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Operator: Thank you for standing by, and welcome to the Synlait Milk Full Year Results Call. [Operator Instructions] I'd now like to hand the conference over to Synlait Milk. Please go ahead. Hannah Lynch: Good morning, everybody, and welcome to Synlait's Full Year Results Conference Call. [Operator Instructions] It's great to have so many of you on today's call and a real pleasure to introduce you formally to our new CEO, Richard Wyeth, who joined Synlait earlier this year in May. He's joined, of course, today on the call by our CFO, Andy Liu, who many of you will now know. Rich and Andy will speak today through to our investor presentation released this morning. And then we'll open the line for Q&A. [Operator Instructions] Richard, over to you. Richard Wyeth: Thanks, Hannah. Good morning to you all. Thank you for joining us on Synlait's Full Year 2025 Results Call. To indulge some sporting analogy, FY '25 was a year of 2 halves with Synlait. We won the first half and celebrated a return to profitability. However, over the second half was challenging on a number of fronts and the impact of those will be cleared in today's presentation. Andy and I will go over those in detail throughout the presentation. But before that, we have some good news. If you please turn to Slide 2. We have entered into a binding conditional agreement to sell our North Island assets to our valued customer and global health care leader, Abbott. These consist primarily of our Pokeno factory and 2 Auckland sites in the blending and canning facility at Richard Pearse Drives and Jerry Green, which is the warehouse. The sale price of the transaction is USD 178 million, which equates to approximately NZD 307 million -- NZD 307 million. Abbott has confirmed it will onboard most of the people who work on these sites, which is a fantastic outcome for both our people and also for the local community. The targeted completion date for the transaction is 1 April 2026. And the sale will be subject to various conditions, including Synlait obtaining shareholder approval and Abbott receiving consent under the Overseas Investment Act 2005 and normal consents such as regulatory consents from the likes of MPI. We released the notice of meeting with detailed information on the sale to inform shareholders before they vote on the transaction at Synlait's Annual Meeting on 21 November 2025. And also note Bright Dairy, our major shareholder, has confirmed it will vote in favor of the transaction, so the requirement for shareholder approval will be achieved. This is a real step forward for Synlait. The proceeds of this sale will be used to pay down debt. It will mean that by the end of FY '26, we are largely debt-free with the exception of working capital facilities. In short, the sale will deliver a stronger, simpler and more secure Synlait. We will have greater space to focus on our South Island operations and the ability to carefully and strategically review our strategy for Dunsandel. Goal is to release an updated strategy at our half year results in March 2026. But in the meantime, we're certainly very excited, and this is an outstanding win for both Synlait and Abbott. Moving on to Slide 3. I've now been in the business for just over 4 months as CEO of Synlait. I was attracted to this role due to the company's strategic strengths. It has world-class assets and its foundations are strong. Dunsandel is located in the heart of Canterbury's dairy sector with good connectivity to global markets and the ability to produce goods at scale. The company also enjoys strong demand from our global customers. Having now spent a short amount of time in the business, I've identified 3 immediate needs that we need to focus on. First and foremost, we need to improve our operational stability at Dunsandel so we can consistently deliver for our customers. I'll talk to you more about that in a moment. Secondly, we need to reduce complexity to deliver a financial uplift. The North Island transactions will assist with that. And finally, there is a need to reset the high-performing culture within the business. Synlait's focus on great people who have been through a huge amount of challenges over the last few years. My observation coming into the business is that it's very much a culture of reactivity driven some of those challenges. I want to reset the business so we can really focus on proactive performance. To that end, our focus for FY '26 will be very much targeted on operational stability. To assist with that, we are recruiting and onboarding a new Canterbury-based Chief Operating Officer who will be responsible for delivering a raft of improvements in that area and also ensuring that we can deliver the North Island transaction by 1 April 2026. We're also embedding our values framework, the Synlait Spirit, in the short term to allow us to improve our culture. Moving on to that focus into Slide 4, you will see focus areas internally that have been done dubbed the Big 6 for '26. Top of that list is operational stability. That should come as no surprise to many of you. As we announced to the market in July, Synlait has had manufacturing challenges earlier this year. The impact of those is clear in today's result with one-off costs totaling $43.5 million. While the manufacturing challenges are largely behind us, operational stability must remain a core focus alongside quality, performance and customer satisfaction. And to focus who are focused on financial resilience, it was great to see the banking facility come through last week and include the North Island sale then strengthening our financial performance has largely complete. We now need to deliver on culture, operational stability and quality, and that will lead to strong overall financial performance. We'll move through now to Slide 5 to look at our results at a glance. We are reporting total group EBITDA of $50.7 million today, which is an increase of $54.8 million on FY '24. Our bottom line was a net loss after tax of $39.8 million, which is an improvement of 78% year-on-year. As mentioned, this reflects costs associated with challenges at Dunsandel. Adjusted bottom line is a net profit after tax of $0.8 million, which shows you Synlait's recovery was on track. Pleasingly, Synlait's debt level has decreased by 55% during FY '25. Of course, most of this was courtesy to last October's equity raise, but an uplift in our trading performance has added to that with net debt now down at $250.7 million. As mentioned, the proceeds from the North Island transaction will largely bear. Group revenue increased to a record $1.8 billion or 12%. Operating cash flow was up 451% to $165.5 million and gross profit increased to $105.3 million. I'm delighted to confirm that our final milk price for the 2024, 2025 season is a record $10.16 per kilo of milk solids. Add to that Synlait's incentive program, which averages out to $0.30 per kilo of milk solids and our secured milk premium of $0.20 per kilo of milk solids for our South Island farmers, and you could see that our Synlait suppliers will be very happy. However, our average milk price or payment to South Island farmers will sit $0.50 above the farm gate milk price. That should result, as I said, in some very good Christmas presence for many of our farming staff. I will now hand over to Andy Liu, our CFO, who will take you through some more detail on the financials. Lei Liu: Thanks, Richard. Good morning, everyone. Let me take you a go through to Synlait's financial results for the year '25. This year's results shows a very strong improvement and a fresh sense of progress across our main business areas, even though we faced some manufacturing challenges at Dunsandel. Let me begin by outlining the key highlights on Slide 7. The Advanced Nutrition segments experienced robust customer demand and demonstrated strong growth in new product development. This success sales translated into a $21.1 million increase in underlying gross profit, underscoring the strength of our customer relations and our ability to innovate and bring new products to market. Our ingredients business achieved a notable turnaround from FY '24, recording a $26.6 million improvement. This was driven by effective foreign exchange management and a strategic shift to value over volume. Although stream return did not always favor our current product mix, our enhanced risk management approach proved beneficial. The Consumer and Foodservice segment achieved a $9.3 million increase in our gross margin. This was largely attributed to the outstanding performance of Dairyworks and ongoing growth in our UHT print portfolio in existing and new markets. We successfully reduced SG&A costs through disciplined cost control measures and a strong focus on eliminating wastage. Financing costs also reduced significantly, supported by better cash flow management and the recovery in trading performance. On to Slide 8. In FY '25, Synlait's total revenue increased 12% to $1.8 billion after a flat FY '24. Growth was broad-based. Advanced Nutrition up 8% on high volumes and a new Nutrabase powder successfully launched in Southeast Asia. Ingredients revenue increased by 7% on pricing and favorable foreign exchange. Our consumer base business unit reported a 12% revenue increase, with growth in export markets helping to offset ongoing pressures in the domestic market. Revenue and volume from Foodservice, driven by UHT cream, almost doubled compared to the prior year, with growth extending into Asia and the Pacific. Underlying gross profit increased to $142.5 million due to disciplined execution and strategic improvements company-wide. On Slide 9, you can see that our focus on operational efficiency and working capital management has resulted in a remarkable recovery in cash flows. Our operating cash flows increased by $213 million, reflecting improved trading performance and optimized working capital management. CapEx investment remains at a low level, a further 23% reduction compared with prior year with a focus on business continuity, growth initiatives and regulatory compliance as well as strategic digitalization, AI, cybersecurity to manage risk and opportunities. Net debt decreased by $300.9 million or 55% due to capital injection and improved cash flow performance. Financing costs contributed $48 million to net debt. That is a $7 million improvement on FY '24. These costs are expected to reduce further in FY '26 with the completion of our refinancing. Our balance sheet is much stronger, and we are targeting a net senior leverage ratio below 2.5x in FY '26. In summary, Synlait's FY '25 results reflect the company regaining its strength, simplifying its operations and establishing a platform for sustainable and profitable growth. The sale of North Island assets marks an improved turning point, significantly strengthening our balance sheet by reducing net debt, improving leverage ratios and restoring our creditworthiness. With a streamlined business model and a solid financial foundation, Synlait is well positioned to invest in strategic growth, pursue new opportunities and deliver sustainable value to our shareholders. Financially, Synlait is now equipped to support and execute a new future strategy with confidence and resilience. Thank you. I will hand you back to Richard now. Richard Wyeth: Thanks, Andy. I'll now go through an update on each of our business units. If you turn to Slide 11, firstly, Advanced Nutrition. So for FY '24, we saw an overall uplift in volumes due to strong customer demand. Our achievements for that year include an expansion of our customer base. We also had a new record in lactoferrin sales volumes, which were up 12 metric tons. And we also had the successful launch of our Nutrabase powders, which has secured multiple customers in Southeast Asia. Our focus going forward for this financial year will include working with The a2 Milk Company to support growth in China, further expanding the Nutrabase range and looking to deepen relationships with our Ingredients customers so they're more aware of our Advanced Nutrition capability and exploring new sales channels and value-add products to uplift returns on lactoferrin. So that's Advanced Nutrition. Moving through to Slide 14 and the Ingredients business. For those who know the Synlait story, you will recall we strategically moved away from fresh milk processing at the North Island assets last year. This obviously impacted our ingredients overall volume, which decreased to 108,000 metric tonnes. However, offsetting that was improved premiums over the last 12 months, which was an outstanding achievement. And obviously, we had increased revenue due to strong ingredient pricing. We also saw progress in customer and market diversification with expansion into the Middle East. Looking ahead, our focus areas for ingredients will be further uplifting the premiums we achieved last year, continued expansion of our ingredients portfolio and amplifying market awareness of our high level of quality and consistency. Moving now to Slide 13. You will see an overview of our Foodservice business performance. This is for UHT cream, obviously, a very popular product, certainly in China. For FY '25, it saw us successfully launch our second-generation cream, which has further increased product stability in market. To deliver record volume last year of 8.4 million 1-liter bottles manufactured at our Dunsandel site, every single one of these was sold. We had demand remains exceptionally strong for this product in multiple global markets, and our focus will be to continue to grow that into next year. We're looking to grow margins, although that has been challenging. The real unlocker for our Foodservice business is to continue to drive volume. And it's really pleasing to see we've picked up a new distributor, which is sending product into Fiji, and we're working more broadly to increase that volume overall for that Foodservice business. Moving on to Slide 14, the Consumer business. FY '25 was another outstanding year the Dairyworks which drives our consumer business. I'd just like to acknowledge Tim, who is the CEO of that business, who was acting CEO of Synlait and also Aaron, who stepped into his shoes for a period of time. They've done an outstanding job once again for FY '25. The solid performance was driven by offshore markets with softer growth in New Zealand due to obviously cost-of-living pressures and increased milk prices. Overall gross profit for our consumer business was $39 million, up from $30.6 million in the prior year. And offshore Dairyworks saw a 53% growth in cheese export volumes with a lot of success across the Tasman. Dairyworks is now the fastest-growing cheese brand in Woolworths, Australia. The Alpine brand has also launched in foodservice then, and both Alpine and Dairyworks products ranges are now in Costco Australia. The focus for FY '26 is to continue delivering value in new product lines to domestic companies and further growing our export volumes. So a real standout for this year. Moving now to Slide 15, which is milk supply. As I mentioned earlier today, we have confirmed a record milk price, which is significantly up on the season's opening forecast. This should deliver some very happy farmers, which has been an important focus for Synlait across FY '25. Earlier in the year, our on-farm team did an excellent job of securing our milk supply for the current season after working to encourage farmers to withdraw their case and onboarding 11 new farms. This is helped by -- this was helped by additional secured milk premiums along with new guarantees around the milk price at advance rates. We will continue to focus on finding new ways to add value on farm. One of the focus areas will be improving our digital offering and continuing to support our on-farm through Whakapuawai program, which helps Riparian planting on farm. We will also look to launch our fixed milk price offering in FY '26. Now on to Slide 16. FY '26 presents a valuable reset for Synlait, as you well know. As we've already said, the sale of our North Island assets will strengthen Synlait's financial position considerably with the proceeds used to significantly reduce debt. Given the scale of the strategic reset, we will not provide further financial guidance for FY '26. Our focus is on executing the North Island sale and building a simpler and more focused Synlait in Canterbury. We are committed to making the most of this opportunity and aim to have an updated strategic plan in place by March 2026. So moving through to Slide 17, key takeaways from today. As was noted, the sale of our North Island assets will see Synlait become a stronger, simpler and more secure business. Financially, we will deliver a full and final balance sheet reset ending the company's survival phase. And strategically, it simplifies our focus and opens the door for us to explore new opportunities here at Dunsandel. Andy and I will now take questions. Hannah Lynch: [Operator Instructions] Your first question comes from Sean Xu with CLSA. Sean Xu: My first one is around your manufacturing challenge in your Dunsandel facility. It seems to be a reocurring issue now. I'm just very interested though in what specific processing improvement can be prioritized in FY '26 to prevent these kind of operational disruption going forward? Richard Wyeth: Sorry, I just didn't quite hear the second part of the question. Hannah Lynch: Prioritize this in FY '26 to prevent this happening going forward. Richard Wyeth: Yes. So I appreciate there has been a number of manufacturing challenges for a period of time and certainly coming in and being relatively new to the business is a focus for me. So as I mentioned, for our Big 6 for '26, that focus on operational stability is key. What I can say is that there are a number of one-off issues, and we just need to work through those systematically root cause analysis and fix those issues. I'm now comfortable with we're largely through that. But as I say, the next 6 months is very important for us. Sean Xu: My second question is around the a2, the China label digital production. My understanding is that requires a new -- registration renewal in calendar year 2027. I know that might be early stage, but as I remember, the last time registration with SAMR takes a long time. I'm just curious to know if you can give us some indication on the time line of when to start prep for this process. Richard Wyeth: Yes. So we've already started that process. You're quite right, FY '27 is key. And so we've been working on that already for a fairly long period of time. There's a bit of capital required going forward, and we're working with both a2 and SAMR quite closely to make sure we're ready for that. Sean Xu: If I may just quick check in a very quick question. Last one. With Bright being your largest shareholder, I'm just curious to know, is there any further collaboration you can leverage their connection distribution channel in China to expand your market there? Richard Wyeth: Yes. I mean, Bright are obviously a very supportive shareholder of us, and we are working with them. And I think there's good opportunities. I mean, we've got a very strong working relationship with Bright. So I think as part of our strategy reset, we will certainly be looking at what opportunities we have to work with Bright. Hannah Lynch: Your next question comes from Stephen Ridgewell with Craigs Investment Partners. Stephen Ridgewell: And first of all, congratulations on the sale of Pokeno. I know that's a big win for shareholders. With that the equity raise a year ago, 2 of the big 3 challenges that have been facing Synlait have been overcome. So well done on progress. My first question is on the use of proceeds from the North Island asset sales, and it could be either for management or potentially for the Chair. If you use the proceeds, $30 million of proceeds to pay back debt, Synlait could be in a position where it's got $74 million thereabouts of debt on the balance sheet. But the comments today also talk to the proceeds providing an opportunity to -- an opportunity to strategically diversify. And I realize it's an early stage, but I'm just interested in the sort of early thoughts the company has on the extent to which those proceeds will be used to pay down debt and the extent to which Synlait thinks it's got capacity to make acquisitions or other growth investments that may be more organic? And then related question is post the sale proceeds, will the company end up operating a lower net debt-to-EBITDA ratio than the 2.5x kind of flagged today? Richard Wyeth: Yes. Thanks. I'll take probably the first part and Andy may chip in on that. So certainly, initially, we'd look to obviously pay down as much debt as sensible. In terms of the longer term, that will be clearer through the strategic review that we can update in March. And just, I guess, my final comment, a personal perspective, which I'll share with the Board is that, I mean, I'd like to see our debt-to-debt equity ratio sitting at about 20% to 25%. I think that's prudent. We're seeing that as a good balance. When it gets to 45%, 50%, it doesn't really work. So that would be my intention going forward. Andy, if you want to add anything further? Lei Liu: No. I said actually that for our refinancing, we just finished it last Friday. That's why we still think it too early stages just to talk about regarding when we get the funds what we will do. But as Richard already mentioned, yes, principally definitely to just reduce our debt in order to just to keep it at a very reasonable levels and also seeking further opportunities. So this is the key point. And Stephen, just to try to make sure what's your second question regarding the debt-to-EBITDA level? Stephen Ridgewell: Yes. Just whether the company would look to operate at a lower net debt-to-EBITDA ratio, lower than 2.5x going forward, in particular, if we kind of look through a2 Milk's English label volumes migrating to the Pokeno site in the next year or 2? Lei Liu: Yes. Let's say that for the moment, we still think the 2.5x is still a reasonable one. That's why we don't think that we will change it for the moment. Stephen Ridgewell: Okay. Yes, look, if you keep it at 2.5x, it does suggest potentially quite a lot of firepower for acquisitions. But as you say, maybe we need to wait a bit longer to see where we land there. Yes. And then, I guess, as well, just on the -- in terms of the impact of the asset sales, we can see the proceeds of $307 million coming through, which is great. But can you give us -- can you hear me? Lei Liu: Yes. Hannah Lynch: Yes. Stephen Ridgewell: Yes, great. Can you just give us a sense of the kind of the EBITDA being generated from those assets in the -- I feel like on a normalized basis in the year just gone. My understanding was Pokeno was kind of burning $35 million a year at the EBITDA level. But just can you to give a rough steer as to the EBITDA loss that those assets generated in the year just gone? Lei Liu: Yes. So I can quickly jump to this question. So based on our FY '25 numbers that they said, once we get rid of the North Island, we are thinking about $5 million to $10 million kind of the EBITDA to be improved because definitely FY '25 that -- the plant is more filled, have more demand. That's why the level is not as high as what we said before. So $5 million to $10 million EBITDA impact. Stephen Ridgewell: Okay. No, that's helpful. And then just one last one for me. Just on the impact of a2 Milk's planned migration of English label volume from Dunsandel to its soon to be acquired Pokeno plant. Can you give us a rough estimate of the EBITDA impact that Synlait is kind of planning for? Is it reasonable simply to take the gross margin per tonne by the volume? Or are there other things to consider, for example, is there cost out the company connection or other factors such as the diseconomies of scale at lower production volumes in formula? Because I think that is obviously a key issue as the market kind of looks into the FY '27 and beyond time period. I mean some thoughts on that would be quite helpful. How you -- what the impact is and then the mitigation factors, the ways that you can mitigate that impact? Lei Liu: Yes. So Stephen, sorry, that's because these kind of numbers can be really very commercial sensitivity. So yes, I can't answer that very directly. Stephen Ridgewell: Okay. Well, I guess just as an opportunity to make some comments. I guess, as analysts, we have to take a view on their own numbers. Lei Liu: Maybe let me take it offline and just think about which kind of information we can provide. Operator: Your next question comes from Adrian Allbon with Jarden. Adrian Allbon: Maybe just a follow-on from Stephen's question. 4 months since the drill, Richard, what sort of cost opportunity do you kind of see in the Dunsandel asset going forward, both initially and as you sort of deal with the transition of acreage and recycle volumes? Richard Wyeth: Sorry, Adrian, it's just a bit hard to hear. Can you have another go at that, please? Adrian Allbon: Sure. Is that better? Richard Wyeth: Yes, it's a little bit better. Adrian Allbon: I was just -- as a follow-on to Stephen's question, I was just wondering what the cost out opportunity -- is it better? Richard Wyeth: Yes, that's great. Adrian Allbon: Yes. Just as a follow-on to Stephen's question, I was just wondering what the opportunity you see for cost out at Dunsandel actually is. Richard Wyeth: Yes. Look, I think, as I say, when we reset the business with a focus just on Dunsandel, there will be some opportunity in that, again, too early to get into the specifics, unfortunately, but certainly, we'll be able to provide more of an update at the March announcement. Adrian Allbon: Okay. Would it be useful as a starting point for us to kind of look to sort of FY '18 as a sort of -- as some sort of benchmark? Richard Wyeth: Andy, I don't know whether you want to comment on that. I haven't got the FY '18 numbers in my head at the moment. Lei Liu: Yes. So Andrew, that's regarding FY '18, it's really long time ago. So what I can propose is that let me work out some numbers and try to provide you some, let's say, some reasonable figures. For example, based on FY '25, we said we are saving about $10 million, just -- we're still including the North Island. That's why we think about definitely the number should be higher than $10 million. But let me just work out some numbers, come back to you regarding how you can simulate it. Richard Wyeth: Yes. What I can say in terms of -- I'm not sure what you to look back, but what I do know, given I've only been in the business a short time is what happened sort of even 2 or 3, 4 years ago in terms of throughput on the dryers at Dunsandel is that we won't get as much throughput. So as we're focused on higher quality, it means we have to derate the dryers somewhat. Now in terms of the specifics, I haven't got those in front of me today, but it does mean we can't just go look at the past as a precursor to the future necessarily because the standards have improved and China's requirements continue to improve. And all of those things mean we have to -- it does take some capacity out, not a lot, but it does take some capacity out of the dryers. Adrian Allbon: Okay. Just related to that, can you kind of give us a steer on what your sort of milk pool or what your contracted milk pool is for next year. Richard Wyeth: Circa 70. Adrian Allbon: Okay. And then I guess like in a broad question, are you expecting -- are you actually expecting EBITDA to be higher this year? And I'm presuming that the net debt is probably going to go higher as well because you've got all these premium payments to farmers coming up shortly. Richard Wyeth: Andy? Lei Liu: So let's say, for this year compared with FY '25, yes, you are right that we will pay some additional incentive to the farmers. It can be some challenge for the EBITDA. But as I said, regarding the FY '26 that we are more focused on selling the North Island, we will try our best, firstly, to focus on production stabilities and that's why -- that we didn't share any kind of our targets for the moment. Adrian Allbon: Just if you assume that the North Island business was in the numbers, which is probably what most of us are going to have to do, would you expect the net debt to be higher this year, like given your farmer incentive payments are due? Lei Liu: I should say about the similar level than this year because, yes, farmers payment, but also do remember, we have the EBITDA to generate the cash. So that's why we still think the net debt should be, let's say, a bit better than this year theoretically. Operator: Your next question comes from Matt Montgomery with Forsyth Barr. Matt Montgomerie: Maybe just start on manufacturing issues, Richard. I suspect it's unlikely you'll provide detail on what they were. But there's sort of a footnote around them being largely resolved. It'd be interesting if you could just maybe talk to that, what largely means, what you need to see to get them resolved? And yes, just any further color, I guess, to give us confidence that they have been isolated to the period that you've outlined previously? Richard Wyeth: Yes. Thanks, Matt. Good question. That was my fault. Look, I said that to Hannah, look, the nature of these businesses is that they're very complex, right, making Advanced Nutrition, for example, you've got ingredients from 10 to 40 different ingredients. You've got complex processing. So I'm relatively conservative by nature. So I said largely because while the issues we had from January to July are largely behind us. To say they've gone forever is you just can't do that. And look, in terms of the nature of those things, they are a combination. We've got people, process systems, engineering, there's a whole raft of things that can go wrong. A rotary valve can be put in some -- it might be an ingredient issue or supplied incorrectly. So there's so many things that can go wrong in making this advanced nutrition. So the issues we've had in the first half of the calendar year are largely behind us, but that's why I'm tuning up the focus on operational stability going forward. So I am very comfortable with the issues we had in the first half of the year. We have largely dealt with all of those, but you just never know what can be around the corner. So the way you deal with that in a processing operation like we are is you have very good systems, processes and you have well-trained people. So that is the area that I'm focused on at the moment. Matt Montgomerie: Awesome. That's very clear. Just on Dairyworks, I think EBITDA of around 23. Clearly, it's been a good business over the last 5, 6 years since you've owned it. And I think from memory at the time, I think the target was around 20 of EBITDA. So maybe just from you, Richard, how you think about that business going forward, maybe anything where you see it, say, 3 to 5 years from an earnings point of view? Richard Wyeth: Yes. Thanks, Matt. Andy might be able to put some numbers around it. In a general comment, I'd say I think it's got massive opportunity. I think the team there are fantastic. Tim and his leadership team have done a great job. So I think there's a real opportunity. The thing about that business is that we can just continue to scale it up. There's no sort of restrictions on growth. And I think that's what's exciting. They can procure product, they can add value to it, and they can just put it into different markets. They've got good market share in New Zealand. They're now targeting Australia, and I'd like to get to look even beyond that. So that's sort of my general comment in terms of the numbers around that. Andy, I don't know if you've got any more flavor to add to that. Lei Liu: Yes. So let's say, for FY '25, our revenue for the Dairyworks is about 12% increase, but gross profit is about $28 million. So it really shows that other than the volume growth, it's also internally, let's say, from the focusing always the strength for the efficiencies, productivity, also supported these numbers. That's why we still said this is a very good business that's in a good trend and also expected to have further growth. Matt Montgomerie: I might go one more, just a small one, Andy, the depreciation associated with the North Island assets, like what's the EBIT drag? Lei Liu: Sorry, can you repeat your question? What do you mean the EBIT drag? Matt Montgomerie: So just following up from Stephen's question, what's the D&A sitting over the North Island assets in FY '25? Lei Liu: It's around about $1 million per month. Operator: Your next question comes from Nick Mar with Macquarie. Nick Mar: Could you just talk through the net debt number? I think the trading update right at the end of your financial year, you were sort of guiding towards $300 million and you came in at $250 million. How did that change so much? Lei Liu: Yes, sure that I can just take this question. So what changes is mostly because of we have the higher customer demand and the customer demand also triggers some additional deposits. So this is how it comps regarding one of the reasons. Another reason is that, as you know, that Nick, we also have the receivable assignment. So end of the month, there is some kind of additional kind of deliveries, which we get the receivable assignment earlier. That's why this is mostly the 2 kind of the main drivers for the $50 million just reduced. Nick Mar: Yes. That's good. And in terms of what you're selling with the North Island divestment, sort of you mentioned the kind of lease warehouse as well. Does that sort of line up to what the North Island CGU was when it was impaired at the end of FY '24? Just trying to work out the price relative to the holding value? And also, do you have any sort of breakdown of the value by sort of PP&E versus working net working capital? Lei Liu: Yes. So to answer your question, yes, it's roughly the same regarding our CGU for North Island last year when we shared the numbers. So what I can propose you is that you can take the last year annual report numbers. And yes, this is kind of be the baseline regarding the CGU in the net asset value for the moment. Nick Mar: Yes. And the sort of mix between the PP&E and net working capital? Lei Liu: So working capital one, because here, what we said is regarding the total $178 million, it's $170 million for the PPE and $80 million for the working capital, let's say, just inventory. Operator: There are no further questions at this time. I'll now hand back to Mr. Richard Wyeth for closing remarks. Richard Wyeth: Thanks, everyone, for joining the call today. I look forward to meeting with many of you over the coming days. And in the meantime, if you've got any questions, you can just follow those up with Hannah. And that concludes our call for today. Operator: Thank you. That concludes the conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the PG&E Corporation Investor Update Conference Call. [Operator Instructions] Please note we have allotted 40 minutes for this conference call. Thank you. I would now like to turn the conference over to Jonathan Arnold, Vice President of Investor Relations. Jonathan, please begin. Jonathan Arnold: Good morning, everyone, and thank you for joining us for PG&E's Investor Update. Before I turn it over to Patti Poppe, our Chief Executive Officer; and Carolyn Burke, our Executive Vice President and Chief Financial Officer, I should remind you first that today's discussion will include forward-looking statements about our outlook for future financial results. These statements are based on information currently available to management. Some of the important factors which could affect our actual financial results are described on the second page of today's presentation. Our presentation today also includes a reconciliation between non-GAAP and GAAP financial measures. The slides, along with other relevant information, can be found online at investor.pgecorp.com. And with that, it's my pleasure to hand the call over to our CEO, Patti Poppe. Patricia Poppe: Thank you, Jonathan. Good morning. Our update today comes on the heels of a busy California legislative session culminating in the passage of Senate Bill 254. The bill was signed into law by Governor Newsom on September 19 and went into effect right away. The actions taken by our state this legislative session show that they appreciated the urgent need to improve upon the framework originally adopted under AB 1054 in 2019. SB 254 provides important protections today and lays the foundation for a second phase as the state has acknowledged that the utilities and their customers cannot continue to carry the full burden of climate-driven catastrophic wildfires, especially when the utility has acted prudently. The important enhanced financial measures and the state's commitment to a meaningful second phase were the critical elements of the bill, which we and our Board weighed before deciding to opt into the fund extension. We plan to make this election this week. In terms of financial measures, SB 254 creates the framework for a new $18 billion continuation account available to cover future fires. Extending the fund provides 3 key benefits. First, it provides for timely compensation for future wildfire victims. Second, it allows for smoothing the bill impact on utility customers. And third, it builds on the investor protections of a disallowance cap. In addition to providing for the new continuation account, SB 254 includes several changes versus the original AB 1054, which we view as constructive. To start, utilities are not required to provide any large upfront contributions and a portion of the utility funding is under a contingent call, meaning it will only be required in the event of a new covered wildfire and if the administrator sees a need for cash to settle claims above and beyond available resources. Critical to upholding the principles of inverse condemnation, these contributions made by the utilities to the continuation account have value, meaning they can be credited against a future disallowance and requirements to reimburse the fund if were later found imprudent. Next, PG&E's share of contributions to the Continuation Account is just under 48%. So our annual contribution will step down by 25% from $193 million to $144 million per year starting in 2029. And the disallowance cap calculation has been clarified to reflect 20% of T&D rate base equity as of the date of ignition rather than the date of the disallowance decision several years into the future. With our growing rate base, this is a meaningful change. The state also took an important step forward in providing for a securitization option for fires with ignition dates in 2025 prior to the effective date of the new bill. This credit supportive provision allows for securitization of wildfire claims before the CPUC prudency review. While this provision is not directly impactful to PG&E, it's a helpful signal that the state appreciates the need for the investor-owned utilities to have a ready source of liquidity beyond the available fund resources. SB 254 also took one step toward limiting liabilities, introducing a Right of First Refusal for subrogation claims, giving the utilities an option to purchase claims from insurance companies at the same price as a third party would be willing to pay. SB 254 sets a clear path for the legislature to consider more comprehensive wildfire reform in the 2026 session. With the immediate need to address this legislative session, our attention has already shifted to the second phase. Specifically, the fund administrator is charged with studying and making recommendations to the legislature and the governor. The list of 10 focus areas includes considering new models to socialize liabilities from wildfires, including changes which potentially could supersede the current Wildfire Fund construct. We're encouraged by the comprehensive nature of this language. We're also encouraged by comments made by senior members of the legislature and the governor's office, both prior to and after the bill's passage. We are confident that this sets the stage for action in 2026. As you know, SB 254 calls for securitization of $6 billion of fire risk mitigation capital. PG&E's portion is approximately $2.9 billion, which will apply to wildfire mitigation capital expenditures approved by the CPUC on or after January 1, 2026. This dollar figure is much less than the earlier drafts and allows us to continue important risk reduction work at pace. The devastating wildfires in January took us all by surprise, and the state took constructive action that protects victims and customers and recognizes the importance of healthy investor-owned utilities. We look forward to working with them on phase 2 of SB 254. Now let's talk about the extension of our simple affordable plan. As I've shared with many of you, I started 2025 with a lot of optimism. This is the year we prove out the simple affordable model with our 2027 general rate case filing. This is the year we show customers that rates are going down, and this is a year to focus on serving our large load customers and enabling rate-reducing load growth. I'm happy to report that while many have been focused on the California legislative process, my PG&E coworkers have been busy executing, making these plans a reality and leveraging our performance playbook to deliver consistent outcomes for customers and investors. First and foremost, we are a company of operators, and we get up every morning to serve, putting customers at the heart of everything we do. We also know that performance is power and have built our work plan and financial plan knowing that when we perform, we will have the power to influence perceptions and outcomes. The plan we're sharing today is the plan we believe best delivers for customers and investors now and for the long run. At the same time, I want you to know that we hear your thoughts on capital allocation. If PG&E stock continues trading at depressed levels, and we aren't seeing clear signs of progress toward meaningful policy reform, then we would certainly consider reallocating some capital toward more immediate shareholder return, always being mindful of our credit metrics. The most likely way we would do this is through an opportunistic stock repurchase for which I would not hesitate to seek the appropriate authorization from our Board if conditions warrant. But first, let me reiterate, this would not be our preferred path. We prefer to keep investing in safety and resiliency for our customers, enabling rate-reducing load growth, which will drive the state's leadership in the macro trend of AI and electrification and ultimately helping our state meet its ambitious clean energy goals affordably. With the fund administrator report due next April, another rate reduction this month, our brand trust scores on the rise, customer bills projected to be flat to down in 2027 versus today and a robust data center pipeline, we're positioned to deliver for California, our customers and you, our investors. As part of our 5-year plan, we will continue important wildfire mitigation work, including undergrounding. We will prepare the grid to serve new homes, businesses and electric vehicles. We will continue to invest in the safety of our gas system with pipeline replacement, and we will invest in more rate-reducing load with incremental FERC transmission capital now in the plan. Completing this and other important work for our customers translates into average annual rate base growth of approximately 9% for 2026 through 2030, which in turn supports extending average annual core EPS growth of at least 9%, also through 2030. Our simple, affordable plan contemplates our share of the securitized utility capital investment under SB 254. It is built to not require new PG&E common equity through 2030, while also delivering customer bill increases well below inflation. With that, I'll turn it over to Carolyn to discuss more specifics of our extended 5-year plan. Carolyn Burke: Thank you, Patti, and good morning, everyone. Today, I'm happy to reiterate our 2025 non-GAAP core EPS guidance range of $1.48 to $1.52 with a bias to the midpoint. That's up 10% over our 2024 result. I'll provide core EPS growth guidance of at least 9% each year, 2026 through 2030, share the details of our capital plan, which includes average annual rate base growth of approximately 9% for 2026 through 2030 and offer our financing guideposts, including that our plan does not require new common equity through 2030, a key consideration given where we currently trade. Turning to Slide 6. We intend to invest approximately $73 billion over the 5-year period. This is a combination of CPUC and FERC's jurisdictional capital and includes the $2.9 billion of CapEx to be securitized under SB 254. Additionally, we will be guided by the following key financing principles as we move forward. First, we will continue to prioritize investment-grade ratings with IG being one of the most meaningful potential affordability enablers for our customers. Our plan maintains FFO to debt in the mid-teens, and I'll remind you that FERC jurisdictional capital converts more quickly into operating cash flow through our annual formula rate. S&P made a recent decision to maintain our positive outlook, and they too are looking to the second phase of wildfire legislation. Meanwhile, just this past Friday, Fitch upgraded our parent corporate credit rating to investment grade with similar comments on the importance of further wildfire policy reform. Second, we continue to plan conservatively. This includes having contemplated the possibility that the Wildfire Fund Administrator may or may not call for contingent shareholder contributions within the plan period. Third, we're updating a legacy commitment to pay down $2 billion of parent debt. At this stage, we believe we have grown into our current level of parent debt, which stands at about 10% of total debt. That compares to a peer average of around 25%. And lastly, we're sticking with our plan to target a dividend payout ratio of 20% by 2028. We target reaching this level on a linear basis and holding there through 2030. We still see 20% as an appropriate and conservative goal, offering financing flexibility over the course of our plan. These guidelines are in addition to other operating levers that we work every day, such as reducing nonfuel O&M by at least 2% and improving our capital to expense ratio. I am excited about this plan and what it can deliver for our customers and you, our investors. It's grounded in our brand of conservatism and will be executed using our winning performance playbook. As Patti mentioned, though, I too want to assure you that we intend to maintain discipline when it comes to capital allocation, staying mindful of ongoing regulatory and legislative outcomes included, but not limited to, progress towards a successful phase 2 of wildfire reform in our state. With that, I'll hand it back to Patti. Patricia Poppe: Thank you, Carolyn. We're looking forward to connecting you -- connecting with many of you here in New York this week. And with that, we'd be happy to take your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Shar Pourreza with Wells Fargo. Shahriar Pourreza: So I just appreciate the color this morning. Just as we focus on capital allocation, what is your '23 financing plan embed beyond the 20% dividend payout by '28? And what would be the time frame for you to seek Board approval for buyback flexibility? Do we need to wait until the end of the '26 legislative session for that? Patricia Poppe: Thanks, Shar. Well, first, obviously, as we said, we're focused on value now and the long term. It's really important to know that our primary focus is investing our capital for the benefit of customers. We think that's the right near-term and long-term approach. However, we'll obviously continue to monitor the stock price and the state actions and attention during SB 254 phase 2. There are conditions that we would consider a buyback given the equity we issued that equity to fund our plan through 2028. And given the securitization of CapEx, that could be the equivalent of about $1 billion of -- maybe $1.5 billion on the high end of a buyback. But really, we're focused on our credit metrics and delivering for customers. And so we think in the near term, that's really the best plan. I'll have Carolyn hit the high points of the financing plan over that period. Carolyn Burke: Yes. I'll just say that as we've said, we've always built our financing plan, first and foremost, to focus on our balance sheet and maintaining FFO to debt in the mid-teens. That's a core principle. Maintaining our dividend at 20% through 2028 and sticking to it through 2030 generates a lot of internal equity, and that provides us with additional flexibility. If we need any other sort of financing, but you just can always count on us to look at the most efficient form of financing as we've done in the past, Shar. Shahriar Pourreza: Got it. Okay. That's perfect. And then just lastly, can you just elaborate on any further offsets to new shareholder contributions relative to plan? Carolyn Burke: Maybe you can -- other offsets, what do you mean by that, Shar? Maybe you can just give me a little color, so I can... Shahriar Pourreza: Just how do you mitigate shareholder contributions relative to what you have in plan there? Carolyn Burke: Well, I was just going to say -- as we said, we've built our plan to contemplate the contingent cost. And so to the extent that it's not, that would -- we consider that upside. Just... Patricia Poppe: And I'll just add in that, obviously, our simple affordable model is what drives the whole financial plan. So the offsets, obviously, significant O&M savings that we've continued to build into the plan now and for the future provide ongoing benefits, both for customers and for the financial plan. Operator: Your next question comes from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: I guess just more on the legislative front. I'm curious, it was a very productive legislative session, but is there anything you didn't get or anything you guys may plan next year? Patricia Poppe: Well, I think Anthony -- great to hear your voice, Anthony, this morning. We are obviously focused on phase 2. There's much yet to be done. The whole idea that we reduce claims through multiple measures, number one, just hardening the system and support for hardening and support for both our infrastructure hardening and community hardening. We invest a lot of effort and money into preventing an ignition. We also need to, as a state, invest in community hardening and preventing the spread. And so that's obviously a key part of phase 2. And the liability reform, we'd love to see additional liability reform as part of phase 2 and then broadly a larger pool to socialize cost. I think one of the things that's important, and we definitely have heard this from legislators and state leaders, wildfire and extreme climate conditions have continued impact on California's livability on California's housing crisis. We need to have insurable homes for people to be able to get a mortgage and buy a house in California. So these climate risks are adding to the housing crisis. So phase 2 really is an opportunity to open the aperture, look for additional means of insurability for the state for, again, as I mentioned, community hardening and really looking at limitations on claims to protect customers, particularly when a utility has been prudent. We don't want customers to continue to bear an overreliance on those claims. And so I think claims reform is an important part of phase 2. Anthony Crowdell: Great. And then if I could just -- I believe you have -- administrative recommendations are due April 1, whatever the recommendations are, could you just talk about how it goes from recommendation to -- does it then come up to law? Does it come up in the legislative session then that would start? I believe it starts in May. Like just, how does it go from recommendation to law? And that's all I have. Patricia Poppe: Yes. I mean, I think some of that will materialize over time. But just like our regular legislative session, lots of ideas hit the tape in the beginning of the year. And so this report coming out in end of March, by April 1, will provide the framework then and legislative leaders will then need to do the work to take those recommendations and convert them into legislative proposals that will then subsequently be voted upon through the rest of the legislative session. Operator: Your next question comes from the line of Ryan Levine with Citi. Ryan Levine: How does the $6 billion provision of SB 254 or from a company perspective, $2.9 billion impact the financing plan? And can you kind of talk through the implications there, both in the plan and how that could evolve? Carolyn Burke: We have included the full $2.9 billion in our $73 billion -- in our $73 billion 5-year plan. So we -- and as we've just laid out, we feel very comfortable that we don't need any further equity to support that. The securitization occurs throughout the plan, throughout the 5-year plan. That's really going to be -- the exact timing of that will really be dependent on our final GRC approval. Ryan Levine: Okay. And then procedurally, given the comments about seeking Board approval for the share repurchase, is there -- I think Shar asked about kind of time line, but is there any color you could provide around how you would look to structure that if you go in that direction? Are you thinking more opportunistic? Was that the thrust of the comment that Patti had made? Patricia Poppe: Yes. Ryan, this is Patti. I would say it's too soon to say. We've not gone to the Board for that approval yet because we really feel like our go-forward plan serves the best value now and in the future, but we'll obviously be mindful as conditions take shape as we head into next year if we need to take different actions. Operator: Your next question comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just on the new capital plan, the mix between FERC and CPUC CapEx shifting a bit here. Just curious if there's an optimal mix there that you target or maybe how much incremental flex there could be to prioritize FERC investments to the extent that the state environment is more challenged? Patricia Poppe: Yes. So you'll note in our plan, we're starting to see a good uptick in our FERC-regulated transmission investments. And I want to make sure it's clear that very little of that actually is any kind of beneficial load growth data center transmission CapEx yet. We need to continue to move that work through our cluster studies. And so what you're really seeing in that plan is already -- what I would describe as bread-and-butter transmission investments that, frankly, we've been working and waiting to build into the plan. And with this 5-year look, we now are able to increase that transmission investment, including, again, as I said, bread-and-butter substation transmission upgrades, good maintenance as well as CAISO-approved transmission projects. We have a big project in Oakland that was CAISO awarded. So there's a lot of certainty to that FERC investment. And like all of our CapEx plan, there's always internal competition for what's the highest value capital to be deployed at the lowest cost for customers that provides the most benefit -- and we're excited to be able to start to pull in that FERC CapEx. So much less driven by the appetite for capital from the CPUC and more driven by the needs of our customers and the needs of the system, and we're excited to be able to pull in that transmission work. There's lots to be done. And as we've said, we still have at least $5 billion of incremental CapEx that we would love to pull into the plan if we were ever able to. But we feel like this is the sweet spot of capital deployment at the lowest cost for customers and keeping in mind our balance sheet and our credit metrics. Carly Davenport: That's great. And then maybe just thinking about the simple affordable model, if I recall, you had some upside levers around things like O&M load growth. I think you've already touched on the O&M piece. Is the load growth embedded in this plan still that 1% to 3% range? Or is there any upside that you've now baked into this revised plan? Patricia Poppe: Yes. We're keeping it in the 1% to 3% for now. As we complete the cluster studies, both -- we've shown 1.5 gigawatts of applications in our final engineering in our first cluster study, where we see about 3.3 gigawatts of moving through our second cluster study. As those projects get to interconnection requests and final signed contracts, then we'll start to pull in that load. But we're trying to be very conservative on our load growth estimates so that we can have an accurate and conservative forecast. But another big driver, Carly, in our simple affordable model is more efficient financing. That's why our emphasis on investment grade continues to be a real drumbeat. We know that those credit metrics are essential to lowering cost for customers. And so efficient financing will continue to add value for customers as we continue to gain the confidence of the credit agencies. Operator: Your next question comes from the line of Steve Fleishman with Wolfe Research. Steven Fleishman: So just how are you thinking about cost of capital outcome in context of the plan and just managing around that? Patricia Poppe: Yes. Obviously, we feel like, Steve, we've made a really strong case for our cost of capital filing. That proceeding obviously will take through November, and we hope to be able to implement then that whatever the revision to cost of capital is in January procedurally. Look, we do think that our actual cost of capital has gone up given the conditions here with the wildfires in January and the reaction from the markets and our credit metrics. So we feel like we've made a strong case. Obviously, the commission will make the final determination. Steven Fleishman: Okay. And then just on the stage 2, like is there any better -- like is anything going to happen this year on this? Or are we really going to ramp up next year? When are we going to get a better sense of the process for that? Patricia Poppe: It's a great question, Steve. I think some of that is still materializing. We look forward to hearing from, obviously, Ann Patterson at your conference as well as from the governor's office about what their plan is and how the process will take shape. And I'm not sure how visible and public it will be through that April report, but you can be sure behind the scenes, we'll be working to provide important insights and contributions. And our team is definitely in full speed ahead working on making sure we're providing the best and most robust input to the process. But it may be very quiet between now and April 1 or there may be key milestones that's going to have to be for the governor's office to clarify. Operator: Your next question comes from the line of Aidan Kelly with JPMorgan. Aidan Kelly: Yes. So just with the capital plan now rolled forward to 2030, could you speak to when you might be able to realize the identified $5 billion in additional CapEx opportunities at this point in time? And then just like on the funding side, is there any kind of considerations for that incremental CapEx? Carolyn Burke: Yes. As we said -- as we look at that additional $5 billion of capital, as we've said, there's a number of ways that we could bring that into the plan. We could simply add to the plan or we could look at each of those projects and how they impact affordability. And so we may upgrade our capital plan by replacing some of that -- those $5 billion projects with some projects that are currently existing in the $73 billion or we could, again, continue to extend the duration of our plan. So we've got a number of ways of looking at that $5 billion and how we would bring it in. And we're always working it, to be quite honest. There are always new opportunities coming. And as Patti said, we -- our capital -- all our projects compete for capital. And we look at what is the most affordable for our customers and makes the most sense for our strategy. Patricia Poppe: And just to make sure it's clear, we have added -- we brought some capital into the plan. That's why we've rolled it forward for 5 years. We brought some of that $5 billion in and continue to have at least $5 billion more to contribute to the benefit of our customers. And so the one thing that I hope people really understand is our system has a lot of opportunities for, again, bread-and-butter capital deployment for the benefit of customers. And much of that CapEx is rate reducing CapEx. When we are able to prevent the band-aiding and the maintenance of the system and rather rebuild it to modern standards given its age and condition, that is good for customers. It helps to lower rates while we're investing in meaningful CapEx for customers. So we've got a lot of appetite for capital out here in California. We've got a lot of appetite on our system, the at least $5 billion. Again, we'll be disciplined about that. Carolyn has been clear that we've got real firm guidelines, but our customers have a lot of work for us to do, and we look forward to doing that in a way that helps to lower rates and really deliver value for customers. Aidan Kelly: Got it. Appreciate the color there. And then just looking kind of at the upcoming CEA report this April, in your slides, you kind of highlight -- Physical Mitigation and Community Impact is one area of it. Maybe just high level, curious, how much upside for risk improvement do you see kind of versus your current mode of operating at this point in time? Do you see this more kind of catered to the local communities at this level? Or just any commentary on that would be great. Patricia Poppe: Yes. I think one of the important things in the phase 2 report will be the importance of communities preparing to prevent the spread of wildfire. And for the state to work with the communities, and obviously, we'll be a key part of that, to make sure that our communities are prepared for this climate hazard that exists around us. As we continue to reduce our ignitions, and I'm proud to report our ignitions this year are at the lowest level in recent tracking, even given extreme conditions around us, we know that ignition prevention is one thing, but spread needs a lot of focus. And we know that CAL FIRE is the best in the business. But in between preventing an ignition and fighting a wildfire with our high-quality, high effective firefighting resources, there's a need to harden homes and communities, make them defensible so that spread is not such a risk. And that's what will help fix the housing crisis in California and the insurability crisis in California. So as we look to phase 2, it's all about opening the aperture, looking at the societal issue that exists, and we will obviously be a key part of working on that, but there's a lot more to it than utility-caused ignitions. And I think that's the recognition that the situation in L.A. this year helped to really illuminate. Operator: Your next question comes from the line of Paul Fremont with Ladenburg Thalmann. Paul Fremont: Going back to the cost of capital, I guess a couple of questions. The yield spread adjustment that you guys are asking for, I think the interveners have -- are objecting to that. Any thoughts there as to how investors should think about that? Carolyn Burke: Well, we think -- as we put it into our filing, we think it makes sense. I will say that the importance -- the most important thing that we think about is, again, we're very focused on getting our IG ratings and limiting the difference between what we're seeing and as we offer our short term -- as we offer our short-term debt by focusing on our IG ratings. And so that would be continue to -- the difference there will continue to decrease. But at this point in time, I mean, it is a difference, and we think that's the right way that we should be compensated in the cost of capital. But again, I'll just remind you that we're not necessarily counting on that in our plan. Paul Fremont: And then one other question on the cost of capital. Obviously, you guys are looking sort of at increased risk in terms of what you're asking for with respect to ROE and equity ratio. But the interveners, I think, are sort of focusing on affordability and their testimony as to why they think -- why they're recommending lower equity ratios and lower ROEs. Given sort of the legislative -- legislature focus on this whole affordability issue, how do you think the commission sort of balances those 2 objectives? Patricia Poppe: Well, I think 2 things here, Paul. One, the commission has been clear that the cost of capital application and cost of capital process is not the vehicle to manage affordability. And frankly, the best way to manage affordability is the work that we're doing that lowers costs for customers. And so we're working on affordability. Our rates are down this year. Our rates are forecast to go down again yet this year and then down again next year. In the face of the national trends, we're proud that we have turned the corner there, and we continue to see capability of lowering rates through our simple affordable model, reducing O&M at industry-leading levels, continuing to improve our efficient cost of financing, we know as our credit metrics improve. So we say all that to say the cost of capital should be a technical correction, and there's a process for it, and we are confident that the commission will use the process as it's intended and yet we still plan conservatively. We're not assuming large or significant cost of capital improvements. We're going to continue to plan conservatively, though we think our application absolutely warrants the improvements on the cost of capital. Operator: And that concludes our question-and-answer session. And I will now turn the conference back over to Patricia Poppe, Chief Executive Officer, for closing comments. Patricia Poppe: Thank you, Krista. Thank you, everyone, for joining us. We are very much looking forward to serving our customers better every day, and that is the path -- and the best path to deliver increasing value and consistent financial performance for you now and in the future. Thanks for joining us today. We'll see you here in New York. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the Larimar Therapeutics Conference Call. [Operator Instructions] Please be advised this call is being recorded at the company's request, and a replay will be available on the company's website. I would now like to turn the call over to Alexandra Folias of LifeSci Advisors. Please go ahead. Alexandra Folias: Thank you, operator, and thank you all for participating in today's conference call. Before we start, I'd like to point out that there is a slide deck that accompanies today's presentation. It can be viewed using the webcast link provided on the Investors page of the Larimar Therapeutics website. Also posted on this web page is a news release issued earlier today. Before passing it off to company management for prepared remarks, I would like to remind everyone that some of the information disclosed on this conference call contains forward-looking statements that are based on the company's beliefs and assumptions and on information currently available to management. These statements include, but are not limited to statements regarding expectations and assumptions regarding the future of the company's business, the company's plans and ability to develop and commercialize nomlabofusp, formerly referred to as CTI-1601, and other matters regarding the company's planned clinical trials, business strategies, use of capital, results of operation and financial position. These forward-looking statements involve risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others, the success, cost and timing of the company's product development activities, nonclinical studies and clinical trials, including nomlabofusp clinical milestones and continued interactions with the FDA, that earlier nonclinical and clinical data and testing of nomlabofusp may not be predictive of the results or success of later clinical trials and assessments and that clinical trial data are subject to differing interpretations and assessments. The company's ability to raise the necessary capital to conduct its product development activities and other risks described in the filings made by the company with the Securities and Exchange Commission and available at www.sec.gov. These forward-looking statements are based on a combination of facts and factors currently known by the company and its projections of the future about which it cannot be certain, and as a result, may not prove to be accurate. The company assumes no obligation to update any forward-looking statements, except as required by law. Speaking on today's call will be Dr. Carole Ben-Maimon, President and CEO of Larimar Therapeutics. In addition, Larimar's Chief Financial Officer, Mike Celano, will be available during the question-and-answer session following the prepared remarks. With that, I will now turn the call over to Carole. Carole Ben-Maimon: Thank you, Alex, and good morning, everyone. We are excited to share some new data that highlights the strong therapeutic potential for nomlabofusp for patients living with Friedreich's ataxia and also serves as a pivotal milestone to support our planned BLA submission. Importantly, we are pleased to report today positive 25-milligram and 50-milligram data from the ongoing long-term open-label study evaluating daily subcutaneous injections of nomlabofusp, self-administered or administered by a caregiver and participants with Friedreich's ataxia or FA. We will also be providing updates to our nomlabofusp development program. Recall in December, we shared open-label study data from the 25-milligram dose, which showed increased tissue frataxin and early trends in clinical outcome measures after 90 days of dosing in 8 participants. Today, I am pleased to report that we continue to see consistent directional improvements in all key clinical outcome measures, including the modified Friedreich's ataxia rating scale, or mFARS. We also see consistent directional improvement in FARS Activities of Daily Living or ADL, which measures activities of daily living, the 9-hole PEG test, which measures upper extremity fine motor coordination and the Modified Fatigue Impact Scale, or MFIS, which measures levels of fatigue. We collected these data every 3 months in participants enrolled in the open-label study and now have data after 1 year of dosing in 8 participants. We also constructed a reference population from the FACOMS natural history study database, which will be -- we will describe later on in the presentation. In that reference population, we observed a worsening in these outcomes, focusing for a moment on mFARS, the modified Friedreich’'s Ataxia Rating Scale, which is a commonly used measure that assesses progression of disease in patients with FA and has been used as a primary outcome measure in other clinical trials. We observed a median 2.25 improvement in the open-label study participants treated for 1 year with nomlabofusp daily relative to a worsening of a median of 1 point observed in the participants in a FACOMS reference population. We believe that these observations are incredibly exciting. The increases in skin frataxin levels and the improvement in clinical outcomes, combined with the improvement in abnormal lipid profiles observed in prior completed studies further support that our frataxin replacement approach is successfully increasing skin frataxin levels in patients with FA with the resulting potential for clinical benefit. 100% of participants at 6 months achieved skin frataxin levels of more than 50% of those found in healthy volunteers, which means participants are at levels found in asymptomatic carriers who do not develop disease. With regard to safety, anaphylaxis has been reported in 7 participants in the open-label study, with most of these events occurring on the initial day of administration and all occurring within the first 6 weeks of dosing. All participants return to their usual state of health after receiving standard treatment. Importantly, there have been 65 participants who received at least 1 dose of nomlabofusp across the clinical development program and 39 have been exposed to at least 1 dose in the open-label study with 14 patients at 6 months and 8 at 1 year. Long-term treatment with nomlabofusp was generally well tolerated. The most common adverse events were local injection site reactions that were mild to moderate and did not lead to any participant withdrawing from the study. Following the 2 most recent cases of anaphylaxis, Larimar consulted with its internal and external experts and decided to modify the nomlabofusp dosing regimen in an effort to decrease the number and potential severity of these events. Larimar has provided to the FDA a full update on the clinical development program, including the safety, skin frataxin levels and clinical outcome measures and the FDA agreed with our new dosing regimen. The compelling long-term increases in skin frataxin levels, along with the clinical data, heighten our conviction in the potential of nomlabofusp to be -- to address the root cause of FA and thus be the first disease-modifying therapy. Given these encouraging results, we continue to target our BLA submission in the second quarter of 2026, seeking accelerated approval. With that discussion of today's exciting news, I'd now like to take a step back to provide an overview of Larimar and the nomlabofusp program. For those less familiar with the Larimar story, Larimar is a clinical stage biotechnology company with a novel protein replacement therapy platform with first-in-class potential. Our lead program is being developed for the treatment of Friedreich's ataxia, a rare, progressive and systemic disease with neurologic deterioration. It is caused by a genetic defect in both alleles that prevents production of the critical mitochondrial protein frataxin, resulting in lower tissue frataxin levels. On average, most patients with FA only produce about 20% to 40% of the frataxin levels seen in homozygous healthy people. Not having enough frataxin leads to a myriad of debilitating symptoms, including unsteady posture, frequent falling. Patients will often present before the age of 14 and symptoms are progressive, typically causing patients to be wheelchair-bound 7 to 10 years after the initial diagnosis. The symptoms of FA include loss of musculoskeletal function, blindness, deafness and inability to speak clearly and diabetes. Unfortunately, patients with FA have a life expectancy of only 30 to 50 years, with the most common cause of death being heart disease. In 2023, omaveloxolone was approved by the FDA as the first therapy indicated for FA in what was a critically important breakthrough for patients. Omaveloxolone has no impact on frataxin levels. And currently, there are no approved therapies designed to increase frataxin and address the deficiency underlying FA's horrible symptoms. Because of this, key opinion leaders, patients with FA and advocates have made it clear that there is still a pressing unmet need for novel therapies to treat the underlying cause of FA. To address the needs of patients with FA, Larimar is developing nomlabofusp, the first potential disease-modifying therapy designed to systemically address the underlying frataxin deficiency in FA. Nomlabofusp is a recombinant fusion protein designed to directly address the root cause of the disease, frataxin deficiency. We do this by attaching a cell-penetrating peptide to the frataxin molecule, allowing the delivery of the protein across the cell membrane and into the mitochondria. Low frataxin levels are known to be associated with disease progression in patients with FA. Data from published literature indicate that the lower person's frataxin levels, the earlier the onset of -- the earlier the age of onset of disease, the faster the rate of progression and the shorter the time to loss of ambulation. The table on the left shows the relationship between frataxin levels as a percentage of healthy volunteers, the median age of onset and the rate of disease progression as measured by the Friedreich's Ataxia Rating Score or FARS. From this table, you can see that if your frataxin level is 11% relative to healthy volunteers, your age of onset is typically very young, a median of 7 years old. As frataxin increase -- levels increase, so do the age of onset and the rate of deterioration as measured by FARS decreases as frataxin levels increase. This table also highlights that this is not a threshold effect. Rather, it is a continuum. It is also important to note that the age of onset correlates with progression in clinically meaningful outcomes as demonstrated by the data in the table on the right. The earlier the onset of symptoms, the faster a patient will lose the ability to ambulate. So connecting the dots, if you can increase frataxin levels, you may be able to delay loss of ambulation as well as other clinically meaningful outcomes. Now let's turn to the exciting findings from our ongoing open-label study. The goal of our open-label study is to evaluate the long-term safety and tolerability, the pharmacokinetics and the ability of nomlabofusp to increase tissue frataxin levels following long-term daily subcutaneous administration, along with exploratory pharmacodynamic markers like lipid profiles and clinical outcomes as compared to a reference population from the natural history database. As stated earlier, we are pursuing accelerated approval with the potential to use frataxin as a novel surrogate endpoint. The frataxin data and safety data from this open-label study are intended to be used to support the potential accelerated approval submission. In the open-label study, participants initially received the 25-milligram dose. In the fourth quarter of 2024, we began transitioning participants to the 50-milligram dose, with all newly enrolled patients starting on 50-milligrams. Participants who completed treatment in the Phase I study and the Phase II dose exploration study evaluating nomlabofusp were the first group of eligible patients to screen for the open-label study. We have now amended the open-label study protocol to include adolescent and adult patients who have not participated in a prior nomlabofusp study. As of August 27, 2025, 39 participants had received at least 1 dose of nomlabofusp and 25 participants, which includes 19 adults and 6 adolescents were receiving daily dosing of nomlabofusp for up to 527 days with a mean of 154 days. This includes the time from the initial dose of 25 or 50 milligrams to the last dose of nomlabofusp prior to data cutoff. We are now modifying the starting dose regimen to include a 5-milligram test dose followed by a 25-milligram dose 1 hour later, both under observation and then daily for 30 days at home. After 30 days, the 25-milligram dose will be increased to 50 milligrams once daily. Antihistamines will be administered 5 days prior to the first dose and for 90 days after the first dose. An epinephrine auto injector such as EpiPen will be dispensed to all participants to take home in case it is needed. Recall in December of 2024, we presented initial positive data for the 25-milligram dose showing increases in both skin and buccal cell frataxin levels. We also demonstrated that skin frataxin levels as a percentage of healthy volunteers are higher at 90 days compared to baseline. These data support the potential of nomlabofusp to increase frataxin levels in tissues and address the protein deficiency leading to the FA's devastating clinical course. In this data set, we will be showing only skin frataxin levels as a result of an agreement with FDA that increases in skin frataxin levels were less variable and correlate with frataxin levels in target tissues. Today, I will show that exposure to the 50-milligram dose further increases skin frataxin levels across all participants and that these increases are sustained over time. The graph on the left shows median skin frataxin levels from baseline to day 180. The graph on the right shows the median change in frataxin levels from baseline at day 30 to day 180. Based on the preclinical studies we conducted to understand the relationship between skin frataxin levels and frataxin levels in target tissues, our extrapolations from the skin results of the participants in the open-label study indicate that increases in frataxin levels from baseline should also be expected in the heart, dorsal root ganglion and skeletal muscle of these participants. Once again, as regards to skin, both graphs demonstrate an increase in skin frataxin levels over the course of 6 months in the open-label study participants. To get a sense of whether these increases in frataxin are clinically meaningful, we compared these levels to 50% of the skin frataxin levels found in healthy volunteers. As mentioned earlier, this is the level of frataxin that is found in heterozygous carriers of FA that do not display any symptoms. This table shows participants with quantifiable levels of skin frataxin at baseline, day 30, day 90 and day 180, who received 25 milligrams, 50 milligrams or had increased from 25 to 50 milligrams. The percentage of participants who achieved 50% of healthy volunteer levels increased over time. And on day 180, 10 out of 10 participants achieved this threshold. Now let's look at the data in a different way. In these graphs, we depict how many participants had a shift in their frataxin levels in skin cells as a percentage of average healthy volunteers at day 90 and day 180 of treatment. As in prior slides, these data include participants that initially started on 25 milligrams and were transitioned to 50 milligrams as well as those who start dosing at the 25-milligram dose. On the far left of the figure, you can see categories of percent of healthy volunteers' frataxin levels. Skin frataxin levels from our healthy volunteer study were divided into quartiles. Open-label study participants would then fit into those quartiles based on their baseline skin frataxin levels. The people in black on the left-hand side of each graph represent participants at baseline. So the right of the black vertical line are where each participant ends on day 90 and on day 180. In blue are participants that increased their frataxin levels from baseline to between 25% and 50% of the average frataxin levels in healthy volunteers. Similarly, in green are the participants who increased their frataxin levels from baseline to over 50% of the average frataxin levels in healthy volunteers. By day 90, all participants had increased their frataxin levels. And by day 180, all 10 participants had increased their frataxin levels to above 50% of healthy volunteers, which is similar to levels of heterozygous carriers of FA who do not develop this disease. Here, we have the absolute values for median skin frataxin levels from baseline to day 30, day 90 and day 180 at each time point. In all the participant groups, the levels of skin frataxin increase over time. And from our simulation and our data, we believe we are at steady state. Here, we have the disease characteristics of participants in the open-label study. To get a better sense of the clinical benefit of increases in skin frataxin levels following nomlabofusp, we compared the clinical outcomes from our open-label study to participants to those of patients with the FACOMS natural history study. The Friedreich's ataxia clinical outcome measure study, or FACOMS, is a longitudinal natural history study that includes 955 patients with a confirmed FA diagnosis. Based on key baseline characteristics of participants in the open-label study, Larimar identified patients from the FACOMS data set with similar characteristics using data recorded over the last 4 years of each patient. A group of patients from the FACOMS database was identified as a reference population. This subset was constructed using the range of each baseline characteristic of the population in the open-label study. Encouragingly, we are consistently observing improvements across a number of clinical outcomes following long-term daily nomlabofusp. As I mentioned earlier, for mFARS, which is a commonly used 93-point scale that assesses progression in patients with FA and has been used as the primary outcome measure other clinical trials, we observed a 2.25 point improvement in open-label study participants treated for 1 year relative to a worsening of 1 point observed in patients in the FACOMS reference population. Similarly, directional improvements were observed in the other 3 clinical outcome measures against the FACOMS reference population. This includes a 1-point improvement versus a 1-point worsening in the FARS ADL, which measures activities of daily living and for which the minimal important change in 1 year is thought to be 1.1 points. The 9-hole PEG test measuring fine motor coordination had a 7.4 second improvement versus a 3.4 second worsening in the FACOMS population. The open-label study change represented an approximate improvement in time to completion of the base -- from baseline of 10% change relative to a worsening of 3% in the FACOMS reference population. From the literature, a change of 15% to 20% is believed to be clinically meaningful. The MFIS, Modified Fatigue Impact Scale is used to assess fatigue and had a 6.5-point improvement versus a 1.5 point worsening in the FACOMS reference population. Based on the literature, a score of 35 points in MFIS indicates severe fatigue and a change of 4 or more points on the MFIS indicates a real difference in the severity of fatigue. Given the advanced state of disease for the majority of patients in the open-label study, we are very excited to see consistent directional improvements across all outcome measures. We believe this is the first time any intervention has been -- has shown increased frataxin levels in patients with Friedreich's ataxia to this extent and demonstrated improvement in multiple clinical outcome measures. Based on all this information, we continue to believe that nomlabofusp has the potential to be the first disease-modifying therapeutic and could very well change the treatment paradigm in FA. Now let's talk -- turn to safety. There have been 65 participants in nomlabofusp studies who have received at least 1 dose. The 39 in the open-label study had participated in at least 1 prior study, 7 of these participants experienced anaphylaxis. Most events occurred in the -- on the initial day of administration and all participants returned to their usual state of health after standard treatment. Nomlabofusp was generally well tolerated with long-term daily dosing, including 14 participants on treatment for at least 6 months and 8 for over 1 year. Most common adverse events were mild to moderate local injection site reactions that did not lead to any withdrawals. Following the 2 most recent cases of anaphylaxis, Larimar consulted with its internal and external experts and decided to modify its dosing regimen in an effort to decrease the number and severity of reactions. Larimar provided the FDA with a full update on the clinical development program, including the safety, frataxin and clinical data, and the FDA has agreed with our approach. All participants who experienced anaphylaxic reactions have been discontinued from the study as have 3 participants who experienced generalized urticaria. Other discontinuations include 1 seizure, which is the same event as was reported in December 2024, 1 vasovagal event and 2 nontreatment-related discontinuations. In conclusion, outside of anaphylaxis, nomlabofusp is generally well tolerated with injection site reactions being the most common adverse events. These reactions have been mild to moderate and have not resulted in any discontinuation. We are also pleased to see that the long-term pharmacokinetic profile of nomlabofusp is consistent with our Phase I and Phase II studies. Nomlabofusp demonstrated rapid absorption after subcutaneous administration with exposure appearing to reach steady state in plasma by day 30 at both the 25- and 50-milligram doses with no further accumulation. In our adolescent PK run-in study, which included 14 adolescents, 12 to 17 years of age, 9 of whom received a weight-based equivalent dose of 50 milligrams of nomlabofusp for 7 days and 5 of whom received placebo for 7 days. Participants demonstrated a PK profile similar to adults on 50 milligrams of nomlabofusp. Following completion of the PK run-in study, these adolescents were eligible to screen for the open-label study. Based on these exposures, we will not be conducting a second cohort in children 2 to 11 years of age, but we do plan to include these patients in the open-label extension. We continue to expand our nomlabofusp clinical program to ex U.S. geographies with our global Phase III study. We have received feedback from FDA and EMA on the study protocol for our global Phase III study and are currently qualifying sites in the U.S. Europe, U.K., Canada and Australia. The global study will be a double-blind placebo-controlled study with 1:1 randomization of 100 to 150 ambulatory patients that are more heavily weighted to younger patients. The study will include patients 2 to 40 years of age, of which approximately 2/3 will be under 21 years of age. Nomlabofusp will be evaluated following 18 months of dosing in the Phase III study. Primary outcome measures will include upgrade stability and mFARS. As you heard today, FA is a devastating and progressive neurodegenerative disease with high unmet needs, and we are focused on bringing nomlabofusp to a broad range of patients globally. We previously gained clarity on our potential path towards BLA submission, seeking accelerated approval using skin frataxin concentrations as a novel surrogate endpoint. Based on the compelling data, we continue to target submission of our BLA seeking accelerated approval in the second quarter of 2026. For our open-label study, we plan to continue enrolling participants on the new starting dose regimen with a long-term 50-milligram dose, including adolescents and those new to nomlabofusp study. We are also excited to begin enrolling children 2 to 11 years of age directly into the study as there are no approved therapies for these patients with FA under 16 years old. Taking an overall view of the program, nomlabofusp is strongly positioned to be the first disease-modifying therapy for patients with FA. These data demonstrate that the potential clinical benefits of nomlabofusp include 100% of participants increasing frataxin levels to greater than 50% of healthy volunteers by 6 months and an improvement of 2.25 points in 1 year in the mFARS score, the primary outcome measure in other clinical trials. Patients in the FACOMS reference population worsened over 1 year. In addition to improvements in mFARS, there were also improvements in FARS ADL, 9-hole PEG test and the fatigue scale compared to worsening in the FACOMS reference population. Importantly, nomlabofusp is designed to systemically address the root cause of this disease. We, along with what we have heard from the FA community, believe it is of utmost importance to consider these compelling benefits as well as the severity of this disease when thinking about the risks of the treatment. It is important to remember that Friedreich’'s ataxia is a life-shortening disease with patients losing their ability to walk and their ability to communicate. Although there is a risk of developing an allergic reaction to nomlabofusp, this risk needs to be considered in the context of the disease we are trying to treat. Nomlabofusp could very well be the first disease-modifying therapy available to the FA community. I have spoken to many of you over the years. And many of you have heard me say when asked what would be a home run that a home run would be stopping or slowing the progression of this disease. Personally, I never believe that in patients who had been sick for so long, we would be able to see meaningful improvement. Well, I may very well have been proved wrong. This data suggests that nomlabofusp may have the ability to actually improve patients, even patients with late -- in their late-stage course of disease. I don't believe any study that I am aware of has demonstrated this kind of potential outcome. With that in mind, the Larimar team is even more committed to bring this potential therapeutic to market and make it available to as many people with FA as possible. We continue to work with FDA and are targeting our BLA submission for the second quarter of 2026, seeking accelerated approval. Following our recent capital raise, we are well capitalized with pro forma cash of $203.6 million as of June 30, 2025, and projected runway into Q4 2026. Before I conclude, I would like to sincerely thank our clinical trial participants and their families. Addressing the unmet needs of individuals with FA remains our key source of inspiration. I commend their bravery and their dedication. I would also like to thank the FDA for their engagement throughout the regulatory process thus far as well as our talented and dedicated Larimar employees, our partners, clinical trial investigators and patient advocates at the Friedreich's Ataxia Research Alliance, all of whom helped nomlabofusp get to this exciting point in its development. With that, I'd like to now move on to today's Q&A session, where I'll be joined by our Chief Financial Officer, Mike Celano. We will now open the line for questions. Operator? Operator: [Operator Instructions]. Our first question today comes from the line of Yatin Suneja with Guggenheim Partners. Yatin Suneja: A couple for me. I'll start on the efficacy first and then move to safety. So the initial clinical efficacy really looks very positive, especially when you compare to the synthetic control that you have created here at one arm. Could you comment on how does the data look for 14 patients at 6 months versus the historical control? And then how many patients do you estimate you will need to achieve static there? Do we know what FDA expecting there? So that's one on the efficacy, then I'll come back on safety. Carole Ben-Maimon: Yes. Thanks, Yatin. Nice to talk to you. It's not really possible to compare at 6 months, and that's why we looked at 1 year because the FACOMS data set only collects data annually. So that would mean you would have to extrapolate and whether or not things are linear or not, I think, it's still unknown. So we did not really look at 6 months. I mean we see improvement. We saw improvements, if you remember, at 90 days even at the 25-milligram. But the best comparison really is at the 1-year time point because of the fact that FACOMS is only collects data annually. With regard to the number of patients for FDA, obviously, they've seen all these data sets. We are pursuing accelerated approval based on skin frataxin levels. So there is actually no requirement for clinical outcome data. Obviously, this kind of data is incredibly impressive And the value will be taken into account. Obviously, we wanted to see some trends. We wanted to see some meaningful changes. But the fact that we're seeing improvements of 2.25 points, I don't think anybody else has seen that kind of improvement over 1 year in mFARS. And as I said in closing, I never really anticipated that we were going to be able to improve these patients by any clinically meaningful amount. And so the fact that we actually have been able to see improvements wherein the FACOMS database patients worsen is really, really an important outcome, and I think quite compelling. Yatin Suneja: All right. Helpful. Then on the safety, could you provide maybe a little bit more color on the severity of these anaphylaxis? Like what treatments do they require? And is this hypersensitivity triggered by the protection or by other components of the formulation? Carole Ben-Maimon: So let me start with end. I don't know what's triggering it, and it may be different what's triggering in different patients. The formulation itself is all grass excipients. There's nothing unusual in there. But people can be allergic to anything. But really, as you well know, it's not uncommon to have allergic reactions with proteins. Every protein I know of that's out there has seen some sort of hypersensitivity reaction. And there are some with quite severe hypersensitivity reactions that they do all kinds of things, including treatment with methotrexate and other stuff to try and minimize. The treatment that we give is totally standard of care. It consists of epinephrine, antihistamines and steroids. And all of the patients have responded to it to date, and they respond very quickly. And within several hours, they tend to be back in their normal state of health. Yatin Suneja: Got it. Maybe final question, if I may. So we talked to some regulators in the past, specifically one FDA Director. And then he basically said anaphylaxis would not be an absolute problem as long as you can manage it. So the question is you're changing this dosing a little bit. So how confident you are in this titration dosing strategy on the impact of [indiscernible]? Carole Ben-Maimon: I actually feel pretty good about it, quite honestly. We have an internal expert in our Chief Development Officer, Gopi Shankar, who is an immunologist. And we have some really good external consultants that we've been working with, including one of them that is on our DMC. And the idea here is to give the 5-milligram test dose to see whether or not we can mitigate some of these reactions when they get a larger dose. And I'm not going to go into the basic science that supports that. But this has been done with other drugs and slower titrations can also be done. But we don't think that, that's necessary at this time. We have to remember that the patients who [ are ] currently starting in the open-label extension, and that is now starting to change, but the adolescents and the initial patients were all patients who had been exposed to the drug previously in prior studies. There were a few that had been on placebo, but the vast, vast majority of the patients had, had an exposure and then have had a drug a period of time, which could be quite long where they were off drug and then were being reexposed. We believe that actually increases their risk. That's not to say that a patient won't develop an allergic reaction over time, but we do think that the majority of these cases have occurred on the first day in the clinic. And so we think that a lot of this is related to the prior exposure and the long-term holiday that they had from the drug. But we are very confident and feel very good about this dosing regimen. And I have to tell you, even with these reactions, as your expert concluded, you have to look at that in the context of this disease. And I think what speaks really towards that is we have had -- even with the informed consent, including all of these events, we have had no problem enrolling patients. We have opened now to the naive patients, and we have a long list of patients who know this. This is out there in the public domain, and they still want to take advantage of this -- at least try with this drug. And that's, I think, because if you look at the efficacy data, I mean, we had heard anecdotes before this and anecdotes are anecdotes. It's an open-label study. You don't know how to interpret that. But we don't have anecdotes anymore. We now have data at 1 year, granted only in 8 patients that clearly suggests that these patients may very well be improving, not only not getting worse, but may actually be showing signs of improvement. And so I think the data is incredibly compelling. And I hope that we continue to move as quickly as we can to bring this product to market for as many patients as we can. And we continue, obviously, to work with FDA. They have been incredibly supportive. As I've said before, the start program has been just incredible. I know a lot of people are still talking about having issue -- or talking about having other slowdowns and things like that with the agency. We have not seen that to date. So we believe we're in a good position. Operator: Our next question is from the line of Joori Park with Leerink. Joori Park: Two from me. Can you help us better understand the 7 anaphylaxis events? I'm not sure if you have this data, but did you see a difference in patients who had a drug holiday who started with a weight-based equivalent dose of 50 mg versus those who started with a 25 and then increased to 50 mg? And then I believe that you said that the FDA agreed with your proposal for the new dosing regimen. Can you provide more color on the nature of this agreement? Is the FDA requiring any new additional specific safety follow-up data from the amended protocol? Is there any way that the timing can get reset as a result of the amended protocol? Carole Ben-Maimon: So almost all of the patients -- as I said, almost all the patients who are enrolling in the open-label extension are patients who received at least 1 dose of nomlabofusp prior and had a drug holiday. We do not necessarily see a difference between how long the patients are. And the adolescents are not going to be any different, and we don't see any difference, whether it was a weight base or 25-milligram or 50. This is an exposure issue. Whether it is related to the fact that there was a drug holiday or not, we'll see as we start to get patients who were never exposed before into the trial, but it doesn't appear to be anything related to dose. With regard to the agreement, I don't know how much more I can say. We submitted all of the safety data, the frataxin data, the clinical outcome data. They have reviewed all of that. We have proposed the new regimen, and they have said, go ahead, do what you need to do. And that's been the extent of our conversations with them. There has been nothing modified, nothing changed in the plan, except that we will now be dosing patients with a test dose prior to the initial dose. Operator: Our next question is from the line of Samantha Semenkow with Citigroup. Samantha Semenkow: Congratulations on the data today. A couple for me, Carole. I just wanted to confirm that all 7 anaphylaxis events have been in patients that were previously dosed. And do any of those include adolescent patients? And then secondly, I'm wondering if you saw any benefit from the prophylactic use of antihistamines that you had previously installed? And then just lastly, how do you expect this new dosing regimen that you're deploying to help mitigate the risk of anaphylaxis? If you see a patient develop hypersensitivity or anaphylaxis on 5 milligrams, what are the next steps? Do they move on to 25 for 30 days? Or do you halt treatment completely? Or how do you handle that? Carole Ben-Maimon: Okay. So almost all of the patients have been exposed. I think there may have been one that had not had prior exposure. We have seen both in adults and adolescents. So it is not an age issue or -- I mean, they're being -- the adolescents are being exposed to essentially the same level of drug even though the dose may be different. So it does -- it appears to be an exposure issue. With regard to the test dose administration, it really provides 2 things. One, it gives us a low dose that if they react to it, we can deal with and not give the 25-milligram dose if the reaction is severe enough. The other thing it does, and this is sort of what I've learned through talking to these experts -- sorry [indiscernible] is it may help with preventing the anaphylaxis as it ties up some of the receptors on the mast cells. Now that's somewhat hypothetical. But as we move forward, we'll be able to see whether or not it does help to preclude the development of the anaphylaxis. Does that help, Sam? Samantha Semenkow: It does. One additional question. The trend you saw on mFARS is quite encouraging. Wondering if you saw similar trend, similar magnitude for upright stability? Carole Ben-Maimon: Actually, we didn't -- I'm sure our statisticians looked at upright stability because they looked at all the subscores, but I have not looked at that data, no. Operator: The next question is from the line of Joon Lee with Truist. Joon Lee: The data you presented today, 10 for skin frataxin at day 180 and 8 for mFARS and ADL. Just safe to assume that they were all from the 50-milligram dose? If not, let me know. Basically, I want to understand how comfortable you are about fulfilling the FDA requirement of at least 10 patients on 50 milligrams for 12 months. And then how many patients were already on stable background Skyclarys in your open-label extension? And I have a quick follow-up after that. Carole Ben-Maimon: Okay. So everybody at this point is on 50 milligrams, except the adolescents who are obviously on a weight-based adjusted dose that is equivalent to 50 milligrams. But it does include patients who started on 25 milligrams and were switched to 50. So they did spend some of the time at that 1 year on 25 milligrams. I think if I recall the data, it's 9 months or so, they've all had at least 9 months or so of 50-milligram dosing, but they did spend some of the 1 year on 25. We are very comfortable that we can hit the 10 for 1 year. I think that's much less of a problem than even the 30 months -- the 36 months. But I do believe, given the benefit risk assessment here and the fact that these events are occurring very early in the course of the disease, the agency will be comfortable with the data that we are targeting for the BLA submission in 2026. I mean this -- the clinical -- I mean, FDA does this all the time, right? They do look at clinical benefit risk assessment and they do consider the population of patients that you're treating. And so here, we have, I think, a very well-defined safety profile. There is a risk of allergic reactions that's obvious. But we also have incredibly convincing long-term data that, as I said earlier, I would have never expected to see in patients who are this far along in their disease. Remember, more than half of these patients are in wheelchairs and have been for a while, yet there's still signs of the fact that they may be improving. With regard to omav, there's about 53% of the patients who've been on omav. You may recall that once -- if you're -- you could not get into the trial until you were on omav for at least 6 months initially. So all these patients were stable on omav dose when they entered the trial. One of the patients actually did discontinue their omav and decided they didn't need it. And we did have one patient start omav after 6 months on nomlabofusp, and they were not allowed -- because they were not allowed to start omav until they have been in the trial for 6 months. Joon Lee: Yes. Great. And then just a quick follow-up. How would you characterize the rate and severity of anaphylaxis vis-a-vis other ERTs such as Palynziq and Aldurazyme, both of which have black box warning and that need to carry EpiPen? And were there any differences in the baseline characteristics between the patients who experienced anaphylaxis versus who didn't? Carole Ben-Maimon: So let me start with the last one. We do believe that -- sorry, the majority of patients who developed anaphylaxis, the vast majority had been exposed to nomlabofusp prior trials. So that is a little bit different. One of the differences, the patients who had not been exposed or who had been on placebo did not necessarily -- did not develop anaphylaxis. There are a handful that had only received placebo in prior trials. We'll see whether or not that changes as we start to enroll naive patients, patients who had never been exposed. We don't have that population. So we don't know the data, and we don't know those incidence rates yet. We'll have to uncover that as we move forward. From the standpoint of other proteins, especially Palynziq, we actually have a quite benign safety profile, except for the anaphylaxis. And I know that may sound somewhat silly, but when you look at Palynziq, they have a whole host of other very serious, let's say, adverse events that need to be dealt with [ granuloma, ] skin reactions and other things. Yet it's clear that in PKU, when you look at the benefit risk, it's very important for them to continue on the drug. And so we'll deal with the anaphylactic reactions. As I said earlier, right now, we are discontinuing those patients. I do want to say that if you take some of these other proteins like Palynziq, they actually do continue to dose or redose and restart patients who've had anaphylactic reactions. And we are looking at other ways to do protocols that look at desensitization or -- building tolerance in these patients. And so that's for the future. It's not for now. Right now, these patients are being discontinued. But the hope is that as we move through the development process even after approval, we would be able to get some of these patients back on drug through either dose type or slower dose titrations or some concomitant medication or predosing with some more aggressive therapy. So that's still out there. Right now, compared to many of those drugs we have really allergic reactions and then injection site reactions, which are quite manageable. And other than that, we're not really seeing things that jump out of this. Not to say that there aren't people who have some nausea and vomiting and some headache and all of those things that you see with diseases like this and with new treatments. But the 2 key safety issues we are dealing with are the allergic reactions and the injection site reactions. Operator: The next question is from the line of Myles Minter with William Blair. Myles Minter: Congrats. My first one is just on the patient number of data reported here. I think previously, you've said 30 to 40 patients worth of data I think I see 18 at baseline in the skin frataxin biopsies. Is there -- if I add back in the 14 discontinuations, is that kind of where that 30 to 40 patient number came from? Or were there some that had biopsy that didn't have any detectable levels maybe later on down the track and you remove that data? I'm just trying to triangulate the patient number. That's the first one. The second one is just on the 3 additional patients that had the urticaria that required discontinuation. I mean, do you view that as similar to sort of going down the path of anaphylaxis here? Did they resolve in the first 6 weeks of therapy? Or did they occur in the first 6 weeks of therapy? Any more on that would be helpful. And then finally, I think the FACOMS that you're comparing to came in at 1 point worsening over the first year. That seems a little bit under what I'd expect some of their prior publications that were about 1.8 points. Just wondering how the ambulatory versus non-ambulatory patients factored into that. Carole Ben-Maimon: Okay. Myles, nice to talk to you. So what we have said in the past is that there would be 30 to 40 patients who had received at least 1 dose. So that's where that number comes from. Obviously, we did have some discontinuations. There are 25 patients in the study still, and there are 14 patients who have reached 6 months and 8 who have reached the 1-year time point. There obviously were the 7 patients with anaphylaxis, and we, in our remarks, talked about the other discontinuations, if you recall, the 3 allergic reactions, which you picked up on as well as the seizure that we reported last December. A vasovagal event and 2 that were completely unrelated to anything. And so for the frataxin levels, there are a bunch of issues that occur. First, we pool the samples, and we only ship at certain frequencies. So some of the patients may have samples that just didn't ship by that time. And so we don't have samples. And the other is that they have to have 2 measurable samples, right, to be able to get a change. They have to have a baseline and a second sample. And sometimes we don't have enough tissue to measure frataxin at a given time point. But a lot of them are related just to shipping timing and when we do the data cut. With regard to the 3 allergic reactions, I don't know what would have happened had we continued those patients. We don't know that they would have gone on to develop something more severe. But at this time in the development program, we felt that it was the best thing to discontinue them and not take a chance. They do occur early usually, but they can occur later. But most of them do occur early. With regard to the 1.8 for FACOMS, this is a function of our population. And that's why the reference population that we're using is actually a subset based on using our inclusion -- I'm sorry, not our inclusion -- our demographics of each of the different outcomes. So using the ranges for each of the baseline characteristics of our population and narrowing that we have in our trial. It's easier to measure changes in mFARS in ambulatory patients simply because they have -- some of the scales on the mFARS in patients who are non-ambulatory are basically topped out. They can't change anymore. They're at the top -- they have the maximum measure. And so you don't see changes as easily. And so this is a reflection of the population. The one point is a reflection of the population that we have and I think reflects the sensitivity of the mFARS assessment in this patient population. I hope that answers your questions. Operator: Our next question is from the line of Jon Wolleben with Citizens. Jonathan Wolleben: One on safety and then one on the mFARS data. You guys didn't break out any other adverse events in like a mild, moderate serious manner. You mentioned injection site reactions. But assuming the urticaria and anaphylaxis are considered serious, but anything else to flag maybe in the moderate bucket that aren't detailed in the presentation? Carole Ben-Maimon: There is not really, Jonathan. We really -- that's why I said the safety profile for this drug is actually very clean except for the anaphylaxis and the allergic reactions. I mean we have looked and there are some -- like I said, there are the intermittent reports of headache or nausea, vomiting or feeling lightheaded in a population that has lightheadedness anyway. But there's really nothing that jumps out as something that we need to identify other than these -- the things that we've outlined here. Lab tests are quite benign. We do see some eosinophilia, but that's usually associated with the patients who may have these adverse events. And that seems to go away over time and decrease. So we're really not seeing anything that really is obvious to us that in the moderate category. Jonathan Wolleben: Got it. Okay. And on the mFARS was wondering if the baseline values for these 8 patients that you give the 1-year update from is consistent with the larger group you provide. And then can you remind us how often you're going to be measuring the trajectory of change here? Are we going to get another update prior to submission or potential approval? Or how frequently you're going to see clinical benefit updates? Carole Ben-Maimon: Yes. So the -- sorry, you asked about the FACOMS? What was that about? Jonathan Wolleben: Well, so you gave the change for 8 patients, but the baseline values for 38. Just wondering if that's consistent for the change. Carole Ben-Maimon: Yes. I think in the deck, there is -- there are both. The comparisons are very close. The baselines are very similar. And that's how we constructed that reference data set, right? We took our baselines and their baselines and tried to come up with people who were relatively similar. This is not a propensity matching where we matched patient to patient. But at least we wanted to make sure we had a reference group that was similar in its disease characteristics as well as gender and things like that and age. And so they are very similar. From the standpoint of an update, we haven't even gotten there yet. I think as we get closer to the BLA and we do a data cut, I would anticipate that we would provide that information to investors as well as we put it in the BLA. Obviously, we're going to be very highly focused on filing and getting that BLA that data into the BLA. But of course, if there's anything material or anything that changes, we'll be hypersensitive to making sure that it gets out to the investor community. Operator: Our next question is from the line of Cory Jubinville with LifeSci Capital. Cory Jubinville: Correct me if I'm wrong, you mentioned that 6 out of the 7 patients who experienced anaphylaxis had prior drug exposure. Thinking about this from a commercial perspective, if patients take a drug holiday, do you have a sense of what might be the minimum holiday that could drive an increased risk of anaphylaxis? And kind of building off of that point, you say most occurred at treatment initiation. Specifically, how many of these cases occurred beyond the first day? And did any of these patients miss a sequence of doses that potentially could have led to the delayed cases of anaphylaxis? Carole Ben-Maimon: So I can't give you an exact number of how many days are off. I don't believe that weeks necessarily matter very much, but I do believe that months do. But right now, the way we're addressing this is all patients who are starting the drug will be treated with that 5-milligram test dose. And all patients who are starting the drug, no matter what, will be receiving the 5 days of antihistamines prior to initiating their dose, and we'll continue those antihistamines. There's no way right now with the number of patients we have to basically tease out exactly what's happening. I don't think we're disclosing right now the number that happened on the first day simply because the data is still being collected on a couple of the patients. but they all occur very early. And then some -- there are patients who had to, for various reasons, take a long-term drug holiday, 6 months or more. who also were considered restarts. And there was one patient at that point who did have an -- but again, it was on the first day of the restart. So patients will have to be careful. I mean, should they have to stop their drug for a period of time. They have a surgical event that they have to be off of the drug for 6, 8, 10 weeks. I'm making this up, I don't know the exact number. They may very well have to undergo the start protocol again with the 5-milligram test dose under observation. But we'll see as we go forward and start to get the data, we'll get a better sense of what this all means. Cory Jubinville: Got it. That's helpful. Yes. And on today's mFARS data, I mean, these are really impressive improvements given that this is generally a more severe patient population. With the caveat that this is a small sample size, have these data helped inform at all any of your powering assumptions going into the confirmatory study? And either way, can you walk us through what the current powering assumptions are based on either mFARS or uprate stability? And I guess, particularly, how should we be thinking about translating some of these efficacy assumptions driven by today's data in a more severe primarily non-ambulatory population into the younger entirely ambulatory population that we'll be seeing in the confirmatory study, considering these mFARS, the improvements that they might be seeing are going to be in -- most likely going to be in completely separate domains. Carole Ben-Maimon: Yes. So they are a different population. I mean, ambulatory patients the measurements are just much easier to do and there's more room for change. And so I don't think you can use these data necessarily to change the powering statements in your Phase III. Does it mean that we could possibly need less patients or see a greater magnitude of effect for sure. But I don't think that we want to make those assumptions now, I think we'd rather be more conservative and make sure we have an adequate patient population in numbers in the Phase III to make sure we don't shoot ourselves in the foot and end up with a negative result because we just didn't have enough patients. I can't speak to the powering statement, quite honestly. I can get you that information from our statisticians. But it's -- we're using, obviously, the data in the public domain from other trials and other drugs. And most of these studies have all had somewhere around 130 patients or so in them. And I don't think our study will be any different. And that's because the assumptions are essentially the same. But you're right, it could be different. It could mean that we would have a greater magnitude of the effect and therefore, need less patients. But I think it's a bit risky to make that assumption. Operator: Thank you. At this time, we've reached the end of our question-and-answer session. I'll hand the floor back to Carole for closing remarks. Carole Ben-Maimon: Thanks again to all who joined our call, and thanks to everybody who asked questions. We really appreciate the time. I must also extend a big thanks to FDA for their engagement throughout the regulatory process, as well as to our clinical trial participants, their families and to all our employees, partners, investigators and those of the Friedreich's Ataxia Research Alliance for the important contributions made to the nomlabofusp program. We really do thank all of you. We are very excited about this data, and I wish you all a good day. Operator: Ladies and gentlemen, this concludes today's presentation. Thank you once again for your participation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Santhera Pharmaceuticals Half Year Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the team from Santhera Pharmaceuticals, Catherine and Shabir. Good afternoon. Catherine Isted: Good afternoon, everyone, and welcome again to the interim results for the 6 months ending the 30th of June 2025. Giving the presentation today is myself, Catherine Isted, the CFO; as well as our Chief Medical Officer, Dr. Shabir Hasham. Unfortunately, our CEO, Dario Eklund, cannot be with us today as he's actually had a recent operation on his shoulder, but he will be back with us shortly. As was said in the introduction, there will be an opportunity to ask questions at the end of the presentation. So please add these into the box as we go along. To start with, as always, we have the disclaimer. Please feel free to read this at your leisure. While I appreciate this is a results call, we thought it's worthwhile spending a bit of time going through who Santhera is and what we do and also a reminder about the DMD market. So I will start off with this small snapshot of the company. So we are a Swiss listed company, listed on SIX with our global headquarters in Basel, with about 110 employees, in total about 150, including contractors. We have a product called AGAMREE. This is a differentiated product in the Duchenne muscular dystrophy market, and it is unique because it is a dissociative corticosteroid, and we'll come into that in more details later. AGAMREE is being rolled out worldwide, and we have approvals across the U.S., Europe, U.K., China, and Hong Kong. And our own commercialization in Western Europe is going well with launches in Germany, Austria, and the U.K. We've also had a good launch in the U.S. from our partner, Catalyst. In terms of financing, as we announced this morning, we have a new financing for CHF 20 million. This means that we have a runway through to cash flow breakeven by the mid-2026. And our cash at the end of June 2025 was CHF 18.4 million. I'll now hand over to Shabir to go through a bit more details about the DMD market. Shabir Hasham: Thank you, Catherine. Just for those of you who may not be familiar with Duchenne muscular dystrophy, I'm just going to give you a very brief overview and then go into a little bit more detail about the value proposition and why we have such confidence with vamorolone. Duchenne is a lifelong neuromuscular disorder characterized by progressive loss of muscle strength and function. These are the main characteristic features. The thing to understand about it is that currently, there is no cure. It's such a large gene with so many mutations that current technologies just will not afford a cure. At best, you could try to moderate the disease to be a little bit milder, and that's really the aim of most of the therapies coming to market. Age of onset is very young, 3 to 5 years of age. Children often start to present symptoms of weakness and inability to walk and run and keep up with their peers. And what this means is that they actually present very early to physicians and to the healthcare system. Unfortunately, life expectancy is only limited to the mid-20 to 30 years of age. You get a progressive weakness with the loss of ambulation, no ability to run, walk, you end up in a wheelchair. You get weakening of the upper limbs. But really, what's more important to understand is as the disease continues, you get weakness of the heart and lung muscles leading to cardiac or respiratory failure, which is the predominant cause of death. Next slide. Current therapies today, let me talk a little bit about corticosteroids. Corticosteroids have been and will remain the cornerstone of treatment with Duchenne muscular dystrophy. They have 20 years of experience and data behind them, a robust data set, perhaps the most robust data set of all therapies at market in the moment. They have been shown to delay progression of disease at all stages. So the ability to run, walk, they delay the time to getting into a wheelchair, they delay the loss of ability to use the upper limb, hands, fingers, fine motor skills, but they also now show an impact in terms of a delay to cardiac function decline and respiratory function decline. So they have shown robustly this ability to slow down the disease progression at all stages, and that's why it's absolutely crucial to try to encourage patients to stay on drug as long as possible. However, corticosteroids do have limitations. We know that they are relatively toxic. We know from experience across all diseases, all therapy areas where they're used that these can be limiting in terms of the ability to maintain a high dose and to be able to stay on drug. The challenge with Duchenne, you're diagnosed at the age of 3 to 5, but you often started treatment about 7 to 8 years, and this is because of the toxicity. When you give steroids to children at such a young age, you're impacting really important periods of growth and bone formation and behavior. Children aren't able to stay on therapeutic doses for long enough, often having to down titrate within about 2 to 3, 4 years of treatment and then having to stop very soon before you start to see the benefit on the cardiac and respiratory function, which are the really important ones to try to moderate. And of course, they stop very quickly. This is a graph depicting what I think is a very nice way to show the key challenge in terms of how physicians try to keep patients on steroid treatment. If you want to stay on maximum therapeutic dose, over time, the toxicity accumulates. When you start steroids, early you see behavioral change in weight gain, which is common to all steroids. As you stay on drug beyond 2 to 3 years, you start to see an impact on growth, vertical fractures, long bone fractures, ophthalmological conditions, eye conditions and then eventually hypertension and insulin -- and diabetes. And so really, with the pivotal data that we had some years ago, we were only able to demonstrate the benefits in the short term, the behavior and weight gain. We showed some data showing that we didn't impair growth. But now, of course, the focus is on the longer-term data. AGAMREE, just in summary, is a dissociated corticosteroid. It's the first dissociated corticosteroid to be approved. We've demonstrated that we have the anti-inflammatory effects associated with corticosteroid treatment. In the short-term data, we were able to show that we don't impede growth, that we don't have a negative effect in terms of bone health, and that's both bone biomarkers, but some early data on bone density. We showed a benefit in behavior. Now of course, we're focusing on the longer-term data. We've got children who've been on treatment 5 to 7 years, and we're currently analyzing these data and hope to make an announcement somewhere in quarter 4 about the longer-term effects and some of the more deleterious side effects. But in essence, because this treatment is tolerated better and the side effect profile doesn't really impact children of a very young age, and this is growth, osteoporosis and bone fractures. We see AGAMREE being adopted earlier in terms of the treatment algorithm. We see patients are maintaining a higher dose for longer and some of that evidence will be coming out with the data announced in quarter 4. And of course, we see patients are able to maintain treatment for longer than when we compare them to natural history. What makes DMD very attractive, of course, is it's one of the larger of the rare diseases. There are around 300 (sic) [ 300,000 ] individuals affected globally. Of those in North America and Europe, 90% are diagnosed because the symptoms are very obvious and parents report readily to healthcare systems. The steroid utilization varies, and that's an opportunity for us to, of course, expand segments where current usage may not be as much. North America and some countries in Europe have a very good standard of care, but there are opportunities in some other European countries where steroid use could be improved. Patients and parents, of course, are often treated within specialized treatment centers. And that's an advantage for a rare disease, but also a small company to be efficient to be able to commercialize this product. And of course, physicians have been using this drug for decades. They're very familiar with it. There's nothing very different about vamorolone that it can't be adopted immediately into corticosteroid guidelines. In fact, we are now seeing guidelines clearly adopting a position for vamorolone, which is encouraging, and we'll continue to work with the community to educate them on that. With that, Catherine, I hand back to you. Catherine Isted: Thank you, Shabir. So I also just want to go through the market opportunity for AGAMREE. I think in this slide, it shows it very clearly in terms of our expectations of a total market size of in excess of $600 million. If we break that down, the first box highlights our percentage of that market. So we have potentially the 13,000 patients, DMD patients, and we expect that market to be in excess of EUR 150 million. As a reminder, these are all our own sales. So this is 100% of net sales that we report on our financial statements. Moving on to Catalyst. In that market, we're expecting in excess of $350 million market size. Obviously, Catalyst is doing very well. And in China, we have Sperogenix and the market size there, we expect in excess of $100 million. For both Catalyst and Sperogenix, the way we get paid is through upfront payments on signing those agreements as well as milestone payments as we reach certain milestones as well as royalty income. Moving to the next bucket of revenues. This is for what we call the rest of the world. So this is our distributor market. And here, we have the likes of GENESIS and also the new agreements that we have signed over the course of the summer. For the rest of the world sales, we have a what we call a sort of a distribution agreement, of which we book about 60% of net sales. So now moving on to the results itself. So these are the operational highlights. So I start with Germany and Austria. We see there a very strong growth. We're pleased to announce that approximately 40% of steroid using DMD patients in Germany and Austria are now treated with AGAMREE. Obviously, the last time we spoke about this, this was 30%. Also, if we look at Austria in its own right, it's the first country to have in excess of 50% market share. I think this really shows what a difference AGAMREE can make to DMD patients in these markets. Moving on to other EU markets. We are very pleased to announce that we had the launch in the U.K. in the second quarter of this year, and we're seeing growing demand. We've just started a home delivery program that was commenced only last month. The idea here to be able to streamline access and reduce admin burden in the NHS, which is causing issues within the NHS. We are already seeing a strong uptake of that, and we expect that to be reflected in sales as we go through the rest of the year. Other launches across Europe are expected in Q4 and into 2026, and we'll talk about that on a following slide. Going to the U.S. Our partner, Catalyst continues to perform very well. They reported H1 2025 sales were USD 49.4 million. As a reminder, they have guided for the full year of $100 million to $110 million. So you can see they are very much on track to meet their guidance. What is important here for us is that when they have in a calendar year greater than $100 million, this will trigger a $12.5 million milestone payment to Santhera. At the current rate, we are expecting that to be triggered during 2025, but I will note that in terms of cash flow, that will be received in early 2026. Moving on to Sperogenix. Again, some really positive movement. Previously, they had an early access program ongoing in -- during 2025. But as of September, they've now commenced their non-reimbursed commercial rollout. So what we mean by this is, this is the private payer market in China. We're delighted that in excess of 250 patients have already started taking AGAMREE in China. And if you think about that, that is actually around about 50% of the size of Germany and Austria combined. Due to the increased demand for products in China, both in 2025 and 2026, we are having to increase inventory, and that is part of the reason for our raise today. If we look at other rollouts in other territories, the summer has been incredibly busy for the team. We signed agreements in three different areas for five Gulf Cooperation Council countries as well as India and Turkey. The team remains actively engaged with other geographical expansion partners, and we look forward to announcing those during the rest of the year and into next year. Additionally, there has been changes at the exec and Board level. I joined Santhera as CFO in February of this year, and we're delighted that Dr. Melanie Rolli joined Santhera Board in May at the AGM. So going into a bit more detail around Germany and Austria. As I mentioned, in Germany and Austria, approximately 40% of patients or steroid using DMD patients have now been treated with AGAMREE. We've previously talked about the fact that this was with newly diagnosed patients aged 4 and 5 years old as well as switches in the 6 to 12 range. What we're now seeing is an increasing number of older DMD patients either start or restart corticosteroids with AGAMREE. So this is really growing the market. We now have between 450 and 500 patients that have started on AGAMREE and delighted to see that growth. As I've already mentioned, Austria is the first country to have in excess of 50% of steroid using DMD patients now on AGAMREE. And we look to hopefully replicate this across other countries as we roll out. The reason why we're particularly pleased with Germany and Austria is that there is no -- there was no clinical trial sites or experience in either of these countries. So I think it really shows the benefit that the product is having to patients. I think any company seeing a 40% market share within about 18 months of launch would be pleased. We've talked about -- previously about the price. We have a good price of just over EUR 3,600. And Germany, as you would imagine, is a reference country for many other markets. If I now go through to the rest of Europe. We've obviously discussed the top 2 lines on this chart in terms of Germany and Austria. In the U.K., I mentioned that previously that we have the launch in Q2, and we're now moving ahead with our delivery service, which I think is really helping to boost sales there. We look forward to the second half of the year as that continues to grow. Moving on to other countries. In Spain, we have an October CIMP meeting. Assuming that is positive, we'll then expect a rollout to commence across the regions and the hospital formularies to begin late Q4. For the Nordics, we have the team fully in place. Obviously, with the different countries, we have different dates for commencement of sales. We're expecting those in Q4 and then following through into Q1. Finally, I'll mention Italy. We are expecting there an approval as of late Q1, having decided that we will add the GUARDIAN data to the reimbursement dossier for Italy. If there's other questions around other markets, then please feel free to ask us in the Q&A. So to move to the U.S. As I highlighted, AGAMREE grew to just under $50 million worth of sales in the first half and that Catalyst has maintained their guidance of total sales of $100 million to $110 million for the full year. And then moving on to China. With the early access program that started in June 2024, we're delighted with their commercial rollout. This is in the non-reimbursed market that started only literally a few weeks ago. I mentioned this briefly earlier, but I think it is very impressive to see that they already have more than 250 DMD patients treated to date. And I think this shows the size of the market even in the non-reimbursed market in what is effectively a very short period of time. Over the last few months, we've seen increasing demand for product that we need to manufacture not only for 2025, but 2026. And hence, Santhera has needed to bring forward our inventory plans to service not only this market, but also the U.S. So now moving to the financial highlights for the year. So total revenues were CHF 24 million. This was a 70% growth on the prior year and driven by strong product sales in our launch markets as well as strong royalties and product supply revenues. If we look at product revenues in their own right, that was CHF 11.6 million. And we have seen an increase there of 76%. This is obviously primarily driven by Germany and Austria, but also with the first contributions from the U.K. post the launch in April 2025. If we combine the total sales from our U.S. and Chinese partners, so this is relating to royalties, milestones, and product supply, our total revenues from those two partners was CHF 12.4 million. Again, a very big increase over the CHF 7.6 million that we saw in the prior year, and we're expecting that to continue to grow strongly as we go into the second half of the year. Global sales, so this is from all of our partners and our own sales at the end of Q2 was in excess of $100 million. I think this is a great achievement that over 4 quarters, this has been achieved. This was achieved ahead of our expectations, again, showing the strength of sales from ours and our partners' markets. The one thing that comes with success is the fact that we have actually now triggered a $20 million milestone payment to the originator, ReveraGen, and this is seen in the cost of sales line. Moving on to operating expenses. It is very important to me as the CFO that we manage these and keep the costs in control. Operating expenses were CHF 27.3 million for the first half of the year. If we exclude share-based payments, that reduces it down to USD 25 million. And if you remember previously, my guidance for the full year was CHF 50 million to CHF 55 million. So you can see we are very much on track to keep our costs in control despite the fact that we are seeing some very good revenue growth. Our operating loss was CHF 35.4 million. If you exclude the milestone of USD 25 million that I mentioned earlier, it was very similar to last year, although actually, in fact, the loss was slightly reduced. As we'll talk about in a minute, we had a financing that was announced this morning where we secured CHF 20 million. This was a combination of a royalty agreement for $13 million and a CHF 10 million convertible bond. As I said, we'll come on to that more over the next slides. And finally, cash and cash equivalents at the 30th of June was CHF 18.4 million. So to go into the financing in more detail. And I think what is -- the key thing here is really as a reminder of why we've done this. This is for additional growth capital. The key reason for this is we've seen increased product demand from our partners, especially Catalyst and Sperogenix over 2025 and also into 2026. It is really important to us that we're able to service the product that they need to be able to continue on their strong sales and launches. We obviously saw the strong launch of Catalyst or the strong sales of Catalyst in the first half, and we've already seen the success that Sperogenix has had in their non-reimbursed commercial launch. This demand from our partners has meant that we have actually brought forward our inventory plans, hence, the requirement for additional working capital. It is very important, as I said, that we help support the acceleration of these global launches. So going into the details. For Highbridge and CBC or R-Bridge, these are our existing financing partners, and we have extended our agreements with both of them. So for Highbridge, we have an additional CHF 10 million convertible bond. This is added to the existing CHF 7 million convertible bond that is exchanging at parity. The price of this bond will be priced at a 10% premium to the closing price as of today, and it will have a 3-year maturity. We have also issued approximately 110,000 shares to Highbridge. This is in consideration for increased flexibility in relation to the CHF 35 million term loan that we signed last year. In relation to our royalty monetization agreement with R-Bridge, you may previously remember that we had an agreement with them for 75% of the net royalties. And last year, we received $30 million with the potential to receive up to $8 million more for these royalties. We've now extended that to the remaining 25% of net royalties and have received USD 13 million for that. On terms, I will say, those are slightly better than we did last year. To note on these -- both of these agreements, these agreements are capped and the full royalty stream will return to Santhera at -- once the cap has been met and also Santhera returns certain rights to buy back the royalty stream. I'll also remind you that the milestones that we received from Catalyst and Sperogenix are excluded from this agreement and will continue to be fully received by Santhera. I now move on to the financial guidance. I'm delighted to say that we've been able to increase our revenue guidance for this year. You may remember previously that we talked about full year revenues in excess of CHF 65 million to CHF 70 million. That was our previous guidance. We've now said that we can -- we are expecting in excess of that level for the full year 2025. For 2028, we maintain our guidance of EUR 150 million. This is for revenues from direct and partner markets, including our royalty income from North America and China. It does exclude any milestone payments received from partners. Looking to our 2030 guidance, again, we maintain that guidance that in direct markets, so that is our own markets, we expect in excess of EUR 150 million of sales in 2030. And finally, I think it's very important to reiterate our guidance on operating expenses that on 2025 and on a going-forward constant portfolio basis, we expect this in the range of CHF 50 million to CHF 55 million, excluding non-cash share compensation. Moving on to strategy. And for those of you at the Capital Markets Day, you would have seen this before, but I think it's helpful to reiterate our strategy over the coming years. Obviously, the key focus for this year and into next year is that continued rollout across Europe. And we're working hard to increase the number of geographies where AGAMREE is available for DMD patients. We'll also increase our expansion geographically beyond Europe through distribution partners and continue to work to sign up more distribution partners. The next stage of development is really around how do we maximize our infrastructure that we have here. I call it operational efficiency. We have a head office here in Pratteln in Switzerland, and we are servicing one product. It makes complete sense to add in a second product in the rare or orphan disease space. That way with very minimal incremental costs, we can really leverage the marketing and sales team as well as the in-house infrastructure that we have here. Looking to additional indications. Our partners are working on additional indications. We've said that we won't currently be funding any new indications. However, as our partners progress, we have opt-in rights and we'll be discussing with them at that time, obviously, assuming positive data if we will look to opt in. And finally, just to go back to a summary of the company. We have a differentiated product in AGAMREE with worldwide rights. I hope you can see today we have a clear growth strategy, and we had strong growth in the first half of the year. We've got a strong and growing partner network, again, as evidenced by our new distribution agreements as well as progress with our licensing partners. It's important that we remain nimble. And with this being able to be nimble, we're able to move and react to opportunities. And hopefully, we'll be able to announce something during 2026 in terms of additional products that we'd look to license in. And finally, to note, we are funded to cash flow breakeven. With that, I'd like to move to the Q&A. So just ahead of that, if I can maybe remind you if there's any more questions, if you could please ask them in the chat. Right. I will start here. I'm going to read them out and then between myself and Shabir will answer them. Just a moment. Catherine Isted: So the first question is, how is the rollout of AGAMREE in Europe and rest of the world progressing, including pricing, reimbursement, and hiring of staff. Do you see Germany, U.K. pricing and reimbursement support decisions in other countries? So I think the first part of that question in terms of rollout across Europe and the rest of the world, I think that's very clear. We are seeing very good growth in our own markets as well as partner markets. We've maintained a good pricing as well. You saw the pricing in Germany. And in terms of reimbursement, we're moving ahead in terms of new markets to get the right price for AGAMREE as we roll that out in the remaining countries in Europe. In terms of hiring of staff, we have had no problem hiring staff. In the end, I think if you have a good product when people can really see that you have something that is differentiated, people want to work for you as a company. And obviously, we are hiring people as we increase our commercial presence. The second part of that question, asking about German and U.K. pricing, reimbursement, does that support other countries? Well, in terms of the German pricing, absolutely, many countries use that as a reference pricing. In the U.K., it's more around NICE approval. As a reminder and as a native grit to actually get NICE approval and recommendation is incredibly difficult. So that is very positive that we have that. So the combination of the German pricing and the NICE recommendation absolutely is positive in terms of decisions in other countries. So moving on to the second question. What is the reason for your full year 2025 revenue expecting to exceed the previous guidance range? Well, I think you can see, obviously, we got good growth in our own direct markets. China has only just started to be launched in September. So obviously, good growth there as well as the annualization impact of the U.S. So across all of those areas, we actually expect H2 to be far stronger than H1. In addition, as I mentioned earlier in the presentation, assuming that Catalyst does reach that USD 100 million sales milestone by the end of the year, we would have an extra USD 12.5 million of sales milestone that would be recognized in 2025. I hope that answers the question. Moving on to the third question. Are the terms of the new R-Bridge royalty monetization agreement of $30 million at similar terms as the early agreement or better? No, we've never given exact details on this. However, I will say that we have agreed better terms, not only on the cap, but also on the coupon rate. We had long discussions around this. But I think considering the strength in both those markets and the reduction in risk, it was only right that we should have a lower cap and a lower coupon rate. So I'm pleased to say that, that was negotiated into that discussion. Moving on to the next question. This is probably one more for Shabir. It says, although it is still early days, do you see evidence for AGAMREE to allow patients to stay on time, on dose and on treatment, addressing the limitations of standard corticosteroids? Shabir Hasham: The answer to that, Catherine, is yes. We're seeing evidence, and this is something you pointed out to when we discussed Germany that the drug is being used across all segments in terms of age. So specifically, we're seeing new starters grow and tolerate treatment well. We're seeing patients now who are on other corticosteroids switching to AGAMREE and those who are either discontinuing or down titrating also adopting AGAMREE. We've been following patients up, and we'll be announcing data from our long-term follow-up study in quarter 4, but we are seeing a majority of patients tolerating drug at a higher dose for longer than we see in terms of natural history. Catherine Isted: Thank you, Shabir. So the next question is regarding China. I said, when do you expect first sales in China? Does this trigger a milestone payment from Sperogenix? And what has increased the forecasted demand in China for '25 and '26? So absolutely, we had actually sales in the first half of the year. We have EAP sales. In addition, we now have sales in the second half of the year in relation to their commercial non-reimbursed rollout. We have, obviously, the royalty component of their sales, but also importantly, we have the product sales as in bottle sales that go to China as well. So we have a double impact of the benefit from a strong Chinese market. The Chinese market, I think we've already seen, as I mentioned, with in excess of 250 patients already on AGAMREE, they have only just launched. That's already half the size of Germany and Austria in such a short period of time. I think that really shows the potential of the product in China. And our partner is very confident about forecast, and we have binding forecasts with them out a number of months, and those have increased. And that is a key reason for the increased need for inventory to provide to the Chinese market. Moving on to the next question, and this is another one for Shabir. On a positive POC trial results for AGAMREE in Beckers, how long would it take to gain market approval for this indication? And how significant is the market potential? I don't know how much you can say, but the question has been asked. Shabir Hasham: Thank you for the question. It's a little too early to say. We haven't seen the data yet. I'm awaiting that imminently. I think depending on what we see in the data, there were some thoughts in terms of regulatory strategy, whether it would be an accelerated submission or not. So that depends really on the data. Beckers is obviously an attractive market. It's the same call point or touch point. It's the same physicians that treat Duchenne and the neuromuscular centers for those who are at different age ranges. And the market size is somewhat similar. I can't make any comments really until I see the data, and then, of course, we'll provide our view. Catherine Isted: Okay. Moving on to the next question. That is how is the manufacturing expansion progressing? We actually put this slide deck up on to our website and one of the slides in the appendix actually talks about manufacturing capacity expansion. We are delighted to say that our second site is running ahead of, I think, the previous guidance that we gave, and we are now expecting that to be able to deliver first supplies of product in the fourth quarter of this year. It is important to us because this does bring down our cost of goods. And also, it gives that certainty of supply. When you are single source, there is obviously always a higher risk level. So to be dual sourced, I think, is very important. but also because of the size of the manufacturing site and the size of the batches, this also increases our -- or improves our cost of goods. So delighted to say that, that is progressing well. The next question, I think I've covered off. It's another question asking about total revenues for 2025 exceeding previous guidance. Can you give a bit more detail on how you expect this from different sources? I think I ran through that earlier in terms of the increased direct markets, obviously, the positive impact that we would expect from the milestone, but additionally, continued strong royalty income as well as product -- direct product sales to the U.S. and to China. Going to the next question. You said you have announced quite a few additional distribution agreements, Turkey, Gulf countries, and India. Maybe -- could you maybe comment high level on the financing terms and the market potential you see in these respective markets? And then maybe also, could you share what you consider to be remaining key markets to partner and where you stand on these discussions? So in terms of the high level, in terms of the financials, and I think this is quite an important point because there has been some, I think, some misunderstanding on this front. We book approximately 60% of the net sales from these countries. So those are booked to our top line, and that is the commercial agreements that we have. So some are a fraction more, some are a fraction less. Sometimes we get a small upfront payment as we had over the summer. So those are the financial terms. I think if you look at any individual country, the incremental benefit to the top line is not going to be the same as one of the major European countries. But if you continue adding all of those up, then those are very meaningful. We certainly are looking to expand to other countries. And again, actually in the appendix to the slides that will be available later, we list some of the other countries that we are looking at. This includes the likes of looking into Latin America, Russia, Australia, New Zealand as well as South Korea. So if you're looking at key countries that we're looking at as the next phase, those are highlighted in the appendix to the deck. I think that's the main -- that answers that question. The next one, can you please compare the U.K. launch to the launch in Germany and Austria, where you achieved 30% market share in the year 1 of launch. Are you seeing any reasons why your market share in the U.K. or other key markets should be different? We've obviously had the summer months over the U.K. We also have -- we have needed to get in place the delivery program to actually help with logistics. We are seeing good sales in the U.K., and they continue to grow strongly. Even in September, we've actually got some very strong growth there, particularly since the start of the delivery agreements being started to be rolled out. At present, we won't discuss market share, but we said we are pleased with how that launch is going. Let me just go to see if there's any -- those are the -- some of the questions that have come in. Let me have a look to see if I can see if any more here. There is. So other questions. When you secured the financing agreement in August last year, you expected it to extend the cash runway to anticipated cash flow breakeven. Now today, you secured an extra CHF 20 million in new capital. Could you help us understand what has changed the underlying conditions to make this additional capital necessary beyond the increased inventory needs related to this? And when do you expect local manufacturing supply to be up and running in the U.S. and China? So two very different questions. So let's answer the first one to start with. So certainly, last year, we hadn't expected the large increase in inventory. This is a major factor, particularly in China. From the time frame when we actually have to put our first, I say, binding forecast into when it's actually made is about 16 months. So it is a long period of time. we do have -- and it takes quite a while to actually produce the product as well. So we do have to carry higher levels of inventory. I think it's important that we have flexibility to be able to help our partners and really help with their growth as they continue to expand AGAMREE sales. In terms of U.S. and China, the U.S. is progressing ahead with manufacturing. This happened before any of the Trump's discussions. However, that won't be online and producing product into some point into probably the second half of next year. That's probably more of a question for Catalyst to firm up the exact timings. For China, that will still be a number of years away in terms of them being able to manufacture themselves, although I know that's very key to them because that helps extend their patent life. Another question. This is probably more for Shabir. Can you elaborate further on the GUARDIAN study? What kind of endpoints will you report? And if positive, how do you expect it will impact uptake in existing markets? And how to help in reimbursement pricing discussions with regulators? Shabir Hasham: Thank you. So let me just remind you of what the GUARDIAN study is. As you'll know, we've had children who've been on various programs, various studies in the development program, Phase IIa, Phase IIb studies. Those children then went into expanded access programs. And what we've done is for a subset of these patients, we've actually rolled them into a formal long-term extension study, the GUARDIAN study. So we have 40 to 41 children anticipated in the study. They've been on drug 5 to 7 years. I think this is a very important study. If you remember, being on a steroid at high dose, the toxicity accumulates. So what we've been able to show so far has really been based on short-term outcomes from the pivotal study. The GUARDIAN study will be the first time we see what I believe is the true value of vamorolone. We have two objectives. One is to show that we maintain efficacy and that vamorolone is comparable to standard of care corticosteroids in terms of outcomes. We want to show that children remain mobile for longer. There's a delay in loss of ambulation. And secondly, we really want to start to differentiate on important safety outcome measures. So rather than looking at just bone biomarkers, we'll be looking at actual bone fractures, hard clinical outcome measures. We have a measure of eye health, ophthalmological assessments of cataract and glaucoma. We're looking at bone age. We're looking at delay in puberty, which is common with corticosteroids, especially with boys who are now in the GUARDIAN study coming up to the age of about 11 to 12 entering into puberty. And of course, we're looking generally across a number of safety outcome measures. These data are very important. Physicians are currently using AGAMREE in all segments and ages as experience accumulates, but predominantly in the younger age group. With these data, I believe it will give physicians the confidence to switch away from current standard of care corticosteroids, having confidence that the efficacy has been maintained for 5 to 7 years will be very important in that switch decision. And so I believe it will have a very positive impact. Of course, in terms of safety differentiation, if we can show hard clinical outcome measures in addition to consistency across several earlier studies in both biomarkers and X-rays, again, it gives confidence to the market that the safety differentiation really is a key value driver of vamorolone. In terms of reimbursement pricing discussions, where we are able to use these, of course, I think it will have a positive outcome, and I look forward to the data being announced very soon. Catherine Isted: Thank you, Shabir. I'm going to answer one of the questions. Now there are several that are along steemed around how to explain the weak share price performance and commenting that we're not looking after the interest of shareholders. I think the most important thing is to have growth in this company. We need to support not only our markets, but also our markets of our partners. So if that needs us to increase our inventory levels to help do that, then I think that's important for the long-term growth because in the end, we want to see more sales of AGAMREE around the world. In terms of share price performance, I mean, I tend to not look at it day-to-day. You need to look over the longer term. If I go back to this time last year, the share price has increased 35%. I think most people would be very happy with that. And I appreciate today that there has been a dip in the share price. I am hoping that after this call, people have a better understanding of our excitement for the rest of 2025 and into 2026, and why we're increasing our sales guidance on the back of that confidence. So I hope that sort of answers the question. We are looking at the long term. We don't look at day-to-day movements, and we've had some very good growth over the last year, and that's what we'd look to have over the coming 12 months, too. Another question is, why do you not see an increase in sales from 2028 to 2030. I'm actually just going to go back to that slide, if it's going to allow me to. It's actually two different definitions. So what we say for 2028 is basically all revenues excluding milestone payments. So milestones, they can be lumpy. They could fall one side of a year or the other side of the year. If you think of the remaining part of that sales, so that's our own sales or partner market sales or royalty income, this is the underlying revenues for the company. And we're saying that they will reach EUR 150 million by 2028. By the time we get to 2030, what we said is we're just going to take only our portion. So that is just purely those European sales, our direct market sales in Europe. So if you remember back to the earlier slide, when we talked about we expect the European market to be in excess of EUR 150 million by 2030. That is that figure there. So by 2030, we'll have not only EUR 150 million of sales. We'll then have the royalty streams in relation to our Chinese and U.S. partners, which obviously by which stage could be very, very sizable in addition to our distribution partners. And as you can see, we've been rolling those out as well. So by 2030, yes, we would expect sales far, far in excess of EUR 150 million if you're looking at all sources of revenue streams. And I think we're nearly on to the final question here now. So there was a question saying, how much do you believe the market for AGAMREE will grow as DMD patients who have stopped taking other products return to take AGAMREE. So I think that's probably more for you, Shabir. Shabir Hasham: Yes. So let's talk about unmet need first because that will give you an idea both of the urgency, but also of the opportunity. So those who tend to stop treatment, corticosteroids or others tend to be in the older age segments. Now remember, there are very few options for children who are in the older age segments. You'll know from the gene therapy stories and Elevidys that it's unlikely that gene therapy will be a suitable treatment for those who are older, which remains then the only option you have are corticosteroids and potentially givinostat in the marketplace. So a lot of adult neuromuscular physicians that I speak to are, quite frankly, absolutely desperate. They have nothing really to treat older kids, whether they've stopped other treatments or wish to restart corticosteroids. Remember, the leading cause of death in Duchenne isn't going into a wheelchair, isn't having weak arms or legs. It's the cardiorespiratory failure that kills you and prematurely kills you. Now steroids have been shown to actually also delay time to onset of cardiac and respiratory failure. So they are a very important treatment option with the evidence base already established. And I'm hearing very positive sentiments from adult neurologists for people who want to come back to corticosteroids that AGAMREE is a very valuable and suitable option. It's really based on an unmet need where we believe the driver and growth opportunity will be. Catherine Isted: Thank you, Shabir. With that, I will hand back to the operator. Operator: Perfect. Thank you very much indeed for your presentation and for being so generous of your time and addressing all of those questions that came in this afternoon. And of course, if there are any further questions that come through, we'll make these available to you immediately after the presentation has ended. But Catherine, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and to the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Catherine Isted: Thank you. First, I want to say thank you again for your time today to hear about Santhera and our results over the first half of 2025. I hope you can see here the impact that we're having from having a differentiated product in the DMD market. I hope it's clear you can see about our growth strategy and how we are executing on that and also how with our strong partners, we're continuing to grow AGAMREE sales globally. So with that, I'd like to thank all my colleagues for their efforts over the last 6 months, and thank you again for your time and listening today. Operator: Perfect, Catherine. That's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Santhera Pharmaceuticals, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.
Operator: Thank you for standing by, and welcome to the Synlait Milk Full Year Results Call. [Operator Instructions] I'd now like to hand the conference over to Synlait Milk. Please go ahead. Hannah Lynch: Good morning, everybody, and welcome to Synlait's Full Year Results Conference Call. [Operator Instructions] It's great to have so many of you on today's call and a real pleasure to introduce you formally to our new CEO, Richard Wyeth, who joined Synlait earlier this year in May. He's joined, of course, today on the call by our CFO, Andy Liu, who many of you will now know. Rich and Andy will speak today through to our investor presentation released this morning. And then we'll open the line for Q&A. [Operator Instructions] Richard, over to you. Richard Wyeth: Thanks, Hannah. Good morning to you all. Thank you for joining us on Synlait's Full Year 2025 Results Call. To indulge some sporting analogy, FY '25 was a year of 2 halves with Synlait. We won the first half and celebrated a return to profitability. However, over the second half was challenging on a number of fronts and the impact of those will be cleared in today's presentation. Andy and I will go over those in detail throughout the presentation. But before that, we have some good news. If you please turn to Slide 2. We have entered into a binding conditional agreement to sell our North Island assets to our valued customer and global health care leader, Abbott. These consist primarily of our Pokeno factory and 2 Auckland sites in the blending and canning facility at Richard Pearse Drives and Jerry Green, which is the warehouse. The sale price of the transaction is USD 178 million, which equates to approximately NZD 307 million -- NZD 307 million. Abbott has confirmed it will onboard most of the people who work on these sites, which is a fantastic outcome for both our people and also for the local community. The targeted completion date for the transaction is 1 April 2026. And the sale will be subject to various conditions, including Synlait obtaining shareholder approval and Abbott receiving consent under the Overseas Investment Act 2005 and normal consents such as regulatory consents from the likes of MPI. We released the notice of meeting with detailed information on the sale to inform shareholders before they vote on the transaction at Synlait's Annual Meeting on 21 November 2025. And also note Bright Dairy, our major shareholder, has confirmed it will vote in favor of the transaction, so the requirement for shareholder approval will be achieved. This is a real step forward for Synlait. The proceeds of this sale will be used to pay down debt. It will mean that by the end of FY '26, we are largely debt-free with the exception of working capital facilities. In short, the sale will deliver a stronger, simpler and more secure Synlait. We will have greater space to focus on our South Island operations and the ability to carefully and strategically review our strategy for Dunsandel. Goal is to release an updated strategy at our half year results in March 2026. But in the meantime, we're certainly very excited, and this is an outstanding win for both Synlait and Abbott. Moving on to Slide 3. I've now been in the business for just over 4 months as CEO of Synlait. I was attracted to this role due to the company's strategic strengths. It has world-class assets and its foundations are strong. Dunsandel is located in the heart of Canterbury's dairy sector with good connectivity to global markets and the ability to produce goods at scale. The company also enjoys strong demand from our global customers. Having now spent a short amount of time in the business, I've identified 3 immediate needs that we need to focus on. First and foremost, we need to improve our operational stability at Dunsandel so we can consistently deliver for our customers. I'll talk to you more about that in a moment. Secondly, we need to reduce complexity to deliver a financial uplift. The North Island transactions will assist with that. And finally, there is a need to reset the high-performing culture within the business. Synlait's focus on great people who have been through a huge amount of challenges over the last few years. My observation coming into the business is that it's very much a culture of reactivity driven some of those challenges. I want to reset the business so we can really focus on proactive performance. To that end, our focus for FY '26 will be very much targeted on operational stability. To assist with that, we are recruiting and onboarding a new Canterbury-based Chief Operating Officer who will be responsible for delivering a raft of improvements in that area and also ensuring that we can deliver the North Island transaction by 1 April 2026. We're also embedding our values framework, the Synlait Spirit, in the short term to allow us to improve our culture. Moving on to that focus into Slide 4, you will see focus areas internally that have been done dubbed the Big 6 for '26. Top of that list is operational stability. That should come as no surprise to many of you. As we announced to the market in July, Synlait has had manufacturing challenges earlier this year. The impact of those is clear in today's result with one-off costs totaling $43.5 million. While the manufacturing challenges are largely behind us, operational stability must remain a core focus alongside quality, performance and customer satisfaction. And to focus who are focused on financial resilience, it was great to see the banking facility come through last week and include the North Island sale then strengthening our financial performance has largely complete. We now need to deliver on culture, operational stability and quality, and that will lead to strong overall financial performance. We'll move through now to Slide 5 to look at our results at a glance. We are reporting total group EBITDA of $50.7 million today, which is an increase of $54.8 million on FY '24. Our bottom line was a net loss after tax of $39.8 million, which is an improvement of 78% year-on-year. As mentioned, this reflects costs associated with challenges at Dunsandel. Adjusted bottom line is a net profit after tax of $0.8 million, which shows you Synlait's recovery was on track. Pleasingly, Synlait's debt level has decreased by 55% during FY '25. Of course, most of this was courtesy to last October's equity raise, but an uplift in our trading performance has added to that with net debt now down at $250.7 million. As mentioned, the proceeds from the North Island transaction will largely bear. Group revenue increased to a record $1.8 billion or 12%. Operating cash flow was up 451% to $165.5 million and gross profit increased to $105.3 million. I'm delighted to confirm that our final milk price for the 2024, 2025 season is a record $10.16 per kilo of milk solids. Add to that Synlait's incentive program, which averages out to $0.30 per kilo of milk solids and our secured milk premium of $0.20 per kilo of milk solids for our South Island farmers, and you could see that our Synlait suppliers will be very happy. However, our average milk price or payment to South Island farmers will sit $0.50 above the farm gate milk price. That should result, as I said, in some very good Christmas presence for many of our farming staff. I will now hand over to Andy Liu, our CFO, who will take you through some more detail on the financials. Lei Liu: Thanks, Richard. Good morning, everyone. Let me take you a go through to Synlait's financial results for the year '25. This year's results shows a very strong improvement and a fresh sense of progress across our main business areas, even though we faced some manufacturing challenges at Dunsandel. Let me begin by outlining the key highlights on Slide 7. The Advanced Nutrition segments experienced robust customer demand and demonstrated strong growth in new product development. This success sales translated into a $21.1 million increase in underlying gross profit, underscoring the strength of our customer relations and our ability to innovate and bring new products to market. Our ingredients business achieved a notable turnaround from FY '24, recording a $26.6 million improvement. This was driven by effective foreign exchange management and a strategic shift to value over volume. Although stream return did not always favor our current product mix, our enhanced risk management approach proved beneficial. The Consumer and Foodservice segment achieved a $9.3 million increase in our gross margin. This was largely attributed to the outstanding performance of Dairyworks and ongoing growth in our UHT print portfolio in existing and new markets. We successfully reduced SG&A costs through disciplined cost control measures and a strong focus on eliminating wastage. Financing costs also reduced significantly, supported by better cash flow management and the recovery in trading performance. On to Slide 8. In FY '25, Synlait's total revenue increased 12% to $1.8 billion after a flat FY '24. Growth was broad-based. Advanced Nutrition up 8% on high volumes and a new Nutrabase powder successfully launched in Southeast Asia. Ingredients revenue increased by 7% on pricing and favorable foreign exchange. Our consumer base business unit reported a 12% revenue increase, with growth in export markets helping to offset ongoing pressures in the domestic market. Revenue and volume from Foodservice, driven by UHT cream, almost doubled compared to the prior year, with growth extending into Asia and the Pacific. Underlying gross profit increased to $142.5 million due to disciplined execution and strategic improvements company-wide. On Slide 9, you can see that our focus on operational efficiency and working capital management has resulted in a remarkable recovery in cash flows. Our operating cash flows increased by $213 million, reflecting improved trading performance and optimized working capital management. CapEx investment remains at a low level, a further 23% reduction compared with prior year with a focus on business continuity, growth initiatives and regulatory compliance as well as strategic digitalization, AI, cybersecurity to manage risk and opportunities. Net debt decreased by $300.9 million or 55% due to capital injection and improved cash flow performance. Financing costs contributed $48 million to net debt. That is a $7 million improvement on FY '24. These costs are expected to reduce further in FY '26 with the completion of our refinancing. Our balance sheet is much stronger, and we are targeting a net senior leverage ratio below 2.5x in FY '26. In summary, Synlait's FY '25 results reflect the company regaining its strength, simplifying its operations and establishing a platform for sustainable and profitable growth. The sale of North Island assets marks an improved turning point, significantly strengthening our balance sheet by reducing net debt, improving leverage ratios and restoring our creditworthiness. With a streamlined business model and a solid financial foundation, Synlait is well positioned to invest in strategic growth, pursue new opportunities and deliver sustainable value to our shareholders. Financially, Synlait is now equipped to support and execute a new future strategy with confidence and resilience. Thank you. I will hand you back to Richard now. Richard Wyeth: Thanks, Andy. I'll now go through an update on each of our business units. If you turn to Slide 11, firstly, Advanced Nutrition. So for FY '24, we saw an overall uplift in volumes due to strong customer demand. Our achievements for that year include an expansion of our customer base. We also had a new record in lactoferrin sales volumes, which were up 12 metric tons. And we also had the successful launch of our Nutrabase powders, which has secured multiple customers in Southeast Asia. Our focus going forward for this financial year will include working with The a2 Milk Company to support growth in China, further expanding the Nutrabase range and looking to deepen relationships with our Ingredients customers so they're more aware of our Advanced Nutrition capability and exploring new sales channels and value-add products to uplift returns on lactoferrin. So that's Advanced Nutrition. Moving through to Slide 14 and the Ingredients business. For those who know the Synlait story, you will recall we strategically moved away from fresh milk processing at the North Island assets last year. This obviously impacted our ingredients overall volume, which decreased to 108,000 metric tonnes. However, offsetting that was improved premiums over the last 12 months, which was an outstanding achievement. And obviously, we had increased revenue due to strong ingredient pricing. We also saw progress in customer and market diversification with expansion into the Middle East. Looking ahead, our focus areas for ingredients will be further uplifting the premiums we achieved last year, continued expansion of our ingredients portfolio and amplifying market awareness of our high level of quality and consistency. Moving now to Slide 13. You will see an overview of our Foodservice business performance. This is for UHT cream, obviously, a very popular product, certainly in China. For FY '25, it saw us successfully launch our second-generation cream, which has further increased product stability in market. To deliver record volume last year of 8.4 million 1-liter bottles manufactured at our Dunsandel site, every single one of these was sold. We had demand remains exceptionally strong for this product in multiple global markets, and our focus will be to continue to grow that into next year. We're looking to grow margins, although that has been challenging. The real unlocker for our Foodservice business is to continue to drive volume. And it's really pleasing to see we've picked up a new distributor, which is sending product into Fiji, and we're working more broadly to increase that volume overall for that Foodservice business. Moving on to Slide 14, the Consumer business. FY '25 was another outstanding year the Dairyworks which drives our consumer business. I'd just like to acknowledge Tim, who is the CEO of that business, who was acting CEO of Synlait and also Aaron, who stepped into his shoes for a period of time. They've done an outstanding job once again for FY '25. The solid performance was driven by offshore markets with softer growth in New Zealand due to obviously cost-of-living pressures and increased milk prices. Overall gross profit for our consumer business was $39 million, up from $30.6 million in the prior year. And offshore Dairyworks saw a 53% growth in cheese export volumes with a lot of success across the Tasman. Dairyworks is now the fastest-growing cheese brand in Woolworths, Australia. The Alpine brand has also launched in foodservice then, and both Alpine and Dairyworks products ranges are now in Costco Australia. The focus for FY '26 is to continue delivering value in new product lines to domestic companies and further growing our export volumes. So a real standout for this year. Moving now to Slide 15, which is milk supply. As I mentioned earlier today, we have confirmed a record milk price, which is significantly up on the season's opening forecast. This should deliver some very happy farmers, which has been an important focus for Synlait across FY '25. Earlier in the year, our on-farm team did an excellent job of securing our milk supply for the current season after working to encourage farmers to withdraw their case and onboarding 11 new farms. This is helped by -- this was helped by additional secured milk premiums along with new guarantees around the milk price at advance rates. We will continue to focus on finding new ways to add value on farm. One of the focus areas will be improving our digital offering and continuing to support our on-farm through Whakapuawai program, which helps Riparian planting on farm. We will also look to launch our fixed milk price offering in FY '26. Now on to Slide 16. FY '26 presents a valuable reset for Synlait, as you well know. As we've already said, the sale of our North Island assets will strengthen Synlait's financial position considerably with the proceeds used to significantly reduce debt. Given the scale of the strategic reset, we will not provide further financial guidance for FY '26. Our focus is on executing the North Island sale and building a simpler and more focused Synlait in Canterbury. We are committed to making the most of this opportunity and aim to have an updated strategic plan in place by March 2026. So moving through to Slide 17, key takeaways from today. As was noted, the sale of our North Island assets will see Synlait become a stronger, simpler and more secure business. Financially, we will deliver a full and final balance sheet reset ending the company's survival phase. And strategically, it simplifies our focus and opens the door for us to explore new opportunities here at Dunsandel. Andy and I will now take questions. Hannah Lynch: [Operator Instructions] Your first question comes from Sean Xu with CLSA. Sean Xu: My first one is around your manufacturing challenge in your Dunsandel facility. It seems to be a reocurring issue now. I'm just very interested though in what specific processing improvement can be prioritized in FY '26 to prevent these kind of operational disruption going forward? Richard Wyeth: Sorry, I just didn't quite hear the second part of the question. Hannah Lynch: Prioritize this in FY '26 to prevent this happening going forward. Richard Wyeth: Yes. So I appreciate there has been a number of manufacturing challenges for a period of time and certainly coming in and being relatively new to the business is a focus for me. So as I mentioned, for our Big 6 for '26, that focus on operational stability is key. What I can say is that there are a number of one-off issues, and we just need to work through those systematically root cause analysis and fix those issues. I'm now comfortable with we're largely through that. But as I say, the next 6 months is very important for us. Sean Xu: My second question is around the a2, the China label digital production. My understanding is that requires a new -- registration renewal in calendar year 2027. I know that might be early stage, but as I remember, the last time registration with SAMR takes a long time. I'm just curious to know if you can give us some indication on the time line of when to start prep for this process. Richard Wyeth: Yes. So we've already started that process. You're quite right, FY '27 is key. And so we've been working on that already for a fairly long period of time. There's a bit of capital required going forward, and we're working with both a2 and SAMR quite closely to make sure we're ready for that. Sean Xu: If I may just quick check in a very quick question. Last one. With Bright being your largest shareholder, I'm just curious to know, is there any further collaboration you can leverage their connection distribution channel in China to expand your market there? Richard Wyeth: Yes. I mean, Bright are obviously a very supportive shareholder of us, and we are working with them. And I think there's good opportunities. I mean, we've got a very strong working relationship with Bright. So I think as part of our strategy reset, we will certainly be looking at what opportunities we have to work with Bright. Hannah Lynch: Your next question comes from Stephen Ridgewell with Craigs Investment Partners. Stephen Ridgewell: And first of all, congratulations on the sale of Pokeno. I know that's a big win for shareholders. With that the equity raise a year ago, 2 of the big 3 challenges that have been facing Synlait have been overcome. So well done on progress. My first question is on the use of proceeds from the North Island asset sales, and it could be either for management or potentially for the Chair. If you use the proceeds, $30 million of proceeds to pay back debt, Synlait could be in a position where it's got $74 million thereabouts of debt on the balance sheet. But the comments today also talk to the proceeds providing an opportunity to -- an opportunity to strategically diversify. And I realize it's an early stage, but I'm just interested in the sort of early thoughts the company has on the extent to which those proceeds will be used to pay down debt and the extent to which Synlait thinks it's got capacity to make acquisitions or other growth investments that may be more organic? And then related question is post the sale proceeds, will the company end up operating a lower net debt-to-EBITDA ratio than the 2.5x kind of flagged today? Richard Wyeth: Yes. Thanks. I'll take probably the first part and Andy may chip in on that. So certainly, initially, we'd look to obviously pay down as much debt as sensible. In terms of the longer term, that will be clearer through the strategic review that we can update in March. And just, I guess, my final comment, a personal perspective, which I'll share with the Board is that, I mean, I'd like to see our debt-to-debt equity ratio sitting at about 20% to 25%. I think that's prudent. We're seeing that as a good balance. When it gets to 45%, 50%, it doesn't really work. So that would be my intention going forward. Andy, if you want to add anything further? Lei Liu: No. I said actually that for our refinancing, we just finished it last Friday. That's why we still think it too early stages just to talk about regarding when we get the funds what we will do. But as Richard already mentioned, yes, principally definitely to just reduce our debt in order to just to keep it at a very reasonable levels and also seeking further opportunities. So this is the key point. And Stephen, just to try to make sure what's your second question regarding the debt-to-EBITDA level? Stephen Ridgewell: Yes. Just whether the company would look to operate at a lower net debt-to-EBITDA ratio, lower than 2.5x going forward, in particular, if we kind of look through a2 Milk's English label volumes migrating to the Pokeno site in the next year or 2? Lei Liu: Yes. Let's say that for the moment, we still think the 2.5x is still a reasonable one. That's why we don't think that we will change it for the moment. Stephen Ridgewell: Okay. Yes, look, if you keep it at 2.5x, it does suggest potentially quite a lot of firepower for acquisitions. But as you say, maybe we need to wait a bit longer to see where we land there. Yes. And then, I guess, as well, just on the -- in terms of the impact of the asset sales, we can see the proceeds of $307 million coming through, which is great. But can you give us -- can you hear me? Lei Liu: Yes. Hannah Lynch: Yes. Stephen Ridgewell: Yes, great. Can you just give us a sense of the kind of the EBITDA being generated from those assets in the -- I feel like on a normalized basis in the year just gone. My understanding was Pokeno was kind of burning $35 million a year at the EBITDA level. But just can you to give a rough steer as to the EBITDA loss that those assets generated in the year just gone? Lei Liu: Yes. So I can quickly jump to this question. So based on our FY '25 numbers that they said, once we get rid of the North Island, we are thinking about $5 million to $10 million kind of the EBITDA to be improved because definitely FY '25 that -- the plant is more filled, have more demand. That's why the level is not as high as what we said before. So $5 million to $10 million EBITDA impact. Stephen Ridgewell: Okay. No, that's helpful. And then just one last one for me. Just on the impact of a2 Milk's planned migration of English label volume from Dunsandel to its soon to be acquired Pokeno plant. Can you give us a rough estimate of the EBITDA impact that Synlait is kind of planning for? Is it reasonable simply to take the gross margin per tonne by the volume? Or are there other things to consider, for example, is there cost out the company connection or other factors such as the diseconomies of scale at lower production volumes in formula? Because I think that is obviously a key issue as the market kind of looks into the FY '27 and beyond time period. I mean some thoughts on that would be quite helpful. How you -- what the impact is and then the mitigation factors, the ways that you can mitigate that impact? Lei Liu: Yes. So Stephen, sorry, that's because these kind of numbers can be really very commercial sensitivity. So yes, I can't answer that very directly. Stephen Ridgewell: Okay. Well, I guess just as an opportunity to make some comments. I guess, as analysts, we have to take a view on their own numbers. Lei Liu: Maybe let me take it offline and just think about which kind of information we can provide. Operator: Your next question comes from Adrian Allbon with Jarden. Adrian Allbon: Maybe just a follow-on from Stephen's question. 4 months since the drill, Richard, what sort of cost opportunity do you kind of see in the Dunsandel asset going forward, both initially and as you sort of deal with the transition of acreage and recycle volumes? Richard Wyeth: Sorry, Adrian, it's just a bit hard to hear. Can you have another go at that, please? Adrian Allbon: Sure. Is that better? Richard Wyeth: Yes, it's a little bit better. Adrian Allbon: I was just -- as a follow-on to Stephen's question, I was just wondering what the cost out opportunity -- is it better? Richard Wyeth: Yes, that's great. Adrian Allbon: Yes. Just as a follow-on to Stephen's question, I was just wondering what the opportunity you see for cost out at Dunsandel actually is. Richard Wyeth: Yes. Look, I think, as I say, when we reset the business with a focus just on Dunsandel, there will be some opportunity in that, again, too early to get into the specifics, unfortunately, but certainly, we'll be able to provide more of an update at the March announcement. Adrian Allbon: Okay. Would it be useful as a starting point for us to kind of look to sort of FY '18 as a sort of -- as some sort of benchmark? Richard Wyeth: Andy, I don't know whether you want to comment on that. I haven't got the FY '18 numbers in my head at the moment. Lei Liu: Yes. So Andrew, that's regarding FY '18, it's really long time ago. So what I can propose is that let me work out some numbers and try to provide you some, let's say, some reasonable figures. For example, based on FY '25, we said we are saving about $10 million, just -- we're still including the North Island. That's why we think about definitely the number should be higher than $10 million. But let me just work out some numbers, come back to you regarding how you can simulate it. Richard Wyeth: Yes. What I can say in terms of -- I'm not sure what you to look back, but what I do know, given I've only been in the business a short time is what happened sort of even 2 or 3, 4 years ago in terms of throughput on the dryers at Dunsandel is that we won't get as much throughput. So as we're focused on higher quality, it means we have to derate the dryers somewhat. Now in terms of the specifics, I haven't got those in front of me today, but it does mean we can't just go look at the past as a precursor to the future necessarily because the standards have improved and China's requirements continue to improve. And all of those things mean we have to -- it does take some capacity out, not a lot, but it does take some capacity out of the dryers. Adrian Allbon: Okay. Just related to that, can you kind of give us a steer on what your sort of milk pool or what your contracted milk pool is for next year. Richard Wyeth: Circa 70. Adrian Allbon: Okay. And then I guess like in a broad question, are you expecting -- are you actually expecting EBITDA to be higher this year? And I'm presuming that the net debt is probably going to go higher as well because you've got all these premium payments to farmers coming up shortly. Richard Wyeth: Andy? Lei Liu: So let's say, for this year compared with FY '25, yes, you are right that we will pay some additional incentive to the farmers. It can be some challenge for the EBITDA. But as I said, regarding the FY '26 that we are more focused on selling the North Island, we will try our best, firstly, to focus on production stabilities and that's why -- that we didn't share any kind of our targets for the moment. Adrian Allbon: Just if you assume that the North Island business was in the numbers, which is probably what most of us are going to have to do, would you expect the net debt to be higher this year, like given your farmer incentive payments are due? Lei Liu: I should say about the similar level than this year because, yes, farmers payment, but also do remember, we have the EBITDA to generate the cash. So that's why we still think the net debt should be, let's say, a bit better than this year theoretically. Operator: Your next question comes from Matt Montgomery with Forsyth Barr. Matt Montgomerie: Maybe just start on manufacturing issues, Richard. I suspect it's unlikely you'll provide detail on what they were. But there's sort of a footnote around them being largely resolved. It'd be interesting if you could just maybe talk to that, what largely means, what you need to see to get them resolved? And yes, just any further color, I guess, to give us confidence that they have been isolated to the period that you've outlined previously? Richard Wyeth: Yes. Thanks, Matt. Good question. That was my fault. Look, I said that to Hannah, look, the nature of these businesses is that they're very complex, right, making Advanced Nutrition, for example, you've got ingredients from 10 to 40 different ingredients. You've got complex processing. So I'm relatively conservative by nature. So I said largely because while the issues we had from January to July are largely behind us. To say they've gone forever is you just can't do that. And look, in terms of the nature of those things, they are a combination. We've got people, process systems, engineering, there's a whole raft of things that can go wrong. A rotary valve can be put in some -- it might be an ingredient issue or supplied incorrectly. So there's so many things that can go wrong in making this advanced nutrition. So the issues we've had in the first half of the calendar year are largely behind us, but that's why I'm tuning up the focus on operational stability going forward. So I am very comfortable with the issues we had in the first half of the year. We have largely dealt with all of those, but you just never know what can be around the corner. So the way you deal with that in a processing operation like we are is you have very good systems, processes and you have well-trained people. So that is the area that I'm focused on at the moment. Matt Montgomerie: Awesome. That's very clear. Just on Dairyworks, I think EBITDA of around 23. Clearly, it's been a good business over the last 5, 6 years since you've owned it. And I think from memory at the time, I think the target was around 20 of EBITDA. So maybe just from you, Richard, how you think about that business going forward, maybe anything where you see it, say, 3 to 5 years from an earnings point of view? Richard Wyeth: Yes. Thanks, Matt. Andy might be able to put some numbers around it. In a general comment, I'd say I think it's got massive opportunity. I think the team there are fantastic. Tim and his leadership team have done a great job. So I think there's a real opportunity. The thing about that business is that we can just continue to scale it up. There's no sort of restrictions on growth. And I think that's what's exciting. They can procure product, they can add value to it, and they can just put it into different markets. They've got good market share in New Zealand. They're now targeting Australia, and I'd like to get to look even beyond that. So that's sort of my general comment in terms of the numbers around that. Andy, I don't know if you've got any more flavor to add to that. Lei Liu: Yes. So let's say, for FY '25, our revenue for the Dairyworks is about 12% increase, but gross profit is about $28 million. So it really shows that other than the volume growth, it's also internally, let's say, from the focusing always the strength for the efficiencies, productivity, also supported these numbers. That's why we still said this is a very good business that's in a good trend and also expected to have further growth. Matt Montgomerie: I might go one more, just a small one, Andy, the depreciation associated with the North Island assets, like what's the EBIT drag? Lei Liu: Sorry, can you repeat your question? What do you mean the EBIT drag? Matt Montgomerie: So just following up from Stephen's question, what's the D&A sitting over the North Island assets in FY '25? Lei Liu: It's around about $1 million per month. Operator: Your next question comes from Nick Mar with Macquarie. Nick Mar: Could you just talk through the net debt number? I think the trading update right at the end of your financial year, you were sort of guiding towards $300 million and you came in at $250 million. How did that change so much? Lei Liu: Yes, sure that I can just take this question. So what changes is mostly because of we have the higher customer demand and the customer demand also triggers some additional deposits. So this is how it comps regarding one of the reasons. Another reason is that, as you know, that Nick, we also have the receivable assignment. So end of the month, there is some kind of additional kind of deliveries, which we get the receivable assignment earlier. That's why this is mostly the 2 kind of the main drivers for the $50 million just reduced. Nick Mar: Yes. That's good. And in terms of what you're selling with the North Island divestment, sort of you mentioned the kind of lease warehouse as well. Does that sort of line up to what the North Island CGU was when it was impaired at the end of FY '24? Just trying to work out the price relative to the holding value? And also, do you have any sort of breakdown of the value by sort of PP&E versus working net working capital? Lei Liu: Yes. So to answer your question, yes, it's roughly the same regarding our CGU for North Island last year when we shared the numbers. So what I can propose you is that you can take the last year annual report numbers. And yes, this is kind of be the baseline regarding the CGU in the net asset value for the moment. Nick Mar: Yes. And the sort of mix between the PP&E and net working capital? Lei Liu: So working capital one, because here, what we said is regarding the total $178 million, it's $170 million for the PPE and $80 million for the working capital, let's say, just inventory. Operator: There are no further questions at this time. I'll now hand back to Mr. Richard Wyeth for closing remarks. Richard Wyeth: Thanks, everyone, for joining the call today. I look forward to meeting with many of you over the coming days. And in the meantime, if you've got any questions, you can just follow those up with Hannah. And that concludes our call for today. Operator: Thank you. That concludes the conference for today. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the 5E Advanced Materials Fiscal Year 2025 Year-End Results Conference Call. [Operator Instructions] Please note, today's call is being recorded. Before we begin, I would like to remind everyone that today's discussion will include forward-looking statements. These statements are based on current expectations and assumptions and subject to risks and uncertainties that may cause actual results to differ materially. For more information on these risks, please refer to the company's filings with the Securities and Exchange Commission. 5E Advanced Materials undertakes no obligation to update or revise any forward-looking statements. At this time, I would now like to turn the call over to Paul Weibel, Chief Executive Officer of 5E Advanced Materials. Paul, please go ahead. Paul Weibel: Good afternoon, and thank you for joining us today. Fiscal year 2025 has been a transformative year as we move from development to commercial readiness. We achieved broad validation across our project from the SK-1300 pre-feasibility study to customer qualifications and supply chain milestones. Before I go into detail, let me summarize the key achievements from fiscal year 2025. Strong project economics have been validated. Our recently published pre-feasibility study for Phase 1 only confirms a 39.5 year mine life with a robust after-tax NPV of $725 million and a 19% project IRR. Commercial front, we have successfully qualified our high-purity boric acid with 14 customers across multiple segments and have now advanced to full-scale production testing with a Tier 1 specialty glass manufacturer. On the financing front, we received a nonbinding LOI from USXM for a potential $285 million project debt facility, a major step towards securing funding for Phase 1 construction. And in regards to on track for being -- towards the project FID, we now have milestones and are well positioned to advance towards FEED engineering and a final investment decision in mid-2026. Today, I will cover these 4 areas in more detail and discuss the upcoming fiscal year 2026. First, the recently published SK-1300 PFS provides a strong validation of the scale, economics and longevity of our Ford Cady resource and reserve. This study covers Phase 1 only, not including future expansions or higher-value boron derivatives. The results underscore the strength of our project fundamentals. The project shows a pretax NPV of approximately $725 million with a 19% project IRR. The after-tax NPV is about $469 million with a 16% project IRR. We estimate free cash flow over the life of mine have roughly $3.7 billion pretax with an after-tax payback of just under 6 years. The study outlines a 39.5 year mine life, supported by 5.4 million short tons of boric acid reserves. Phase 1 targets 130,000 short tons per year of boric acid, which we believe has a strong need in today's global market. On the cost front, all-in sustaining costs are estimated at $555 per ton with initial capital at about $435 million. This is inclusive of contingency and a gas cogen facility. These results are underpinned by real-world operating data from our small sale facility, which confirmed our expected recovery and efficiencies. Thus far, we have received highly favorable feedback from analysts, prospective customers and the investment community. Next, I'd like to turn our attention to our traction with customers where we see growing validation. Earlier this year, 14 customers successfully qualified our boric acid. They span a wide range of industries that includes specialty glass, fiberglass, ceramics, insulation, agricultural, defense and chemicals. We continue to see accelerating demand for our high-purity U.S.-based boron supply and additional customers are in advanced testing phases. As we move from breadth to depth, we recently hit a significant milestone with a Tier 1 specialty glass manufacturer. We completed a full logistics and handling trial, shipping 2 tons of product from the California Port of L.A. to Taiwan. This trip took approximately 20 days and the material passed all on-site handling tests, including successful deployment in a glass furnace. As a result, we have received a green light to advance to full-scale product testing within this future customers' production system. As it currently stands, the product for the full-scale product test is produced and fits ready to ship. We are coordinating the shipping PO and the shipment of 20 tons of high-quality borate product is imminently expected. The next trial is expected to take 2 to 3 weeks to ship overseas and approximately 5 weeks to test in a commercial glass furnace. Furthermore, our team has begun producing the next batch of high-quality borate that will go to other large LCD glass manufacturers who are waiting in queue to implement a similar test. Our operation is proven, scalable and consistently meeting the strictest global quality standards. With these successful milestones being delivered, we have formally entered into long-term offtake discussions and have had 2 formal presentations with the most recent being a presentation of specific offtake terms. Most recently, our forecast of supply and demand has been resonating with our future customers, and industry dynamics are creating a clear opportunity for 5E, particularly in light of recent announcements from 1 of the 2 major borate producers. 5E and our stakeholders believe there is a fundamental need and requirement for a new market producer to reduce supply chain risks and our method and approach thus far has reinforced confidence and strengthens trust within the borate market and investor communities. Finally, I'll cover our road map to FID and financing. We remain on the path towards an FID by mid-2026. We have commenced early FEED engineering activities with 5E targeting the formerly stage gate to FEED engineering before year-end. We have prepared an application for the EXIM Engineering Multiplier Program and target $8.5 million to $10 million in a loan facility that will provide the capital and liquidity to fully fund FEED engineering. Once stage-gated to FEED, we expect that process to take approximately 8 to 9 months to complete, which leads to FID in mid-2026. Last week, we submitted a formal response to the USGS draft critical minerals list, where we strongly believe boron has a place on the list. The draft list was released prior to the second largest borate manufacturer, citing that their business is under strategic review. As it currently stands, we believe the United States has a single point of failure in the borate market. Per publicly available financial results the second largest port producer and single point of failure in the United States supply chain have seen their costs increase approximately 60% for 2017 on a B203 basis. Given the material announcement at the largest U.S. borate producer, their 2018 reserve downgrade and what we believe are weakening business fundamentals, there is a need add boron to the proposed critical minerals list. Without this producer, the United States would lose its position as the second largest producer and as a nation, we would transition from a net exporter to a net importer. The boron market is an oligopoly. The United States has a single point of failure and without further investment in new borate projects, the United States will be reliant on Turkey for boron and China for its critical advanced boron materials. We view 2025 as an inflection year for boron, as independent analysis shows supply shortfalls beginning in 2026, which we believe supports the fundamental need for a new market producer. Looking ahead, we are focused on several key catalysts in the upcoming quarters. These include progressing full-scale testing with multiple specialty glass manufacturers, securing additional qualifications and initial offtake agreements, securing a small XM loan to cover FEED engineering costs, completing fee-ready, engineering deliverables, advancing the larger project finance and XM loan process, finalization of our mine plan in connection with our horizontal well trials and lastly, the potential opportunity for USGS to do the right thing and add boron to the final critical minerals list. In closing, I want to thank our employees and partners for their dedication. With the achievements from fiscal year 2025, we are well positioned to advance towards FID in mid-2026, and build long-term value for our shareholders and our stakeholders. Thank you, and I look forward to your questions. Operator: [Operator Instructions] Okay. And it looks like -- apologies, just about to hand it back to you, Paul, but we did get a question coming in from Tate Sullivan from Maxim Group. Tate Sullivan: Can you review the comments you had about the disruption to the California boron mine? What was the specific announcement that you cited? Paul Weibel: Tate, yes. No, appreciate you dialing in and thanks for the question. So at the end of August, Rio, with the appointment of the new CEO, made announcements that they've streamlined their business. Historically, Rio has been broken up into 4 different business segments. And on a go-forward basis, they're now structured where they have 3 business segments, which is one, iron ore; two, copper; and three aluminum or lithium. And essentially, the industrial minerals, which I believe that's where their diamonds, borates and titanium business sat, are essentially up for -- well, they now sit with the chief -- the office of the Chief Commercial Officer for the release and they are up for a strategic review. Tate Sullivan: Okay. And then to get boron on the USGS critical mineral list, is it a -- I mean 3, 6-month process or what needs to happen in terms of the review? Paul Weibel: Great question. So we were in D.C., I was down there and met with Interior in July. Kind of the word on the Street was that sometime this fall, the draft list would come out. And there was no comment on it, boron would or would not make the list. But essentially, the appropriate measure to get boron added to the list is essentially to submit public comments. My kind of gut told me at a time, I should expect to see a draft list by October. Was pleasantly surprised that kind of came in ahead, and I think it was maybe the first week of September or last week of August the draft list was published, which essentially opened up a 30-day public comment window. All comments are available on the Federal Register. And we submitted our comment, as did believe 8 other groups, that you could search for borate on the Federal Register under the comments and they're all there. I was pleased that there was some well-known groups that did apply. And so we're not now the kind of the only one in the room kind of ringing the bell that there are supply chain concerns there in this market. Operator: And there were no other questions at this time. I will now turn the call back over to Paul Weibel for any closing remarks. Paul Weibel: Great. Thank you. I appreciate the Q&A during today's call. As noted, we believe 5E has the right resource, and now it's the right time. We are committed to building a strong and resilient borate supply chain that underpins the U.S. industrial base for many generations to come. We look forward to fiscal year 2026 and delivering on our expected milestones as we go into 2026. Thank you. Operator: Thank you. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Matthias Bodenstedt: Welcome, everyone. Good morning, good afternoon. Thank you for joining today's webcast. My name is Matthias Bodenstedt, I'm the Chief Financial Officer of MoonLake Immunotherapeutics. As usual, I'm joined here by our Co-Founder and CSO, Kristian Reich; our Co-Founder and CEO, Jorge da Silva. We are also honored to be joined today by Professor Alexa Kimball, a leading [indiscernible] in HS. We will go through the data and then look forward to the thoughts and reflections of Professor Kimball on the VELA data that we will be presenting today. In the end of the session, as usual, we will open up for Q&A. Please take note of our disclaimer on the forward-looking statements. [Operator Instructions]. The presentation document and the replay of this presentation will be made available on our IR website on moonlaketx.com. With that, I'm handing over to Jorge. Jorge da Silva: Thank you, Matthias. Also from my side, welcome all. Good morning, good afternoon, depending on where you are. Thank you for making the time to join our presentation today. I'll start very briefly with a quick summary of the points that we're going to be hitting in the call today, most of which obviously has been covered in the press release that was sent out yesterday. The main messages are that obviously, the VELA-1 and VELA-2 trials formed the VELA program, which, as you know, has been testing sonelokimab in adults with moderate to severe HS to a primary endpoint readout at week 16. Importantly, from a regulatory perspective, and obviously, for all of us, the combined VELA program demonstrated clinically meaningful and obviously, significant improvements across all primary and secondary endpoints at week 16 using, of course, prespecified strategies with the regulators with a very, very low p-value. Obviously, as you know, there are two big differences between VELA-1 and VELA-2. VELA-1 met all primary and secondary endpoints, as you saw the delta to placebo at week 16 between sonelokimab and placebo for HiSCR75 reached a delta of 17%. We fully understand that for the street, maybe the expectations were a little bit higher. Obviously, ours were too. But obviously, a 17% delta in our minds is very much in line with what is needed. And as you know, for us, there's many other elements about HS that matter more than a delta to placebo. VELA-2, as you know, hit an issue. We had a higher-than-expected placebo arm. It's meant that we needed to dig deep into our statistical analysis plan as agreed with the regulators to really understand the significance of the primary endpoint at week 16. And from the perspective of the company, we feel that the trial has all the merit to proceed in clinical development. I want to make clear that the company does not agree with the statement that the trial failed, but it does require us to do a bit more investigation with the regulator. Very, very importantly for us, because obviously, we're doing this because we believe that more drugs and more solutions are necessary for these patients, VELA-1 and VELA-2 demonstrated very strong responses across endpoints that really matter to us, not just HiSCR75 or HiSCR50, but very importantly, pain scores, quality of life, which really matter to patients and we continue to see a very favorable safety profile. Obviously, the convenient subcutaneous scheme continues to be an advantage that we think is important for physicians and patients. As I told you already, the VELA trial will progress. We will now seek advice from the regulators and continue the process. And obviously, we're continuing to drive several other catalysts in other indications. I want to quickly remind you of the design of the VELA trial, just to make sure that we're all on the same page. On the left side of Page 5, you see the common design between VELA-1 and VELA-2. We ended up with a total of 838 patients across the two trials. And on the right side, I want to remind everyone of the hierarchy of endpoints and why some of these things matter. Number one, you obviously see in the dark pink color, the endpoints that relates to lesion counts and in the lighter color, the patient-reported outcomes. As you know, in agreement with the regulators, we use HiSCR75 as the primary endpoint first time in a Phase III. And we would also like to call your attention to the pain response and to the high score, which were specific requests from the regulator to include here because they reveal something that is very, very important in clinical practice. So obviously, there's a hierarchy, but there's a lot of richness in the endpoints that were chose. No news on VELA disposition and many of you have seen disposition charts for sonelokimab across many trials. It's the usual story. The patients tend to stay in great numbers as we progress through the clinical trial into the endpoints and beyond. The other element that obviously, we need to cover upfront, but it's also [indiscernible] no new slide is that the patient characteristics are very well balanced across the trials. As you remember, it was very important for us that both VELA-1 and VELA-2 had very close set of patient characteristics that tells you a lot about the validity of the trial and as you can see, the differences are minimal. I think very importantly, it's very well aligned with our Phase II program, MIRA, which, as you all know, is very important also from a regulatory perspective. But also all the small differences of a few percentage points that you see between placebos and those or between the two trials, VELA-1 and VELA-2, in our mind are all relatively small and definitely within the range of what we've seen for other Phase III programs. Now because of the VELA-2 placebo, I'm pretty sure lots of people are using a magnifying glass to try to see these numbers, try to see if something is happening that we have not been able to detect. But what I can tell you is that there's no smoking gun, if you allow me to use that expression in any of this to reveal anything regarding the placebo and the patient characteristics are exactly as we wanted. Before I hand over to Kristian and to the data, allow me to show a little bit of a deep dive into our statistical analysis plan with the regulators. Now I know this is unusual for many of you. This is always something that happens in the background. You don't see it, you don't need to see all this detail. But to understand the valid data and to understand what happens next in terms of our regulatory path, we feel that it is important to spend a couple of minutes here. What you see here is two strategies, the composite strategy and the treatment policy strategy. These are different strategies to analyze our data. They apply to the whole population that we intended to treat. They both use multiple imputations to analyze missing data. There's a little bit of a difference on how you impute the responders. However, what is really important to remember here is that both of these strategies are must-see strategies by both the FDA and EMA for any scenario for any I&I drug. I want to be very clear about this because: A, this is not an optional set of strategies that we use; B, is not something that MoonLake decided to use just to make the results look better. This is something that is required by both regulators. Why are they required? To test robustness. So essentially, what you need to do is that you need to use your primary strategy, which in our case is the composite strategy to evaluate the significance of those endpoints and then you need to test the robustness of that significance. And you need to see concordance between the two strategies. If there is no concordance, if the p-value analysis is different, which is the case for our VELA-2, then you need to discuss all this data with the regulator to see how you progress forward looking at the data. And this is where the absolute numbers of response, for example, in a drug like sonelokimab, the safety, the concordance between primary endpoints and secondary endpoints, the concordance between trials, this is when it all becomes important, right? It is rare that we need to go to this level of detail, either trials fail or they don't fail. But there's a series of trials where the p-value is just at the border line and this type of analysis is necessary. But again, not something that MoonLake decided to use, but something that is specifically discussed with the regulators at all times. So I hope that she had some clarity of why you're seeing different strategies here and why it's important that you know about them. And I think this is a good time to pass on to you, Kristian, to go through the data. Kristian Reich: Yes. Thank you very much, Jorge. On the first slide, I want to show you the kinetics of our primary endpoint, HiSCR75. We show you this using both of the methods that Jorge has just explained. You see in the upper panel always our primary analysis strategy, so-called composite strategy. The lower panel, you see the treatment policy. We show you this for VELA-1 and for VELA-2 and for the combined VELA program. First of all, I want to highlight this again, both methods are very conservative valid methods. There's not a first class and the second class. If you look at the VELA analysis, you immediately see that the results generated by applying these two methods are actually very similar. You see that in VELA-1, whatever method you use, you see a high statistical significant delta between active sonelokimab and placebo. If you look at the delta at week 12. at week 16, which is, of course, the primary endpoint, you see that the numbers are actually identical. So in VELA-1, very robust study, primary endpoint met with whatever strategy with high p-values below 0.001. What you see in VELA-2, and Jorge already discussed this, that at the primary endpoint, applying the composite strategy, our primary analysis strategy, you see a borderline p-value of 0.053. For those that are familiar, you know that this is driven by a single patient. This is a scenario where your second method becomes relevant and you need to, I think, also show to the world. This is why we decided to do this, show the results with the second method. And as you can see and probably highlighting how border line this finding really is using the treatment policy, you see a statistical difference also in HiSCR75 at week 16 with VELA-2, and this is where we will seek clarity with regulatory authorities on what this means. We also see, of course, in the combined program that primary endpoint is met with high statistical significance, very similar to VELA-1. I want to take a step back and highlight some other findings that you see on this slide. Number one, if you look at the blue curves, so the efficacy obtained during treatment with sonelokimab, the lines between VELA-1 and VELA-2 are almost identical. So very clearly, this is not an issue with [indiscernible], this is an issue with placebo. And when you take a closer look at VELA-2, you actually see it's an issue mostly at week 16. You see that the delta to placebo in VELA-2 at week 12 is 17 percentage points. You see that it narrows at week 16. You also see a double whammy, if you will, a double hit. You not only see this dramatic increase, unexpected increase to a number we have never seen before in the Phase III trial, 25% at week 16, but you also see that the response to sonelokimab is actually coming a little bit down. I think both phenomena together explain the borderline significance. I think what arises from this is the immediate question, well, what's going on then with sonelokimab treatment? What if you treat longer, do these patients gain more response? Or does this little drop between week 12 and week 16 and VELA-2 indicate that the response has kind of expired. And you see the answer to this question on this slide. And there's a couple of important things here. Number one, there's really a very fast onset of response. HiSCR75 is already significantly different between sonelokimab and placebo from week 4 on. HiSCR50 actually from week 2 on. So as we saw in other indications, a very fast onset of response. Secondly, you see again that the curves for VELA-1 and VELA-2, if you look at the blue curves, the sonelokimab arms are almost identical with the exception of this dip in VELA-2 at week 16. What you can clearly see is that if you continue treatment and not every patient in our trial has yet achieved the week 20 and week 24 endpoint, but you see the numbers below the X-axis, the vast majority of patients have. So I think this is a valid analysis to share with you. You see that the response continues to go up. And I think this 50% HiSCR75 response at week 24 is remarkable, thinking about a 50% HiSCR50 response that has been a wishful outcome for other drugs in HS. The second and really important thing you see on this slide is that this high placebo response does not stop the patients in VELA-2 to get exactly the same benefit from treatment to sonelokimab after the switching compared to the patients in VELA-1. Actually, within 4 weeks in VELA-1, the patients show an increased HiSCR75 response of 13 percentage points. It's almost identical 14 percentage points in VELA-2. So whatever your starting point from a placebo response perspective was, you gain the same benefit from the switch to sonelokimab and within 4 weeks, the patients coming from placebo basically have the same response in the patients that started on sonelokimab at baseline. What does this indicate? I think it clearly indicates and it could be different. We could have the same placebo response across both trials and have a wobble and/or active response. I think that would be a far worse outcome. But what we clearly see here is very valid, very similar responses across both trials on sonelokimab. And the placebo, if you allow me to use this nontechnical word, the placebo wobble pretty much exclusively in one study, one time point, one outcome, which is the lesion count. You can see this again reflected here on this slide. The gray horizontal bar in the background is the range where we saw HiSCR75 placebo responses in Phase III trials in HSV4. A range between 13% and 18%, you see that in VELA-1, our placebo response at week 16 was on the high end, 17.5%, but within the historical range, if you will, you clearly see the outlier here is this unexpected high placebo response at week 16 in VELA-2. However, what you also clearly see, and you think this is -- what in the end characterizes sonelokimab in this trial probably best is that the drug really delivers on the HiSCR75 responses, whatever method you use and whatever trial VELA-1 or VELA-2 you look at. For fairness of comparison, only we had HiSCR75 as the primary endpoint, all the other trials you see on the right-hand side had HiSCR50 as the primary endpoint. So then let's look at the HiSCR50 response and you see the same type of analysis. We will not go into details. You see in pink the responses in VELA-1 and VELA-2 to sonelokimab. And again, I would say that not only are the responses also with regard to HiSCR50 identical, but I would also think that the active drug, sonelokimab really delivers not only on HiSCR75, but also on the HiSCR50 response. Now counting lesions in hidradenitis suppurativa is obviously a complicated business. I'm looking forward to what Professor Alexa Kimball has to say about this. This is not the first time the HS community is discussing placebo responses. So I think these three important patient-reported outcomes we have as key secondary endpoints, I look at them as a very important validation of what's really going on in the trial because if you have a reduction of pain, if your quality of life dramatically changes, I would think it's very rare to see this on placebo and not on active. And this is exactly what we see. You see here the pain reduction. I remind you, we use the FDA recommended somewhat more conservative pain reduction, which is not 2, but 3 points or more on a worst pain numerical rating scale. You see a very clear separation between sonelokimab and placebo, again, similar in both trials. And for this pain outcome, the delta between VELA-1 and VELA-2 is very similar and you see the statistical analysis yourself. If I would have to choose from all the outcomes we present, I would probably think that this is the most relevant for patients. If you're not familiar with the hidradenitis suppurativa quality of life score, this is a tool HS specific quality of life tool that was validated in the U.S., validated in Europe that includes 17 questions covering four domains that really ask patients about all the different aspects of the disease burden in profession, in relationship, in sport, symptoms like pain, everything is included in here. It's very interesting for me to see that on the 280 patients that received placebo in our study, uniformly between VELA-1 and VELA-2, the patients said, I see very little improvement in the HiSCR. My disease continues to bother me. From the 560 patients that received sonelokimab across VELA-1 and VELA-2, you see a very similar and highly statistically significant difference. Now patients say, I'm no longer bothered that much by my disease. I can do sport again, I can go to work again, I can have a relationship. So this is probably a pretty fair view on what's happening in the study. I should also say that these reductions of HiSCR are actually higher than what we saw in MIRA, our Phase II trial, and they also seem to be higher than what currently available treatments for HS are able to demonstrate. Our third key secondary PRO outcome was the DLQI. We show here the patients. This is a more-broader tool that looks into quality of life in association with dermatological diseases. Overall, it's not HS specific. You see the percentage of patients that achieved a meaningful improvement of the DLQI. For me, this is very reassuring on top of the HS specific that I just showed you that indeed quality of life dramatically improves. You see the same delta to placebo across VELA-1 and VELA-2, around 20%. This is very much in-line with what we saw in MIRA. And again, I would think it indicates a potential advantage over what other drugs available for HS were able to show when it comes to DLQI. This is a complicated table, and by no means I will take you through this table. But just to share very transparently, all data I was talking about in the last minute as analyzed with both the methods that you are now familiar with. So you see on the left-hand side, our primary endpoint in both. You see all the key secondary endpoints. You see in the upper part of the table, the analysis done with our primary analysis strategy, the composite. You see on the lower part of the table, all analysis done with the treatment policy. There's just a few things I want to highlight here. First of all, if you look at the p values in VELA-1, I would think this is one of the most robust -- when the just robust -- if I just look at the statistic analysis, Phase IIIs ever done in HS when I look at the p values. You see the problem, if you will, at week 16 in HiSCR75, but it's interesting to see that even in VELA-2, when you look at all key secondary endpoints, nominal p values were achieved. If you use the treatment policy in VELA-2, all primary all key secondary endpoints met statistical significance, and I already talked about the VELA combined finding. Just so that you know why we presented it this way in the press release and why we, as a responsible managers in MoonLake are convinced that the study by no means shows that sonelokimab does not work in HS, which we think it does show that it works in HS. And looking at the patient-reported outcomes, we even see a potential for a competitive advantage. Super important is the safety. I'm a dermatologist myself, but I will say that dermatologists are probably not the bravest physicians in the world. They want -- they need chronic treatment for their patients. They want safe treatments. They want a safe long-term control. The safety profile is shown here for the combined VELA-1 and VELA 2 study. Actually, the very favorable safety profile that we saw before, no new safety signals. To me, there is evidence in here for an even differentiated safety profile in the sense that some of the warnings we see with competitors, suicidality, hepatic. In our analysis, we saw no evidence for a reason to get a similar warning. So we would think that the safety profile is actually very favorable safety profile. I want to remind you that all of this is achieved with a dosing scheme. And again, coming back to something that is not so much in a Lancet publication or in the presentation to investors, but what really matters for patients and physicians in the doctor's office. And that is how convenient is this? How long does an injection take? How much needles do I need to get before I go to a maintenance scheme? We have 1 milliliter of 120-milligram SLK. It's injected in a few seconds. We need 4 injections for the induction -- from then on, it's the monthly maintenance scheme. We always thought that this is a little competitive convenience that we already have in our pocket and of course, these days. Matthias Bodenstedt: Thank you, Kristian, for walking us through the VELA week 16 results. Now as introduced earlier, we are very honored to have Alexa Kimball -- Professor Alexa Kimball join us here today to discuss the results with us. Now, you see her disclosures on the screen. Professor Kimball is one of the leading KOLs in hidradenitis suppurativa. Probably she doesn't need any introduction because all the audience will be familiar with her. Again, thank you so much for joining us here today. And I would say, a very, very simple question to you. We would be very, very keen on hearing your thoughts, your reflections on the VELA data that Kristian just presented. Alexa Kimball: So thank you so much for having me here this morning. And what I'm going to try to do, having been working in this area now for 15 years more is give you a little bit of context of what we expect to see in HS studies, how this data fits into that context, what the regulatory precedent has been a bit from some of the other studies because of some of the common occurrences that are a little unusual that we see in these studies. So as I said, I've been thinking about HS for about 15 years. And I have been along with MoonLake for their entire journey as well. And it -- we have evolved incredibly, right? So back in 2009, when a group of people, including myself sat down to think about HS assessments and how we could actually get drugs through regulatory approval because we saw that there was a signal when using TNF inhibition that we thought was worth pursuing. We knew it was going to move forward. And remember at that time, we didn't even think HS was a common disease, but we thought there was value in patients to figuring out a regulatory pathway. And it was that process that ultimately led us to the HiSCR or the HiSCR50, which is not a perfect measure by any means, but has proved a valuable addition and has been the basis of all the regulatory approvals to date in terms of efficacy assessments by clinicians. Now, very important in development of the HiSCR50, which is a 50% improvement in nodules and abscesses without a conversion [indiscernible] is that we created that system to correspond to the PROs. So the inflection point that we took at 50% was related to both the efficacy that can be achieved, but also where we saw meaningful differences for patients on our array of PROs. [indiscernible] was not available at that time, but we were using things like a DLQI and a pain measurement. And I say this is important because as you look at the totality of all the data presented, you would want those to be internally convergent, and I'll talk about that in a bit. But clearly, in this study, as you heard, they are. Now flash forward 15 years, and we are starting to move people to HiSCR75. And that is a tremendous goal. And hopefully, one day, we will see HiSCR90s and HiSCR100s, just as we've seen in other fields. But as we'll talk about, that evolution does create some other trade-offs as you think about the design of all of these studies. So as you have seen, I have been involved in almost all of the Phase II programs for HS and all of the Phase III programs. And I've learned, of course, as have we all along the way about some unusual things that happen in HS studies. And I will also just reference I have conducted over 150 studies in every disease from acne to cutaneous T-cell lymphoma. And there are something in HS that happen that are unusual in most things. The first is that assessing lesions is difficult, and that's why we knew it was hard. Why is that? It's because some of these areas are deep underneath the skin, they can't be seen. They have to be palpated. They are in regions of the body that are hard to access in a way that is consistent. And so it is challenging to do clinical assessments. And again, we evolved to a set of metrics that help us to assess them, but it will always be somewhat challenging. And despite having looked at every alternative available, there is no more straightforward way to do the assessments, I think, than the way that we were doing good. Other things that we've seen from across the study portfolios are that treatment arms can perform differently even when as you see, there are not large differences in the demographics. And what's interesting about that is we've seen that in some programs where the loading doses with 2 different arms are the same, and yet you can see the arm performing differently very early in those programs as well. Again, often, there is not a smoking run means it's not just one factor or another. It may be a combination of factors. It may be a combination of patients, it may be a combination of studies. It is absolutely true that HS patients can both worsen and improve spontaneously in pretty dramatic ways. And that leads to a lot of underlying variability in our assessments and in the studies. So -- and it's also true, you can see in some of these cases that other biomarkers for these patients improved as well. So they are truly improving during the course of the disease. And that's why when we are using 12- to 16-week endpoints, it can be very hard to interpret in the studies what is happening with these patients. And I will also say in every program to date that we've seen, continued therapy does lead to continued improvement for patients. I expect you will see this in this program as we go on further. And that's because actually 12 to 16 weeks is very important in the course. We use it because that's really the longest period of time that we can manage a placebo group. But really in the clinical setting, I am looking for improvement over a 20 to -- 24- to 48-week period of time, and that's what I tell patients as well. Other unusual things we see in HS studies are sometimes lower doses are outperforming higher doses. Again, that probably has to do with some underlying variability in how the patients are doing, what their underlying characteristics are and other factors that, again, as an aggregate probably have an impact. But on an individual basis, we've not been able to get them. And then I think the HiSCR75, as you see in this program has creates another nuance, which is although it is clearly where we want to be from an efficacy standpoint because fewer patients make it to a HiSCR75, variability in just a few patients can change the dataset in a way that maybe at the HiSCR we don't see. So all of these are trade-offs in study design that we have to manage and have proven a little bit unpredictable on the margin in all of the programs. And certainly, we have seen in other large Phase III programs that some of the key endpoints were not met even though the bulk of the endpoints were. And again, this has to do with some of the underlying variability out in the process. So I'll kind of conclude in my lessons learned by talking for just a second about a term that I coined that you heard this morning, which is the data model. And this is, again, I have never seen in other programs, but happens in HS, which is that 10th ultimate endpoint, the 12-week endpoint in this case and others is actually not as strong as the 16-week. And again, this has been repeated across some studies. This placebo model as it were that you see here, I've seen less frequently, but really had major impact in the statistical analysis of that final one. But factors that seem to lead to do that while the treatment group are, again, related probably to some of these more so convergence of demographics and other risk factors that lead to different outcomes. And again, we have seen uniformly patients continue to improve with further treatment, but this is a model that we do see at week 16 in some of the earlier studies. So lots of lessons learned here, and I hope you can take away that the variability that we sometimes see in some of these endpoints is a common occurrence in these studies, and we have not been able to completely mitigate that even as we have tried to refine our design and refine our metrics over time. It is just how this disease presents itself. In terms of this set of data, it is very clear, right, that IL-17A and F inhibition is an effective mechanism of action for HS. You see this across the programs. This medication is no different in terms of having proven and established role efficacy in this area. And I think as you look at the collection of this data, it is highly convergent. This was a well-conducted study. You can see that the PROs and the efficacy metrics line up. You can see that the endpoints in terms of the treatment group are almost identical in terms of their achievement. And you can also see that the treatment, the placebo arms as they shift to treatment have highly predictable responses as well. And you can see that the PROs are lining up with all of these measures as well. So the internal consistency in this study is exactly what you would like to see for a study like this -- and I also want to point out that the pain data in particular, is excellent, and this has been, in particular, an endpoint that has been hard for some other programs to move and it's been one of the least reliable in some. So again, a lot of convergence to the data that we see. I'll also add that the safety data in, again, this early phase of the trial is very strong. The things that I look for as an investigator and a clinician, in particular, to all the usual things are the IBD rates, dermatitis rates and immune-rates. And this profile is very compelling as we bring this forward. No surprises and within the spectrum of what we'd like to see and in some cases, below that, particularly, again, or in this study with 0 IBD cases that have been looked. So in conclusion, it's clear that there will need to be regulatory conversation about this data given how the primary endpoints were designed. But the convergence in totality of the data demonstrate that it was well conducted and that there is compelling aggregate data that demonstrates that this drug is working in the high efficacy range of the therapies that we have to date available. I will also say that the unmet need for HS patients still remains acute. You can see that as many programs are in the field for HS, and they are enrolling rapidly and successfully because there are a lot of patients out there still looking for both current treatment options and better treatment options going forward. There are programs sprouting up across the United States at almost every academic medical center and in the community with an emphasis on HS and those programs are filling up almost immediately. And we're seeing large cohorts being prescribed from multiple centers, which again demonstrates how much unmet need there is there in terms of the patient population that is [indiscernible]. So I am -- I was very much looking forward to starting the study for my clinical trials patients here, and I'm very much looking forward to having this medication available for patients in the future. I think, again, the totality of this data demonstrates a clinical meaningful impact and value to our patients with HS who deserve the best treatments that we can provide them. Thank you. Matthias Bodenstedt: Thank you for Professor Kimball for your reflections on the dataset. Now I know that you had other appointments to attend to. So once again, thank you very much. With that, let me hand over for the last bit to our CEO Jorge da Silva, again. Jorge da Silva: So, great to have Professor Kimball as one of the key researchers in the field and in our trial. Hopefully, that was informative for those listening to this webcast. Before we go to Q&A, I want to get to a few clear points around what happens next. As you can imagine, I've been reading some of the reports that have been coming out since yesterday night, and I seem to hear that there's a clarity of -- a lack of clarity of path, and I have to confess that I could not disagree more. I think it's unclear what exactly the path will be, what are the adjustments that we will need to make, if any, but the path is very, very clear. We believe, and I think you've heard some of that color that the HS package that we have with sonelokimab has good chances of being approvable based on all the data and this -- again, this correlation of data and what it means around a single data point for a single element that changes in one trial. And therefore, we will be seeking to confirm that registration path with the appropriate regulators. Now you'll be asking, okay, but what does this mean? What are you going to discuss? What do you think the outcomes may be? I think it's very unlikely that this is seen as a failed study and as a failed program. That's what the company believes at this point, having consulted with several folks internally and externally. We could imagine paths in which VELA-1 becomes the leading registrational trial and VELA-2 together with MIRA, which as I mentioned already today, is part of this whole game, if you allow me this expression, will then support VELA-1 as registrational. It could be that it's VELA-1 and VELA-2 as originally predicted. We just obviously have to understand and describe that significance around that primary endpoint. It could also be that the FDA requires us to do a little bit more work. All of these are possible outcomes. We believe that we have a very strong set of arguments here. And again, you heard other people in this call saying that today. So we're feeling confident. But the path is very clear. We are preparing those books. We are looking to engage with the regulators in short order. There should be no lack of clarity around what happens next. And hopefully, within the next quarter, we'll be able to come back with a good plan. What I think is also true, and I want to make this, and I want to underline this point is that this company continues to believe that SLK has a differentiated profile in HS, matching others in efficacy and obviously showing an impact on pain and quality of life and safety and convenience that we believe will really drive the acceptance of this medication with patients and physicians that, as you heard, sorely needed. And obviously, we had an issue with one trial and endpoint in HS. But that doesn't mean that the drug cannot perform extremely well or better than others in other indications that we're also running, PPP, axSpA, PsA, et cetera, right? So I think it's also important to remember that this is one trial, and we have excellent data also in other indications. We believe that it's very important, as you heard also from Professor Kimball, that this data is discussed and out there. So we will wait no further and make sure that the data is presented in a scientific conference as soon as possible. And that means we will be in Nashville at the end of October to present the valid data as soon as possible so that you can all continue to see all data in all transparency and for the Street and investors to have an opportunity to engage directly with KOLs and those that will participate in the approval process and in the prescription to create your own perspective around what this data really means. So with that, we'll move us to Q&A. Maybe Matthias, you can check the many questions that are out there, and you can direct a bit traffic. I think we'll take 5, 10 minutes for this. Matthias Bodenstedt: Absolutely. And we did receive quite a few questions. So let me try to group them a little bit. There's a few questions here that continue talking about the placebo. One of them here specifically asked, have you identified any particular reason of why the placebo response is so high? Maybe Kristian, you want to address this one? Kristian Reich: Yes. Short answer, no. You've heard from Professor Alexa Kimball, it's not the first time that the HS community has observed such a phenomenon. And although many have tried, I think there's no clarity what really drives this phenomenon yet. Very clearly, the quality, the operational execution, the validity of our trial is flawless. We have looked into every corner. There's no site, no country issue sites that have participated in mirror or not. There's no smoking done, if you allow me to use these words. Of course, we have started to do the analysis. Are these patients somehow different? Do they have a different baseline characteristics? Is there anything different with regard to the phenotype, the smoking status. So far, we have not identified any difference between those placebo responders and others. But it's clearly an issue that we will continue to investigate and discuss with regulatory authorities. Matthias Bodenstedt: Thanks, Kristian. I see another couple of questions here, specifically asking about the path to approval, the path to VELA. May I call out 2 questions here. One of them very general. Can you elaborate more on the path to approval? What makes you so confident that the VELA studies are approvable? And yes, one other question from an analyst here is asking specifically regarding is there any precedent from other studies that were in similar situations that support our level of confidence. Jorge? Jorge da Silva: Absolutely. I don't think I need to elaborate much more on the path and why we're confident that the studies are approvable. I think, again, you heard an external person clearly stating this drug is in the high efficacy range and has all these things going forward. So I think the concordance of all of this, the quality of what we have done, I think, gives us all that confidence. On the path to approval, obviously, I haven't specifically said it, but I can obviously state it that, of course, we are looking for an interaction with the regulator to get clarity as soon as possible. Ideally, we would get that in the next month or so. Obviously, these things sometimes take a little bit of time. It might be closer to Christmas, but anything within the 1- to 3-month range, I think we're there. So hopefully, that brings a little bit more clarity, but I think we've said it before. Now very, very interesting question on the examples, case examples from before. There are several, but I will call one because I think it's the most helpful here. I would like to remind everybody in this webcast that one of the drugs approved for HS, Secukinumab for its approved dose actually did not meet statistical significance in one of its Phase III HS trials in the SUNSHINE trial. So here, you have a clear example of the drug that, if you will, has performed even worse in the sense that it just didn't meet significance in any of the analysis and obviously, still seen as an overall package as an important package and obviously something that has been extremely helpful for patients in the market and obviously has performed very well for the company that markets that product. So I think quite a bit of confidence, case examples in our own indication. So I think we're feeling very confident here. Obviously, a lot of work to do. Very, very clear that it didn't create the result that the Street was expecting. We understand all of that. But we are here to develop sonelokimab for the long run. Matthias Bodenstedt: Perfect. And I do see a few questions here asking aside from the path to approval, how confident are you that you can compete against existing therapies, mainly called out bimekizumab. Also some questions here for Professor Kimball, but I think she addressed them already in the call, but maybe the company's view, our view on ability to compete in the market. Jorge da Silva: Again, Matthias, I hope the people watching the webcast don't get bored, but I will go back to the statements from Professor Kimball. You heard it. Sonelokimab is a drug that operates on the high efficacy range with a lot of great things going for it. I invite all investors, the Street, anybody that is watching this webcast to do their homework in terms of where other competitors, and I'm not going to name any specific competitor, but how those competitors have fared along all the lesion scores, but also all the pain scores, all the quality of life scores, the safety, the convenience. And I think we truly believe that the data is strong enough for us to compete. By the way, as of now, we don't necessarily see a very large impact in terms of time in the VELA process. So if you're thinking, well, you could compete, but you're going to come 20 years later. Obviously, we don't believe that to be the case. So I think the data is very strong. And I want to underline one more thing, Matthias, if you allow me, which is we're talking about HS. We're talking about HS. We also have to talk about PPP. We also have to talk about PsA. We also have to talk about axSpA. We also have to talk about indications. It's not like all of a sudden, the drug doesn't work, which obviously, as you see from the data is far from the truth. So I think a lot to go for. Obviously, a setback, a disappointment in terms of what was expected by the Street, but I insist not a case for us to stop believing in not at all. Any time for more questions? One more? Matthias Bodenstedt: I see a couple of questions here that probably I'm best suited to answer because they ask about the capital and the cash position of the company, also specifically calling out our debt facility with Hercules. So maybe providing a quick response on this one. So based on the VELA results, we're not planning to draw the next tranche from the Hercules facility. But importantly, we are by no means with our back against the wall. The last reported cash that you've seen in our 10-Q was $425 million. And as we've seen in the past and as you will continue seeing in the future, we operate very efficiently with a comparably very low cash burn compared to other companies at our stage. So we believe we are by no means with the back against the wall. Now let me be clear, the situation certainly presents some challenges to the company. We have lived through similar challenges in the past. And this management team and certainly myself as CFO, will make sure that we continue to be very prudent with our capital allocation. I think with this, we have covered all big things here. Once again, I would say thank you very much for joining us here today to hear our presentation of the VELA week 16 data. We hope it was helpful to also have Professor Kimball share her view and her reflection on the data results with you. Once again, thank you from my side. Kristian Reich: Thank you. Jorge da Silva: Thank you. Have a great day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Santhera Pharmaceuticals Half Year Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the team from Santhera Pharmaceuticals, Catherine and Shabir. Good afternoon. Catherine Isted: Good afternoon, everyone, and welcome again to the interim results for the 6 months ending the 30th of June 2025. Giving the presentation today is myself, Catherine Isted, the CFO; as well as our Chief Medical Officer, Dr. Shabir Hasham. Unfortunately, our CEO, Dario Eklund, cannot be with us today as he's actually had a recent operation on his shoulder, but he will be back with us shortly. As was said in the introduction, there will be an opportunity to ask questions at the end of the presentation. So please add these into the box as we go along. To start with, as always, we have the disclaimer. Please feel free to read this at your leisure. While I appreciate this is a results call, we thought it's worthwhile spending a bit of time going through who Santhera is and what we do and also a reminder about the DMD market. So I will start off with this small snapshot of the company. So we are a Swiss listed company, listed on SIX with our global headquarters in Basel, with about 110 employees, in total about 150, including contractors. We have a product called AGAMREE. This is a differentiated product in the Duchenne muscular dystrophy market, and it is unique because it is a dissociative corticosteroid, and we'll come into that in more details later. AGAMREE is being rolled out worldwide, and we have approvals across the U.S., Europe, U.K., China, and Hong Kong. And our own commercialization in Western Europe is going well with launches in Germany, Austria, and the U.K. We've also had a good launch in the U.S. from our partner, Catalyst. In terms of financing, as we announced this morning, we have a new financing for CHF 20 million. This means that we have a runway through to cash flow breakeven by the mid-2026. And our cash at the end of June 2025 was CHF 18.4 million. I'll now hand over to Shabir to go through a bit more details about the DMD market. Shabir Hasham: Thank you, Catherine. Just for those of you who may not be familiar with Duchenne muscular dystrophy, I'm just going to give you a very brief overview and then go into a little bit more detail about the value proposition and why we have such confidence with vamorolone. Duchenne is a lifelong neuromuscular disorder characterized by progressive loss of muscle strength and function. These are the main characteristic features. The thing to understand about it is that currently, there is no cure. It's such a large gene with so many mutations that current technologies just will not afford a cure. At best, you could try to moderate the disease to be a little bit milder, and that's really the aim of most of the therapies coming to market. Age of onset is very young, 3 to 5 years of age. Children often start to present symptoms of weakness and inability to walk and run and keep up with their peers. And what this means is that they actually present very early to physicians and to the healthcare system. Unfortunately, life expectancy is only limited to the mid-20 to 30 years of age. You get a progressive weakness with the loss of ambulation, no ability to run, walk, you end up in a wheelchair. You get weakening of the upper limbs. But really, what's more important to understand is as the disease continues, you get weakness of the heart and lung muscles leading to cardiac or respiratory failure, which is the predominant cause of death. Next slide. Current therapies today, let me talk a little bit about corticosteroids. Corticosteroids have been and will remain the cornerstone of treatment with Duchenne muscular dystrophy. They have 20 years of experience and data behind them, a robust data set, perhaps the most robust data set of all therapies at market in the moment. They have been shown to delay progression of disease at all stages. So the ability to run, walk, they delay the time to getting into a wheelchair, they delay the loss of ability to use the upper limb, hands, fingers, fine motor skills, but they also now show an impact in terms of a delay to cardiac function decline and respiratory function decline. So they have shown robustly this ability to slow down the disease progression at all stages, and that's why it's absolutely crucial to try to encourage patients to stay on drug as long as possible. However, corticosteroids do have limitations. We know that they are relatively toxic. We know from experience across all diseases, all therapy areas where they're used that these can be limiting in terms of the ability to maintain a high dose and to be able to stay on drug. The challenge with Duchenne, you're diagnosed at the age of 3 to 5, but you often started treatment about 7 to 8 years, and this is because of the toxicity. When you give steroids to children at such a young age, you're impacting really important periods of growth and bone formation and behavior. Children aren't able to stay on therapeutic doses for long enough, often having to down titrate within about 2 to 3, 4 years of treatment and then having to stop very soon before you start to see the benefit on the cardiac and respiratory function, which are the really important ones to try to moderate. And of course, they stop very quickly. This is a graph depicting what I think is a very nice way to show the key challenge in terms of how physicians try to keep patients on steroid treatment. If you want to stay on maximum therapeutic dose, over time, the toxicity accumulates. When you start steroids, early you see behavioral change in weight gain, which is common to all steroids. As you stay on drug beyond 2 to 3 years, you start to see an impact on growth, vertical fractures, long bone fractures, ophthalmological conditions, eye conditions and then eventually hypertension and insulin -- and diabetes. And so really, with the pivotal data that we had some years ago, we were only able to demonstrate the benefits in the short term, the behavior and weight gain. We showed some data showing that we didn't impair growth. But now, of course, the focus is on the longer-term data. AGAMREE, just in summary, is a dissociated corticosteroid. It's the first dissociated corticosteroid to be approved. We've demonstrated that we have the anti-inflammatory effects associated with corticosteroid treatment. In the short-term data, we were able to show that we don't impede growth, that we don't have a negative effect in terms of bone health, and that's both bone biomarkers, but some early data on bone density. We showed a benefit in behavior. Now of course, we're focusing on the longer-term data. We've got children who've been on treatment 5 to 7 years, and we're currently analyzing these data and hope to make an announcement somewhere in quarter 4 about the longer-term effects and some of the more deleterious side effects. But in essence, because this treatment is tolerated better and the side effect profile doesn't really impact children of a very young age, and this is growth, osteoporosis and bone fractures. We see AGAMREE being adopted earlier in terms of the treatment algorithm. We see patients are maintaining a higher dose for longer and some of that evidence will be coming out with the data announced in quarter 4. And of course, we see patients are able to maintain treatment for longer than when we compare them to natural history. What makes DMD very attractive, of course, is it's one of the larger of the rare diseases. There are around 300 (sic) [ 300,000 ] individuals affected globally. Of those in North America and Europe, 90% are diagnosed because the symptoms are very obvious and parents report readily to healthcare systems. The steroid utilization varies, and that's an opportunity for us to, of course, expand segments where current usage may not be as much. North America and some countries in Europe have a very good standard of care, but there are opportunities in some other European countries where steroid use could be improved. Patients and parents, of course, are often treated within specialized treatment centers. And that's an advantage for a rare disease, but also a small company to be efficient to be able to commercialize this product. And of course, physicians have been using this drug for decades. They're very familiar with it. There's nothing very different about vamorolone that it can't be adopted immediately into corticosteroid guidelines. In fact, we are now seeing guidelines clearly adopting a position for vamorolone, which is encouraging, and we'll continue to work with the community to educate them on that. With that, Catherine, I hand back to you. Catherine Isted: Thank you, Shabir. So I also just want to go through the market opportunity for AGAMREE. I think in this slide, it shows it very clearly in terms of our expectations of a total market size of in excess of $600 million. If we break that down, the first box highlights our percentage of that market. So we have potentially the 13,000 patients, DMD patients, and we expect that market to be in excess of EUR 150 million. As a reminder, these are all our own sales. So this is 100% of net sales that we report on our financial statements. Moving on to Catalyst. In that market, we're expecting in excess of $350 million market size. Obviously, Catalyst is doing very well. And in China, we have Sperogenix and the market size there, we expect in excess of $100 million. For both Catalyst and Sperogenix, the way we get paid is through upfront payments on signing those agreements as well as milestone payments as we reach certain milestones as well as royalty income. Moving to the next bucket of revenues. This is for what we call the rest of the world. So this is our distributor market. And here, we have the likes of GENESIS and also the new agreements that we have signed over the course of the summer. For the rest of the world sales, we have a what we call a sort of a distribution agreement, of which we book about 60% of net sales. So now moving on to the results itself. So these are the operational highlights. So I start with Germany and Austria. We see there a very strong growth. We're pleased to announce that approximately 40% of steroid using DMD patients in Germany and Austria are now treated with AGAMREE. Obviously, the last time we spoke about this, this was 30%. Also, if we look at Austria in its own right, it's the first country to have in excess of 50% market share. I think this really shows what a difference AGAMREE can make to DMD patients in these markets. Moving on to other EU markets. We are very pleased to announce that we had the launch in the U.K. in the second quarter of this year, and we're seeing growing demand. We've just started a home delivery program that was commenced only last month. The idea here to be able to streamline access and reduce admin burden in the NHS, which is causing issues within the NHS. We are already seeing a strong uptake of that, and we expect that to be reflected in sales as we go through the rest of the year. Other launches across Europe are expected in Q4 and into 2026, and we'll talk about that on a following slide. Going to the U.S. Our partner, Catalyst continues to perform very well. They reported H1 2025 sales were USD 49.4 million. As a reminder, they have guided for the full year of $100 million to $110 million. So you can see they are very much on track to meet their guidance. What is important here for us is that when they have in a calendar year greater than $100 million, this will trigger a $12.5 million milestone payment to Santhera. At the current rate, we are expecting that to be triggered during 2025, but I will note that in terms of cash flow, that will be received in early 2026. Moving on to Sperogenix. Again, some really positive movement. Previously, they had an early access program ongoing in -- during 2025. But as of September, they've now commenced their non-reimbursed commercial rollout. So what we mean by this is, this is the private payer market in China. We're delighted that in excess of 250 patients have already started taking AGAMREE in China. And if you think about that, that is actually around about 50% of the size of Germany and Austria combined. Due to the increased demand for products in China, both in 2025 and 2026, we are having to increase inventory, and that is part of the reason for our raise today. If we look at other rollouts in other territories, the summer has been incredibly busy for the team. We signed agreements in three different areas for five Gulf Cooperation Council countries as well as India and Turkey. The team remains actively engaged with other geographical expansion partners, and we look forward to announcing those during the rest of the year and into next year. Additionally, there has been changes at the exec and Board level. I joined Santhera as CFO in February of this year, and we're delighted that Dr. Melanie Rolli joined Santhera Board in May at the AGM. So going into a bit more detail around Germany and Austria. As I mentioned, in Germany and Austria, approximately 40% of patients or steroid using DMD patients have now been treated with AGAMREE. We've previously talked about the fact that this was with newly diagnosed patients aged 4 and 5 years old as well as switches in the 6 to 12 range. What we're now seeing is an increasing number of older DMD patients either start or restart corticosteroids with AGAMREE. So this is really growing the market. We now have between 450 and 500 patients that have started on AGAMREE and delighted to see that growth. As I've already mentioned, Austria is the first country to have in excess of 50% of steroid using DMD patients now on AGAMREE. And we look to hopefully replicate this across other countries as we roll out. The reason why we're particularly pleased with Germany and Austria is that there is no -- there was no clinical trial sites or experience in either of these countries. So I think it really shows the benefit that the product is having to patients. I think any company seeing a 40% market share within about 18 months of launch would be pleased. We've talked about -- previously about the price. We have a good price of just over EUR 3,600. And Germany, as you would imagine, is a reference country for many other markets. If I now go through to the rest of Europe. We've obviously discussed the top 2 lines on this chart in terms of Germany and Austria. In the U.K., I mentioned that previously that we have the launch in Q2, and we're now moving ahead with our delivery service, which I think is really helping to boost sales there. We look forward to the second half of the year as that continues to grow. Moving on to other countries. In Spain, we have an October CIMP meeting. Assuming that is positive, we'll then expect a rollout to commence across the regions and the hospital formularies to begin late Q4. For the Nordics, we have the team fully in place. Obviously, with the different countries, we have different dates for commencement of sales. We're expecting those in Q4 and then following through into Q1. Finally, I'll mention Italy. We are expecting there an approval as of late Q1, having decided that we will add the GUARDIAN data to the reimbursement dossier for Italy. If there's other questions around other markets, then please feel free to ask us in the Q&A. So to move to the U.S. As I highlighted, AGAMREE grew to just under $50 million worth of sales in the first half and that Catalyst has maintained their guidance of total sales of $100 million to $110 million for the full year. And then moving on to China. With the early access program that started in June 2024, we're delighted with their commercial rollout. This is in the non-reimbursed market that started only literally a few weeks ago. I mentioned this briefly earlier, but I think it is very impressive to see that they already have more than 250 DMD patients treated to date. And I think this shows the size of the market even in the non-reimbursed market in what is effectively a very short period of time. Over the last few months, we've seen increasing demand for product that we need to manufacture not only for 2025, but 2026. And hence, Santhera has needed to bring forward our inventory plans to service not only this market, but also the U.S. So now moving to the financial highlights for the year. So total revenues were CHF 24 million. This was a 70% growth on the prior year and driven by strong product sales in our launch markets as well as strong royalties and product supply revenues. If we look at product revenues in their own right, that was CHF 11.6 million. And we have seen an increase there of 76%. This is obviously primarily driven by Germany and Austria, but also with the first contributions from the U.K. post the launch in April 2025. If we combine the total sales from our U.S. and Chinese partners, so this is relating to royalties, milestones, and product supply, our total revenues from those two partners was CHF 12.4 million. Again, a very big increase over the CHF 7.6 million that we saw in the prior year, and we're expecting that to continue to grow strongly as we go into the second half of the year. Global sales, so this is from all of our partners and our own sales at the end of Q2 was in excess of $100 million. I think this is a great achievement that over 4 quarters, this has been achieved. This was achieved ahead of our expectations, again, showing the strength of sales from ours and our partners' markets. The one thing that comes with success is the fact that we have actually now triggered a $20 million milestone payment to the originator, ReveraGen, and this is seen in the cost of sales line. Moving on to operating expenses. It is very important to me as the CFO that we manage these and keep the costs in control. Operating expenses were CHF 27.3 million for the first half of the year. If we exclude share-based payments, that reduces it down to USD 25 million. And if you remember previously, my guidance for the full year was CHF 50 million to CHF 55 million. So you can see we are very much on track to keep our costs in control despite the fact that we are seeing some very good revenue growth. Our operating loss was CHF 35.4 million. If you exclude the milestone of USD 25 million that I mentioned earlier, it was very similar to last year, although actually, in fact, the loss was slightly reduced. As we'll talk about in a minute, we had a financing that was announced this morning where we secured CHF 20 million. This was a combination of a royalty agreement for $13 million and a CHF 10 million convertible bond. As I said, we'll come on to that more over the next slides. And finally, cash and cash equivalents at the 30th of June was CHF 18.4 million. So to go into the financing in more detail. And I think what is -- the key thing here is really as a reminder of why we've done this. This is for additional growth capital. The key reason for this is we've seen increased product demand from our partners, especially Catalyst and Sperogenix over 2025 and also into 2026. It is really important to us that we're able to service the product that they need to be able to continue on their strong sales and launches. We obviously saw the strong launch of Catalyst or the strong sales of Catalyst in the first half, and we've already seen the success that Sperogenix has had in their non-reimbursed commercial launch. This demand from our partners has meant that we have actually brought forward our inventory plans, hence, the requirement for additional working capital. It is very important, as I said, that we help support the acceleration of these global launches. So going into the details. For Highbridge and CBC or R-Bridge, these are our existing financing partners, and we have extended our agreements with both of them. So for Highbridge, we have an additional CHF 10 million convertible bond. This is added to the existing CHF 7 million convertible bond that is exchanging at parity. The price of this bond will be priced at a 10% premium to the closing price as of today, and it will have a 3-year maturity. We have also issued approximately 110,000 shares to Highbridge. This is in consideration for increased flexibility in relation to the CHF 35 million term loan that we signed last year. In relation to our royalty monetization agreement with R-Bridge, you may previously remember that we had an agreement with them for 75% of the net royalties. And last year, we received $30 million with the potential to receive up to $8 million more for these royalties. We've now extended that to the remaining 25% of net royalties and have received USD 13 million for that. On terms, I will say, those are slightly better than we did last year. To note on these -- both of these agreements, these agreements are capped and the full royalty stream will return to Santhera at -- once the cap has been met and also Santhera returns certain rights to buy back the royalty stream. I'll also remind you that the milestones that we received from Catalyst and Sperogenix are excluded from this agreement and will continue to be fully received by Santhera. I now move on to the financial guidance. I'm delighted to say that we've been able to increase our revenue guidance for this year. You may remember previously that we talked about full year revenues in excess of CHF 65 million to CHF 70 million. That was our previous guidance. We've now said that we can -- we are expecting in excess of that level for the full year 2025. For 2028, we maintain our guidance of EUR 150 million. This is for revenues from direct and partner markets, including our royalty income from North America and China. It does exclude any milestone payments received from partners. Looking to our 2030 guidance, again, we maintain that guidance that in direct markets, so that is our own markets, we expect in excess of EUR 150 million of sales in 2030. And finally, I think it's very important to reiterate our guidance on operating expenses that on 2025 and on a going-forward constant portfolio basis, we expect this in the range of CHF 50 million to CHF 55 million, excluding non-cash share compensation. Moving on to strategy. And for those of you at the Capital Markets Day, you would have seen this before, but I think it's helpful to reiterate our strategy over the coming years. Obviously, the key focus for this year and into next year is that continued rollout across Europe. And we're working hard to increase the number of geographies where AGAMREE is available for DMD patients. We'll also increase our expansion geographically beyond Europe through distribution partners and continue to work to sign up more distribution partners. The next stage of development is really around how do we maximize our infrastructure that we have here. I call it operational efficiency. We have a head office here in Pratteln in Switzerland, and we are servicing one product. It makes complete sense to add in a second product in the rare or orphan disease space. That way with very minimal incremental costs, we can really leverage the marketing and sales team as well as the in-house infrastructure that we have here. Looking to additional indications. Our partners are working on additional indications. We've said that we won't currently be funding any new indications. However, as our partners progress, we have opt-in rights and we'll be discussing with them at that time, obviously, assuming positive data if we will look to opt in. And finally, just to go back to a summary of the company. We have a differentiated product in AGAMREE with worldwide rights. I hope you can see today we have a clear growth strategy, and we had strong growth in the first half of the year. We've got a strong and growing partner network, again, as evidenced by our new distribution agreements as well as progress with our licensing partners. It's important that we remain nimble. And with this being able to be nimble, we're able to move and react to opportunities. And hopefully, we'll be able to announce something during 2026 in terms of additional products that we'd look to license in. And finally, to note, we are funded to cash flow breakeven. With that, I'd like to move to the Q&A. So just ahead of that, if I can maybe remind you if there's any more questions, if you could please ask them in the chat. Right. I will start here. I'm going to read them out and then between myself and Shabir will answer them. Just a moment. Catherine Isted: So the first question is, how is the rollout of AGAMREE in Europe and rest of the world progressing, including pricing, reimbursement, and hiring of staff. Do you see Germany, U.K. pricing and reimbursement support decisions in other countries? So I think the first part of that question in terms of rollout across Europe and the rest of the world, I think that's very clear. We are seeing very good growth in our own markets as well as partner markets. We've maintained a good pricing as well. You saw the pricing in Germany. And in terms of reimbursement, we're moving ahead in terms of new markets to get the right price for AGAMREE as we roll that out in the remaining countries in Europe. In terms of hiring of staff, we have had no problem hiring staff. In the end, I think if you have a good product when people can really see that you have something that is differentiated, people want to work for you as a company. And obviously, we are hiring people as we increase our commercial presence. The second part of that question, asking about German and U.K. pricing, reimbursement, does that support other countries? Well, in terms of the German pricing, absolutely, many countries use that as a reference pricing. In the U.K., it's more around NICE approval. As a reminder and as a native grit to actually get NICE approval and recommendation is incredibly difficult. So that is very positive that we have that. So the combination of the German pricing and the NICE recommendation absolutely is positive in terms of decisions in other countries. So moving on to the second question. What is the reason for your full year 2025 revenue expecting to exceed the previous guidance range? Well, I think you can see, obviously, we got good growth in our own direct markets. China has only just started to be launched in September. So obviously, good growth there as well as the annualization impact of the U.S. So across all of those areas, we actually expect H2 to be far stronger than H1. In addition, as I mentioned earlier in the presentation, assuming that Catalyst does reach that USD 100 million sales milestone by the end of the year, we would have an extra USD 12.5 million of sales milestone that would be recognized in 2025. I hope that answers the question. Moving on to the third question. Are the terms of the new R-Bridge royalty monetization agreement of $30 million at similar terms as the early agreement or better? No, we've never given exact details on this. However, I will say that we have agreed better terms, not only on the cap, but also on the coupon rate. We had long discussions around this. But I think considering the strength in both those markets and the reduction in risk, it was only right that we should have a lower cap and a lower coupon rate. So I'm pleased to say that, that was negotiated into that discussion. Moving on to the next question. This is probably one more for Shabir. It says, although it is still early days, do you see evidence for AGAMREE to allow patients to stay on time, on dose and on treatment, addressing the limitations of standard corticosteroids? Shabir Hasham: The answer to that, Catherine, is yes. We're seeing evidence, and this is something you pointed out to when we discussed Germany that the drug is being used across all segments in terms of age. So specifically, we're seeing new starters grow and tolerate treatment well. We're seeing patients now who are on other corticosteroids switching to AGAMREE and those who are either discontinuing or down titrating also adopting AGAMREE. We've been following patients up, and we'll be announcing data from our long-term follow-up study in quarter 4, but we are seeing a majority of patients tolerating drug at a higher dose for longer than we see in terms of natural history. Catherine Isted: Thank you, Shabir. So the next question is regarding China. I said, when do you expect first sales in China? Does this trigger a milestone payment from Sperogenix? And what has increased the forecasted demand in China for '25 and '26? So absolutely, we had actually sales in the first half of the year. We have EAP sales. In addition, we now have sales in the second half of the year in relation to their commercial non-reimbursed rollout. We have, obviously, the royalty component of their sales, but also importantly, we have the product sales as in bottle sales that go to China as well. So we have a double impact of the benefit from a strong Chinese market. The Chinese market, I think we've already seen, as I mentioned, with in excess of 250 patients already on AGAMREE, they have only just launched. That's already half the size of Germany and Austria in such a short period of time. I think that really shows the potential of the product in China. And our partner is very confident about forecast, and we have binding forecasts with them out a number of months, and those have increased. And that is a key reason for the increased need for inventory to provide to the Chinese market. Moving on to the next question, and this is another one for Shabir. On a positive POC trial results for AGAMREE in Beckers, how long would it take to gain market approval for this indication? And how significant is the market potential? I don't know how much you can say, but the question has been asked. Shabir Hasham: Thank you for the question. It's a little too early to say. We haven't seen the data yet. I'm awaiting that imminently. I think depending on what we see in the data, there were some thoughts in terms of regulatory strategy, whether it would be an accelerated submission or not. So that depends really on the data. Beckers is obviously an attractive market. It's the same call point or touch point. It's the same physicians that treat Duchenne and the neuromuscular centers for those who are at different age ranges. And the market size is somewhat similar. I can't make any comments really until I see the data, and then, of course, we'll provide our view. Catherine Isted: Okay. Moving on to the next question. That is how is the manufacturing expansion progressing? We actually put this slide deck up on to our website and one of the slides in the appendix actually talks about manufacturing capacity expansion. We are delighted to say that our second site is running ahead of, I think, the previous guidance that we gave, and we are now expecting that to be able to deliver first supplies of product in the fourth quarter of this year. It is important to us because this does bring down our cost of goods. And also, it gives that certainty of supply. When you are single source, there is obviously always a higher risk level. So to be dual sourced, I think, is very important. but also because of the size of the manufacturing site and the size of the batches, this also increases our -- or improves our cost of goods. So delighted to say that, that is progressing well. The next question, I think I've covered off. It's another question asking about total revenues for 2025 exceeding previous guidance. Can you give a bit more detail on how you expect this from different sources? I think I ran through that earlier in terms of the increased direct markets, obviously, the positive impact that we would expect from the milestone, but additionally, continued strong royalty income as well as product -- direct product sales to the U.S. and to China. Going to the next question. You said you have announced quite a few additional distribution agreements, Turkey, Gulf countries, and India. Maybe -- could you maybe comment high level on the financing terms and the market potential you see in these respective markets? And then maybe also, could you share what you consider to be remaining key markets to partner and where you stand on these discussions? So in terms of the high level, in terms of the financials, and I think this is quite an important point because there has been some, I think, some misunderstanding on this front. We book approximately 60% of the net sales from these countries. So those are booked to our top line, and that is the commercial agreements that we have. So some are a fraction more, some are a fraction less. Sometimes we get a small upfront payment as we had over the summer. So those are the financial terms. I think if you look at any individual country, the incremental benefit to the top line is not going to be the same as one of the major European countries. But if you continue adding all of those up, then those are very meaningful. We certainly are looking to expand to other countries. And again, actually in the appendix to the slides that will be available later, we list some of the other countries that we are looking at. This includes the likes of looking into Latin America, Russia, Australia, New Zealand as well as South Korea. So if you're looking at key countries that we're looking at as the next phase, those are highlighted in the appendix to the deck. I think that's the main -- that answers that question. The next one, can you please compare the U.K. launch to the launch in Germany and Austria, where you achieved 30% market share in the year 1 of launch. Are you seeing any reasons why your market share in the U.K. or other key markets should be different? We've obviously had the summer months over the U.K. We also have -- we have needed to get in place the delivery program to actually help with logistics. We are seeing good sales in the U.K., and they continue to grow strongly. Even in September, we've actually got some very strong growth there, particularly since the start of the delivery agreements being started to be rolled out. At present, we won't discuss market share, but we said we are pleased with how that launch is going. Let me just go to see if there's any -- those are the -- some of the questions that have come in. Let me have a look to see if I can see if any more here. There is. So other questions. When you secured the financing agreement in August last year, you expected it to extend the cash runway to anticipated cash flow breakeven. Now today, you secured an extra CHF 20 million in new capital. Could you help us understand what has changed the underlying conditions to make this additional capital necessary beyond the increased inventory needs related to this? And when do you expect local manufacturing supply to be up and running in the U.S. and China? So two very different questions. So let's answer the first one to start with. So certainly, last year, we hadn't expected the large increase in inventory. This is a major factor, particularly in China. From the time frame when we actually have to put our first, I say, binding forecast into when it's actually made is about 16 months. So it is a long period of time. we do have -- and it takes quite a while to actually produce the product as well. So we do have to carry higher levels of inventory. I think it's important that we have flexibility to be able to help our partners and really help with their growth as they continue to expand AGAMREE sales. In terms of U.S. and China, the U.S. is progressing ahead with manufacturing. This happened before any of the Trump's discussions. However, that won't be online and producing product into some point into probably the second half of next year. That's probably more of a question for Catalyst to firm up the exact timings. For China, that will still be a number of years away in terms of them being able to manufacture themselves, although I know that's very key to them because that helps extend their patent life. Another question. This is probably more for Shabir. Can you elaborate further on the GUARDIAN study? What kind of endpoints will you report? And if positive, how do you expect it will impact uptake in existing markets? And how to help in reimbursement pricing discussions with regulators? Shabir Hasham: Thank you. So let me just remind you of what the GUARDIAN study is. As you'll know, we've had children who've been on various programs, various studies in the development program, Phase IIa, Phase IIb studies. Those children then went into expanded access programs. And what we've done is for a subset of these patients, we've actually rolled them into a formal long-term extension study, the GUARDIAN study. So we have 40 to 41 children anticipated in the study. They've been on drug 5 to 7 years. I think this is a very important study. If you remember, being on a steroid at high dose, the toxicity accumulates. So what we've been able to show so far has really been based on short-term outcomes from the pivotal study. The GUARDIAN study will be the first time we see what I believe is the true value of vamorolone. We have two objectives. One is to show that we maintain efficacy and that vamorolone is comparable to standard of care corticosteroids in terms of outcomes. We want to show that children remain mobile for longer. There's a delay in loss of ambulation. And secondly, we really want to start to differentiate on important safety outcome measures. So rather than looking at just bone biomarkers, we'll be looking at actual bone fractures, hard clinical outcome measures. We have a measure of eye health, ophthalmological assessments of cataract and glaucoma. We're looking at bone age. We're looking at delay in puberty, which is common with corticosteroids, especially with boys who are now in the GUARDIAN study coming up to the age of about 11 to 12 entering into puberty. And of course, we're looking generally across a number of safety outcome measures. These data are very important. Physicians are currently using AGAMREE in all segments and ages as experience accumulates, but predominantly in the younger age group. With these data, I believe it will give physicians the confidence to switch away from current standard of care corticosteroids, having confidence that the efficacy has been maintained for 5 to 7 years will be very important in that switch decision. And so I believe it will have a very positive impact. Of course, in terms of safety differentiation, if we can show hard clinical outcome measures in addition to consistency across several earlier studies in both biomarkers and X-rays, again, it gives confidence to the market that the safety differentiation really is a key value driver of vamorolone. In terms of reimbursement pricing discussions, where we are able to use these, of course, I think it will have a positive outcome, and I look forward to the data being announced very soon. Catherine Isted: Thank you, Shabir. I'm going to answer one of the questions. Now there are several that are along steemed around how to explain the weak share price performance and commenting that we're not looking after the interest of shareholders. I think the most important thing is to have growth in this company. We need to support not only our markets, but also our markets of our partners. So if that needs us to increase our inventory levels to help do that, then I think that's important for the long-term growth because in the end, we want to see more sales of AGAMREE around the world. In terms of share price performance, I mean, I tend to not look at it day-to-day. You need to look over the longer term. If I go back to this time last year, the share price has increased 35%. I think most people would be very happy with that. And I appreciate today that there has been a dip in the share price. I am hoping that after this call, people have a better understanding of our excitement for the rest of 2025 and into 2026, and why we're increasing our sales guidance on the back of that confidence. So I hope that sort of answers the question. We are looking at the long term. We don't look at day-to-day movements, and we've had some very good growth over the last year, and that's what we'd look to have over the coming 12 months, too. Another question is, why do you not see an increase in sales from 2028 to 2030. I'm actually just going to go back to that slide, if it's going to allow me to. It's actually two different definitions. So what we say for 2028 is basically all revenues excluding milestone payments. So milestones, they can be lumpy. They could fall one side of a year or the other side of the year. If you think of the remaining part of that sales, so that's our own sales or partner market sales or royalty income, this is the underlying revenues for the company. And we're saying that they will reach EUR 150 million by 2028. By the time we get to 2030, what we said is we're just going to take only our portion. So that is just purely those European sales, our direct market sales in Europe. So if you remember back to the earlier slide, when we talked about we expect the European market to be in excess of EUR 150 million by 2030. That is that figure there. So by 2030, we'll have not only EUR 150 million of sales. We'll then have the royalty streams in relation to our Chinese and U.S. partners, which obviously by which stage could be very, very sizable in addition to our distribution partners. And as you can see, we've been rolling those out as well. So by 2030, yes, we would expect sales far, far in excess of EUR 150 million if you're looking at all sources of revenue streams. And I think we're nearly on to the final question here now. So there was a question saying, how much do you believe the market for AGAMREE will grow as DMD patients who have stopped taking other products return to take AGAMREE. So I think that's probably more for you, Shabir. Shabir Hasham: Yes. So let's talk about unmet need first because that will give you an idea both of the urgency, but also of the opportunity. So those who tend to stop treatment, corticosteroids or others tend to be in the older age segments. Now remember, there are very few options for children who are in the older age segments. You'll know from the gene therapy stories and Elevidys that it's unlikely that gene therapy will be a suitable treatment for those who are older, which remains then the only option you have are corticosteroids and potentially givinostat in the marketplace. So a lot of adult neuromuscular physicians that I speak to are, quite frankly, absolutely desperate. They have nothing really to treat older kids, whether they've stopped other treatments or wish to restart corticosteroids. Remember, the leading cause of death in Duchenne isn't going into a wheelchair, isn't having weak arms or legs. It's the cardiorespiratory failure that kills you and prematurely kills you. Now steroids have been shown to actually also delay time to onset of cardiac and respiratory failure. So they are a very important treatment option with the evidence base already established. And I'm hearing very positive sentiments from adult neurologists for people who want to come back to corticosteroids that AGAMREE is a very valuable and suitable option. It's really based on an unmet need where we believe the driver and growth opportunity will be. Catherine Isted: Thank you, Shabir. With that, I will hand back to the operator. Operator: Perfect. Thank you very much indeed for your presentation and for being so generous of your time and addressing all of those questions that came in this afternoon. And of course, if there are any further questions that come through, we'll make these available to you immediately after the presentation has ended. But Catherine, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and to the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Catherine Isted: Thank you. First, I want to say thank you again for your time today to hear about Santhera and our results over the first half of 2025. I hope you can see here the impact that we're having from having a differentiated product in the DMD market. I hope it's clear you can see about our growth strategy and how we are executing on that and also how with our strong partners, we're continuing to grow AGAMREE sales globally. So with that, I'd like to thank all my colleagues for their efforts over the last 6 months, and thank you again for your time and listening today. Operator: Perfect, Catherine. That's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Santhera Pharmaceuticals, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.
Operator: Good evening. Welcome to the IDT Corporation's Fourth Quarter and Full Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded. I will now turn the call over to Bill Ulrey of IDT Investor Relations. Bill, you may begin. Bill Ulrey: Thank you, John. In today's presentation, IDT's Chief Executive Officer, Shmuel Jonas; and Chief Financial Officer, Marcelo Fischer, will discuss IDT's financial and operational results for the 3- and 12-month periods ended July 31, 2025. After their remarks, they will be happy to take your questions. Any forward-looking statements made during this conference call, either in their remarks or during the Q&A that follows, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports that IDT files periodically with the SEC. IDT assumes no obligation either to update any forward-looking statements that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. In their presentation or in the Q&A session, IDT's management may make reference to non-GAAP measures, including adjusted EBITDA, non-GAAP net income, non-GAAP earnings per share, NRS's Rule of 40 score and adjusted net cash provided by operating activities. Schedules provided in the IDT earnings release reconcile these non-GAAP measures to their nearest corresponding GAAP measures. Please note that the IDT earnings release is available on the Investor Relations page of the IDT Corporation website. The earnings release has also been filed on a Form 8-K with the SEC. Now I'll turn the call over to Shmuel for his comments on the quarter's results. Samuel Jonas: Thank you, Bill. IDT's fourth quarter capped off a strong fiscal year, highlighted by full year double-digit adjusted EBITDA expansion at each of our operating segments, combining to drive a 43% increase in consolidated adjusted EBITDA to a record $129 million. At NRS, merchant services and SaaS fee revenue drove the top line growth, while NRS operating leverage continued to contribute to net margin expansion. In fiscal 2026, we expect that merchant services and SaaS fee revenue will again drive significant increases in revenue per terminal and adjusted EBITDA. Also at NRS, we continue to work on several early-stage initiatives that, true to our mission, will help our retailers to prosper. In fiscal 2025, we began to integrate select retailers with DoorDash. Our retailers are thrilled by the new orders DoorDash is bringing to them. Building on this success, we are preparing to begin integrations with another large delivery service. NRS's data business, NRS Insights just signed a deal with one of the largest coupon providers in the country. Once this deal is launched in calendar year 2026, our retailers will be able to offer digital coupons to their customers, helping their customers to save money while opening a new channel for our brand partners to engage with customers. BOSS Money's fourth quarter and full year results reflected strong digital channel expansion, which is now contributing over 80% of our remittance volume. The industry-wide customer-led migration from retail to digital provides us a large opportunity. In the year ahead, we expect to continue to build market share by increasing our marketing and cross-marketing efforts within the larger BOSS ecosystem, while also expanding our reach through our integration with WhatsApp and deployment of a cross-border digital wallet. In our digital channel, the amount of cash our customers sent increased by 41% in the fourth quarter, while transactions increased 34%. Customers are spending larger amounts in fewer transactions. Last quarter, I mentioned that we would adapt our pricing to capture more of the upside, and we have begun to do that, removing some discounts for larger transactions. In our back office, our efforts to leverage machine learning and AI to reduce costs and improve the customer experience have been very successful, and we will continue to invest in AI-driven efforts to improve our remittance services and many other areas as well. At net2phone, we are very excited by the potential we see in the marketplace of AI agentic offerings and the progress we have made to date in developing and deploying these solutions. Already, approximately 1 in 10 of our sales conversations includes an AI agent, and we have successfully sold and launched hundreds of agents already. Keep in mind that our argentic AI program is still in the warm-up stage. We are -- we are not playing ball yet, but when we do, we expect to win a lot. As it becomes a key driver of net2phone's growth, our revenue model will gradually shift from a seat-based model to one based on usage that we expect will generate significant revenues at high margins. In fiscal 2026, we will focus on building out net2phone's AI Agent and Coach product, our data-driven coaching agent, and deploying tailored solutions for specific industry verticals, including offerings for hospitality and medical operators. With this investment, we believe that by year-end, 30% or more of our sales will include one or both of these, even as we continue to steadily expand our base of UCaaS and CCaaS customers. To that last point, we have already picked up momentum with several large contact center wins to start the new fiscal year. In our Traditional Communications segment, IDT Digital Payments business and BOSS calling both continue to benefit from our efforts to streamline operating costs, which is helping us expand margins. Meanwhile, we continue to operate BOSS calling and IDT Global, both of which participate in the international long-distance minutes business, for maximum cash flow efficiency. Across IDT, we expect to build on the considerable progress we made during fiscal 2025 with top line growth and stronger cash generation. In all our markets, consumer attitudes, government policy and/or technology are driving rapid change, and we are working hard to capitalize on the exciting opportunities in each of our growth businesses. Backed by the cash on our balance sheet and strengthening financial performance, we will continue returning cash to our stockholders through opportunistic buybacks and our quarterly dividend. We will also continue to evaluate potential acquisitions. Our conservative approach to M&A had led to some almost acquisitions, but we won't pursue deals at prices that don't make sense. I am very excited about the potential for fiscal year 2026 because every day, I see how enthusiastic our customers are about our services, whether they are NRS retailers expanding their businesses, hard-working customers supporting their families through BOSS Money and calling home, or businesses relying on net2phone to improve their business, please customers and operate more leanly and intelligently with services like Coach that we offer them. Our ability to continue to outperform depends, of course, on the commitment and hard work of our employees around the globe who have been nothing short of amazing. Their expertise and professionalism power everything we do. Each day, I am first and foremost grateful to them. And to you, our stockholders, thank you for your continued support and guidance. We look forward to reporting to you on our progress in the fiscal year ahead. Thank you. Now I will pass the call over to Marcelo. Marcelo Fischer: Thank you, Shmuel. As always, my remarks on our fourth quarter and full fiscal year '25 results will focus on the year-over-year comparisons to set aside seasonal impacts on our business. Our fourth quarter extended the strong year-over-year growth trajectory that we have followed throughout the fiscal year. Full year adjusted EBITDA totaled $128.7 million, surpassing our updated $126 million guidance. IDT increased consolidated revenue in Q4 by 3% as our three high-margin growth segments, namely NRS, Fintech and net2phone, continue to expand their top lines. Collectively, these fast-growing segments contributed 31% of total revenue in the fourth quarter compared to 27% a year earlier. IDT's fiscal 2025 revenue increased 2%, and that's the first full year increase since 2021 and represent a significant inflection point, signaling the start of what we expect will become a long-term trend of sustained revenue growth as the increasing revenue from our growth businesses more than offset the continued declines in revenue from our two ILD voice businesses. Each of our four reporting segments, including Traditional Communications, increased their gross profit contribution for both the fourth quarter and full year with our consolidated gross margins increasing 310 and 380 basis points, respectively. These increases reflect the continued expansion of our high-margin segments and in the Traditional Communications segment, the increased contribution from our digital payments and IDT Global wholesale carrier businesses. Consolidated income from operations increased 9% to $21.9 million in the fourth quarter, and increased 55% to $100.4 million for the full year. Adjusted EBITDA increased 33% to $33.4 million in Q4, and increased 43% to $128.7 million for the full year. These increases were driven by the operational leverage of our three high-margin growth segments, which together generated over 50% of our consolidated adjusted EBITDA for the first time, and in the Traditional Communications segment by significant reduction in OpEx and improved margins on our mobile top-up offerings within our IDT Digital Payments business. At NRS, income from operations in the fourth quarter decreased 3% to $5.8 million, reflecting the impact of nonrecurring expenses, while adjusted EBITDA increased 32% to $9.3 million. For the full fiscal year, income from operations at NRS increased 28% to $27.8 million, and adjusted EBITDA increased 37% to $34.2 million. Recurring revenue increased 22% in the fourth quarter to $32.6 million, and increased 27% to $122.6 million for the full year. These increases were powered by merchant services and SaaS fees revenue growth, both of which exceeded 30%. Advertising and data revenue decreased 8% year-over-year in Q4, and was roughly unchanged for the full year. We have now fully worked through the impact of the loss of a programmatic advertising partner and look forward to returning NRS advertising revenue once again into growth mode. A significant part of NRS's growth story has been the increase in monthly average recurring revenue per terminal, which reached $299 in the fourth quarter. Recurring revenue per terminal has benefited from increased penetration of our NRS Pay offering, from our work to provide retailers with premium payment processing plans and SaaS plans and from the ongoing migration of consumers in general from cash to credit and debit card payment methods. We expect to drive continued strong gains in recurring revenue per terminal. And as such, we believe this will help us sustain revenue growth in fiscal 2026 of 20% to 25%, and adjusted EBITDA growth at an even faster clip. In our Fintech segment, income from operations increased 88% to $4.8 million in the fourth quarter, and adjusted EBITDA climbed over threefold to $5.5 million. For the full fiscal year 2024, Fintech generated a loss from operations of $100,000. But now in fiscal 2025, income from operations surged to $15.4 million. Adjusted EBITDA increased over 16-fold from just $1.1 million in fiscal '24 to $18.4 million in fiscal '25. We have long said that our BOSS Money international remittance business could scale to achieve adjusted EBITDA margins comparable to industry peers in the 15% to 20% range. And in the fourth quarter, for the very first time, it did enter that range when viewed on a stand-alone basis. Fourth quarter remittance transactions surpassed an annual run rate of $26 million with digital transactions contributing 83% of all remittances. The rate of transaction growth slowed somewhat, as our customers sent more money per transaction while cutting back on the frequency of those transactions. Digital transactions increased 28% in the fourth quarter, while the related dollars sent increased by 41%. As Shmuel mentioned, we have recently introduced fee pricing initiatives that will help capture more of the sent volume growth upside. As those of you who follow the remittance space already know, a new 1% federal tax on remittances originated with cash or money orders is scheduled to go into effect on January 1, '26. We expect that the effect of the tax will result in an acceleration of the industry-wide migration of remittance transactions to the digital channel, which is effectively exempted from this new tax, since customers must use a debit or credit card or ACH to effectuate a digital channel transaction. The migration from retail to digital channel has been a key driver of BOSS Money's increasing profitability over the past few years, as digital transactions generate approximately 20% more in gross profit per transaction than retail with lower overhead. For fiscal 2026, we are budgeting BOSS Money revenue and adjusted EBITDA to grow at percentage rates in the high teens, as we continue to win share from retail-centric providers. Adjusted EBITDA for the broader Fintech segment is also expected to benefit from bottom line improvement in our Gibraltar-based bank operations and in other early-stage Fintech initiatives. Now moving to net2phone. In fiscal '25, net2phone continued its steady growth trajectory. Income from operations increased 74% to $1.5 million in the fourth quarter, while adjusted EBITDA increased 42% to $3.5 million. For the full year '25, net2phone's income from operations increased 194% to $4.9 million. And adjusted EBITDA increased 54% to $12.1 million. net2phone subscription revenue increased 8% to $22.2 million in the fourth quarter on strong revenue growth achieved in the U.S. On a constant currency basis, the rate of increase was slightly higher at 9%. For the full 2025 year, the strengthening dollar FX translation impacted financial results from our key South American markets, muting the positive impacts of continued seat growth there. For the full year, total net2phone subscription revenue increased 9% to $85.7 million. And in constant currency terms, the revenue increase was 12%. During Q4, net2phone continued its disciplined approach towards customer acquisition spending and fixed overhead cost management. As they did in Q3, the net2phone team was able to hold total SG&A spend year-over-year, almost unchanged again this quarter, even while continuing to grow revenue. Looking ahead to 2026, we are budgeting for a lift in top line growth, based on sales of net2phone's AI Agent layered on our UCaaS and CCaaS offerings. However, we also plan to significantly increase our investment, both in net2phone Coach product development and in tailored agentic AI offerings for specific marketing opportunities. As a result, net2phone's adjusted EBITDA percentage growth rate in fiscal 2026 is budgeted to increase more slowly than revenue, in the high single digits. And we expect these investments to significantly drive profitability in years ahead. At our Traditional Communications segment, gross profit in the fourth quarter increased 2% year-over-year, powered by IDT Digital Payments and supported by strong results from our IDT Global wholesale carrier business. SG&A expense decreased 1% year-over-year in the fourth quarter, and decreased 6% or $5 million for the full year as we benefited from cost-cutting initiatives previously implemented. Likewise, technology and development expense decreased 5% for the fourth quarter, and 7% for the full year, as a result of streamlining efforts. All these cost reductions, in combination with higher gross margins realized by our IDT Digital Payments business helped drive an 11% increase in income from operations to $15.4 million, and an 8% increase in adjusted EBITDA to $17.6 million in the fourth quarter. For the whole fiscal 2025, income from operations increased 18% to $66.5 million, and adjusted EBITDA increased 13% to $75 million. In 2026, we do not expect that either of the above factors will be meaningfully in play. And therefore, we expect that steady growth in our IDT Digital Payments business will be offset by the expected declines of our BOSS Revolution Calling and IDT Global businesses. As such, we have assumed in our budget that Traditional Communications' gross profit and adjusted EBITDA will both decline single-digit percentage rates this year. In terms of our financial condition, at July 31, our balance sheet, a measure of cash, cash equivalents and current investments, increased $30 million from April 30 to $254 million, reflecting the strong cash generation from all four of our reporting segments. I'll wrap up with a brief comment on capital allocation. Unlike in most recent periods, IDT did not repurchase any of its shares on the open market in the fourth quarter nor for most of Q3. During that entire period, IDT was very actively pursuing a highly accretive merger-acquisition opportunity of a sizable competitor of one of our growth businesses. Our acquisition bid, had it been accepted, would have entailed utilizing significant available cash and also adding substantial leverage to our balance sheet. Consequently, we refrained from repurchasing shares in order to further build our cash position. Ultimately, this opportunity did not come to fruition. Historically, we take an opportunistic approach to share buybacks, repurchasing more heavily during share price dips that we determined to be macro driven. I expect that unless other sizable M&A opportunities come our way, we will continue to employ this approach towards repurchases in this new fiscal year, even as we continue to build our balance sheet and pay a quarterly dividend. Now turning to our consolidated financial outlook for fiscal 2026. I want to begin by noting that beginning with our Q1 FY '26 earnings, we will report a revised measure of our non-GAAP adjusted EBITDA metric. To make our measure of adjusted EBITDA more directly comparable to those reported by our peers and to more closely reflect our cash flow generation, we will exclude noncash compensation expense from the determination of adjusted EBITDA going forward, and we will adjust prior period figures to the new measure for comparison purposes. Noncash comp varies from year-to-year, depending on the timing of equity grants through our employee equity growth plan and specific management incentive awards. Over the past 4 years, noncash comp averaged $4.2 million with a high of $7.4 million in fiscal '24, and a low of $1.9 million in fiscal '22. In fiscal '25, just ended, noncash comp totaled $3.1 million. In our earnings release, we provide a reconciliation of our revised measure of adjusted EBITDA to the nearest corresponding GAAP measures for fiscal years '24 and '25. Now, no matter which measure of adjusted EBITDA you use, however, we expect that IDT will deliver another strong increase in fiscal '26, building on our record fiscal '25 level. Utilizing this revised measure of adjusted EBITDA, IDT expects to generate a range of $141 million to $145 million in consolidated adjusted EBITDA for fiscal '26. Our estimate of $141 million to $145 million for fiscal '26, represents a 7% to 10% increase from fiscal year 2025 level of $131.7 million of similarly defined adjusted EBITDA, i.e., exclusive of noncash comp. I would just like to mention in closing that we filed our annual 10-K report today. Earlier this year, as a result of meeting, certain higher public float valuation metrics, IDT Corporation's SEC reporting status changed, to become a large accelerated filer. As such, we now have a shorter filing deadline period for our 10-K report, which we are pleased to comply with. Now operator, back to you for Q&A. Operator: [Operator Instructions] First question comes from [ Inigo Alonso ] with [indiscernible] Capital. Unknown Analyst: I have three, four questions, and I'll start with the money remittance business. The whole industry has been subjected to a lot of volatility. You have addressed the tax that is going to be starting next year. I was wondering what's the progress with the stablecoins and the Visa-linked wallets that you mentioned last call, since that has been one of the topics creating that volatility. Samuel Jonas: Yes. As far as the wallets, we've actually already launched our wallet to some customers. I'll call it, it's in a beta phase right now. I think that over time, most transactions are going to happen using stablecoins. And I think a large portion of transactions that aren't spent right away will end up being stored in wallets using stablecoins, both because of volatility in currency, markets in certain countries as well as because of the cost and ease of moving funds in that manner. As far as how it's impacted us to date, I can't yet say that it's impacted us in any material way. But I think that it's definitely going to be a bigger part of our future and the money transfer business in general. Unknown Analyst: Another one on this topic that I forgot to ask, what's the WhatsApp launch date? Samuel Jonas: The WhatsApp launch, is that what you asked? It's also launching in the next couple of days. It's starting with only existing customers, and we expect to launch it to new customers, I would say, probably within 30 to 45 days after. Unknown Analyst: Okay. And then the stablecoins, are you going to allow for those in your app in the future? Samuel Jonas: Yes, 100%. Unknown Analyst: Okay. Then switching slightly the subject, you have mentioned quite a bit a failed acquisition in the past. You also mentioned being very excited about the prospects that some of your competitors were offering and maybe the opportunity to acquire them. We have the acquisition of Intermex by Western Union this quarter. Both of them together is going to be nearly 50% of the money sent to Mexico in the retail space. Do you think there's going to be regulatory concerns, and this acquisition could be halted? Samuel Jonas: I can't comment on that. I'm not a regulatory expert. So I don't know. I would suggest, if you have a question like that to ask your attorney. Unknown Analyst: Okay. I'll ask another one on the subject. And have the M&A prospects for IDT have changed after what has happened this quarter? Or do you see still very attractive valuations in the market? Samuel Jonas: I mean it's a complicated question to answer. I think that there are always new opportunities that come around. I don't think that the market for money transfer companies has improved over this past quarter in terms of where they trade as a general group. I think there definitely seems to be a large premium being willing to be paid for certain acquisitions. So I think it's a nuanced question that I don't exactly have an answer to. Unknown Analyst: Okay. Organically, what are the main investments that you're going to make as IDT to grow your businesses this year? Those three, four, five items that are top of mind for you? Samuel Jonas: Yes. I mean that's a very broad question, and we don't like to give too much guidance to competitors on how we are going to acquire customers better and cheaper than they do. So I will say that we will continue to spend wisely and creatively, to acquire customers at the lowest possible cost and with the highest benefit. And we're using all sorts of techniques to do those. Unknown Analyst: Okay. And the last question, you mentioned something of -- in net2phone of changing from a seat model to a usage model. Is that going to be for UCaaS? Or is that going to be for the AI agent? Samuel Jonas: I was more referring to the AI agents in general. I mean in terms of our UCaaS and CCaaS offerings, those will still be generally sold by the seat. And I was really referring to both our Coach service as well as our agentic services that we're offering. Operator: Our next question comes from William Vaughan with Corient. William Vaughan: Congrats on the good quarter. My first question is about NRS. In the prepared remarks, in the release, you mentioned a little increase in the rate of churn or the churn rate in terminals. Do you have an idea of what's causing this churn? And is it folks just switching to other providers, perhaps getting more competitive? Like any color you could give on the churn and other reasons behind it would be helpful. Samuel Jonas: Yes. I mean, I would say that there are a couple of factors. Some of them are larger than other factors. I would say one thing is in certain small areas, like there has really been a big uptick in immigration enforcement and it's actually affected retailers in those areas to the point that they're closing. And those aren't really being lost to anybody else. Those stores are being lost because they're out of business. I would say, definitely, because we've had success in the market, more competitors have come out of the woodwork and have tried to often pretend that they can replicate our pricing and feature set. Most of the time, they deliver far less in savings and functionality to retailers than what they claim, but they do have strong sales teams in some instances that has led to churn. I mean we do our best to win those types of customers back because most of the time, they're very dissatisfied after a short period of time. I would say two other maybe more recent issues that we've had is one is with some of the card schemes being maybe, I'll say, a little bit trigger-happy on our merchants in terms of claiming that they're noncompliant with certain of the scheme's rules. And even though they're not fines that are levied by us, they do influence our retailers to think that it's us. And it's -- I mean, it's really an unfair thing to us, but it has hurt, I would say, churn. And then we also had some technical issues with some of the equipment that we were purchasing, and how it was interacting with our -- some of our service providers. We seem to have gotten it, I would say, 95%, 99%, something in that neighborhood, like under control over the past couple of weeks, but it definitely did lead to some spike in churn because essentially, like it was -- I mean, it's hard to go into really the technical reasons of why it was happening. But it was leading to some inaccurate like reporting and retailers sort of believing that the amount of money that they were expecting the next day was different than what they were actually receiving. Again, as I said, it's mostly solved, but it did lead to a little bit of extra churn. William Vaughan: Just a little follow-up on one of those points. You mentioned new competitors. Would you say those new competitors are start-ups or legacy businesses, legacy players seeing the success you have, and creating a product to try to compete? Samuel Jonas: Yes. I'd say it's a little bit of both. I mean, again, you're seeing the Clovers of the world pretending to be really good for convenience stores, which they're not. And you're also seeing some upstart companies that are, as I said, putting on a good, I'll call it, UI without really having much substance behind it, as I said, to try to convince retailers that they can do the same thing as we can, even though, as I said, that's usually not the case, and we can usually win those stores back. William Vaughan: Awesome. Just another question. This would be on the BOSS Money business. So you guys have been growing really nicely in the past few quarters, 30%. And a lot of other players in the digital remittance space have been growing well also like taking share from the retail or the physical channel. Do you think that you guys can continue this strong growth? I mean that's a pretty strong growth rate. Is this something that you think can be sustained for a longer period of time? Or you think just naturally over time, it will sort of settle in of something a little bit more mature? I guess what are your thoughts on just the overall growth rate of the digital channel, whether that's sustainable or not? Samuel Jonas: I would say a couple of things on it. I mean, I would say that, listen, there's no question that immigration policy in general in this country has shifted materially over the past couple of months. And that is definitely not a good thing for the remittance business, whether or not you're a digital remittance player or a retail player. You have effectively less customers choosing to live and work in our great country. And I think that there is definitely, I would say, a much more -- I don't know the right word, but maybe I won't even explain this one because I don't know how to explain it. But I mean, I think the other thing I would say is that I definitely think that it is becoming a more mature business. And probably because of that, it will grow less than it has traditionally. That being said, there are definitely factors that I think are going to help the digital business in the short term. And there's initiatives that we're doing, whether or not it's in wallets or WhatsApp or other things that we didn't talk about today, that are also going to enhance the growth of our business. And I think that all those things together, like I would say, I would probably -- if I were betting man, say that growth will slow a little bit, but not in a very big way. But again, I think there are things that we don't know yet, what those effects will be. I think when this tax comes into place, that's going to bring a lot of people that were going into stores, looking for a good alternative to send online. And while I don't think we're the only good alternative, I think we are definitely one of the best alternatives for customers to use. And I think that we will probably get more than our fair share of customers that are looking for a new solution, I'll say it, to save money on the tax. That being said, the tax is not as great as it once was planned to be. So it might not have as much of an effect as it could have had, had the tax come out higher than where it ended up coming out. Marcelo Fischer: And Will, as you -- because of all the things that Shmuel said and the broader uncertainty around immigration, et cetera. So when we did the budget for this year, we -- as I mentioned in my prepared remarks, we budgeted that revenue would grow in the [ high teens ] for this year, okay? So time will tell as the months go by as to whether that is a good forecast or not. But from what we know at this point, it's a pretty good baseline for modeling growth. Samuel Jonas: Yes. I'm usually slightly more pessimistic than Marcelo. But I mean, in this particular case, I'm slightly more optimistic than Marcelo. But we shall see in the results. William Vaughan: Awesome. Last question. You mentioned looking at a potentially larger acquisition in the past quarter, where you'd use up a lot of the cash and possibly borrow. With that acquisition opportunity passing just because you're being thoughtful and disciplined on price, which I appreciate, do you -- are you focusing more on -- or where would you lean more towards? Smaller acquisitions which you can grow once integrated with more resources behind it, or more larger acquisitions, like the one that you were just looking at? Like where would you say you're leaning more towards in terms of opportunities in the market? Samuel Jonas: I don't know if I would tell you which one I'm leaning more to. I mean, I would say that there's less large acquisitions come around that are -- that would meet our qualifications to do them than smaller ones. So if I were going to guess, I would tend to say that we will go for smaller acquisitions rather than larger ones. That being said, I think that we have a great team at IDT. And because of, I'll say, our prudence, we've sort of decided to double down on building more things internally and acquiring more customers organically rather than looking to do so through acquisitions. So in the short term, I would expect more of an investment to be made in our own efforts, which traditionally have served us, I would say, probably better than most of the acquisitions, although there are some acquisitions that we've done that have been very good. Operator: [Operator Instructions] As there are no more questions, this concludes our question-and-answer session and the conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Precision Optics Reports Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Robert Blum with Lytham Partners. Please go ahead. Robert Blum: All right. Thank you very much, operator, and thank you to everyone joining the call today. As the operator mentioned, on today's call, we will discuss Precision Optics' fourth quarter and fiscal year 2025 financial results for the period ended June 30, 2025. With us on the call representing the company today is Dr. Joe Forkey, Precision Optics' Chief Executive Officer; and Mr. Wayne Coll, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. [Operator Instructions] Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Precision Optics during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company's filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date in which they were made and are based on management's assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward-looking statements whether as a result of the receipt of new information, the occurrence of future events or otherwise. All right. With that said, let me turn the call over to Dr. Joe Forkey, Chief Executive Officer of Precision Optics. Joe, please proceed. Joseph Forkey: Thank you, Robert, and thank you all for joining our call today. Let me start by saying we certainly have a lot to be excited about at Precision Optics. We just finished the fiscal year with the highest quarterly revenue in our company's history. The $6.2 million fourth quarter puts us at an annualized run rate of approximately $25 million and the underlying drivers of this increase are sustainable into the foreseeable future. Our production business has grown substantially, and we expect that trend to continue. While we've experienced gross margin challenges in Q3 and Q4 of fiscal 2025, we understand these challenges and are aggressively taking steps to resolve them. With ongoing higher top line revenue, the growing engineering pipeline and improving gross margins, we believe we are now operating at a new level for Precision Optics and expect the gains we have made in revenue increases in fiscal '25 will increasingly flow through to the bottom line throughout fiscal '26 and beyond. The key driver to the achievement of these record revenues is the advancement of two major programs, which transitioned over the past year or so from our development pipeline into production. And while the benefits of the recent transition of these two major programs haven't flowed through to the bottom line yet, the increase in top line revenue provides the foundation upon which Precision Optics will grow to become a much larger and more profitable company. These two programs, one with a top-tier aerospace company and the other with a surgical robotics company focused on transformative solutions in urology carry long-term contracts with minimum annual commitments. These production contracts, along with additional programs in our development pipeline that are expected to move to production over the next 12 to 36 months, provide increased visibility and confidence into the future outlook for POC. With the growth that we anticipate, we have recently invested in our facilities to support the company's growth, not only for fiscal 2025 and 2026, but for years to come. In September, we moved our headquarters and corporate offices from Gardner, Massachusetts to Littleton, Massachusetts. This move opens up space at our existing facilities in Gardner for the consolidation and expansion of dedicated production resources. The new facility in Littleton, which is less than an hour from Boston, along with the new facility in South Portland, Maine, which we moved into in August, also allows us access to a broader engineering talent pool to support the company's growing product development pipeline. I believe we will look back at fiscal 2025 a few years from now as a critical inflection point in the company's history. When we advanced multiple products from our pipeline into production, began to refine operating processes to efficiently manufacture at higher scales, made the necessary investments in our facilities to sustainably support growth and build a strong backlog of programs through the launch of the Unity platform, all of which has provided us the foundation for substantial growth and greater visibility into the future. Today, I'll focus my remarks on the following items. First, updates on our two major production programs. Second, gross margin challenges in fiscal 2025. Third, steps we've taken to improve gross margin in fiscal 2026 and beyond. And finally, guidance for fiscal 2026. With that high-level overview, let me provide some more details, starting with our large production contract with a top tier aerospace company. This is a highly complex and specific assembly we are producing, and it is essential for our customers' product and revenue forecast. We continue to increase production to meet the ever-growing demand from this customer with revenues increasing sequentially every quarter throughout the year and increase is expected to continue throughout fiscal 2026. For perspective, Q1 revenue for this program was $300,000, Q2 revenue was $600,000, Q3 was $900,000 and in Q4 of fiscal 2025, revenue for this program was just under $2 million. We are now operating at record daily production revenues with the month of June contributing more than $900,000 alone. That's 3x what we shipped in the entire first quarter. We continue to take steps to further increase production capacity and we have commitments from our customers to accept deliveries at rates approximately double the average rate of Q4. We also have received significant additional production orders so that our current backlog for this program alone now stands at a record of nearly $9 million. We estimate our gross margin, specifically on this program is in the mid-30% range, so the ongoing increase in shipments will help to improve overall gross margin. Also, our customer for this product has agreed to reimburse BOC for tariff costs, and we are finalizing arrangements to these reimbursements now. Production revenue for our single-use cystoscope also hit a record level in Q4 of nearly $800,000, continuing the trend of increasing revenue each of the four quarters since production began. With the introduction of a partial second production line in August of this year and ongoing increases in demand from our customer and the end user market, we expect revenue levels from this program to continue to increase throughout fiscal 2026. While we are certainly pleased with this continuing revenue growth for this program, it has not been without its challenges as we've communicated in recent quarters. Compared to our aerospace customer, this is a lower-priced, higher-volume single-use production program. For this program, in particular, we have run into challenges with production yield, more than anticipated labor touch time and substantial tariff increases. Considering the impact of all these issues together, we believe this product was operating at zero gross margin or a slight loss during the fourth quarter of fiscal 2025 and significantly pulled down our overall corporate gross margin. In the first quarter of fiscal 2026, we have already taken several steps to increase the profitability of this product. We have identified opportunities for yield improvement through design updates and touch time reduction through fixture and process improvements. We are working with our customer who is an agreement with these steps we've taken and is generally extremely supportive. There is a mutual understanding of the complexity of the assembly and attitude that we must get this working right. These are robust long-term solutions and are not out of the ordinary for a production line recently started and used for a highly complex product like this one. While we are confident these modifications will bring the profitability of this product in line with our original expectations, they will take some months to implement. In the meantime, we have renegotiated pricing with our customer to account for lower yields and higher touch time costs in the near term. The renegotiated near-term price is approximately 24% higher than the price at the end of the fourth quarter of fiscal 2025. In addition, our customer has agreed to cover tariffs associated with this product, which represents approximately 20% of the price at the end of the fourth quarter. We believe these design and production changes, along with pricing updates for the near term will result in steadily increasing profitability for this product beginning in the first quarter of fiscal 2026 and continuing throughout the year. In addition to the two large programs, there are a number of other continuing programs that round out our production forecast for fiscal 2026. Summarizing our systems manufacturing business, while we are experienced in growing teams of a very small business, taking on large and complex initial program challenges -- excited that production is growing to a size that will begin to reflect scaling and efficiencies as we move through the new fiscal year. We expect our systems manufacturing business to grow at least 75% in fiscal 2026. Beyond our production programs, our product development pipeline is recovering from the dip caused by the transfer of the single-use cystoscope to production. We continue to expect two to three programs to transfer to production in each of the next two years, and we are quickly gaining momentum with a number of new customers based on the Unity platform that we discussed in recent calls. Our business development team is working aggressively to reach new customers through increased outreach, including our first-ever panel webinar, which I will host this coming Wednesday to discuss current trends in medical device imaging. For anyone interested in this event, registration is on our website. So while revenue for fiscal 2026 will largely be driven by our two largest programs, there is a host of other programs right behind those that will continue growth into the future. With strong confidence in our ability to maintain revenue at the higher level seen in the fourth quarter of fiscal 2025, let me turn now to a few comments on gross margin. A number of issues pulled down gross margins in Q3 and Q4 of fiscal 2025. And while Q4 gross margin was slightly higher than that of Q3, we expect margins to recover substantially more in fiscal 2026. Because our single-use cystoscope program occupied so much of our engineering team's efforts prior to fiscal 2025, its transition this past year to production led to a reduction in product development revenue for the first time in over 6 years. Because product development revenue tends to have higher margins than production, overall gross margin suffered from this shift in product mix. In fiscal 2025, this issue was exacerbated by the need to pull design engineers into troubleshooting on the single-use cystoscope line, reducing the amount of engineering resources available for billable product development work. As I already mentioned, we have a clear path now to improve the single-use cystoscope production line, which will reduce the requirement for engineering support. Also, we are already beginning to see a recovery of the product development pipeline and expect steady increases throughout fiscal 2026. In the fourth quarter of fiscal 2025, about $0.5 million of product development revenue was for tooling and fixtures for additional production lines, which carries a margin just under 10%. Because these revenues are mainly for low-risk pass-through materials purchases that still contribute to the bottom line, we welcome orders like these, but they do pull down overall gross margin percentage. While we expect materials revenues such as this to continue, we expect it will be a smaller percentage of total revenue, and therefore, should be much less impactful as production programs grow. Finally, the impact of the tariff increases in Q3 and particularly in Q4, was substantial. Total tariff costs in Q4 alone were approximately $180,000, representing about 3% gross margin. We have worked aggressively on this issue. As I already mentioned, we are close to having agreements on tariff reimbursement with our two major production customers, at least one of which we expect will be retroactive to July 1, and we now have a policy requiring tariff reimbursement on virtually all new orders. We are investing in the business through the operational steps I described already, but also by strengthening our overall operations team. In the first quarter of fiscal 2026, we recruited and hired our first manufacturing and quality engineers. We just recently hired a new Director of Quality and Regulatory Affairs, and I'm really pleased to announce today that we have just come to agreement with Joe Traut who will start as our new Chief Operating Officer on October 1. Joe is an industry veteran with over 30 years of experience in medical device production, much of it focused on bringing up new production lines, transferring production lines from one location to another and overall improving manufacturing efficiency and performance. Joe has consulted to us for the last two months. He's already familiar with the issues we need to tackle, and I'm really thrilled that he has agreed to come on full time to help us drive the performance of our operations to higher levels. Joe will be replacing Mahesh Lawande, who has been in the COO position for about two years. These were two critical years for our operations as we launched our aerospace and single-use cystoscope production programs. I want to thank Mahesh for his tireless efforts and dedication during this time. For fiscal 2026, we expect revenue of approximately $25 million which compares to $19 million in 2025, an increase of over 30%. This will be driven largely by our systems manufacturing business, which is forecasted to increase by more than 75% as our two large production programs continue to expand. We expect fiscal 2026 gross margins of approximately 30%, which favorably compares to 18% in 2025. Improved manufacturing yields, better pass-through of tariffs and elimination of some low-margin revenue are all key factors to the improvement. Our long-term margin goal remains 40% with significant increases in revenue and gross margins, we expect to recover positive adjusted EBITDA in the range of $0.5 million for fiscal 2026. We believe there is substantial operating leverage to drive significant bottom line profit as revenues continue to increase. With that, let me turn it over to Wayne to review the financials in more detail. I will then provide some closing comments and then open the call to questions. Wayne? Wayne Coll: Thank you, Joe. Let me expand on some of Joe's comments on the financial results, starting with revenue. For the fourth quarter, revenue was $6.2 million compared to $4.2 million in the prior sequential quarter and $4.7 million in the year ago or fourth quarter of fiscal 2024. Breaking it down, production revenue was $5.1 million compared to $3.3 million in the prior sequential quarter and $2.8 million in the year ago quarter, while engineering revenue was $1.1 million compared to $1.9 million in the year ago quarter. For the year, revenue was flat compared to the prior year at $19.1 million. This, on the surface, masks the trend in the transformation of our more engineering-focused business to a more rapidly scaling manufacturing enterprise. On the product development side, our engineering pipeline continues to strengthen in response to marketing around the Unity platform, coupled with an expanding outreach that is focused on broadening our customer base. We now project fiscal 2026 revenues to reach $25 billion. This growth is being driven by continued expansion of our systems manufacturing business as our backlog and production demand continues to increase, driven by recent purchase commitments for the aerospace and single-use programs. Growth of 75% is expected in this area from approximately $8.3 million in fiscal 2025 to $14.5 million in fiscal 2026. This continues the trend from fiscal 2025, where revenue from this business segment nearly tripled from $1.2 million in Q1 to $3.4 million in Q4. Conservatively, we are currently forecasting a modest recovery in product development going from $4.9 million in fiscal 2025 to $5.6 million in 2026. Revenue from our micro-optics labs is expected to drop from $2.1 million in fiscal 2025 to $1.3 million in fiscal 2026 due entirely to timing of that division's large defense customer reorder. And our Ross Optical operations are expected to be essentially flat at $3.7 million to $3.8 million. For the quarter ending June 30, 2025, gross margins were 13% compared to 10% in the prior sequential quarter and 22% in the fourth quarter of a year ago. Although we continue to scale production of our single-use cystoscope following the production costs incurred during the previous sequential quarter, we continue to recognize suboptimal yields. We expect those yields to improve and normalize toward target levels in the third quarter of fiscal 2026 for all the reasons Joe covered. The under-absorption of engineering resources was a contributing factor here as well. For the year, gross margins were 18% compared to 30% in the prior year. We expect gross margin to continue to recover as production revenues increase. We are expecting a blended gross margin of approximately 30% for fiscal 2026 with much of the improvement occurring in the second half of the fiscal year. We decreased R&D spending in the quarter from $355,000 to $228,000 compared to the quarter ending June 30, 2024. R&D spending in the current fiscal year increased approximately $180,000 to $1.2 million compared to $982,000 during the year ending June 30, 2024, primarily due to our investment in Unity. Selling, general and administrative expenses increased $2 million during the three months ended June 30, 2025 compared to $1.9 million during the three months ending June 30, 2024. For the year, SG&A increased from $7.5 million to $7.8 million primarily due to increased personnel costs, primarily stock-based compensation and recruiting expenses. As a result of the factors I've discussed, our net loss was $1.4 million for the quarter as it was for the same quarter last year. Our net loss for the year was $5.8 million compared to $3 million in the prior year. Adjusted EBITDA, which excludes stock-based compensation, interest expense, depreciation and amortization was negative $856,000 in the fourth quarter of 2025 compared to negative $1.3 million in the previous sequential quarter and negative $1.1 million in the year ago quarter. For fiscal 2025, adjusted EBITDA was negative $3.7 million compared to negative $1.6 million in fiscal 2024. Cash at the end of June was approximately $1.8 million and debt was below $1.9 million. Accordingly, we are working to increase the availability of debt capital to fund our continued business expansion. I will now turn the call back over to Joe for some final comments. Joseph Forkey: Thank you, Wayne. Let me finish by summarizing a few key points. First, we are very optimistic about the future, given the high growth expectations of our production business and the high degree of confidence and visibility into these programs. Second, we believe that these new higher revenue levels of roughly $6 million per quarter or $25 million per year are sustainable given our significant production backlog. And finally, we are investing in the team to quickly address all operations, challenges, including those associated with a small and rapidly growing production business. We are maturing as a company. We may not get everything perfect the first time, but we're building our internal capacity to take on challenges and deliver strong long-term business results. To all of you on the call, I thank you for your continued support of Precision Optics. We will be participating in the Lytham Partners Fall Investor Conference with one-on-one meetings tomorrow. Please contact Robert for more information. With that, we'd be happy to take any questions. Operator: [Operator Instructions] And your first question today will come from [ Chris Bechowski ], Private Investor. Unknown Attendee: I have a couple of questions. First, just like off the top of my head, it seems like you're guiding at about the same revenue for '26 to be at the same revenue rate -- quarterly revenue rate as Q4 that you just reported. But you are also saying that your two largest customers will progressively increase the revenue contributions throughout the next year. And you're saying that you will also get bigger engineering revenues throughout the next year. So how do we -- is that -- are you just being conservative in your guidance? How do we square these things? Joseph Forkey: Yes, sure. It's a great question. So we are being a little conservative, that's true. If you were listening carefully when Wayne went through the different business units, there is one business unit, our micro optics lab that will come down about $800,000 in the year. That's exclusively due to timing of one big order that we typically get from them. The other thing, though, is embedded in some of the gross margin commentary, we talked about the fact that there is $0.5 million in Q4 that was from tooling and fixturing that we put together for expansion of production lines. So that tooling and fixturing, that's $0.5 million in a quarter right? That will be replaced by much higher margin production revenue as we go through quarter-to-quarter throughout fiscal '26. So basically, the mix of revenue is going to change a little bit and there will be more of it coming through, especially with that higher margin aerospace program. Unknown Attendee: Okay. I understand. So you're a little bit different than the usual manufacturing company that you actually get to charge some of your capital costs to your customers and you get revenue from that. Joseph Forkey: That's exactly right. It's -- the markup is small but it's low risk and it's sort of pass-through. So it benefits the bottom line, but it sort of artificially reduces what the gross margin percentage is. Unknown Attendee: Okay. All right. So now for your medical program, what you're saying is that your client agreed to pay higher cost to kind of reimburse you for some of the initial production difficulties. And then presumably, they will kind of ramp down to the original cost. How is that going to work? Is it going -- is it like previously agreed schedule of the ramp-down or is it going to be -- are they just going to kind of wait for you to tell them that, yes now we've overcome the difficulties so we can sell it to you for a lower price. Joseph Forkey: Yes. So it's a little bit of a combination. So for this customer, we have open book pricing, and we've negotiated margins, but they recognize that the start-up costs have been more substantial than we anticipated. So basically, referencing back to that open book pricing, we came back to them and they agreed that the costs were higher, so they would cover some costs in the short term. The reason I say it's sort of a combination is that they have given us targets by which they would like us to see solutions to some of these near-term problems. So we've negotiated sort of a step down from the price that we're at now with an understanding that ultimately, we need to get back to the margins that we originally negotiated at the beginning of the program. Unknown Attendee: Okay. And about the tariff reimbursement, you're still in negotiations about those? Joseph Forkey: Sorry, you were asking about the tariff reimbursement? Unknown Attendee: Well, I guess they're not really reimbursements, but just price hikes for tariffs. Joseph Forkey: Yes. So we basically have verbal agreements. We just have to document it all. They were in the process... Unknown Attendee: Yes. Okay. All right. And regarding the medical program as well, I think you said that you're kind of done with the engineering part of the solution. You've already engineered a solution, so now it's just implementation. So your engineering resources are ready to be used for actual engineering revenue. Is that correct? Joseph Forkey: Generally, that's correct. Let me explain in a little more detail. So some of the issues that we're seeing with regard to yield can be improved, can be solved by doing some slight redesigns to the product itself. That work will still require our engineering design team and that will continue. What was happening in the fourth quarter is that there are enough issues on the line that we were pulling the engineering design team onto the line to do what some people would call sustaining engineering. And the amount of that work that we have to do has substantially been reduced because the team got in there and they got some solutions. Also, we've hired a manufacturing engineer and a quality engineer whose job specialty is really digging into things like that on the line. So for all those reasons, while we still need the design engineers to help with the redesign aspects that we're using to get better yields, that will still be less of their time than we were pulling them in for earlier when we were working on all the yield issues. Unknown Attendee: Okay. So I guess you're saying that engineering resource would be still feed up kind of progressively throughout '26? Joseph Forkey: That's right. With the pretty big jump in Q1 and Q2 from where we were in Q4. Unknown Attendee: Okay. And do you have projects lined up for those people? Joseph Forkey: We do. Yes. And we're bringing in more and more continuously. The market is responding well to the Unity platform. Our -- as I alluded to, our business development team is doing a good job with outreach and sort of expanded their marketing efforts. We have this new first-ever webinar that we're doing this week, and there are a number of programs like that, that our team is using to continue to fill the pipeline. So we have -- I think we have 7 or 8 programs that are already in the pipeline that we have plenty of work for our engineers to work on. But we also have -- are working aggressively to get even more. So yes, we're in good shape there. Unknown Attendee: Okay. That's great to hear. And just to be clear, as opposed to most other companies, you get revenue in the beginning of the pipeline, right, as soon as your engineers start working on it, you start billing, right? That's good. And the other thing I was going to ask is this couple of quarters where you had your engineers busy. Do you think it will affect the number of incoming production orders just because your engineers weren't working on new production orders? Or do you already have new production orders coming in? Joseph Forkey: Yes, that's a great question. To some extent, the engineering revenue that we saw before '25 and '23 and '24 was a little bit artificially high, if you like, because the amount of engineering work then and then following on where we were using the engineers on the production line for the cystoscope was much greater than we would typically expect for a typical product development program. So all of that is to say, even though we had our engineers working on that one big project, which made a lot of sense because the future potential for that program is tremendous. We still had a number of other programs that we're continuing to move along. We had specific engineers who were focused on the other programs other than the cystoscope program. So if you look in our slide deck that we always post on our website and that we talk about on one-on-ones, there's an engineering pipeline side. And if you were to look at that today -- we just updated it today, you'll see that there are some 6 or 7 or 8 programs, three of those, in particular, are in the verification validation phase. And that phase is the one that's immediately prior to production. So we expect those three programs will go into production in the next 12 months. There's also one other program that was in production that we pulled back on. This was a laparoscope for robotic surgery. We pulled back because there are some yield issues on that project, which we think we have a handle on, but also because we were moving that product production line from our main facility to our Gardner, Massachusetts facility as part of this realignment and consolidation of production in one location in Gardner. That one will come back online later this year as well. So between that program and the three programs that are in verification validation, we expect we'll have plenty of programs coming in the next 12 months. If you look at the pipeline, you'll see there are a number of other programs that are behind those first three. Those other programs we expect will come in the 12- to 24-month time frame. So really, what we're doing now is we're pulling in new programs, we're pulling those in with the target of having these newer programs coming in today ready for production in two to three years and given the benefits of the Unity platform, where we're starting with the baseline design, we expect that we'll be able to get new programs that come in today queued up and ready to go for 24 to 36 months, which is really the place where we need to be looking at new programs for production given the pipeline -- given how the pipeline looks today. Unknown Attendee: This is great to hear, and I'll have a lot of fun looking through your deck. Okay. This is it for me. Good luck. Operator: [Operator Instructions] Robert Blum: All right. Operator, this is Robert here. While we wait to see if anyone else dials into the traditional teleconference line. We have a couple of webcast questions. [Operator Instructions] Chris actually addressed some of the questions that were already asked here, but a couple that weren't, Joe and Wayne, if you could touch on these. How are -- there's a second single-use program here. How are things going with that? And are any of the same maybe challenges that related to the first single-use program occurring there as well? Joseph Forkey: Yes. Thanks. So that program is moving along nicely. We announced, I think, in the last earnings call that, that program went into production in the March, April time frame. It's been ramping much more slowly than the cystoscope program. So it's given us more time to sort of develop things as we go. Nonetheless, there are still some start-up challenges. But we expect, and what we've seen is that all the things that we've learned on the cystoscope program are allowing us to respond the similar kinds of issues. They are different designs, so they're specifically different but there are similar kinds of issues. And so we're using what we learned from the cystoscope program to be able to move through those start-up pickups and challenges that always come when you start a new production line. That, combined with the fact that it's starting off more slowly means that it's coming online, I would say, a little bit more smoothly. Now similar to the cystoscopy program, our customer just told us a couple of weeks ago that they want to double their forecast. So again, we're going to -- even after we're getting started, we're going to have to ramp pretty quickly. And so we're poised to do that. Again, we've got a great team. They've learned a lot from the cystoscope program. We have Joe Traut coming on who I think is really ideal for these kinds of challenges. So I expect that the ramp on that program will be much smoother than the one -- than it has been on the cystoscope program. Robert Blum: All right. Very good. [Operator Instructions] Barring any additional questions, Joe and Wayne maybe final question here. You mentioned that gross margin improvement will be back half weighted. Does that mean Q4 gross margins next year will be well north of 30%? Wayne Coll: That would be correct, Robert. We'll see strengthening margins as we get further into the year following the work we're doing on the cystoscope line and with the ramping of the aerospace program as well. Robert Blum: Okay. Great. I am showing no further questions. So with that, Joe, I will turn it back over to you for any closing remarks. Joseph Forkey: Great. Thanks very much, Robert, and thank you very much, everyone, for joining us on the call today. We look forward to talking with everyone again soon. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to our host, Jeff Stanlis with FNK IR. Mr. [ Fink ], you may begin. Jeff Stanlis: Thank you, operator, and good afternoon, everyone. Thank you for joining us today for ReposiTrak's Fiscal Fourth Quarter and Full Year Earnings Call. Hosting the call today are Randy Fields, ReposiTrak's, Chairman and CEO; and John Merrill, ReposiTrak's CFO. Before we begin, I would like to remind everyone that this call could contain forward-looking statements about ReposiTrak within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not subject to historical facts. Such forward-looking statements are based on current beliefs and expectations. ReposiTrak's remarks are subject to risks and uncertainties, and actual results may differ materially. Such risks are fully discussed in the company's filings with the Securities and Exchange Commission. Information set forth herein should be considered in light of such risks. ReposiTrak does not assume any obligation to update information contained in this conference call. Shortly after the market closed today, the company issued a press release overviewing the financial results that we will discuss on today's call. Investors can visit the Investor Relations section of the company's website at repositrak.com to access this press release. With all that said, I would now like to turn the call over to John Merrill. John, the call is yours. John Merrill: Thanks, Jeff, and good afternoon, everyone. You've heard me say time and time again, the proof is in the numbers, no excuses, no puffery, just actual GAAP results. The performance for fiscal 2025 once again validates that our strategy delivers results, not only for shareholders, but our customers as well. We have and will continue to execute our strategy, fine-tuning as we go. Our strategy is unwavering and remains the same: grow annual recurring revenue somewhere between 10% to 20% and grow profitability even faster; generating more and more cash and return more capital to shareholders. Simultaneously, without exception, we take superb care of the customer because when they are successful, they buy more. Yes, conceptually, it really is that simple. But execution is far more complicated, but that's where we excel. Let's get to the numbers. For the full fiscal year ending June 30, 2025, total revenue increased 11% from $20.5 million to $22.6 million. Recurring revenue increased 10% to $22.3 million. Setup fees increased from $95,000 in fiscal 2024 to over $300,000 in fiscal 2025. This is the result of the increased number of suppliers we onboarded for all lines of business during the year. Obviously, those suppliers will generate recurring revenue over the next 12 to 18 months. This is reflected in our deferred revenue, which increased 30% from $2.4 million to $3.2 million. I will add more color on that in a minute. Total operating expenses for the fiscal year were up 6%. This is largely due to investment in RTN, which includes ongoing investment in development of the Wizard onboarding tools, more cybersecurity costs, Oracle license fees and other direct costs associated with development. Fiscal year-to-date SG&A costs were up 5% due to investments in RTN, higher payroll costs due to higher revenues and increases in employee benefit costs. We continue to grow total revenue at approximately twice the rate of SG&A expenses. Simultaneously, we delivered $343,000 of revenue per employee, almost twice the rate of the 2024 Statista software industry average of $175,000 per employee. This is due to our lean nature, laser focus on automation and efficiency and spending decisions based on return on investment and not hope. At the same time, we will never trade growth at the expense of delivering subpar customer care that will never happen. Fiscal year income from operations was up 24% to $6.2 million versus $5 million. GAAP net income was $7 million, up 17% versus $6 million last year. GAAP net income to common shareholders increased 22% from $5.4 million to $6.6 million. Earnings per share for the fiscal year 2025 was $0.36 basic and $0.35 diluted. This is based on 18.3 million basic shares outstanding and 19.1 million shares diluted, resulting in a year-over-year EPS growth of 21%. Cash from operations increased 21% from $7 million to $8.4 million. Total cash increased 14% from $25.2 million to $28.6 million, and the company has 0 bank debt. Turning to the fourth quarter numbers. Total revenue for the fourth quarter fiscal 2025 was up 11% to $5.8 million versus $5.2 million. Recurring revenue increased 11% to $5.8 million. Annual recurring revenue continues to represent between 98% and 99% of total revenue. Operating expenses increased 8%, again, as a result of our ongoing investment in RTN, cybersecurity costs, higher payroll costs due to higher revenue and increases in employee benefit costs. Quarterly sales and marketing increased 6% due to continued spending on awareness and higher sales commissions and payroll taxes due to higher revenues. G&A increased 9%. The increase is the result of higher employee benefit costs and increase in compliance costs and other insurance cost increases during the quarter. Depreciation and amortization increased 16% due to capital leased equipment for a newest data center located in Switch Reno, Nevada, Switch Reno complements our main data center located at Switch Las Vegas and eliminates our corporate headquarters data center in Murray, Utah. Income from operations increased 20% from $1.3 million to $1.6 million. GAAP net income increased from $1.6 million to $1.8 million, up 14%. GAAP income to shareholders increased from $1.5 million to $1.7 million, up 19%. Earnings per share basic and diluted was $0.09 per share. This compares to $0.08 per basic and diluted share in the fourth fiscal quarter last year, an increase of 18%. Cash was $28.6 million at the end of June 2025. Keep in mind, this balance is net of the more than $25 million in capital returned to shareholders, which includes a redemption of more than half of the preferred shares thus far, buy back 2.1 million common shares and paying off over $6 million in bank debt since we instituted our capital allocation strategy only a few short years ago. I remain confident that our continued growth and profitability will double the size of our company over the next several years. Historically, our business model results reflect double-digit revenue growth, 80-plus percentage gross margins and 30-plus net margins and a strong growing cash generation. Obviously, I don't have a crystal ball. However, in my view, we will stay the course and deliver the results, as my father used to say, if an [indiscernible] broke, don't fix it. I don't want to steal Randy's thunder, but I will leave it to him to speak to the continued initiative to position ReposiTrak as the go-to source to address the track and trace opportunity. Our market share, the growth in recurring revenue, the growth in our deferred revenue all validate the success we have had in this initiative. As you know, while traceability is grabbing headlines, we are experiencing growth in all lines of business, not just traceability, but equally in compliance and Supply Chain. While traditional sales of one service to solve one problem continues to grow, our cross-selling initiatives are delivering accelerated momentum. This is due to our intentional and conscious design of an end-to-end solution on a common platform. Once we have integrated the customers' data and they are successful in one solution, expanding to an additional solution is relatively easy, delivers incremental efficiencies for the customer. We've been pointing out the growth in deferred revenue. As most of you know, deferred revenue is an indicator of future revenue yet to be recognized. Be clear, this is contracted revenue and represents all of our solutions, not just traceability. As our services are delivered in accordance with the contract, that earned revenue will be layered in over the subsequent 12 to 18 months. As I previously stated, deferred revenue was $3.2 million at June 30, up from $2.4 million a year ago. This represents an increase of more than 30% and represents approximately $800,000 in new signed contracts in hand at the end of the June 2025 quarter. This does not include any pending or sequent sales efforts after the June 2025 quarter. Again, the proof is in the numbers. Our primary business focus is on generating earnings and cash. In the last fiscal year, 11% revenue growth was converted into 17% net income growth. More importantly, we converted $2.2 million in incremental revenue into $3.1 million in incremental cash from operations. Why? Because many of our contracts require the annual subscription paid in advance. So the result is cash will always run ahead of revenue. So for the fiscal year, $0.47 for every incremental revenue dollar fell to the bottom line on a GAAP basis. Those results reflect the increased investments in marketing, technology and onboarding of new customers, resulting in modestly higher costs that will flatten over time. While our incremental conversion is meaningful, I'm not satisfied. Our longer-term goal is to move our contribution margin from approximately 50% where it is today, closer towards 80%. The investments in automation and efficiency is how we will ultimately get there. Again, our strategy is simple: first, take exceptional care of the customer and execute perfectly; second, grow recurring revenue, increase profitability, used cash to buy back common stock, redeem the preferred and do it with no bank debt. At the same time, return capital to shareholders through an increase in cash dividend; third, we continue to build cash in the balance sheet, over $28 million as of June 30, 2025. Yes, it really is a simple. Turning to our capital allocation plan. Since inception of the capital allocation plan, the company has paid off over $6 million of bank debt. As of June 30, 2025, the company has 0 bank debt. Given our sell balance sheet, we chose to terminate our $12 million credit facility with a bank. Since inception, the company has redeemed 501,679 shares of preferred stock for a total of $5.4 million. The amount remaining to redeem the remaining preferred shares of $3.6 million. At the current rate of redemption, I anticipate we will redeem all of the remaining preferred shares issued and outstanding on or before December 2026, given our cash generation. Since inception, the company has bought back 2.13 million shares of common stock for approximately $13 million. Roughly $8 million remains available for future buybacks under the current share repurchase program as approved by the Board of Directors and shareholders as of June 30, 2025. The company holds no treasury stock, common shares or repurchase and simultaneously cancel. Since inception, we have paid over $5 million in cash dividends to shareholders and raised the common stock dividend now 3x by 10% each time since December of 2023. From time to time, the Board will evaluate our capital allocation strategy, making appropriate adjustments based on the approach most beneficial to all shareholders at that time. Our goal is to continue to return 50% of annual cash from operations to shareholders and putting the other half from the bank. That's all I have today, thanks everyone, for your time at this point. I'll pass the call over to Randy. Randy? Randall Fields: Thanks, John. As John outlined, our results over the past year reflects solid revenue growth and a rapidly growing profitability. Our business model is becoming increasingly efficient and our learnings from our onboarding Wizard and automation activities are helping to shape our future. This process, thinking step-by-step about the onboarding process from a customer perspective is really changing how we go about our business. Historically, the amount of human intervention onboard a customer was significantly higher than it is today. Today, with our Wizard approach, as we call it, we have a solid, very much automated onboarding process. This new approach opens new opportunities across the entire business, certainly not just in traceability. Based on our experience in creating the on-boarding Wizard, we've meaningfully shifted our marketing approach to all of our solutions. In simplest terms, it enables us to deal with smaller accounts, with the same level of service and frankly, success as we've had historically with larger accounts. Obviously, this means our total addressable market is growing. The approach started with traceability, but due to the unique challenges of the new requirements placed on suppliers, it's enabled us to expand our target market for the suite of applications that we have well beyond just traceability. Let me elaborate. Historically, we exclusively used a retailer-centric hub model. This means that we built a relationship with a large retailer or wholesaler. And this customer then rolls out the use of our service to their supply chain to their suppliers. It's been a successful model for our compliance solution, for example, enabling us to build a network with thousands of customers across the industry. As the traceability initiative unfolded, however, it became clear that the traceability, the rules created the challenge for suppliers because they need accurate data from their suppliers all the way down to, frankly, to [ dirt ]. In short, it's both a multilevel opportunity and a challenge. These ingredient suppliers are typically rather small and rarely had IT support. When the FDA extended the deadline for compliance, One of the primary reasons that they cited was that suppliers were unable to meet the more aggressive time line. They were right. Using our traditional hub-centric model, we might never have reached this far down the value chain. But under the new traceability system, these suppliers play a very important role, in fact, a central role. We were hearing from larger suppliers, companies with dozens, perhaps hundreds of ingredient suppliers but it was a challenge. They need to attract the individual ingredients and their suppliers, frankly, were not equipped to do so. We are the solution. So in our current view, the mandate is not only coming from a retailer at the top, but a supplier in the middle and is pushing both upstream and downstream. If a manufacturer cannot track the ingredients to the system, they can't meet the traceability requirements of the retailer. So since we had a large network who already knew us and since these manufacturers and suppliers knew they needed to meet traceability requirements for their customers, we realize the appropriate approach was not only a top-down strategy, but a bottom-up approach or something in the middle. As a result, an increasingly larger number of our referrals are coming from suppliers and manufacturers who are pushing their suppliers to join the network. These customers require a transparency of traceability. They demand better information from their downstream suppliers. And the retailers at the top of the value chain are still driving the timing and scope of traceability. So in a sense, we're providing the solution for all of them so that suppliers can make it all work. Importantly, keep in mind, this isn't just for traceability. We're now employing a similar approach in generating similar results for our other business lines as well. For each of our services, remember, we charge a very modest price. We solve a real business problem, and we do so at such a compelling price point, we are perceived as providing significant value. Over the past year, we've invested significantly in our infrastructure, especially our AI onboarding Wizard. We'll continue to tweak this solution with the goal to continue to eliminate as much human intervention from the onboarding process as possible. With tens of thousands of potential small customers out there, automation is key and we're getting quite good at this. We'll never onboard 100% of the customers in a 100% automated fashion. Today, though, nearly all of our customers are using the automated Wizard for at least some portion of their onboarding. Keep in mind, this is not a new venture for us. Over the past several years, we've added thousands of accounts and our head count is essentially flat. We understand automation and what it can do. And yes, AI is showing up in more and more aspects of our technology. Keep in mind, we were using AI long before it became a buzzword. Another benefit at this middle up approach is that these middle tier suppliers not only have a number of suppliers downstream, but they also typically have several, sometimes dozens or even hundreds of upstream customers. Each of these relationships is a viable target for us for all of our solutions. These customers need to comply with traceability requirements as well. And if their suppliers are using our solution, we're a natural fit. With the top-down hub-centric approach, referrals really only work downstream. The middle out approach provides us much more referral opportunities, both upstream and downstream. We have and will continue to establish and cultivate relationships with larger hubs, but the scale of our network, our reputation and the value we provide is enabling us to expand our addressable market by targeting a larger pool of smaller customers, think pull, not push. ReposiTrak has emerged as the go-to solution to meet traceability requirements. More importantly, the traceability network aligns well with the individual preferences of retailers as well as their suppliers. Our solution, I think, in a sense, is sort of a Rosetta Stone, a universal translator. It will work with not just our solutions but other solutions and those developed by retailers internally. Today, we're arguably the largest traceability network in the world. The network effect is beginning to take place. New customers bring additional target customers and grow our opportunities. The FDA's change in time line has given us and our customers breathing room to roll this out effectively. A significant result of the growth in the number of customers is a growing pipeline of cross-selling opportunities. As a reminder, all of our major solutions, traceability, supply chain, Compliance are built on a single technology platform, and that's a key and importantly, intentional differentiator. This common platform creates incredible financial and operational efficiencies and facilitates our cross-selling. A customer using the RTN network has already done the hard work. Data has been collected, synchronized scrubbed and mapped, wow, and the data is now likely to be ensured to be very accurate. As a result, expanding into other ReposiTrak service offerings such as compliance or supply chain is actually pretty easy. In summary, our accomplishments to date are precisely what we've communicated to shareholders over some time. Our profitability is increasing at approximately twice the pace of our revenue, demonstrating the inherent leverage of our business model. We continue to grow our cash reserves, maintain a fortress balance sheet with no debt and once again increased our quarterly dividend now for the third time in this many years. Still we really have just scratched the surface. We believe the growth will continue to be converted into cash and approximately half of our cash generation will continue to be returned to shareholders. It's an elegant model. So with that, I'd like to open it up for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: Randy and John, congrats on the quarter and year. I have 4 questions, but I might have another 1 depending on your answers. And then my last 1 is a bit of an indulgence question. So I hope you can indulge me in the last one. The -- all right. So first, I'll go 1 at a time. First off, this is my clarification question. So Randy, did you say you changed your pricing strategy or your billing strategy? Can you explain that one more time? Randall Fields: Well, it's not really either of those or it's both, and I don't mean to be vague. But what we've done is to find because of the automation we did that we can be as effective with smaller accounts as we can with larger accounts. In other words, we can provide the same level of technical success and relationship success. That was a breakthrough for us. It was something we hoped for but didn't want to count on it. So the implication is that instead of dealing it only the first level of suppliers to a retailer, we're able now to start with those suppliers and move down the -- no pun intended food chain until we're all the way down to dirt. So in other words, this massively changes the scope of what we do, changes how we market, changes a little bit in terms of how we bill, but ultimately, it means that we can deal and will be dealing with smaller accounts, not just the very largest. So it's a pretty significant change. For those of you who've been around for a while, you know that we're an operationally inclined business. So before we set out to go do this, we wanted to be just absolutely sure that we could offer the same level of service as we historically have and found that once again through our automation technology, that -- that's going to be possible. And it changes everything. It really does changes everything for us. So the answer is either neither or both, but part of going after smaller accounts than we historically have. Did that clarify it, I hope. Thomas Forte: All right. And then for my second question. If I'm not clear, and this is too open-ended, let me know. So how, if at all, have tariffs impacted your business? And if that's too vague, I can be a little more specific. Randall Fields: Well, the answer at this point is that it really hasn't significantly. It could in the future for the following reasons. It hasn't so far because the impact on food retailers, food manufacturers hasn't been excessive. However, some portions of the food supply chain are literally outside the U.S. So a significant amount of fish, a significant amount of vegetables and fruit, et cetera, come from outside the U.S. That part of the food chain is going to be impacted. And what we don't know is whether that can be passed on, whether it's going to be absorbed, we just don't know yet, it's too soon. So theoretically, it could hurt our customers, which can't be in the long run, a good thing. But at this point, it really has had little, if any, effect. Thomas Forte: All right. So then this is a follow-on to that one. Okay. So you have not been indirectly impacted to the extent that your core food retail customers have perhaps been distracted by tariffs. So you just answered that there's been no direct impact to you because of tariffs in that regard. But is there any indirect impact, meaning anything that takes the time of your food retailers works against you? Randall Fields: And the answer to that is, at this point, no. But in the long run, as we adjust to tariffs, retailers are very clever at how to avoid cost increases and whatnot. Could it become distracting? It could. But at this point, again, just no impact, nothing that we see. It's just ordinary course of business. Thomas Forte: Okay. And then the remaining are all kind of different flavors of capital allocation questions. So what are your current thoughts on strategic M&A. You have, obviously, huge advantages that would make you an excellent acquirer, including, among others, a strong balance sheet, but what's your current thoughts? Randall Fields: Well, John and Randy do keep their eyes open for opportunities. It's fair to say that the -- that activity has picked up recently. We're seeing more things and more things that are of interest, frankly. But we certainly have nothing to announce. It's way early. But M&A, at this point, if you said are you -- if we were watching this on a some kind of a meter. Is the meter moving in the direction of more likely. The answer to that is yes, but it hasn't reached the point that it's going to happen. How is that for a mealy-mouthed answer to your question? Thomas Forte: Okay. So I'll give you a chance to add. So historically, do you have any parameters? It has to be accretive? Has to give you new customers? Any other like high-level ways you would describe it? Randall Fields: Definitely yes. It would definitely have to be accretive. It would definitely have to be something that we either wouldn't or couldn't over the near term, develop ourselves. Most likely, we would want it to take us into either an adjacent industry where we don't have as much domain expertise. So those would really typically be the characteristics. But anything we do would have to be accretive for sure. John, any commentary on that? John Merrill: No. I think we look at opportunities all the time. I think we have plenty of opportunity in what we do in all lines of business. But if something came along that didn't dilute our margins and was accretive, it was a bolt-on service or got us into another industry, I completely agree, but definitely that opportunity. And I think Randy put it eloquently that we look at those things all the time. But as far as that moving the needle and where we are in that path, way too early. Thomas Forte: Okay. We're down to my final 2. On capital allocation, would you consider paying a onetime dividend? I've seen other companies with similar financial profiles as yours pay onetime dividends. John Merrill: My opinion is, no. I don't think it makes sense for investors to -- I would much rather have an investor look at what we have done, which is, hey, it's possible that they might increase their dividend going forward based on their 50% givebacks to shareholders versus a one and done of -- I don't think that gives you any line of sight. And I think that's the same way we've been in our financials. We've always been transparent and said, from a SaaS model, you can see this growth, you can see these margins. And I think we've done what we've said, said what we've done, and I'm just not a fan of the one time. Maybe, Randy has a different position, but I would much rather continue to pay down the pay off the preferred. Get back into buying back the common, continue to increase the dividend, but long-winded answer, I'm not a fan of onetime dividends. Randall Fields: The only thing I would say that's -- yes, let me say one thing that's slightly different than that. We're speaking about where we are now. it is possible if we do exceptionally well over the next few years that the cash on our balance sheet will become what I would call unwieldy. In other words, it's the tail wagging the dog. So it's conceptually possible at some future point, we might reconsider that. But right now, absolutely not. Thomas Forte: Okay. So now we're down to the indulgence question. But I do, Randy and John, want a full thoughtful answer, not just a dismissive no without [ hitting ] your minds. Okay. Do you have any crypto treasury plans? Why or why not? Randall Fields: John? John Merrill: We have no crypto. No, we do not. As a fiduciary, I think most investors would look at us and say, are you guys out of your mind, why don't you just go to Vegas and put it on black? I don't know enough about it, and it's just not worth the risk. And I think our cash generation gives us peace of mind that we can deliver our capital allocation strategy without crypto. Thomas Forte: Okay. So thank you for laughing but giving a thoughtful answers, John. John Merrill: I was actually going to say maybe. i was going to say may be just so I didn't say no. Thomas Forte: Okay. No, I appreciate the reasoning. Operator: [Operator Instructions] And it looks like there are no further questions at this time. I would like to turn the call back to Randy Fields for closing remarks. Randall Fields: Operator, thank you. Thanks all of you for joining us. Obviously, you can tell from our tone, we feel really good about where we are. And we're hoping that from what John has said and what Randy has said that you understand how our business model is working and why the next few years feel very, very good to us. So thank you. Thanks for your time, everybody. Have a good. Bye-bye. John Merrill: Thank you. Bye-bye. Operator: Thank you. And with that, this does conclude today's teleconference. We thank you for your participation, and you may now disconnect your lines, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Earnings Conference Call for the quarter ended June 30, 2025. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to your host for today's conference call, Ms. Ellie Wang. Please go ahead, Ellie. Unknown Executive: Thank you, operator. Hello, everyone. Welcome to Uxin's earnings conference call for the second quarter ended June 30, 2025. On the call with me today, we have D.K., our Founder and CEO; and John Lin, our CFO. D.K. will review business, operations and company highlights followed by John, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we proceed, I would like to remind you that this call may contain forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our filings with the SEC. Now with that, I will turn the call over to our CEO, D.K. Please go ahead, sir. Dai Kun: [interpreted] Hello, everyone, and thank you for joining our earnings conference call. To ensure smooth communication with both our domestic and international investors, I will share our latest updates in both Chinese and English. In the second quarter of 2025, we delivered another strong set of results. Retail transaction volume reached 10,385 units, up 154% year-over-year. This marks the fifth consecutive quarter with year-over-year growth above 140%, underscoring the strong and sustainable growth potential of our model. Inventory turnover also remained healthy at roughly 30 days, reflecting our efficient operations and a balanced inventory structure. On customer satisfaction, our Net Promoter Score was 65 this quarter, maintaining the highest level in the industry for 5 consecutive quarters. Over the past few years, we have built a standardized management and operating system in our flagship superstores in Xi'an and Hefei. This framework enables new locations to ramp quickly and efficiently. Our Wuhan superstore, which opened at the end of February, has performed well above expectations in both business ramp-up and operational maturity. The one-stop used car experience offered by our large-scale superstore model has been warmly received by local consumers, starting with an initial retail inventory of 250 units in March. So Wuhan store has consistently sustained approximately 30-day inventory turnovers. By September, the store's retail transaction volume is expected to reach around 1,400 as this momentum continues to build. On the sourcing side, our capabilities have been thoroughly tested and proven. We have integrated diverse vehicle acquisition channels, improved pricing precision and ensured smooth operations at our reconditioning facilities. Together, these strengths provide a stable, sufficient vehicle supply. As such, profitability at the Wuhan store is improving quickly alongside its rapid sales growth. Compared with our superstores in Xi'an and Hefei, start-up losses in Wuhan have been meaningfully smaller. At the same time, the ramp-up of our Wuhan superstore has also enabled us to further improve our operational precision and enhance our superstore model. First, we have continued to improve the capabilities of our digital management system, drawing on real transaction data from daily operations to fine-tune our in-house engines for pricing, reconditioning and customer acquisition, allowing us to adapt more swiftly to evolving market conditions. Second, we're continuously optimizing service workflows to ensure that even as our customer base expands rapidly, we remain firmly rooted in our core operating philosophy of delivering customer value. Third, we have also been refining our talent development framework to help new store employees build professional competence and service capabilities more quickly, supporting rapid business growth while preparing a solid talent pipeline for future expansion. Additionally, we are actively exploring the integration of AI technologies into our business operations to unlock greater efficiency and scalability over time. Our new store expansion is progressing steadily as planned. On September 27, we officially opened our Zhengzhou superstore. With a planned floor area of approximately 150,000 square meters, the facility can accommodate up to 5,000 vehicles on display and for sale. This is our fourth large-scale superstore following Xi'an, Hefei and Wuhan. Zhengzhou is a major transportation hub in Central China with a resident population of more than 13 million and over 5 million registered vehicles. The city ranks among the top 10 nationwide in used car transaction scale and activity, making it an ideal location for a large-scale superstore. With this opening, we can serve more consumers in the region with high-quality vehicles and professional services while significantly strengthening our market presence in Henan province. Looking at the industry, China's used car market has been heavily affected in recent years by aggressive price competition in the new car segment. We are encouraged that following a series of policy guidelines introduced by the Chinese government, competition in the new car market has moderated and the destructive price wars have effectively ended. After 6 months of operation, our Wuhan superstore has entered a phase of margin improvement. Looking ahead to the third quarter, we expect our retail transaction volume to remain on a strong growth trajectory with year-over-year growth of over 120% and a significant improvement in profitability. Based on the momentum across the first 3 quarters, we anticipate our full year 2025 retail transaction volume growth to reach approximately 130% year-over-year. With that, I will turn the call over to our CFO to walk you through the financial results. John, please? Feng Lin: [interpreted] Thank you, D.K. Hello, everyone. Since we have both domestic and international investors participating today, we will continue to present the company's performance in both Chinese and English to better communicate with all of you. In the second quarter, our retail transaction volume reached 10,385 units representing a 154% increase year-over-year and a 38% increase quarter-over-quarter, demonstrating that our retail business remains firmly on a path of rapid growth. Retail revenue for the quarter totaled RMB 610 million, up 87% year-over-year and 31% quarter-over-quarter. The average selling price or ASP for retail vehicles was RMB 59,000 compared to RMB 62,000 in the prior quarter and RMB 79,000 in the same period last year. While ASP declined as we shifted toward a more affordable inventory mix, the strong growth in transaction volume more than offset the pricing impact and drove our overall revenue expansion. Our current inventory structure is well aligned with mainstream consumer demand, and we believe pricing has now stabilized at a rational level. As such, we expect ASP to remain relatively steady in the near term. Turning to our wholesale business. Our wholesale transaction volume was 1,221 units in the second quarter, representing a 19% decrease year-over-year but a 70% increase quarter-over-quarter. Total wholesale revenue was RMB 29.9 million. Combining both retail and wholesale, total revenue for the quarter reached RMB 658 million, representing a 64% increase year-over-year and a 31% increase quarter-over-quarter. Gross margin for the quarter was 5.2%, down 1.2 percentage points from 6.4% a year ago, and down 1.8 percentage points from 7% in the prior quarter. This decline was primarily due to the price war in the new car segment, which has exerted margin pressure on the used car market as well as the early stage ramp-up of our Wuhan superstore, which opened in February and is still in the process of scaling its profitability. However, we do not expect these factors to impact gross margin in the third quarter, and we anticipate being a rebound to around 7.5%. The increase in operating expenses this quarter was primarily related to the initial ramp-up of our Wuhan superstore, including investments in staffing and infrastructure. As a result, our adjusted EBITDA loss for the quarter was RMB 16.5 million, representing a substantial 51% reduction year-over-year. Looking ahead to the third quarter of 2025, we expect retail transaction volume to be in the range of 13,500 to 14,000 units, representing year-over-year growth of over 130%. Total revenue is expected to be between RMB 830 million and RMB 860 million with gross margin recovering to approximately 7.5%. That concludes our prepared remarks for today. Thank you, everyone. Operator, we're now ready to begin the Q&A session. Operator: [Operator Instructions] And our first question today will come from Fei Dai of TF Securities. Fei Dai: Congratulations on the company's strong sales momentum and continued high growth trajectory. With new superstores opening at such rapid pace, how do you balance short-term profitability pressures with your expansion needs? Will you need additional financing? Feng Lin: [interpreted] Thank you for your question. Let me take this one. The rapid rollout and ramp-up of our new superstores significantly strengthened our market presence in the cities where we expand and also help us build out a nationwide sales network. This carries major strategic importance for us. Now on balancing profitability with extension fee, I want to emphasize that we will never pursue extension blindly. Every new superstore is carefully planned, both from a business and financial perspective. That said, once a new store begins operation, there will be some short-term profitability pressure. To mitigate this, we are focused on raising the level of standardization and high-quality replication across stores. By further upgrading our digital management systems and improving organizational efficiency, we can reduce early-stage cost pressure and losses and accelerate the time to break even. From a financial perspective, opening a new superstore requires about USD 8 million to USD 10 million, of which roughly $2 million is allocated to factory equipment and store preparation with the rest mainly for inventory buildup. Under our current operating model, it typically takes two to three years for a new superstore to reach breakeven and then maturity. Once matured, each store can generate enough profit to support the launch of another new store. Since our number of mature stores is still limited, we do plan to rely on measured incremental equity financing to support rapid expansion over the next two to three years. Given that our business has consistently delivered over 100% year-over-year growth and that we are seeing early signs of recovery in capital markets, we are not overly concerned about funding. We are confident in our ability to raise sufficient capital in line with our expansion plan. Operator: [Operator Instructions] Our next question today will come from Wenjie Dai of SWS Research. Wenjie Dai: The management mentioned earlier that the Wuhan superstore has ramped up very successfully much faster than Hefei and Xi'an. Could you share what differentiation measures were taken in Wuhan? Dai Kun: [interpreted] Sure. Thank you for the question. This is D.K. I'll take this one. In addition to being the CEO of the company, I'm also the General Manager of the Wuhan superstore, so I personally experienced the entire journey from preparation to selling our first car to achieving today's results. I'd summarize the reasons in three areas. First, our digital business management system has been refined over more than four years of operations at the Xi'an and Hefei superstores. It is now highly mature and capable of being replicated quickly. These digital capabilities also benefit from a self-reinforcing flywheel effect, take our intelligent pricing system, for example, as powered by a vast database of real transaction data, something you can only truly accumulate if you're directly engaged in buying and selling vehicles yourselves. The more transactions we do, the more accurate our pricing becomes which in turn improves efficiency in both sourcing and sales. Thanks to the training of our Xi'an and Hefei data, this system has adapted very effectively in the Wuhan market. Second, our business processes are now fully standardized and our organizational and talent development systems are increasingly well established. The management team at Wuhan brought rich experience, which helped avoid repeating unnecessary mistakes, thereby accelerating both production and sales execution. At the same time, the talent development cycle continues to shorten. Typically within 1 to 2 years of operations, each superstore is able to develop one to two new management teams to support future expansions. That's my answer. We are confident that as we open more superstores, each new location will build upon the proven experience of earlier ones, making operations smoother and more efficient over time. Wenjie Dai: Zhengzhou, our new superstar, you've just opened. How does management view the competitive landscape in Zhengzhou? Can the success in Wuhan be replicated there and the other new superstores? Dai Kun: [interpreted] The competitive environment in Zhengzhou is indeed intense. There are a number of dealers there with relatively advanced operating practices and some dealers have inventories of more than 500 vehicles. At the same time, Zhengzhou is a much larger market with a population of over 13 million and more than 5 million registered vehicles and is one of the most active used car trading hubs in China. Currently, players in the market adopt different business models and target different positioning, our superstore model stands out with broader selection, better value for money, higher quality assurance and a more convenient one-stop service experience. On the customer side, for every 100 customer groups visiting the store, over 40% results in a purchase. That shows our business model with a strong omnichannel control, offers clear differentiation and resonates well with our target customers. We will continue to analyze the Zhengzhou market carefully and prepare thoroughly to compete. With our mature business processes and digital systems, we are confident that Zhengzhou can also achieve strong results. Looking further ahead, the cities we're targeting for extension are all among the top 20 in China by vehicle ownerships, which provides very favorable market conditions. So we are confident that the success of Wuhan can be replicated in Zhengzhou and in our future new superstores. That's my answer. Thank you. Operator: At this time, we will conclude our question-and-answer session. I would like to turn the conference back over to Ellie Wang for closing remarks. Unknown Executive: Thank you again for joining today's call and for your continued support in Uxin. We look forward to speaking to you again soon in the future. Dai Kun: Okay. Bye-bye. Operator: The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines. [Portions of this transcript that are marked [interpreted] were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to Carnival Corporation & plc Q3 2025 Earnings Results Conference Call and Webcast. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. We ask that you please ask one question, one follow-up, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Beth Roberts. Please go ahead, Beth. Thank you. Beth Roberts: Good morning, and welcome to our third quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein, our CFO, David Bernstein, and our Chair, Mickey Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures including yields, cruise costs without fuel, EBITDA, net income, ROIC, and related statistics for all, which are on a net basis or adjusted as defined. Unless otherwise stated, a reconciliation to U.S. GAAP is included in our earnings press release and our presentation, which are available on our corporate website. References to ticket prices, yields, and cruise costs without fuel are in constant currency unless we note otherwise. Please visit our corporate website where our earnings press release and investor presentation can be found. With that, I'd like to turn the call over to Josh. Josh Weinstein: Thanks, Beth. This was a truly outstanding quarter, with our business continuing to fire on all cylinders, outperforming and taking us to new heights. Once again, we delivered record revenues, yields, operating income, EBITDA, and customer deposits. This quarter, we also achieved an all-time high net income of $2 billion, surpassing our pre-pause benchmark by nearly 10%. This is a significant milestone with strong operational execution more than compensating for a nearly 600% increase in net interest expense compared to 2019. On a unit basis, both operating income and EBITDA reached the highest levels in the better part of twenty years. These record results were delivered on 2.5% lower capacity as compared to the third quarter last year. Yet another proof point on our successful delivery of same ship yield improvement and its marked impact on the bottom line. In fact, yields increased 4.6%, all of which was achieved on a same ship basis. Yields were also over a point better than guidance again, due to the strength in both close-in demand and onboard spending. Unit costs beat guidance by 1.5 points on continued cost discipline. The outperformance on revenue and costs alongside our refinancing efforts enabled us to take up our full-year guidance for the third time this year. These fantastic results and our team's consistently strong execution delivered ROIC of 13% for the trailing twelve months. This is the first time since 2007, nearly twenty years ago, that returns have reached the teens. Another clear testament to the fundamental improvements in our operational performance. Our leverage is now down another notch to 3.6 times net debt to EBITDA, closing in on investment-grade leverage metrics. This positions us even closer to using our strong and growing free cash flow to not only continue to responsibly delever but also to return capital to shareholders. In fact, just today, we called the remaining converts using $500 million of cash that David will touch upon. To fuel this over the longer term, we believe we have much more opportunity to increase same ship yields and further close the unbelievable value gap to land-based alternatives, pushing margins and returns even higher over time. In fact, booking trends have continued to improve since our last update, nicely outpacing capacity growth at higher prices and setting a record for bookings made on sailings two years out. And with nearly half of 2026 already on the books at higher prices, we feel pretty good about next year. We just welcomed Star Princess into the fleet, sister to the highly successful Sun Princess, previously awarded Conde Nast 2024 Mega Ship of the Year. This new ship class will now represent over 15% of the Princess fleet. A nice tailwind for the brand next year. Of course, we also have the full benefit of Celebration Key and the continued rollout of our destination development strategy as we progress through next year. Celebration Key is as phenomenal as we expected and open to rave reviews. I could not be prouder of both the Carnival Cruise Line and our destination development teams for not only getting this fantastic development done on time and on budget but also delivering an amazing guest experience right from the start. Since our late July opening, nearly half a million Carnival Cruise Line guests have already passed through the sun-shaped arch in Paradise Plaza. Soaking in the largest freshwater lagoon in The Caribbean, heading up to the top of the world's largest sandcastle, zipping down our racing water slides, or enjoying a cool cocktail at the world's largest swim-up bar. While early guest feedback from Celebration Key has been fantastic, we are paying close attention to our guest suggestions and will continue to fine-tune operations and strive for continuous improvement to make the experience for our guests even better. As you may have seen, the media coverage for our new destination has been overwhelmingly positive. Even before opening, we were amongst the most searched cruise destinations, and we have clearly built on that success. Our marketing teams have been working around the clock to make Celebration Key a household name. The grand opening alone generated almost one and a half billion media impressions. And we've been activating a ton of live footage from the destination on social media and the like ever since. Celebration Key is sure to increase consideration amongst new-to-cruise while at the same time giving our repeat guests yet another reason to come back soon. In fact, we expect word-of-mouth will continue to build with 2.8 million guests visiting Celebration Key next year on 20 Carnival ships, leaving from 12 different home ports. This adds up to high utilization rates, with a ship in port virtually every day of the year and at least two ships 85% of the time. To that end, our pier extension is in progress and by next fall, accommodate up to four ships at a time. Allowing us to maximize the utilization of our existing land capacity. And because I know I will get asked, right off the bat, I'll just say, in the early innings, the returns of our Celebration Key investment are indeed meeting expectations. All of which were built into our forecast and which we have exceeded. Switching gears to another of our Caribbean gems, mid-next year we will also open the Pier expansion at Relax Away Hastings Quay. Our pristine Caribbean oasis. This spectacular tropical paradise already ranked amongst the best private islands in the Caribbean invites our guests to relax and enjoy our white sand, crescent beach, and crystal clear turquoise waters. Once both piers are operating, one out of every five Carnival Cruise Line Caribbean itineraries will go to these perfectly paired destinations. Providing guests with both the ultimate and the idyllic beach days. All in one vacation. And overall, the vast majority of our Caribbean guests will enjoy one of our seven purpose-built Caribbean gems with half of those guests visiting more than one. As beaches are the number one destination for vacationing Americans, our miles upon miles of some of the most beautiful beaches in the world are the perfect fix. By making targeted incremental investments, and stepping up our marketing efforts to support this broad destination portfolio. We believe we have further opportunity to monetize these strategic assets by using them to drive consumer consideration and conversion. Taking share from land-based alternatives. Altogether, our exclusive Caribbean destinations will capture over 8 million guest visits next year. Almost equal to the rest of the cruise industry combined. And let's not forget our strategic portfolio of brands and assets stretch far beyond the Caribbean. We have by far the most assets in and capacity dedicated to Alaska. Which has been incredibly strong this year. As well as the biggest reach into Europe, which has likewise been performing incredibly well for us. Our portfolio of brands and land-based assets are clearly the largest and most diverse in the industry, and getting even better every day. While getting to 13% ROIC so quickly is a significant achievement, it's certainly not a ceiling. We have been disciplined in deploying capital towards our highest returning brands, with seven ships on order for Carnival and Aida combined. But keep in mind, we have many other brands that are quickly progressing up the internal leaderboard. This year, the overwhelming majority of capacity will be at brands delivering double-digit returns. Yes, this is already well above our cost of capital, but our brands have much more room to significantly improve. In fact, several of our brands are not yet back to either 2019 levels or the record highs they've reached in the past two decades. So we know the latent potential they have. And even the two stars, currently atop that internal leaderboard Aida and Carnival Cruise Line, have road maps to progress. Aida will continue to benefit from its hugely successful evolutions program. Which coupled with new ship orders will modernize its current fleet. Next month, Aida Luna will enter dry dock, the second of seven ships to receive this proven upgrade. Carnival will also be launching a fantastic new marketing campaign just ahead of wave season, an enhanced loyalty program mid-next year, and, of course, stands to disproportionately benefit from the step-up we're making in our Caribbean destinations given their large year-round Caribbean presence. So while it is incredibly rewarding to see the great progress our teams have made in such a short amount of time, I am equally excited about the opportunities ahead as we create shareholder value through continued progress on profitability, and returns. At the same time, further balance sheet improvement should continue the transfer of enterprise value from bondholders back to shareholders. I would like to again thank our team members Ship and Shore, for the dedication and execution which enabled us to deliver happiness to nearly 4 million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit, and life we touch. And special thanks to our travel agent partners, destination partners, investors, and of course, our loyal guests for their continuing support. With that, I'll turn the call over to David. David Bernstein: Thank you, Josh. I'll start today with a summary of our 2025 third quarter results. Next, I will provide some color on our improved full-year September guidance as well as some key insights on our fourth quarter. Then I'll provide you with a few things to consider for 2026 and finish up with an update on our efforts to rebuild our financial fortress through refinancing and deleveraging. Turning to the summary of our third quarter results. Net income exceeded June guidance by $182 million or $0.13 per share as we outperformed once again and achieved our highest ever net income for the quarter. The outperformance was mainly driven by three things. First, favorability in revenue worth 4¢ per share as yields came in up 4.6% compared to the prior year and that was on top of last year's robust increase of nearly 9%. This was 1.1 points better than June guidance driven by continued strong close-in demand resulting in higher ticket prices and a continuation of strong onboard spending. The increase in yields was driven by improvements on both sides of the Atlantic. Second, cruise costs without fuel per available lower berth date or ALBD were up 5.5% compared to the prior year. This was 1.5 points better than June guidance and was worth $0.03 per share. The favorability was driven by cost-saving initiatives which we firmed up during the quarter. These will flow through to our full-year September guidance. And third, favorability in fuel consumption and fuel mix was worth $0.02 per share as our efforts and investments to continuously improve our energy efficiency of our operations leveraging technology and best practices paid off once again. The balance of the favorability $0.04 per share was a combination of improved depreciation expense and better fuel prices as well as favorable interest income and expense. Customer deposits at the end of the quarter were at a record for the third quarter at $7.1 billion, up over $300 million versus the prior year driven by higher ticket pricing and increased sales pre-cruise onboard revenue items. Next, I will provide some color on our improved full-year September guidance. Our net income guidance of approximately $2.9 billion or $2.14 per share is a $235 million or $0.17 per share improvement over our June guidance. The full-year improvement of $0.17 per share was driven by three things. First, flowing the $0.13 per share third quarter favorability through to the full year. Second, an additional $0.03 per share fourth quarter interest expense favorability as the actions that impacted third quarter interest expense are also creating favorability in the fourth quarter. And third, $0.01 per share from improved fourth quarter fuel prices. Yield guidance for the fourth quarter remained the same as the prior guidance. Cruise costs without fuel for the fourth quarter are flat with June guidance. However, our cruise costs for the fourth quarter did benefit from some of this cost savings we solidified during the third quarter but were offset by higher variable compensation driven by improved operating results. All of this results in over $7 billion of EBITDA, a 15% improvement over 2024 virtually all of which is being driven by same ship yield improvement as our capacity is only up approximately 1% year over year. Now a few things for you to consider for 2026. We are forecasting a capacity increase of just eight-tenths of a percent compared to 2025. As Josh indicated, booking trends have continued to improve since our last update and we now have nearly half of 2026 on the book at higher prices. As we highlighted on our last call, Carnival Cruise Line's new loyalty program, Carnival Rewards, will start in June 2026, impacting results for the second half of the year. As a reminder, while the program will be cash flow positive from day one, it does impact our yields in 2026. The year-over-year impact is expected to be about half a point. It should also be noted that we do not anticipate any meaningful impact on costs from the new loyalty program when compared to the current program. Our game-changing destination Celebration Key opened in July 2025, has been delivered an amazing guest experience. With a full year of operation in 2026, along with the mid-2026 opening of our new pier at Relax Away Halfmookie, we expect that the operating expenses for these destinations in 2026 will impact our overall year-over-year cost comparisons by about 0.5 points. While it is still early in our planning process, we are expecting to do more work during our 2026 dry docks. The additional expenses will impact our overall year-over-year assumptions by up to one percentage point. Now I'll finish up with an update of our refinancing and deleveraging efforts. During the quarter, we continued our refinancing strategy to reduce interest expense and manage our maturity towers while also reducing secured debt by nearly $2.5 billion leaving just $3.1 billion remaining. We issued two senior unsecured notes and completed one bank loan. The combined proceeds of $4.6 billion from these financings together with cash on hand were used to repay over $5 billion of debt continuing our deleveraging efforts. We have been working aggressively all year long to delever as well as to simplify and strengthen our capital structure rebuilding our investment-grade balance sheet. Since January, we refinanced over $11 billion of debt at favorable rates and prepaid another $1 billion accelerating our path to investment-grade credit metrics. We are pleased that our efforts have been recognized with the recent Moody's credit rating upgrade and the maintenance of their positive outlook. Based on our September guidance, we are expecting to end the year with a marked improvement in our net debt to EBITDA ratio going from 4.3 times at the end of 2024 to 3.6 times at the end of 2025. Looking forward, we are targeting a net debt to EBITDA ratio of under three times. Given the progress we have made, and while still a top priority, it is great to be able to say that debt reduction no longer has to be priority one, two, and three. We can soon pivot to diverting some of that effort to returning capital to shareholders as well. In fact, just today, we provided a redemption notice for all of our outstanding convertible notes which if converted will be settled using a combination of $500 million of cash and equity as we continue to rebuild our financial fortress. The convert redemption will be settled on December 5, just five days after year-end and will result in a $600 million improvement in net debt. Pro forma for the convert redemption, our net debt to EBITDA ratio is forecasted to be 3.5 times very early in our fiscal year 2026. This transaction will also result in a lower share count used in the calculation of our fully diluted EPS for 2026 by approximately 13 million shares at a $30 share price. As we near completion of our current refinancing strategy, and with no ship delivery scheduled during 2026, and just one delivery per year for several years thereafter, looking forward, we expect our leverage metrics to continue to improve as our EBITDA continues to grow and our debt levels continue to shrink. With strong investment-grade metrics in our future, an upgrade to investment-grade should not be far behind which will result in security release on our remaining secured debt. All of this continues to move us further down the road rebuilding our financial fortress while continuing the process of transferring value from debt holders back to shareholders. Now operator, let's open the call for questions. Operator: Thank you. We'll be conducting a question and answer session. Our first question today is coming from Robin Farley from UBS. Your line is now live. Robin Farley: Great. Thank you very much. Wanted to clarify, obviously, very positive forward-looking commentary. When we talk about historic price levels, does that mean sort of in line with or is that actually suggesting prices above? And I also thought it was interesting the comment in the release said something like, now both Europe and North American sourcing brands are at that historic price. So does that imply that maybe a quarter ago that North American price on the books wasn't at that record level, like, a combined basis it was, but now North America better. So just wanted to get that clarification. Thanks. Josh Weinstein: Hey, good morning, Robin. So what we've intended to convey is that both North America and Europe are at historical record high levels in pricing, which is great to see. As far as looking back a quarter ago, nothing dramatic happened along the way. So it might be that we just wanted to give more information rather than less. So things are looking great on both sides of the Atlantic across the brands. Robin Farley: Thank you. And then just as a for the anything you can quantify with Celebration Key when you look at the impact on forward bookings where you could sort of say, it's causing an x percent premium and ticket price for ships that are calling on that island versus other ships that aren't calling on it or any way to just sort of help us think about how that's driving your yields? Thank you. Josh Weinstein: Yep. No. We're ecstatic with Celebration Key and the impact that's already starting to have on the business. You know, it's kinda hard because it's such a massive set of business. It's actually just shifted and is now inclusive of Celebration Key, but it's certainly getting the returns as anticipated when we came up with it a long time ago and as we've been getting closer to fruition. And a nice chunk of that is obviously the premium we're getting on the ticket side for any itinerary that's going to Celebration Key. So, you know, it's still six weeks you know, actually, I guess, it's two months into operations. Which is, you know, we hit the ground running and early days on the future potential that it's got. But it's tracking exactly as we anticipated. As I said in my prepared notes, I knew we'd get this question, and the best I'm gonna tell you right now is it's certainly meeting expectations, and we couldn't be happier. Robin Farley: Great. Thanks very much. Josh Weinstein: Thank you. Operator: Thank you. Next question today is coming from Brent Montour from Barclays. Your line is now live. Brent Montour: Great. Thanks for taking my question. So I wanted to ask about the consumer, your consumer, Josh. We see lower-end consumers sort of fatigued and hurting in several other travel verticals. It seems you're seeing it, maybe that's why you're not seeing it the value proposition like you talked about. But are you seeing any sort of behavioral shifts within your loyalty set or people maybe trading down between shore excursions or any type of behavioral changes in your core consumer here? Josh Weinstein: You know, continue to say the same thing quarter after quarter, which is we've got an amazing business with amazing brands that are doing a phenomenal job of improving, you know, on a daily basis. So you know, I'm real proud of all of them, regardless of whether that's contemporary, premium, luxury. I'd say if you look back we said in the third quarter we had a pretty great booking period. We booked more year over year than we had in the third quarter of 2024. And in fact, you know, Carnival, for example, booked 8% more in 2025 than it did in the third quarter of 2024. So we feel like we are pushing ahead very well. And as you know and most others know, we don't really have capacity growth. So when you think about 2026 with no new ships, and then one thereafter for the next couple of years, that's all going to increase demand on a very restrained supply side for our capacity. So it's setting us up very well. Brent Montour: Okay. Great. That's helpful. And then just a follow-up on the bookings commentary, you're half booked for 2026. Sounds like from your tone that that's your place where you wanna be. But just thinking about the ebbs and flows of that booking strategy over the last few months, bookings were choppy back in April and March, and you kinda came back to that. When you look forward and think about how your strategy might change into 2026, do you feel like you want to go in kind of similar to you were last year? Or was there learnings from last year where that might not be perfectly optimal? Josh Weinstein: Yeah. That's a great question. I mean, you know, to some extent, we need a little bit of a crystal ball, and hindsight's great. But knowing where we were positioned last year as we got towards the end of the year and then what we absorbed and still came out in a pretty great way as we've been talking about over the last few quarters. It is giving us some thought about how we need to make sure we're optimizing in light of the volatility that we had last year. A question mark. Right? There's always something, but, you know, it's not an election cycle year. Which was the case last year at this time. Knock on wood, think the volatility has certainly been reduced pretty dramatically. Now we you know, I'm knocking out everybody around this table is knocking on wood right now. But knowing that that happened last year and it shouldn't be recreated in any similar way, it does give us some confidence in how we're approaching this and what we were able to do despite the volatility this past year. Brent Montour: Excellent. Thanks, everyone. Josh Weinstein: Thank you. Thank you. Next question is coming from Steve Wieczynski from Stifel. Your line is now live. Steve Wieczynski: Hey, guys. Good morning. Congrats on the strong third quarter and outlook. So Josh, I want to ask a little bit more about how you're thinking about 2026 versus maybe three months ago. And, you know, fully understand you guys aren't in a position to provide, you know, guidance yet for next year. But based on your qualitative commentary, it seems like booking trends have actually accelerated, I would say, versus the fear that might be out there in the marketplace that demand is decelerating. So just wondering from a bigger picture perspective, maybe how you're feeling about next year versus back in June. And then also in your slide deck, you mentioned that 2027 bookings are up to, in your words, an unprecedented start. And maybe if you could help us think a little more about what that wording means there. Thanks. Josh Weinstein: Yeah. Sure. Just because I have a bad memory. Let me start with that one. So 2027, what I meant is literally we've never had more bookings in a thirteen-week window over the third quarter. So this is a record for us for 2027. And so it was exactly as it was intended to be unprecedented. With respect to 2026, yeah, we feel good about 2026. We obviously are, you know, have a feeling I'm gonna do this a lot on this call. Not giving guidance yet. Not really talking about 2026. We're just trying to give a little bit of an understanding about where we're sitting, but I think, all the things that we've talked about for quarter over quarter over quarter around our brands really trying to just own their space in the vacation market and doing their commercial execution on an improved basis is paying off. Steve Wieczynski: Okay. Got you. Thanks for that. And then Josh, here's another 2026 question. So David mentioned Thank you for warning me in advance. Josh Weinstein: Exactly. David did mention look. There are headwinds out there as you start next year. I mean, 50 basis point impact on yields for the reward program, a 100 basis points for the dry docks, and 50 basis points, I think he said, for the build-out of the rest of the island. So, you know, basically, you guys have a 200 basis point headwind as we start 2026. But I guess the question, Josh, is there anything you didn't mention that, you know, maybe you kinda behind the scenes that you guys are working on to help kinda mitigate some of those headwinds? Josh Weinstein: Yeah. Yeah. Absolutely. I mean, look, let me give you some pros about 2026. You know, as you said, you know, we're about 50% booked. That's the longest-looking curve we got on record. We just had a better Q3 booking period than we did last year. There's as I said, there was no election cycle. We get the full year benefit of Celebration Key, half a year of Relax Away. OBR strength has continued, and we expect that to continue as we look forward. We have no capacity growth. Very, very little I should say, which bodes very well. The strength of our diversified portfolio I think really been playing out over the last couple of years and couldn't be more complementary of the work that is happening all over our eight brands to really drive the business forward. And we get a benefit on the loyalty side with cash flow, as you know. So putting that aside, you know, we're always trying to figure out how do we become more efficient in what we do and how we do it. And as a matter of fact, David and I are going starting next week, we're gonna be meeting with each of our brands to go through the 2026 operating plan and really understand how we can up our game to mitigate cost headwinds that happen every year and we'll try to mitigate as best as it can. Steve Wieczynski: Okay. Great color. Thanks, Josh. Appreciate it. Josh Weinstein: Thanks, Steve. Operator: Thank you. Next question is coming from James Hardiman from Citi. Your line is now live. James Hardiman: Hey, good morning. Thanks for taking my call. So maybe sort of a nitpick question, maybe it's a dumb question. As I think about your forward booking commentary, I think coming out of Q2, you were saying you were in line with respect to load factors. Then I think in the press release, you spoke to sort of an acceleration in bookings year over year since May. I would think would mean that you're now ahead on bookings. So but I think you're still in line. So maybe it's just too close to call out in terms of the overall numbers, but just wanted to clarify on that point. David Bernstein: Yes, James, I think you might I'm trying to recall back from the second quarter. I think the second quarter we were talking about 2025 and the remainder of the year. And this time, the commentary was on 2026. Maybe you can double-check the comment. James Hardiman: Okay. I'll definitely do that. And then as I think about the quarter and really the last couple of quarters, the organic growth has been pretty stunning here. Right? Particularly, you don't have any new ships coming online I think you've had the best yields in the industry, at least the ocean side of the industry. So maybe connect the dots between some of the programs that you've been talking about, Josh. Right? The AIDA evolution program and some of the things going on with Carnival, new marketing, the step-up in Caribbean destinations, maybe connect those dots with how that's translating into pricing. And then as we think about moving forward, other low-hanging fruit and how we should think about pricing moving forward in the context of sort of the brand level initiatives that are underway? Thanks. Josh Weinstein: Yeah. Look, you know, where to start? I mean, when you think about something like the AIDA evolution program, that's one two thousand berth ship that's had four or five months of operations, you know, coming out of it, which is going great and it is knocking the cover off the ball. And Felix Eichhorn should take a bow for everything that he's done with Aida. But in the grand scheme of things, that alone is fairly small. It will get better and better as we get more and more shifts through that program over the next several years. And I expect, actually, some of our other brands to be embarking on similar exercises and initiatives to really up the game of their ships that might be fifteen years old or so, but they're gonna be with us for well over fifteen years as far as I'm concerned more. And so there's a lot of opportunity for that to run. Celebration Key, we, you know, we talked about, I think, quite a lot. Couldn't be more proud of the team there for delivering an excellent experience and just giving us tremendous wind at our backs as we move forward into 2026 and beyond. But really, this is fairly broad-based. I mean, most of our brands have not had growth for a long time. And they are improving their yields year over year not insignificantly. And it is because they can actually execute at a higher level. Which is what they've been doing tonight, and that will continue. You know, we've made investment. We've made investment on the advertising side. We've made investments into our revenue management systems. We've made investments into our people, to make sure we've got the right capabilities and the right leaders doing the right things. And I think we've been saying this for a long time. Right? I mean, when we came out with SeaChange, we talked about what we need to do, and that was back in June 2023. Really, the reality is it's just exceeded my expectations on the pace of that execution improvement. But the good news is there's a lot more in store. James Hardiman: Got it. That's really helpful. Thanks, Josh. Josh Weinstein: Thanks. Operator: Thank you. Next question is coming from Ben Chaiken from Mizuho Securities. Your line is now live. Ben Chaiken: Hey, good morning. I guess first on capital return, guess how you're thinking about timing leverage bogeys and then is there any preference between dividends and or buybacks? And then kind of like separately, longer term, how do you think about capital return as a percentage of your free cash flow, if that's the way you kind of bucket it? Thanks. Then one follow-up. Josh Weinstein: Yeah. Hi, Ben. Well, you heard what David said in his prepared remarks. I mean, like I was just saying, the acceleration is across the board and that's certainly inclusive then in our ability to start returning cash to shareholders, as we get to that three and a half times leverage metric. We'll be awful close to that at the end of our fiscal year. And as David noted, with what we're doing on the convert side, should pretty much position us very well in early 2026 to get there. I am I am been fairly, I think, fairly clear when I'm having conversations with anybody who asks about this that number one, wanna be clear, it's a board conversation and decision, which has not happened yet. Two, dividends are very important to us. We see the benefit of establishing our dividend program. So I would expect outside of what we're doing on the converts, which is a little bit of a juice buyback, because of what we're doing with our cash, it's really gonna be reinstating the dividend, but it doesn't mean that it's to the exclusion of buybacks over time. You know, we have done both before very effectively, and we can do that again. In the future. But it is a little premature for us to try to telegraph what, when, and exactly how we're going to do that in any type of metric that we're gonna be using to moderate the amount of cash that's going out the door. What I can say in the good news side of the ledger is again, we got no capacity growth next year. We don't have any new ships coming, and we have one a year thereafter for the next several years, which should allow us to take a lot of free cash flow and return it to shareholders in the form of dividends and buybacks over time. And so once we've kind of fully turned that corner and can start talking about it, we'll try to give people more of a road map about how we're thinking about it. I'd say it's close. It is close, and I look forward to being able to talk about it having happened. Ben Chaiken: Understood. And then near term, I think previously, there was a pretty healthy acceleration kind of implied between 3Q and 4Q yields. Obviously, 3Q came in better. Maybe talk about what you're seeing with close-in demand and how you're thinking about the remainder of the year? Thanks. Josh Weinstein: Yes. Look, Q3 ended on a strong note, and that was, as David said, in his notes, it was a combination of closing demand being stronger than we had forecast and continued strength in onboard spending. You know, for Q4, we're you saw we've been fairly consistent since the beginning of the year actually how we were looking at the second half of the year. And given the volatility impact that we had in the spring, it did limit our upside as I've said before. And then, you know, we managed to get some out of our third quarter. And as always, we're gonna work as hard as we can to outperform every quarter, and that includes the fourth. But you know, I think I said it last time, you know, whereas we were outperforming in the first half of the year by two to 250 basis points on the yield side, that was gonna be hard in the second half of the year. You saw what we were able to do, on the third quarter. Ben, you still there? Operator: Thank you. Our next question is coming from Matthew Boss from JPMorgan. Your line is now live. Matthew Boss: Thanks and congrats on another nice quarter. Josh Weinstein: Thanks, Matt. Matthew Boss: So Josh, you elaborate on the ample opportunity remaining with net yields, margins, and returns that you cited in the release. I don't know, maybe there's a way to think about what inning you see the overall story in today or just how would you rank the continued areas for ample improvement that you noted? Josh Weinstein: You know, having just got to 13%, on the return side, I don't see why that cannot make significant improvement on a longer-term basis. From there, we never looked I never looked at 13% as an ending point. I just never looked at 12% as an ending point, which was our sea change targets, and now we're at 13%. We are planning in our fiscal second quarter hopefully, early on in that second quarter to be able to give longer-term targets. Which will probably help give you some clarity around how we're thinking about things. From a margin perspective, from an improvement in yield perspective, I think you should expect us to have a continued track record of improvement over time. That's what we've shown, and we expect that to continue. Matthew Boss: And, David, helpful color on cost for next year. Are there any constraints we think about delivering on your algorithm for cost to grow below yields as we think about puts and takes for 2026 and also as we think multiyear? David Bernstein: Yes. So as Josh indicated, we're going to be looking at targets early next year. And we do expect to see improving returns and improving margins. So which would mean that in the long term, yields would grow faster than costs. Over time. And any one given year, obviously, that's a difficult metric. But there are things that we can do. In difficult circumstances and we will work hard. We have lots of savings opportunities to leverage our scale. As we talked about, we saw things in the third quarter hundreds of items leveraging our scale across various operating areas, and we expect to see that continue into 2026. Some of that is what Josh was talking about before is offsets to the cost increases that I mentioned in my prepared remarks. Matthew Boss: That's great color. Best of luck. Josh Weinstein: Yes. And I just add for everybody, the lack of capacity I think, is part of our strategy. It also basically means for every dollar that we spend that's a dollar increase on our on a unit basis. And I'm not shying away from that. That is what it is. And we're gonna work hard to reduce, reduce our cost wherever we see efficiency. And we can leverage our scale more. But it's a very different environment on the cost side than when you're living with a 678% year-over-year capacity increase, which covers up quite a lot of cost spending. Underneath the surface. So that's on us. We're gonna try to perform as well as we can in all circumstances. That's just a reality of a very low capacity environment. Operator: Thank you. Next question today is coming from Connor Cunningham from Melius Research. Your line is now live. Connor Cunningham: Hi, everyone. Thank you. In the prepared remarks, you talked a little bit about the laggard brands moving up the ranks. I'm just hoping you could maybe drill down on that a little bit and talk about what's actually improving there. And then, I mean, in the past, you've just talked about rationalizing brands and whatnot. So I would imagine that there's some sort of investment needed to kinda get those brands back to the 2019 and beyond level. So if you could just talk a little about the laggards, that would be helpful. Thank you. Josh Weinstein: Yeah. You know, it is interesting, and we don't really I'm not going to open the kimono and just tell you everything that you probably wanna know. But I would say that example, some of the brands that are lagging 2019, well, they were super high up the leaderboard in 2019. They're already at double-digit. They're just not to where they were in 2019 because they were really clicking on all cylinders. And they've already got they're showing improvement, good improvement, but I know that there's a way to go. Likewise, there's a couple of brands that have already been improved versus 2019, but their 2019 starting point was anything to be you know, raving about. So I know that they've gone to even higher heights in the past twenty years, and we see a path to be able to help them get there. So it is a bit of a mix underneath. When we talk about significant investment though in order to be able to help brands really get up to the top of that leaderboard. I don't think there's actually anything in particular that is a glaring hole, for any of the brands that we've gotta fill. We have rationalized. We have rightsized, many of our brands that needed rightsizing, and the progress is good. And we'll continue to support the brands that need a little bit more help than others to keep pushing up the ranks. I'm ecstatic that, you know, as amazingly as Carnival and Aida have been doing, over the last couple of years, they gotta look over their shoulder because there's some that are coming on fast. Connor Cunningham: Okay. That's helpful. And then I know that you got asked about 2026, so maybe I can ask about 2027. So on the dry dock commentary, it seems like there's been a couple of issues with that. I mean, you've had headwinds for several years now. Right? And in 2027, I would think that that we'd actually start to tick down again. Like, what holds that back? Like, is your fleet back to if you just talk about the dry dock, opportunity and come 2027, does it actually start to bend down again? That would be helpful. Thank you. David Bernstein: Yes. So 2027, I mean, at the moment, these things move around constantly as we plan things. But at the moment, the plan is for fewer dry dock days in 2027 than in 2026. But I caution you that things can change as they do all the time. So there may be some opportunity there on the flip side. But it's very premature. Connor Cunningham: Okay. Thank you. Operator: Thank you. Next question is coming from Lizzie Dove from Goldman Sachs Asset Management. Your line is now live. Lizzie Dove: Hi, there. Thanks for taking the question. Hi, So congrats on another great quarter. Obviously, really strong same ship yields. I'm curious as you go forward, it feels like you're having really strong returns from things like the AIDA evolution program. Do you evaluate when you're thinking about building new ships versus, you know, maybe expanding that type of retrofitting type program to the other brands? And the relative returns there? Josh Weinstein: Yes. So actually, I'm not going to tell you which one, but I sat through a session last week with another one of our brands to be doing something similar vein to how Aida is thinking about their midlife ship refurbishment program. So we are actively in the middle of that. You know, most of our brands have no new build on order. And so making sure that we're maximizing the assets that we've got and investing in them when the returns make sense is part of how we're thinking about the world going forward. It's one of the reasons why our dry dock costs are higher, right, than they have been, in the past, but they're giving us the return. So we do look at it. I would look at it very similar to a new build. Right? What's the incremental amount that they wanna spend incremental to what would be normal just to run the ships in the normal course. And what are we gonna get for it? And Aida has shown us a template for getting significantly outsized returns on that type of investment. So I would say stay tuned. There'll be more to come in this space. Lizzie Dove: Got it. That's helpful. And then shifting gears, in Galveston, I think you're still the leading cruise line there in terms of volumes number of ships there, etcetera. But you do have one of your peers mainly, I suppose, like trying to get more active in that space over the next few years. How does that impact or does it impact how you think of your go-to-market there? There's been a lot of expansion on islands in the Eastern Caribbean, which I know you can reach from Galveston, but whether it's more developments with Western Caribbean or Mexico, Puerto Maya that you have, Isla Tropicale, how do you just think about keeping that competitive edge in Galveston? Josh Weinstein: Yeah. You know, Galveston has been a tremendous market for us for decades, and we expect that to continue. We've got some fairly loyal guest bases all throughout Texas, which is always appreciated. So it's certainly more crowded. I mean, what we find that everywhere. Right? People see successful operations, and they wanna emulate it. I wanna do the same when I see it. From others. So we're gonna try to keep upping our game and the guest experience that we have, the ships that we put there, and where we can take them. We're always looking at opportunities, Lizzie. For how to diversify the offerings for our guests, and we'll continue to do that. And every market is important. Every home port is important. But one of the things that we get with our scale and our size and that diverse portfolio is a lot of things are clicking well for us. Right? I mean, The Caribbean's about a third of our business. It's an important third. But Europe is, I think, getting pretty damn close to 30% of our business. Alaska is inching towards double digit. And it primarily over the third quarter. So we really do have a diversified portfolio that we've been I would say over my tenure. It didn't start in a lot of folks' minds as a positive. It was a drag. Because North America started out the gate so when we came out of our pause. But I can tell you, that diversification and the strength of that portfolio all over the world is a huge benefit for us. And we continue to enjoy the results. Lizzie Dove: Great. Thank you. Operator: Thank you. Next question is coming from David Katz from Jefferies. Your line is now live. David Katz: Morning everybody. Thanks for taking my question. David, in some of your earlier remarks about capital allocation, there was some reference to a bit of a transition to getting to return capital. Should we think about leverage having to get inside of that three times before there'd be more substantial recurring you know, whatever adjective we'd like to put on it, how are we thinking about the progression from here before you know, we'd see maybe a buyback or you know, yeah, and, you know, other forms? Thanks. David Bernstein: Well, I think let's start by saying it's wonderful we're having this conversation. It is. That we're in with a strong, you know, with a strong balance sheet getting stronger every day. But as Josh said, it is a Board decision. And we do have to have some conversations with the Board. We are looking at given our circumstances, as I said, we can begin to think about returning capital to shareholders and we will do that. And as we go along throughout 2026, we will make decisions as to how much, when, where, and how. And so it's a little premature to make any statements relative to the size or magnitude of anything. In terms of that right now. Josh Weinstein: Yeah. One thing, David, I think you misspoke or you misread the release in that we're not looking to get to three times before we start doing that shareholder return of capital. It's as we have our line of sight on 3.5 times. Is where we can start pivoting and doing more. We don't even though our long-term target is under three, once we get to that three and a half times, we can walk and chew gum. And we can do both. David Katz: Understood. And that's what I intended. But just to follow-up, you know, thinking about other potential large capital projects or investments that may come our way, is there any I know this is not always the best place for hypotheticals but just thinking about what might get in the way or defer any of that leverage come down. Anything out there we should just consider or be aware of? Josh Weinstein: No. The only thing I'd say is as we've been talking about a little bit on this call, is, you know, part of what we do is invest in ourselves. On the capital side. So if we see opportunities for midlife ship significant refurbishments like we're doing with Aida, that will certainly come into effect. There's the opportunity for phase two of Celebration Key as we've talked about. But none of that is even close actually to the price of a new build. So we're talking about things and then the, you know, over the coming years that we think are accretive to the business but in the grand scheme of things are significantly smaller than the types of at an individual new level. Would have us make. David Katz: Understood. Thank you. Josh Weinstein: Sure. Operator: Thank you. Next question is coming from Sharon Zackfia from William Blair. Your line is now live. Sharon Zackfia: Hi, thanks for taking the question. Think at the beginning you talked about early learnings on Celebration Key kind of things that maybe you amplify and or improve. So I'd be curious on what you're hearing from guests there. And then secondarily, on the loyalty hit, to yields next year, I assume that's all kinda second half weighted just given when loyalty kind of rolls out, if you could clarify that. Thanks. Josh Weinstein: Yep. Hey. So on the Celebration Key side, some of this is us being a little bit more thoughtful about exactly how we schedule the arrivals and departures of our ships when we've got multiple ships in port to make sure that everybody's got space to have an amazing time. Well, because there's so many folks going ashore, which is amazing, we need to get some more chaise lounges and more umbrellas, which I'm actually happy to do. Some more shading in the island, there are some things that structurally we are working on. There's a rocky stretch of the beach that we wanna make less rocky over time. We just gotta see how the natural flows of the environment are working in a little bit more of an extended period to make those types of decisions. But, you know, tweaks all over the place on the F and B offerings, the type of things we offer, where we offer them. I mean, it's all gonna be in play. I mean, I'd say this with a lot of love for the team at Carnival Corporation Worldwide who have been participating in this. The fact that we've hit the ground running as hard as we have from opening to pretty much full is pretty phenomenal. And we'll take the learnings as we go, and we'll just feed it in. Not really no different from a new ship. No different from new functions. You just gotta, you know, listen, get feedback, and move on. As far as the loyalty hit, you wanna David Bernstein: Yeah. The loyalty is the second half after the implementation of the program June 2026. Sharon Zackfia: Okay. Thank you. Operator: Thank you. Next question is coming from Chris Stathopoulos from Susquehanna International. Your line is now live. Chris Stathopoulos: Good morning, everyone. So I'm going to keep it to one question. Really more of a strategic view, Josh. I know, not talking about 2026, but this is more of a high level as we think about the industry. And really about Carnival's ability to, I would say, protect pricing power and brand equity in The Caribbean. So you have a competitor who's gonna be adding on a lot of new hardware. And pivoting to fund and some itineraries as well as another who recently announced a new class of ships beyond their icon. So as we think about The Caribbean market, and maybe you want to kind of contextualize this in terms of the mix of premium, so balcony and suites and alike. I'm guessing this is gonna be growing year on year low single digits for next year, perhaps at the same level through end of decade. What is the plan for Carnival to protect its ability to push yield to maintain its share, I realize you have, two private destinations coming online maybe you could contextualize that in terms of a premium for that itinerary versus non. But I wanna understand how you're thinking about The Caribbean particularly as the market looks to evolve and capacity perhaps grow at a rate that we haven't seen for some time? Thanks. Josh Weinstein: Yeah. No. Thanks for the question. I wish we could say we've seen this growth for a long time, but that's just not the case. I mean, the fact is The Caribbean market has, for twenty years been growing at rates that people did not think was sustainable. And lo and behold, it is. And we do grow less. We are growing less than some of our competitors. But, you know, at the end of the day, I think the first thing we gotta contextualize is that we are all competing for land alternative vacations and guests that would otherwise be going somewhere else. Be that whether that's Orlando, whether that's a beach resort, whether that's going across to Europe, whatever that might be, that's where we're competing against. And in that context, we are all tiny. I mean, we are just incredibly insignificant in the grand scheme of the vacation market, which actually is a plus. Because the better we've gotten at reaching into the mainstream, more consideration, being given by those who do not cruise, the better off we are. Now keep in mind, it doesn't mean we're standing still, so Carnival has got two XL sisters coming in one in 2027 and one in 2028. So we're building for Carnival. Also have announced our own new class, the Ace class. Which is gonna carry more guests than anything that exists in the world today. And that's also for Carnival and helping to protect this position in general, but it has been the mainstay in The Caribbean forever. So, you know, this is just nothing new in the grand scheme of things. We just gotta keep doing what we're doing, investing in the things that we think make a difference. Leaning into the destination strategy, certainly Celebration Key. Relax away half moon, those things are gonna help, and we're always looking at different opportunities like that. And the other thing is, you know, ultimately, what we see is with a lot of our competitors, they view The Caribbean differently. They view it as something that is more transient in nature than we do. You know, Caribbean for Carnival, That Is Who They Are. That Is What They Do. And They're Amazing At It. I'm Not Taking Anything Away From Our Competitors. Some Of Them Have Made A Great Go Of It, And They're Doing Similar Things. But They Also Look At Caribbean as something, like, good enough until something better comes along. And we position ourselves very well -being there for the long term. So thank you for the question. We have time for one more operator. Operator: Thank you. Our final question today is coming from Vince Cibile from Cleveland Research. Your line is now live. Vince Cibile: Thanks. Just wanted to think a little bit longer term about the opportunity. I know in the multiyear goal, you guys are targeting low to mid single digit type per diem growth. When we look at occupancy here, still I think about a point shy of where 2019 shook out. And I imagine something like 20% of the fleet might be newer. We think it's over indexing the balconies and maybe have higher occupancy levels. In terms of opportunities. So are you thinking about kind of the multiyear opportunity ahead in the occupancy side of the yield equation? Josh Weinstein: Yes. Look, there's nothing truly when I say this, there's nothing magic about the occupancy number that we hit exactly this year versus 2019. We're encouraging our brands to optimize between the price that they can achieve and the occupancy. We know we can get occupancy. It's really easy to sail completely full. It's just a matter of how much you can charge to do it. And is above the historical range. But in the grand scheme of things, there'll be incremental things that we do brand by brand to make the trade-off between that price and occupancy and get more folks on. At the right price. Vince Cibile: Great. Thanks. Josh Weinstein: Thank you very much. With that, I'll say thank you very much. Look forward to talking in December when we could probably talk a little bit more about 2026. So thanks, everybody. Have a good day. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Hello, and thank you for standing by. Welcome to Progress Software Corporation Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Michael Micciche. You may begin. Michael Micciche: Thank you, Towanda. Good afternoon, everyone, and thanks for joining us for Progress Software Corporation's third fiscal quarter 2025 financial results conference call. With me this afternoon are our President and CEO, Yogesh Gupta, and our Chief Financial Officer, Anthony Folger. Before we get started, let me go over our safe harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, our integration of ShareFile, and other information that might be considered forward-looking. Such forward-looking information represents Progress Software Corporation's outlook and guidance only as of today and is subject to risks and uncertainties, and our actual results may differ materially. For a description of the factors that may affect our future results and operations, please refer to the risk factors in our SEC filings, particularly the risk factor section of our most recent Form 10-Ks and 10-Q. Progress assumes no obligation to update forward-looking statements included in this call. Additionally, please note that all financial figures referenced in the call are non-GAAP measures unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our earnings press release, which was issued after the market closed today. This document contains additional information related to our financial results for 2025, and I recommend that you reference it for specific details. We've also provided a slide presentation that contains supplemental data for our third quarter and provides highlights and additional financial metrics. Both the earnings release and the supplemental presentation are available on the Investor Relations section of our website at investors.progress.com. Today's call is being recorded in its entirety, and it will be available for replay on the Investor Relations section of our website shortly after we finish tonight. So let me turn it over to you, Yogesh. Go ahead, please. Yogesh Gupta: Thank you, Mike. Good afternoon, everyone. We're glad you can join us for our third quarter earnings conference call today. As you saw from our press release earlier, we reported another outstanding quarter during which we outperformed on every metric as our business benefited from our customers' investments in their AI initiatives. Revenues, earnings, cash flow, and margins were all ahead of our guidance. Net retention was solid at 100%, and ARR grew 47% year over year. Solid market demand was backed by outstanding execution from our team. Our sales efforts in the field, our organizational discipline in controlling expenses, and our extensive and detail-oriented integration of ShareFile were all key to delivering these great results. Revenues of $250 million were well above our previous guidance and were again strong across products and geographies. Earnings, which came in at $1.50 per share, were well above the high end of our guidance, and operating margin was 40% above our expectations and reflective of ongoing excellence in execution and cost control. We also continued adding to the strength of our balance sheet by paying down $40 million of debt and increasing our revolver capacity from $900 million to $1.5 billion, providing increased flexibility. We also repurchased $15 million of our shares in Q3 for a total of $65 million so far this year. And just last week, our board of directors further increased our repurchase authorization by $200 million to $242 million. As always, we will continue to be disciplined in deploying our capital towards delivering the best returns for our shareholders. As Anthony will describe in detail, annualized recurring revenue or ARR continues to grow consistently. Our Q3 results show the durability of our installed base, the continued relevance and value of our products, and the strength of our customer relationships. We remain confident that the strength in demand for our products as well as our ability to execute well will continue through the rest of fiscal 2025 and well beyond. Because our customers' AI initiatives are driving demand for our products, they look to us as a trusted partner to deliver the benefits of AI with clear ROI for their business, and we expect this demand to continue as businesses are still in the very early stages of AI adoption. Let me provide some color and detail around the quarter, starting with our ShareFile business. It is turning out to be the best acquisition we've done so far and was certainly the most intricate to integrate. We met every integration challenge, passed all major milestones on or before schedule, and overcame every obstacle we have encountered. The net retention rate or NRR of the ShareFile business continues to improve as customers increase their adoption of AI capabilities we've delivered in ShareFile. Currently, for example, over 3,000 customers have started using the new AI document assistant, with over a third of those users already up and running and using it regularly. And the AI-powered secure share recommender has identified and protected nearly 15,000 files that contain PII or personally identifiable information. The use of these AI capabilities along with our focused customer success and account management efforts is helping to improve ShareFile's net retention rates and has led to better than expected ARR and top-line growth in the business. On the operational front, the team we acquired is completely on board and has become an integral part of Progress. All vital systems are now integrated within Progress and in the process of being fully optimized with no major issues so far. The ShareFile engine team continues to deliver new capabilities, ShareFile web infrastructure is fully migrated, and the transition to Progress branding is complete. As we have previously discussed, we measure the operational performance of our products by tracking ARR. This is key because the revenue recognition of on-prem subscriptions is lumpy and does not accurately reflect the underlying strength of the business. In addition to a meaningful portion of our strong ARR performance, both year over year and quarter over quarter, being due to ShareFile, I want to highlight the strength of our other products such as OpenEdge, MarkLogic, Sitefinity, WhatsUp Gold, DevTools, and MoveIt, all of which continue to exceed our expectations. Innovation is a foundational pillar of our total growth strategy, and it ensures that our products continue to deliver increasingly greater value to our customers, especially during times of rapid technology changes. Having successfully navigated multiple technology disruptions in the past, Progress' ability to rapidly evolve our products to meet the changing needs of the market is an integral part of our DNA. Over the past twelve months, we have delivered dozens of new AI capabilities across our products that are benefiting our customers and helping drive our success in the market. To that end, you may have seen a string of recent press releases showcasing the AI capabilities we've delivered within our products, some of which include the latest version of retrieval augmented generation or RAG-enabled MarkLogic or Progress MarkLogic 12, the availability of new product, Progress Agentic RAG, on the technology we acquired last quarter with Nuclea, AI coding assistance in our developer tools that enable developers to use our products as part of their workflow driven from their AI code generator of choice, AI-powered insights and questions and answers from documents in ShareFile that deliver new efficiencies to users in their document workflows, and the launch of GenAI capabilities within the OpenEdge platform to accelerate the development and modernization of OpenEdge applications. Our customers are extremely excited about the possibility of gaining valuable business insights from their existing data across Progress products using our GenAI-enabled technology. A couple of weeks ago, at our Progress Data Platform Summit in Washington, D.C., we brought together over 200 customers to share how advancements in Agentic RAG, semantic AI, and data integration can help organizations break down data silos and drive tangible business impact. At that event, the state of Mississippi Division of Medicaid, a new Progress customer, shared that when they needed a solution to meet federal compliance and internal business requirements for secure, responsible, and accelerated AI adoption, they chose Progress. They showcased their Progress operational data store initiative, built on the Progress Data Platform, to help the state's agency address these needs by integrating data from various different sources and harmonizing it to drive valid, verifiable responses to GenAI queries. We launched new AI coding assistance in our DevTools products for Blazor and React in early third quarter, which we continue to extend and are now being used by thousands of developers across the world, delivering developer efficiency gains of over 30% while seamlessly integrating coding tools such as WindSurf Cloud Code and GitHub Copilot. Our products are leading the UI developer tools market with AI capabilities. Similarly, we announced today the OpenEdge MCP connector for ABL, which brings the power of GenAI coding tools such as WindSurf, Cursor, and Versus Code for the development, maintenance, and modernization of OpenEdge applications. OpenEdge MCP connector for ABL is purpose-built for our customers' workflows, enabling faster development, reduced risk, and smarter modernization strategies, and has been extremely well received by the OpenEdge ISV partners and customers who are early testers of this product. And on Progress Agentic RAG offering, which was previously known as Nuclea, is delivering value to dozens of customers like SRS, which is a wholly owned subsidiary of Home Depot, by enabling them to unify their structured and unstructured data, power intelligent search and insights, and automation, turning information into actionable intelligence. Progress Agentic RAG makes GenAI practical, verifiable, and reliable for customers of all sizes. We're also seeing the downstream benefits of the AI adoption wave as it drives demand for our infrastructure management products. For example, this quarter, a leading chip equipment manufacturer significantly expanded their relationship with us to meet the needs of managing the growing complexity of their own IT infrastructure. As IT environments continue to grow and scale, as well as including the increase in complexity due to the adoption of AI, we expect this trend to continue. I also want to touch upon the fact that our engineers across our products are using AI tools in their day-to-day tasks. This is accelerating the delivery of product capabilities without increasing our R&D expenses, which we continue to maintain at the 18% of revenue levels. As you know, M&A is another key pillar of our total growth strategy, and when it's done well, as we've consistently demonstrated, including most recently with ShareFile, it meaningfully drives our success. Our approach to M&A is highly selective and disciplined. So with that in mind, let me give a quick update on M&A before closing my discussion. Our corporate development efforts remain ongoing, and we continue to evaluate a strong pipeline of deals. As I mentioned earlier, in the third quarter, we both aggressively paid down our outstanding debt to reduce capital constraints, and we refinanced and significantly expanded our revolver to give ourselves additional flexibility. We think the market for M&A is still a very favorable one for us, with many potential infrastructure software targets that would fit well in any of our three key areas: application and development platforms, digital experience, and infrastructure management. And we're encouraged by the potential to combine any potentially new acquisition with our expanded AI capabilities, in particular with the Agentic RAG technology we obtained with Nuclea. While valuations remain mixed across product, technology, and business types, and there's still some disparity between public and private markets, we intend to keep our focus on finding great companies with great technology and the potential for high-margin synergies at a reasonable valuation. Finally, and as always, I want to thank all of our Progress teams around the world for their dedication and hard work. I'm inspired every day by their commitment to excellence that led to our great results in Q3, and especially this quarter, the outcomes we have delivered across the board. With that, I'll turn it over to Anthony. Anthony Folger: Alright. Thanks, Yogesh. Good afternoon, everyone, and thanks for joining our call. As Yogesh mentioned, we're thrilled with our third quarter results and the underlying momentum in our business that allows us to raise our full-year outlook yet again. With that, let's jump right into the numbers. I'll start with ARR, which is our key metric for assessing top-line performance. We closed Q3 with ARR of $849 million, representing approximately 47% growth on a year-over-year basis and 3% pro forma growth on a year-over-year basis. To be clear, the 3% pro forma growth includes ShareFile in all periods, and the growth was driven by multiple products across our portfolio, including ShareFile, OpenEdge, DevTools, MarkLogic, WhatsUp Gold, Sitefinity, and Coricon. Quite a list. We also had another strong quarter of customer retention, with Q3 net retention rates coming in at 100%. In addition to solid ARR growth, Q3 revenue of $250 million meaningfully exceeded the high end of the guidance range we provided in June and represents approximately 40% year-over-year growth. Our strong revenue performance in the quarter was driven by stronger than expected demand from multiple products in our portfolio, most notably ShareFile and OpenEdge. Turning now to expenses, our total costs and operating expenses were $150 million for the quarter, an increase of $46 million compared to Q3 of last year. This year-over-year increase was largely driven by the addition of ShareFile to our business. Operating income for the quarter was $99 million, an increase of $25 million compared to the same quarter last year, and our operating margin was 40% in Q3 compared to 41% in the year-ago quarter. Earnings per share for Q3 were $1.50, which also meaningfully exceeded the high end of the guidance range that we provided in June. Compared to the prior year quarter, earnings per share were up $0.24 or 19%, with the increase being driven by the addition of ShareFile to our business. Okay. Now I'll transition to a few balance sheet and cash flow metrics. We ended the quarter with cash, cash equivalents, and short-term investments totaling $99 million and total debt of $1.4 billion, resulting in a net debt position of $1.3 billion. This represents net leverage of approximately 3.5 times using our trailing twelve-month adjusted EBITDA. DSO for the quarter was fifty-five days, up two days compared to Q2. Deferred revenue was $381 million at the end of the third quarter, down slightly from the second quarter reflecting normal seasonality in our business. Adjusted free cash flow was $74 million for the quarter, an increase of $17 million or 29% from the year-ago quarter. And unlevered free cash flow was $89 million for the quarter, an increase of $26 million or 40% from the year-ago quarter. In July, we announced an amendment to our revolving credit facility that increased our borrowing capacity from $900 million to $1.5 billion. It also lowered our borrowing costs and provides more flexibility to grow as we execute our total growth strategy. During the third quarter, we repaid $40 million against this revolving credit facility, bringing our total year-to-date debt repayment to $110 million. At the end of Q3, our revolving line of credit has a balance of $620 million, and we have available capacity of approximately $880 million. In addition, during the third quarter, we repurchased $15 million of Progress stock, bringing our year-to-date total to $65 million. At the end of Q3, we had $42 million remaining under our share repurchase authorization. However, on September 23, our board of directors authorized an increase of $200 million to our share repurchase authorization, bringing the total amount available for repurchase to $242 million. When it comes to our capital allocation outlook, I'd like to reiterate the point Yogesh made in his remarks that we will be disciplined and deploy capital to deliver the best returns for our shareholders. To be clear, our Q4 guidance contemplates $50 million in debt repayment and no share repurchases. This mix may change during the quarter depending on several factors, including our share price, and we are prepared to reduce debt repayment and increase share repurchases if we believe doing so will generate the best return for our shareholders. Okay. Now let's get into our outlook for the fourth quarter and full year 2025. For the fourth quarter, we expect revenue between $250 million and $256 million and earnings per share between $1.29 and $1.35. For the full year 2025, we expect revenue between $975 million and $981 million, an increase from our prior guidance. We expect an operating margin for the year of 38% to 39%. We expect adjusted free cash flow between $232 million and $242 million and unlevered free cash flow of between $289 million and $299 million, an increase from our prior guidance for both. Finally, we expect earnings per share between $5.50 and $5.56, again, an increase from our prior guidance. Our guidance for full-year EPS assumes a tax rate of approximately 20%, the repurchase of $65 million in Progress shares, total debt repayment of $160 million, and approximately 44 million shares outstanding. I will reiterate, though, our mix of debt repayment and share repurchases may change during Q4 depending on several factors, including our share price. In closing, we're excited to deliver another quarter of exceptional results, and we're very encouraged with the momentum across our business. With that, let's open the call for questions. Operator: Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Fatima Boolani with Citi. Your line is open. Fatima Boolani: Good afternoon, everyone. Thanks so much for taking my question. Yogesh, I wanted to ask you at a very, very high level about the AI strategy. So the mandate to me is very clear in that there is an aspiration to infuse AI as well as Agentic RAG across the portfolio. And I think in your prepared remarks, you did talk to multiple streams of value creation and helping your customers drive ROI. But I was hoping you can talk to us and give us a flavor of how some of these initiatives, from an AI investment perspective, are going to manifest or show up in the external benchmarks that you share, and specifically around if there is going to be more torque on the net retention rate side or if there is an opportunity to drive more pricing power. I'd love for you to flesh out some of the implications of an AI infusion. Thank you. And I have a follow-up for Anthony, please. Yogesh Gupta: Yeah. Thanks, Fatima. And so I think that's a really good question. Right? Fundamentally, I think the first place it shows up is in NRR, net retention rate. Because as we've talked about before, if we don't innovate and if we don't bring our product along and if we don't make our customers successful in their journey towards whatever is new, in this case, it happens to be AI, they would decide to move to somebody else. And so we have actually seen that. I mentioned earlier that the combination of the AI capabilities as well as, of course, the team's effort to make sure that we improve our customer relationships by helping us with our ShareFile net retention rate, which has picked up. So I think to me, NRR is the first place we are going to see it. I think that as you are also fully aware, we don't really put a lot of wood behind the new customer acquisition effort at Progress. That is part of our overall strategy. So therefore, yes, we will probably see more new customers who do AI work with us. I think it's too early to say whether that will be something that we will see in the near term. I think if we start seeing some momentum there, Fatima, we'll come back to you and share that with you. But again, to us, it's a combination of retaining customers and then, of course, finding additional customers. Expansion is the middle part, which is also key. And you mentioned pricing as a lever. One of the interesting things that we do in a variety of our products, especially the ones that sell to the smaller market segment, is that we have multiple editions of those products. And we often add these new capabilities to the higher-end editions of those products, which leads those customers to upgrade from the lower-end to the higher-end versions. And as they do, obviously, they pay more to us. So it's an indirect pricing opportunity. It isn't a, "Hey, you know what? We're going to increase your price because it's here." It is, "If you want to use this, here it is in the higher edition version of the product, and, of course, you pay more for it." So it's a combination of things. I think NRR is where it'll show up first, which is a combination of gross retention and expansions. And then over time, we're looking forward to sharing what happens on the new side. Fatima Boolani: Thank you, Yogesh. I appreciate that detail. Anthony, I wanted to ask you about the EBIT guidance for the year. So a nice outperformance this quarter, but you're only taking the midpoint of the full-year range up by about 10 bps by my calculation. So I wanted to really unpack the source of the conservatism there, by your telling and us watching you blow past all of the ShareFile integration milestones, above and beyond what you had committed to at the start of the year. So I just wanted to appreciate that. And also, that in the context of what Yogesh was mentioning was holding the line for R&D at 18% levels. Thank you. Anthony Folger: Yeah. Sure, Fatima. I think, you know, looking at the beats we had in Q3, at every point in the range, low, mid, and high, I think we at least rolled everything through. And so, you know, I certainly don't view it as being conservative. I think the Q3 results on their own, I guess, I would say showed probably slightly better growth than we expected coming into the quarter, and maybe some incremental momentum there. I think they showed slightly better margin than what we expected coming into the quarter and certainly much better earnings per share as a result. And, you know, our expectation certainly is that we're going to be able to hold Q4 to where we were originally. You know, Q4, I think, generally speaking, is always kind of an exciting quarter for us. But, you know, our view was it was a strong quarter, and we felt very good about rolling through the entire beat that we have this quarter for our full-year results. So, you know, I'm not sure if that completely answers the question, but that was the thought process behind the guide. Fatima Boolani: I just I guess it's a notional versus percentage impact. Okay. Very clear. Thank you so much. Operator: Thank you. Our next question comes from the line of John Stephen DiFucci with Guggenheim Securities. Your line is open. Lawrence: Hey, guys. This is Lawrence on for John Stephen DiFucci. Thanks for taking our question. So it's great to hear the headway that you're making with the ShareFile integrations and that it was your largest acquisition with an especially different financial profile. You touched on it in your prepared remarks, but is there anything in that business that has surprised you, either positive or negative, that wasn't really expected prior to the acquisition? Any additional color would be really helpful on that. Thank you. Yogesh Gupta: Hey. You're welcome, Lawrence, and thank you for your kind words. You know, with any acquisition, you always find something that you did not expect. Right? Being a carve-out out of another large entity, I think, created some challenges. Right? It created challenges in terms of figuring out how to move the systems over. That is like cutting over engines while you're flying, you know, while keeping the plane flying. Right? And then I think those kinds of challenges we sort of expected them. But at the same time, the nuance of those is always a little more challenging when it actually does happen, and we are trying to do it. But to me, the wonderful part was how well we were able to navigate that and how effectively we've been able to do the integration and so on. So that was on the challenge side. On the positive side, I would say there are a couple of them. One, I think the people culture has been really, really wonderful. Right? The acquired teams are very engaged. They have done a great job. You know, the folks that joined from ShareFile, they have just done such an amazing job of continuing to work on product and continuing to work on customers and helping the field be successful. All the things that we need to do to run our business. So that has been a really, really great positive. And then the second, I think, is also we are discovering that the customers, you know, we knew this to some degree, but we didn't realize how much the customers love the product. And how much really their businesses are just so reliant on those. Right? Most businesses that use this product, their workflows get completely intertwined into the document-centric workflows that they need to do. Because most of these customers are document-centric businesses, right? So that's the important part. So because they're document-centric businesses and their workflows around those documents become such an integral part of their day-to-day work, that ShareFile becomes sort of second nature to their internal systems. And so I think those two things have been really positive for us. So I'm really delighted with the way things have turned out, and we hope to continue the momentum. Lawrence: Got it. Thank you. That's actually really helpful. Thanks, guys. Yogesh Gupta: Thanks, Lawrence. Operator: Our next question comes from the line of Ittai Kidron with Oppenheimer and Company. Nolan Bruce Jenevein: Hi. This is Nolan Bruce Jenevein on for Ittai Kidron. Thanks for taking my question. I actually want to follow up a little bit on Fatima's first question about, you know, you guys are clearly using GenAI across the portfolio. You've infused existing products with new capabilities. You also explicitly mentioned the new Agentic RAG product built on top of Nuclea. Can you put maybe a finer point on how you're monetizing that specific product? Does this represent sort of an incremental cross-sell opportunity? I understand it's probably very, very small today. Just trying to get my sort of hands around, you know, finer points of how you're monetizing this. Thank you. Yogesh Gupta: Absolutely. Yeah. So I think you're right. I think to us, the initial opportunity is primarily around integrating it with our existing other products and therefore creating cross-sell opportunities for ourselves. We are going out and also trying to sell new to brand new customers who are not our customers for any of our products. But I think the bigger opportunity for Progress is to bring this to market and bring this to bear as a cross-sell opportunity to our existing customers. And I think to that end, right, we are aggressively integrating the product across our portfolio as we speak. Nolan Bruce Jenevein: Understood. Thank you. And then a quick follow-up. You had a nice pop in gross margins this quarter sequentially despite SaaS growing as a portion of revenue mix. Can you maybe talk about just the puts and takes on gross margin in the quarter? Thank you. Yogesh Gupta: Yeah. So gross margin, I mean, if you look at it, right, our gross margin is a blend between the SaaS business gross margin, the ShareFile gross margin, which is, as you know, just ahead above eighty, in the low eighties, in our business, which was in the high eighties. Right? So as those things blend, you know, weighted average, thank you for the kind comment. But, you know, we are continuing to see, I think, ways of even running our own existing SaaS products a bit better. So I think those are little tweaks here and there. But I appreciate the positive commentary on the gross margin. Thank you. Nolan Bruce Jenevein: Thank you so much. Operator: Thank you. As a reminder, ladies and gentlemen, that's star one one to ask a question. Our next question comes from the line of Lucky Schreiner with D. A. Davidson. Your line is open. Lucky Schreiner: Great. Thanks for taking my question. It was good to hear about the updated M&A environment. I guess I just wanted to ask a follow-up on that and hear if you felt like there were any of your three categories that really stand out as looking more attractive today, especially as AI starts to impact these markets? And a second question would be, after acquiring ShareFile, anything to call out between your SaaS opportunities for M&A and your propensity to acquire a SaaS company in the future? Thanks. Yogesh Gupta: Absolutely, Lucky. On the first one, I think really what is happening with AI is that all three of our businesses are becoming the right companies and the right products in all three areas are becoming really interesting, even more interesting than they were before. I mean, think about it. Right? The one area which is around data platforms, obviously, for businesses and organizations that are trying to make sure that their GenAI efforts are based on true business data so that they can get verifiable, relevant, reliable answers from GenAI queries. Right? It requires them to bring that data into that game. And to us, therefore, data platform businesses continue to be a very interesting place. Similarly, when it comes to digital experiences, there you think of the end-user experience is completely dramatically changing. We have a very interesting vision of the no two visits to, for example, a website will be the same ever again. Right? And the web experience will be completely dynamically created by GenAI. But that requires again, a set of technologies and back-end platforms around that. That can manage content, that can manage the marketing, that can manage the web delivery, and so on. And similarly, in the digital experience space, the workflow. I mean, ShareFile is such a wonderful product in that portfolio. And what automation and leveraging AI for content within the ShareFile as well as leveraging content for any, sorry, leveraging AI for any content-centric application is going to be very interesting. So I believe that the digital experience aspect whose foundation lies on content, right, I think is going to be a very interesting space with the right type of companies. And last but not least, I mean, I mentioned in my prepared remarks, right, this GenAI, I think one of the big things, so AI in general, not just GenAI, is driving significant investments in IT across the board. And so with increasing IT comes increasing IT infrastructures, comes increasing complexity of environments, comes the challenge of managing, securing, running it reliably. So if you can have the right type of products that can do that without requiring greater resources, and they themselves leverage AI to automate that work, that is a very, very powerful set of offerings. So I think really, Lucky, across all three categories, we are active, we are interested, and we continue to look. The second part of your question was SaaS. And, you know, as we even said when we acquired ShareFile, we found a SaaS asset which has 80% gross margins, and now slightly higher. That is, you know, a remarkable thing for a SaaS business that is a modest size to have. And it allows us, therefore, to have the kind of operating margins that we deliver. And so we have learned quite a bit about SaaS. We have a very strong cloud operations team that came over from ShareFile that now runs all of the SaaS product operations for Progress. And I think we are very much looking at, you know, SaaS as well as non-SaaS companies when it comes to acquiring them. So I don't, it used to be we were hesitant about SaaS. But I think that hesitancy has significantly reduced. Obviously, we need to make sure that there isn't something so flawed in their business that their gross margins can't get to where we need to get. But beyond that, I think we now find ourselves hunting for not just, you know, traditional on-prem software companies, but SaaS companies as well. Lucky Schreiner: Very helpful. Thanks for taking my question. Yogesh Gupta: You're welcome, Lucky. And then that really expands our market opportunities quite, quite significantly. Makes sense. Operator: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Yogesh for closing remarks. Yogesh Gupta: Well, thank you, everyone, again for joining our call today. I'm really excited about our performance in the third quarter and pleased to share our confidence in the outlook for the rest of fiscal 2025. And we look forward to talking to you again soon. Thank you very much, and have a wonderful evening. Bye-bye. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to the Vail Resorts Fiscal 2025 Year-End Earnings Conference Call. Today's conference is being recorded. I will now turn the call over to Angela Korch, Chief Financial Officer of Vail Resorts. You may begin. Angela Korch: Thank you, operator. Good afternoon, and welcome to our fiscal 2025 fourth quarter earnings conference call. Joining me on the call today is Rob Katz, our Chief Executive Officer. Before we begin, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially. Forward-looking statements in our press release issued this afternoon, along with our remarks on this call, are made as of today, September 29, 2025 and we undertake no duty to update them as actual events unfold. Today's remarks also include certain non-GAAP financial measures. Reconciliations of these measures are provided in the tables included with our press release, which along with our annual report on Form 10-K, were filed this afternoon with the SEC and are also available on the Investor Relations section of our website at www.vailresorts.com. I would now like to turn the call over to Rob for some opening remarks. Robert Katz: Thank you, Angela. Good afternoon, everyone. Thanks for joining us. Before we discuss our results and fiscal 2026 guidance, I want to share my perspective on where the business stands today and where I see opportunities for future growth after being back in the CEO role for the past 4 months. I want to start by acknowledging that results from the past season were below expectations, and our season-to-date past sales growth has been limited. We recognize that we are not yet delivering on the full growth potential that we expect from this business in particular, on revenue growth in both this past season and in our projected guidance for next year. That said, I am confident that we are well positioned to return to higher growth in fiscal year 2027 and beyond. At the heart of our underperformance is that the way we are connecting with guests has not kept pace with the rapidly evolving consumer landscape. We have not fully capitalized on our competitive advantages nor have we adopted our execution to meet shifting dynamics. For years, e-mail is our most effective channel for reaching and converting guests, leveraging data to deliver efficient and targeted communications. However, as consumer preferences have changed, particularly over the last few years, e-mail effectiveness has significantly declined, but we did not make enough progress in shifting to new and emerging marketing channels. Compounding this, we historically have prioritized transactional call-to-action messaging with our guests and missed the opportunity to tap into the strong emotional connection our guests have with the Epic brand and our individual resorts. This approach was successful during a time period where we were rapidly adding resorts and innovating our past product portfolio. But over the last few years, where we have not benefited from those types of positive news events and instead have dealt with actually some moments where we did not deliver on the operational front, our approach has not been reaching a broader array of guests in order to amplify brand awareness, attract new guests and increase guest loyalty. We've also not had enough focus on our lift ticket business. Again, this made sense as we were rapidly growing our past business, but as we dramatically increased pass penetration, we have not pivoted to bring the same level of focus, creativity and resources to engaging with guests who for whatever reason, we're not yet ready to purchase a pass before the season. Finally, while we have made great strides in developing and improving our My Epic app. The app does not have native commerce and we have not been set up to accept either Google Pay or Apple Pay. However, we are seeing guest engagement dramatically increase in the app and on mobile, yet purchase conversion within both are significantly lower than what we would see on our websites, and below its potential. I'm fully committed to course correcting and executing a multiyear strategy that unlocks the full potential of our business. The strategy is rooted in leveraging our strong competitive advantages to drive sustained and profitable growth. We own and operate 42 resorts across almost all regions in North America and Australia and we have the strongest brands and most popular resorts. By owning and operating our resorts, we are able to collect extensive data from our guests across all our lines of business throughout the entire network, giving us tools we can leverage in every marketing channel, and used to inform mountain and technology investments in the highest return areas across all our resorts. We can also leverage our integrated model and data to optimize every aspect of our product and pricing approach across all lift access products, passes and lift tickets at each resort as well as ancillary revenue, which will continue to be a larger focus for the company going forward. Finally, we are well positioned to leverage the new technologies that are defining the current market environment. However, our immediate priority is increasing guest visitation to our resorts and essential driver of revenue and ultimately free cash flow. We will continue to invest in our resorts and our employees consistent with our long-standing focus on delivering exceptional guest experiences. At the same time, we are taking decisive steps that we believe will rebuild lift ticket visitation, evolve our guest engagement approach to better reach and convert guests and reaccelerate growth of our pass program, all of which are critical to strengthening our long-term financial performance. On the first item, we are focused on rebuilding lift ticket visitation, an essential driver of revenue and long-term growth. We are strategically enhancing lift ticket offerings, pricing strategies and our marketing approach aimed at bringing in new guests to our resorts in ways that complement our pass program. In August, we introduced Epic Friend Tickets, a new benefit for the 2025, 2026 Epic Pass holders giving them the ability to share discounted lift tickets with family and friends. This not only celebrates the social side of skiing and riding, but it also drives lift ticket sales for new guests that would be attracted to visiting our resorts with their friends and family. Importantly, the full value of the ticket can be applied towards a future pass purchase, making it a powerful tool for future pass conversion. At the same time, we're evolving our lift ticket pricing strategy with more targeted adjustments by resort and by time period. This allows us to balance guest access and value while optimizing demand, particularly in off-peak periods without compromising the strength of our pass program. We are also increasing our media investment with a focus on top of funnel awareness of our resorts to help us reach new audiences and drive incremental visitation throughout the winter and intend to continue to innovate our lift ticket product offering as we get into the upcoming ski season. Beyond the expected immediate impact on visitation, lift ticket guests represent a high conversion population for future pass sales, which supports our past growth in FY '27 and beyond. Second, we're evolving our guest engagement strategy to better connect with skiers and riders and drive stronger performance. Our focus is on broadening our reach and modernizing how we engage across channels. We plan to increase our exposure within digital and social platforms and expand our influencer partnerships. We believe this shift will allow us to reach guests where they are and to fully utilize our guest data to create content that resonates with our guests and drives action. We're also aiming to elevate the individual brands of our resorts by tapping into the emotional connection guests have with each destination. We believe this is an important differentiator in a competitive landscape. Third, we continue to see meaningful opportunities to expand advanced commitment and grow our pass business. The pass price reset ahead of the 2021, 2022 season exceeded our expectations in the initial years. And despite some modest declines recently, pass units are expected to be up over 50% in fiscal 2026 compared to fiscal 2021. And the same is true for our Epic and Epic Local Pass products, which despite recent modest declines, we expect to be up approximately 20% in units since the 2020/2021 season. And importantly, we have delivered this strong growth in those products despite significantly expanding other pass options for guests, including our Epic Day Pass products. This growth in our pass program has significantly strengthened our financial resilience and stability. We're focused on driving long-term guest loyalty, which means ensuring we're optimizing the pass offering and continue to drive retention and conversion of new guests to the program. Toward that end, while driving lift ticket sales, Epic Friend Tickets is also a new benefit for unlimited pass holders. We're also investing in personalized media and influencer channels to better target and convert prospective pass buyers. Because passes were already on sale during the CEO transition, our ability to influence fiscal 2026 pass results was limited. Looking ahead to fiscal 2027, we will be evaluating all aspects of our pass portfolio, including the product offering, pricing and benefit in conjunction with our lift ticket products and pricing with a focus on driving conversion to our highest value, highest frequency products and optimizing our overall lift access revenue growth. We are also actively searching for a new leader of our marketing organization and have retitled the role as a Chief Revenue Officer, reflecting the clear focus for this leader on driving all aspects of revenue for the company and are looking for an executive with strong P&L ownership and overall leadership experience. Finally, we will continue to invest in our people and our resorts to ensure we are delivering an experience of a lifetime. We are uniquely positioned to capitalize on investments in new technologies and processes that make it easier for our guests to engage with each aspect of the physical and digital experience we provide, driving both more value for our guests and revenue opportunities for the company. Vail Resorts has delivered incredible stability and has an extraordinary foundation to execute on these opportunities and generate stronger long-term sustainable growth. We have irreplaceable resorts an owned and operated business model and robust data infrastructure that enables a sophisticated approach to product and pricing decisions across our resorts. We continue to execute against our growth strategies of growing the subscription model, unlocking ancillary, transforming resource efficiency, differentiating the guest experience and expanding the resort network. In addition, we have a resilient business model with demonstrated financial stability and strong free cash flow generation and a track record of disciplined capital allocation and consistent innovation. Coupled with our passionate and talented teams, we believe we are well positioned to succeed in the future. These actions taken together with the continued success of our Resource Efficiency Transformation Plan gives me confidence in our ability to deliver long-term sustainable growth and long-term value for our shareholders, our guests, our communities and our employees in the years ahead. With that, I will turn it over to Angela to further discuss our financial results and fiscal 2026 outlook. Angela Korch: Thank you. As Rob mentioned, while our financial results in fiscal 2025 do not reflect the full potential of the company, the results do highlight the stability of the business model and early success of the Resource Efficiency Transformation plan. The company generated $844 million of resort reported EBITDA in fiscal 2025, which represents 2% growth compared to prior year, despite total skiers visits declining 3% across our North American resorts. The results were within the original guidance range for fiscal 2025 per resort reported EBITDA provided in September 2024. And excluding the CEO transition costs and changes in foreign exchange rates, the result was within 1% of the midpoint of the original resort reported EBITDA guidance range. Results for our fourth quarter, fiscal quarter 2025 were slightly ahead of our expectations with strong cost management, solid demand for our North American summer operations and improved visitation in Australia relative to the prior year. Now turning to our outlook for fiscal 2026. In fiscal year 2026, we expect net income attributable to Vail Resorts to be between $201 million and $276 million and resort reported EBITDA to be between $842 million and $898 million. The guidance includes an estimated $14 million in onetime costs related to the Resource Efficiency Transformation Plan. We anticipate growth in fiscal 2026 to be driven by price increases, ancillary capture, incremental efficiencies related to the resource efficiency transformation plan and normalized weather conditions in Australia in the first fiscal quarter of 2026, partially offset by lower pass unit sales, which are expected to have a negative impact on skier visits relative to the prior year and cost inflation. Season pass sales through September 19, 2025, for the upcoming North American ski season decreased approximately 3% in units and increased approximately 1% in sales dollars as compared to the prior year period through September 20, 2024. The season-to-date trends through September 19, 2025, were generally consistent with the spring selling period with the decline in units driven by less tenured renewing guests, those that had a path for just 1 year and fewer new pass holders. Renewals are up for our more loyal pass holders, those that have had a pass for more than 1 year. As we enter the final period for season pass sales, we expect our December 2025 season-to-date growth rates to be relatively consistent with our September 2025 season-to-date growth rates. The Resource Efficiency Transformation Plan continues to generate strong results for the company, and we expect to exceed the $100 million in annualized cost efficiencies by the end of fiscal year 2026. Our fiscal 2026 guidance assumes that we will deliver $38 million of incremental efficiencies before onetime costs, contributing to the achievement of an expected $75 million of cumulative efficiencies since we announced the plan in September 2024. Finally, in fiscal 2026, we anticipate cash tax payments to be between $125 million to $135 million. As Rob noted, while our guidance for fiscal 2026 reflects growth over prior year, it does not reflect the full potential of the company. We are committed to positioning the company to unlock stronger and sustainable long-term growth moving forward. Turning to our capital allocation priorities. We remain committed to a disciplined and balanced approach as stewards of our shareholders' capital. Our capital allocation priorities remain consistent: First, prioritize investments that enhance our guest and employee experience and generate strong returns; and second, maintain flexibility to pursue strategic acquisition opportunities. After those top priorities, we return excess capital to shareholders. In support of reinvestment in our resorts, in calendar year 2025, we expect to spend approximately $198 million to $203 million in core capital before $46 million of growth capital investments at our European resorts and $5 million of real estate-related capital projects. In addition to this year's significant investments, we are pleased to announce some select projects from our calendar year 2026 capital plan with the full capital investment announcement planned for December of 2025, including a core capital plan consistent with the company's long-term capital guidance. At Park City, we are continuing the multiyear transformation of the Canyons Village to support a world-class luxury-based village experience. Vail Resorts, in partnership with the Canyons Village Management Association, is replacing the open-air Cabriolet transport lift with a modern 10-passenger gondola, which will improve the guest experience, reduce weather-related disruptions and complement the Canyons Village parking garage, a new covered parking structure with over 1,800 spaces being developed by the developer of the Canyons Village. In addition, we plan to resubmit for permits to replace the Eagle and Silver load lift at Park City Mountain to continue our investment in the on-mountain experience, which if approved, would be upgraded for the 2027, 2028 North American ski season. Planning of additional investments at Park City Mountain across the Mountain is underway and additional projects will be announced in the future. The company also remains committed to the multiyear transformation of Vail Mountain and in calendar year 2026, we will continue to invest in real estate planning to develop the West Lionshead area into the fourth best village in partnership with the Town of Vail and developer, East West Partners. In addition, the company plans to build on the success of its calendar year 2025 lodging investment at the Arrabelle at Vail Square, with plans to renovate guestrooms at the Lodge at Vail in calendar year 2026. In addition to further enhance the guest experience across our resorts, the company will be investing in technology enhancements and new functionality for the My Epic App, including new in-app commerce functionality and payment platform integrations to improve mobile conversion enhanced by My Epic assistant functionality and expansion of the new ski and ride school technology experience. In addition, the company will make technology investments to enhance the integration of My Epic Gear guest experience. Turning to the second priority. Our balance sheet remains strong and is positioned to enable future strategic acquisition opportunities. As of July 31, 2025, the company's total liquidity as measured by total cash plus revolver availability and delayed draw term loan availability was approximately $1.4 billion and the company's net debt was 3.2x its trailing 12 months total reported EBITDA. On July 2, 2025, the company completed its offering of $500 million aggregate principal amount of [ 5.5% ] notes due in 2030. We used a portion of the proceeds from the offering to repay seasonal borrowings under our revolving credit facility in addition to the $200 million of share repurchases completed during the quarter. We intend to use the excess proceeds from the bond issuance, together with the $275 million delayed draw term loan for the repurchase or repayment of our outstanding 0% convertible senior notes due 2026 at or prior to their maturity on January 1, 2026. After these priorities, we focus on returning excess capital to shareholders. In the current environment, we look to balance our approach between share repurchases and dividends. The company declared a quarterly cash dividend on Vail Resorts common stock of $2.22 per share. The dividend will be payable on October 27, 2025, to shareholders of record as of October 9, 2025. Current dividend level reflects the strong cash flow generation of business with any future growth in the dividend dependent on material increases in future cash flows. We also maintain an opportunistic approach to share repurchases based on the value of the shares. As mentioned in the quarter, we repurchased approximately 1.29 million shares or 3% of outstanding shares at an average price of approximately $156 per share for a total of $200 million. We continue to evaluate the highest return opportunities for capital allocation. Now I'd like to turn the call over to Rob. Robert Katz: Thanks, Angela. In closing, we greatly appreciate the loyalty of our guests this past season and the continued loyalty of our pass holders that have already committed to next season. With our Australia winter season coming to a close, I would like to thank our frontline team members for their passion and dedication to delivering an incredible experience to our guests. I would also like to thank all of our team members that are working to welcome skiers and riders back to the mountain this coming winter season. We are looking forward to a great upcoming winter season in the U.S., Canada and Switzerland. At this time, Angela and I would be happy to answer your questions. Operator, we are now ready for questions. Operator: [Operator Instructions] We'll take our first question from Shaun Kelley with Bank of America. Shaun Kelley: Rob or Angela, maybe I just wanted to start with kind of the broad backdrop for visitation for this upcoming season. So Rob, in the prepared remarks, you talked a lot about some very, I think, interesting initiatives to start to address the visitation -- some of the visitation challenges and some of the opportunities you see there. Obviously, the Epic Friend Tickets being a piece there. And I imagine you expect utilization on those to be pretty good. So can you help us just kind of think about that underlying backdrop and what you're doing on marketing and with Epic Friends and contrast that with kind of in the bridge for the year on the financial side, it seemed like the implication was that the expectation given the pass units are down a little bit was that maybe visits are down, but I might be misreading that. So just wondering kind of how you expect really this season to play out from a visitation standpoint, given some of the initiatives in play. Robert Katz: Yes. Thanks, John. Yes, that's true. We do expect visitation in total for this year to be down slightly. I think that, that is primarily driven by the decline in pass sales to this point. And while we do think that we're going to make a portion of that up with lift ticket sales, it's not going to be enough to overcome, in our view, the decline in pass sales to this point. What I would say is that a lot of the things that I mentioned about what we need to do to correct how we engage with guests are things that are multiyear efforts. None of those things are things that happen right away. Even the Epic Friend piece will take time for our guests to understand what they have, for us to communicate with our guests for them to then increase their utilization to understand the change in terms for that and how they can use it and how they could turn it into a ticket the following year. So we expect to see some benefit from it this year, but obviously, additional benefit from it in future years. The same is true with our paid media investments. Again, I think if you're looking for top-of-funnel brand-building effort, that's not something that's going to happen in a month or 2. That's something that takes more time. The same is true for getting deeper and more skilled and more sophisticated in all the other marketing channels that we have. So what I would say is I think in the end of the day, we are starting to prepare for the fiscal 2027 season now, right? So we have work going on. We're obviously working on pass sales, but also working on other initiatives. So if you kind of back that up, you realize like, yes, from the time that some of this started, right, not possible to have a full impact on fiscal 2026. Shaun Kelley: Got it. Makes complete sense. And then just as my follow-up, and you kind of already touched on a little bit of it, just for the 2027 and beyond plan, some of the outline for maybe the Chief Revenue Officer and some of the opportunity. But just how big of a change is on the table here, Rob, just in terms of like, look, the big initiative done was to push for volume to push pass utilization up at the expense a little bit of price, right? That was sort of the compromise made back during the pandemic. Is something as fundamental as that shift on the table here as we think about moving forward, whether it be raising the pass price in its entirety to balance out that ecosystem differently? Or maybe think about it differently, just the possibly charging an add-on, which has been proposed at a major kind of high-value resort like Avail, like just to change the composition of price versus volume? Just how are you thinking about sort of that very fundamental idea as we turn the page to next year? Robert Katz: Yes. I think the way to think about it is I think what we did with the price reset was really kind of a right across the board approach because what we saw was that we felt like all of our pricing was too high in terms of getting the penetration that we wanted in pass. And I think that was the right move at the time, and I think it's driven actually good success. And obviously, as we highlighted, we're still well above where we were before that. But what I would say, though, is I think what we have not done is we have a lot of different pass products, right? So it's not just the Epic and Epic Local, right? We have a lot of different pass products for that, but then we have child pricing and college pricing and teen pricing and regional passes. And then all of those products really sit on top of all of our lip ticket products. And I think what you're hearing from us is I think what we can do is now, right, not take a kind of across-the-board approach to any of this, but actually a resort by resort or path product by path product approach. And there's technology now that's available that given our data and what we can put into it, right, where all of a sudden, we have a much higher level of confidence in terms of what we can drive with some of these individual moves. It's -- we have, I don't know, 200-plus pass products or something like that. We have thousands of lift ticket products. And those have largely been marching in lockstep where we think actually there's an opportunity for us to think much more strategically about it, again, using some of the tools that are out there that we all know about. And so what I'd say is, in a way, the big -- if we're cracking something open, it's not necessarily that we're looking to take price up or price down per se. It's that we're actually cracking this kind of connection that every single product has had to each other over the last 15 years. Operator: We'll move next to David Katz with Jefferies. David Katz: With respect to the sort of single-day visitation or the walk-up window, one of the debates, I'm guessed you're having is on sort of that price, right? And whether any of the strategies around improving walk-up visitation includes adjusting some of the price schedules that are out there or some of the pricing strategies. Robert Katz: Yes. What I would say is I think we look at it, I mean, maybe a little bit more broadly. So right, at a top line level, we're looking at pass, right? So that's all the products that are sold before the season begins that are nonrefundable and then there's lift tickets. And within lift tickets, we have a lot of different lift tickets, some of which -- most of which candidly are advanced lift ticket. So there's something that you buy 3 days in advance, 7 days in advance. And so we do put a lot of business through that. And then yes, we do have people who walk up to buy tickets just that day. And so we are looking at all of those prices. But of course, I would say, yes, we're still going to be putting -- the Epic Friend Ticket is a 50% discount on the walk-up price. So that would perfectly fit for somebody who wants to make a decision that day. But we think there could be opportunities for us to be more creative about some of the other prices that we have and the kind of advanced windows that we have for them because of when people -- if you haven't made your decision by the past deadline, then it's a question of when do people start making decisions for their future trips. So in the end, some of this is like we're trying to kind of tailor this to how people make a decision. It's not that many people are deciding to go to Vail that day and then kind of flying out. So the question is like when can we shift price that makes the biggest impact on driving more visitation. David Katz: Understood. And interesting about the discussion around media channels. And historically, the company has always been particularly advanced at data gathering, how much of this strategy about sort of reaching customers through the right channels is also about data gathering that builds intelligence for the future? Or is it just the right connection channel? Robert Katz: Yes. I think I actually feel really good about the data that we have on our guests. We have extensive data. I think, though, that our -- we've had kind of a maybe not a singular focus, but close to around e-mail because it was obviously -- we could present the information, the offer, the communication to the guests in a great way. We could get in front of them, and we made a huge effort, right, to collect e-mails over the last 10 to 15 years. And that channel is still going to be important for us. But we can use that data now with all the tools that are available to go out and use tons of different paid media networks that do personalize, right? And we can go through other companies that we can kind of bump our list against their list and then make sure we're delivering the right ad to the right person. And then we can use look-alike modeling, right, even for prospects who we don't necessarily have in our database to make sure that we're targeting the right people. And this is true not only with digital -- traditional digital media, but TV, right? Tons of TV now is -- are things that -- where you can run ads that go down to the individual person, which is important for us because, obviously, we're not a mass market type item. And by the way, that's traditional media, then you add social media, you have influencers, boosting influencers, own posts about your product and then using that creative to actually just run it in those social media channels at the same time using TikTok, which historically we have really not been engaged. And again, all of these things made total sense for a lot of time because obviously, we did have a much better, more efficient communication channel. But as things shift, like we have to be out in front of those as well and take the same level of sophistication and data that we have and just leverage them in different ways. Operator: We'll take our next question from Jeff Stantial with Stifel. Jeffrey Stantial: Maybe just starting off on the initial fiscal '26 guidance, which is where we're getting the most questions this afternoon. Angela, you listed out some of the puts and takes that factored in. One that seems to be missing or at least that we didn't hear was sort of how you're thinking about lift ticket or window ticket sales this year. So is it your expectation that lift ticket unit sales are down year-on-year, again, similar to sort of what we saw this past season and 1 or 2 before that? Or is it your expectation that should stabilize on some of these efforts as quickly as fiscal '26? And then similarly, just how should we think about sort of the blended price growth or decline just given these changes to the Buddy Pass system and the more dynamic pricing strategy, maybe net of the typical price taking action that we've seen from you historically? Angela Korch: Yes. Thanks, Jeff, for the question. Yes, we did talk about just on visitation, what Rob was commenting on, we do expect some offset to the pass visitation to occur on growth on lift ticket visitation. And with our pricing actions, while we're taking some opportunities to introduce new products like Epic Friends and those, we still expect that to be slightly positive on lift ticket revenue. The -- I'll maybe go through some of the other kind of gives and takes that I tried to outline. On the midpoint of the guidance relative to last year, it's up about $26 million. And we called out, obviously, the resource transformation plan playing a big role in that of about $38 million, also the normalized kind of conditions within Australia being another $9 million. And on top of that, really coming from growth, both the pass price growth that we took, but also our lift ticket prices as part of that as well. And then improved ancillary, those are kind of the positives, right? And those are being offset by our pass unit sales, right, which will have a negative impact on visits and then normal just expense and labor inflation. Jeffrey Stantial: That's great. Angela. And then turning over to the Epic Friends changes to the structure there, Rob or Angela, can you just maybe start off by helping frame for us the materiality of Buddy Passes historically, whether in terms of total units, revenue contribution, just any metrics that you could provide there? And then as we think about sort of the overall return on this change, is it your expectation that onetime sort of pricing hit in year 1 can be recouped by higher volume of lift ticket sales? Or should we really think about this more as a longer-term investment where the return manifests over time through sort of long-term replenishment of that funnel for new sport and lap skiers and ultimately conversion over to pass sales? Just any extra color there would be great. Robert Katz: Yes, sure. So I would say -- so Buddy tickets historically are a material part of lift ticket sales. And Angela, have we disclosed that before? Angela Korch: Yes. There's a pie chart in our investor presentation where you can see, right, it's about 7% of total lift revenue, but right, it is 20% of paid lift ticket revenue that comes from those benefit tickets. Robert Katz: So yes, so it's material, and that gives you kind of a sizing of it. What I would say is I think our view is that it is something that we would expect to be a positive, right, to the year. We're not expecting it to be negative to the year. I think, obviously, it's something that will grow over time. But we do see that -- and in large part, it's because, of course, we're going to be giving a discount, an additional discount to some people who are already using the program but we're expecting, right, more people to use the program now that we're going to promote it in a much more significant way, now that the discount is just 50% across the board for everybody, now that we're giving the discount to pass holders in the fall, not just pass holders in the spring and obviously have been more clear about the ability to turn it into the following year for a pass. So in total, we just feel like, yes, we will ultimately add more visits, and that is something that is contributing to the lift ticket growth that we're expecting for this year, as we talked about earlier. Operator: We'll move next to Stephen Grambling with Morgan Stanley. Stephen Grambling: A couple of follow-ups on the moving parts you ran through in the guidance for the year ahead. Do you generally anticipate that some of the efforts to communicate the new pricing and marketing will be incurred this year? Or is that more of a 2027 thing? So as we think about the potential for a recovery in visitation and top line in '27, will there also be a step-up in incremental costs? Robert Katz: Yes. I think 2 things. One is, I think there are opportunities actually to offset as we use more sophisticated technology in our marketing department to actually get more efficient with our overall cost, which I think is kind of an overall view that we have about the business going forward that we believe that there are continued opportunities for us to drive resource efficiency and marketing is one of those places. And our goal is to take those savings and obviously redeploy them into investments that we think can be more productive. So while we do see that there'll be additional investments that we have to make, both within our marketing group and of course, on the Mountain in our employees as we look to take the experience up, we also feel like there are other opportunities for us to take cost out of the business. So the investments that we want to make are not ones that we think should pull down the margin at all. Stephen Grambling: That's helpful. One other follow-up. How are you thinking about the net impact from the disruption at Park City last year versus this year? Is that a tailwind in your expectations or a headwind? Robert Katz: Yes, it's definitely a tail in our minds. Obviously, of course, there could be some guests that didn't have a good experience and are concerned about returning. But we see the experience was so challenging last year, and we think the tail from that likely was last season, where I feel like this year, we're going to be going in. And the team, I think, there has done a great job of preparing for the season. I think we're in a great spot to deliver a very high level of experience all season long. I think that's something that's going to come through, and we're seeing evidence of that in the broader market bookings as well in Park City. So for us, I think it's -- we're starting off in the right spot, and so we feel like it's a tailwind. Operator: We'll move next to Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: The March Investor Day laid out a vision, I think, on Slide 45 to have pass revenues go from 64% of the mix to over 75% over time. Rob, with the comments provided earlier on the lift tickets, where do you want that mix rate to go over time? Should it still go over to 75%? Or are you happy with that rate at 64% currently? Robert Katz: I would say, right now, I think my primary focus is on overall visitation to the resorts and overall lift revenue. And I think -- but I would say that I do think there's -- yes, there's some pullback that is maybe to be expected given the kind of rapid growth that we saw over the last 4 years. But I actually feel that, yes, there's continued opportunity, just like we talked about with Epic Friends tickets and moving people through lift tickets, those are all opportunities for us to ultimately convert them into a pass. And so we absolutely are going to continue to march forward as we get right, new visits from every source to convert them and drive our pass business up. It's ultimately, it's the best deal. It's the cheapest per day price. And as people get more comfortable and more willing to commit in advance, we think we can transition them into those products. But again, yes, it starts with visitation growth, overall visitation growth. Laurent Vasilescu: Okay. Very helpful. And then tonight's press release outlines that you expect the December 2025 season day growth rate to be comparable to what you saw for the month of September. Can you maybe comment a bit more about this? What gives you the confidence that the trends remain consistent going forward for the next few months? Robert Katz: What I would say is every time we put out some color commentary on that, we use the trends we're seeing, how they're shifting. And it is true that as we go into the last deadlines, it is more heavily weighted to new than renew. So there's always a little bit more uncertainty. At the same time, obviously, a lot of the selling season is behind you. So we take all of those things into, yes, an estimate, right? We use forecasting to come up with what we see going forward. And it doesn't mean we're going to be precisely accurate each time, but we try and give people kind of our best assessment of every piece of data that we have at the moment. Operator: We'll move next to Patrick Scholes with Truist Securities. Charles Scholes: I'd like to talk about the dividend coverage. When I run some back of the envelope numbers, and certainly, I could be off in my assumptions here, at the low end of the guide, it looks like the dividend is not fully covered by the free cash flow. Assuming I'm not completely wrong in my calculations. My question is, how comfortable are you taking on some debt, assuming you come in at the lower end of the guide to maintain that dividend? And along that line, at what net leverage ratios are you comfortable with? Robert Katz: Yes. We're very comfortable with the current leverage ratios that we have. We think they provide a lot of room for the company, especially given the stability of the business. So that has given us comfort on our dividend levels. And yes, we're certainly comfortable if it means that, yes, leverage goes up a little bit given where we're starting from. That said, I think we've been really clear that to show an increase in our current dividend, yes, we need to see a material improvement in free cash flow. But in terms of the current dividend, yes, we're comfortable with that. Charles Scholes: Okay. So would take on a little bit of leverage if needed to be in that scenario. Next -- or my follow-up question here. Curious as to in your past sales, what have been the trends for international guests? I know you've got probably a lot of moving parts there when we say international, kind of depends what country wants to visit us at this moment and what doesn't. How is that looking, say, Mexico versus Europe versus Canadians? What are trends you're seeing? And has sort of the negative rhetoric, has that been, I guess, a negative for you because you did see some deceleration in pace since your May update? Robert Katz: Yes. I think what I'd say is the -- yes, the certainly no trend there that's material enough to affect kind of the overall results that we're talking about. I think we -- yes, we've not seen any specific evidence of a shift per se in future international visitation. Now I would say international visitation has gone down, if you look back over the last 5, 7, 8 years for a whole variety of reasons, some of which was the dollars, some of which was some of the rhetoric and stuff like that in the past are concerned about visas or that. But yes, at this point, we don't see that as a major issue one way or the other as we go into next season. Operator: We'll take our next question from Arpine Kocharyan with UBS. Arpine Kocharyan: I was wondering if you could give a little bit more color where you're seeing most weakness in your consumer base and maybe where you're seeing more sort of a resilient customer? And anything else you would highlight on destination versus regional resorts that you saw in past sales trends. You also talked about less tenured pass holders maybe not renewing at the same rate as last year. Anything else you would highlight that you saw in past purchase trends that we should be aware of getting into the season here? And then I have a quick follow-up. Robert Katz: Yes, sure. I think one of the things I would say is that the results that we're seeing are fairly consistent between, yes, a lot of different guest demos, geos, pass type, new renew. I mean, yes, we do -- we obviously have lower renewal rate for 1 year or less pass holders, that's true. But I'd say broadly that maybe the takeaway from the results is this broad-based result in performance, which is one of the reasons why, yes, we peg -- sometimes if we're seeing -- we have so many different pass products and so many different resorts that, yes, if there's an issue with one resort or an issue with a region or an issue with a guest group, we would typically then see that show up. But when you see it, so broad-based, it says 1 or 2 things, either there's just a broad potentially like, again, we grew the market dramatically. Icon was growing dramatically. And now you're seeing kind of like maybe a maturation or stability of the overall market. Even if you just look at the NSAA National Ski Areas Association data over the last couple of years, it's the first couple of years in a long time where pass visits have actually declined and lift ticket visits have actually increased. That's where the growth that you saw actually came from. And so there's probably some market maturity, right, because of the rapid growth of the last couple of years. And then it's also why when we talk about our marketing effort and why we're not connecting because obviously, we're using -- even though the content is not the same for each guest group, a lot of our marketing approaches are consistent and why, in my mind, it highlights, right, that, that's an opportunity for us as we go forward. But yes, no, there's nothing that I can call out specifically about some group or another. Angela Korch: One thing I'll just add on the consumer piece on renewals is we're not seeing any change in kind of that net migration behavior as well, right? We're continuing to see about the same amount of trade-up as trade down as we've seen over the last few years. So you're not seeing the renewal base be kind of a [ broad ] people pulling back because of pricing or trading down. We're not seeing that dynamic within our renewals. Arpine Kocharyan: Interesting. That's very helpful. Just to go back to the EBITDA bridge, you mostly covered this question earlier. But I was wondering what needs to happen for you to hit the upper end of your guidance range versus midpoint? You obviously talked about more nimble pricing in off-peak periods, maybe more targeted approach to driving window traffic. It sounds like that has the potential to impact lift volume as soon as this season. Is it just a matter of sort of the strategies working for you to hit the upper end of the guidance range? Angela Korch: Yes. I think the range -- usually, I mean, the biggest driver is always visitation, right, in terms of the range that we put out because that impacts everything, right? It impacts all of our ancillary and flows through at a very high rate. So yes, visitation is really the key for us on both ends of the spectrum of the guidance range. Arpine Kocharyan: Yes. So what needs to happen for you to hit the upper end of your visitation guidance? Robert Katz: I think -- I mean, I think in the end, there's obviously opportunity for us to outperform either on pass or on lift ticket visitation. We've got a number of assumptions that go into how we come up with guidance, and there's always going to be kind of up or down estimate around each one. And sometimes things will work earlier than you think. But of course, that's true. Sometimes things don't work as well as you think. So it's one of the reasons why we have a range. It's not possible for us to pinpoint exactly. But it's meant to say that, yes, that we feel when we are looking at the totality of the business that this is the most likely range that we'll wind up. Operator: We'll take our next question from Ben Chaiken with Mizuho. Benjamin Chaiken: Rob, you mentioned evaluating the pass product offering in the release and the Q&A a few times. I guess just taking a different perspective, I guess, where do you see the largest holes with the past? So I'm not asking like the strategy necessarily, which I think is where the conversation has been, but what are you trying to solve for? Like where do you think Vail is lacking to the extent that you do? And what are the largest areas to improve? Robert Katz: Yes. I think we've got a pretty broad portfolio. So it's not that I feel like we're missing a particular product. But I'm not sure with this many products, I'm not sure that we are pricing these products in the optimal way, but either against each other or against kind of the need that we're looking for, for each segment. I also think there's opportunities for us to look at the benefits we provide on our passes, which again, largely have not changed that much over the years and who gets what and why and where and all of that. I mean, again, I think what you're seeing, it's a little bit like what we said about resource transformation for the company, which is we added a lot of resorts over a relatively short period of time and are now taking the opportunity to go back and say, okay, wait a minute, we can do things a lot smarter than we've been doing them when we were just in full acquisition mode. But the same is true for pass. We've added a lot of products over a very long period of time and have not really gone back to say, wait a minute, like how do we optimize each one of these price relationships or benefit relationships. So in our minds, that's -- it is a product and pricing piece, but it's not necessarily because we see some gaping obvious hole that we need to fill. I mean I think one of the things that we did identify was Buddy Tickets and skew with the friend tickets and benefit tickets. And we -- that was something that we have identified -- identified that it wasn't simple enough. It wasn't clear enough. It wasn't really moving the needle the way we wanted. And so yes, we certainly address that as you saw for this season. Benjamin Chaiken: Got it. That's helpful. And then just one quick follow-up. You've mentioned kind of benefits a few times. I guess what's your thought process on adding like additional member benefits or perks to the past and attempt to increase the year-round utility? I think there's a few passes out there to provide these other ancillary benefit to pass holders. I mean it would be great to get your take on that strategy. Robert Katz: Yes. I think that's something that we absolutely need to look at. I also want to make sure if we do something that it's not just like window dressing that it's something that really will move the needle. And that if we're going to -- certainly, if it's coming from our company, and we're going to put time and effort and our own energy to it, if it's a third-party benefit, then it has to be, yes, a partnership that we want to really get behind. So either one of those, I think in our minds, it's -- the primary benefit, obviously, is skiing. And so yes, then once we get beyond that, now it's -- we've got our Epic Mountain Rewards, right, which gives people the 20% discount on a lot of our ancillary lines of business. So once we start going beyond that, like, yes, it needs to be something that should make a difference. But also, I think we're in a good moment in time, I think, to start exploring all that. Operator: We'll move next to Brandt Montour with Barclays. Brandt Montour: So my first question is on the guidance. You guys gave the usual sort of normal weather implied in guidance. I just was hoping maybe, Rob, you could put a finer point on that. It was last year -- last year seemed like it was really good weather, but was that normal? Or was that better than normal? I know the years prior to that would be obviously firmly worse than normal, but maybe you can just give us a little bit of help with what you sort of baked in there. Angela Korch: Yes. Thanks, Brad. I would say last year, we had a pretty normal ramp across most of our regions where we were able to get terrain open kind of on a typical schedule. I actually finished for the year, right? Q3 actually had kind of a falloff on some of those conditions. But again, that doesn't usually drive as much of the overall impact as being able to get kind of open and terrain open ahead of some of those peak seasons. So we didn't see any unusual disruptions, I would say, like we've called out in some of the other 2 years. So it was much more of a typical pattern, though I wouldn't say it was like above-average snowpack or snowfall year by any means last year. Brandt Montour: Okay. Great. And then on the lift ticket strategy and the discussion around that, I think it was -- I think the pitch was pretty clear. The message from you guys today that the optimization opportunity exists. When you think of -- when I'm absorbing this from you guys, and I don't want to say it sounds like discounting or anything like that, but smarter marketing, smarter pricing, is there a risk that as you improve the attractiveness of the lift ticket, you could cannibalize early commitment. I know that would be a little bit on a delay because you're marketing day tickets after the past selling season. But those same folks are probably going to overlap in terms of who you're reaching with that marketing. Is that a risk for the following year going down that road? Robert Katz: I mean I think it's -- what I'd say is, yes, it's a risk in terms of -- it's something we pay a lot of attention to. But I think if you look at the differences between window, the walk-up window or advance lift ticket prices and the price you pay if you buy in advance, if you buy in a pass before the season, that gap has widened dramatically over the years, in particular, when we took pass pricing down. 4 years ago. So I think when you -- there's -- in our minds, there's plenty of room to be more aggressive and creative on list ticket pricing without necessarily sacrificing past business, but it is absolutely something we're very cognizant of and pay close attention to. Operator: We'll take our next question from Chris Woronka with Deutsche Bank. Chris Woronka: So I guess the first question I'm thinking about, Rob, is strategically, the idea to kind of go after more volume. You've talked about making ski more accessible to a wider range of people. Is this more about an age bucket or a certain demographic? I'm trying to kind of square like what you -- where those people are going now if they're not going skiing. And is price -- how confident are you -- I don't know if you've done survey work or other things around that. How confident are you that the investment in price, so to speak, and other things in the experience is going to get those folks to your mountains versus whatever else they're doing today? Robert Katz: Yes, sure. Well, I mean, one is I think, yes, we need to make sure that even within like whoever is going to ski next year, yes, that we're getting our fair share that's representative of the quality of our resorts, the quality of how we engage with them and to make sure that we've got the right price matrix, right, to optimize our overall lift revenue. And so that -- I mean, it does start with that. Now I would say, I think like this, one of the things that's important to understand about the ski industry is that it's constantly in flux. So there's a ton of people every year that go out of the ski industry and a ton of people every year that come in and then a ton of people every year that come back or take 2 years off or 3 years off, some people that take -- go for 2 days, then next year could go for 4, right? And so actually, even within like we took the total number of people in -- let's just start with the U.S. that know how to ski, so therefore, could take a ski vacation. Yes, like there's a lot of opportunity to move frequency, skier visits within that without necessarily kind of convincing somebody who never skis to ski, right? And so that is really our primary target. And that is a combination, right? It's not just price, right? It's like we've got to get the right message in front of them. We've got to make the right emotional connection to them, to their friends or family, to their kids, depending on who it is. And then, yes, you have to have the right overall mix of value, right, to move some of these folks. Obviously, they are the least committed skier. But again, it's not -- there's a huge percentage of the market each year that's going in and out, so to speak, and a huge percentage that's moving their frequency. And it's within all of that, right? It's not like we're selling soap and everybody is buying a bar of soap and never -- and now you're just trying to convince somebody who bought some other brand to buy yours. This is a product that is, yes, that is very much a discretionary vacation choice. And we think there's real opportunity for us to drive overall frequency up. And I would say when you look at -- I mean -- and Chris, you go back a long way. I go back a long way. It's like, yes, people have been talking about the fact that the ski industry never grows, but 2 years ago, right, we hit a record. Now people say, "Oh, well, that's COVID." But okay, that's fine, maybe. But in the end, right, it was still -- or it was 3 years ago, I guess that was a record. But in the end, right, it shows that there's enough people in the U.S. to actually do that, right? And so in the end, for us, it's not -- it's about getting people out and getting people to the resort and getting more days. Chris Woronka: Yes. It makes sense. Super helpful. Just had a follow-up on CapEx. And the question is kind of almost like what you're solving for there. I know over time, you guys identify specific projects. There's a maintenance piece to it. But I guess, do you think CapEx -- is there a step function or CapEx do you think needs to jump up to try to -- is that part of your plan to get people back and adding new amenities or moving them along faster or whatever it might be? Or do you think, hey, capital plan is going to be what it's going to be year-to-year constraints based on where we are in EBITDA and that kind of thing? I'm really just trying to get at whether you think a bigger uptick in CapEx would actually help if it's necessary or if you plan to do it in the near future. Robert Katz: Yes. I guess I'd say, I think absolutely, we're always going to be upgrading lifts, and we announced the new lift for next year, obviously, and that's critical. But it can't -- I think we need to realize also as a company and as an industry that it can't just be about lifts. It's not the only thing that matters to people. And in our minds, like one of the things where I think we're kind of at the beginning of this, and we've made some initial forays, but like we think there's technology that can make a big difference. So how people use technology in the digital experience, how it makes it easier for them to rent skis, how it makes it easier for them to connect with their ski structure, how it makes it easier for them to get food, how it makes it easier for them to figure out how to book or get around a resort or overall book a vacation. I think these are all things that are critical that really speak to the entirety of the guest experience when they come to us. And those are things where we really have both a unique advantage, right, because obviously, we own and operate all our resorts. They're all on a common platform. And it's where you invest dollars that actually impact everyone's experience with all of our resorts rather than a singular lift, which affects one resort for some people who use that lift. Now that said, we have to keep investing in lift. When you look back historically, I think you've seen us, we have spent a lot of money on lifts over the last 4 years. So with that's continuing, we're still going to keep proposing lifts. But I think the differentiator is going to be in this other area, where I think it is actually not as capital intensive, right, as trying to replace every lift on Vail Mountain or something like that. And so it is where we're putting our focus. At this point, we're not making any changes to our long-term capital guidance. But to the extent that we saw opportunities that made sense to do it, of course, we'd come back to everybody and share that. But at this point, we're not seeing that. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Rob Katz for closing remarks. Robert Katz: Thank you. This concludes our fiscal year-end earnings call. Thanks to everyone who joined us today. Please feel free to contact Angela or me directly should you have any further questions. Thank you for your time this afternoon, and goodbye. Operator: This concludes today's Vail Resorts Fiscal 2025 Year-end Conference Call and Webcast. You may now disconnect your line at this time. Have a wonderful day.
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