customers are doing major marketing events jointly with their 16,000 customers doing reach out. But they needed case studies, they needed to change legal agreements. There was a lot that they had to do on their side to get this ready and I'm a little bit at their mercy, but the relationship is strong. We closed 3 opportunities over the last quarter. That was part of the case studies that they're writing up now. Unknown Analyst: Okay. And one last quick question. Last quarter, you bought some shares, but are you not subject to the same -- the company is subject to the same rules as insiders as far as buying shares. So now that you're reporting earnings so late within 2 weeks of the end of the first quarter, you can't buy shares until next earnings. Is that the case? Gary Levine: Yes, pretty much. Yes. Unknown Analyst: So basically the blackout for share repurchase was from mid-September until mid-February when you next report. Is that correct? Victor Dellovo: Well to the 15th of the month of December. And we're here now just because of when the year-end reporting. [indiscernible]. Unknown Analyst: You last had a window within 2 weeks at the end of the fiscal year, mid-September. Because of the late reporting is within 2 weeks at the end of the first quarter, you cannot buy shares again until you report earnings probably mid-February. Is that correct? Victor Dellovo: Correct. That's correct. Operator: [Operator Instructions] Your next question is coming from Brett Davidson. Unknown Analyst: I want to turn back to the fog surrounding the Acronis or [ Acranis ] or however the names pronounced. So I understand that a lot of this is endpoint protected, the revenue generation. How does that work with the Acronis device. Who are you going to be recognizing the revenue from? Is that coming from Acronis or is that coming from their end user? Victor Dellovo: It will be coming from a Acronis. And it's a little different with what we're doing with them. We're concentrating on scanning the backups before Acronis does the backups to make sure there's no all the content is secured, and there's nothing inside that. And then they would trigger the backup. And that's where the advantages are scanning of all the information that's before the backup occurs, we would scan it and certify that there's nothing wrong with it, and then they would the backup go. So if they ever had to do a recovery, it would be a secured recovery. Unknown Analyst: So is this going to go on... Victor Dellovo: So Acronis will be our customer at the end. Unknown Analyst: Is this going to go on every one of those devices that they're producing? Or is it going to be based on what their customer wants? Or this is automatically going to be thrown on their devices? Victor Dellovo: No, they would still have to sell it to their customer. That's the way it is right now. If it gets to the level that you just said that would be -- we're not there yet, let's put it that way. They got to go some to their industrial customers, which I can't mention and they have to show it as an added value. Unknown Analyst: And it's going to work similar. This is going to be like a subscription type thing that will renew at some point? Victor Dellovo: Yes. Unknown Analyst: Perfect. And the only other thing that I had questions on was regarding the revenue next year. Is this something where we could reasonably expect incremental increases in revenue throughout the year? Or it's just so all over the place that you just don't have that kind of insight into what -- how this is going to play out. Victor Dellovo: The latter. The latter... Operator: That concludes our Q&A session. I'll now hand the conference back to Victor Dellovo for closing remarks. Please go ahead. Victor Dellovo: Thank you, everyone, for joining us today. We hope you've come away today's call with a sense of excitement from our fourth quarter results and our opportunity for fiscal 2026. We are working extremely hard to capitalize on the opportunities we have had in the service side of our business as well as the AZT PROTECT, and we look forward to reporting on our progress with you in February of next year. In the meantime, thank you to our shareholders for their support, to our team for their dedication and effort, and we wish everyone a happy holidays. Goodbye for now. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings, and welcome to Ark Restaurants Fourth Quarter and Year-End 2025 Results Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Christopher Love, Secretary for Ark Restaurants. Thank you. You may begin. Christopher Love: Thank you, operator. Good morning, and thank you for joining us on our conference call for the fourth quarter and year ended September 27, 2025. My name is Christopher Love, and I am the Secretary of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; and Anthony Sirica, our President and CFO. For those of you who have not yet obtained a copy of our press release, it was issued over the Newswires yesterday and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our homepage at www.arkrestaurants.com. Before we begin, however, I'd like to read the safe harbor statement. I need to remind everyone that part of our discussion this morning will include forward-looking statements and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition. I'll now turn the call over to Anthony. Anthony Sirica: Good morning, everyone. A couple of items on our balance sheet. Our cash is $11.3 million, which has been holding relatively steady every quarter compared to last year, which was $10.2 million, so we're up a little. Our debt is $3.6 million. With respect to the P&Ls or the release for the full year, our adjusted EBITDA was $1.4 million compared to $6.1 million last year. That is basically primarily due to Bryant Park. The increased legal fees of approximately $2 million as well as the impact on our -- mostly the Catering business has cost us almost another $2 million. So the entire decrease is attributable to Bryant Park. For the full year, we have a provision for taxes, even though we have a loss, a pretax loss. That was, again, a result from the third quarter, where we had to write off our deferred tax assets in the prior quarter. For the current quarter, quarter-over-quarter, our EBITDA was negative $1 million compared to $500,000 in the same quarter last year. Again, that was a result of Bryan Park situation. The only other item of note in the current quarter is, we have a tax provision even though we have a pretax loss, that is a result of -- we have these naked tax credits that relate to indefinite-lived intangibles. And because we have no -- we have a full valuation allowance on our deferred taxes, we have to recognize tax expense on those credits because they're not expected to reverse in the near future. Other than that, there's really nothing unusual in the current quarter P&L. Let's turn it over to Michael. Michael Weinstein: Hi, everybody. First of all, we are -- I want to concentrate mostly today on the Meadowlands and Bryant Park. But in an overall view, this December quarter as compared to last December quarter, we are nicely ahead. The restaurants are running on a more efficient basis. Cash flows have improved, especially in Vegas, in Robert, in New York, the properties in Alabama are doing nicely. We're still seeing some deterioration in revenue in our Florida properties. That seems to be a problem that everybody is having in Southern Florida. But we're down anywhere from 5%, 6%, 7%, depending on which full-service restaurant. Up until recently, we were running ahead at the Food Court and the Hollywood Casino. That's sort of now flat to down slightly. So Florida has been a constant negative in terms of revenues and cash flow. But the business is solid in Las Vegas, solid in Alabama, solid at Robert in New York. We'll get to Bryant Park in a second, and Sequoia has had a bad year primarily, we think, due to what's going on in Washington, D.C. in general and what's going on there affects our Catering business dramatically. So our Event business has not been beneficial to the company in Washington, D.C. But overall, we're looking at December, which is going to be, I think, significantly better than last year's December quarter. Meadowlands. The issuance of casino licenses in downstate New York. Three licenses were issued in early December, that has always been -- and I think if you look back at our previous calls, we've always said we didn't think New Jersey would move on [indiscernible] casino licenses away from Atlantic City, until there was some activity in downstate New York. There has been a bill passed in the New Jersey legislature, suggesting from the bill that there will be a referendum on the next ballot, which is this November for approval of the casino. And if you look at the bill, it says the Meadowlands Racetrack and Monmouth Racetrack. We don't know what the referendum will wind up being, whether it combines Monmouth and the Meadowlands Racetracks as one referendum or separates them. We don't know if the pinpointing of a casino at the Meadowlands Racetrack just doesn't become the Meadowlands instead of the Meadowlands Racetrack. The Meadowlands has a distinct advantage to any other location, including Monmouth because there is no residential around it. And all the environmental [indiscernible] issued, assuming that this referendum passes and the racetrack is the beneficiary of a casino license, we would literally be able to be in business with the casino in the present facility, before any significant expansion by the first quarter of 2027. So this could be a very exciting year in terms of our ownership of the -- minority ownership, I must emphasize, of Meadowlands LLC, which controls the racetrack, but we also have an exclusive on all food and beverage if a casino is built -- in the casino. So this is a big deal for us if this were to go forward. Again, there are obstacles. There's no assurances, but we've been waiting for New York to issue these casino licenses for quite a while now. As far as Bryant Park goes, we have a litigation going. Nothing has been done in the court to disturb the merit of that litigation. We are operating. The effect on our business until recently has been significant because we weren't able to do events because people were concerned whether we would be there. Certainly, we do not book social events because social events are generally 1 year to 18 months lead time and the uncertainty of the litigation in the minds of those people booking those social events is that they can't take the chance. However, corporate events are starting to flow in. We're seeing nice activity there, not where it used to be, but starting to build. And there is positive cash flow coming out of Bryant Park that essentially covers the cost of our litigation and our consultants and -- and so it's sort of paying for itself. How the litigation resolves itself or whether there's a political settlement with the new mayor, I have no opinion about it. But the longer we're there, I think the better our position is. And right now, I don't see anything on the immediate horizon that will disturb our ability to operate the Bryant Park facility. So that's all I have. Please open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeffery Kaminsky with JJK Consultants. Jeffrey Kaminsky: I'm going to ask a question that I've asked a number of times on this call, not really got a satisfactory answer. Last time I pointed out that our stock had hit another new low today its under $6 on big volume. The question that I have asked in the past has been what is the strategy going forward to turn the core business around? We're still waiting on the Meadowlands. It may or may not happen. I think the Meadowlands situation is much more precarious than in the past. You've now got approval of three New York casinos that are going to be 30 miles away from the Meadowlands. And our interest in the Meadowlands was initially to be partnered with Hard Rock and Hard Rock is now embed with the Queen's casino that got approval with Steve Cohen. So you now have much deeper competition in Meadowlands should it ever pass. And the partner that Ark was supposed to be partnering with is not even involved any longer. So let's put that aside. I appreciate, Michael, that you wanted to talk about the Meadowlands, but that's just a hail mary at this point. What's not a hail mary is the basic business of Ark Restaurants. I've always asked what the strategy is going forward to turn things around, okay? And I always get back, well we're always looking for properties. We're looking to acquire the right properties. At the same time, you bemoan the fact that input costs are higher, labor, food, insurance and yet you still want to acquire properties. While you are saying that, a couple of years ago, you closed sites -- you sold off the lease in Tampa and you closed El Rio Grande. So the footprint is shrinking, business is not really good. And again, as a shareholder who's getting crushed, while your competition may not have had banner years, but nobody is at all-time lows when you look at Hospitality Restaurant Indexes. So my question simply again is, what is the strategy going forward to turn Ark around? Michael Weinstein: So the answer to that, unfortunately, is maybe not what you want to hear. I don't think I agree with you on the Meadowlands being a hail mary, quite the opposite. I'm very optimistic about it. We... Jeffrey Kaminsky: With all due respect, but if you lose Hard Rock, which you did, someone is going to need to raise capital, which is going to dilute our ownership. So by losing... Michael Weinstein: Jeffrey, I don't interrupt you. Please. I'll give you your answers, okay? Number one, I don't think we have a problem acquiring a new partner and perhaps on better terms than we had with Hard Rock. The reason for that is that the demographics of Northern New Jersey are very compelling for a casino. When we were first searching many years ago for a partner and the referendum that was issued that did not pass some 7 years ago, required a partner that owned a casino in Atlantic City. Hard Rock at the time, when the referendum was first formed did not. They went out and bought a casino, the Taj Mahal, primarily not -- I guess they thought it was a good deal to own the Taj Mahal as well, but Atlantic City has been a deteriorating market forever now. They did that, I think, primarily to qualify to operate a casino in the northern part of the state with us. So that was what was compelling to Hard Rock. That same idea of the demographics in Northern New Jersey will be compelling to other operators. So I don't think we have a problem finding another operator. And those negotiations have just started. So that's my answer to you on the Meadowlands. I don't think it's a hail mary by any means, all right. In terms of our regular business, what we've been doing is trying to be more efficient here under circumstances which are very, very difficult. Our insurance premiums are up dramatically. Labor is up dramatically. We just started to feel comfortable raising some prices. I probably waited too long to do so, to make up for the additional expense of the product that we buy to service our customers. So we've been working hard on our business. The most dramatic turnaround has been Vegas. We have a great manager there, who we hired, latter part of last year. The cash flows from there have improved dramatically despite the fact that Vegas is down and headcount is probably 10% or 11%, depending on who you believe. Bryant Park has certainly been a big distraction. I spent enormous number of hours with consultants and litigators and try to maneuver ourselves in a position where we can retain this operation. But in the meantime, we are looking at other properties. We have two letters of intent out right now. We're in the due diligence process. We have another negotiation going on, for a brand. The problem with acquisitions for us has been either the numbers deteriorate the targeted acquisition. They show us numbers. We like the deal. There's a period of due diligence, and we've been looking primarily in the South, and the South has not been good in terms of comparative revenues with prior years in general. So the deals we look at, we're paying based upon last year's numbers. But by the time we do the due diligence, those numbers have generally been deteriorating for the targets, all right? If it's not that, it's a landlord who wants to use the acquisition as a means of getting new benefits in the lease. So we've just had a difficult time in the last 18 to 24 months of concluding deals that we thought were good deals when we entered into them. But as I said, we have two letters of intent out now. We're looking at another acquisition, which is a brand. We're not just sitting here, trying to be neutral. We're being very aggressive about trying to find stuff. We just haven't found the right stuff. So I apologize to that, but our plan has always been -- go ahead... Jeffrey Kaminsky: In turning Vegas around, which you have spoken highly of, which is a good thing, which is the head count is down, but the numbers are better. You hired a new manager apparently. So doesn't that indicate that with better management at your properties, you can actually do better business. Vegas just proved that. So what about finding managers to turn other properties around or take this guy in Vegas who did such a good job and give him an expanded role and all. And one last point, Michael, one last point. In looking at your Board of Directors, you have outside Board members who get paid as Board of Directors, two or three of which have restaurant and hospitality background, which is why they sit on your Board. What are they saying? What is the strategy that they are bringing to the table? That's why they're on the Board, right? Three senior people in the restaurant industry. You guys don't have a quarterly meeting and talk about how we're going to turn business around other than finding another restaurant to buy? I'm just puzzled by the fact that you are in the restaurant business, and we're talking about a casino that may or may not happen and if it does terrific, but you're not in the casino business, okay? And we're going to talk about litigation at Bryant Park, which is also puzzling to me. I understand you dug in, but I also understand that they don't want you there. That was also my understanding that whatever the cases that Ark is making about an unfair practice or an unfair procedure in losing the lease. It's my understanding that Ark didn't even come in second, that Ark came in third. So even if you're proved as Jean-George who won the lease, did so in a failed process, you guys didn't even come in second place, you came in third. So you spent $2 million on Bryant Park and the weather was still windy and then that litigation, the casino is a casino. But as far as I know and the reason I was a shareholder on Ark is because you're in the restaurant business. And I'm asking for some answers on how you expect to turn your restaurant business around? Why not give the guy in Vegas a bigger role, let them turn your other businesses around? Michael Weinstein: So Jeffrey, I know you're frustrated. We're frustrated, all right? I wish you would not read the PR or the articles related to Bryant Park. They're not necessarily accurate. I can tell you, we think our position is a good position. We may not win it, but we did not go into this thing thinking that we just want to be a holdover tenant and disturb things because we were angry. We went into the litigation because we really thought we had a good position. And we continue to think we have a good position. And the recent decisions of December 11 by the Judge in the case where Bryant Park Corporation made certain claims against us and those claims were dismissed, indicate that we have a Judge that will look at this fairly and Bryant Park Corporation has tried to get a summary dismissal of the case and they failed in that, not that they're going to -- not try again, that they -- not that they can't get that. But so far, there has been nothing going on in the litigation that seems to disturb our position and give us negative feelings about our case. Let me finish, please. So I tell my employees, not one of whom has left since the beginning of this. Don't listen to the press, just be calm. We think our position is a good position. And please, I would urge you to look at it the same way as my employees look at it. Look, I agree with you that we have not been successful in finding a path beyond the restaurants we run. We sold Tampa because Hard Rock asked us what -- they wanted us out of Tampa because they were expanding their casino floor, and they didn't want to move us because they basically had a feeling that the fast food they would run on the second floor, which was a terrible location. And we cooperated with them. We try to cooperate with landlords, and we didn't hold them up. We got a fair price. And yes, we're missing that EBITDA, but we got a fair price for it. But all along, I agree with you, we have not found the right path forward. I think we may be closer in the deals we're looking at now, but it has been difficult, and it's a difficult environment to work in. But not to try to be an analyst because I'm not, but right now, the stock is trading, if you look at the restaurant EBITDA and the cash, it's trading at a little times -- 1x that value, 1.5x that value. It's ridiculous. Jeffrey Kaminsky: So where is the insider buying, Michael? Where are you and your insiders are not buying stock. Traded at $5.75 for Ark stock. Markets have a way of being efficient, Michael. There's a reason the stock is where it is. You could tell us not to pay attention to... Michael Weinstein: I could have that discussion with you at any time. Our stock is very illiquid. Anybody who goes to sell will knock it down substantially. Anybody who goes to buy it will probably knock it up. But the company at $5, whatever or $6, in my opinion, that doesn't represent the value of what we have here even without the Meadowlands or without the... Jeffrey Kaminsky: So insiders should be buying. Your Boards of Directors should be buying. You have three people on the Board who are in the restaurant business. They must -- they don't see value at $5.75. What about the C-suite? Why isn't the insider buying? Michael Weinstein: That's a question that's not appropriate. But -- everybody makes their own decisions. Jeffrey Kaminsky: Okay. So I shouldn't pay attention to the press release. I shouldn't pay attention to the noise coming out of the litigation at Bryant Park, and the stock price is also going... Michael Weinstein: No. What I said to you is you should not pay attention to the press. Read the decisions that are public decisions and they'll be informative. But the press is not always right. Jeffrey Kaminsky: Well, the market has gotten it right, Mike. The market has gotten it right, when it traded down from $14 to $12 to $10, you had impairment charges because you didn't want to do a buyback, et cetera. The stock sits at $5.75. I've taken much of everybody's time. I hope there are some other people who have something to say because somehow I feel are the only one I want to say anything. So anyway, good luck. Operator: Thank you. That concludes our question-and-answer session. I'll turn the floor back to Mr. Weinstein for any final comments. Michael Weinstein: All right. Thank you all. Have a good holiday, and we'll speak to you on the next conference call. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Netcapital Inc. Earnings Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Coreen Kraysler. Ma'am, the floor is yours. Coreen Kraysler: Thank you, Holly. Good morning, everyone, and thank you for joining Netcapital's Second Quarter Fiscal 2026 Financial Results Conference Call. I'm Coreen Kraysler, CFO of Netcapital Inc. I will begin by reviewing our financial results and then our Chief Executive Officer, Rich Wheeless, will share his prepared remarks before we open the Q&A portion of our call. Before we begin, I'd like to remind everyone of the safe harbor disclosure regarding forward-looking information. Management's discussion may include forward-looking statements. These statements relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results levels of activity, performance or achievements expressed or implied by these forward-looking statements. Any forward-looking statements reflect management's current views with respect to operations, results of operations, growth strategies, liquidity and future events. Netcapital assumes no obligation to publicly update or revise these forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. With that said, I'd like to now turn to our financial results for the second quarter fiscal 2026. We reported revenues of approximately $51,000 for the 3 months ended October 31, 2025, and as compared to approximately $170,000 during the 3 months ended October 31, 2024. The decrease in revenues was primarily attributed to a decrease in portal fees during the quarter. I'll add that our revenues can be lumpy quarter-over-quarter, as the timing of large client funding events can have an outsized impact on results. We reported an operating loss of approximately $2.1 million compared to an operating loss of approximately $2.2 million for the second quarter of fiscal year 2025. We reported a loss per share of $0.44 compared to a loss per share of $2.34 for the second quarter of fiscal year 2025. As of October 31, 2025, the company had cash and cash equivalents of approximately $1.7 million. I'll now turn the call over to our CEO, Rich Wheeless. Rich Wheeless: Thank you very much, Coreen, and thank you, everybody, for joining the call today. This marks my first call with investors, and I want to start by emphasizing how excited I am to join Netcapital at this pivotal moment in our evolution. Throughout my career, I've been drawing to businesses that use technology to open doors that were previously closed and Netcapital's mission to democratize access to private investments fits up perfectly. I've been involved in the blockchain and crypto industry for numerous years and have had success going back to one of my prior companies, Taal, which we made the ASIC chips for cryptominers. For example, in 2018, we were able to raise $33 million in executed on our strategy, which led to a 120% increase in our share price in a 4-month time frame. So given the market size, anticipated growth in the tokenized asset market as well as experience of our team, I do believe that we are very well positioned to be able to be successful with our new strategy and drive value for all shareholders. Quite simply, Netcapital has significant opportunity for revenue enhancement by helping overall small businesses integrate crypto and blockchain into their financing and capital market strategy. The company already has a proven regulated platform that connects entrepreneurs with investors in a simple, transparent way. And I see this as a tremendous opportunity for us to build upon that foundation as we expand into new asset classes and blockchain enablement solutions. I'm really looking forward to working alongside this team and with our issuer and investor communities to make net capital a leading digital ecosystem for founders seeking growth capital and investors looking to participate in the next generation of innovative companies. So I want to spend a few minutes putting our recent results in the context walking through how our strategy has evolved and then talking about where we're focused going forward in emerging market drivers that may be the wind at our backs. We are in a transition period, and our second quarter fiscal 2026 revenues continue to be impacted by the fact that we've exited a consorting for equity model that while it's generated revenue just was not scalable in cash terms, it made it harder for investors to see the underlying economics of our business. Against that backdrop, we made the strategic decision to reset of the company around our core fintech platform and our recently licensed broker dealer. Our funding portal is fundamentally a technology business. We have a generally fixed cost platform and a relatively small employee base. So when we add more offerings to more volume, those incremental values -- I'm sorry, incremental revenues will follow with attractive incremental margins. That is the kind of operating leverage that we want to see in a fintech model. In parallel, our wholly owned subsidiary Netcapital securities allows us to participate in Reg A capital raises, which are typically larger than Reg CF offerings and a potentially expands the base of issuers and investors we can serve. So as we look ahead, the strategy is straightforward: grow volume on a platform that is now structurally more scalable, fully leverage our broker dealer to unlock larger transactions and a broader product set and position the company for emerging opportunities from digital assets and tokenization, which we view as a logical extension of our listing business. We plan to focus on where blockchain generally adds value, which can encompass how security is recorded, how they traded or how liquidity mechanisms are structured. And we always evaluate each opportunity with a long-term lens. How does it create durable value for the company and for shareholders? And can it be executed in a way that is consistent within the requisite regulatory framework? Lastly, I'll touch on the macro environment and why I'm very excited about the timeliness of our push in our position for success. There is an emerging new category for U.S.-compliant utility token sales that we believe is decentralizing token ownership and seeding long-term network growth. For example, Coinbase MONA token sale last month in November demonstrated strong pent-up demand for U.S. retail tech patient and utility to open offerings. $269 million was raised from 86,000 buyers and less than 24 hours. This was not just a speculation, but it was rather it was a clear market signal. With our position as a broker-dealer and deep regulatory expertise, we have a compliant bridge between global token to systems and U.S. retail investors. This new category has a potential for high-margin revenue streams on top of our current business. And a single successful token sale may generate revenue discount to dozens of our regular traditional Reg CF offerings with a similar compliance lift but higher margins. In addition, with 100,000 U.S. investors in our network and over 300 companies that we successfully funded. We have the foundation and a track record to succeed in this market. And with all that being said, we'll open the call up for Q&A. Operator: [Operator Instructions]. Your first question for today is from Todd Oberle with Insight Investments. Todd Oberle: Hello. Can you hear me, Rich? Rich Wheeless: Yes. Todd Oberle: So regarding this past quarter, I know you're newly hired CEO, but there was $51,000 in revenues across what I believe is 20-something employees. I've seen that 20-something reference in the past. And -- so maybe give me your outlook on what's the right employee count considering there's almost 0 revenues in this company and not understand how they justified so many employees for so long when there's the revenue being generated. So a question on -- and the second question is similar to that, and there's been a issued a broker-dealer license for, I think, around a year for the company? And has there been any revenue at all from Reg A offerings to this point? Rich Wheeless: Yes, I can -- yes. So in terms of the first one, we're focused on the pivot we have. The regulatory market is very positive right now, and we will look to execute on this new strategy that we've laid out. I'm not too worried about what's really happened in the past, the companies now in a great position and very excited for where we can be. So I'm not so focused. I'm not worried about where we were prior is as well because we've made a bit of a pivot in when you make pivots -- in the short term, revenue will kind of struggle in we'll do that. Coreen Kraysler: I'm going to jump in here. This is Coreen Kraysler, I'm the CFO. Regarding your question about the broker-dealer I would point to -- I think you should look at the quarter that we will report next and it wouldn't surprise me if you saw revenues from the broker-dealer in that quarter. Todd Oberle: Okay. So there's been no revenues to this point? Is that how I can take it from a broker dealer? Coreen Kraysler: I'm going to reiterate the answer that I just gave you. Todd Oberle: And then I guess in terms of the employee count, so I guess the takeaway is employee kind of is going to stay the same? I know that past is in the past, but going forward, what is the right number considering the size of the company, the cash balance, the cash burn? Coreen Kraysler: So I'm currently -- reiterate what Rich said, which is we're very much focused on our new strategy in generating revenues. You can't cost cut your way to growth. So our focus -- we're very excited about the new model. And as Rich mentioned, the regulatory environment for tokenized assets is appears to be favorable right now. So we are excited about that. We'd also ask people in the queue for questions. So please limit your question to one question plus one follow-up. Operator, can we move to the next person in queue, please? Operator: Certainly. Your next question is from Emily McAllen, a private investor. Unknown Attendee: I would like this question to the new CEO, Rich. And I am just curious how it is justified to give away 20% of the outstanding share count for a defunct software business. I'm just a little puzzled here. I'd like Rich to answer that. Rich Wheeless: In short, look, it helps. I appreciate the question. This helps along with our new strategy with the tokenized asset model to help us to be able to execute on that strategy. We would not have done this if it did not make sense for our overall plan. So I would ask -- give us a little bit of time and appreciate everyone's patience on this and there is a plan and path forward that we plan on executing, and I look forward to executing. Unknown Attendee: What is the plan? Please elaborate. That was pretty vague. Rich Wheeless: Yes, we're going to get more in the coming days, but there is a strategy laid out that we are doubling down on the tokenized asset market, which I had mentioned and alluded to earlier in the call and utilizing our existing platform that we do have the crowd funding platform in our broker-dealer as well. And we continue to look for existing technologies and pieces that fit in place to execute on that strategy. Unknown Attendee: So giving away 100% of the shares is for -- a justified for a defunct business? Coreen Kraysler: Excuse me, Emily, I'm going to answer your question for you and follow on to what Rich said. So I'm assuming that you're referring to Rivetz and what Rivetz brings to the table... Unknown Attendee: Correct. Coreen Kraysler: Yes. Okay. So what Rivetz brings to the table is both expertise and code plus the system platform and technology stack to produce tokenized assets in a safe and secure manner in a safe and secure manner. So that is why we bought Rivetz. We feel that it's very key to our ability to execute our strategy shift to tokenizes assets moving forward. Unknown Attendee: So what was Horizon purchase for the? Because I thought that was similar. Coreen Kraysler: I'm sorry, I couldn't hear your question. Unknown Attendee: I said, so what was the Horizon software purchase for them because I thought that was the purpose of Horizon and you guys gave away 20% of the outstanding shares at that time back in June. Coreen Kraysler: Jason, do you have a response to that? Jason Frishman: Yes. My understanding is that both Horizon and Rivetz will work together as part of this pivot, but I would defer to Rich on that. And I would also point out that I understand that roughly 20% of the stock is a large number but also when you understand the market cap of the company and the company has identified acquisitions that the company believes is critical to the future. The market cap of the company is -- makes it difficult to do those transactions without a larger percent of the company. Operator: There are no further questions in queue. We do have a question from John Davis. Unknown Attendee: Just curious how -- going back to, I think, what the previous person asked is the auditors have to justify this acquisition and also NASDAQ flags is, which is probable. You also have to justify that and the others will have to justify that. Can you walk us through how you justify the defunct 2021 company in acquiring this because it should have -- since it's been defunct since 2021, they should have been incredibly inexpensive. Because there was clearly no bidders on it. So how did the auditors justify this from a GAAP accounting and that you can present to NASDAQ to prove that it was worth its value. Rich Wheeless: So let me just add in there, it fits some with our overall strategy with what we're looking to do. I'm looking forward to where we're going to go with this company going forward, and I love the technology personally. I'm briefed -- I understand how this fits in with our overall plan. And sometimes you got to pay a little bit for a very good technology, and there's -- and it fits in with what we're looking to do. That's the best I can answer that in terms of -- I know it doesn't exactly address what you're saying in terms of the auditors now that pieces related to that. Coreen Kraysler: I would just add that this technology is quite critical to our strategy moving forward. And in terms of total dollars paid, it was not that much money. Operator: There are no further questions in queue. Coreen Kraysler: Rich, do you want to sum up, please? Rich Wheeless: Yes, sure. Yes. So thank you -- that concludes our -- sorry about that -- thank you, operator. To sum it up, based that our mission has not changed. We're here to democratize access to private capital markets for issues on net growth capital and for investors who want access to opportunities that have historically been hard to reach. everything that we're doing from product innovation to selective blockchain integration to the pursuit of larger rig at transactions is aimed at building a more opening, efficient and scalable private market ecosystem. We have made investments in the vital infrastructure and team to execute a strong growth plan in calendar year 2026 and beyond. We have already repositioned that capital around a more scalable combination of a funding portal and a broker-dealer, we are laser-focused on leveraging these advantages towards profitability. I look forward to work with investors, clients, employees and government to create value, and drive the company's future direction and updating you on our progress in the coming months and on our next call in March. And once again, thank you to everyone who's joined today. We appreciate your continued interest and support of Netcapital. Have an amazing day. Operator: Thank you. This concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Investors don't need to worry about the central bank's coming interest-rate decisions. Policymakers have their back.
Atlanta Fed President Raphael Bostic said he thought the economy was no longer in danger of a sharp rise in the unemployment rate that might spur a recession.
There's an idea that AI could be “the death of software,” RBC analyst Rishi Jaluria says.
New research from the Federal Reserve Bank of Dallas is building the case for a change in the interest rate the central bank targets to achieve its monetary policy goals.
CNBC's "Power Lunch" breaks down how investors can position their portfolios dependent on the next pick for Fed Chair with Jan Szilagyi, CEO and co-founder of Reflexivity.
Hassett, director of the National Economic Council, regained the top spot on Kalshi and Polymarket on Tuesday as he made his case for the job.
The next step for A.I. is agentic, says @WindowsCentral's Daniel Rubino.
Year-end trading on Wall Street follows a familiar pattern, and the same question resurfaces once again: will the Santa Claus rally make an appearance?
The president has indicated that Kevin Warsh and Kevin Hassett are the front-runners to succeed Jerome Powell next year.
After many false starts, investors are once again betting that marijuana businesses are close to seeing federal restrictions ease.
CNBC's "The Exchange" team discusses the labor market after the release of the October and November jobs data with Diane Swonk, chief economist at KPMG.
The U.S. job market is sluggish and confusing this fall.American companies are mostly holding onto the employees they have. But they're reluctant to hire new ones as they struggle to assess how to use artificial intelligence and how to adjust to President Donald Trump's unpredictable policies, especially his double-digit taxes on imports from around the world.The uncertainty leaves jobseekers struggling to find work or even land interviews.
The combination of strong developed ex-U.S. performance and below-par U.S. small-cap performance culminated in a significant differential between these two segments over the past 12 months. Turning to markets outside of U.S. large caps, gold's performance immediately stands out both in absolute terms and relative to its own historical returns.