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Operator: Good morning. Thank you for waiting. Welcome to the earnings release call of Ultrapar to present the results referring to the Third Quarter '25. Our presentation will be conducted by Mr. Rodrigo Pizzinatto, CEO of Ultrapar; and by Alexandre Palhares, CFO of Ultrapar. The Q&A session that will follow will also have Mr. Leonardo Linden, CEO of Ipiranga; Mr. Tabajara Bertelli, CEO of Ultragaz; and Mr. Fulvius Tomelin, CEO of Ultracargo. This call is being recorded and will be accessed later through the website, ri.ultra.com.br. After the initial presentation, we are going to start the Q&A session where further instructions will be provided. I would also like to tell you that the conference is being conducted in Portuguese and there is an option for simultaneous translation by clicking interpretation. For those listening to the earnings release call in English, there is the option of muting original volume. The presentation will be shown in Portuguese and there is a version in English to be downloaded through the company's website and through the chat. Before proceeding, we would like to mention that forward-looking statements made during this call refer to business perspective of Ultrapar. Forecast and operating and financial goals are based on beliefs and assumptions of the company management and on information currently available. Forward-looking statements are no guarantee of performance. They involve risks and uncertainties because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors can also cause results to differ materially from those expressed in such forward-looking statements. I would like now to hand the conference over to Mr. Rodrigo Pizzinatto, who will start with the presentation. Mr. Pizzinatto, you have the floor. Rodrigo de Almeida Pizzinatto: During this quarter, we recognized BRL 238 million in extraordinary tax credits at Ipiranga, resulting from the remaining portion of historical ICMS tax credits included in the PIS/COFINS calculation basis. Furthermore, we made significant progress in the fight against illegal practices in the fuel sector. We have been following with optimism that work carried out by the authorities in recent months, especially the Carbono Oculto Operation at the end of August. It represents a historic milestone in this fight, reinforcing the need for stricter legislation to fight crime and the legalities in the sector. We continue to support authorities and regulatory bodies in fighting crime, strengthening market integrity and ensuring fair competition. Another highlight of the quarter was the rapid reduction in leverage. After assuming control of Hidrovias and starting to consolidate its results in the second quarter, leverage stood at 1.9x. With the strong cash generation in this quarter and Ultrapar's EBITDA growth, we reduced leverage to 1.7x even after paying BRL 326 million in dividends in August. We also continue to advance our growth and strategic positioning agenda. In October, we completed the expansion of the Ultracargo terminal in Santos, adding 34,000 cubic meters of storage capacity. On November 1, we completed the sale of Hidrovias Cabotage operation for BRL 750 million (sic) [ BRL 715 million ] which will enable Hidrovias to focus on more synergistic and complementary businesses while strengthening its financial position. We announced the signing of an agreement to acquire a 37.5% stake in Virtu which operates in the LNG logistics for BRL 102 million. This transaction is aligned with our strategy to invest in sectors where Ultrapar can contribute to value creation with high growth and profitability potential. We also received CADE's approval for the LPG terminal in Pecém for Ultragaz in partnership with Supergasbrás. This project reinforces our commitment to safety and efficiency in LPG supply in the Northeast and North regions of Brazil. Finally, for those who were unable to attend Ultra Day 2025 held in September for the first time at Ultrapar's headquarters, please note that the presentation is available on our Investor Relations website. I will now turn the call over to our CFO, who will walk you through the quarterly results. Thank you. Alexandre Palhares: Thank you, Rodrigo. Good morning, everyone. Before starting, I would like to remind you of the reporting criteria and standards used in this presentation. Now let's move on to the results. Ultrapar's adjusted EBITDA was BRL 1.9 billion, including the recognition of BRL 185 million in extraordinary tax credits at Ipiranga representing a 27% increase year-over-year. Recurring adjusted EBITDA totaled BRL 1.8 billion, an 18% increase compared to the third quarter of last year driven by Hidrovia's record performance. Ultragaz also reported higher EBITDA, which together with Hidrovias, partially offset the lower results from Ipiranga and Ultracargo. Net income for the quarter reached BRL 772 million, an 11% increase year-over-year, mainly driven by the higher operating results and the recognition of tax credits already mentioned which were offset by higher financial expenses and higher depreciation and amortization, mainly due to the consolidation of Hidrovias. CapEx totaled BRL 756 million, 46% higher compared to the same period last year, highlighting the consolidation of investments in Hidrovias and increased investments in Ipiranga, especially for the expansion and maintenance of the service station and franchise network, in addition to investments in the evolution of the technological platform with the replacement of the ERP system. Operating cash generation was BRL 2.1 billion, almost 3x the cash generated in the same period last year, even with BRL 258 million for the settlement of the draft discount. This reflects a better operating result, the consolidation of Hidrovias and lower working capital investment at Ipiranga and Ultragaz. And now moving to the next slide. We ended the quarter with BRL 12 billion in net debt and a leverage of 1.7x compared to 1.9x last quarter. This improvement reflects the strong cash generation during the period, which more than offset the payment of BRL 326 million in dividends in August in addition to the impact of BRL 258 million from the settlement of the draft discount, as I mentioned earlier. Now moving to Ipiranga's results. The volumes sold in the third quarter was 1% higher compared to last year due to the increase in the Otto cycle, mainly in gasoline. It is worth noting that we observed the market recovery following the Carbono Oculto Operation, which has been tackling regular companies in this sector with an acceleration in sales volume in September. We ended the period with 5,812 substations. We added 70 new substations and closed 84 to our network throughout the quarter. Ipiranga's EBITDA totaled BRL 1.85 billion, 12% higher than the same period last year, reflecting the recognition of extraordinary tax credits of BRL 185 million. Recurring EBITDA totaled BRL 892 million in the quarter, a 5% lower compared to the third quarter of 2024. This result reflects a more challenging scenario given the irregularities in the sector, mainly due to the high level of naphtha imports for irregular sale as gasoline and inventory gains in the third quarter of 2024. These effects were partially offset by higher sales volume and lower expenses during the period with lower allowance for expected credit losses, marketing and personnel expenses due to a smaller head count. As a highlight, we also had cash generation zreaching BRL 1.453 billion, more than twice the BRL 723 million in the third quarter of 2024. This performance reflects working capital management, strengthening value creation for Ipiranga. For the fourth quarter, we expect a continued market recovery with volume growth and profitability similar to that observed in the third quarter. Now moving to Ultragaz. The volume of LPG sold in the third quarter was 6% lower than the same period in 2024, with a 3% decrease in the bottled segment and an 11% decrease in the bulk segment, reflecting the competitive dynamics of the market, which continued to be impacted by the pass-through of increased cost of Petrobras auctions. Furthermore, we are seeing signs of an economic slowdown with lower demand in the volumes sold to industries. Recurring adjusted EBITDA totaled BRL 463 million, a 3% increase compared to the same period in 2024, mainly due to pass-through of inflation and the positive contribution from new energies despite lower LPG sales volumes. The fourth quarter is seasonally weaker. We see a gradual recovery in volume and bulk segment is below last year's levels. We also expect EBITDA to be higher than that observed in the third quarter. Now moving to Ultracargo. The average installed capacity reached 1,097,000 cubic meters in the quarter, a 3% year-over-year increase, resulting from the addition of 23,000 cubic meters of capacity in Palmeirante and 7,000 cubic meters in Rondonópolis. The cubic meters sold was 12% lower year-over-year, totaling 3,845,000 cubic meters. This decrease reflects the lower demand from our customers for tanking services related to fuel imports, which resulted in lower handling in Santos, Itaqui and Suape. This impact is partially offset by the higher volume of handling in Opla. As a result, net revenue totaled BRL 243 million in the quarter, a 9% decrease compared to the same period last year, reflecting the lower volume even with better tariffs. Ultracargo's adjusted EBITDA totaled BRL 134 million, 20% below the third quarter of 2024, impacted by lower volumes and higher preoperational and initial costs at Palmeirante, which is still in its ramp-up phase, partially offset by better tariffs. For the fourth quarter, we see a recovery in demand from our customers and the effects of the expansion. As a result, we expect a recovery in EBITDA compared to the third quarter. Finally, going Hidrovias. The volume handled in the quarter grew by 30% when compared to the same period last year, driven by the normalization of navigation in the South corridor, which allowed higher handling of iron ore. Adjusted EBITDA reached BRL 332 million compared to BRL 169 million in the same period last year. Recurring EBITDA reached BRL 361 million, more than twice the BRL 169 million recorded in the third quarter of 2024. This record performance mainly reflects better navigation conditions in the South corridor, as I mentioned earlier, and a better sales mix. On November 4, the Cabotage sale was completed, which will affect the results of the fourth quarter and reduce the company's debt. It is important to note that there is also the seasonality of the fourth quarter, which significantly affects navigability in the corridors. We expect an EBITDA similar to the fourth quarter of 2022. With that, I conclude my presentation. Thank you all for the participation. Let's move to the Q&A session. To contribute to the dynamics of this moment, I reinforce that questions related to Hidrovias will be answered from the perspective of the controlling shareholders. Other operational details should be directed to the Hidrovia's IR team. Operator: [Operator Instructions] The first question comes from Gabriel Barra with Citi. Gabriel Coelho Barra: I have 2 questions. First, let me focus on Ipiranga and all the changes you've mentioned during the data presentation. We've seen a sequence improvement and when we talk with the industry at large, there is an expectation of sequential improvement for the upcoming quarters in terms of volume margin and fighting illegality. I'd like to hear about the end of the quarter and the trend for the fourth quarter, the new events that were observed probably they can be translated into better volumes, better margins. And I'd like to hear about the company's strategy. Would it be to recover the lost market share to the informal market? Or would you thinking about optimizing your margins? What is your strategy? Maybe Linden can help us out. Now looking from a broader perspective at Ultra, you've been making some investments in terms of capital allocation, which is a very important point considering Ultra as a vehicle of investments. So what are the next steps? You still have got a lot to deliver in Hidrovias, of course. But the company has already made all the incorporation of investments and all that. So what is the strategy for the future? Where would you consider future investments, exactly when, what would be the timing? Would you think about greenfield, brownfield, something that would bring results in the short term? So these are my 2 questions. Leonardo Linden: Good morning, Gabriel, Linden speaking. The first question is -- would be probably asked by others, so I'm going to answer it broadly. First, hidden carbon operation, Carbono Oculto has been a very positive movement to our industry. It has contributed to Brazil, to consumers, for those that make investments in the area. But we have to be aware of the fact that it's not over. Investigations have to move on. And we have 2 important projects, one of them of bad debt provision and the other one of the one single phase investment. And these are projects that really have to move on and become law. Similarly to hidden carbon there are 2 points, volume and margin. The volume is coming stronger, and you can see that there is an increasing trend. The end of the quarter was better. The first initiative of hidden occult operational was on the second half of August. And since then, we've been recovering volume. Not only volume really, but we can see selling our gasoline with additives being sold more with an increased share of it in the mix, meaning that consumers are aware of quality, positive news from volume. It's important to regain scale because of lost scale throughout months and months due to the irregularities of the industry. Margin is important, but it's not the only indicator. And the margin in terms of volume has been showing slower recovery, especially in B2B and highways, which is expected because these are markets exposed to problems that still persist, such as non mixing biodiesel. And they tend to be more resistant to changes in prices, at gas station levels, large consumer contracts have parameters. So it takes longer to have adjustments. That's all predictable, and we are okay with that. We have to keep on fighting illegality. We cannot simply assume that everything is solved. No, we have to keep on hitting the regular market because there is still a lot to be done, even though we have already observed significant improvement. For Ipiranga, it's important to recover scale. It's been a number of years with loss of volume due to irregular market, and we want the volume to be back, of course. Thirdly, margin is a consequence of the reaction of the market and how we work internally. We should stick to what we've always done, focusing on internal efficiencies, better processes and those who have been following our results know how much we emphasize that, especially in logistics and smaller operational expenses. Something that we've been working on, reducing and also emphasized by Palhares presentation. So very positive landscape, I have to say. We had been waiting for this action for a long time. But of course, it's not over, the problem is not over. Volumes are picking up, especially in Rio and Sao Paulo, where there was most of the irregular activities and margins are going to naturally be recovered, but of course, depending on market reactions as well. But of course, we are also endeavoring all our internal efforts. Rodrigo de Almeida Pizzinatto: Barra, Rodrigo speaking. Thank you very much for the questions. Capital allocation, our next steps, right? In general lines, we are going to try to look up for companies and projects that have similar characteristics to what we found in Hidrovias. In other words, a good potential to create value that depends on us. So what we can do with a company with an asset, unlocking growth, optimizing operations and assets. But if we don't come across good projects, that's okay, we just increased dividend sharing. We have these 2 options, either we come across good projects or we increase dividend sharing. That's it. Operator: Our next question comes from Gustavo Sadka with Bradesco BBI. Gustavo Sadka: My first question concerns cash generation, which was strong in the quarter, and we've seen deleveraging. Now considering the new taxation of dividends, and the profit reserve you have in your balance sheet, should we expect more dividends to be distributed this year? Second question about capital allocation. As the company has been showing interest and have had exposure to the Agro business, do you think about by a stake at Rumo because the partial investments of that can be offered in the market. Rodrigo de Almeida Pizzinatto: Good morning Gustavo. About cash generation, you're right, it was a very strong quarter. The second half of the year tends to be stronger and probably that's going to be repeated in the fourth quarter. It is following the constant discussion of legislation changes and the taxes on dividends. And yes, this is a possibility, anticipating dividends in the fourth quarter. Concerning capital allocation, I'll just repeat what I've just said. We are always looking for good projects where we can create value, unlocking growth and optimizing operations. If we find these assets, we are going to do that. If not, we increase dividend distribution. That's it. Operator: The next question comes from Bruno Montanari with Morgan Stanley. Bruno Montanari: Quick follow-up with Ipiranga. Could you please quantify in a ballpark figure of inventory variation so that we get an ideal about normalized margins. And could you please tell us more about CapEx, especially in the third quarter, CapEx tends to be high in the fourth quarter. You've anticipated somewhat in the third quarter. So I'd like to know what we can expect for the fourth quarter at Ipiranga? Second question about cash flow. It's been a year of a number of adjustments in working capital because of the draft discount. But in working capital, the level we've seen in the third quarter. Is it sustainable? Or is there still more to be done to unlock somewhat more capital to the company. Rodrigo de Almeida Pizzinatto: Good morning Bruno. Thank you for the question. About inventory levels, we don't talk about the levels of losses or gains because it's a result of our supplies policies. But I also remind you that there was a price oscillation in the third quarter of '24 and not '25. So the variation is more due to the fact that there was a change in '24. Concerning CapEx, in the year, the CapEx would be below what we had announced, probably 10% less than what was announced in our plan for 2025. Alexandre Palhares: Palhares speaking. Concerning working capital, this is a very relevant topic to all our businesses. There are some efficiencies which are captured and they are onetime possibilities included in the ordinary working capital of the company and some of them which result from market dynamics. These are the ones that we can repeat and maintain throughout upcoming periods. Operator: The next question comes from Rodrigo Almeida with Santander. Rodrigo Reis de Almeida: Good morning, Ultra's team. I'd like to talk about Ultragaz. Recently, there were new reference prices published. I would like to understand the net effect of this discussion, a lower reference price, some potential of gaining additional volume. Maybe you can tell us more and help us understand what is the net changes you expect in terms of volume and price? Can you also please tell us more about the compliance of -- with resellers because in the end of the day, prices change at the level of the resellers, right? Tabajara Bertelli: Hello, Rodrigo, Tabajara speaking on behalf of Ultragaz. Thank you for the question. The focus of Gás do Povo, Gas to People, it's a program of the government. I think it's the right program to direct the benefit to the population that really needs it, really fighting against the so-called energy poverty, things which are going into effect in a few weeks, starting in some cities and then being scaled up, but something very positive. We've been supporting the program. The model is direct payment to resellers. We are exactly at the level you talked about communicating the project and trying to get more and more compliance. If the resellers have some questions, we answer them. The government has been presenting data. The last one, there were over 3,000 resellers already on board, showing more and more companies join and it will be maintained until the first to second quarter next year. It takes time. It takes some learnings, but it's following the initial design that was imagined. And we see it very positively as a social benefit of addressing a very important issue to our country. And we believe prices and volumes are going to gradually increase. If the reseller is compliant with the program, they are committed with all the elements of the program and it's a product that is going to be picked up. It's pick and collect, not delivery not delivered at homes. Each reseller is considering how to operate, how the program works and how well it fits their operations. It's been doing and believe it's going to be maintained. In a nutshell, we still see the program with the same perspective. This is just step one of implementation. There are more things to come, certainly. Operator: The next question comes from Gustavo Cunha with BTG Pactual. Gustavo Cunha: My question is about Ultragaz as well. Trying to understand about the change in LPG. Ministry of Mining and Energy called an extraordinary meeting to talk about this issue. And I'd like to see your perspective on this topic and what do you expect in terms of time line? Tabajara Bertelli: Thank you for the question, Gustavo. There is still an ongoing process. You are calling it the reform or the regulatory review of LPG. In the beginning of the year, there were some initial inputs shared with the government. The national agency will probably launch a new review in upcoming months. And in the current schedule, it is expected to be completed in the first half of 2026. So there is still a lot to happen. Different players are getting on board, they're discussing. I think it's following the expected path. We are highly convinced of what is the best for society. It's a model of a high level of safety, well balanced, and that's what has been in place. But that's still an open-ended process inputs are being made, and there are still a number of steps until the final decision regardless of what it is to really change the regulations. Operator: Next question comes from Regis Cardoso with XP. Regis Cardoso: Good morning. Thanks all of you for your availability. In Ipiranga, I understood that you expect a similar level of profitability in the fourth quarter. Can you tell us about one-off effects, especially inventory levels, also the draft discounts of the margin, competitive improvement that we've observed in October. So reconciling really the development of the fourth and the -- third and fourth quarter. And finally, in Ipiranga, could you please tell us about the offenders that you still see to margins. Maybe you can make comments about direct sales to refining entities? And what about CBOIS? How do you see it? And how has it contributed to the operation? Leonardo Linden: Concerning the fourth quarter, the guidance is clear. And once again, it's market dynamics. This is what we've been observing happening in the market. As I pointed out, there is volume impacting the fourth quarter and margin picking up slowly. I don't think I have much to add. In terms of offenders, part of the offenders are still irregular activities that we observed throughout the market and have been covered by the hidden occult operation, Biodiesel, CBOIS, certainly still a problem. But once again, the perspective is better now. We know there's still a lot to be done. And I emphasize once again about bad debt provision and single-phase taxation, which are both essential to address the root of the problem. But we are doing our work as best as we can, fighting irregularities together with the market. But that's it. No big news there. Regis Cardoso: Let me see if I got that straight. There hasn't been any relevant losses of inventory levels, right? Leonardo Linden: Yes. Right. None. Operator: Our Q&A session is completed. Now I would like now to hand it over to Alexandre Palhares for his closing remarks. Alexandre Palhares: I would like to thank you once again for your interest and participation. Our Investor Relations team is here to answer any questions that we might not have answered. Thank you very much. See you next time. Operator: Well, the earnings release call of Ultra is finished now. Thank you very much for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good afternoon, and welcome to Red Cat's Third Quarter 2025 Earnings Conference Call. My name is Steve, and I'll be your operator for today's call. Joining us are the Red Cat's CEO, Jeff Thompson; and CFO, Chris Ericson. Please note that certain information discussed on today's call will include forward-looking statements of our future events and Red Cat's business strategy and future financial and operating performance. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied by those statements. Certain of these risks, uncertainties and assumptions are discussed in Red Cat's SEC filings, including its most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's belief, estimate and prediction as on date of this live broadcast, November 13, 2025. and Red Cat undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. In addition, our comments on the call today contains reference to non-GAAP financial measures such as adjusted EBITDA and key business metrics such as annual recurring revenue. Non-GAAP measures should be viewed in addition to and not as alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures as well as definition of the key business metrics referenced and management reasons for including the non-GAAP measures and key business metrics referenced may be found in the press release. Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in Investor Relations section of the company's website at ir.redcatholdings.com. With that, I'll turn the call over to Jeff. Jeffrey Thompson: [Audio Gap] 2025 earnings call. I will start by providing some high-level commentary on our financial results and then share exciting updates about our unique market position and revenue growth initiatives. Red Cat delivered a record-breaking third quarter with revenues of $9.6 million, up 200% from second quarter of 2025. Q4 will be more revenue in 1 quarter than we have ever done in a 12-month period. A majority of that almost $40 million of revenue in 2025 will have been shipped in the second half of Q3 and Q4, that's just 1.5 quarters. This performance reflects the accelerating adoption of our drone and robotic solutions across defense and national security sectors. Our product portfolio has reached new levels of validation and market acceptance. We are uniquely positioned and have built capacity to meet the U.S. Army's need for 1 million drones. We are ready with speed and volume. Here are additional milestones we achieved this quarter. The limited rate initial production Tranche 2 contract we signed in July 2025 has expanded. It is now $35.1 million. We launched Blue Ops, our new maritime division focused on uncrewed surface vessels with facilities now established in Georgia, Maine and Southeast Florida. Our FANG FPV drone was officially added to the Blue UAS cleared list, a critical validation for U.S. government use and now being used by other PM UAS categories. We successfully completed flight testing with Palantir's Visual Navigation software on our Black Widow platform, enabling operations in GPS-denied environments and now a Black Widow product option that will improve Black Widow margins through software sales. We announced a strategic partnership with AeroVironment, enabling deployment of FANG from the P550 UAS, part of the LR program of record and Edge Autonomy is deploying the Black Widow on their long-range platform. Our Black Widow system was approved for NATO NSPA catalog, opening doors to NATO members and partner nations and possible foreign military sales. To unpack that a bit more with added color, our limited rate production contract for the Black Widow system valued at $35 million demonstrates the military's confidence in our technology and manufacturing capabilities. The total contract in 2025 is now approaching $40 million for the U.S. Army alone. While we experienced a 6- to 7-week delay due to change orders that pushed the first shipments to mid-August, this reflects dynamic nature of defense requirements and our ability to adapt to solutions to meet evolving specifications. We received the new changes at the end of July. We iterated and delivered the first LRIP drones 3 weeks later. We proved that we can do quick changes and continue to ship at volume. Perhaps the most exciting strategic expansion is the launch of Blue Ops. Our new Maritime division, this represents a natural extension of our autonomous systems expertise into a high-growth adjacent market. Our partnership in Europe with a battle-proven boat technology gives Blue Ops a 3-year advantage in the USV space, and we expect our first boat hulls to be completed in December with potential pricing from about $750,000 to $1.5 million per unit. This division opens up substantial new revenue opportunities. We now opened 155,000-square-foot manufacturing facility in Georgia, capable of building more than 500 to 1,000 vessels per year and established a sales showroom and lab in Southeast Florida and a prototype partner in Maine that has built some of the most complex boat technology in the industry. We believe this is the most undervalued Red Cat asset. If we only ship 200 boats at the low end of pricing, that is $150 million in revenue. Red Cat believes factories are the moat. Additional expansion strategies are propelled by the need for manufacturing, speed and volume, and we believe factories are becoming a new moat for defense. We have doubled our manufacturing space in Salt Lake City and doubled our manufacturing space in Los Angeles, and we have U.S. capabilities for 1,000 USVs a year and can build a new hull design in months to production. Now to provide the Army SRR program update. We continue to execute on the U.S. Army's short-range reconnaissance program. The LRIP contract signed in July has been expanded and is now valued at $35 million. So let me share some context on changes in our revenue outlook and where our projections are shifting slightly to the future. The highly anticipated SRR contract took an extended amount of time to finalize. The government budget was not signed until July 4, and we're still receiving changes to the black window as late as the last week in July. The unanticipated delays shifted our expected revenue recognition by about 6 to 7 weeks to the right, but our long-term trajectory remains unchanged. In fact, the recent expansion of the LRIP contract to $35 million gives us further excitement of the future trajectory of U.S. public announcements and specifically the 1 million drones last week. We expect to announce additional contracts and partnerships in the coming months, including developments in our USV segment, Edge 130 move to Trichon, new power capabilities combined with swarming. Given some of the delays mentioned, we are needing to lower our full year revenue guidance range from -- for 2025 to between $34.5 million to $37.5 million. Q4 guidance is just below a $100 million annual run rate. We remain very optimistic about our ability to recover revenue from the delayed continuing resolution known as the One Big Beautiful Bill and the government shutdown of 2025. Demand has grown significantly in the last 3 months with the Army alone looking for millions of drones. We are currently implementing Warp Speed in Salt Lake City and expect to send Palantir and 4 deployed engineers to FlightWave Long Beach facility then soon to Georgia for the Blue Ops facility. We believe running our factories utilizing Palantir's Warp Speed will give us lower cost, higher margin, better operating metrics, better visibility and help us dominate against old trusty prime vendors. As you know, we also previously announced our new product with partnership with Palantir for digital navigation. We also expect to launch other important products from Palantir on the Black Widow and the USV products earlier next year as partnerships continue to grow with Palantir utilizing their AI products. I will now turn the call over to Chris to discuss our financial results. Christian Ericson: All right. Thank you, Jeff, and good afternoon, everyone. I appreciate everyone jumping on today. As Jeff mentioned, we're pleased with our record third quarter 2025 results, absolutely ecstatic. Our financial performance reflects the success of our ongoing strategic initiatives and our commitment to delivering value to our shareholders. On the income statement side, revenues were $9.6 million for the third quarter of 2025. Now this is trending up from $3.2 million in the second quarter and up further from the $1.6 million in Q1 of 2025. This improving trend is due to increasing product revenue as we have started delivering drones to the U.S. Army under the SRR program. Gross profit was $638,000 in the third quarter of 2025, up from $375,000 in the second quarter of 2025. Margins have been primarily driven by higher revenues in the 2 consecutive quarters. Q3 gross profit was a large increase compared to the gross loss of $392,000 in the third quarter of 2024, an improvement of over $1 million. On a percentage basis, gross profit for this quarter was 7% compared to a gross loss of 30% during the third quarter of 2024. The year-over-year same quarter change is due to higher utilization of plant capacity and decreased inventory obsolescence in 2025 compared to 2024. On our operating expense side, we've strategically increased the areas of R&D and G&A to support our rapid growth trajectory and market expansion initiatives. During Q3 of 2025, we invested approximately $6 million into R&D, a quarterly increase of 66% over Q2 of 2025. We have accelerated R&D to focus on growing our technological leadership in all areas, including, but not limited to, unmanned maritime surface vessels, advanced communication systems, electrical, optical and thermal sensor technology, universal flight controls, AI-based navigation systems and swarming capabilities to say the least, plenty of other areas that we're spending R&D as well to improve our technologies. General and administrative expenses have grown to $9.2 million for Q3 of 2025, a quarterly increase of 48% over Q2 of 2025. This is to support our larger organization, including the establishment of our Blue Ops division and the operational infrastructure required to manage our expanding operations. Now on to the balance sheet and cash flow side. The most significant trend across our balance sheet and cash flow metrics is the strengthening foundation we're building for sustained growth and profitability. We've ended the quarter with $212.5 million in cash and receivables. This liquidity positions us well to execute on our SRR obligations, scale our USV division and pursue other strategic growth opportunities. The investments we're making in working capital, manufacturing capabilities and organizational infrastructure are already generating returns through accelerated revenue growth and enhanced market position, positioning us for continued success as we scale our operations and capture the tremendous opportunities in the defense drone market. Despite the timing shift of revenue that Jeff talked about, we remain confident in our ability to meet long-term goals. Our production capacity continues to improve with minimal constraints. We are on track to scale up drone output to 1,000 units a month by early 2026, and our USV manufacturing is building up with first deliveries expected in Q2 of 2026. On the capital allocation side, we are focused on deploying capital across 3 key areas: our USV division build-out of Blue Ops, estimated to be a $20 million to $25 million investment to fully operationalize the division. Strategic investments targeting technologies in farming battery tech, AI and communications, among others. And the third, our facility expansion with completion of our facility expansions in Salt Lake City and Los Angeles here in the next 3 to 4 months and then also in Georgia with our Blue Ops facility. General outlook. Turning our guidance to the full year 2025, as Jeff mentioned, we expect revenues to be between $34.5 million to $37.5 million. This represents Q4 revenues between $20 million and $22 million or a sequentially quarterly increase of 170%, more than doubling the Q3 revenues. This continued strong sequential growth driven by our accelerated Black Widow production ramp and thank system deliveries following Blue UAS certification. This guidance reflects our confidence in our production capabilities with our anticipated manufacturing scaling from 500 to 1,000 drones per month in Q1 of 2026 and our strong order visibility from both existing defense customers and new opportunities generated through our NATO catalog approval. Several key factors are driving our optimistic outlook for the remainder of 2025 and into 2026. Our limited rate production contract for Black Widow Systems provides a solid foundation of committed revenue, while our expanded production capacity position allows us to capture additional opportunities as they emerge. With the launch of Blue Ops opens an entirely new revenue stream and significant potential, giving our pricing expectations between $750,000 to $1.5 million per vessel and the growing demand for autonomous maritime solutions. Our strategic partnerships with Palantir and AeroVironment are beginning to generate collaborative opportunities that should contribute meaningfully to our revenue growth trajectory. Market conditions continue to be exceptionally favorable in our solutions. Defense spending on autonomous systems is accelerating globally, driving by evolving geopolitical driven by evolving geopolitical dynamics and the proven effectiveness of drone technology in modern conflicts. The emphasis on domestic manufacturing and supply chain security creates substantial competitive advantages for Red Cat, while our international expansion through NATO approval opens up significant new market opportunities. We're also seeing increased interest in our maritime capabilities as defense organizations recognize the strategic importance of Unmanned Surface Vessels. Our internal initiatives are positioned to drive sustained growth beyond the current quarter. In closing, we remain focused on disciplined execution, strategy expansion and delivering shareholder value. We are pleased with the progress we have made on each of our strategic initiatives and operational performance of the business. And with that, happy to answer your questions. So operator, Stephen, if you would please open up the line for Q&A. Operator: [Operator Instructions] First question comes from Austin Bohlig with Needham. Austin Bohlig: First one, we're just curious on an update regarding the full rate production order. It sounded like previously, you guys were hoping to secure that by the end of the year. Is that still kind of the expectation? And any idea on like sizing of that opportunity? Jeffrey Thompson: Austin, thanks for the question. Well, we hope that, that was going to be by the end of the year, but that was before the shutdown. We're still communicating with -- they're using OTAs from now on, as you probably heard Secretary Hegseth last Friday. We do not know the size yet, but considering that LRIP is closing in on a $40 million size. If you look at the President's budget, it's for 2250 systems for SRR, which they have at about $148 million now. Until budgets are approved, no one knows what that's going to be. But I think the size is going to be dramatically larger from the $40 million basically we got in 2025. Austin Bohlig: Okay. Great. And then just on the boat opportunity, shipping, it sounds like in Q2 of next year. What is the type of cadence for revenue opportunity do you think that could be next year for you guys? Jeffrey Thompson: Well, as I said in my comments, if we only sold 200 boats, that's $150 million, and that would be the least expensive 5-meter boat. We're starting with the 7-meter variant, which has lots of opportunities for missiles, torpedoes, black widows. It comes in many, many different configurations because it's the bigger size. And those will be probably in the midrange of that $750 million to $1.5 million. But we think there's a robust need for shipbuilding as there was also an executive order just like the Drone Dominance Executive Order. The U.S. is way further behind in shipbuilding and way further behind than Ukrainians are with their naval capabilities. So we believe it could be a pretty robust revenue stream for us in 2026. A little too early to start giving guidance on that. We did have a very successful outing in Portugal in September. And once the first hulls are ready to demo, we're probably booked the first 3 months of the year giving demos to almost everybody who wants to take our meeting because of our partner that we have in Europe has 3 years of proven -- battle-proven, not battle-tested, battle proven, which is a key differentiator in the Black Sea. So we expect to get all the meetings. It's going to be up to us to show them how good our brand-new hull is and our capabilities are. And we're actually probably going to add a lot more robust capabilities with additional cameras than they are in other countries right now. Operator: The next question comes from Mike Latimore with Northland Capital Markets. Mike Latimore: All right. I guess on the -- you mentioned the 6- to 7-week delay. Just maybe can you provide a little framework on how much revenue recognition was influenced by that, which products, which programs were affected? Jeffrey Thompson: Well, there's a lot of moving pieces to that, Mike. A, because they keep changing the contract from the Army. The good news is we're already delivering on it. We did a delivery today. As we mentioned, we're going to be doing more than 100% growth in Q4. Basically, the way I would look at it, Mike, is if you took -- instead of our production shipping starting in the beginning of July, if you just shifted everything 6 to 7 weeks to the right, nothing has changed with our demand from our customers to -- from the previous guidance. I would say the only thing that was significantly different from -- that held us up in demand was that we had to do some reconfiguring, which I mentioned this publicly about 2 months ago. The FlightWave Edge 130 is a great flying machine, but it's not a very robust tool to hand a soldier that's going to be pretty rough with it. So the $25 million that we were expecting to have from FlightWave this year, we decided to rip the Band-Aid off early and start that reconfigure a couple of months ago, as I mentioned on a previous call, to make that Edge 130 a more robust aircraft so that a soldier could handle it and would not be breaking it and so the decision was to just move straight to the Trichon instead of messing with the interim version. And that's where we are. That's the only -- and we expect the $25 million in 2025 from FlightWave, which we're not going to get because of that. Mike Latimore: Okay. Got it. And then it looks like inventory almost doubled sequentially. Is that largely finished goods, Black Widow? Like what's in there? Jeffrey Thompson: Yes. So I'll let Chris take that. Christian Ericson: Not finished goods, but raw materials inventory ramp-up, a lot of deposits in there as well. As we've started production now, of course, at the very beginning of any type of process like this, you do have a lot of long lead time lead items that have to build up. And so as we built that out to prepare for, especially the big ramp starting up in Q1 for these deliveries, we've built up that inventory. But that's all in raw materials and parts for those inventories as well as deposits. Mike Latimore: Did you say that was for Blue Ops or Black Widow or both? Christian Ericson: Black Widow. So a majority of that is Black Widow, smaller portion FlightWave. Blue Ops, we're going to start having that to ramp up this next quarter, but you won't see that yet. Mike Latimore: Got it. Okay. And then just thinking about Blue Ops in '26, what -- I think you're launching, again, the demos. Like what's the next -- maybe walk through a couple of steps here. The -- which programs are most visible? What do you think sort of sales cycles are, funding cycles are? When do you think you might get some commercial wins there? Jeffrey Thompson: Yes. Well, there's a lot of stuff that's going to be coming up in the 2026 budget for shipbuilding, USVs. It's all out there for the taking. We believe because of our platform is mature compared to competitors, it's 3 years old. It's been the most successful against the Russian Navy and that we have actually improved the hulls dramatically, have some of the best boat building capabilities, and we have the capability to scale rapidly with lots of volume coming out of Georgia. That factory used to do 850 Lake boats per year before we took it over in September. The USVs that we're making don't require bathrooms. They don't require upholstery. They don't require sound systems. They're much simpler boats to build. There is some great technology in them. There's a lot of sensors. There's a lot of comms. We actually just tested our tech stack this week on a traditional commercial boat. That's not one of our USVs coming out of the factory, and we're able to drive that boat from pretty much anywhere in the world through Starlink, and we've been demoing that in Florida. So our tech stack is getting mature. We're pretty stoked about that. But -- we'll be able to give you much stronger updates early in Q1. The demo in Portugal was very successful for us. The people know that there's a U.S. option of the most successful USV in the industry. So we'll be able to update you on where we'll be next year -- early next year. Operator: [Operator Instructions] The next question comes from Glenn Mattson with Ladenburg Thalmann. Glenn Mattson: Nice to see the revenue ramp. I imagine there's a lot of moving parts still, but the gross margin was up, obviously year-over-year, still sub-10%. Like what's your expectation, Chris, in Q4, given this higher revenue level? And can you just remind us where you think you'll be when you're at a higher scale, say, later next year or whatever that may be? Christian Ericson: Yes, absolutely. Yes, we do expect this margin of 7% to increase up continuing on to next quarter as well as building up into next year. So we're going to expect to see it probably right around 10% for Q4 and then breaking into Q1 through the end of next year, that will continuously increase, projecting towards 20% by the end of next year. This is part of full utilization of the overhead implementing into it and then starting to bring down the cost on the supply chain. It's for the first time of ramping up, things are a little bit more expensive. But as we accelerate that, we will be able to bring down the cost of that as well. And so that will extend on the low end, 20% by the end of next year, shooting for around 30% to 35% in the long run. Jeffrey Thompson: And Glenn, just to add to that, we have to look at each system as a separate entity when we're looking at how to get these gross margins up. So if you look at the Teal products we had in the past, the Teal 2 went from negative 10% to right around 8% to 10% in its first quarter to 20% then to plus 30% each quarter. So previous ramping experience was that it will go up nice and steadily quarter after quarter, specifically as the revenue grows, like we're seeing triple-digit growth next quarter, and we expect similar growth going forward. But each one -- each device is going to have a different margin. FlightWave's margins are actually slightly higher than the Black Widow. So once we get that switched to the Trichon, that will probably help our margins on an overall basis. But we look at them per unit. We have the Black Widow, we have the Trichon, we have the FANG and we have the USVs. They all have different margin capabilities in their maturity. Glenn Mattson: Great. When it comes to the Trichon, what programs are you targeting in terms of like the uptake for that UAV? Jeffrey Thompson: Yes. What's interesting is the demand is very strong for the -- even the Edge 130, but it's currently not to where we want it to be. We've done some incredible improvements to it in the last couple of months to make it more reliable and adding features, all the things that we're getting feedback on. If there's lots of different programs. Your MRR is still wide open. We could look at MRR with the Trichon. There's a lot of different things. Border patrols really like the Trichon, long-range capabilities with it. We could also turn it into a loitering munition. It's a very unique aircraft. Our sales team love it. We just need to make it more robust. And once it's more robust, there's a lot of things we can do with that platform. It flies the longest on the Blue UAS list. It's one of the fastest drones on the Blue UAS list. So if we can make it a more robust aircraft, it's going to sell very well. Glenn Mattson: Great. And then I'm just trying to think about like the first part of '26. I know you're not giving guidance, but like if your prior guidance at the low end was, say, $80 million and you're coming in now just ballpark, say, $40 million, although it's lower than that be $40, say, that's a $40 million delta, and you're saying basically $25 million of that is FlightWave. So the remaining $15 million or so is kick out into Q1. Is that fair? And then what else backfills into Q1 to rise sequentially, say, from Q4 in your mind, Jeff? Jeffrey Thompson: Well, obviously, just to bash the haters, the haters out there said that our LRIP contract was $12 million. It's $35 million. The plan for what you see in the President's budget is for $2250 next year, which is probably a small number after the Army announcing they need to deliver 1 million drones over the next year or 2. So all the numbers seem to be going up. LRIP went up. We believe all of 2026 is going to go up. So we're not going to get into guidance yet in 2026. We got burned severely by the government, massive postponements through half the year and then a government shutdown. So we're going to wait until we have our OTA contract, which is going to give us a very great barometer for 2026. And if you look at how SRR LRIP worked out, Skydio got 7, we got 35. The Black Widow is doing some incredible things in Europe right now. We expect the Black Widow to end up dominating this category of drone, the way it's performing in very contested environments, and we're just going to continue to improve the Black Widow and give the Army a product that we're proud of so that they can be safe and more lethal. So long answer to we're not going to give 2026 guidance with the way this government has been operated. As soon as we sign the OTA contract, which who knows when it's going to be signed, I'm not going to give dates on that. I'm starting to learn at least. But yes, we're not concerned with 2026 being significantly larger than 2025. Now just to back up here a little bit, all this revenue that we're talking about, almost all of it is from the Black Widow. So we're not getting contributions from the Blue Ops yet and from FlightWave. We expect them to significantly contribute next year, but we're not ready to give guidance yet. So we're hoping to be able to do that at the beginning of next year. Operator: This concludes our question-and-answer session. I would like to turn back the conference over to Jeff Thompson for any closing remarks. Jeffrey Thompson: Well, thanks, everybody, for joining. We're pretty excited about what's going on. We're excited about where we're going with the Army. We're excited where we'll go with all the other groups. We're going to continue to just keep building and delivering drones. Thanks again for everybody joining. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin; and CFO, Tom Siragusa. Some of the statements made today about future prospects, financial results, business strategies, industry's trends and Grove's ability to successfully respond to business risks may be considered forward-looking, including statements relating to the technology platform, migration resulting in an exceptional customer experience and stronger economics at scale, future advertising spend and circumstances that will result in this increase, the impact of the headcount reduction, future business plans, priorities for the remainder of 2025, future investment in Grove and guidance for 2025, including guidance relating to full year and fourth quarter 2025 revenue and adjusted EBITDA. Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those risks discussed in Grove's with the Securities and Exchange Commission. All of these statements are based on Grove's view today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. During today's call, Grove will also discuss certain non-GAAP financial measures, which adjust GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP items to the most directly comparable GAAP financial measures in Grove's earnings release, which is also available on Grove's Investor Relations website. I would now like to turn the call over to Jeff Yurcisin begin. Jeff Yurcisin: I want to begin with where we're headed. Grove's focus is on driving long-term shareholder value by building a stronger, more resilient business, one that delivers consistent profitability and sustainable growth. Our mission remains clear, to be the leading destination for clean, sustainable nontoxic products for every room in the home. I recognize that some investors remain cautious, questioning whether a D2C business can actually win in a marketplace dominated by Amazon and other digital giants. But I believe there's a $1 billion opportunity ahead for Grove in the long term. How? We must deliver a customer experience that is meaningfully differentiated, one that combines transparency, performance and sustainability, while achieving the unit economics to scale profitably. We also need to reach those customers efficiently at scale and deliver compelling paybacks. We continue to believe that the migration of our eCommerce platform was necessary to deliver on this vision. The migration has though been marked by a series of customer experience challenges. Issues we've worked quickly to resolve and even as new ones have emerged. During the third quarter, we faced new challenges related to the mobile app experience, subscriptions and payments, which collectively weighed on our results. Even with these pressures, revenue was roughly flat sequentially, down just 0.7% quarter-over-quarter and declined 9.4% year-over-year, our smallest decline since the quarter of 2021. But here is the important part. Our engineering and product teams are more energized and confident today than they've been at any point in the past year. We've identified the issues. We know the fixes and we're executing with urgency. There's still a lot of work to do over the next 1 to 2 quarters. But once the transformation is complete, Shopify will enable faster iteration, deeper personalization and access to best-in-class tools that will help us deliver an exceptional customer experience and stronger economics at scale. While this period of learning and troubleshooting has led to quarterly results below our expectations, it has also clarified the path forward. Our near-term focus is improving the mobile app and subscription experience. Two components of the user experience that directly drive engagement, retention and lifetime value. At the same time, our transformation continues to be guided by 4 key pillars: balance sheet strength; sustainable profitability; revenue growth; and environmental and human health. These pillars provide the framework for every decision we make, ensuring that even as we optimize the customer experience, we're building a stronger, more resilient business positioned for long-term success. We are protecting liquidity and profitability, the first 2 pillars of our transformation. We pulled back advertising in September, and that discipline will continue through the fourth quarter. We'll only step up investment once the technology is optimized and new cohorts meet clear hurdles on paybacks and projected lifetime value relative to customer acquisition costs. We also rightsized SG&A to reflect our current scale, completing a reduction in force in November that is expected to deliver roughly $5 million in annualized savings. While near-term cash benefits will be offset by severance and related costs, the action was a necessary step to align our cost structure with current revenue levels and improve operating leverage as growth returns. We're also leaning into AI, automation and technology to increase efficiency across the organization. This restructuring will pay dividends both in the near term through lower operating expenses and over the long term through a faster, more data-driven organization. We've continued to execute against our third pillar, revenue growth, even as we maintain discipline around profitability and liquidity. Last quarter, we expanded our third-party assortment meaningfully with a number of brands up 50% year-over-year and individual products, up 61%. This expansion is concentrated in high potential categories such as clean beauty, personal care, pantry, wellness and baby. With the baby category in particular, showing encouraging early growth as we broadened our offering. We believe Grove is the curated marketplace for clean, sustainable and nontoxic products across the essential categories where customers seek [ mission-aligned ] brands and high-quality alternatives they can trust. Curation is central to that vision. We don't aim to be everything to everyone. Rather, we focus on being the trusted source for the customer who values transparency, performance and environmental integrity. That said, our near-term focus is shifting from adding incremental new assortment to enhancing e-commerce discovery and the mobile experience, areas that directly improve customer engagement, conversion and retention. Our leadership in environmental and human health remains our fourth pillar and a defining part of Grove's identity. During the quarter, we advanced our leadership by becoming one of the first companies to measure and disclose our AI-related carbon footprint through an expanded partnership with Gravity Climate. We believe innovation and sustainability must advance hand in hand and that transparency is essential for meaningful industry progress. Alongside our focus on execution, we continue to evaluate strategic options. Our plan and our priority remain building a durable, profitable stand-alone company. In parallel, as stewards of shareholder value, we are assessing opportunities that could accelerate our path to scale, strengthen our competitive position or unlock additional value for investors. These may include additional acquisitions or partnerships, divestitures and other strategic options consistent with our mission and long-term vision. We are working with advisers to assess these opportunities. Any action we take will be guided by the same principles that shape how we operate the business every day, sustainable shareholder value creation, capital efficiency and customer focus. Today's consumer faces a fragmented marketplace with limited transparency. And our mission is to make that journey easier to set a higher standard for safety and sustainability, stand behind it and help families shop with confidence. We believe Grove sits at the intersection of 2 powerful tailwinds, the growing shift towards cleaner, healthier products and the increasing consumer demand for transparency and trust. Our contribution profit per box remains differentiated in the CPG space. Our NPS scores continue to reflect deep customer loyalty, and our team is aligned and energized the opportunity ahead. 2025 has been a year of meaningful transformation. The path forward is clear, optimize our technology and customer experience, protect liquidity and profitability while we do the work and then scale responsibly and profitably. That's the plan in front of us. We are committed to executing it with urgency, discipline and confidence. Before turning it over to Tom, I am pleased to share that the Board and I have formally appointed him as Grove's permanent CFO, effective at the beginning of October. Tom has been an exceptional partner and thought leader throughout this transformation, bringing financial discipline, operational rigor and a deep understanding of our strategy and culture. I'm grateful for his partnership and excited to continue this next phase together. Tom, over to you. Tom Siragusa: Thank you, Jeff, and welcome, everyone. Before I get into the numbers, I want to share how excited I am to formally step into the CFO role. Over the past several months, I've had a front row seat to the transformation underway at Grove. I'm encouraged by our path forward and the discipline with which we are executing it. My focus as CFO will be to keep us relentlessly disciplined on cash and support profitable growth into the future. Now turning to the financial results. Starting at the top line. Revenue for the third quarter was $43.7 million, down 0.7% sequentially and 9.4% year-over-year. This marks our smallest year-over-year decline since the fourth quarter of 2021. The decline versus last year primarily reflects the effects of reduced advertising investment in prior periods, which led to a smaller active customer base entering 2025 as well as the friction from our eCommerce migration that began earlier this year. Sequentially, fewer orders were partially offset by higher net revenue per order. Total orders for the quarter were 619,000, a decline of 12.5% year-over-year, while active customers ended the quarter at 660,000, down 7% versus the prior year. These declines are consistent with what we've discussed previously. Lower advertising investment in 2024 and prior years has resulted in fewer new customers and therefore, fewer repeat orders due to the recurring nature of our business, along with headwinds related to the e-Commerce migration. DTC net revenue per order was $66.76, nearly flat year-over-year, but increased 2.4% sequentially. The sequential improvement was driven by an increase in units per order and lower discounting activity. Our gross margin was 53.3%, and up 30 basis points compared to 53% in the third quarter last year. The improvement reflects more targeted and improved promotional strategies, resulting in lower discounts, partially offset by a more favorable product. Turning to advertising. We invested $3.2 million in the quarter, an 11.8% increase year-over-year. Spend was higher in the first half of the quarter, but we made the strategic decision to reduce spend in the back half as we shifted our strategy to preserve liquidity and drive profitability. We plan to scale spend more meaningfully once the core customer experience has been optimized. Product development expense was $1.6 million, down 66.1% year-over-year. This decline reflects our decision to streamline our technology organization as well as lower amortization costs following the e-Commerce platform migration. SG&A expense was $21.3 million, a 14% decrease versus the prior year. The reduction was driven by lower stock-based compensation, lower fulfillment costs from fewer orders and broader cost optimization across the organization. As Jeff mentioned earlier, we executed a head count reduction earlier this month that aligns our cost base with current scale, while preserving the talent and capabilities needed to complete the transformation. These actions are difficult, but necessary, and they reinforce our commitment to operating with financial discipline. Adjusted EBITDA was negative $1.2 million or a negative 2.7% margin, compared to breakeven in the third quarter of 2024. The year-over-year decline reflects lower revenue, partially offset by cost structure improvements. Net loss was negative $3 million compared to negative $1.3 million in the prior year. The variance primarily reflects the absence of a noncash derivative gain of $7.8 million recorded in Q3 2024, partially offset by lower interest and operating expenses. Turning to the balance sheet and liquidity. We ended the quarter with $12.3 million in cash, cash equivalents and restricted cash, down from $14 million at the end of the second quarter, primarily reflecting the quarterly net loss, net of noncash adjustments. Turning to our outlook. For the 12-month period ending December 31, 2025, we expect full year revenue to be $172.5 million to $175 million, at the lower end of our previously communicated guidance range of down approximately mid-single digit to low double-digit percentage points year-over-year. For the fourth quarter, we anticipate revenue to remain roughly flat sequentially. For full year adjusted EBITDA, we continue to expect results within our guidance range of negative low single-digit millions to breakeven. Importantly, we expect fourth quarter adjusted EBITDA to be positive, benefiting from our pullback in advertising spend and the structural SG&A reductions executed earlier in November. To summarize, we are tracking towards the low end of our revenue guidance range, and we no longer anticipate year-over-year growth in the fourth quarter. The revision to our outlook is consistent with the choices we made to prioritize fixing the core experience, protecting liquidity and ensuring that when growth returns, it is from a more durable foundation. In spite of lower revenue, we are maintaining adjusted EBITDA guidance as cost actions and disciplined operating execution flow through to the bottom line. In closing, our priorities for the remainder of the year are clear. Protect liquidity and maintain financial discipline as we optimize the customer experience. We are prioritizing cash flow and profitability over short-term revenue growth to maintain balance sheet stability through the transition. These actions are laying the foundation for a healthier, more efficient business as we enter 2026. With that, I'll turn the call back over to Jeff for closing remarks. Jeff Yurcisin: Thanks, Tom. As we close out the third quarter, I want to bring us back to what's most important. Grove is rebuilding for the long term. Over the past several quarters, we've done the hard work, migrating to a modern platform, reshaping our cost base and refocusing the organization on the customer experience. Our priorities for the next phase are clear. We're fixing the core experience while operating with tight financial discipline. We're protecting liquidity and profitability as we complete the transition, ensuring that investments we make meet our standards for payback and lifetime value. And as those improvements take hold, we expect to return to investing in measured growth built on a more efficient cost structure. We've learned a lot this year, and those lessons have sharpened our focus. 2025 has been a year of transformation. We know what needs to be done and we're executing with urgency and discipline to deliver durable, profitable growth. Our focus on disciplined execution and efficient growth is how we will rebuild long-term shareholder value and reestablish Grove as the category leader. With that, we're happy to answer any questions you have. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Susan Anderson from Canaccord Genuity. Alec Legg: Alec Legg on for Susan. I guess, can you start off by just talking about the puts and takes of what changed in reaching this year's sales expectations, kind of just bucketing how much was due to digital disruption, if you're seeing any changes in consumer spending with the macro environment? Or I mean, it might be hard to parcel out, but the pullback in advertising as well? Jeff Yurcisin: Of course. The revision to near-term outlook is a reflection of us prioritizing liquidity, protecting profitability and fixing the core experience. If I were building a bridge for why we came up short, we are not giving any -- we're not seeing any trend from a macro environment perspective. It really is driven by the intentional pullback in advertising. And then secondly, the impact of the customer experience, where we had these hiccups with payments in our mobile app. 100% of the bridge is from those 2 variables and not from the macro environment. Alec Legg: Understood. And then on the customer disruption, are you able to -- I guess, where are we with resolving it? Is it already resolved? Is it something that might be resolved this quarter? Just a time line on that? Jeff Yurcisin: Great call. I think the exact phrasing we use was intentionally 1 to 2 quarters of our focus. The reality is in these migration, new issues emerge. All this seems like almost every month. It almost feels like whack-a-mole for our product and engineering team. What I can say, and I know this is forward-looking, but like from -- our product and engineering team today is more excited about our road map and our path out than they've been at any other time in the last 12 months. So it depends on which of these issues, but we seem to be closing the gap every single week, and we are heads down fixing that core customer experience over the next 3-plus months. Alec Legg: And just on the core business of the customers, we've talked a lot about cohort curves in the past and seeing that stabilize. I guess how close are we to seeing that stabilize? Do you see that potentially even picking up in the next 1 to 4 quarters? Jeff Yurcisin: It's a good call. So I think from a cohort perspective, these cohorts are behaving as we expected, except for the issues we've had with the app and subscription in some of our payments where we've been able to isolate the issues. So I think that flattening of the cohort curve has played out as we expected. There were just some bumps down the cohort curve a little bit more in Q3. I think as we look forward, what we're rallying our company around is we're going to fix the core experience. And then as soon as the core experience meets our expectations, we expect to see paybacks really accelerate. And so while you're going to see revenue growth as if you're projecting a model out 4-plus quarters, like we're not here to just beat this microcap company. We are focused on profitable growth in the long term. We can't give an exact kind of date but like what our belief is as those cohorts are really flattening. And when we start seeing the paybacks, which will be a natural result of fixing the core experience, we'll be able to put more advertising dollars on top of it, which will drive future growth. Alec Legg: Understood. That's very helpful. And then just turning on to M&A. You mentioned potential acquisitions, even divestitures. On the topic of acquisitions, you added 2 brands earlier this year. If you're looking to still add brands, I guess, what type of categories are you looking at? The potential size of these potential brands? And then how do you potentially plan to fund these acquisitions? Would you use cash on hand, other types of financing. Jeff Yurcisin: Yes. It's the right question. So first, let me emphasize our focus. The team's focus remains on building this durable, profitable stand-alone company, okay, period. In parallel, we are talking to advisers to assess where these opportunities may make sense that could either accelerate our scale and our revenue or strengthen our overall competitive position. So again, there are a few different paths here. One is you look at acquiring subscale businesses that when attached to our platform, especially in this one-plus quarter outlook that we have when we fix the core kind of customer experience, it could be incredibly accretive. Your next follow-up question was how would you fund it? Like, look, I think we would either use cash or we look at raising. We would look at potentially raising some money to fund it, but like the core here is we would only do this if it really does make sense. And we are just seeing a bunch of opportunities that present themselves on a monthly basis in front of us. So we're assessing with discipline, the lens we have on paybacks. It doesn't just extend to how we use capital in advertising, but also in M&A. You've also asked if there were particular categories we would be interested in? I think we've spoken a lot in the last few quarters on the wellness and supplements category, very intrigued there, but we're also seeing great success within baby, which could also be a nice fit or within some of the beauty and personal care. So we are like seeing opportunities in each of those spaces. So look, I think I would just end with, investors should know we're are guided by a handful of principles, sustainable shareholder value creation, capital efficiency and what drives both of those things is delivering this extremely differentiated and superior customer experience. And that's what we're focused on. Alec Legg: That makes sense. And then I guess my last question it's somewhat related to -- you just mentioned the vitamins. So I saw that the VMS category, there's more net revenue per order. I guess, how far along are you with your SKU expansion plan this year? How much more opportunity and brands do you think you could add to the platform in fourth quarter and heading into 2026. Jeff Yurcisin: Great question. What is marvelous about Grove, is our brand matters not just to end consumers, but also to other brands. And almost every wellness brand that we call is interested in selling to us. And so -- because they know that we will deliver incremental customer group to them and 1 that is truly looking for the highest ingredient standards. So we are in talks with many brands, we've been launching some in the last few quarters, and there are some more significant ones in the next 100 days. But I will -- I should emphasize to investors, like selection has been a big part of our growth strategy. But right now, we are focused on shifting energy more towards fixing that core experience. It's almost like selection has outflanked our discovery and shopping experience. So that's where we're pivoting. Operator: And we have reached the end of the question-and-answer session. And I would like to turn the floor back to Jeff Yurcisin for closing remarks. Jeff Yurcisin: Great. Thank you. I want to thank everyone again for joining our call. I hope you have a great night. Thank you. Operator: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to Alpha Cognition's Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Henry Du, Interim CFO. Thank you. You may begin. Henry Du: Thank you, Vaughn. Good afternoon, everyone, and thank you for joining us today for Alpha Cognition's Third Quarter Financial Results Conference Call. Today, after the close of the market, the company issued a press release announcing these results. On the call with me today are Alpha Cognition Chief Executive Officer, Michael McFadden; and Chief Operating Officer, Lauren D’Angelo. Today's call is being made available via the Investors section of the company's website at www.alphacognition.com. During the course of this call, the management may make certain forward-looking statements regarding future events and the company's future performance. These forward-looking statements reflect Alpha Cognition's current perspective on existing trends and information. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of the company's latest SEC filings. Actual results may differ materially from those projected in these forward-looking statements. For the benefit of those of you who may be listening to the replay, this call is being held and recorded on November 13, 2025. Since then, the company may have made additional announcements related to the topics discussed. Please reference the company's most recent press releases and current filings with the SEC. Alpha Cognition declines any obligation to update these forward-looking statements, except as required by applicable securities laws. I'll now turn the call over to Michael. Michael McFadden: Thank you, Henry. Good afternoon, everyone, and thanks for taking the time to join us on today's call. This call marks our second quarter of earnings following the commercial launch of ZUNVEYL for the treatment of mild to moderate Alzheimer's disease. The third quarter of 2025 was characterized by sales growth of ZUNVEYL, continued engagement in the long-term care segment of the market, additional pricing action on ZUNVEYL, progress with our business development partner, CMS Pharma, and additional publications that highlight ZUNVEYL data and the Alzheimer's market opportunity. Post close of the quarter, the company raised additional capital that strengthened its balance sheet and will allow the company to invest in a significant growth opportunity that has emerged with symptom management of Alzheimer's disease. The capital will be used to accelerate growth and invest in sales, marketing and research for ZUNVEYL in treating behavioral symptoms that often emerge with Alzheimer's. During the quarter, the company made substantial progress on our commercial launch. The sales and marketing team has made contacts with over 1,850 prescribers in the long-term care market, and we saw prescriptions written in over 500 nursing homes. Launch to date, we've seen duplicative prescriptions written in 70% of these nursing homes, which is a strong indicator of product trial. We expect new and duplicative home numbers to rise significantly in the coming quarters. Regarding clinical performance, ZUNVEYL appears to be performing well with anecdotal reports of cognition improvement, behavioral reduction or amelioration and continued limited reports of adverse events. Reported GI adverse events continue to be in the low single digits, indicative of a well-tolerated medication. One of the company's focuses in 2025 has been to share medical information that provides rationale for ZUNVEYL treatment of Alzheimer's. This quarter, the medical team had 7 abstracts accepted for publication with 3 poster presentations made to LTC Pharmacy at ASCP. This is the Association of Consultant Pharmacists in October. Two poster presentations were made to psychiatrists and neuroscientists at the Neuroscience Education Institute last week, and 2 poster presentations will be made to Alzheimer's researchers as the clinical trials for Alzheimer's Disease, or CTAD in December. Our medical team continues to publish compelling data in the Alzheimer's segment regarding cognition and behavioral symptoms. Regarding research and development, the company will initiate 2 studies in long-term care setting, one in Q4 of 2025 and one in Q1 of 2026. The 2 studies, which we call CONVERGE and BEACON will assess ZUNVEYL cognitive benefits, tolerability, effects on sleep and behaviors and utilization parameters like polypharmacy. These studies will provide critical data for ZUNVEYL, and the patient population for our commercialization focus. We anticipate CONVERGE will complete in Q3 of 2026 and BEACON will complete in Q4 2026. Both of these studies are lower-cost studies, which are accounted for in our current spend guidance for this year and in 2026. The company will also initiate a prospective registry trial in Q1 of 2026 called RESOLVE. That will provide valuable data on ZUNVEYL efficacy in treating behaviors that occur with Alzheimer's disease. The trial will also assess ZUNVEYL tolerability and caregiver burden. These are important measures all providers consider when choosing a treatment. And we think the data will be instrumental for ZUNVEYL positioning with physicians and payers. More information will be communicated about the registry trial in Q1. From a business development perspective, our partner, CMS, filed in China for approval and the file was accepted for review. We anticipate the 18-month review process will apply to our application and the approval could occur at the end of 2026. We also continue to advance our sublingual formulation and anticipate formulation and tasting work to be completed in Q1 of 2026. The company plans to run a comparative PK study versus existing formulations, and we'll use this data as a basis for submission of an IND in Q3 of 2026. The company continues to manage our expenses judiciously while preparing to capitalize on emerging opportunities in the long-term care market. Chief among these is optimally positioning ZUNVEYL, which has clinically meaningful benefits across both cognitive and behavioral symptoms associated with Alzheimer's. Lauren will discuss our commercialization process momentarily, but first, Henry will speak to the financials for the company. Henry? Henry Du: Thank you, Michael. Good afternoon, everyone, and thanks for joining us today. As I review our third quarter 2025 results, please refer to today's press release and Form 10-Q. So let's start with the numbers. For the quarter, we generated total revenue of $2.8 million, driven by $2.3 million in net product sales from our lead commercial product, ZUNVEYL, and $507,000 in licensing revenue from our collaboration with CMS. These results show encouragingly early traction and lay a solid foundation for scalable growth in the quarters ahead. Total operating expenses were $8.2 million, including $633,000 of cost of goods sold and cost of revenues and $7.5 million in operating expenses compared to $2.5 million of OpEx in Q3 of last year. The increase mainly reflects higher SG&A costs as we ramped up our commercial launch activities for ZUNVEYL and expanded our operations to support growth. That resulted in an operating loss of $5.3 million versus $2.5 million in the same period of 2024. Turning to net income performance. We reported a net loss of $1.3 million or $0.08 basic loss per share and $0.30 diluted loss per share compared with a net loss of $1.9 million or $0.31 per share basic and diluted last year. The improvement reflects a $3.7 million noncash gain from changes in the fair value of derivative liabilities, along with $378,000 in interest income for the quarter. Now moving on to the balance sheet, where we remain well capitalized. As of September 30, we held $35.4 million in unrestricted cash and cash equivalents, which does not include approximately $38 million in net proceeds raised in October through our equity offering and overallotment exercise. Combined, these resources provide a strong balance sheet and an operational runway that extends well into 2027, giving us the flexibility to execute on our commercial and corporate priorities with confidence. Lastly, a brief update on guidance. Looking ahead, while we're not providing formal revenue guidance today, we expect continued sequential growth in ZUNVEYL sales as awareness and payer access expand through 2026. From an expense perspective, we now expect full year 2025 operating expenses to be in the range of $28 million to $30 million. That's a reduction from prior guidance, reflecting our ongoing focus on cost discipline, operational efficiency and prudent resource allocation. Areas of concentration were contract negotiations, reassessment of marketing spend and delaying the hiring of certain positions that we believe will be more cost effective to outsource in the near term. So overall, the third quarter was a period of continued momentum, highlighted by steady revenue growth from ZUNVEYL and a solid financial position. We're encouraged by our early market progress. And as we look forward to the remainder of the year, our team remains focused on disciplined execution, sustainable growth and creating long-term value for our shareholders. Thank you. I will now turn the call over to Lauren to discuss commercial progress. Lauren? Lauren D’Angelo: Thanks, Henry. The third quarter reflected continued strong momentum in the U.S. rollout of ZUNVEYL within the long-term care market. Following a successful launch earlier this year, Q3 results show sustained acceleration in demand and prescriber adoption, reinforcing ZUNVEYL's growing role in Alzheimer's disease management. We delivered another quarter of robust growth. Ex-factory purchases rose 44% versus Q2, increasing from 2,640 to 3,808 bottles. The company believes this does reflect increased levels of inventory from multiple wholesalers and may have some impact on Q4 purchases. Demand sales bottles dispensed grew even faster, up 102% from quarter 2. Importantly, we are seeing double-digit growth month-over-month since June. Growth was broad-based across all regions, reflecting deeper facility engagement and rising prescriber confidence. Fulfillment rates remain high and patient titration and persistence continue to meet expectations. Our commercial footprint continues to expand rapidly. We engaged 2,038 homes in Q3, bringing our total reach launch to date to 2,942 unique homes. Of these, 605 homes have ordered ZUNVEYL with 70% of those homes repeat ordering and 15% new orders in September. Additionally, we saw a 50-50 split between 5 milligrams and 10-milligram orders in Q3, which demonstrates the strong tolerability profile of our drug as patients are consistently able to reach the therapeutic dose, an outcome that has not been possible with current treatment options. Our field team directly engaged with 1,850 prescribers in Q3, bringing total launch-to-date engagements to 2,630. 576 prescribers wrote orders in Q3, a 55% increase from Q2 with 62% of them writing multiple orders, a strong signal of growing confidence in clinical fit. These metrics highlight deepening engagement and sustained momentum across our prescriber base. Market access continues to advance as planned. Following our national health plan agreement earlier this year, we focused on operationalizing coverage and expanding regional payer discussions. 2027 Medicare Part D submissions remain on track. For the planned contract previously announced, the company has seen 15% of business cover ZUNVEYL with no restriction. We have no additional visibility for this PBM regarding when other plans may make a formulary decision for ZUNVEYL. The company anticipates a second PBM payer contract to execute by the end of 2025, and anticipates that it will take 2 quarters to realize unrestricted coverage from that business. We also executed a strategic WACC adjustment to $820.15 per month, aligning pricing with ZUNVEYL differentiated value and CNS benchmarks. Payer feedback confirms the price remains competitive within long-term care formularies. Our field and operations teams remain fully deployed and highly effective with an average of 16 years of industry experience, including 10 years in long-term care, our reps are driving meaningful clinical education and adoption across this complex channel. We've maintained strong product availability and fulfillment rates. Operational learnings from payer interactions are streamlining prior authorization process, improving speed to therapy and patient access. We have expanded our reimbursement team to better support homes in processing prior authorizations, enabling closer alignment with customers and allowing us to anticipate and address challenges more quickly. The organization continues to execute with financial discipline, ensuring every pricing, promotional and resource decision supports long-term value creation. Our marketing remained focused on HCP education and brand reinforcement. Digital and in-person initiatives continue to emphasize ZUNVEYL's differentiated clinical profile, particularly its label consistent benefits across multiple behavioral domains measured by the neuropsychiatric inventory. Feedback on our refined clinical messaging and titration support toolkit has been highly positive, reinforcing prescriber confidence and proper initiation. As we enter Q4 and prepare for 2026, our priorities remain clear and consistent: expand ZUNVEYL's presence across additional long-term care homes, deepen relationships with high potential prescribers, optimize payer access and approval time lines and sustain disciplined execution across all functions. ZUNVEYL's accelerating adoption, durable demand growth and expanding payer access underscore our strong commercial foundation and exceptional team execution. We remain confident in our ability to drive continued growth and broaden access for patients and caregivers in the quarters ahead. With that, I'll turn it over to Michael. Michael McFadden: Thank you. In summary, the team is focused on execution, executing more calls with high-value HCP targets, managing the current restrictions with health plans and pulling through contracts with others. We're focused on increasing prescriptions by home and by prescriber to take advantage of the opportunity we see for ZUNVEYL in the long-term care segment. Our business development team has worked with our partner in Asia to file ZUNVEYL ahead of schedule and to deliver what we believe will be several 2026 approvals that will add additional revenues for the company. The company believes we have a disruptive opportunity with ZUNVEYL. Will focus in the next quarters on selling efforts and continued financial discipline. We'll now take questions. Operator? Operator: [Operator Instructions] Our first question comes from Ram Selvaraju from H.C. Wainwright. Unknown Analyst: This is Eduardo on for Ram. Thanks for all the color on the commercial development. I was -- it was tough to catch all the information. I was hoping to go back to what's the current status of contracting discussions? And how many GPOs have reached the agreement to cover ZUNVEYL? And you mentioned the second one. So I assume there's one, maybe the second one on the way by the end of the year. Just to add a little more color there. Lauren D’Angelo: Sure. No, absolutely. So we're highly, highly focused on all of the plans that matter in the long-term care setting. I think I've shared in past calls, there's 4 key Medicare plans, PBMs that we are hyper targeting. We have one of those under contract, as I mentioned in my last call, and we're now working the downstream accounts to ensure that they pick up coverage for ZUNVEYL. We expect -- we're in very close finalization with another contract, another one of those big PBMs. We expect to have that complete by the end of the quarter. And then as we look into Q1 and Q2, we're already focusing on those downstream accounts, having those regional payer calls to make sure they pull through the contract and cover ZUNVEYL. So when we look across these 4 plans, they're an equal split. I mean you can assume each plan covers about 25% of lives for long-term care. So we feel really good about where we're at right now, so close to just launching. We've got one. Now we have to pull that through. We hope to have another by the end of this quarter, and then we'll pull that through, obviously, in Q1 and Q2 of next year. And then, of course, we're still staying in tight negotiations with the other 2. Yes, that would be helpful. Unknown Analyst: Yes, that was really helpful. And you mentioned 15% coverage, 15 without restriction right now? Lauren D’Angelo: Yes. So what we have visibility to, so when you think about the plan that we signed last quarter, what happens is it takes 6 to 9 months for the downstream plans to adopt the contract. What we know is about 15% of those have adopted their processing claims for ZUNVEYL without any restriction. We don't have visibility into the other plans yet, and we'll start to see more of that over the next couple of quarters. Unknown Analyst: Got it. And then to get a little bit details on the -- you mentioned the number of unique prescribers for ZUNVEYL and the change there and how many of them, the breakdown between repeat and new prescribers? Lauren D’Angelo: Sure. So total launch to date -- well, actually, in Q3, we had 576 prescribers. And of those, 62% wrote multiple orders. If you look launch to date, when we look at the homes because the orders are coming out of the homes, we see 605 homes have ordered ZUNVEYL, 70% of those homes have repeat orders. But then 15% more are new homes that are prescribing in September at the final month of the quarter. So we're seeing a lot of repeat ordering. We're hearing about a lot of repeat ordering. But basically, the general consensus feedback from physicians is once they try -- they start off slow, they try the product. You got to give it a little bit of time. This is a frail elderly population. Once they start seeing results in 1 or 2 patients, they start writing quite a bit more. So it's kind of getting through that initial prescribing, trying the product, then they'll try a few more, and then it kind of starts to compound. So we're seeing quite a bit of repeat orders. I think importantly, Ram, what I mentioned when I was going over my section, not only are they writing quite a bit, but they're writing month-over-month, we're seeing double-digit growth. And they're getting to the 10-milligram dose. That's so key because if you look at the last 3 decades of these products, most of these patients are on a subtherapeutic dose. So they're able to titrate the patient. We've got half of our prescriptions on the 10-milligram dose. That's something we haven't seen in this market. And it's because the drug is working as it's intended. Unknown Analyst: Great. And if I could have one more on -- for the -- when do you expect to start -- this related to benzgalantamine royalty revenue from China? Michael McFadden: Yes, -- probably not until '27 from Mainland China, but we should have some smaller Asian countries obtain approval in 2026. And from those countries, we would be launching immediately upon approval. So the company would realize revenue in the quarter launch from each of those countries. Operator: Our next question comes from Boris Peaker with Titan Partners. Boris Peaker: Great. First, I just want to say congratulations on the excellent sales growth here. Maybe kind of speaking of that, could you comment on what are the key marketing messages that are maybe resonating with prescribers? And what is the most common pushback that you get? Lauren D’Angelo: It's a great question. So I will say that depending upon the stakeholder type, we have several different customers within the home that we're calling on. Certain key messages really resonate with that specific customer. But I would say, overall, we are hearing a lot of positive impact on ZUNVEYL's impact on behaviors. So as we've shared in quarters past, we have adjusted our messaging. We heard early on that prescribers were seeing a significant impact on patients who are having behaviors that are also obviously mild to moderate Alzheimer's patients. So we started really messaging that. We have label consistent data on ZUNVEYL that shows a significant benefit in behaviors. That's probably one of the most impactful messages that we're delivering. But also, I think many providers are very interested in the no impact on sleep. That's a significant key message for us. We knew that going into the launch because if you look at Donepezil, which, of course, is the market leader, it's highly associated with insomnia, sleep disorders, nightmares. And so that one is very much resonating because we're seeing a lot of our business coming from switches -- and a lot of that has to do with the no insomnia. So I would say those are our top 2 messages. But overall, I think the package of benefits that ZUNVEYL brings to the table is really valuable to all of these customers with this specific patient population. Boris Peaker: Great. And in terms of pushback? Lauren D’Angelo: Yes. No. So the pushback as it relates -- I wouldn't say we're getting any pushback from ZUNVEYL messaging per se. I think, obviously, one of our -- our main pushback is working through the payer obstacles, helping the prescriber and the homes process the prior authorizations when they are required. So from a messaging, drug working experience for ZUNVEYL, that is doing far better than we expected. I think our biggest pushback is how can we help support them in the prior authorization process so that the drug can get approved. And that's why we've really put an emphasis on growing our reimbursement support team. We've learned a ton in a very short amount of time how to ensure we can provide that support, and that's really where we're focused. So we've increased that team. We are aligning with providers. We are providing support so that they know how to complete the prior authorizations appropriately so that the drug gets approved. What I can say on that is if the [PA] is filled out appropriately, very, very high percentage of approvals. So that's really where our team is focused right now. Boris Peaker: Got it. And my last question, maybe on the WACC adjustment you were talking about. Can you please explain exactly maybe I missed the details of that and kind of what the impact is on the gross to net from that and kind of your revenue per patient? Lauren D’Angelo: Sure. So we took a price increase because what we were seeing is that when you look across the long-term care market, you look at CNS products, we really -- and payers reinforce that the product has got the value that we could take that price increase. So we've had no pushback with the price increase. As it relates to gross to net, we are still keeping our percentages very high. As we shared, we've got one contract. We've only seen about 15% offer with no restrictions. So we're still -- we still have very, very high GTN at this point. Michael, I don't know if you want to comment on that. Michael McFadden: Yes, I'll add. I assume a plus 9% short term on 9% on the impact of that price and at steady state, we still anticipate we'll have a $500 to $550 net price on ZUNVEYL. Henry Du: Yes. And I think in terms of percentages, GTN should be in the mid- to upper 20% discount just from a percentage standpoint. Operator: Our next question comes from David Storms with Stonegate. David Storms: I was hoping we could go back. You mentioned earlier that you're getting about 50% to the 10-milligram dosage. Could you spend a bit more time talking to maybe the difference in demand among the dosages and how that changes as prescribers get more comfortable with the product? Lauren D’Angelo: Sure. So when we launched the product, obviously, a significant amount were right off the [indiscernible] of 25 because you have to get them through the 4- to 8-week titration period, especially in this frail population. Most providers, they start low and go slow is kind of the motto within the nursing home. So we actually expected the ratio to shift more to the 50 milligram over time. We thought we would see more of that shift happening in Q4 and Q1 of next year. We figured it would take a lot longer to get providers comfortable to titrate them to the 10 milligrams because of the population. And for decades, they haven't been able to push the dose and the treatment options that were available. So we were pleased to see what's happening is because we've seen such a low AEs as providers have tried the product, they are definitely getting more comfortable titrating quickly, which is why we're seeing a 50-50 ratio in Q3, which is happening much faster than we expected. I don't know if that answers your question in terms of what we expected and prescriber confidence. But I think what we're seeing is physicians are trying it, obviously, at the starting dose. And once they get a few patients titrated to 10, they're definitely getting more comfortable -- you know what I mean, titrating other patients that they start a little bit quicker. So maybe not waiting 8 weeks, they're waiting 4 weeks. And so that's -- we're definitely seeing a faster acceleration to the 10s. It just speaks to the product's tolerability. Boris Peaker: Understood. And that's exactly what I was looking for that. And then just one more for me. Maybe how does the sales cycle look? You've been in the market for a couple of quarters now. Is the sales cycle shortening? Is maybe the prescriber interaction to order ratio, number of interactions declining to orders? Maybe any anecdotes of prescribers that have already been made aware of ZUNVEYL before the initial call, anything like that? Lauren D’Angelo: Sure. So right now, what we're seeing is we're definitely -- the way that it works with the launch, especially in long-term care is all providers are going to start flow. Even a provider that might have been a part of the studies, they will start with a couple of patients, see how it works and then they're going to obviously titrate, see how it works and then they're going to start expanding the patients that could potentially be a candidate for ZUNVEYL. We've seen that. Now what we are seeing is physicians who are starting to write a lot more, they accelerate quicker. So it's pretty much a slow start for everybody just given the vulnerable patient population and the fact they've been let down for decades in this class of drugs. And so once they get started, you start to see them increase their patient base more rapidly. So our focus right now from a sales perspective, because our homes are -- as I shared kind of during the call, many of them are repeat ordering. So 70% of our homes have repeat orders. That's a really high target or a really high metric for a launch brand in just 2 quarters. So we absolutely are seeing that for those providers who have tried it, they've given at time, there is a quicker sale call, obviously, for them to try it again and use it in more patients. But typically, that HCP naive patient who hasn't tried it, you're looking at -- it's a couple of months before you can get them to try it. And then obviously, they're going to wait. They're going to titrate. And so it's kind of that -- it takes a little bit before they're comfortable. Operator: Ladies and gentlemen, this now concludes our question-and-answer session and does conclude today's teleconference as well. We thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Geox First 9 Months 2025 Financial Results Conference Call. [Operator Instructions] Let me introduce you to today's call speakers, the Geox Group CEO, Mr. Francesco Giovanni; and the CFO, Mr. Andrea Maldi. Geox would like to remind that any forward-looking statements disclosed during this call involve risks, uncertainties and other factors that may cause actual results to differ significantly from what is expressed or implied. Many of these factors are behind the group's control. At this time, I would like to turn the conference over to Mr. Francesco Giovanni, CEO of Geox. Please go ahead, sir. Francesco Di Giovanni: Good evening. Thank you very much. Good evening, and thank you all for joining us. Let me summarize in a few statements what has happened over the last 9 months. We report a 3.8% decline in sales compared to the same period of last year on a like-for-like basis, as market conditions and overall consumer dynamics continue to affect sector demand, which remains in significant contraction. However, I believe it is important to notice that despite such market dynamics, our direct retail channel delivered sales substantially in line with the previous year, in line with our most recently adopted strategy, but also taking into account such challenging market conditions. We focused with strong determination on cost rationalization and efficiency measures, which enabled us to achieve a higher adjusted EBIT than the first 9 months of 2024, the previous year. For the full year 2025, thanks to the aforementioned cost containment measures, we forecast an adjusted EBIT margin in line with the previous -- with previous plan expectations and the bank debt in the range of EUR 100 million, EUR 110 million despite the aforementioned high single-digit weakness in sales. The challenging market we live in is further confirmed by the wholesale channel sales campaign for the Spring/Summer 2026 collection, which has been concluded in September, which has recorded a slight decrease in volumes compared to the Spring/Summer 2025 season. Overall, we can say that the company is fostering a change process, as we indicated in the past. A lot of things are happening in the company. We will strive to move on with our turnaround measures. And I'm happy to turn the floor now to Andrea Maldi to talk about the 9 months that has gone by. Thank you very much. Andrea Maldi: Thank you, Francesco, for your introduction, and good evening, everybody. I will try to give you highlights of the 9 months 2025 sales. And just as overall assumption, we can say that the wholesale business remained under pressure, mainly reflecting the softer sell-in for the 2025 Spring/Summer and Fall/Winter '25 campaign across all the geographies. If we talk about retail, we can see a minor decline, which is mainly driven by a perimeter reduction. And instead, if we look at the web, e-commerce in general, we can register a weak performance in the wholesale and marketplace platforms, which has been only partially offset by the very good performance of our own web DOS distribution. Having said that, if you look at the numbers, we set -- we reached the target of net sales to EUR 492 million, which is a 6.2% decrease compared to last year. But if we compare on a like-for-like basis in terms of perimeter, the decline is much lower and is set at 3.8%. The EBITDA adjusted margin is higher than the 9 months 2024. And the bank net debt, as mentioned by Francesco, is in the range of EUR 106 million compared to EUR 103 million of the period December 2024 and EUR 138.4 million as of September '24, if we look at just 9 months. If we try to have a look again more in detail into the sales by channel, we say that we started from a last year of 9 months '24 at EUR 525 million. We are impacted by a perimeter reduction. As you remember, we closed last year 2 important markets, China and U.S. for a total value of EUR 13.4 million. And having restated the perimeter, we can say that the wholesale is declining by EUR 9 million compared to the same period of last year. And this decline is mainly driven by the softer sell-in, as we said, of the Spring/Summer and Fall/Winter 2025 campaign. And the negative performance has been mainly driven, we will see later in France, Iberia region and Russia. At the same time, we have a retail, which is almost flat, as we said. Like-for-like as just said at minus 0.6%, we can say flat, while we have been impacted by a perimeter effect by the reduction of our distribution of EUR 1.3 million. If we look at, again, e-commerce to different speed of pace. Clearly, the -- our own DOS website is performing strongly, is positive and it is growing with a significant -- an important percentage of growth, sorry, 3.7% plus compared clearly to wholesale web distribution, which has been instead negative in the 9 months and by marketplace performance, which is strongly negative, but also is determined by our own decision of winding down some of the platforms that we were not performing in terms of profitability, despite this a conscious decision to exit business, which is lowering our overall profitability. If we try to have a look at the sales by region, -- we can see that Italy is almost flat, EUR 144 million compared to EUR 143 million. Europe, the overall performance moves from EUR 239 million to EUR 235 million with an overall performance, which is slightly negative as the positive results, which is coming from the retail channel has been more than offset by a weaker performance into the wholesale distribution. This is mainly happening in France and Iberia region, as we mentioned. France, overall instead continues to deliver resilient and positive performance in retail, reflecting the solid market leadership while it is underperforming in the other channel . if we look at the rest of the world, clearly worth to mention, worth to notice that the performance needs to be is mainly impacted by the perimeter effect of the closing or the winding down of 2 main -- 2 markets of China and U.S. And at the same time, we have an important decline of the business in Russia in the range of the EUR 16 million within the 9 months. Quick highlight on the sales by product, mainly dividing the world into footwear and apparel. The percentage remain -- in terms of percentage remain unchanged compared to last year, being the footwear business still representing 91% of our own -- of the total business and the apparel is in the region of 9% to 10%. I would like to give you a highlight of the overall structure of the distribution of our brick-and-mortar retail network. As we can see from the chart, we see that we have an important perimeter reduction. We moved from the 616 number of doors in 2024 -- at the end of 2024 to 569 at the end of the 9 months 2025. The reduction, if we look at the structure, is mainly driven by the reduction into what we call franchisee in deal. So the -- our own partners that are working within our own perimeter. We decreased that number from 141 to 111, so a decline of 30 stores in the 9 months, while the structure of the -- our own shops remain substantially unchanged with a slight negative of 4, which is clearly the average between the new openings and the shutting down of the shops, which were not performing. Just again, a quick highlight on the net debt as of September 2025. We mentioned EUR 119 million as overall value of the net debt and the net financial position, which is clearly including a negative fair value of the hedging instrument, which is in the range of EUR 14 million -- sorry, of EUR 12.5 million. Therefore, we confirm that the bank net debt as of September 2024 is EUR 106 billion, which is in line with our forecast, with our expectation for the year and is setting up positively for us the trends to be in line with our expectation at year-end as well as committed to the original budget. I think that in terms of outlook, -- based on the performance that we have recorded in the first -- in the 9 months of 2025, our company forecast is that the 2025 sales for the full year are expected to decline a little bit more than what we have seen in the previous market presentation, moving into the high single-digit area compared to what we have represented in the fiscal year 2024. On the other side, we continue to work to perform and protect on the adjusted EBIT margin, which is -- which we estimate to remain unchanged compared to the target that we set for 2025, thanks to the strong ongoing initiatives into the rationalization and cost saving initiatives. And the net debt -- the bank net debt is expected to be in the year-end in the range of EUR 100 million to EUR 110 million, which is again in line with what we have forecasted at the beginning of the 2025 in January. So thanks for the attention. I think that we are now opening the session of the Q&A, if any. Operator: [Operator Instructions] The first question is from Oriana Cardani of Intesa Sanpaolo. Oriana Cardani: Thank you for taking my 3 questions. The first one is on the Q3 sales performance by category. Is there any difference between men's, women's, children's between the premium and value segments? Or is the weakness of the quarter general across all categories? The second question is on the measures implemented to accelerate savings. Regarding the agreement reached with the trade unions, can you tell us the expected structural savings from these measures starting in 2026? And besides personnel costs, have you found other areas for intervention such as in supply chain or logistic cost? And finally, do you plan to present an update of the business plan next year? Andrea Maldi: Okay. thanks for your question. I tried to give a fair answer to all your point. The first one is on your business mix in terms of decline. Overall, we have seen that we are struggling mostly on women categories, mainly on the [ sandals ], which is resulting in 8.5% decline compared to last year. And overall, if we look at the third quarter 2025, we have a women performance, which is still quite weak in the range of minus 15.4%. Francesco Di Giovanni: This is primarily -- excuse me, Francesco Di Giovanni. This is primarily driven by a very dramatic September result, which in October saw a rebound, not significant rebound in inventory part. Andrea Maldi: Coming to the second point, which is related to the overall restructuring costs on the personnel side, there is clearly some sensitivities. So what I can say so far is that we are working in order to incorporate in our year-end results, the cost of the restructuring or at least, let's say, 70% of the cost of the overall restructuring. We are working on the detail to perform on the number. And the expected saving in 2026 is at least in line with the value of investment that we are going to make in 2024 -- in 2025 to prepare the first side of the restructuring. What I can also say in terms of the overall impact of the -- this project is that the run rate of the savings expected is paying back 1 year completely the investment that we are going to do in -- overall for our restructuring project. I think that we will have much more details clearly at year-end once we will have satisfied all the compliance activity that are currently under way of being performed in terms of determination exactly of the amount that we want to invest, how much of this amount will be cash driven, cash paid in 2025, how much will be just accounted into the P&L. We are working on this detail. But overall, the overall project is really profitable because the payoff in a run rate basis is in less than 1 year. Francesco Di Giovanni: Well, in addition to that, we can say, this is Francesco to join again, we can say that the restructuring plan is moving along quite quickly. We have had thus far approximately 60 people accepting the offer that was made to leave the company out of 120. In addition, we are moving faster than expected on the international network. And thus far, we have approximately half of the international network [indiscernible] Andrea Maldi: Thank you, Giovanni, Francesco. The third question is, I think -- the third question is, I think that if I recall properly, is on the overall approach on the other -- on the base cost on what we normally define as indirect cost. As you know, we have identified an important indirect cost base spending that we are taking. There has been already a significant portion of activity of acceleration and work on this target on the financial target in 2025, which is going to pay off because -- to pay back quite quickly because we are expecting to be on track with the year-end net results. The saving is quite important in the range of the 70% of the overall in direct base cost. And this process will continue in 2026 as well, not only clearly on the personnel and staff cost, as you just mentioned, as a part of the overall restructuring project, but also on the indirect cost as well. Just to highlight again that if you take our announcement to date of the overall results, we have been able to achieve an overall EUR 20 million reduction of cost in the first 9 months of 2025 compared to last year. This is including already overall EUR 5 million of personnel cost saving in the first 9 months. Francesco Di Giovanni: Well, as far as the last question was about the business plan. Andrea Maldi: The last question is about the business plan. I think that we have expectation is that we are working on it and that we -- probably in the beginning of spring, let's say, placing the date in spring next year, we will produce an amended or an adjusted business plan, a revised and updated business plan. Clearly, we will need to catch on the sales and the new cost structure to represent the evolution from 2027 and going forward for the next 3 years of the plan. At the same time, we are working deeply in those weeks in the budget for 2026, and we are trying to commit to remain in terms of cash flow unchanged compared to the expectation of our business plan that we have declared to the market back in March 2024 either. Operator: [Operator Instructions] Management, there are no more questions registered at this time. Francesco Di Giovanni: Okay. Well, thank you very much, everybody. Andrea Maldi: Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.
Operator: Greetings, and welcome to the HeartBeam Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates and other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risk and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we're not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10-K and Form 10-Q for a more complete discussion of these factors and other risk, particularly under the heading Risk Factors. A press release detailing these results crossed the wire this afternoon and is available in the Investor Relations section of our company's website, heartbeam.com. Your host today, Rob Eno, Chief Executive Officer; and Tim Cruickshank, Chief Financial Officer will present results of operations for the third quarter ended September 30, 2025. And at this time, I would like to turn the call over to HeartBeam's Chief Executive Officer, Mr. Rob Eno. Please go ahead. Robert Eno: Thank you, operator. The topics we'll cover in today's call are listed on the slide. We'll start with an overview of the HeartBeam system and the product vision. We'll touch on our recently achieved and upcoming milestones and highlight the upcoming commercial launch strategy, followed by financial results, and we'll end with a Q&A. Before we dive into updates since our last call in August, I wanted to remind everyone about our vision and our initial product, the HeartBeam System. HeartBeam is dedicated to developing groundbreaking ECG technology for patients to use at home to allow them to feel confident about their heart health. HeartBeam is developing the first ever portable cable-free ECG that can synthesize a 12-Lead ECG. A unique IP-protected approach captures the heart's electrical signals in 3 dimensions or non-coplanar directions and synthesizes the signals into a 12-Lead ECG. The system is designed to be easy to carry and easy for patients to use at the time of symptom onset anywhere, anytime. The technology is supported by an on-demand cardiologist who can interpret the clinical-grade ECG and triage patients appropriately to ensure timely care. As a reminder, in December 2024, we received our foundational FDA 510(k) clearance. This was for the system as a whole for arrhythmia assessment, the credit card signal collection device, the patient application, a physician portal and signal quality algorithms. This major milestone validated our unique approach. In January, we submitted our second FDA 510(k) application. This is for the software that synthesizes a 12-Lead ECG from our 3D signals for arrhythmia assessment. We're engaging in the final steps with the FDA related to our 510(k) submission and continue to anticipate clearance by the end of the year. This clearance will be a major inflection point for HeartBeam as these 2 clearances together will form the product with which we'll start our initial commercialization. We believe that the HeartBeam system can be part of one of the most important trends in medicine today, the movement of clinical-grade devices from the hospital and clinic to becoming a part of daily life at home. Connected clinical-grade technologies are changing the healthcare landscape by expanding access, reducing healthcare costs and enabling personalized medicine. From continuous glucose monitors to home blood pressure cuffs, these technologies empower patients and provide physicians with insights that lead to identifying conditions earlier and monitoring trends over time. Heart disease is the leading cause of death worldwide and most cardiac events, whether arrhythmias or ischemia happen outside of the medical setting. Diagnosing these events is crucial and ECGs are the most common cardiac test, yet most at-home options have been limited to downgraded versions unable to provide a clinical-grade 12-Lead output. HeartBeam's credit card size system will change that by delivering a synthesized 12-Lead ECG into the patient's hands, starting with the arrhythmia assessment application. The ability to get clinical-grade insights when they need it, wherever they are, will enable patients to get more timely care. When a patient has symptoms and uses the HeartBeam system, they first open the smartphone application, which guides the patient through the process of taking a recording. Once the recording is complete, it's sent to the HeartBeam Cloud where it's processed and immediately sent to a cardiologist for review. Last month, we announced an agreement with HeartNexus, a group of U.S.-based board-certified cardiologists with coverage across the United States. When a patient has arrhythmia symptoms and takes a recording with the HeartBeam system, a HeartNexus cardiologist will send an ECG interpretation back to the patient. This agreement is a key part of the product and one of the final pieces needed for our commercial launch, which is anticipated to be early next year after our FDA clearance for the 12-week synthesis software for arrhythmia assessment, which we anticipate receiving before the end of the year. Next, I'd like to remind you about the larger ecosystem we're building around the HeartBeam system. This ecosystem dramatically increases the overall value of the system and will drive deeper adoption. As I mentioned, at the core of the ecosystem is the HeartBeam system itself, the first and only credit card-sized cable-free device that synthesizes a 12-Lead ECG. This is complemented by an on-demand U.S.-based board-certified cardiologist available to review ECG readings 24/7. Our market research confirms that this concept resonates strongly with both physicians and patients who have indicated a willingness to pay a premium for this functionality. Building around this foundation, we're creating an ecosystem to maximize the benefits of our technology and encourage stronger engagement among patients. Key components of our ecosystem include automated arrhythmia assessments for use during routine recordings, integration with wearables that trigger patients to take readings when their wearable produces inconclusive results or if worrisome underlying parameters are detected. Community features with tailored educational content and AI wellness features such as ECG-based cardiac age insights. We'll also be able to provide long-term trending of the HeartBeam synthesized 12-Lead ECGs, allowing the patient's physician to get longitudinal insights, including the trending of specific ECG parameters over time. Creating this ecosystem will add unique insights and actionable data for both patients and physicians that are unavailable elsewhere and add to the premium offering of HeartBeam. The team has done an exceptional job of achieving the milestones we said we're going to achieve over the past year. The highlights are listed here. Last December, we received our foundational FDA clearance for the HeartBeam system for arrhythmia assessment. In January, we submitted our second FDA 510(k) application for the 12-Lead ECG synthesis software for arrhythmia assessment. We successfully met the clinical endpoints in the VALID-ECG pivotal study, which is the basis for this 12-Lead synthesis submission. The study demonstrated a 93.4% overall diagnostic agreement between the HeartBeam synthesized 12-Lead ECG and a standard 12-Lead ECG in the assessment of arrhythmia. These results were presented at the Heart Rhythm Society meeting in April. We also started our early access program, or beta testing, which has provided us with valuable feedback, allowing us to enhance the onboarding, training and overall user experience. And finally, as I mentioned, we signed the agreement with HeartNexus to service the cardiology reader service. We have a number of important milestones in the coming weeks and months. We continue to anticipate the FDA 510(k) clearance for the 12-Lead ECG synthesis software for arrhythmia assessment this quarter. In 2026, we expect to start enrollment on additional clinical trials on the clinical and cost-effectiveness benefits of HeartBeam. The focus of our clinical studies to date has been a comparison with standard 12-Lead ECGs. These planned post-market studies will be important for adoption and ultimately for payment and reimbursement. We're also preparing for commercialization. We anticipate hiring the Chief Commercial Officer and other key members on the commercial team upon FDA clearance. We also anticipate initial commercial agreements with concierge and preventive cardiology practices. While our focus remains squarely on working with the FDA toward the 12-Lead ECG synthesis clearance and preparing for commercial launch, we achieved several milestones that help us toward our longer-term goals. Important data were presented at 2 recent scientific meetings. First, at the HRX Live meeting in September, an abstract was presented on the capabilities of the HeartBeam AI algorithm in classifying arrhythmias. And earlier this week at the American Heart Association Scientific Sessions, data were presented on the promise of the HeartBeam 3D3-lead technology for the detection of coronary occlusions. These studies add to the growing body of clinical evidence. They demonstrate the progress and promise of our AI efforts, as well as the potential to apply the HeartBeam technology to heart attack detection. IP continues to be at the core of the company's efforts. With 3 newly issued patents, we now have 24 issued patents worldwide. In addition, HeartBeam was recognized as a global IP and technology leader in portable cardiac diagnostics and a report from the IP firm PatentVest, with Heartbeam ranking #2 worldwide in the 12-Lead ECG innovation out of 243 companies analyzed. As we prepare for our initial launch, we've established clear strategic pillars. First, we're creating a new product category, and the overarching focus of our efforts will be establishing the HeartBeam system as the first personal cable-free synthesized 12-Lead ECG. We believe that the HeartBeam system is clearly differentiated from other offerings by combining an easy-to-use device that can produce a 12-Lead ECG with an on-demand cardiologist who can provide ECG assessment. Second, we're preparing a controlled market entry. We anticipate starting with a small number of prominent concierge and preventive cardiology practices, both independent practices and those associated with major healthcare systems. These practices will provide an opportunity to get early real-world feedback and will serve as reference accounts. Beyond that, our strategy is to focus initially on 2 U.S. geographic regions to prove the business model, followed by expansion of this model into additional regions. We plan to establish a small direct sales and marketing organization in the U.S. with sales reps and implementation specialists focused on a geographic region. We're exploring multiple options that will allow efficient expansion, including distribution partners and chains of concierge practices. A final key element of the strategy is demonstrating the value of the HeartBeam system to patients and practices, driving retention of our users over time. We'll focus on the patient experience and provider engagement to drive recurring use of the system as part of our strategy of developing a subscription model. And now I'll turn it over to Tim to discuss our financial. Timothy Cruickshank: Great. Thank you, Rob. I'll quickly go through some of the key financial data for the quarter ended September 30, 2025. We continue to be focused on our cash management as we maintain strong financial discipline aligned to achieving milestones. When we look at the quarter, net loss for the period was $5.3 million or $0.15 per basic and diluted share, consistent with the prior quarter and also in line with our expectations and analyst consensus. Of that net loss, I'll note a significant portion was related to noncash expenses such as stock-based compensation. So the result in net cash used in operating activities was under $3.2 million. That's an 8% decrease quarter-over-quarter, and it builds on the 23% decrease we had from the prior quarter. So we're pleased with our ability to balance competing priorities we have over the recent quarters by both maintaining a capital-efficient organization and also judiciously timing the key investments we need into the commercial readiness activities. So you're seeing evidence of this as we continue to reduce our cash outflow. And we'll continue to take this approach as we derisk the business and while we're building the proof points we need prior to accelerating investments into commercial traction and scale. Cash and cash equivalents at September 30 were $1.9 million. Obviously, with a tight balance sheet, we're monitoring things closely, but we're confident in our approach of strategically funding the company consistent with how we've outlined it in the past. We've got optionality in place both in the vehicles and the sources of funding, and we have confidence in our ability to achieve near-term milestones, including the FDA clearance, which we believe will be a major inflection point for the company. We remain committed to minimizing dilution for our shareholders so that they're rewarded for their time and commitment to our company and our vision. Our Board, management team and key insiders are more excited than ever about what lies ahead with commercialization on the near-term horizon. We believe very strongly in the value we're creating here at HeartBeam and getting this critical technology into the hands of clinicians and patients is going to be a really rewarding step for us here in the very near future. With that, Rob, I'll turn the call back over to you for closing summary. Robert Eno: Thanks so much, Tim. So to summarize, this is an incredibly exciting time for HeartBeam. We continue to engage in positive and productive discussions with the FDA and our anticipated time line for the clearance by year-end remains intact. Combined with the foundational FDA clearance received in December 2024, this clearance will mark a pivotal milestone for the company to initiate our commercial launch. We've made significant progress with our commercial readiness plans in anticipation of the FDA clearance. Of note, we announced a partnership with HeartNexus to provide on-demand board-certified cardiologist reviews of synthesized 12-week ECGs for arrhythmia assessment. These 2 elements, an ECG that's capable of synthesizing a 12-week ECG and a cardiologist on call 24/7 able to provide ECG assessments to the patient, they're the core of our system. While our focus is squarely on the interactions with the FDA and preparing for the commercial launch, we continue to prepare for the company's future. We added to the body of clinical evidence with 2 recent presentations at scientific meetings, one on AI and the other on heart attack detection. In addition, we added 3 newly issued patents, bringing the total to 24, and we're pleased to be recognized for our IP, ranking #2 worldwide in 12-Lead ECG innovation out of 243 companies analyzed. HeartBeam is at a very exciting inflection point, and we'll continue to work with our partners to strategically finance the company in a manner that adds to and creates shareholder value. We believe that HeartBeam's technology is poised to be a fundamental advance in cardiac care. Our team has worked incredibly hard on the development and validation of the technology, and we're excited to be nearing the next stage in the company's growth, introducing the groundbreaking technology of HeartBeam for patients to use at home to allow them to feel confident about their heart health. We thank you all for attending, and now I would like to open it up to Q&A. Operator? Operator: [Operator Instructions] And our first question for today will come from Kyle Bauser with ROTH Capital Partners. Kyle Bauser: Maybe we could start off on the discussions you've had with the FDA. Can you talk a little bit more about sort of what you're working on and responses and factors that you'll want to address ahead of a clearance? Robert Eno: Yes. I can't really comment much more than that. I guess what I'd reiterate is that, we continue to categorize our interactions with FDA as productive. The normal process of FDA questions and us answering them, and we're continuing to anticipate the FDA clearance before the end of the year. But from the last clearance in this one, we haven't gone into more details of the characterization of the questions. I'll just leave it there. Kyle Bauser: Fair enough. Good to know the time line is still on track before year-end. As you gear up for the commercial launch, you sort of talked about it a little bit, Rob. Are you still kind of focused on a couple of territories initially to gather feedback and intel ahead of a broader launch to, say, 5 to 10 territories? Robert Eno: That's exactly right. Yes. I think the nuance on that is the very first accounts, we believe, will be prominent accounts, some really exciting ones that we're talking to. Some of them are independent. Some of them are associated with major healthcare institutions. And in a sense, those can be reference accounts, those can be our pilot accounts. And then beyond that, we start to go deep into the 2 regions to start. And then exactly, as you say, we want to prove the model there to show everything around our sales model, that the expected coverage, we think. And as we get that, we can expand to a larger number of regions exactly. Kyle Bauser: Got it. Got it. And how should we be thinking about pricing regarding sort of symptomatic versus asymptomatic readings? I know you're able to charge a premium potentially for symptomatic readings and great to know about the recent partnership with HeartNexus, but just trying to understand how you're thinking through that. Now it's a little bit early. Robert Eno: Yes, sure. No, yes, it is a little bit early, but what we've identified so far are a few things. We're planning on a subscription offering. The initial thought is that the -- it will be upfront a 1-year subscription and that 1-year subscription gives you the device itself and access to a certain number of cardiology reads. And so we'll work on the details of that pricing level and how many reads. What we're building into the system, not exactly at the initial launch, but we're building in is the automated assessment, algorithmic assessment. So the vision that we're building toward there as that comes in, that requires an FDA clearance. As that comes in will be one pathway for routine recordings, which the patient will have an unlimited number of routine recordings because we want them to practice and to build up their data. And then when they're having symptoms, they go down this symptomatic pathway, and that is what uses one of their credits and activates the reader service. Kyle Bauser: That's helpful. Got it. And maybe one more. As you prepare for the commercial launch, how are you managing inventory levels? And how does your sort of manufacturing capabilities look at this point? Robert Eno: Great. Tim, do you want to take that one? Timothy Cruickshank: Sure. Yes. Thank you so much. Yes, we've got a great partner for manufacturing, U.S.-based contract manufacturer. What's great about the latest round of our device that we have for commercialization, it's all off-the-shelf componentry, nothing customized. So from a product line or from a build line standpoint, we've got the capabilities built out. So it's all about -- for us, in the near term, when you talk about launch over the first year plus, the building of devices isn't a concern to us, line of sight to part, no real long lead time parts, obviously, dynamic situation, so monitoring that. But given they're all off-the-shelf components, we've got a number of different areas we can source -- known areas we can source parts from. So really confident in the manufacturing side, and it's all about determining the demand and building into it. And then the real area of focus is on workflow and really making sure we nail the onboarding piece. So, I would say that is more of a focal area of getting it right than the manufacturing side. Operator: Your next question will come from Bill Sutherland with the Benchmark Company. William Sutherland: Wanted to just maybe find out a little more color on the 2 initial market launches that you had planned. Maybe a sense of the available TAM that you're going to be looking at there? And just a couple of assumptions to help us think about the numbers that we might just begin to think about for next year and maybe the following year. Robert Eno: Tim, would you take that? Timothy Cruickshank: Yes, sure. No problem at all. Yes. So, the first 2 geographies, we've said before, most likely we have Southern California and South Florida, 2 really strong territories with a lot of great accounts and inbound demand there. The way we sort of look at it is the territory size, if you think about an average, the initial territories we're going after, 75,000 patients roughly in those -- that we would be targeting in those regions. You can do a really concentrated rollout in terms of the number of accounts that you really need to talk to, to start to get some good penetration there. And we plan on going to, as Rob indicated, individual practices and some of the institutions that have concierge practices associated with them to nail workflow, really make sure that the patient experience is right. But then within those territories, as we build that out, there are a number of concierge chains that we'll be able to look at to help accelerate adoption and growth. So, it's all about getting it right in the first couple of quarters, so keeping expectations modest in terms of what that means from a revenue and user perspective. But as we get to the second half of '26 is when we start to see some of the real penetration into those geographies and as we head to '27, when those concierge chains likely come on. Obviously, we'll be working to accelerate that faster, but I think that those 3 waves are how we're looking at it. William Sutherland: Okay. And how does the -- how do you sort of target the marketing because it's partly, I guess, involving the cardiologist themselves, but then some direct to the patient. I know that this is an out-of-pocket type of expense. Robert Eno: Sure. Yes, I'll take that one. Right, so it's -- to start with, it's obviously for, it's a prescription device, and we're targeting these practices, concierge and preventive cardiology practices. These are practices that have these patients and are comfortable having discussions about items that are patient pay. And so, the first stage in our process is talking to those accounts, explaining the product, explaining that -- how it can help their practice. And then we plan to work with the practice to support them in outreach to their patients. So, to really be the practice talking to their patients about the technology and potentially adopting it, and we can certainly give the materials and support them through that. So, in a sense, working with and through the practices. We think over time, part of the way of thinking about this region by region is there are other ways to move beyond the patients that are already at these concierge practices. We think that can happen through a referral business where patients can refer patients who can either go join the concierge practice or get access to the technology through other clinicians and potentially some direct-to-consumer marketing. We obviously think we to be as efficient as possible, those first couple of approaches of working with the concierge practice in the preventive cardiology practice and adding referral is probably the most efficient, but that's part of what we learn as we do the early stages of these commercialization in these couple of regions. William Sutherland: Great. And then I'm wondering, you are establishing this as a new category. But when you go into the practices, are they using something at this point that gets at some of the functionality of HeartBeam and that you'll have to take the position? Robert Eno: Yes. There's -- it's going to vary. Some of them don't have anything like this. Some of them may be using the existing one lead ECGs that are out there from various companies. We don't think there's anything that is commonly used that can synthesize the 12-Lead, but also has the reader service tied to it. So, it's a mix. Some might be new and some might be offering things already or encouraging their patients to use things already. The feedback has been very positive in our market research with patients and in market research to practices and in direct conversations with practices that even despite that current landscape, they see incremental value in this offering and are excited about taking advantage of it. Operator: We will now turn for any webcast questions. Unknown Executive: Our first webcast question asks, you ended Q3 with $2 million in cash. What are your plans for additional funding? Timothy Cruickshank: Sure. Happy to take that one. Yes. Yes, I can't share specifics on plans, but I'm happy to add as much color as I can from my prepared remarks. I think I mentioned the optionality we have in place, both vehicles and sources of funding and just reiterating our confidence in our ability to achieve these near-term milestones right ahead of us. So, we believe with those -- the inflection point we're going to see will provide us an opportunity to strategically look at the balance sheet. We're balancing 2 important priorities. One, heavily -- we care deeply about minimizing dilution for our existing shareholders. We've got -- but having a proper balance sheet to capitalize the opportunity ahead of us is obviously important. And I believe it will unlock the stock by having a proper capital markets profile in place, one that this company deserves based on the opportunity ahead of us. So, we are strategically balancing those priorities, and we believe we're getting close to having the opportunity to make both of them a reality for the company. But we're going to stay steadfast on the path to get there. Unknown Executive: And one of the webcast questioner asks, if there are any contracts that are currently sitting on your front burner? Robert Eno: Yes. I'd characterize that as we've had -- we're having great discussions with sites that we think could be the early users of the system. And there are some large practices. There are some very prominent practices, and we'll be -- so we had really good discussions there. And post FDA clearance and early commercialization, we're looking forward to being able to announce more of those. Unknown Executive: And do you have any expectations for the level of sales next year following the commencement of commercialization? Timothy Cruickshank: Yes, happy to take that, Rob, if you want. Robert Eno: Please. Timothy Cruickshank: So, I haven't provided guidance, but again, let me provide as much color as I can in context to help answer it. I think, first, HeartBeam is becoming a commercial entity for the first time in 2026. So, we're going to be hyper focused on user experience, getting things right for physicians and patients. That means we may need to go slow in the very early days of the first quarter of launch, the first half of the year. But we anticipate, as I was describing to Bill, the second half of the year is where sales and user base begins to increase in a more meaningful way. Obviously, I mean, based on some of the inbound demand we've gotten, we believe we can begin -- we can get things going faster than that. But just knowing that we are becoming commercial for the first time, we're trying -- when we model this out, we try to be pragmatic in doing so. We've got newly issued coverage on the company. And so, the active research reports that are out there do a really good job of capturing how we model things out early days. As we get the data points we need to expand into additional territories, we're going to be looking for ways to accelerate growth and have some inbounds demand on how that's going to happen. But based on the conversations we've had with concierge and preventative cardiology accounts to date, we're very excited by what could be meaningful demand. Unknown Executive: And once you obtain FDA clearance for arrhythmia detection, what is your planned pathway for pursuing an additional indication for myocardial infarction detection? Robert Eno: Yes, it's a great question. We've addressed that previously, but I'll go through it again here. We have announced that we already have started initial discussions with FDA. So yes, we are planning to pursue that. We believe it's the same product and an expanded indication. We have 2 proof-of-concept studies that have been done and presented of the similarity between our output and that of a standard 12-Lead in patients with ischemia heart attacks. We have -- what we'll do is we want to talk to FDA to understand more about the regulatory path and more about the clinical trial needs. So, the expectation is that we will need to do a clinical study in one way or another that will show the performance of our system in comparison to a 12-Lead in that population. We have ideas of that and looking forward to talking more with FDA about what they're looking for and how to implement on those plans. Unknown Executive: And will you work exclusively with HeartNexus? Or are you planning to -- or open to expanding your network to other telcardiology firms? Robert Eno: Yes. We -- first of all, we think HeartNexus is great and excited to partner with them. And the real -- the strategy is, we want this to be something that patients can use if they have symptoms 24/7. And we want to make sure that we don't put the prescribing physician necessarily on the front line if they don't want to be 24/7. We are getting feedback from some accounts that they might want to take on that themselves. So, we're working on a version of the product offering to specific accounts in which the account themselves will take on the capability to do the reading. Beyond that, we don't have any plans right now to go beyond HeartNexus. We think their ability to scale with us is there, but have this option if accounts are interested in doing that function of the offering themselves. Timothy Cruickshank: Yes. I would just add, I think what's great about HeartNexus at our stage of launch is they have coverage across the U.S. So, for a company of ours where we're going to be learning what our usage rates are, they have the ability to go quickly with us early days. And I think it's just an amazing group over at HeartNexus, and they want -- they believe in this technology and want what's best. So, they are open to exploring all sorts of avenues with us as we really start to scale. So, I think both of us are open to expanding as we really learn what demand looks like. Robert Eno: That's great context. They really are a great partner. Unknown Executive: And regarding your commercial launch, are you looking or considering partnering with other companies as strategic partners to increase production or operational capabilities in any way? Robert Eno: Yes, sorry, let me just, yes, absolutely. So, I'm just trying to make sure I can answer the question in the best way. We're definitely looking at all different types of strategic partners. We've talked a lot about that one of the areas we want to focus on is how do we scale most efficiently. And there's a couple of ways we believe we can scale efficiently, and that's with distribution partners or focusing on concierge and preventive cardiology chains. So, that from a sales and distribution perspective is one of the key things we're going to look into as we prove the concept and start to progress. We are open to and have had ongoing discussions with strategic partners in all kinds of different areas and are certainly open to exploring collaborations. We've talked about collaborations in the past on the AI algorithm side and the data side and even potential partners that could be co-development partners for some of the technologies that are in our pipeline. Unknown Executive: Thank you. And that concludes our webcast questions. Operator: I would like to turn the call back over to Mr. Eno for his closing remarks. Please go ahead. Robert Eno: Great. Thank you, operator. I want to thank each one of you for joining the earnings conference call today. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, who would be more than happy to assist. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good evening, ladies and gentlemen. Welcome to Companhia Paranaense de Energia COPEL's video conference call to discuss third quarter 2025 earnings results. This video conference is being recorded, and the replay can be accessed on the company's website, ri.copel.com. The presentation is also available for download. [Operator Instructions]. Then we will start the Q&A session when further instructions to participate will be provided. Before proceeding, I would like to stress that forward-looking statements are based on the beliefs and assumptions of COPEL's management and on information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, should be treated as forecasts dependent on the macroeconomic environment, the country's economic situation, the performance and regulation of the energy sector in addition to other variables -- such forward-looking statements are therefore subject to change. This video conference will be presented by Mr. Daniel Slaviero, CEO of COPEL; and Mr. Felipe Gutterres, CFO, as well as officers of the subsidiaries. They will be available during the question-and-answer session. I would now like to give the floor to the CEO of COPEL, who will begin the presentation. Please proceed, Mr. Slaviero. Daniel Slaviero: Good morning, everyone. I would like to thank you all for joining us in this video conference call. I'd like to start highlighting the healthy operating and financial performance of the company in this third quarter. We posted recurring EBITDA of BRL 1.3 billion, up almost 8% over the same period last year and a recurring net income of BRL 375 million. These numbers show the -- how solid and consistent COPEL's results are. Another point that deserves to highlight is the strong investment made in the period, BRL 981 million in CapEx in the third quarter alone, totaling BRL 2.6 billion in the 9 months of 2025. This level of investment reflects our commitment with quality of service expansion and modernizing our asset base and ensures that we are preparing for a historical tariff review in the distribution company in 2026, in line with our commitment to continuously optimize our portfolio. This month, we completed the divestment of 4 photovoltaic solar plants totaling 22 megawatts peak in distributed generation in a deal evaluated at BRL 78 million. This follows our commitment to simplify our portfolio. Additionally, with the completion of the Mashigua Sue HPP divestment in the start of October, our leverage ratio is at 2.8x net debt over EBITDA ratio, well on target of our optimal capital structure. This fact reinforces 2 things. Firstly, our excellence in executing the commitments that we set forth with the market. And secondly, this [indiscernible] deal with its characteristics, it represents the essence of this new phase of COPEL, a company that is agile, attentive to opportunities and focused on creating value. On the operational side, we recorded sales of almost 5 gigawatts and the build market of DISCO grew 1.7%, still comparing with a very high base recorded in Q3 2024. These indicators reinforce the resilience of our business, the abundance of our concession area and the trust of our customers. On the side of generation, it is important to put things into context. The results obtained by [indiscernible] were recorded in a very challenging scenario. In this quarter, we had a GSF of approximately 65% and a curtailment of almost 35%. Fortunately, these assets subject to curtailment are very small in the structure base of COPEL. On the positive side, we had an increase of PLD spot market of close to 50% compared to Q3 '24, totaling about BRL 250 per megawatt hour. The intelligence of our strategy and trading structures led by Rodolfo and risk mitigation, coupled with the positive effect of optimizing our portfolio and special the modulation of the hybrid source made all the difference. To end the slide in this period, for the first time, we had a consolidation of the results of Mata de Santa Genebra, the transmission company and [indiscernible] ensuring a more robust and efficient portfolio, which contributed to better results. This reinforces our differential, the fact that we are an integrated company with a solid presence in all 4 segments where we operate. I take this moment to give you an update on the process to migrate to Novo Mercado. The structure of the deal is already known to all of you, but I would like to record the steps that have been completed. On August 22, we had the approval of the common shareholders in the special general meeting, and we got waivers of debenture holders in all of the necessary issuances, and we have handled the unification of preferred shares, Class B to Class A. Lastly, we had the approval conditioned by B3 to migrate to Novo Mercado. And now next Monday, November 17, at 11:00 a.m., we will have the Special General Meeting and the agenda is to ratify the conversion of preferred shares into common shares in a rate of 1:1 plus a new Class B preferred share redeemable. I would like to invite all preferred shareholders to take part in this special meeting and to give us their vote. This is a decisive step for us to consolidate a simpler, more transparent shareholder structure and one which is more aligned with the best practices of the market. In parallel, unification of shares into one single class will bring more liquidity to our security to our share, which is a relevant factor to attract new investors. Should this measure be approved, we will be prepared to end or to complete the whole process by year-end, which will open up a path to distribute part of the dividends referring to the first event of the exercise as set forth in our dividend payout policy. This will be a historical moment in our journey to create value at COPEL. Last Friday, we launched to our employees the new element of the COPEL culture. Reason of existing ambition and our values. The T-shirt that myself and my partners are wearing today is part of the -- of this event and part of the internal communication process. This year, we revisited the company's strategic planning and thus built a vision for COPEL 2035. We cannot think about strategy if it's not coupled with culture and vice versa. A strong culture is a central pillar to sustain a long-term vision and a very bold one, I should say, more than a concept. We believe that our culture is a competitive differential for COPEL. All these elements of culture as well as strategic planning will be presented to the market in our COPEL Day. By the way, before I give the floor to Felipe, who will detail the financials of the quarter, I would like to reinforce the invitation for you to sign up to our COPEL Day, which will be held next Wednesday, November 19, directly from Rio de Janeiro, the wonderful city with an online broadcast starting at 9:30 a.m. It's going to be a big event. Thank you very much. Felipe Gutterres: Thank you, Daniel. Good morning, everyone. I'll start highlighting the consistency of our results, COPEL's discipline in capital allocation and the operating efficiency of our business, which is proven by the robust numbers we posted in the quarter even in a more challenging business environment. In the quarter, our recurring EBITDA consolidated grew 7.8% over Q3 '24, reflecting the health of our operation and the efficacy of the measures adopted for efficiency. COPEL [indiscernible] was responsible for 53% of this result [indiscernible] 49%. I will give you more color on COPEL Generation and Transmission in a minute. Recurring EBITDA of COPEL Genco grew 11% over Q3 '24, driven by a combination of factors, better performance of assets, integration of new enterprises or endeavors and consolidation of strategic asset results. In the transmission company, the highlight was the increase of BRL 119.4 million in EBITDA with the consolidation of Mata de Santa Genebra and the average increase of 2.2% in RAP of the transmission companies. In the Generation segment, we were able to mitigate the impact through a smart trading strategy, optimization of the portfolio captured the positive effects of hydro modulation despite an adverse event with GSF of 64.9% and curtailment of 34.4%. The result was positive, especially given the BRL 23 million increase in short-term market sales, 21% up in volumes sold, incremental BRL 10 million in bilateral contracts, BRL 7 million coming from revenues of regulated contracts. I highlight the startup supply of Jandaira in the consolidation of the Mashigua Sue HPP. These results were partially offset by greater curtailment, which generated a negative effect of BRL 39 million more in the generation deviation in the quarter. Now moving to COPEL [indiscernible] Distribution presented a recurring EBITDA 7.2% up in this quarter. This result is the result of a 1.7% growth in the build grid market with an average adjustment of 6.8% at TUSD occurring in June in RTA and the efficient management of costs, highlights going to 16% reduction in personnel year-on-year. Now moving to trading. COPEL com EBITDA recurring posted a drop of BRL 7.3 million in the margin, mainly due to the effect of legacy contracts of electricity starting from intermittent sources as well as a 39.1% increase in the PMSO expenses, a reflects of the advancement of the process of restructuring the trading company. On the other hand, sales volume for 2026 to 2030 grew 96.2% in relation to Q2 '25, adding an amount sold of 431 megawatts, which shows the potential of expansion of the business. So ending the analysis of, I highlight the advances obtained in operating efficiency in Q3. PMSO expenses, recurring ones totaled BRL 718.7 million, a 4.1% reduction over the same period last year. This is a reflection of the discipline in cost management, which is a priority across the company. Main highlight was an 18.4% reduction in personnel and administrative expenses driven by structuring measures such as the voluntary severance program, which contributed to adjusting the headcount. We also saw a reduction of 8.5% in costs with pension plans and health plans, reinforcing the positive impact of rationalization actions. In addition, we reduced 3.6% of expenses with materials, while third-party services posted a 4.7% increase, reflecting the hiring of specialized services for maintenance and operation. The others line, the 10% basically related to the write-off of the activation of assets, especially in DISCO, given the high level of investment in the period. We reduced cost of preserving safety of the operation and quality of services provided, which reinforce -- reinforces our commitment to operating efficiency and excellence. In Q3 '25, COPEL presented a recurring net income of BRL 374.8 million, down 36.5% over the same period last year, which is a result of a 7.8% EBITDA increase, offset by an increasing negative financial results, driven by robust investment cycle funded by the company within the parameters of an optimal capital structure. In addition, in the comparative period, we had in cash BRL 4 billion, which we used to pay the granting bonus for the renewal of generation assets for another 30 years. Another highlight is the CDI increase year-on-year, which negatively impacted the cost of debt. Income tax and social contribution was higher than past year as a result of interest on equity that we executed in '24 and have now been executed in '25. In other variation, I highlight the impact of reduction of equity income of Mata de Santa Genebra that started be 100% consolidated. Now talking about investments in this quarter. On the slide, we can see consolidated CapEx totaling BRL 981.4 million, maintaining the planned rhythm and aligned to the company's plan. Year-to-date, investments totaled BRL 2.6 billion with a focus on assets that broaden the remuneration base, modernize the infrastructure and ensure quality of service. Most of the resources was directed to the segments of distribution and generation, highlights going to projects that strengthen the reliability of the energy system, increase installed capacity and promote operating efficiency gains. We continue with a disciplined capital allocation, prioritizing projects with attractive return and aligned with the long-term strategy of the company. Coming to the end, I speak about the capital structure. Net debt over EBITDA ratio was 3x in the quarter within the range established in our study of optimal capital structure. But if we consider the sale of Mashigua Sue HPP completed in October, this ratio would have been 2.8x, reinforcing our financial discipline. Net debt totaled BRL 16.6 billion with a diversified makeup among financial institutions and market insurance debentures and securities. This diversification is strategic, reduces risk and improves the forecast of predictability of the financial flow. Important to mention that the company has a AAA rating, reflecting the solidity of our balance sheet and the dimension of our manifest of capital allocation. As for the CDI equivalent cost of debt, we had a debt costing 98.46% of the CDI to 88.7%, showing our efficiency in funding and managing our debt. We continue to pay attention to market dynamics, and we remain committed to maintaining a healthy capital structure that would allow COPEL to continue to invest with safety, competitiveness and a focus on value creation for our shareholders. With this, I come to the end of the presentation, and we can now start the Q&A session. Operator: [Operator Instructions]. Our first question comes from Guilherme Bosso with Goldman Sachs. Guilherme Bosso: I have 2 actually. First, I believe it has been partly addressed in the presentation about the migration to Novo Mercado. I just want to clarify, I'd like to confirm if the expectation of completion remains at the end of December? Or can you tell us when this is expected to happen? And in that regard, what is the company thinking about dividend payout -- are you expecting an announcement for this year after you complete the migration process? Or can we expect something before? That's the first question. Secondly, I'd like you to elaborate on the cost efficiency agenda. In this quarter, we saw again manageable costs dropping year-on-year. So I would like to understand if for next year, the company still sees room to reduce costs. And if so, the extent of these cuts. Daniel Slaviero: Well, I'll answer part of your question, and then Felipe will speak about efficiency gains. It is exactly as you -- and then as we said, our idea is on Monday, the 17th, if we get approval by the preferred shareholders, our expectation is that we will complete the operation -- the migration by year-end. It will be towards the end of the year because if we have approval on the 17th, we have 30 days of recess as determined by law. And then the operational time line, the notary public [indiscernible] and our expectation is to end to complete the migration still this year, but more towards the last week of December, but still in 2025. And then we have a commitment regardless of the -- regardless but linked to the migration, which is our base scenario, we expect to announce dividends, dividends payment for the first event of the year as set forth in our policy with a minimum of 2 events. So it will be the first year consolidating the result of the first half and according to our financial analysis of the company. So we're quite excited, and we are working hard. The process to obtain the waiver with several debentures being very polarized. It was very hard work led by Felipe and the whole team. By the way, I'd like to publicly thank them for the efficiency. We have the support of many financial institutions, which helped us access the huge amount of shareholders. So this is moving on, moving forward smoothly, and it's all conditioned to next Monday. Thank you, Daniel. As regards to the process of cost reduction, we continue in an attempt to capture more efficiencies. Please remember that our goal is compared to 2023 annualized until 2026. So there is an effort to reduce costs in 2026 with an important move concentrated in some business units as status quo, but also there are other moves which are more geared by supply, the shared services center. So there are a number of initiatives and the value creation levers that are actionable expected in 2026. We'll give you more on that at COPEL Day. And just to add to that, Guilherme and everyone, we are completing this phase of structuring efficiencies and operating excellence in cost reduction. As Felipe mentioned, during COPEL Day, we'll give you more detail of the 10 promises that we took on at the follow-on time by Novo Mercado, we need 3. So we have also the tariff review in mid next year and the completion of this phase of structuring efficiency gains. And then we'll speak a lot about this at COPEL Day. Then we'll turn the page. You've heard me tell you over and over that no company creates value sustainably in the long term, just cutting costs and selling assets. We have to finalize the cycle throughout 2026 and then turn the page, change the chapter and focus on efficiencies, profitability indicators. And Felipe will have a session dedicated to this in his presentation on November 19, COPEL Day. Operator: Next question from Raul Cavendish with XP. Mr. Cavendish, go ahead. Raul Cavendish: My question has to do with the Genco, GMT generation and transmission. What we saw this quarter was a portfolio strategy that was very well performed by the company. We can see this at a much lower cost of energy [indiscernible]. So my question is, in terms of the strategy of the trading company, taking one step back to understand the process to build this portfolio hedge strategy for the year. And what is the [indiscernible] for next year in terms of price, market and strategy to continue to maximize the value of the GEN portfolio? Daniel Slaviero: Well, excellent question. We have worked to develop an internal expertise with Rodolfo and the whole team to add this competitive edge, this market intelligence and this trading strategy. So Rodolfo, perhaps you can share with Raul and the investors our macro strategy, -- remembering that our competitors also join our calls. And then that's why, you can add whatever you want. So Rodolfo? Rodolfo Lima: Excellent. So let's divide this into 2. Let's speak about the hedge strategy for this year, and then I'll speak about the market currently. In the mid-2024, we had some windows of good opportunities of low prices. Before materializing the need of power with the increasing price in September, we had good windows to purchase energy. And that's when we purchased most of the energy. And coupled with that, we had a lot of swaps. We know the need for electricity in Q3 and have some excess at the end. So much of advantage of this moment to have this kind of swap using these more competitive prices in Q3. And that's why we were successful in our strategy vis-a-vis the spot market. Now speaking about the market currently, the market is at very high levels. We understand that there's still a lot of room to increase. And what matters is with a lot of liquidity. We have high demand in the market. We are weighing our speed of sale. You could see that we have good sales, but quite contained compared to the amount we have available. So overall, I believe these are the 2 main insights regarding our strategy for short term, Q3 and mid- and long-term thinking about the future electricity prices. Brittol, any comment? Unknown Executive: Yes. Good morning, everyone. Well, I think Rodolfo spoke well about the strategies. The strategies are executed by the TradeCo, but it's all discussed with COPEL generation and transmissions led by Daniel, and we execute the strategy. We posted good results this year given the opportunities mentioned by Rodolfo for the price window for energy purchases. And during this period, we had a strong result regarding modulation of the hydropower plants, which accounted for quite a lot of our results. So this is a solid articulated strategy executed by the TradeCo based on the analysis of COPEL Genco. I can just to final comments, Raul and everyone. Brittol mentioned an important point about the benefit of hydro modulation and the role it has played and how it has been better priced here in this environment. Given the role it has to sustain the hydroelectric system, in addition, [ AMP304, SMP304 ] that is to be approved to bring some positive elements in our view in terms of ancillary operational services. And coupled with all that is the fact that the bulk of our portfolio, especially our hydro plants are in the South region, and we see an appreciation of price. I guess this reinforces the unique characteristic of COPEL's portfolio. In broader terms, what have we seen? And this is our strategic approach. Firstly, we see pricing structures that are much better than 2, 3 years ago, but still below the price potential that we envision, particularly if we consider marginal cost of expansion for 2028, '29 and 2030 and beyond. So we'll see and you will see that we have some room here regarding prices. So what is our strategy? We don't want to put all eggs in one single basket. So strategically, we sell some small blocks along A plus 2, A plus 3 so that we can ensure an average price. But clearly, with the price volatility we have seen hourly prices and also with the need that the system has for power, and we are going to talk a lot about that at COPEL Day. So we will need to work with more uncontracted energy, plus 1, plus 2, so that we can capture these better energy prices greater than BRL 250, BRL 280, which is what we have seen. This is the fact that COPEL has 64% stress, 64% of its EBITDA linked to the grid distribution and transmission grids. This gives us comfort in our balance sheet to be able to execute these strategies quite easily in trying to capture better price opportunities. Raul Cavendish: Perfect. It is clear. If I may ask another 2 quick questions. Because there is, in terms of looking forward and turning the page in terms of cost cuts and efficiency gains, the strategic vision in addition to the auction of capacity reserves and now including batteries, I would like to understand how does the company see the opportunity in batteries? Does it make strategic sense for the company or given the structure, this is a kind of a [indiscernible] business that will not add so much value to the portfolio. And in terms of prices, if I may ask another question, we have seen some small complex elements that have pushed prices down. Nothing transformational, but kind of a weaker load given the climate in the end of Q3, beginning of Q4, slightly better rainfall. In your view, do these elements would [indiscernible] downside for 2026? Or have you priced this? Daniel Slaviero: All excellent points. So let's start with the end. Rodolfo, perhaps you could give us more color on the second part of the question, and I will answer the first question, and Felipe can help me. Rodolfo Lima: Well, excellent. I think that you raised the main variables that can impact price. But we see this happening in a one-off basis. There is 1 month with more rain perhaps. The trend is that the prices will be higher. Why do we say this? If again, how the system is being operated this year compared to last year with the same scenario of storage and rainfall, the prices are different. We're talking about a floor versus BRL 300 in March. So I can't have a specific month when it rains a lot, and I don't have the need for thermal dispatch and the prices can be lower. And that's when we take the opportunity to hedge the operation, as I mentioned. But in the midterm, the need for thermal dispatch is abundant. So I think it is almost impossible to have a scenario where it will rain a lot throughout the year to the point that we can only serve the system with hydro. And that's why we believe that prices will be higher in the mid- to long term. Very well put. And Raul, looking forward, I think it is important to highlight that the efficiency agenda remains. It is permanent. Cost, it's like nails, you trim them, they grow back, you trim them, they grow back. But the centerpiece is that previously, we had structuring inefficiencies, either due to the hiring process, materials, bidding forces, everything we know about. I just want to make this clear. The centerpiece of our agenda will lose some momentum and this other agenda focus on efficiency. Good, correct disciplined capital allocation will gain more relevance. To that end, [indiscernible] CAP in our view is a strategic point with 2 products in 2030, 2031. Of the 5.5 gigawatts recorded for both auctions, 2 gig COPEL project, Foz do Areia and Segredo. We've been repeating this, but this auction was expected to happen has been postponed. And now it has been set for March also because there are very important needs from the system. So I guess it will arrive with very competitive projects. We'll analyze size, product size, capital price. There are some elements that are not yet very clear, but we are going to be very disciplined. Although we do like the project, although the projects are competitive with all necessary licenses ready, it is at the moment of the auction that theory will meet practice. Having said that, as for batteries, well, we're looking into that. We have a due diligence for that. But I think that this entails an assessment of the level of competitiveness that we can have, that we can add to these auctions, considering that most of it is linked to the battery acquisition cost. If you have easier access to the inputs, they might be more competitive. But we believe a lot in the elements of power and need. This can be supplied in different ways. Hydro -- reversible hydroelectric power plants that exist around the world, China with almost 90 gig, Japan and others, this can be a path forward, and we will address this in the future based on this work front, where we have know-how, knowledge, engineering expertise of decades, which is the management operation and construction of hydroelectric power plants. And also Raul and everyone to end, I think we will speak a lot about this. We have to work towards a scenario where prices will reflect the operation. There's an effort by ONS to move to this kind of model, and we will need to discuss greater progress so that the price signals will be correctly aligned with the effective cost of generation. Where else we're going to see what has been happening in Brazil over and over the explosion of cost subsidies and so on and so forth. But anyway, this is a different discussion, and we can talk about this later at COPEL Day, we'll speak more about this. And mainly then regarding attributes of the hydro source. This needs to be done. Operator: Next question from João Pimentel with Citi. João Pimentel: I would like to build on Raul's question and also saying that [indiscernible] Always talks about. Daniel Slaviero: Can you hear me? My thoughts and my connection has crushed. And you normally said that the company cannot create value over time just paying dividends that eventually you need to look at opportunities for growth and so on and so forth. And now talking about [indiscernible] And the batteries auction, this is kind of mapped already. So beyond that, I'd like to understand what are you looking at beyond that? Are you considering any other segments in addition to the ones you operate in or in the segments where you operate, do you see any opportunities in terms of inorganic growth? We see a number of players of renewable sources facing difficulties given curtailment. They don't have such an integrated portfolio with COPEL. So I'd like to understand how do you see this dichotomy between I'm going to grow, I'm just going to pay dividends or I'm going to grow and I want to transform COPEL in a much bigger company than it is today. So I'd like to hear your take on growth. Rodolfo Lima: Well, you have an excellent point actually. And just to clarify, what I normally say is it has always been and will continue to be, given my own belief and the partners' belief that the company does not create value in the long run, just cutting costs and selling assets. Paying dividends is a good and interesting option for us and one that we intend to materialize either paying dividends or through a share buyback program. We have a minimum payout in our policy of 75% as a consequence of an optimal capital structure as is with the current base of 2.8. In addition to being the boldest in the sector, it is a big competitive edge for us. Daniel Slaviero: And we see an appreciation of compressing our return rate. You know this better than a lot of people. You know this dynamic of how things work. But I think that our case and Felipe has been saying this that we can balance both. We can be a good company, paying good dividends because we have mature assets, a solid cash generation, a lot of depreciation. So we are not just fixed on net income, although it is a fundamental reference for any dividend payout policy. But we look at the whole context of the company being a cash cow in the context of good opportunities. Good opportunities in our view, do not appear every year. So we have to be prepared with a well-behaved disciplined capital structure so that as opportunities arise, we can make structural moves. And to address another point of your question, which was excellent, by the way, we are actively -- whether we are actively looking at an asset. I can share this with you. We are not also because we are still in the phase of digital transformation of looking internally. And next week, we're very much focused on COPEL Day because it is our big event. We're preparing for it. And we are going to announce the CapEx plan of the distribution company for the next cycle and also for the generation company. So we still have a lot of room to invest organically, which is low risk with super attractive returns. In addition to the regulatory walks that [indiscernible] and Genco have, these bring efficiency gains with this [indiscernible] to create with the operation with cost reductions. We had an event last week. You will follow that. We had an event a tornado of climate events. We are having extreme climate events, and this has required a new model of operation. [indiscernible] is also going to give you more detail on this at COPEL Day. And this has to do with our CapEx planning, with our -- it has to do with our operations, number of crews and so on and so forth. And this is a strategic view. And I think that COPEL in that episode and in others has shown to be a benchmark in the sector. Operator: The next question from Giuliano Ajeje with Citi. Just a correction. I'm with UBS. Giuliano Ajeje: Okay. I have 2 questions. Daniel, we're getting to the end of the year, and that's the moment when we start looking at 2026. And next year, we have a super important event for the company, which will be the process of tariff review. And this is going to be the first tariff review process with the company having been privatized. So what do you expect from next year's tariff review process? What is the company doing differently? My second question has to do with [indiscernible] I think it brings 2 points that kind of change the long-term horizon of the company. The first is [indiscernible] contracting of energy. Could this reduce the size of [indiscernible] next year? And what could the company do with its current project? And secondly, [indiscernible] under the possibility of renewal of hydroelectric power plant? And if your base case continues to be a [indiscernible] process or given that there's a possibility of renewal could this quite inorganic growth in jeopardy with more possibility of the hydroelectric power plant assets. Daniel Slaviero: Excellent points. Very important structuring questions, which I think. Let me try to address them. First tariff review. I think that this is a milestone. It's going to be a historical tariff review. [indiscernible] is dealing with this firsthand, but we have our regulatory VP, the whole team, accounting. We are all working together. We hold weekly meetings. I, myself, lead a working group following this on a monthly basis, given the importance it has in this expertise and the freedom that a private company has, of course, it makes us look at all opportunities. But this is a regulated sector. And COPEL has a track record of good tariff reviews. In the last 2 cycles, the denial that COPEL had resumed [indiscernible] a good track record. But of course, there is always room for improvement. [indiscernible] and how we can optimize things. And Ajeje, you have your reports and you have talked with us, have approached us on this before. And I think you know that we have the right conditions to exceed the consensus of the market, which is around EUR 18 billion or slightly above EUR 18 billion. And this is our commitment. Felana, would you like to comment on this? And then I can speak about the [indiscernible] 304. Unknown Executive: Yes, we have a working group with several departments involved with full attention on the tariff review event, which goes beyond the investment plan. We are looking at the regulatory standards of [indiscernible] indicators. We are looking at losses, recovery of unrecoverable revenues [indiscernible] and also to complete the main works of the investment plan by December because we know that whatever goes or stretches to the next year will only remunerate in the next cycle. So we meet on a weekly basis. We follow all the works and all of the process of the tariff review. And [indiscernible] all of the people on the call, the market consensus is close to EUR 18 billion, as I mentioned, given the relevance and our track record of fulfilling our promises. It is very important for us to be able to achieve this number or perhaps exceed it or deliver. Having said that, tariff review is at the top of our agenda. This will change the game for COPEL, this point COPEL. [indiscernible] Well, Ajeje, we could have an earnings call just to talk about that. But I'll go straight to the points that you raised, this compulsory contracting. Of course, it tends to affect the dynamics of the LR cap. But in our view, it will not be that structuring also because of thermal power plants in the Eletrobras law, fortunately, they were left out to run the risk of analysis of [indiscernible] That's a big risk. I don't know how many gigs it will be 5 or 8 gig is flexible in the sector from the technical standpoint, it does not make any sense. And this would be the most deleterious effect in our view. Fortunately, the Congress had common sense and didn't take forward this point. And the second point is that we're very confident in the hydric products because they're unprecedented. We recognize [indiscernible] M&E was and everyone involved with the auction. They made an effort to include 2 hydro products because they are national technology, renewable and with a totally national industry. This will be the cheapest product compared with any other thermal product with all respect. But the hydroelectric plants have the conditions to offer an end price to consumers that will be lower -- always lower. So there will be some impact. But it is not going to be that relevant, and we believe that the characteristics of the hydro products tend to perform better. As regards to renewal of the HPPs, I think that a lot of expectations were created. But what the text of [ BNB ] says is basically part of the legal framework with the exception of the quotas. And when [ BNB ] [indiscernible] talked about the possibility of renewable and concession that will be in the hands of the breaking power. In our view, this was the base scenario, one of bidding process. We at COPEL do not envision a scenario without a competitive process. Given what is happening in other sectors, what's happening in highways, renowned [ DS ] highway and all the other highways, they all go through a bidding process, given the auction of GSF by [ CCE ] 60% margin. So this competitive process shows the appetite that the operators have. They have an inherent advantage. Of course, they know it's better than anyone else, but that other competitors can bring. In our base scenario, the law didn't change anything. Actually, brought a benefit, which is not allowing the renewals to be by quotas. But in our view, I don't think it's very likely. I think it's highly unlikely that there will not be competitive processes given what's happening in other infrastructure segments in the country, either by the granting power or by resolution of the Federal Court of accounts. Operator: Next question from [indiscernible] with Santander. Unknown Analyst: Congratulations on the results. I have 2 quick questions. First, still on MP1304. [indiscernible] Understand the company's view, what were the most relevant points that were left out in the text and that should be discussed in the short to medium term if you need a quick resolution of the issue. And another quick question about the possibility of extraordinary dividends with the possibility of taxation of dividends. What do you think about that? Daniel Slaviero: [indiscernible] all right. Let me try to slice your question. Let's start with the dividends. Felipe, you've been studying this -- could you give us more color on what we're thinking and our studies to address this? And then I will answer about the 1304. Felipe Gutterres: We cannot disregard the phase in which we are migration to Novo Mercado and the current dividend payout policy. And the taxation environment, the taxation on dividends in 2026 still to be approved by the President. We haven't come to a definition yet. This is most likely happening in the coming weeks. We are studying the several scenarios and possible impacts using our shareholder base, here also supported by our external advisers and by our tax department. But of course, we will position the company with a defined framework and strategy in light of the current shareholder base. Daniel Slaviero: Excellent. And Felipe, you're leading this process in the coming weeks as you put it yourself, we will be announcing what we intend to do. But obviously, there is a new fact when you have a 10% taxation individuals for foreign investors, even if there are some [indiscernible] to sovereign funds and others, there is a new fact there that requires, as Felipe mentioned, some diligence with the company. We have to look into this. And we have to do the best considering the company's balance sheet. There we have a profit reserves, which is reasonably high. And also considering that in our trajectory, we are focused on attracting new investors. So we have to find the optimal point at sweet spot. And I'm sure that Felipe and the whole team will bring you something quite balanced until the end of the year. So that's the first. And secondly, this needs to be finalized whether this conflict with the corporate law, if this is going to be paid in 2027, '28, '29, which is not so likely or whether this is going to be paid only within the 12 months. So there are some elements that need to be more clear, right, Felipe, so that we and all publicly traded companies can position themselves. But after Novo Mercado, that will be the top priority in our agenda. And as for the MP1504, absolutely, the topic that was left out that should not have been left out and that shows how the pressure is important is the [indiscernible] distributed generation in the apportionment and the curtailment in terms of having a contribution of EUR 20, EUR 15 or whatever. So I think that the reality will impose itself if this is not addressed and it will be because the reality is physical. -- knows this is already causing terrible problems for the system. This needs to be addressed because this has become big. It doesn't make sense for this segment to carry the level of subsidies that exist today. So I think that [indiscernible] Pedro, this is the more pressing matter to be addressed in this initiative by ANEEL in terms of tariffs, white flags, that could be a mitigating path. And I think that this will help remove the perverse incentive of the subsidies in the electric system [indiscernible] . What could improve the separation. We have several initiatives, LR contracting capacity in the form of voltage. We should have the separation of ballast and energy as expected in [indiscernible] that was being discussed at Congress. It was not addressed. And now we have to wait for the approval of MP1304 and wait for the regulation and see what will happen in terms of modernizing the electricity, the [indiscernible] Operator: Last question from Victor [indiscernible] with Itaú BBA. Unknown Analyst: I'm sorry to go back to this [indiscernible] Could you could tell us what they included in terms of curtailment and also the definition that should come in the next 3 weeks, 21 days regarding what is renewable versus oversupply, renewable oversupply, if this can have a significant impact and what will be considered curtailment that could be reimbursable looking forward, depending on the definition by the Ministry of Mines and Energy, MME and whether the totality of curtailment could be reimbursable. Could you give us more color on that specific point that would be much appreciated. Daniel Slaviero: Victor, I think that is an excellent point. We are monitoring this, not just in the press, but the discussions of several sectors about that. I think that we have to look at the glass as being half full. A half full glass means that it is possible. It is consolidated that the electric part and reliability is of value of the pure renewables, the wind plants and the solar power plant. They will have the right because this happened independent of [indiscernible] . The big problem, as you mentioned, is the energy piece. In my view, when we have the original tax and the amendment of the tax, in my view, that's a sign that one of the 2 will be too. And I think that this is a legitimate discussions on both ends of the generation companies trying to address this by saying that this will not have an impact for the consumer in terms of charges or not reducing tariffs. This is undeniable. There will be an impact. This is a structural decision. This is about what the government wants, what the Ministry of Mines and Energy and the central government understand. This is a risk of the entrepreneur, which is one thesis or if this could be reimbursed if they choose. If they choose this path, think that this will not have an impact on consumers, well, this is not sustainable. But we're monitoring this closely because, of course, curtailment is something that needs to be addressed in the future because it is indeed a topic that has made this segment of wind and solar power feasible specifically. I think that we are going to be seeing what's going to happen next, and we'll see what the government -- how the government will interpret the policy and understanding how to reconcile these 2 arguments, which are legitimate for both sides. Operator: The Q&A session is closed. I would like now to give the floor to Mr. Daniel Slaviero for his final statements. Daniel Slaviero: Well, I can only thank all [ COPELLIONS ] for another quarter of solid, stable results. They show how COPEL is a predictable company that has been performing well and delivering consistent results quarter after quarter. I think this is the first element. Secondly, I'd like to thank all of you for joining us your questions that were very relevant. The sector is going through a transformational moment and the regulatory and legal framework will undoubtedly have many impacts in the coming months and over 2026, some regulations will be necessary. But I think that we are moving forward with some structural changes. We have some positives, some not so good things, but we are moving forward. And I always stress the price signaling. If we have adequate price signaling, that's the best way. Whenever the government chooses certain segments or categories, I think that this causes future long-term deleterious effects. And we've seen this not just in the energy sector, but in several sectors. Once you give players benefits to remove them, it is very hard to remove them. And I'd like to close with the elements here on the T-shirt, it's about the culture, the cultural transformation that we are living at COPEL. As I mentioned on the 19th, we will share with you these elements about our culture, our ambition, our bold ambition, one that is relevant value generation, value creation for the company. Myself, all of my partners and all [ COPELLIONS ] are enthusiastic and very engaged with this new moment of COPEL, a moment that we are building together. We are building together a company that is and will continue to be a big benchmark in the Brazilian energy sector. Thank you very much. Have a good day. Operator: COPEL's video conference call is closed. Thank you very much, and have a good day.
Operator: Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to [ Mary Horn ]. Please proceed. Unknown Executive: Welcome to ESS' Third Quarter Fiscal Year 2025 Financial Results Conference Call. Joining me on the call today from ESS are Kelly Goodman, Interim CEO; and Kate Suhadolnik, Interim CFO. Following management's prepared remarks, we will hold a Q&A session. Earlier today, ESS released financial results for the third quarter of 2025. The earnings release is available in the Investor Relations section of the company's website. As a reminder, the information presented today will include forward-looking statements, including, without limitation, statements about our growth prospects, partnerships, Energy Base product, financial performance, capital raising, including under our ATM program, and strategy for 2025 and beyond and the impact of regulatory and legislative developments. The forward-looking statements are also subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors set forth in more detail in our most recent periodic filings filed with the Securities and Exchange Commission as well as the current uncertainty and unpredictability in our business, challenges with raising capital, issues with our partnerships, the markets, the economy, the current geopolitical situation and the development and launch of the energy base. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call today are based on assumptions and beliefs as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain items that are not indicative of our core operating results. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented within our earnings release. With that, I will turn the call over to Kelly. Kelly Goodman: Thank you, Mary, and good afternoon, everyone. Before we dive into the quarterly results, I want to take a moment to reaffirm who we are as a company and the value we deliver. ESS is a technology leader in long-duration energy storage. Our iron flow battery platform delivers safe, sustainable, non-flammable storage capable of 10 or more hours of discharge. Built with abundant U.S. sourced materials, iron, salt and water, our systems are designed to cycle over 20,000 times without capacity fade. That combination of durability, safety and sustainability positions ESS to meet a critical market need as data centers expand, electrification accelerates and utilities seek reliable clean power at scale. Short-duration and lithium-ion technologies simply cannot fill that gap cost effectively or sustainably. We have built strong relationships with Tier 1 customers, including SB Energy, Honeywell, Portland General Electric, Sacramento Municipal Utility District and most recently, Salt River Project. These partnerships validate our technology and highlight its readiness for real-world deployments, giving ESS a strong foundation as we move from development into execution. The third quarter was an important continuation of the strategic plan we have been executing throughout 2025. We advanced key customer programs, strengthened our capital position and laid the foundation for the delivery of our first Energy Base system. Most notably, we announced a 50-megawatt-hour Energy Base pilot project with Salt River Project, or SRP, one of the nation's leading utilities and a recognized innovator in long-duration storage. This project represents the first commercial scale deployment of our next-generation Energy Base platform and is a powerful validation of our technology and our team. Shortly after the SRP announcement, we completed a $40 million financing with Yorkville Advisors. That transaction reinforced our balance sheet and gave us the flexibility to move forward with confidence as we prepare for manufacturing and delivery in the next 18 months. Since closing that transaction, we have already repaid $15 million of the original $30 million drawn to date. For additional capital to support execution, we are launching a $75 million at-the-market equity program with a syndicate, including Yorkville, BMO Canaccord, Needham and Stifel. This is intended to provide efficient access to capital to support growth and execution as needed. As I step back and look at where we are, the progress this year has been clear and deliberate. We started 2025 with a focus on strengthening our leadership team and tightening our cost base. From there, we aligned our organization around the Energy Base, a product designed and manufactured in America to meet the growing need for 10-plus hour storage. Today, we are executing with customers who understand that long-duration storage is essential to a decarbonized and resilient grid. We are particularly encouraged by the strength of our commercial pipeline. Since launching the Energy Base earlier this year, 100% of our active opportunities are centered on this platform, with RFP activity and proposal volume continuing to increase. These engagements are larger in scale, longer in duration and more strategically aligned with the needs of major utilities, data center developers and industrial customers. Looking forward, our focus over the next 18 months is on execution, building, delivering and validating performance in the field. We are continuing to drive operational discipline, scale manufacturing capabilities and demonstrate to customers that our technology delivers safe, sustainable, long-duration energy storage at competitive costs. Finally, I am pleased to share that we plan to host an Investor Day in early 2026, where we will provide an in-depth look at our progress, the Energy Base program and our road map into 2026 and beyond. With that, I will turn it over to Kate for the financial update. Kate Suhadolnik: Thank you, Kelly, and good afternoon, everyone. Unless otherwise noted, all figures I'll reference are on a non-GAAP basis and reconciliations can be found in our earnings release. For the third quarter of 2025, we reported revenue of $200,000 compared to $2.4 million in the second quarter. The year-to-date trend reflects our ongoing transition from Energy Warehouse and Energy Center deliveries to the Energy Base platform, which will become the foundation of our commercial activity going forward. GAAP cost of revenues totaled $4.9 million while operating expenses were $5.1 million, consistent with our commitment to disciplined cost control. Net loss for the quarter was $10.4 million or $0.73 per share. We ended the quarter with cash, cash equivalents and short-term investments of $3.5 million which, as a reminder, does not include the $30 million of proceeds from the Yorkville financing, which closed after quarter end. These funds provide a solid runway to continue advancing manufacturing readiness and support early project execution. As Kelly noted, we are launching a $75 million at-the-market program, which we view as an additional tool, not a requirement for accessing capital. With the funding we secured earlier this quarter, we have the flexibility to time any use of the ATM strategically based on market conditions and our progress towards key milestones. Together with continued cost control, this positions us to execute from a position of strength. Operationally, we continue to focus our resources on productization of the Energy Base, vendor optimization and supply chain readiness for 2026 delivery. At the same time, we remain highly selective in spending, aligning every dollar to programs that directly support execution, delivery or validation in the field. In summary, Q3 was another step forward in strengthening our financial and operational foundation. We have greater visibility, improved efficiency and growing customer momentum, all key ingredients as we prepare for our next phase of growth. With that, I'll hand it back to Kelly for closing remarks. Kelly Goodman: Thank you, Kate. To close, ESS' priorities remain clear. One, deliver on customer commitments, starting with SRP and our early Energy Base programs; two, execute with discipline, controlling costs scaling responsibly and ensuring operational excellence; three, convert momentum into long-term growth, validating performance and building durable relationships with leading utilities and developers. We are proud of what the ESS team has achieved this year. The pieces we have put into place, technology, capital, customers and people are setting the stage for the next chapter of growth and value creation. Thank you for your continued support. And with that, we will open the line for questions. Operator: [Operator Instructions] We have a question from Justin Clare of ROTH Capital Partners. Justin Clare: So first, I wanted to start out with the Energy Base product here. I was wondering if you could just talk about the scale of the projects that you're currently pursuing with the Energy Base? And what kind of durations your customers might be looking for? And then also, just in recent RFPs, could you talk about the technologies that you're most frequently competing against? Is this lithium-ion potentially? Or is it primarily alternative long-duration technologies that you're seeing? Kelly Goodman: Sure. Thanks, Justin. This is Kelly. So to answer your questions in order, as far as scale, our strategy over the next couple of years is to deliver projects similar in size to SRP, which is a 5-megawatt -- 50-watt -- 50-megawatt-hour project but projects that have a significant follow-on opportunity in the next couple of years. So by that, I mean 100-megawatt or 200-megawatt project opportunities. As far as duration, our current Energy Base offering is a 10-hour duration. By 2029, we're targeting having a 16-hour battery. So that's sort of the duration we plan to offer in the later years. As far as RFPs and technologies, I would divide those into two buckets. We're seeing more and more RFPs that are specifically targeting long duration like SRP. And by that, I mean technologies that offer more than 10 hours. So in those RFP, we're competing against technologies that can actually offer more than what you see in the normal 4-hour space. In other RFPs that are sort of storage agnostic, we are competing against lithium, other competitors that offer for our storage, where we're really pleased by what we're seeing as an emerging trend and recognition that longer duration 10-plus hours will be needed. Justin Clare: Got it. Okay. I appreciate that. And then I guess, just following up for the RFPs that you are pursuing here, can you talk about the types of customers that are issuing me. So are these utilities, IPPs or are you participating in RFPs directly with data centers, whether it's behind the meter or front-of-the-meter approach? Kelly Goodman: Sure. So in the RFP space, I would say the customers are either utilities or they are IPPs acting on behalf of the utility. We are not engaged in RFPs behind the meter but rather for data centers and other customer hyperscale like that, those are bilateral conversations. Justin Clare: Got it. Got it. Okay. And then just on the balance sheet here. So you've obviously raised a decent amount of capital. And so wondering if you could just talk a little bit more about the use of proceeds for that capital in the near term. And then just thinking about your liquidity needs, how much runway does that capital provide you? And how are you thinking about liquidity ahead? Kate Suhadolnik: Yes. Justin, this is Kate. I'll take that one. I'm happy to give some more details as a lot has definitely changed in the last few weeks since the end of the quarter. As of today, we have roughly $30 million in cash on hand, and we still do have the ability to draw the remaining $10 million from Yorkville's promissory note at our discretion. So together with that and the new ATM program that we announced today, I think we feel we have significant flexibility to manage liquidity sort of on our terms as we need it over the coming months and quarters. Over the past 11 months, we've taken a lot of deliberate steps to streamline the company. We're really focused now rather than on survival, which has been kind of our focus on execution and really driving towards delivering on the SRP project, pursuing new opportunities. And as I mentioned, just really executing on those milestones as we move forward. Operator: That seems like all the questions we have. So I'll pass it back over to the ESS team for any closing or further remarks. Kelly Goodman: Yes. Thanks for that. This is Kelly. Just wanted to say thank you. Thank you for joining. Thank you for the support and look forward to what's ahead of us. Operator: Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your lines.
Operator: Good day, and welcome to the Tantalus Systems Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Deborah Honig, Investor Relations. Please go ahead. Deborah Honig: Thank you, operator. Thank you for joining us to discuss Tantalus Systems' financial results and operating performance for the 3-month and 9-month periods ended September 30, 2025. Tantalus issued these results, including their financial statements, management's discussion and analysis and press release yesterday after market close, which are also posted on the company's website. Joining me today on the call from Tantalus Systems, herein referred to as Tantalus or the company are Peter Londa, President and Chief Executive Officer; and Azim Lalani, Chief Financial Officer. During the call, we will make forward-looking statements about Tantalus' business. These statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Tantalus refers conference call participants either today or in the future to the company's forward-looking statements contained in the investor presentation on our website at www.tantalus.com. Statements made on this call reflect management's analysis as of today, November 13, 2025. Management does not assume any responsibility or obligation to update forward-looking statements made during this conference call unless required by law. Please note that the financial information referenced on today's call is stated in U.S. dollars and in accordance with IFRS, unless otherwise stated. The company is also presenting selected non-IFRS financial measures, including gross profit, gross profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, recurring revenue and annual recurring revenue referred to as ARR. Tantalus believes these non-IFRS measures provide meaningful information to investors. However, they do not have a standardized meaning and are not likely comparable to similar measures presented by other issuers. We'll now turn the call over to Peter Londa, President and CEO. Please go ahead, Pete. Peter Londa: Thank you, Deborah. Good morning, everyone. On behalf of our Board of Directors and employees, Azim and I are pleased to provide a business update through September 30, 2025. I'd like to commence today's comments by thanking the entire team at Tantalus for their contributions in delivering another quarter of milestone achievements and record financial results. The progress we continue to make on behalf of our shareholders is a testament to their hard work and dedication to our company, our customers, our shareholders and to each other. Based on the results we issued yesterday, we remain optimistic about the trajectory of Tantalus. To highlight a few items that Azim will address in more detail. Our team set new high watermarks for revenue generated in the third quarter of the year, revenue generated over a trailing 12-month period and orders converted out of our sales pipeline. The favorable financial and commercial results are a function of the urgency we are witnessing from utilities to modernize the distribution grid, particularly within the public power and electric cooperative market segment. The need to upgrade the distribution grid remains paramount as utilities struggle to improve resiliency and reliability, while simultaneously addressing affordability and accessibility. From our perspective, Tantalus’ data-centric approach is resonating with utilities that are seeking to prioritize their investments to address specific outcomes while also extending the life of existing infrastructure. Our ability to meet utilities where they are and provide them with the flexibility to go at their own pace has put Tantalus in an excellent position to gain market share and expand our user community. In the interest of time, I'll turn it over to Azim to walk through financial results in more detail and then provide a few additional operating updates before taking questions. Go ahead, Azim. Azim Lalani: Thank you, Pete. Good morning, everyone. I would like to remind everyone that we report our results in U.S. dollars. The company increased revenue to $14.2 million, reflecting 22.5% growth year-over-year. Revenue from our Connected Devices and Infrastructure segment increased by $2.2 million or 30% and revenue from our utility software Applications and Services segment increased by $500,000 or 10%. The increases in revenue are a result of higher sales volumes to our existing customers and the conversion of new utility customers that are commencing projects with Tantalus. Recurring revenue recognized in Q3 increased to $3.4 million and represented 24% of total revenue in the quarter. As an aside, our annual recurring revenue, which we report on a rolling 12-month basis, grew by over 11% year-over-year and now stands at $13.5 million. This is a high watermark for us and demonstrates that recurring revenue continues to scale. The company delivered another strong quarter of gross profit margin at 55%. Margins within our Connected Devices segment increased as lower provisions for customer accommodations, warranty and inventory obsolescence were recorded in the current period compared to last year. The gross profit margin in this segment includes the impact of tariff-related expenses. If you recall, Tariff decided -- sorry, excuse me, Tantalus decided to absorb 5% of tariff-related charges in partnership with our customers. Our Software and Services segment delivered gross profit margin of 74%. It should also be noted that our Software and Services segment is not impacted by tariffs. The slight decline over the prior period in this segment was due to a higher amount of revenue generated from installation services during the quarter. As a reminder, we offer installation services through third-party partners when a utility needs additional support to deploy our connected devices in the field. The company generated net income for the period of $384,000, reflecting an improvement on a comparative basis from the prior year period when we generated a loss of $361,000. The positive net income translated into a diluted income per share of $0.01, which compares to a diluted loss per share of $0.01 last year. We delivered positive adjusted EBITDA of $1.2 million during the quarter, reflecting an improvement compared to $585,000 in the prior year. The improvement in positive adjusted EBITDA is a result of strong revenue growth, resilient margins and disciplined cost management. We used $1.3 million of cash flow from operations with year-over-year changes resulting from changes in working capital balances. The working capital changes were offset by higher operating income. As at September 30, 2025, Tantalus had available liquidity of approximately $18.3 million, consisting of $9.8 million in cash and full borrowing availability of $8.5 million under our revolving line of credit facility. The company's operating expenses increased during Q3 2025, as a result of continued investments in sales and marketing and G&A to drive commercialization of the TRUSense Gateway. In addition, there was a reallocation of personnel-related costs for our customer operations team from the research and development category to our sales and marketing category. We believe this reallocation properly aligns to our internal reporting and oversight of the customer operations team. Based on the favorable results so far in 2025, we hit several new milestones on a trailing 12-month basis. including our revenue, which hit approximately $52 million compared to $42 million at September 30, 2024. The strong growth on a comparative basis from the trailing 12-month period from a year ago is a reflection of the continued momentum in our market segment and the urgency with which utilities are upgrading their distribution grids. Recurring revenue generated over the trailing 12-month period was also a record for the company at $12.7 million or 25% of total revenues. The aggregate growth of recurring revenue is a function of our business model and tied to the deployment of connected devices that lead to the activation of software licenses and opportunities to deliver analytics for as long as the devices are in the field, which is typically between 12 to 15 years. Gross profit margins remained strong at 54%. The continued strength of our margins is tied to the revenue contribution from software and services. We delivered positive adjusted EBITDA of $3.5 million, reflecting an adjusted EBITDA margin of 6.7% over the trailing 12-month period. As previously stated, the improving performance of adjusted EBITDA is tied to strong revenue growth and the completion of our research and development efforts to deliver the TRUSense Gateway. As we transition into the commercialization phase, our model affords us the flexibility to invest in sales and marketing as well as advancements in our predictive AI-enabled data analytics offerings. Beyond the reported numbers, I thought it would be helpful to reference that approximately 88% of our revenue generated in the quarter came from existing customers. This reflects our strong visibility with our existing customer base while improving our ability to convert and drive growth from new customers. Overall, we witnessed a very strong quarter and continue to make progress towards our objectives for 2025. I'll now turn it back over to Pete to address a few remaining topics. Pete? Peter Londa: Thanks, Azim. As referenced, we continue to absorb 5% of tariffs on our connected devices that are manufactured in the Philippines. The feedback we're gathering from our customers in absorbing that 5% validates the value and importance of our approach, particularly as we seek to invest in long-term relationships with each utility. While we have not witnessed a slowdown in our deployments or a change in the urgency across our market segment to modernize the distribution grid, we are mindful that higher prices resulting from tariffs may eventually impact the pace at which utilities deploy technology and/or allocate their investments across the distribution grid. To the extent we begin to witness a slowdown in activity or extended deployments, we'll adjust our plans accordingly. Despite the impact tariffs may have on overall economic conditions and investments in the electric grid, we see the pressure from tariffs as a means to further differentiate Tantalus given our commitment and technical capability to support reverse compatibility and support multiple protocols from a variety of devices already in the field. Our data-centric approach and commitment to support reverse compatibility is geared to maximizing the value of existing infrastructure. We believe that message is resonating with utilities and provides utilities with incremental flexibility as they allocate dollars. As some utilities may need to pause efforts to rip and replace metering infrastructure or other assets, the ability to surgically pinpoint the most vulnerable sections of the distribution grid and extend the life of existing assets with Tantalus' technology is critical. At the core, our approach helps utilities achieve the most valuable outcomes with the most relevant insights no matter where the underlying data comes from. We refer to this as unified intelligence across the distribution grid, which covers data and integrates data from the substation all the way to intelligent and controllable devices located behind the meter. Our approach is unique relative to other vendors in our sector and one that is translating into continued growth of our business. I believe this approach directly correlates to the record results we delivered on conversions from our sales pipeline through the first 9 months of this year and a very strong book-to-bill ratio of 1.37x. To that end, our commercial team has set a new record for our organization through the first 9 months of 2025 by converting $54 million in orders. Not only have our orders grown by almost 35% over the prior 9-month period, but the $54 million in orders is also the highest amount Tantalus has ever converted during an entire calendar year, and we still have the fourth quarter to convert additional opportunities from our pipeline as we begin to turn our attention to 2026 planning. Bolstering the commercial progress and conversion of opportunities out of our pipeline, I am pleased to share that the number of utilities placing orders for the TRUSense Gateway expanded to 52 as of September 30. This is up from 45 utilities that we reported as part of our Q2 results and far surpasses our internal estimates for 2025. We're witnessing strong interest from existing customers that are focused on deploying the TRUSense Gateway to expand and accelerate their grid modernization journeys with Tantalus. For existing customers, the TRUSense Gateway is a path to upgrade their communications network by leveraging fiber or cellular, coupled with the gateway's ability to serve as a collector. Power quality measurement and analysis is also a high priority for our existing customers, particularly as they look to protect transformers and other critical infrastructure deployed across the distribution grid. It is our view that our existing customer base will lead the way in deploying the TRUSense Gateway, providing us with an increasing number of use cases that can be shared across the industry in the coming months. With respect to utilities that are new to Tantalus, the flexibility of the TRUSense Gateway and its ability to support multiple use cases is a clear point of differentiation from our competition. We are witnessing the inclusion of the TRUSense Gateway in many of our new deployments, which is a key component of a utility decision-making process when evaluating vendors in a competitive dynamic. While the primary use cases that supports a utility's decision to include and deploy the TRUSense Gateway may vary, we're witnessing interest in all aspects of the gateway's capabilities. The ability to optimize asset management by upgrading legacy metering infrastructure without having to rip and replace those meters is gaining momentum. The ability to access power quality measurement at a level that has not been available at the electric meter socket previously is getting the attention of every utility we speak to. The anticipated need to manage and control load as power capacity constraints materialize in various regions of the United States and Canada sets us up for extended growth as we think about leveraging all aspects of the TRUSense Gateway and its behind-the-meter capabilities. The ongoing rollout of the TRUSense Gateway is on schedule and continues to gain momentum as we plan for year-end in 2026. In summary, we are extremely pleased with the progress that our team has made through the first 9 months of 2025, and we continue to see favorable conditions to support our growth trajectory moving forward. With that, operator, we can open up for questions. Thank you. Operator: [Operator Instructions]. The first question comes from Nick Boychuk from Cormark. Nicholas Boychuk: You mentioned the strong conversions and adds to the pipeline of utilities who are demoing and piloting the TRUSense up to. A lot of those though have now been in the pipe for a little while. I'm curious if you can add a little bit of color on the staging and breakdown of those that are early, mid or advanced and what you're seeing in terms of feedback of them converting now into commercial orders? Peter Londa: Yes, Nick, thanks for the question. I'd say at a high level, the scaling of utilities placing orders is coming both from our existing customer base as well as new utilities that have been evaluating Tantalus for our TRUConnect AMI capabilities. Where there's a nuance there, Nick, is on the new utilities or new to Tantalus. We have some circumstances where we have been pursuing a sales process for an extended period of time and now able to also incorporate the TRUSense Gateway as a part of our solution or design and capabilities. I'd say, from my perspective, the ability to include the TRUSense Gateway, especially now that we have devices in the field and an increasing number of utilities deploying, it adds not only credibility to the capabilities, but also an example of how we can provide as much flexibility to a utility when they're really trying to think through where to prioritize their investments and what to do first. It's a little hard to specifically disaggregate relative to the question that you've asked. I'd say, we continue to have -- it's not a precise percentage, but of the 52%, 70-ish percent of those utilities are existing customers, meaning utilities that have already fully deployed and/or are migrating to new capabilities, about 30% of those utilities, it's not exactly, 30%, but that ratio still applies from a few months ago of utilities that are buying something from Tantalus for the first time. I hope I've answered your question. Nicholas Boychuk: Yes. I guess I'll kind of take it in a different way. Given that you do have some new utilities to the Tantalus ecosystem, is it fair to assume that budget either constraints or time, are impacting some of these decisions? If you've gone to a new utility now and now proposed an additional solution that includes the TRUSense and so it's more encompassing, are they reviewing their entire budgetary process and maybe going to wait for the calendar to flip in order to place that order? Peter Londa: We have not seen that, Nick. No, I'd say the -- we haven't seen the inclusion of the TRUSense Gateway either in a sales process where we're pursuing an opportunity in an unsolicited manner, meaning no RFP or responding to an RFP that's in the market with the TRUSense Gateway. We have not seen the inclusion of the gateway necessarily push out decision-making or change budgeting process. Example, in many circumstances, we are using the TRUSense Gateway not only as an edge device, but also a collector, and so what it's doing is it's modifying the approach and the system design on the communications network relative to other collectors that we may put in the field or repeaters, but it's not impacting, I think, timing of decision. I'd say, if anything, I think we're seeing some utilities move a little faster as a result to try to get access to the device and get it into the field, access the data and from there, prioritize other investments that they may be looking that go outside of what Tantalus does. Nicholas Boychuk: Now you mentioned that a lot of these utilities, 30% of them are brand new to the Tantalus ecosystem. Are you able to quantify how much of an impact your increased spend in sales and marketing has had on that? Or are those 30% more word of mouth and you're expecting that investment in sales and marketing to have an even greater impact in bringing new firms into your ecosystem? Peter Londa: Yes. The investment in sales and marketing is twofold, Nick. Some of it's headcount. I'd say the additions certainly in a new role for Tantalus, business development, senior business development managers that are professionals that we've been able to add to our team. I'd say the ramp-up for new hires in a business development capacity or regional sales manager capacity, it takes time before they can hit the ground sprinting with some of the opportunities already in the pipeline, but building out the pipeline, building up their messaging, accessing their network, getting in front of customers, that takes time. I'd say the conversion -- the increase in orders year-to-date and the increase in the number of utilities that are placing orders for the TRUSense Gateway is a combination of word of mouth and I'd say some marketing collateral. We are certainly starting to see acceleration with the additional headcount, but I think there is more velocity on a per person basis as our investments in headcount for sales and marketing really get acclimated into the organization and really start firing on all cylinders. Our hope is we can accelerate further based on the investments that have been made. Nicholas Boychuk: Then last one for me, just on the legacy business. Thinking about the Riverside deal that was announced last quarter, are you seeing any change in the organic growth within that legacy hardware area? Or are we still comfortably in that 10% to 15% year-over-year kind of volume range? Peter Londa: Yes. I think, Nick, I'd say we haven't seen anything change. We're fortunate. We've got a robust and substantive user community that are at a variety of different stages of their grid modernization journey with Tantalus. Riverside, a great example of the utility that started with us years ago and wanted to maximize the life and return on some legacy infrastructure that we were able to support without a full rip and replace. Then as their budget dollars became available and as they prioritized investment, it's now where they are migrating their entire infrastructure to advanced capabilities with us. There are a number of utilities within our user community similar to Riverside that started with us on what we refer to as our ERT overlay capabilities, meaning upgrade ballpark 20% to 30% of their metering infrastructure and then leveraging that investment to read installed legacy encoded receiver transmitters, ERs. I think there are multiple opportunities within our user community to replicate what Riverside is doing to drive that growth trajectory. I'd say it's year-over-year, it might vary a little bit. We've seen that historically, but yes, based on the opportunities within our existing customers to help upgrade and/or complete deployments and/or refresh legacy deployments, I think lends itself to a fairly attractive growth rate for the core business. We don't see any change in that, Nick. Operator: The next question comes from Daniel Magder from Raymond James. Daniel Magder: Congrats on a fantastic quarter. Just a couple from me here. You continue to add utilities to the user community. Are they generally coming to you with an interest in a single part of the platform? Are they evaluating multiple? Any color you can provide on that would be appreciated. Peter Londa: Daniel, I'd say not to sidestep, but it depends. I'd say overall, if we take sort of a holistic view of it, utilities evaluate technology and Tantalus with a specific set of outcomes in mind, and so historically, it's automating metering infrastructure and/or automating the broader distribution grid. I think most utilities come to market looking to invest in a specific area. That landscape slide that we included in our investor deck is -- it's a good visual from my perspective because it demonstrates the number of entry points where we can start to activate with the utility, whether that's focused on the substation and trying to help automate some of their heavy equipment in the distribution grid to metering infrastructure to now behind-the-meter capabilities. I'd say it's still common that most utilities are focused on one specific area. As our sales organization digs in, as our commercial organization has pulled behind that, I think we're able to expand horizontally across the utility, and it is the flexibility of not only solving today's problem that might be the priority and where the dollars are being spent, but having the flexibility with a unified platform that not only supports our stuff, but also is truly driven towards interoperability with third-party capabilities. I think that's what's differentiating us and leading to an increasing success rate with utilities converting out of our pipeline. Daniel Magder: In regards to the Gateway, I know you mentioned there's multiple use cases that utilities are evaluating. Are the individual connections tied to those use cases, whether it's per home group of homes? Or is it really just utility dependent? Peter Londa: At this point, Daniel, it's utility dependent. I empathize on trying to model it out and what things could mean on a ratio basis or a scalability basis. What I'd say is we'll continue to evaluate and we'll continue to share information as we see additional numbers of those 52 utilities, now 52 activate and then plot out their deployments. I think that visibility will continue to improve as we get into 2026. As I think about -- nothing is viral in the utility industry, and so when we think about growth and scale, we're always mindful of the time and the deliberate nature of how utilities move forward with innovation, right? They are risk-averse animals. They just are, and so navigating the timing of that risk aversion is kind of thread the needle a little bit for us as we think about it on a quarter-to-quarter basis. But overall, I see consistency across utilities that are leveraging the TRUSense Gateway and where that consistency ties to the very granular market-leading power quality measurement capabilities. Every system operations and engineering team that I think our sales team and certainly that I've had a chance to interact with, the TRUSense Gateway resonates with them. The access to that data resonates with them. Even though we may start a process, to your first question, tied to helping upgrade a legacy PLC system or a legacy drive-by metering system, as soon as we demonstrate what the TRUSense Gateway is capable of to not only support that effort, but then also deliver power quality measurement on top of it, it's a force multiplier. For us, I like to use the expression, the TRUSense Gateway helps us demonstrate and build a communications network, which is vital for all utilities to access data from devices. It's a communications network with a purpose. This isn't just about sending and receiving data any longer. It's about actually using the communications networking capability of the TRUSense Gateway as a power quality measurement device. I think that is very unique in today's landscape. I see consistency not only with our existing customers that are looking to upgrade their networking capabilities with us with the TRUSense Gateway, but a clear path for us to differentiate ourselves against competition. Operator: The next question comes from Gianluca Tucci from Haywood Securities. Gianluca Tucci: Congrats on the quarter. Just at a high level, could you perhaps speak to what you're seeing in the industry from a customer perspective in adopting smart grid technologies given all the noise around the data center and AI, right now? Peter Londa: Yes, Gianluca, and not a day goes by without something in the press about it. It's a great example of the pressure utilities are under. To avoid confusion, we're not focused in on solving the problem of a data center or the power that's needed to support a data center. Where the opportunity surfaces for Tantalus is twofold. How do we help an electric utility improve the power quality metrics of their existing distribution grid to be in a position to attract the commercial entities that are looking to establish data centers in different geographic areas. As we think about where data centers are surfacing, there's obviously real estate costs, there's construction cost. There's human capital access and hiring, but working with a utility that has high power quality and attractive rates is a big component to the decision-making process from our view of where a data center surfaces. I think we can help utilities certainly with the TRUSense Gateway and the robust capabilities around our analytics and TRUSync offering to fundamentally improve the resiliency, the reliability and the quality of their grid, improved power quality and lower rates equals economic development and an opportunity to bid for those types of investments in data centers. Secondarily, depending on the size of data centers, obviously, the largest ones get the attention in the news and there is circumstances where utilities are building dedicated substations and/or dedicated sources of power just for that data center itself. From our perspective, as you think up the chain from that and down through the broader distribution grid, it's what's the power quality to and from? How does the utility throttle peak demand as those data centers potentially create capacity constraints for them over time, and so the TRUSense Gateway, we're still working on it, but there is a long-term opportunity for us to help utilities truly control load behind the meter and use that load in an aggregated manner to shift peak load and potentially improve their reliability and delivery of power down to a data center, which is paramount. I think it's -- as you see those -- as you see data centers surface in certain regions of the U.S., it's indicative of where investment is going into the grid. I think we get the benefits of those tailwinds because the investments are really made at the distribution grid level to support those data centers. I think the power quality measurement capability of TRUSense Gateway and the analytics tools that we are deploying today and continuing to enhance and expand, I think that's where we can distinguish ourselves and put ourselves in a very good position where utilities are scrambling to try to both attract and then support those data centers. Gianluca Tucci: Perhaps one for Azim. Just on the balance sheet, things look pretty good over there. Are you comfortable on a working capital perspective as you head into a new year here, given the expectations of a nice ramp on the TRUSense side of things? How are you feeling about the balance sheet on a working capital perspective, Azim? Azim Lalani: Certainly, we're comfortable with a couple of things. Number one, our liquidity certainly allows us to flex the balance sheet to support development of the TRUSense Gateway. Secondly, our negative cash conversion cycle certainly provides additional support in working towards supporting TRUSense Gateway. Operator: The next question comes from Gabriel Leung from Beacon Securities. Gabriel Leung: Pete, I know you're currently working on your 2026 budget, but just generally speaking, given the pipeline, given the environment, how are you thinking about revenue growth for next year? Do you think you're going to be sort of in line with what you've sort of done year-to-date? Or is there an opportunity to accelerate that growth? Then concurrently, how are you thinking about sort of margins going forward? They've obviously been improving every quarter this year. How are you thinking about margins -- growing your margins versus sort of the land grab opportunity in front of you? Peter Londa: Thanks for the forward-looking question, Gabriel. I'd say -- so the -- at a high level, I think our team is -- as you recall, we don't provide guidance looking forward, but consensus numbers for 2025, I think, remain a very good bogey for our company. I think we're comfortable as we sit here mid-November. The consensus numbers for 2026, I think, are still a very good bogey for Tantalus, both revenue and adjusted EBITDA as it's yet another strong year of growth year-on-year. I don't see us flexing that model too much or changing it, Gabe. I think our approach right wrong or indifferent, has been measured to the extent where the balance sheet is in good shape, no doubt. The liquidity is available to support our growth trajectory. We continue to try to time investment in headcount and broader investment in the company as we increasingly gain confidence in the growth profile of the revenue. That's partly conditioned on a long history at Tantalus of not having a robust balance sheet and liquidity. I'd say we're somewhat crumoginally in that capacity. With that said, as we think about 2026, the progress that we're making justifies an incremental investment in this business. When we look at on a trailing 12-month basis, to see almost 7% adjusted EBITDA start to materialize and Azim highlighted on a trailing 12-month basis, positive cash flow from operations, positive free cash flow for the business, I think we've got some flexibility to invest. Typically, investments in sales and marketing take about -- if we're really lucky, 6 months, more realistically, 12 months to start to contribute and drive incremental revenue, and so I think that's part of the process that we're going through right now as a management team and then ultimately to our Board of Directors as we think about additional investment in the operating expenses of the business. To your question on margins, the gross profit margin is certainly continues to be strong for us. I think just the nature of our model supports that, and it reflects the absorption of the 5% in tariffs at this point. I think we're fairly confident and comfortable with where gross profit is. There might be some compression over time, but I think our long-range planning remains north of 50%. The EBITDA margin is a little bit harder for us to answer. There is opportunity to expand it. We are weighing that though, relative to land grab and market share. Beyond just 2026 revenue growth, how do we start making decisions today that are going to impact 2027 and 2028. I think we're getting -- I think we'll the #1 priority for this company and #1 goal for our team is profitable and sustainable growth. I think we're at a point with operating leverage in the business and where revenue profile is that we can continue to achieve both. I don't see us getting aggressive to stretch the EBITDA margin just yet in 2026. We've shared sort of a 15%, 17.5% bogey inside this organization. I still think that's 2, 3 years out because we're going to invest in this business. It's the right thing to do relative to the opportunity that's in front of us. That's my point of view, Gabe. I'd say that obviously, we've got to run through the budgeting process and then ultimately get direction and support from our Board of Directors. Gabriel Leung: Just as a follow-up, Pete, in your preamble, you talked about not seeing a slowdown in deployments or urgency of deployments stemming from the higher prices from the tariffs. I'm curious, is there a level where some of your utility customers may start to pause some of their investment cycle decisions? Are you getting that sense that there's some concerns around that? Peter Londa: We haven't received that feedback. At least the feedback hasn't surfaced and been shared at our exact level from utilities. We're continuing to see robust engagement not only with our existing customers, but we're not seeing decisions with utilities evaluating new technology. We're not seeing those decisions postponed or delayed or reduced. I'd say that the urgency that we see, both existing customer base and in our sales pipeline is consistent. Some of the parameters just in supporting Tantalus or being part of our team for now over 11 years, one indicator that I start to pay attention to is as economic uncertainty surfaces, consumer spending. It just seems to be a barometer of what's happened in the middle America where a lot of the public power and electric cooperatives sit. As consumer spending drops, at least over the past decade, a few times when that's happened, it's indicative of where dollars start to get crunched and that can then impact individual's ability to pay utility bills. That then has a cascading impact on utility decision. We saw that in COVID in black and white, very clear. We haven't seen a lot of sensitivity on that. We haven't seen or heard from utilities of we need to start pushing things out or can you push shipments out or can we pay over time. We just haven't seen it. I think the urgency to upgrade the distribution grid is that the return on investment is sound. It is proven. I think utilities are looking to accelerate on it to do everything they can to bolster their communities and put their communities in the best position possible. I think that's where we sit, mindful of broader sector messages, but we still see heavy investment in what we do. Operator: [Operator Instructions]. The next question comes from Daniel Rosenberg from Paradigm Capital. Daniel Rosenberg: My first one comes around the fiber application of TRUSense. I was just wondering if you could share any information on progress in your go-to-market and securing pilots or working with your channel partners in that regard. Peter Londa: Yes, Daniel, so Irby is our first and one of our key channel partners to chase after the utilities that are deploying fiber all the way to the home. It's a core competency within Irby. They have a broadband division that actually both weighs installs and then manages fiber networks. I'd say the initial progress that we made with Irby, a great example being Bolivar, which we had announced previously, [indiscernible] Tantalus fiber-to-the-home player or fiber-to-the-home utility. We are very close to completing the deployment with the city. I'd say, fortunately, between Irby, Bolivar and Tantalus, it's providing us with a terrific case study that will run through over each channel far and wide across the U.S. I think things have gone well, and we continue to make progress. I think we continue to have an individual swim lane to chase after those utilities. We are evaluating how we leverage additional channel partners that really specialize on the broadband side, Daniel, as a force multiplier to what the good progress that Irby is already making on our behalf. Daniel Rosenberg: Then outside of that use case, I was curious about any competitive changes to the landscape, anything you're seeing on pricing or go-to-market? Anything you could share there? Peter Londa: As it relates to the TRUSense Gateway, we have not seen a change in the competitive landscape, fortunately. I think continuing to validate our first-mover advantage and the opportunity in front of us. We have seen a few of our -- a few of the metering vendors some who we partner with today and also compete with, we have seen how they are trying to present their latest metering platform referred to as AMI 2.0 by a few vendors as an alternative to TRUSense Gateway. I think the distinguishing factor there is the TRUSense Gateway isn't about ripping and replacing all existing meters. It's about supplementing what's already in the field and then extrapolating data from a very specific location and area. The AMI 2.0 strategy requires a rip and replace of all meters or certainly meters in a specific area. It's not a one-to-one comparison, but we have seen some of that surface as it relates to the TRUSense Gateway. As it relates to pricing, we've seen vendors take some different approaches as it relates to tariffs. some just bundling it into their pricing and presenting a higher price that includes the tariff, some line iteming it out for transparency the way we have done to date. I think that's still case-by-case and company-by-company. We've seen a vendor that we think is a little bit further behind in technology, try to get more aggressive in pricing to secure business. That's not uncommon in our sector, and it's not uncommon in periods of time. I'd say nothing there that's surprising or changes the landscape for us. Daniel Rosenberg: Then just my last question. It seems like the software portion of the business is performing well. Your recurring numbers are up, and it seems to be having an impact on the margin profile. I was just wondering, as you think about '26, change your thinking in terms of what's the potential of this business in terms of gross margin? Peter Londa: Yes. As the TRUSense Gateway rolls out, Daniel, upfront, utilities are -- the model that we have today is utilities pay upfront for the connected device. They pay for a software license and then that software license kicks in the 22% annual maintenance on that software license. It starts at month 13 and continues as long as the device is in the field. Given the list price and the pricing of the TRUSense Gateway, I think aggregate dollars for software and service will increase. When we think about the life 12 to 15 years of a TRUSense Gateway being in the field, your first year, 1.5 years, it's heavily weighted to the hardware, the connected device because of how expensive it is or the price point. Then as years go on, that recurring revenue is collected every year, and so on a blended basis, your gross profit margin has upside. In the near term, as we roll out the TRUSense Gateway, the aggregate dollars, revenue, gross profit, revenue from software and services will go up. I could see margin compression in the aggregate because, right, the upfront dollar spend on the TRUSense Gateway is the purchase of the device, plus that initial software license. The percentage allocation and the contribution percentage is different. Does it make sense? I think long term, as we think about -- yes, as we think about gross profit over the life of a device, I think there is upside from where we are. In the near term, I actually think there may be some adjustment because the next 12 months, we're going to sell a lot of connected devices as we get TRUSense Gateways activated, and the connected device does not have the same margin profile as the software license itself. Aggregate dollars will go up, and I think that's where we're more focused. Then as we price things out and think about our return, what's the aggregate gross profit margin over the life of the device, and that's where I think there's upside. I hope that makes sense. Operator: Then we have a follow-up question from Gianluca Tucci from Haywood Securities. Gianluca Tucci: Pete, just last one from my end here on M&A. Tantalus has been quiet on M&A now for a couple of years. Just curious if there's anything that you're seeing out there that makes sense from a technical perspective as your valuation in the market improves. Peter Londa: Yes, you bet, Gianluca. Our focus has and continues to be executing on the organic growth that's in front of us and ensuring that we do our best not to disrupt the team from the task at hand, especially as we activate the commercialization of the TRUSense Gateway. I think as we turn the page into 2026 and start to have increasing levels of confidence in that commercialization, it will free up time for members of the executive management team. I think to put our heads up, Gianluca, and start to think about how we potentially accelerate that grid modernization journey strategy that we have, either through additional R&D organically and/or through some targeted M&A. I'd say there are -- in our sector, there are some smaller organizations that continue to make good progress, but may not necessarily have balance sheet, the investor base or the sales channel to really scale. I think as we start to get into 2026, and can free up some time from the task at hand on the TRUSense Gateway. It should afford itself to potentially start to think a little bit more broadly and contemplate another targeted transaction similar to what we did with Congruitive. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Peter Londa, President and CEO, for closing remarks. Peter Londa: I'd just say, well, Azim and to the finance team, thanks for all of the hard work to get organized for our quarterly results to the broader team Tantalus truly, truly appreciate the hard work at both the individual and team level. For our shareholders, we appreciate the continued support and patience as we activate and continue to scale the company. I'd say, based on the first 9 months of 2025, we really stand in a great position to have a historic year for our company. I appreciate everyone's time and attention today and continued interest in Tantalus. To the extent there are further questions or interest in additional information about our company and/or our financial results, please visit the Investor landing page on our website at www.tantalus.com. Operator, thanks for support today. I hope everyone has a good balance of the day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group Third Quarter 2025 earnings call. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. Now I'll turn the call over to Christine Greany of the Blueshirt Group to begin. Christine Greany: Hello, everyone, and thank you for joining us. With me on the call today is Franco Fogliato, Chief Executive Officer; and Randy Greben, Chief Financial Officer. Before we begin, I would like to remind you that information made available during this conference call contains forward-looking information and actual results could differ materially from those that will be discussed during this call. Fossil Group's policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available in the company's Form 8-K, 10-Q and 10-K reports filed with the SEC. In addition, Fossil assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During today's call, we will refer to constant currency results as well as certain non-GAAP financial measures. Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-GAAP financial measures discussed on this call in Fossil's earnings release, which was filed today on Form 8-K and is available in the Investors section of fossilgroup.com. With that, I'll now turn the call over to Franco. Franco Fogliato: Thank you, Christine. Good afternoon, everyone, and thank you for joining us today. I'm pleased to open this call with the headline that we have successfully transformed our balance sheet, marking a major milestone under our turnaround plan. We announced today the completion of our bond restructuring, which extend our debt maturity to 2029 and brings more than $32 million of new capital to the business. Strengthening the balance sheet was one of the 3 pillars under our turnaround plan and has been a major focus of our team over the past year. After months of hard work and with the support of key stakeholders, we now have the financial flexibility needed to drive the business forward and turn the page to our next phase of long-term value creation. Another noteworthy achievement I want to highlight is Fossil's second consecutive year on Time Magazine list of World's Best brands. For 2025, Fossil made every country list survey, ranking as the #1 watch brand in Germany, #2 in the U.S., #5 in both the U.K. and Mexico. We're incredibly proud of this recognition by consumers around the world, which speaks to Fossil rich manufacturing and storytelling heritage. Importantly, this achievement comes against the backdrop of a strengthening watch market globally. U.S. Circana data from Q3 highlights indirect market growth versus last year of low single digits with the department and specialty store channel up low double digits. For the Fossil brand in Q3, we saw traditional watch sales trending better than the market, up high double digits in these channels. This fundamental industry and brand strength underpins the ongoing success of our turnaround plan. Moving now to our Q3 results. We're pleased to have delivered another quarter of strong financial performance. We narrowed our sales decline to 7%, reflecting year-over-year improvement in both the wholesale channel and our Fossil retail stores. Global growth in the wholesale demonstrates continued strength from our strategic initiative as well as a shift in the timing of certain shipments from Q4 into Q3. A key call out this quarter is the quality of sales. Average unit retail is higher in both our wholesale and direct-to-consumer channels, reflecting a strong combination of lower promotional activity, product mix and pricing architecture. Third quarter gross margin remained strong, notwithstanding the recognition of minimum royalty deficit, which Randy will cover during his remarks. Our focus on full price selling has fundamentally changed the margin structure of the business, positioning us to return Fossil Group to a best-in-class gross margin profile in the mid-50s this year. During Q3, our disciplined approach to promotion and strict cost control translated to the bottom line, where we substantially narrowed our adjusted operating loss year-over-year. The improvement on a year-to-date basis is even more pronounced, moving from a loss of $58 million in the first 9 months of 2024 to nearly breakeven for the same period in 2025. For full year 2025, we expect to achieve a breakeven to slightly positive adjusted operating margin. Our teams are continuing to deliver sharp execution across our 3 turnaround pillars: refocusing on our core, rightsize our cost structure and strengthen the balance sheet. Looking at the strategy under our first pillar, refocus on our core. Over the past 9 months, we have reignited our design and storytelling engines to build a robust Fossil brand platform for the future. In Q3, Nick Jonas officially took the helm as a Fossil global brand ambassador. Since the August launch, the worldwide campaign has generated nearly 6 billion impression. We kicked off with a 1-day event for fans and Media in New York City, which included a surprise appearance by Nick, followed by regional events in major cities, including Berlin, Manila, Mumbai and Paris. Simultaneous with the campaign launch, we partnered with Nick to introduce an exclusive product line for Fossil. This bold and nostalgic collection has exceeded our expectations in the first few months. Also compelling, some of the best-selling items sold for $300, $400, a much higher price point for Fossil, which is driving higher average unit retail. Additionally, Nick's global reach and influences is attracting a younger male democratic to Fossil. Together, the campaign and product launches fueled brand heat, generated positive global press coverage and drove incremental traffic to both our website and stores. In addition to the success of our new collection with Nick Jonas, Fossil collaboration with Fantastic Four and Galactus have been standout performance in key markets globally. In the U.S., Fantastic Four sold out during our early access event online as was out of stock in stores within week 1. In EMEA, the collaboration sold out online within 3 days. Galactus was also a tremendous success selling out online in both the U.S. and EMEA on day 1. For the upcoming holiday season, we will continue to amplify the Nick Jonas collection and position Fossil at the center of key shopping moments. Initial trends in our DTC channels indicate that our holiday collection is resonating with consumers with momentum building week-over-week. We will be extending that energy globally with initiatives like our immersive pop-up in Le Marais in Paris during December, which is designed to showcase Fossil gifting spirit in a culturally relevant way. Across markets, we're staying committed to brand investment, working closely with media and PR partners to build awareness, desirability and brand heat. Turning now to our co-licensed brand, Armani, Kors and Diesel. We continue to generate improved performance in key markets across the Americas, EMEA and Asia, driven by product innovation as well as our investments in point of sales and in-store presentation. From a brand perspective, Kors, Armani Exchange and Diesel all demonstrated year-over-year growth in the wholesale channel during the first 9 months of the year, while the Armani brand remained pressured by the macro environment in China. Next, we continue to make progress towards optimizing our global wholesale footprint, which can be seen in many of our leading indicators. During the third quarter, the wholesale channel increased mid-single digit globally with notable strength in the EMEA and Asia region. In the U.S., traditional watch performance was up slightly in wholesale, while the Fossil brand grew double digit. Within Asia, both India and Japan grew double digits. We recently strengthened our team in Asia with the appointment of Davin Leong as a General Manager of the region. Davin is a seasoned leader who will advance our global commercial strategy to drive an enhanced market presence and accelerate growth across the region. In EMEA, the transition to a distributor-led model in select European markets is enabling us to simplify our operation while driving increased sales and profitability. Most recently, we signed a new distribution agreement with Morellato Group in Italy, which takes effect January 1, 2026. Morellato brings decades of expertise in watches and jewelry, along with a deep understanding of local markets, which is expected to help us extend our reach and fuel long-term profitable growth in this key geography. Thus far, we have transitioned 6 European markets to a distributor model, and we'll continue to evaluate opportunities to drive scalable growth in highly relevant markets going forward. As I mentioned earlier, our initiatives to strengthen channel profitability are returning the business to a healthy gross margin profile. This is primarily being driven by our commitment to a full price selling model, which was one of the first major initiatives we put into place when I joined the company a little over 1 year ago. This discipline is driving improved traffic quality at both our Fossil stores and e-commerce website while also generating higher average unit retail. Traffic and conversion trends in our Fossil retail stores improved notably in Q3 with particular strength in the U.S. as our new clientele initiatives started to gain traction. Our Store of the Future, which we discussed in our Q2 earnings call, has been rolled out to all of our U.S. stores and over a dozen EMEA locations. The mission behind this new concept is to deliver a standout experience for the customer. We have reimagined retail to meet the evolving needs of today's guests, empowering stores to shine as a distinctive experience-driven destination where personalized service leads, community matters and strong results follow. We believe we can unlock profitable sales growth by blending lifestyle selling, data-informed decision and a purpose-driven strategy with the goal of creating meaningful impact beyond the sale. The initial results are compelling for driving increased traffic to our store, winning higher average order value and attracting new customers. Looking now at our second turnaround pillar, rightsizing Fossil group cost structure. We've taken these actions to strengthen our operating model and continue to act with financial rigor to position the business for long-term profitable growth. Year-to-date, we have generated over $60 million in cost savings and reduced our SG&A by 260 basis points on a 10% sales decline, achieving better leverage on our cost structure as we transform the business. Lastly, I'm happy to reiterate that we have delivered on our third key pillar, strengthening the balance sheet. These week marks a significant turning point of our business and sets us up for the long-term success. Randy will share more details with you in just a few moments. Entering the final months of the year, we are reiterating our financial guidance and remain confident in our path to drive profitable growth. We have strengthened our core, return to healthy gross margin profile, rightsized our cost structure, improved working capital management and fortified our balance sheet. While there are a number of successes to celebrate, we are clear about what we have yet to accomplish. Our teams are energized by the opportunity in front of us and committed to delivering flawless execution as we strive to build a stronger Fossil Group and deliver value to all of our stakeholders. Now I will turn the call over to Randy to review the third quarter financials and discuss our outlook. Randy Greben: Thank you, Franco, and good afternoon, everyone. We delivered strong Q3 performance, reflecting another quarter of progress and momentum under our turnaround plan. Third quarter net sales totaled $267 million, down 7% in constant currency versus prior year. This is slightly ahead of our expectations, reflecting ongoing traction from our turnaround initiatives as well as a shift in the timing of some wholesale channel shipments from Q4 into Q3. Gross margin in the third quarter came in at 48.7%, that's down 70 basis points versus last year and more meaningfully on a sequential basis. There are so many positive proof points with respect to our turnaround, taking root that were offset by the minimum royalty shortfall true-up I spoke about on our last call, but I'd like to take a moment to talk about them. Our focus on full price selling has fundamentally changed our margin architecture with the reduction in discount rate of more than 50% versus last year on Fossil brand e-commerce sales in Q3 being just 1 example. Our sourcing initiatives resulted in improved product margins in our core categories, driven by optimization of our supply chain and successful negotiations with key suppliers in all categories. We have retooled our open-to-buy process, distorting our investments deeper into bestsellers and driving more efficient inventory turns and productivity. We implemented targeted price increases and to date, have not seen any meaningful reduction in purchase behavior or any notable volume shifts. And lastly, we drove an increased mix of higher-margin traditional watch sales. All of these actions helped us mitigate expected tariff headwinds in the quarter. However, the aggregate benefits from these moves was offset in Q3 by the impact of licensed brand minimum royalty payment true-ups. As we discussed on our August earnings call, from an accounting perspective, we have historically recognized any minimum royalty deficits in the second half of the year, the majority of which were recorded in our third quarter. Because of our smaller sales base, this year, the impact was more pronounced. It's worth noting that underlying gross margins improved in Q3 compared to the prior year, but the improvement was offset by the impact of royalties. It's also worth repeating my comments from our August call. While we did receive some minimum royalty reductions with our key license partners that benefit us moderately in 2025, we have agreed on significantly more meaningful reductions for 2026 when we expect to materially reduce the Q3 minimum royalty guarantee shortfalls that we've experienced as our license business has contracted. Our turnaround initiatives are foundational and have resulted in a structurally higher margin business. Therefore, we continue to expect full year gross margin to be in the mid-50s, caveating, of course, that the tariff environment remains quite fluid. Turning now to operating expenses. We continued to demonstrate exceptional expense management in the quarter. We lowered SG&A expenses by 10% versus prior year, primarily driven by our cost reduction initiatives. As a percentage of sales, SG&A leveraged by 160 basis points versus prior year coming in at 54.3%. The year-over-year improvement can be traced to 47 fewer stores in operation versus a year ago and lower compensation and administrative expenses. During Q3, we closed another 10 stores bringing us to 44 closures year-to-date, all occurring at natural lease expiration with minimal closing costs. Our teams are continuing to act disciplined enabling us to deliver meaningful SG&A savings of over $60 million year-to-date in 2025. Looking now at earnings. As we anticipated, the impact to gross profit from the minimum royalty deficit resulted in an adjusted operating loss for the quarter. Nevertheless, we substantially narrowed Q3 adjusted operating loss to $15 million from $22 million a year ago. Moving to the balance sheet, we ended the quarter with $102 million of liquidity, including $80 million in cash and cash equivalents. Liquidity was down sequentially from Q2, reflecting the planned ramp-up in marketing spend and the normal cadence of seasonal working capital movements. That said, comparisons to prior periods are somewhat distorted by the transition to the new ABL facility reported on our last call and entered into during the quarter. This new structure is more efficient and purpose-built to align with the scale and seasonality of our business. Importantly, the facility carries a 5-year maturity. Quarter end inventory totaled $167 million, down 26% year-over-year, consistent with our expectations. Cash conversion performance remains on track, supported by ongoing initiatives aimed at reducing structural cash volatility and driving more consistent free cash flow generation. Overall, working capital discipline continues to improve. Global net working capital declined by approximately $90 million year-over-year, reflecting lower inventory levels and tighter management of receivables and payables across the organization. Turning now to our balance sheet transformation. To echo Franco's sentiment, we are thrilled to have reached a major turning point with respect to the capital structure of the company, delivering on the third pillar under our turnaround plan. We successfully completed the exchange of our 7% senior notes due 2026 for new 9.5% notes due 2029, which extends the maturity of our debt by 3 years, and comes with $32.5 million in incremental new money financing. Further, the completed exchange gives the company expanded access to availability under our $150 million asset-based credit facility, which have been partially restricted pending the completion of the exchange offer. With the completion of the refinancing, we believe Fossil Group has the balance sheet fortitude necessary to advance the business on the path to profitable growth and positive free cash flow. Our refinancing was an all-hands effort by our internal teams and our collections of world-class advisers. We're thankful for the conviction that our noteholders and lenders have in our company and are excited to have completed this critical turnaround pillar. Based on our ongoing business momentum and strong execution of our turnaround plan, we are reiterating our full year guidance. Worldwide net sales are expected to decline in the mid-teens, which includes approximately $40 million of impact related to store closures, and adjusted operating margin is expected to be breakeven to slightly positive. Importantly, in the fourth quarter, we anticipate gross margin will be similar to last year, which combined with ongoing expense control is expected to drive positive adjusted operating margin. We're pleased with the meaningful progress we've made year-to-date and remain focused on driving durable growth and building long-term value for our shareholders. Now I'll ask the operator to open the call to Q&A. Operator: [Operator Instructions] And your first question comes from the line of Francesco Marmo with Maxim Group. Francesco Marmo: Congratulations on the quarter and on the bond exchange. Three quick ones for me, if I may. So first of all, your wholesale grew 3% in constant currency, while store comps was down 22%. Can you please help us understanding what is driving that gap? And I was wondering if you guys could give us some color around any regional difference, maybe there some regions that might be more retail heavy than others. Randy Greben: Francesco, thank you for the question. We missed the first part of it. Could you please repeat it? Francesco Marmo: Sure. So the wholesale channel grew 3% in constant currency. while store comps fell 22%. I was hoping you guys could help us understanding the difference between the 2 channels. Randy Greben: Yes, absolutely. I just want to correct one point. When you talk about the store comps declining, that's not store comps, that's our full direct-to-consumer. We're actually quite pleased with the performance of our physical fleet. Our stores are performing quite well. As we've talked about in prior calls, the company has intentionally shrunk its e-commerce business as we've changed the full promotional strategy to drive really better margin architecture and more sales. So you have to look at it -- we have to look at it really on a channel-by-channel basis. To your point, wholesale is performing quite well. And then when you deconstruct direct-to-consumer, we're very pleased with our store performance. And our e-commerce business is performing absolutely in line with our expectations which was to be smaller. With respect to regions, I'll hand it to Franco. Franco Fogliato: Yes. Look, Francesco, I think let me recall probably one of the first call I did when I joined the company. We clearly said that our retail direct-to-consumer was very promotional, was driving the entire AUR marketplace price down. And we took since, I would say, towards the end of quarter 4 last year, we changed completely the policy. And we said that we're going to reduce dramatically the promotional activity. We've been performing very well to the point, honestly, that the wholesale came back probably faster than what we were expecting. Our retailers, our customers and partners have been very pleased with our policies, very encouraged. I remember the first time I met with them and they were like, oh, we already heard that story, and now they're seeing that we're very consistent with what we said to the point that they are growing the business with us and are very willing to invest with us going forward. Our DTC will continue, I think it is performing well from a comp perspective. We are driving AUR higher. We're driving -- we're converting better than what we use because we have initiatives like Store of the Future and we're pretty pleased with that. Now performances have been very different depending by region. I think from a DTC perspective, our store have been performing better than what we anticipated in the U.S. We still see a little weakness out of some of our retail in Asia, while in general, India remains strong. So those are kind of trends we see probably common to the watch industry with really U.S. coming back. Asia is still pretty challenging, even we said we've seen some improvement, but India continuing to perform strong. Francesco Marmo: Okay. That makes a lot of sense. This is great leading to my next question. Asia actually this quarter I would say, positive growth in constant currency, I think it was like flat overall in reported currency. There was strength in traditional watches, there was strength in jewelry and even gross margin expansion for the region. I was wondering whether you guys could give us some color around what's happening in the region. Randy Greben: Sorry, Francesco. Once again, we missed the first part of your question. If you could please repeat it. Francesco Marmo: Okay. Sure. And I was asking about Asia. The Asia region seemed particularly solid this quarter with positive constant currency growth, strength in traditional watches and jewelry and gross margin expansion. I was wondering if you guys give us some color, you already mentioned India, but anything else would be appreciated. Franco Fogliato: No, thanks for asking. It's a great question. Look, we're pleased the region performances have been led by India. We continue to be extremely positive not only about our leading position in India, but we have a very strong team, very strong recognition. Our retail performed well and the market is growing. So it's really a combination of the perfect storm from that perspective, and we are one of the leading company there, no doubt about that. We've seen, I would say, maybe -- I wouldn't -- we still are shrinking in China, honestly. The market hasn't -- is better, but still not into positive growth. And we've been also taking a policy of being less promotional, to drive improving gross margin. And I think that's also helping. And I would say the other market, which has been pretty pleased has been Japan. Honestly, Japan was one of the question mark we had 12 months ago when I joined the company. We have a strong team there. Our brands are performing well. We -- in particular, Diesel is very strong in the region, and we're very encouraged about the opportunities there. We have a new leader for the region, Davin Leong joined early October. We're very excited because we needed that leadership to come from the region. He's got -- is a very strong leader, and we're very encouraged. So look, we -- it's good to see Asia performing better and performing well. It's definitely led by India, but also pleasing to see Japan doing well and China maybe seeing some better selling. Francesco Marmo: Okay. Great. And then if I may, one last question that has to do with your inventory position. Your inventory appears leaner every quarter, which is great. I was wondering whether you guys could give us a sense for what initiatives driving this improvement and also how this tighter inventory position fits within your broader distribution and promotional strategy? Franco Fogliato: It's a great question. Let me take a general view, and then I'll let Randy and Jeff can either. Look, we're very pleased. I think the -- we are very -- I made it clear, we're going to be a smaller company, but we're going to be a lot more profitable than what we used to be. And I think the working capital position, the inventory control, we had the sales down 7% in the quarter, but inventory was down 26%. We've reduced the number of SKUs. We're focusing on what matters. We're really driving stories that count. All of this comes together with a higher gross margin, comes together higher AUR and drives the company in a better position. Would I expect this to continue forever? No. We will invest going forward. We believe we have performed a very clean inventory, both on what we own and what sits in our retailers. We manage inventory together with them. Our sales are performing well. We're very encouraged. And the fact that we fixed the balance sheet is also helping a lot to drive our investment from a strategic perspective. I will ask Randy maybe to comment a little more into the details. Randy Greben: Francesco, I'm so glad that you asked the question because it gives us an opportunity to acknowledge the work that the organization has done really across the globe to manage working capital in a significantly tighter fashion. We're proud of the work that we've done as it relates to overhauling the way we think about open to buy, the way in which we think about where we lean in on product investment and the wonderful byproduct of all of this is not only as working capital become quite more efficient, but we've managed to increase availability of products at the same time. So we're ordering the right inventory, getting it to the right place, and it's a comprehensive effort that is nice to be seeing bearing fruits. Operator: At this time, there are no further questions. I will now turn the call back over to management for closing remarks. Franco Fogliato: Thank you, everyone, for joining us today. This has been an exciting earnings call, an exciting week. We have announced a new milestone, the company with a stronger balance sheet. We're looking forward to meet everyone to -- for the quarter 4 earnings call, and we wish everyone happy holidays. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Innate Pharma Third Quarter 2025 Business Update and Financial Results. [Operator Instructions] I will now hand the conference over to Stephanie Cornen, Vice President, Investor Relations, Communication, and Commercial Strategy at Innate Pharma. Please go ahead. Stephanie Cornen: Good morning, and good afternoon, everyone. Thank you for joining us for Innate Pharma Q3 2025 Business Update and Financial Results Conference Call. The press release and today's presentation are both available on the IR section of our website. Before we begin, I'd like to remind everyone that today's presentation includes forward-looking statements based on current expectations. These statements involve risks and uncertainties that could cause actual results to differ materially. To begin, I briefly cover today's agenda. Our CEO, Jonathan Dickinson, will discuss our strategic priorities and path forward. Then our CMO, Sonia Quaratino, will present clinical pipeline updates on IPH4502, monalizumab, and lacutamab. Afterwards, I will present the commercial opportunity for lacutamab before turning back to Jonathan with closing remarks, and we'll open the call for Q&A. With that, I'll now hand it over to Jonathan. Jonathan Dickinson: Thank you, Stephanie. Good morning to those joining from the U.S., and good afternoon to our European audience. Turning to Slide 5. I would like to start with the strong momentum around lacutamab, supported by meaningful regulatory progress and new commercial opportunity insights. A few days ago, we received FDA clearance to initiate the TELLOMAK-3 Phase III trial in cutaneous T-cell lymphoma. This is a major milestone for the program, positioning lacutamab to advance towards potential accelerated approval in Sezary syndrome, supported by robust Phase II data. We expect the study to initiate in the first half of 2026, with filing anticipated following achievement of key enrollment milestones. Our CMO, Sonia Quaratino, will provide additional color on the Phase III trial and the regulatory path. In parallel, we hosted a well-attended lacutamab KOL event in October, featuring leading experts in CTCL. The discussions highlighted the continued unmet medical need for new, effective, and well-tolerated therapies in this space and reinforced lacutamab's unique positioning. During the event, we also presented new real-world claims data underscoring the commercial opportunity in both CTCL, which we believe further strengthens the value proposition for this program. Stephanie Cornen, our Vice President of Investor Relations and Commercial Strategy, will review the real-world evidence-based commercial opportunities for lacutamab towards the end of our call today. Moving to Slide 6. As you know, Innate Pharma's core strength lies in applying our deep scientific expertise to advance life-enhancing cancer therapies. Through our years of pioneering work in antibody engineering, we have built a differentiated high-value clinical pipeline supported by compelling data, positioning us to deliver treatments with truly transformative potential for patients and for all our stakeholders. Moving to Slide 7. As we look ahead, our path forward is clear and focused. As you remember, at our half-year results, we announced the strategic decision to focus our investment on what we believe are our highest value clinical assets, including IPH4502, lacutamab, and monalizumab, to maximize impact and value creation. In parallel, we are advancing our next generation of ADC programs through research, building the foundation for future innovation. Finally, we are streamlining the organization to ensure we remain fit for purpose and aligned with our strategic objectives. I'll now hand over to Sonia, who will take us through the clinical pipeline progress. Sonia? Sonia Quaratino: Thank you, Jonathan. In this update, I would like to highlight the 3 clinical programs we believe hold the strongest potential to create significant value for Innate, IPH4502, monalizumab, and lacutamab. Starting with IPH4502, our differentiated ADC directed against Nectin-4. As a reminder, I would like to pinpoint the preclinical model where IPH4502 has demonstrated the 2 major feature of differentiation to an approved drug such as enfortumab vedotin. The first one is related to the payload of IPH4502, which is exatecan, a potent topoisomerase 1 inhibitor. Exatecan can induce a bystander effect, a phenomenon where it kills neighboring cancer cells in addition to the targeted cells. The exatecan is released from the antibody drug conjugate in the tumor and diffuses into nearby cells. This is beneficial for treating heterogeneous tumors where cancer cells may not all express the target antigens. The second point of differentiation is that in preclinical models, we have demonstrated that IPH4502 can induce potent tumor regression in PADCEV MMAE-resistant models, allowing us to target tumors that are or have become resistant to PADCEV. We have, therefore, built the study design of the first-in-human trial on the basis of these preclinical findings. First, we look for signals in tumor types where Nectin-4 expression may be low or heterogeneous, opening to a very broad opportunity. Second, we enriched the study of urothelial cancer patients in the post-EV setting, where IPH4502 may overcome resistance to EV. This represents an area of high unmet need with no approved drugs and the potential to move rapidly into later-stage development. With this hypothesis, the emerging clinical data will indicate the indication where IPH4502 can make the greatest impact. The first-in-human trial is guided by an adaptive design, and the main objective of this study are to assess the safety, tolerability, and preliminary efficacy of IPH4502 in patients with advanced solid tumors known to express Nectin-4. Enrollment in the dose escalation part of the study is progressing very well. We started the trial in January, and we have now reached already a pharmacologically active dose, and we have started to see early signs of clinical activity. We remain on track to complete the dose escalation by the first quarter of 2026. And after that, the dose optimization part of the study should commence. Now let's turn to Slide 10 to provide an update on monalizumab, which continue to advance in collaboration with AstraZeneca. The double-blind PACIFIC-9 Phase III trial aims to demonstrate improved progression-free survival of durvalumab in combination with either oleclumab or monalizumab as compared to durvalumab with placebo in patients with unresectable Stage III non-small cell lung cancer who have not progressed after platinum-based chemo radiotherapy. The PACIFIC-9 study builds on very strong scientific rationale, supported by earlier studies such as COAST, NeoCOST and NeoCOST-2 trials. This is a large global study that has fully completed enrollment with 999 patients randomized 1:1:1 across the 3 treatment arms. The primary endpoint is progression-free survival with efficacy comparisons for both combination arms versus durvalumab monotherapy. The study is fully recruited, and the independent data monitoring committee recently recommended continuation of the trial following a preplanned analysis, an important validation of the program progress. And we look forward to the data expected in the second half of 2026. Now moving to Slide 11 and to lacutamab. As we highlighted during our KOL event last month, our development strategy is designed to enable a stepwise approach, beginning with Sézary syndrome, an indication with the highest unmet medical need, especially in patients who have progressed after mogamulizumab, then progressing with a larger opportunity in mycosis fungoides, and finally, expanding to peripheral T-cell lymphoma. We are preparing a confirmatory Phase III study in an FNSS, which, once underway, opens the door for our filing of the biologics license application for Sézary syndrome post mogamolizumab based on the existing Phase II TELLOMAK data. This represents a potential path to accelerated approval with a key milestone expected in 2027. The confirmatory Phase III will also include patients with mucosis fungoidis, the largest CTCL subtype, where there remains a clear need for disease-modifying therapies. These results of the confirmatory Phase III trial will support a full approval in 2029 in NF and then full approval for Sézary and help establish lacutamab as a game changer in the therapeutic landscape across CTCL. Our goal is to position lacutamab within the NCCN guidelines as a preferred systemic therapy, not only for late-stage Sézary and mucosis fungoides, but ultimately for earlier-stage CTCL patients who continue to face limited treatment options. Now beyond CTCL, we are also advancing development of lacutamab in peripheral T-cell lymphoma, a particularly aggressive lymphoma subtype with few effective treatment options, and an ongoing Phase II study will help defining lacutamab role in this patient population. Turning to Slide 12. I would like to remind the data that will form the basis for the accelerated approval in Sézary post mogamulizumab. They are the long-term follow-up data from the TELLOMAK Phase II trial that was presented at ASCO 2025. Sézary is an aggressive subtype of CTCL. And post-mogamulizumab, there are no approved drugs that have demonstrated clinical efficacy. In heavily pretreated patients, all pretreated with mogamolizumab, lacutamab demonstrated an impressive global overall response rate of 42.9% with a median duration of response of 25.6 months. The median progression-free survival for the whole population was 8.3 months. Of note, lacutamab was very well tolerated with very favorable safety profile, underscoring lacutamab potential to deliver a meaningful clinical benefit in this aggressive and difficult-to-treat population. Turning now to mycosis fungoides. Long-term follow-up data from the TELLOMAK Phase II trial showed that lacutamab achieved a global overall response rate of 19.6% with consistent activity observed regardless of KIR3DL2 expression level. The median duration of response was 13.8 months, and median progression-free survival was 10.2 months, again, with no difference between the 2 subgroups. Also in MF, lacutamab was very well tolerated with an excellent safety profile that supports its potential use for long-term systemic therapy at an early-stage disease. Turning to the clinical development plan for the confirmatory trial. This is an open-label multicenter randomized comparative Phase III trial evaluating lacutamab in patients with cutaneous T-cell lymphoma who have failed at least one prior line of systemic therapy. In alignment with the FDA, the study includes 2 independent cohorts with distinct statistical analysis plans, one for Sézary syndrome and the other for mycosis fungoides. In the Sézary syndrome cohort, patients who have failed at least one prior systemic treatment, including mogamulizumab, will be randomized 1:1 to receive either lacutamab or Romidepsin, which is currently the only FDA-approved option for patients who progress after mogamulizumab. The primary endpoint is progression-free survival assessed by blinded independent central review, and the key secondary endpoint is overall survival. In the mycosis fungoides cohort, patients with Stage Ib to Stage IV disease will also be randomized 1:1 between lacutamab and mogamulizumab, which represent the current standard of care for this population. Here again, the primary endpoint is PFS, weak pruritus, and quality of life as a secondary endpoint. As the Sézary syndrome and MF study subpopulations are considered as independent cohorts, answering to distinct objective sample sizes are estimated to meet the primary endpoint in both SS and MF cohorts independently. From a regulatory standpoint, we have received clearance from the FDA about this clinical trial protocol. And therefore, we are well placed to initiate the Phase III trial in the first half of 2026. And with that, I will now hand over to Stephanie Cornen, who will walk us through the commercial opportunity for lacutamab and how we plan to unlock its full value across CTCL and beyond. Stephanie Cornen: Thank you, Sonia. Now looking at commercial opportunity an important parameter is about eligible population. CTCL is aware of this diseases and assessment incidence and prevalence remain a challenge, potentially underestimating its true burden. During the occurring event, associates presented the most up-to-date source based on U.S. TELLOMAK data Versus CTCL Patient population, which highlights the higher incidents and prevalence than previously described. So if we look into each of these opportunities, starting with Sézary syndrome, as discussed it should release near-term in U.S. based on the Phase II TELLOMAK data. Sézary syndrome may affect around 3x more patients than previously believed, with an annual incidence was around 300 patients, prevalence around 1000 overall Sézary patients. And according to U.S. TELLOMAK data, approximately 300 patients treated with mogamulizumab annually. Importantly, these opportunities clearly define and actual of approximately concentrating in special and referral centers which accessible with a focused commercial footprint. Our launch strategy will therefore target specialized centers already managing these patients, allowing for a near-term and derisk opportunity in the U.S. Now moving to mycosis fungoides, which represents a larger opportunity. Here again, the TELLOMAK data shows a higher incidence than previous reported with approximately 3,000 U&M patients diagnosed each year in the U.S., and about one in four of these patients received systematic therapy. The goal of our Phase III, TELLOMAK-3, is to establish lacutamab as the new second standard of care, and our primary market research supports the view that physicians would adopt lacutamab as a second line of treatment base. And again, importantly, Sézary syndrome enable a seamless expansion into mycosis fungoides since both indications are managed by sustainable network of prescribers. So in summary, we see Sézary syndrome as our first focused entry point into the CTCL market in the U.S., a manageable and concentrated launch opportunity that will also serve as the foundation for a broader commercial in MA. Turning to Slide 17. This slide illustrates the market potential for lacutamab in CTCL and how we plan to expand over time through a stepwise strategy that Sonia previously described. We expect an initial opportunity of up to $150 million in the U.S. with accelerated approval in Sézary syndrome, where the patient population is small but highly concentrated and addressable through a focused commercial footprint. As lacutamab moves into mycosis fungoides and secures full approval the opportunity could expand to around $500 million across the U.S. and Europe. And beyond that, we see additional upside as part of our life cycle management strategy. Lacutamab offers important standard care for early-stage patients, a segment where systemic treatments are less used today. And the unique profile of lacutamab that combines tumor targeting activity, improved quality of life, and a favorable safety profile makes it a compelling candidate to unlock earlier use of systemic therapy. While the Phase III trial is designed to support registration across all stages of Innate in the second-line setting, we see a broader opportunity in addressing the Innate medical need of patients who are currently managed only with skin therapy and may benefit from lacutamab. In short, lacutamab offers a clear derisk path to commercialization starting with Sézary syndrome, expanded into larger CTCL segment over time, and then an even larger opportunity in PTCL. And now I'll hand the mic to Jonathan for closing remarks. Jonathan Dickinson: Thank you, Stephanie. As part of our focused strategy, we are advancing 3 high-value clinical assets that form the core of Innate's portfolio. Starting with IPH4502, our novel and differentiated Nectin-4 ADC, we see a significant opportunity in bladder cancer, particularly in the post-PADCEV setting, as well as across other solid tumors with low to medium Nectin-4 expression. Enrollment in the ongoing Phase I trial is progressing well, with completion expected by late 2025 or early 2026. We've now reached a pharmacologically active dose level where we're beginning to see encouraging early signs of clinical activity. Monalizumab, partnered with AstraZeneca, continues to advance in Phase III for unresectable non-small cell lung cancer, where enrollment in the PACIFIC-9 trial is now complete. Top-line data are expected in the second half of 2026, and this collaboration remains a key value driver with up to $825 million in total milestones and $450 million already received to date. And with lacutamab, our anti-KIR3DL2 antibody for cutaneous T-cell lymphoma, long-term follow-up from the TELLOMAK Phase II study has demonstrated meaningful and durable clinical benefit in both mycosis fungoides and Sézary syndrome, leading to breakthrough therapy designation in Sézary syndrome. As you know, we've now received FDA clearance to proceed with the confirmatory Phase III TELLOMAK-3 trial, and we're on track to initiate in the first half of 2026, supporting the potential for accelerated approval in Sézary syndrome. To wrap up today's call, I'll remind you that we have several value-driving catalysts ahead across Innate's portfolio. In the first half of 2026, we expect Phase I data from IPH4502, our Nectin-4 ADC program. This will be followed in the second half of 2026 by data from the PACIFIC-9 Phase III trial of monalizumab in collaboration with AstraZeneca. Looking beyond to 2027 and onward, we anticipate multiple milestones, including a potential accelerated approval for lacutamab in Sézary syndrome, the monalizumab BLA filing, and IPH4502 expansion phase data. Finally, we ended the third quarter of 2025 with a cash position of EUR 56.4 million, providing runway through the end of Q3 2026 to deliver on these key milestones. Operator, we can now open the Q&A session. Thank you. Operator: [Operator Instructions] Your first question comes from the line of Christopher Liu with Lucid Capital Markets. Christopher Liu: So I have 2. For the first one, what would you need to get done in the near term for the potential lacutamab commercial launch in Sézary syndrome? And for the second question, for IPH4502 and the upcoming data set, could you give us a little bit more color on what we can see at that readout? Jonathan Dickinson: Okay. Christopher, I can take that. So from a commercial perspective, I think one of the key things that we would need to get done prior to Sézary launch is the work to ensure that lacutamab will be included in the NCCN guidelines. So what we're aiming to be able to do, and we've already started the discussions on this with KOLs, is to ensure that when the BLA is approved for Sézary, that we basically already have lacutamab included in those NCCN guidelines for Sézary syndrome, but also for mycosis fungoides. So that will be one of the key pieces of work that we believe we will need to have in place prior to the BLA. And then IPH4502, in terms of what we hope to have next year, I think we've communicated this on a number of occasions, but what we're aiming to have is a cohort of patients in the PADCEV resistant setting, probably 10-plus patients where we will hopefully see an interesting response rate and be able to show clinical activity as well as safety data. We also hope to have data in 1 or 2 other tumor types in a similar perspective. So 10-plus patients in 1 or 2 tumor types. What we're doing with the study, and I think Sonia mentioned this earlier, is we've set up the study in a way where we can basically chase signals. We can backfill cohorts. So when we see a signal in a particular tumor type, our objective is to backfill and to substantiate that signal. So hopefully, then in 1 or 2 other tumor types, you would have 10-plus patients. And again, hopefully, an interesting response rate that allows us to then move forward into the next stages for the development of the product. Thank you for the question, Christopher. Operator: Your next question comes from the line of Justin Zelin with BTIG. Justin Zelin: You've indicated that FDA views an accelerated approval pathway here for lacutamab as viable once the Phase III study is underway. Could you just expand whether FDA is looking for any additional supplementary analyses beyond the existing Phase II data set as part of that accelerated approval package? And then just second, based off of the feedback from the October KOL event. Do you have a sense of growing momentum from the KOLs for lacutamab to become the preferred second-line option here? And should we expect mogalizumab to naturally move later in the treatment paradigm? Jonathan Dickinson: Okay. So addressing the first part of your question, Justin. So from an FDA perspective, they have not given us an indication that we would require any further substantial analysis. So basically, the BLA approval will be based off the data we have in hand today from the TELLOMAK study and the results that we've already presented that led to the breakthrough therapy designation. So we see that as reasonably straightforward. The key thing to unlocking the BLA submission here is having the confirmatory study up and running and to have established an enrollment trajectory into that study that would satisfy FDA that this study will complete and will deliver the confirmation of the accelerated approval. So that's something that we're obviously working very hard to be ready to do that ASOP because that counts down the -- it's the countdown to the submission of the BLA. We hope to be able to initiate the confirmatory Phase III study sometime around the middle of 2026. We would anticipate potentially a 6-month enrollment period to get the right trajectory to satisfy FDA requirements. And then that would allow us to submit the BLA sometime in early 2027, leading to FDA approval of the BLA, hopefully, sometime in the second half of 2027. So yes, so that hopefully answers the first part of your question. Then in terms of KOL feedback, we do see very good KOL feedback on lacutamab, and we do sense a building momentum around that. I think if you were attending the KOL event, and I think the KOL used the word game changer, which was, I think, something that summarizes what lacutamab can potentially bring not only to Sezary syndrome, but also to mycosis fungoides. I think there's particular excitement around basically what can happen in MF. If we look at the 5-year survival, of patients with MF, we do see a dramatic decrease in 5-year survival when patients progress from Stage 2a to Stage IIb, it drops from 78% to 47%. And we know that physicians want to be able to prevent that progression. And lacutamab, based on its tolerability profile and the excellent quality of life data for patients, is incredibly well placed to be able to slot into that area and be able to treat those patients at Stage b, Stage 2a, and hopefully prevent that progression of the patients to Stage Ib when you see the reduction in 5-year survival. So that's clearly, I think, factoring into the thinking of KOLs and how they will use this drug. So I think particularly in MF, we anticipate that lacutamab will be used ahead of Moga. In Sezary, we're studying post-Moga. So our expectation is that the product will be used post-Moga. Based on the excellent safety profile, I think some physicians may choose to use it in the first-line setting off-label as well. But our main assessment and where we're targeting for positioning the product is post Moga and initially in the Sezary syndrome indication. Hopefully, I've answered your question. Justin Zelin: If I could just fit in a quick question with a potential near-term approval here, could you just comment on your CMC readiness as far as commercial scale manufacturing, PPQ run stability work for lacutamab? Jonathan Dickinson: Yes, I can comment on that. I think the answer is we're in a good place. We're basically ready to go. That won't be on the critical path to submission of the BLA. So we've ticked that box, and we're ready to go from that perspective. Operator: Your next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Swayampakula Ramakanth: So I appreciate your comments on how you plan to file the accelerated approval application by the end of 2026. So what -- does this mean you're still hoping to get a partner on board? And in your previous conversations with potential partners, how much stress was there in terms of getting a clear signal from the FDA and a protocol blessed by the FDA? Jonathan Dickinson: Thank you for the question, RK. So in terms of partner discussions, having FDA acceptance of the protocol was an important consideration. It was potentially one of those boxes that we needed to tick for a number of them for us to be able to progress with those discussions. So yes, it was an important clearing event to be able to move forward with some of those partnering discussions. In terms of partnering, commenting on partnering, I think what the company is looking to do is basically to keep our options open. We basically were continuously evaluating a variety of financial options to ensure we're appropriately positioned to support our growth initiatives and create long-term shareholder value. And we remain disciplined and opportunistic in our approach to capital management, and we'll pursue the opportunities that basically support where we're going here. So I think it's important that we keep the options open at this particular stage, particularly with the exciting news that we've seen more recently with lacutamab and the great path that we have forward. Swayampakula Ramakanth: Can I ask 2 quick follow-ups, one on 4502? What specific safety signals would you be looking out for, especially when you would like to see this differentiated against other TOPO1 inhibitor ADCs? And the second question is, so what's the thought process now for the ANKET platform, especially them taking a little bit of a backseat? What's the long-term plan for that platform? Jonathan Dickinson: So maybe I can take the first question, and then I will ask Sonia to take the question on the safety signals that we're looking out for. So -- on the ANKET platform, we are basically waiting -- we're actually finalizing the study for IPH6501. I think we mentioned previously that we've completed the dose escalation phase of the study, and we were basically exploring the MTD at this stage. We're still in the process of doing that. And we'll basically make any future decisions based on -- for IPH6501 based off clinical data. And that clinical data should come sometime in the first half of next year, and then we will be able to make the evaluations and the next steps. In relation to IPH6101, we have now basically have most of the clinical data for the Phase I and Phase II returned to us from Sanofi. So we're now in the process of evaluating that data and trying to understand what next steps could be for the ANKET platform. What I would really like to clearly emphasize, though, is from a prioritization perspective, we're putting most of our time and effort behind IPH4502, behind lacutamab and behind monalizumab, and making sure that we advance those 3 assets as quickly as possible because we believe we have the highest chance to win for those 3 assets. Sonia, if you can take the question on the safety signals we're potentially looking out for? Sonia Quaratino: Well, in terms of signal for IPH45, we try to establish a very well-tolerated and relatively safe drug. And in particular, we try to, of course, avoid all the MMA-specific adverse events like peripheral neuropathy, that is very often not reversible, and ocular toxicity. And so far, we did not see many adverse events or a specific trend in that respect. So the plan is to provide clinical efficacy in, let's say, unusual indication or indications where the Nectin-4 expression is not as high as urothelial cancer, with a very good benefit-to-risk ratio matched by a favorable safety profile. It's difficult to say a prior what you want to see, yes. Operator: Your next question comes from the line of Diana Graybosch with Leerink Partners. Daina Graybosch: Yes, Bill on for Dana. I change it up a little bit, just asking about monalizumab. So I guess I'm just curious, can you just give us some, I guess, expectations for the readout in the second half of '26? Sort of what gives you the confidence that monalizumab, I guess, and durva can actually win out against durva? Jonathan Dickinson: Yes. So maybe I can take that question. So basically, we have good expectations for the PACIFIC-9 study. And what that is based on really is the COAST study, which was the Phase II study, a randomized Phase II study that was replicating the PACIFIC-9 setting. If you look at the results and the Kaplan-Meier curves from that study, they are very interesting. When you added monalizumab to durva, you basically added 12 months median PFS on top of durva. So if we retain a proportion of that effect size going into the PACIFIC-9 study, there's a very high chance that we will have a positive study. So that gives us a, I would say, a relative sense of confidence that this will be a positive study. Hopefully, that addresses your question. Operator: There are no further questions at this time. I will now turn the call back to Jonathan Dickinson, CEO, for closing remarks. Jonathan Dickinson: Okay. I'd like to thank everybody for attending our quarterly earnings call. Thank you for your time and attention, and I wish you a great rest of the day. Thank you very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Colonial SFL 2025 Third Quarter Results. The management of the company will run you through the presentation that will be followed by a question-and-answer session. [Operator Instructions] I would now like to introduce Mr. Pere Vinolas, CEO of Inmobiliaria Colonial SFL. Please, sir, go ahead. Pere Serra: Thank you. Good afternoon. Good evening to everyone, and thank you very much for joining us today in this presentation of our results for the third quarter of 2025. I'm going to start with some introductory remarks, and then I ask, as usual, Carmina Ganyet, Chief Corporate Officer; and Carlos Krohmer, Chief Corporate Development Officer; to step in with additional comments and insights. The introductory remarks, I think that we are presenting again a good set of results. As you will see, the operational performance remains strong. Many different KPIs show very strong numbers associated to them. And this in the end shows that our strategic positioning in prime is set to deliver earnings and value growth. Our strategic positioning, as you know, is based in the prime asset class segment. I think that it's now a few years where we have been improving pricing power. Pricing power coming from high demand from best-in-class clients, where we are able to capture above-average rental growth. And as a consequence of this, strong earning growth as a result of our activity. There are 2 things that we can share that you will see. One is that we are proving superior growth capabilities. It's a 9% CAGR for the last 3 years that has been delivered. And it's not only looking at ourselves and other history is that regularly, you could see how our GRI like-for-like growth, it's relevant, but moreover, it's higher than those of our peers in the sector. So this positioning -- unique positioning of Colonial creates a difference. I'm going to start by looking at the main KPIs for this quarter. We could talk about cash flow. We could talk about operational performance. We could talk about capital structure. Just let me share a few numbers. This quarter, gross rental income ends at EUR 296 million. The revenue number here is a 5% like-for-like, well above inflation, showing strong rental growth. The EPRA earnings 6% year-on-year, EUR 156 million. The EPRA EPS, EUR 0.25 in line with the guidance for full year. Second layer operational performance, rental growth, 6%, measured as our growth in terms of signed rents compared to December '24 ERV, 6%, may be highlighting 9% in Paris, which again, is pretty strong and pretty ahead of inflation. Release spread 9%, 17% in Paris and occupancy 91%. As you know, we are just delivering some assets that create a difference without Madnum & Haussmann, our occupancy, which was -- were just delivered this year, our occupancy would be 95%. Finally, from a capital structure point of view, we keep our strong credit rating, BBB+, S&P, Baa1, Moody's, the rating confirmed in that particular case, September this year, loan-to-value 38%; financial cost, 1.9% for the whole of our debt. In Page 6, an overview that in my view, it speaks for itself about our core markets. Where are we in terms of individual occupancy. You can see how high it is. You can see also the number for rental growth 9% Paris, 6% Madrid, 3% Barcelona. And this is a result of beautiful signatures, EUR 1,200 per square meter maximum rent sign in Paris, EUR 43 per square meter per month in Madrid, maximum rent sign, EUR 30 in the case of Barcelona. So fantastic KPIs. Now as usual, we will enter into details, first, the financial performance, later on portfolio management that provides more insight about the future. And finally, some remarks from myself on future growth. So let's skip into section #2, financial performance. Carmina, welcome. Carmina Cirera: Thank you, Pere. So the first main KPI is the rental income, which as you can see here, it's growing through the core portfolio and the project deliveries. This is true drivers. The core portfolio shows a like-for-like growth of 5% and project deliveries of 3%. These 2 main drivers has been overcompensated the fact that on Condorcet & Haussmann have entered into refurbishment. If we look at the different components of this strong gross rental income in Page 9, mainly, you can see out of this 5%, 2% comes from the indexation impact, as you know, inflation in Spain and ILAT index in France, in our Paris portfolio. Another 2% comes from the rental growth premium, this pricing power from all our operational portfolio, an additional 1% from additional occupancy. So this 5%, as Pere has mentioned previously, it's outperforming our main peers in the European zone as usual. So this is another quarter that we are delivering a solid rental growth like-for-like both our peers in the European zone. If we look at the last bottom line in the EPRA earnings, Page 10. You can see how a strong operation are impacting positively in the EPRA earnings growth. 6% growing in a yearly basis. But basically, I would like to highlight this 18% coming from the operational portfolio. Additional EUR 5 million coming from the project deliveries that we have been able to do in the last year and additional positive EUR 9 million, basically the fact that we have converted into the Sika status, the remaining subsidiaries that we had -- we have in France, thanks to the merger. So this means that we are saving tax this year and for the future. This would be a structural positive EPS coming from this new conversion of the last subsidiaries that we had in Paris, thanks to the merger. All this positive impact has been, as you can see here, over compensating the negative impact coming from the Condorcet & Haussmann that has been entering into refurbishment. In terms of EPRA EPS, we delivered almost EUR 0.25 per share, considering the new shares in place after the capital increase that we did in July 2024. If we go to the balance sheet on Page 11, as you can see here. So we continue to deliver a very strong liquidity position. Our loan-to-value is in this quarter, 38.1%, but is -- I would like to highlight again. This level of loan-to-value is temporary. We are making progress in some disposals and capital recycling that has been not impacted yet in this loan-to-value ratio at the end of September 2025. In terms of liquidity, between cash and undrawn lines, we have a very strong position, EUR 2.8 billion, which is almost 2x covering the debt maturities for the following 3 years. And as you see, our cost of debt remains in a very competitive level. So we are taking advantage of the accurate hedge policy that we did in 2021 when the rates were very low. And in the appendix, you would see in more details the hedge and -- the hedge -- the existing hedge as of today, 93% of our existing debt are hedged with a fixed cost. And in the future, the profile of the future hedge, thanks to this pre-hedged position remains in a very solid position with above 50% of our future debt. Consequently, thanks to this strong position and thanks to this robust liquidity management and operational performance and forward-looking hedge strategy, Moody's has been confirmed our rating with Baa1 with a stable outlook. And as you know, this year, we have been tapping the market 2x, 1 in January, EUR 500 million 8x oversubscribed with a very competitive yield, 3.25%, but resulting an effective yield of 2.75% after the hedging that we took previously. And recently, in September '25, who have been gone again to the market with a placement of EUR 800 million. 6-year green bond, all of them has been a green bond issuance with 3.12% coupon, but rent, thanks to the effective -- the hedging attached to this debt, our effective yields are at the levels of 2.73%. So very strong liquidity position, very strong competitive cost of debt and confirming the rating by S&P and recently by Moody's again. Carlos? Carlos Krohmer: Thank you very much, Carmina. Now we're going to step to Page 14 on portfolio performance. First of all, we've signed year-to-date on 25,000 square meters that are equivalent to EUR 54 million of annualized spread. So we are signing a lot, and we are signing with high prices. This EUR 54 million are an increase of 26% in total contracts secured in economic value compared with the same period of 9 months of the year before. We go a little bit into the breakdown out of this EUR 54 million, EUR 20 million, close to 40%, has been signed in Paris and this EUR 20 million are equivalent to 14,000 square meters. At the end, this means that we've signed on average at a rent of EUR 1,400 square meter a year. So absolutely at the high end. If we go further analyzing the breakdown. We've seen that the Spanish markets are also -- our portfolio in Spain is progressing very, very well, close to 60,000 square meters signed in Madrid and more than 50,000 square meters signed in Barcelona. We go a little bit more into detail on Page 15. Here, you can see out of the EUR 20 million, EUR 13 million have been in 3 super prime premises. On Champs Élysées, we signed a contract at a retail rent of -- in excess of EUR 3,700 per square meter a year. This is 11% increase of rental growth increase versus the ERV of December 2024 and the 16% release spread. On Louvre Saint Honore office or the part that is the upper part of the Cartier premise, we've signed at levels well above EUR 1,000, EUR 1,100, EUR 1,200, 18% of growth versus the office ERV of this asset as of December '24, and quite a lot of rents, EUR 3 million in 2 contracts. And then we are progressing also on Haussmann, signing above EUR 1,000, 11% ERV growth, 16% release spread in terms of what the rents were of the previous tenant pre the refurb. If we now step on Page 16 to Spain, 57,000 square meters signed in Madrid, more than 20,000 signed in Madnum in one of the most relevant urban prime campuses in the city of Madrid. In Barcelona, 54,000, interesting highlight 40,000 square meters 22@. So momentum in 22@ is getting better. We are positive on Barcelona. We see this as a big opportunity. If we then go on Page 17, you can see one of the main flagship projects and assets that have been recently released to be delivered, that is Madnum. It is a large asset, close to 60,000 square meters. As of today, we have already close to 40,000 square meters signed with top-tier tenants, most relevant recent news just some weeks ago with 1 global leading telecommunication firms letting up 13,000 square meters for 1,800 employees. We have remaining space to be let of roughly 19,000 square meters. As of today, we have already visibility for close to 40%, 3,500 square meters already signed in October. So after this results cutoff, but already today at home secured and conversations for additional 5,000 square meters. This asset, just to remind you, has a yield on cost of 8% and we are signing rents at levels of EUR 27. This is well above the initial underwriting of ERV for this asset. It was around levels of EUR 23. If we go further, here we see a very important point of our recurring earnings and revenue growth is the pricing power that our prime asset class portfolio has. We have signed a release spread of 9%, strongly driven by Paris with plus 7% in Madrid plus 4%. Barcelona is slightly negative, but this is basically due to a secondary activity in the Q2. We would look isolated only at the Q3 numbers, the last 3 months, release spread has been positive of 1%. So it's a cumulative effect from previous quarters. So we are seeing there also a change in the trend. On the ERV growth, we have signed on average, 6% growth versus the December ERV. So in 9 months, 6% growth. This is beating the average indexation that we had in the portfolio in more than 300 basis points. So really our prime asset class is delivering an extra chunk of growth due to the benefit and the polarization impact of prime asset class assets, again, strongest market. Paris and Madrid, very strong and Barcelona, getting slowly but steady back to momentum. On occupancy, you can see it on the next page. Basically, we are at -- the portfolio is at a stable level of 95%. We had the entry into operation in terms of like-for-like comparison with the entry into operation of the full project of Méndez Álvaro and Haussmann. And this has put down temporarily the total occupancy at 91%. In these assets, as I told you, the 4.4% is concentrated in these assets with the contract signed already today in Madnum is 4.4% is already down to 3.2%. And if we look at the rest of the breakdown, as you see, our prime portfolio, Madrid, Barcelona and Paris, the super-prime assets have almost no vacancy, Barcelona 22@ at 1.7% and then we have a small -- very small procedural part of secondary exposure that explains 1%. Last word on sustainability. We had recently just rankings on GRESB and Sustainalytics. We are really absolutely at the high end at Sustainalytics for the third year in a row, the best company rating at total Ibex and we are the best globally across every sector among the best 22 among 14,000 companies. At the end, this is also a proxy of the high-quality assets that we have. Only if you have a high-quality asset with the best amenities, you really have an efficient energy consumption and therefore, low carbon emissions. So sustainability is a good proxy for high-quality assets in terms of features. Pere Serra: Thank You, Carlos. I think that if I had to summarize what we've heard from Carlos and from Carmina, well, first of all, this last point about ESG, I think that is an impressive leadership, the one that we have been showing regularly and again in this quarter. But if I had to summarize the presentation up to now, I will say 2 things. It's an outstanding letting volume activity, number one, which means that despite any views on the Paris market, not in our case. Then moreover, when you think about our volume in Barcelona and in Madrid, it's been impressive. In the case of Madrid, this year was the year of the test of Madnum, and we are approaching the end of the year and the homework is done with very high standards of rents. So number one, in emphasis is on volume. Number 2 is on rental growth. Again, you see these numbers on like-for-like, and we beat inflation. We beat our peers. We beat, obviously, the year before in terms of rental level. It's -- I think it's an outstanding number, the one-off rental growth. So I would summarize basically these 2 main features. And now let me enter into some thoughts about the future. On Page 22, we are reminding that our focus is on earnings growth that we've been delivering already this earnings growth at a path of a 9% CAGR in the last 3 years. And this coming from several sources from rental growth itself, from prime factory projects from capital recycling. This is the main focus of our strategy. And the conviction that I would like to share with you is that we are very well prepared to deliver additional EPS growth with double-digit IRRs in the next few years. Coming as we see on Page 23 from 4 different sources: From urban transformation projects, which have a significant impact in the EPS going forward; from the prime asset reversion that adds cash flow growth on top of previous one; from third-party capital initiatives that we started this year; and finally from capital recycling. Let me be more specific about each one of them. Page 24, driver #1, Urban Transformation. We expect EUR 100 million of rents coming up from these projects, year '25, year '28. The first column, which is the one regarding 2025, you can see that we already are delivering mainly in Madnum, which was the most relevant challenge for this year. Let me share you again that throughout 2026 to 2028, we expect additional rents that would mean that compared to 2024 EPRA EPS, EUR 0.11 would be added. That is a 33% on our EPRA EPS expected. I think that certainly, when anyone is looking at us is looking at Colonial, this has to be a headline. It's not so much about the current EPS, but what is expecting -- what we are expecting, what is waiting for us out there in the next 3 years. We have also a very good potential coming from the second driver. The reversion that we expect for a number of selected assets. If we add what we could expect from Prime Paris to what we would expect from Madrid and Barcelona, we see EUR 47 million that would come simply for the fact that we put -- signed contracts that come to maturity at today's ERVs. And so that's another source of cash flow growth. The third one is on our third-party capital initiative on science and innovation. Here, the comments that we'd like to share is that this is going on track. First of all, the seed portfolio is going through the expected milestones of occupancy and growth. We are today above 80% occupancies as expected. But on top of that, we are looking at additional pipeline and additional fundraising progress. Our assessment today would be that we have short-term visibility -- high short-term visibility to grow the assets under management from EUR 400 million to more than EUR 600 million at the same time that we have very interesting conversations for more than EUR 200 million. So in a way, this confirms a little bit the path that we were expecting for this particular track that would mean if we deliver what we expect would mean EUR 0.02 to EUR 0.03 additional of EPRA EPS in the midterm. And finally, another source of value is through active capital recycling. Maybe here, the message that I would like to share is in the first half of the year, we put the focus on the available opportunistic investment opportunities, mainly the one that we saw just a moment ago, the size and innovation portfolio. We would like to enhance and go further in the direction of capture opportunities in the European real estate cycle. But maybe at this time, what I would like to share is more the visibility and the focus that we are putting on the capital recycling in terms of disposals. We have a view that the disposals to navigate this capital recycling process with some fundamentals today could mean EUR 0.5 billion of disposals to come in the next 18 to 24 months. Maybe I would like to highlight that almost 2/3 of this would be based more on the short term with high visibility. So our view on capital recycling is that interesting opportunities may come. First half was about investment. Second half, it's more about divestment and initial of next year. And then we follow up with an opportunistic capture of activities in the market. Everything put together in terms of strategy and outlook. As I said, Colonial is focused in EPRA earnings growth, 9% CAGR in the last 3 years. We remain, by the way, with a full year guidance on track. We are a little bit more specific. We expect a range EUR 0.33, EUR 0.34 for this year. We remain on a strong business model that is generating a 5% like-for-like growth so far. And most of all, we have additional cash flow and value coming on the back of project deliveries and pricing power on the existing portfolio. This means a growth profile that can generate more than EUR 150 million of future rents through this new pipeline and reversion. And all of this focus in a strategy of relying our fantastic positioning on our core markets but together with enhanced urban transformation growth strategy with a certain example in the science and innovation field and based in the support of third-party capital. This is the message for today. We think that is a good set of results. Now we are available for any questions. Thank you. Operator: [Operator Instructions] And we shall start with the first question by Ignacio Romero from Banco Sabadell. Ignacio Romero: Thank you for the presentation. So I have a question regarding loan-to-value at 47% on an EPRA basis, you are now near the same level that you had when you announced the deal with criteria a year ago. So how do you see a loan-to-value evolving in the future? Would you expect to lower it by this capital rotation that you have just mentioned? Or do you expect asset revaluation to lower the ratio, maybe even a new capital equity capital injection. I would like to know your thoughts on that issue, please. Carmina Cirera: Okay. Carmina speaking, thanks, Ignacio, for the question. As you know, we look at the leverage in a very holistic approach, which means that different KPIs which are included in the rating. So our commitment is to maintain the rating, the investment grade. And it means solid ICR. It means that solid EBITDA, net EBITDA, it means liquidity and it means, of course, loan to value. These levels, as we said, are temporary because we are making progress on the capital recycling, but it's not a way of settle exactly a percentage of loan-to-value. It's a more, I would say, approach in the rating agency methodology. So it's true that after the capital recycling strategies and of course, still, this is based on the last price evaluation, which was in June and in the end it will be updated, we believe that the levels would remain as they were in the previous year. But as I repeat, after the capital recycling, we believe that these levels, this is why the rating agencies has keep and maintain the rating. Operator: Next question comes from Valerie Jacob from Bernstein SG. Valerie Jacob Guezi: I've got a couple of questions. The first one is -- maybe a follow-up on the question that's been asked on the LTV. I mean, you mentioned that you've got EUR 0.11 coming from the projects. Can you remind us how much you need to spend to deliver this EUR 0.11 and how is it going to be funded? Or what is the impact going to be on your LTV? That's my first question. And my second question is just looking at your earnings. I think in H1, it was EUR 0.17, and it's EUR 0.25 for 9 months. So there is a slowdown in your earnings growth. And I was wondering if there is any reason for that? And what does that mean for the guidance? Because I think at H1, you said you are likely to be towards the top of the guidance. So are you still there? Or are we more sort of in the middle or lower part of the guidance now? Carmina Cirera: Okay. So on the CapEx related to this 200,000 square meters in Page 24, you know you can see the details of the pending CapEx attached to this project pipeline, which would add this EUR 0.11 per share. So this is funded through disposals and through maintaining as well the ratings and the levels of the metrics for the rating that we have in place in the investment-grade BBB+ by S&P and Baa1 by Moody's. So considering that the valuation on the pipeline will -- it's not factor for value today. So it will be factor the full value after completion. And so when you consider this IRR expecting for this CapEx plus the pending CapEx plus the capital recycling, this is the reason why, as I said before, the rating agencies, maintaining with a stable outlook our rating and -- our credit metrics and our rating. Pere Serra: On the second part of your question, look, I think that we are more or less in line on what we -- with the vision we delivered throughout the year. We started with a wider spread because of the logical uncertainty on a business that just -- sometimes just for timing issues, you can go a little bit after or a little bit ahead of what you would expect. Where we see the earnings today, it's more focused on the 33%, 34% range. maybe still more biased towards the high end at the lower end, but this is too precise, not for us to give visibility at this moment. That's the number we can share today. Valerie Jacob Guezi: Okay. And is there any reason why it was lower in Q3? Pere Serra: That's just timing issues. I mean there are -- in the end, you don't have a stable perimeter throughout the year and we cannot be mathematically equivalent in all quarters. So just normal timing issues on the ordinary course of business, nothing exceptional happening. Valerie Jacob Guezi: Okay. May I ask a last question. Looking at the supply coming in Paris, if I look at what the brokers are expecting, they're expecting the vacancy rate in Central Paris to go up. And I was just wondering, what is your view on what effect it's going to have on rent? Do you think that prime rents can continue to grow in Central Paris? Or do you think that will put a halt to the growth? Pere Serra: Yes. Good question. No, we insist on the increasing polarization in the market. We are happy to be in a particular segment where there's so limited supply that is not enhanced with additional assets that come to the market that in our market, the fundamentals of supply and demand remain the same. We understand that the rest of Paris maybe more cyclical subject to a specific situation of each year in terms of supply and demand, but this is not affecting us and I think that the results that we are presenting today try to support this view. It's this vision that you're saying about the market is something it's been around for a while and look at our numbers. So we believe that no relevant difference should be happening in the markets that we are relying on. Operator: Next question comes from Ana Escalante from Morgan Stanley. Ana Taborga: I have two questions, please. The first one is on occupancy. I understand that this might be as, Pere, you said some temporary thing, but looking to your previous reporting and even going back to 2015, I think this is the quarter with the highest occupancy rate you've ever reported. Discounts at the time when the indexation impact is slowing down, particularly in France. So looking into 2026, are you expecting to sustain this strong like-for-like rental growth? Or how are you expecting both the lower impacts on indexation and the temporary albeit maybe significant occupancy decline to impact the like-for-like in 2026? Carlos Krohmer: Look, obviously, there is a general theme of indexation that is a general playing field for everybody, and it is what it is, and it's basically factual and then the contracts that go through indexation have the indexation level that is done in the market. However, having said this, and I think these results show very clearly, we've signed super strong retail contracts at super high levels, office contract at super high levels, progressing very well, a lot of square meters and moreover, economic value. And tying this to what Pere said, when you look today, the Grade A availability in Paris is below 1%, is 0.9%. So the segment where we are, that is really no product available. And for this type of segment, at least what we are seeing in our daily operations, the take-up is healthy, and we are signing with very strong release spread and very strong rental growth. And this is a very high component in our like-for-like growth. We have more than -- close to 500 basis points of extra chunk of growth in the portfolio that have been signed now and that are not part of the profit and loss accounts today because things that we signed today will flow into future quarter's profit. So we have part of the future like-for-like for the Paris site secured. Paris is strong, and Madrid is having quite significant acceleration and also in CPI, a little bit higher than expected as you know. So we think we can -- nobody knows the future, but we have the feeling that we can maintain these strong levels of like-for-like growth. And we have then also some occupancy spare capacity to be filled that also creates additional like-for-like. So we are positive. We don't know the future, but we are positive. We think our product really can achieve and maintain these levels. Ana Taborga: Okay. Very, very helpful. And then another question maybe on disposals and any other assets that you expect that will go under refurbishment in the next year? How dilutive you think that could be into EPS? Because when I look at consensus, we are anticipating, as you guided strong EPS growth in '26 and '27. But how dilutive these disposals are expected to be into that guidance? And to what extent that strong EPS CAGR for the next years is something that we will start to see maybe a bit later than we are expecting? Carmina Cirera: Ana, I think -- thank you, but you need as well to consider the future pipeline that will come into operation in the following year. So the 87,000 square meters from Madnum, Diagonal 197 and Haussmann that has been delivered this year. will be impacted, of course, in the due course after resell letting activity during 2026 and 2027. And then the scope, which is going to be delivered next year at 20,000, 22,000 square meters, again, will be impacting partially 2026 and 2027. So all in, it's what you can see the potential disposals, which we are disposing and valuation yields will be compensated. And of course, with the P&L with a positive impact on the -- coming from the program, the pipeline program that the yield on cost is much higher. This is the beauty of our business, this trade-off on yields and maintaining and keeping the EPS growth. Carlos Krohmer: Maybe just a last comment. We do not expect any major projects coming up in our portfolio. Everything that we had to reposition and that has really a value creation perspective is what we have today on the page where we show that EUR 100 million of rents on Page 24. And the rest of the portfolio is basically a stabilized portfolio. Here and there, sometimes a little bit of floor to be repositioned, but nothing really big. I understand your question because many people have asked me this also in one-on-ones because there are some other people in the market that have quite relevant things coming up. We have nothing. We have just to deliver what we have. This is EUR 100 million, and the other is business as usual, managing the stabilized [indiscernible]. Operator: Next question, Michael Finn from Green Street. Michael Finn: My first question, if I may, is on Slide 27. And I'm just curious if you could tell me, please, a bit more about the right-hand side of the slide. In terms of what you actually plan to do to capture the recoveries? Do you plan, for example, to stay in the same cities? Or are you looking at other cities? And if so, where? And then also maybe kind of connected to that also, I'm curious on the EUR 0.5 billion that you plan to sell, how do you balance the other uses of that cash in terms of the current debt level that you have in other things. So that's my first question. Pere Serra: Yes, Michael, it's -- I think that we -- what we are trying to do with this particular slide is to be a little bit illustrative, but it's -- maybe it's difficult not to pass the message in a very strict way. My view. My view is, look, on the disposals side, we know that we want to do this level of disposal because we know the kind of assets that we're talking about that we know how dry they may be and the opportunities that may be out there. So this is -- there's a level of certainty attached to that. At the other side, we have knowledge that the market is offering opportunities because the supply and demand of money is a little bit disrupted everywhere, but particularly in France or in Germany, not so much in Spain. And you don't see many people capable of coming not only with money, but with know-how to be involved in opportunistic investment opportunities that may come with very interesting IRRs associated to this. On top of that, we believe that not only the alpha, but the beta in certain markets may help. So what we're just trying to say is that our goal as a listed company is to recycle capital to divest to keep the KPIs on the -- at the balance sheet level strong. And then to invest, but this it will be based more opportunistically on the back of the beta opportunities that the market may give us plus the alpha that we see. That was -- that is what we're trying to illustrate here that we believe that is an interesting moment of the market if you are investing on a 5-year horizon. But that's what we just wanted to illustrate with this kind of chart. Michael Finn: Okay. Yes. And then maybe just in terms of the type of assets that you plan to buy. Do you think you would prefer to buy an asset that needs quite a lot of work or a standing asset that would yield from the first day? Pere Serra: Yes. The ones we like the most is the ones that with a little bit of creativity, you extract extra rents with very limited or nonexisting CapEx. In other words, we do not see ourselves investing in heavy CapEx in pipeline of things that have to be developed from the spread, totally refurbished. I think that the opportunity cost of capital is not exciting. On the other hand, when you are more kind of a professional player and you go out there, you see sometimes assets that you believe that just with a little bit of creativity with your goodwill in the know-how that you have with your clients, you could improve. You simply -- you see something that has rent of EUR 30 and you see with a little bit of ideas, I would put this on EUR 35. So it's more this kind of real estate expertise oriented investment, the one that we would favor, of course, leveraging a little bit on the fact that there's not a lot of, let's say, plain Manila money out there in the market. That would be more our focus in terms of investment. Michael Finn: Okay. Okay. Yes. And then a final question, if I may, on scope. I'm just curious over the course of the year, if your view on the effective rent there has changed. So that's the rent after all the rent freeze that you'll have to give to the tenant. I'm just curious if that has changed. Pere Serra: Yes. No, I think it's early stages. Yes, I understand it's -- in the same way that Madnum for us was the great adventure and challenge for this year, and we are super happy about the outcome. We see this more '26 kind of focused. And yes, I'm also curious about the answer as you. I totally share. But too much early stages, we don't have visibility. We remain with the same kind of underwriting note that we had on this asset by now. Michael Finn: Interesting, yes. Yes. And then sorry, maybe just to clarify on that, do you think at the moment, rent about EUR 720 and incentives probably in the high teens. Would you say that's fair in the current market? Pere Serra: We did not follow you completely, the quality of the sound -- can you repeat, please, Michael? Michael Finn: Yes, yes, sure. I just said, is it fair that the rent at the moment will be about EUR 720 and incentives would be in the probably upper teens. Is that fair in the current market? Pere Serra: I don't have enough visibility to provide with an answer. That doesn't sound illogical to me what you're saying, but I wouldn't like to come now with a specific assessment that I cannot provide right now. Operator: Next question, Celine Huynh from Barclays. Celine Huynh: My first question is on the guidance, please. Like Valerie, we also noticed a slowdown in earnings growth in Q3. So can you elaborate what led you to narrow that guidance? Because initially, you were guiding to the upper end on the previous call. And then my second question is on the disposal you've just announced. You're sounding quite confident to achieve those EUR 500 million. Can you tell us in which country you're planning to sell? What kind of assets? Is that offices, residential and what kind of yield. And my third question is on the opportunity you're seeing currently in the market. We've heard you mention Brussels, Germany, Italy before. Is that still the case? Are these still markets that you're looking at for acquisitions? Pere Serra: Yes. On the EPS, I think it's just as the year goes by and we are approaching the final end, we can be more precise. And in narrowing this from [indiscernible], what we see is just that we can be more precise. And we don't see anything similar to a slowdown in -- you've seen all of the KPIs. So if anything, some timing issues in certain specific things, but nothing specifically in terms of a slowdown. In terms of the disposals. Yes, normally, if we say high visibility is because we are working on specific assets with specific bidders. We always take some risk in saying this because high visibility means that you cannot announce certain transaction but you have good grounds. And you know in this sector that you cannot say that something is done till is done. But basically, as I said, in 2/3 out of what I said, maybe between half and 2/3. There are specific names of assets and names of bidders will give us that kind of confidence in delivering this. I cannot provide more visibility, maybe except that we are maybe taking advantage of the interest that the residential sector is having us showing in Spain. So one of the components of this may be residential. Besides this, I would not exclude anything. Spain, France, any kind of assets, but we cannot be more specific as of today based on where we are. And I think you said third thing or -- yes, opportunities. No, what we always say is that the main point -- main focus about our approach is to be opportunistic. And we don't work in a way of, let's say, preempting or having views about where we want to be or where we don't want to be to a level that we would be so specific, and we will be here, we'll not be there. We see opportunities a little bit everywhere. We see opportunities in France. We are looking at other countries, maybe Germany is the one with higher visibility as of today. But we cannot be more specific than this as of today because, as I said before, short-term focus, it's mainly on the capital recycling on the divestment side more than on the acquisition side. Celine Huynh: Okay. Can I ask you one last question, please? Pere Serra: Sure. Celine Huynh: I mean, you've heard a lot of the questions on the call being about LTV too high. You're saying that you've got EUR 500 million of disposals very likely to come through. So why is deleveraging not an option for you? Pere Serra: Why, sorry? Celine Huynh: Deleveraging, reducing your debt? Pere Serra: No. I think that we have been, let's say, confident traditionally that the level of our debt is a good one and based on several grounds. One is the kind of support we have been having on the debt markets. You've seen how we have placed the bonds in the past. You can see how the bonds are trading. You can see the level of support of rating agencies. So we've been traditionally confident on the level of debt that we've had. We are also committed to keep this and that means that if there is a temporary increase in LTV, we take the necessary measures to keep it in the safe zone on the zone where we want it to be. And -- so as of today, we see this more as a time issues, you cannot choose to invest and divest precisely everything at the same time, all of the time. So sometimes when you see that you've been able to divest and then you put focus in the investing, sometimes it's the opposite like now, and that's where we are. But coming back to the original point, if we are strong regarding debt markets, then the other question is what's the concern on the equity side, that the LTV, the concern can be because you think that you have a risk insolvency, let me put it this way. And I think that would be far away of anyone's concern. The other thing is from the point of view of providing the nicest returns to shareholders. Are you -- there is a common sense that is really ground to think that deleveraging you are working for your shareholders. While at the same time, you don't need to work for debt market based on the kind of support they are showing. What I want to say with all of this is that we are confident with our level of debt. We are also engaged in rebalancing the situation to remain strong. And we are confident in the fact that we will remain in this strong level as we have been in the past. Operator: Next question comes from Jonathan Kownator from Goldman Sachs. Jonathan Kownator: Two questions on my end, please. The first question, I wanted to come back to the topic again, I'm not entirely clear still. So the disposals that you're introducing now, is it the aim of disposing to reinvest the same volume? Or is it new disposals? And what is the impact you expect positive or negative, obviously, on the sort of EPS trajectory that you had announced earlier. So that's the first question, please. And the second question was on the science and innovation portfolio. You're now highlighting 80% occupancy. So can you help us understand a bit how this portfolio is going? Do you have more assets to be delivered? Or is that the full portfolio and then you just have to fill these? What are the prospects from tenants? I mean it's a space where we have seen some -- in some areas in respect, better lettings from the innovation space that the science area has been perhaps a bit tougher at European level. So if you can help us understand this, that would be great. Pere Serra: Yes. Thanks, Jonathan. On the first question, we are, let's say, certain about the goal on disposals because we want to have the deleveraging FX coming from this on the second half of the year after the leveraging company on the first half. We don't have the same degree of being specific regarding acquisitions. This is more opportunity-driven. When an opportunity comes, we balance everything. One is the return coming from the investment. The other is the risk -- the risk associated to this including spillover kind of effects on our balance sheet. So we have a much more restrictive view. So I understand that this is not an answer that is yes or no, what are we doing with the money? And do we want to spend it all of them? Do we want to spend nothing on them? There's no specific answer for this. What we are focusing is high priority on the divestment side and then being very opportunistic on the investment side. On the second question on seed, Carmina, you want to step in? Carmina Cirera: Yes. On the seed, it's -- today, we have 80% occupancy, but we have a small refurbishment that has been already pre-let. The kind -- Jonathan, the kind of tenants we have here, as you know, there are some kind of buyer as one of the big ones. We have as well innovation divisions from certain hospitals, innovation divisions from certain pharma companies. And the [indiscernible] world of today, it's almost 9 years, but we are recycling some tenants in a more, I would say, corporate tenants with more long-term contracts. So the expected stabilized yields are in the range of 6.5% stabilized. As of today, we are now in this recycling tenants, enhancing brands, increasing maturities and the profile of these 2 big campus are the ones that are more very exposed in the innovation and life science fields attached to the big pharma names. Jonathan Kownator: Okay. Very clear. So if I can just, sorry, resummarize the first question. So if I understand correctly, the EUR 500 million of disposals is now incremental to what you had previously said in terms of earnings growth trajectory. And obviously, your aim at some point is potentially to compensate for that, but there's a bit less visibility and it's more the capacity to remain flexible. Is that a fair summary? Pere Serra: Yes. I think that, yes, in a way, there's more certainty attached to divestments, there's more opportunistic approach to future investments, which means that any scenario is likely to happen, but the probability is more with the profile that you just mentioned. Operator: Now there are no further questions. I then give back the floor to Mr. Pere Vinolas. Pere Serra: Well, thank you. It's been a very interesting session, not only because of the results that we shared that I think that were very interesting, as I said, also because of your interest, support and interesting questions. Thank you very much for your time and looking forward to seeing you soon again. Thank you, and have a good day. Thank you. Bye-bye.
Operator: Good day, ladies and gentlemen. Welcome to Vista Gold's Third Quarter 2025 Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Today is Thursday, November 13, 2025. It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead. Pamela Solly: Thank you, Sylvie, and good day, everyone. Thank you for joining the Vista Gold Third Quarter 2025 Financial Results and Corporate Update Conference Call. I'm Pamela Solly, Vice President of Investor Relations. On the call today is Fred Earnest, President and Chief Executive Officer; and Doug Tobler, Chief Financial Officer. On November 12, 2025, Vista reported its operating and financial results for the quarter ended September 30, 2025. Copies of the news release and quarterly report on Form 10-Q are available on our website at www.vistagold.com. During the course of this call and the question-and-answer session, we will be making forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Vista to be materially different from results, performance or achievements expressed or implied by such statements. Please refer to our most recently filed Form 10-Q for details of risks and other important factors that could cause actual results to differ materially from those in our forward-looking statements and the cautionary note regarding estimates of mineral resources and mineral reserves. I will now turn the call over to Fred Earnest. Frederick H. Earnest: Thank you, Pam, and thank you, everyone, for joining us on the call today. During the third quarter, we achieved a significant milestone with the completion of a new feasibility study for the Mt Todd gold project. The results of the study were announced on July 29, 2025. And this new study represents a fresh vision for the project as a 15,000 tonne per day operation, one that prioritizes lower initial capital costs and higher ore grades. The study underscores our commitment to see Mt Todd developed as an Australian project. I'll talk more on that later in the call. As we continue to evaluate strategic options for developing Mt Todd, we have started modifications to existing permits to align them with the new 15,000 tonne per day project and initiated technical work in preparation of a decision to commence detailed engineering. I'm pleased to report that we ended the quarter with a solid cash position, which Doug will discuss shortly. Additionally, we have now achieved 4 years without a lost-time accident at the site. We are committed to prioritizing the efficient use of our cash and creating long-term value for our shareholders through disciplined execution of our strategy for the Mt Todd gold project. I will discuss some of these topics in greater detail later in the call, but I will now turn the time over to Doug Tobler for a review of our financial results for the quarter ended September 30, 2025. Douglas Tobler: Thank you, Fred. And I'll begin today's discussion with a summary of our results of operations for the 3 and the 9-month periods ended September 30, 2025 compared to the same periods for 2024. For additional details, our full financial statements and our MD&A are included in our Form 10-Q that was filed earlier this week. For the 3-month periods ended September 30, '25 and '24, we reported net losses of $723,000 and $1,638,000, respectively. The most significant reason for the decline in our net loss in the current period was our recognition of other income upon recovery of $1,257,000 for taxes that were paid in connection with the 2020 sale of the Los Reyes gold project in Mexico. Minor offsets to these incomes resulted from slightly higher Mt Todd exploration and evaluation costs and administrative costs. Now for the 9-month periods ended September 30, 2025 and '24, we reported a net loss of $5,787,000 for the 2025 period and net income of $12,922,000 for the '24 period. The change between the '25 and the '24 periods resulted mostly from 2 gains recognized during the '24 9-month period. First, we recognized a $16.9 million gain on the grant of a royalty interest to Wheaton Precious Metals. And secondly, we had an $802,000 gain on the sale of a portion of our used mill equipment. Partially offsetting the change that resulted from these 2024 gains was the $1,257,000 Mexico tax recovery that I mentioned previously. Turning to our financial position. We continue to maintain a strong cash position with $13.7 million on hand at September 30, 2025. This compares to the $16.9 million cash on hand at December 31, 2024. We were successful in limiting our net decline in cash during this 9-month period because of the Mexico tax recovery and selected use of our ATM program. Also, we continue to have no debt. Looking forward, we expect our recurring costs and other expenses to remain largely in line with our expectations. For the 12-month period following September 30, 2025, the company estimates net recurring costs will approximate $7.4 million, plus an additional $2 million related to ongoing and currently planned work at Mt Todd. Thank you. That concludes my remarks. Fred, I'll turn it back to you now. Frederick H. Earnest: Thank you, Doug. Let me first talk about the feasibility study. As I mentioned earlier, during the quarter, we completed a new feasibility study for Mt Todd that presents a fresh vision for the project as a 15,000 tonne per day operation. The study significantly decreased the initial capital cost to -- from over $1 billion to $425 million, prioritized grade over tonnes, delivered stable gold production over a 30-year mine life and incorporated design and operating practices commonly used in Australian gold operations to reduce development and operation risks. The new feasibility study marks a significant shift in the strategy for Mt Todd, demonstrating the potential for near-term development of a smaller, lower capital cost project than those previously evaluated. At the feasibility study gold price of $2,500 an ounce, the net present value at a 5% discount rate is estimated to be USD 1.1 billion, with an internal rate of return of 27.8% and a payback period of 2.7 years. At a still conservative gold price of $3,300 per ounce, the net present value on an after-tax basis at a 5% discount rate is estimated to be $2.2 billion, with an internal rate of return of 44.7% and a payback period of 1.7 years. Obviously, these economics demonstrate very strong leverage to the price of gold. For additional information on the feasibility study results, please refer to Vista's news release dated July 29, 2025 and the feasibility study presentation, both of which can be found on our company website. Switching over to permits. As we've discussed in the past, we have all of the major permits for the previously evaluated 50,000 tonne per day operation. As all will appreciate, with design changes, with the rising gold price, there are some differences. And in order to align the new 15,000 tonne per day operation with those permits, modifications to some of those permits are necessary. The work commenced during the third quarter and is ongoing. Switching to technical studies. We are completing technical work in advance of a decision to commence a detailed engineering. The primary objective of these programs is to characterize material properties and attributes to support early-stage engineering and equipment selection decisions. During the third quarter, we maintained our focus on safety, environmental stewardship and stakeholder interest. The Mt Todd team passed the very significant milestone of 4 years with no lost-time accidents. We're very pleased with this achievement. We remain committed to our health and safety programs and our focus on extending this achievement. Site personnel continued to successfully manage Mt Todd environmental initiatives, and management continued its proactive engagement with the Jawoyn Association Aboriginal Corporation and other key stakeholders. Looking ahead, we believe Mt Todd holds tremendous intrinsic value and represents an exceptional investment opportunity at conservative long-term gold prices. With an all-in sustaining cost of $1,500 per ounce and a very conservative gold price of $3,500 an ounce, the Mt Todd gold project will generate approximately USD 300 million of free cash flow annually. Looking at this from another perspective, at a $2,500 gold price, the study net asset value per share is $8.41 per share. And at a $3,300 gold price, the study net asset value per share is $17.14 per share. That's nearly 10x our current share price. I think these numbers support our belief that there's a tremendous opportunity here and a -- tremendous opportunity to acquire Vista shares and see a significant increase on returns. We're very pleased with our share performance to date, which reflects not only the rise in the gold price, but also the market's strong support of the new Mt Todd 15,000 tonne per day feasibility study. Vista shares have increased approximately 210% year-to-date, with our market cap at approximately $220 million. We anticipate sustained strength in the gold price will continue to positively influence Vista's share price performance. Today, with much higher gold prices and growing investor interest, Mt Todd is positioned as one of the most attractive development-stage projects in the gold sector. Its strong project economics, favorable jurisdiction, permitting status and existing infrastructure make it well suited for near-term development. We are confident that this is the right market in which to advance Mt Todd. In conclusion, Vista is committed to seeing Mt Todd developed in compliance with the highest mining and ESG standards, and we'll work diligently toward that goal. For more information about Vista Gold, the Mt Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity and that current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold. This concludes my formal remarks, and we will now respond to any questions from participants on the call. Operator: [Operator Instructions] Your first question will be from Heiko Ihle at H.C. Wainwright. Heiko Ihle: Sorry for the background noise. I'm traveling, as you can probably hear. Hey, in our view, the project is one of the largest benefactors of the current metal pricing environment that we're in. At the start of this call, we were at $41.50 an ounce, which is nuts. It's probably even better in Australian -- probably it is even better in Australian dollar terms. You're only using $2,500 an ounce in your feasibility study. Can you just give a bit more color on the change at current prices due to the study? And how much of that has been reflected in investor and potential partner interest? I mean it seems like things are firing on all cylinders, but just add a bit of color on what you're seeing from the other side of the negotiating table. Frederick H. Earnest: Well, Heiko, just in general terms, obviously, at a $41.50 gold price, project economics are substantially better than the numbers that we discussed on the call. And that just speaks to the tremendous leverage that we enjoy in the project and the leverage to the price of gold. Obviously, these gold prices are driving a lot of dynamics in the market. And there's -- since announcing the feasibility study results, we have signed additional confidentiality agreements. We continue to see interest in the project. And we continue to move forward on all of the options that we have available to us. We have not shut off any avenues for advancing Mt Todd and, in fact, continue to be open to any of the options that we've laid out previously, ranging from an opportunity or a decision to advance Mt Todd as a standalone project, to forming a joint venture to develop it with an appropriate partner or even considering an appropriately valued corporate transaction. Heiko Ihle: Fair enough. Same question, but different -- and with a very different change. You've always had very good relationships with the Jawoyn. I mean any detail on how they've reacted to the latest feasibility study that came out? Did they provide any input, any commentary after it came? I mean I know you guys are talking very much on the regular. Frederick H. Earnest: Yes, I've been in Australia several times since announcing the feasibility study results and had meetings with representatives of Jawoyn leadership as well as their board of directors. The Jawoyn continue to be very supportive of the Mt Todd project and very hopeful that it will go forward in a timely manner. I think as most people know, that we have a contractual relationship with the Jawoyn, we have a couple of royalty agreements, and they stand to benefit economically from the development of the project, and they are supportive of the project and keen to see it move forward. Operator: Next, we will hear from Mike Schultz, investor. Mike Schultz: Fred, can you hear me? Frederick H. Earnest: We hear you loud and clear, Mike. Mike Schultz: Okay. Great. A couple of questions. So one is, can you shed light on like the number of confidentiality agreements that have been entered into since you announced kind of the recent feasibility study? Not exact numbers, ballpark -- yes. Frederick H. Earnest: Yes, Mike, we don't disclose how many confidentiality agreements we've signed or who they're with. That's just a matter of corporate practice. But we have signed a number of new confidentiality agreements and we continue to see new interest in the project. Mike Schultz: Okay. And then the second question is just I know that you've kind of come with the new feasibility study, you've opened the door some to potentially developing it on your own on -- Vista developing it as a standalone. What are the trade-offs there? Because like, I guess, if you enter into a partnership agreement, you're giving something up, versus if you do it standalone, you're having to pay finance costs. What are the benefits of a partner versus just going ahead and deciding to do it as a standalone? Frederick H. Earnest: That's a very astute question, Mike. There are some very significant trade-offs between either of those 2 execution strategies. Certainly, bringing in a joint venture partner, the advantages would be reduced dilution. There wouldn't be a need to issue near the number of shares of equity participation. But I suppose you could say that dilution would happen in a different way and, as you pointed out, you'd be giving up part of the project to bring in a joint venture partner. Ideally, and I don't think we would do a deal if we weren't satisfied with this condition, but a joint venture partner would bring to the table a project development team and an experience and reputation in developing gold projects, that we hope that the market would recognize and reward. And so that would be a benefit. Obviously, the biggest tradeoff there is that you're giving away part of the project, likely 50% or more, to bring in that joint venture partner. On the other hand, developing it on a standalone basis preserves 100% ownership for the Vista shareholders. It involves Vista building a team to advance the project and putting together that carefully, and selectively putting together that team of people, and sometimes that takes time. But obviously, there's some advantages there economically in that we retain 100% ownership. And there's different ways to finance this that could be some that are more attractive and more advantageous for shareholders than others. Doug, do you want to chime in with any other thoughts on this question? Douglas Tobler: Yes. I mean, I think you've hit the big points. It's around, on a joint venture opportunity, obviously, you'd be looking for a premium to the -- what our current share price is, if that's the driver of valuation. But keeping it yourself, you have the whole thing to work with, but you do have to take on, most commonly, you take on debt and you have a larger dilution. But having 100% of it is very helpful. I think one key point to make, which you brought up, Mike, is this option of looking to build Mt Todd on our own is really a valid option at this point in time, which we haven't had previously when we were a large project and needed to rely on finding a partner. So it definitely opens many more doors. Mike Schultz: Okay. Well, that's -- the answer is very helpful. I just, as an investor, as soon as something definitive is announced, and I think a lot of things could happen and I know you guys are evaluating that, but from an investor standpoint, you're just kind of waiting for something to be announced. And knowing that you can do it as a standalone does give you the option to do it if you -- if the partnerships don't seem favorable. Operator: Thank you. And at this time, Mr. Earnest, we have no other questions. Please proceed. Frederick H. Earnest: All right. Thank you, Sylvie, and thanks to all of you who have been on the call today. Obviously, we're very excited about where the project is headed and the results of the feasibility study. I'd like to go back to a point that I made just in closing, and that is we've seen a lot of volatility in the gold price in the last month and we've seen our share price move up, move down. I'd come back to the 2 concepts. The one is, what is the free cash flow that the project will generate? And again, using some very conservative numbers, we know that our all-in sustaining costs as estimated in the study would be just a little under $1,500 an ounce over the life of the project. And to make the math easy, just using a $3,500 gold price, so that's $2,000 in margin on 150,000 ounces of gold per year, that results in free cash flow of $300 million a year. This is a very robust project. I think that that number alone should attract people's interest. Looking at it from a different perspective, and that is looking at the study net asset value, and again, using these conservative gold prices that are published along with the feasibility study, first at $2,500 gold price, which results in a study NAV per share of $8.41, and comparing that to the $3,300 gold price study NAV per share, which is $17.14, and again, I'd point out that that latter number at still a very conservative gold price is 10x our current share price. I think both of these numbers speak to the fact that Vista is considerably undervalued, that there's tremendous upside opportunity here. And while the gold price is moving up and down, and I know that that causes some people some -- a little bit of concern and anxiety, I would suggest that this is a tremendous opportunity and a good time to be considering an investment in Vista Gold. We're doing the things that we feel are important to lay the groundwork for that future decision as far as how we develop the project. We continue to be very cautious and careful and prudent in the way that we manage the cash that we have. And we think that we're on the path to unlock significant value for shareholders. I'm excited about the opportunities that lie before us. I invite you to seriously consider and evaluate whether this is the right time for you to make an investment in Vista Gold. And if you already own shares of the company, I invite you to consider whether this is a time to increase your holding. We're in a very dynamic gold market. I think that we're at still in the very early stages of a bull market and that we will continue to see gold price increase, that that will be a contributing factor to all of the work that we're doing at the company to drive the share price higher and to create value for shareholders. So with that, I thank you for your time today and wish you all a very pleasant day. And thank you for participating in this quarterly conference update call. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Good day, everyone. Thank you for standing by. Welcome to the Vistagen Therapeutics' Fiscal Year 2026 Second Quarter Corporate Update Conference Call and Webcast. Please note that today's call is being recorded. At this time, I'd like to turn the call over to your host, Mark McPartland, Senior Vice President, Investor Relations at Vistagen. Mark? Mark McPartland: Thank you, operator. Good afternoon, everyone, and welcome to our conference call and webcast. Earlier this afternoon, we filed our quarterly report on Form 10-Q and issued a press release for our fiscal year 2026 second quarter, which ended on September 30, 2025, providing an overview on the progress in our PALISADE-3 program for fasedienol and social anxiety disorder across our other lead clinical neuroscience programs. We encourage you to review the PR and 10-Q, which are available in the Investors section of our website. Now before we begin, please note that we will be making forward-looking statements regarding our business during today's call based on our current expectations and information. These forward-looking statements speak only as of today. Except as law requires, we do not assume any duty to update any forward-looking statements made today or in the future. Of course, forward-looking statements involve risks and uncertainties and other actual results could differ materially from those anticipated by any forward-looking statements we make today. Additional information concerning risks and factors that could affect our business and financial results are included in the fiscal year 2026 second quarter Form 10-Q for the period ending September 30, 2025, and in future filings that we'll make with the SEC from time to time, all of which are available in the Investors section of our website or, of course, on the SEC's website. Now with the formalities out of the way, we warmly welcome our stockholders, sell-side analysts and others interested in our programs and our progress. I'm joined on our call today by Shawn Singh, our President and Chief Executive Officer; and Josh Prince, our Chief Operating Officer. Shawn will provide a brief business update, clinical update, and Josh will be available to provide additional feedback during the Q&A portion of our call. After our remarks, we will take questions from the sell-side analysts participating on the call today. I remind you, a replay of the webcast will be made available in the Events section of our Investor page on our website. With that taken care of, I'll now turn the call over to our President and CEO, Shawn Singh. Shawn Singh: Thank you, Mark, and good afternoon, everyone. We've built a very strong momentum as we enter into what could be a potentially transformative period for Vistagen. Last week, we announced another major milestone in our PALISADE program. The last patient completed the randomized double-blind portion of our PALISADE-3 Phase III trial, evaluating our most advanced intranasal “pherines” product candidate, fasedienol for the acute treatment of social anxiety disorder. We are now preparing for the release of top line results from the PALISADE-3 study by the end of this calendar year. We extend our sincere gratitude to the patients who participated in the study as well as the dedicated and experienced clinical investigators, the clinical site staff and our contract research organization. Their enthusiasm, their focus on detail and the collaboration throughout the study were notable and greatly appreciated and will remain so during the ongoing open-label extension of the study. Over the past several months, I've had the privilege of meeting in person with many of the dedicated teams conducting our PALISADE-3 and PALISADE-4 studies. The energy, the curiosity, the optimism that I've witnessed reaffirmed just how great the need remains for new treatment options for individuals whose daily lives are affected by social anxiety disorder and how differentiated and innovative fasedienol could be in meeting their needs. Together, our teams remain deeply focused on fasedienol's potential to become the first FDA-approved acute treatment of anxiety for the millions of adults with social anxiety disorder. Looking ahead, we remain on track to report top line results from our PALISADE 4 Phase III trial in the first half of 2026. Both PALISADE-3 and PALISADE-4 share a similar public speaking challenge design and the same primary efficacy endpoint as our previously successful PALISADE-2 Phase III trial. In parallel, we are continuing preparations designed to advance our broader pherine pipeline, including itruvone for major depressive disorder and PH80 for menopausal hot flashes. Both depression and women's health represent areas where far too many patients still struggle without adequate options. We're deeply motivated to bring forward the innovative nonsystemic neurocircuitry-focused potential of itruvone and PH80 to help address these important and widespread needs. Turning now briefly to our financials. As of September 30, 2025, we had $77.2 million in cash, cash equivalents and marketable securities. We believe current cash covers all known aspects of our ongoing U.S. registration-directed PALISADE program for fasedienol for the acute treatment of SAD, including potential NDA submission if our PALISADE program is successful. Before I conclude the business update, I'd like to welcome Mr. Paul Edick to our Board of Directors. Paul joins us at a pivotal time for Vistagen, bringing decades of experience leading successful FDA approvals, commercial launches and strategic transactions. His leadership will be invaluable as we prepare for our next phase of growth. I'd also like to extend our deep gratitude to Dr. Jerry Jin, who served on our Board from 2016 until his retirement earlier in September of this year. In closing, our mission remains clear and unwavering: to redefine what is possible in neuroscience, to restore emotional well-being and improve quality of life for millions worldwide. With a diverse and innovative pipeline, experienced team, several key milestones approaching, we believe we are entering one of the most exciting and potentially transformative periods in our company's history with deep confidence in our ability to deliver meaningful value for patients and for our stockholders. I want to thank you all for your continued interest, your support and your engagement with Vistagen. It makes a lot of difference, and we look forward to sharing our progress with you in the weeks and the months ahead. Mark McPartland: Thank you, Shawn. These are definitely exciting times at Vistagen as we continue to build momentum across our programs. Operator, we would now like to open up the call for questions from the sell-side analysts joining us today. Operator: [Operator Instructions] Your first question comes from the line of Andrew Tsai with Jefferies. Lin Tsai: Look forward to the top line data readout soon. And so I think you guys have mentioned before that we should expect 6 to 8 weeks after the last visit for the top line release. Is that still the case? Or could it come earlier than that actually? Shawn Singh: Our guidance, I think we're just going to stick with it, Andrew. Thanks for asking the question, and thanks for coming on. But our guidance is that we'll see top line results released before the end of this calendar quarter, so by the end of this calendar year. Lin Tsai: Okay. And for the top line analysis, how should we think about discontinuation rates, any protocol violations? Will that -- can we expect the top line to be pretty close in terms of the number of patients you've enrolled in the study? And then how should we also be thinking about the safety profile? Shawn Singh: Well, you're going to hear as we did with PALISADE-2, right? So we're going to give you, obviously, top line results on the primary, the CGI-I, the secondary and also the PGI-C as a secondary. And obviously, pretty customary information regarding the safety profile that we've seen throughout the course of the study -- through the randomized portion of the study. So that's what we're printing out, and that's what we're reading out is -- are the top line results from the randomized double-blind portion, which is the public speaking challenge. So any safety data that we have from that study, similar to PALISADE-2, we'll be reading that out as well. Lin Tsai: Okay. And then last question is from what you can tell, what have been the top reasons why patients screen failed in PALISADE-3? And are the top reasons different from what you saw in PALISADE-2? Shawn Singh: So we can unpack that later. But what I can tell you, Andrew, is the reason that we made enhancements to the PALISADE-3 and 4 studies, again, was to make sure that there's very high-quality assessment for subject eligibility. And as a result of that, we had our own teams involved here with our teams for subject eligibility review. We had other enhancements into the execution of the study, of course, throughout the duration of the study. So I think we've seen generally what we've expected to see and as we've modeled forward for not only screen fail, but also attrition rates throughout the course from enrollment through randomization through the end of the study. So I think we're comfortable with what we've typically seen and maybe more to come on that later. The important piece of the puzzle is -- yes, one more thing is obviously the important piece of the puzzle is that we got to the last patient class visit with the full complement that we had modeled for purposes of the studies. We've noted before, our end target was 236. So last patient class visit reflects our original thought. Operator: The next question comes from the line of Paul Matteis with Stifel. Unknown Analyst: This is [ Matthew ], on for Paul. I guess for us, assuming one of PALISADE-3 or PALISADE-4 works, is there anything else gating registration -- gating filing? Is there anything else that you need to complete before then? How soon can you file? Shawn Singh: Sure. Matthew, thanks for the question. So as you know, as we move closer toward completion of the Phase III development program, we always plan to interact with the agency. But we've said this before, obviously, it's the pivotal program data, it's a repeat dose study. It's the open-label data from our long-term safety study, a human factor study, the typical preclinical safety-related studies, reprotox and carc, all those are aspects that we expect to have wrapped up upfront, of course, of an NDA package. So -- and we'll, of course, be meeting with the FDA as we get closer to make sure that we're in line with what's necessary regarding a submission package. So we estimate currently, and if everything goes according to plan that we've been executing on, we could see an NDA submission if PALISADE-3 is positive sometime around the middle of '26. Operator: [Operator Instructions] Your next question comes from the line of Myles Minter with William Blair. Myles Minter: Just the first one, is it your view that fasedienol would be eligible for commissioner's priority review voucher? It seems to me like SAD is potentially a public health crisis, and it's certainly a massive unmet need with over 30 million patients out there. That's the first one. And then second is just, I think in late October, you updated clinicaltrials.gov. You terminated a site in Arkansas and Kansas. I'm just curious whether that was because you've completed enrollment and you didn't need those sites anymore or just because of your site vigilance and you're going to see these sites in person? Was it something performance related that you terminated those sites? Shawn Singh: Thanks, Myles. Thanks for the question. Josh, why don't you go ahead and take that last question first? Joshua Prince: Sure. Yes. Thanks, Myles. As we've gone through the course of these studies for both PAL-3, PAL-4, it's a constant evaluation of fit with sites. And so we've had a few sites that, for whatever reason with regard to their ability to enroll the appropriate patients, whether it was their recruitment programs or other reasons, just they were not able to enroll. And so at some point, it makes sense to terminate those sites. There's been 1 or 2 like that. And then also beyond that, as we -- to your point, as we get towards the end of the study, we definitely take a wind-down approach for a soft landing for the study to make sure it's well controlled. We're controlling variability and then making sure that we will be able to get from that end of study last patient out to top line results efficiently in the time line that Shawn mentioned. So for us, it's kind of course of business as we've gone through the process of the studies. Shawn Singh: Thanks, Josh. So Myles, on your first question related to the voucher program, the CMPV program. So we're certainly aware of it and the criteria the FDA uses to evaluate eligibility. I think right now, while we don't expect that fasedienol falls within the typical scope of the CMPV programs, we, of course, believe the magnitude of unmet need and especially for a rapid situational treatment without the worrisome side effects and safety concerns, it's significant. But I think if the regulatory pathways evolve or additional guidance creates a relevant framework, then of course, we'll evaluate it at the appropriate time. Operator: Your next question comes from the line of Elemer Piros with Lucid Capital Markets. Elemer Piros: Shawn, this is Elemer dialing in for Elemer. What I'd like to ask you is if you have any indication on the usage patterns, this is coming from -- perhaps more likely from PALISADE-2 than maybe to a lesser extent from PALISADE-3 at this point for those who went out to complete the OLE up to 1 year? Shawn Singh: Yes. Most of the usage pattern data is going to come from the open labels. And so what we can talk about, of course, is related to the reported open label, the long-term safety study that we had before. And the patterns established in the context of that study give some pretty good guidance to us about what we see going forward in the real world. Remember, this is a disorder that is -- it's chronic, but it manifests acutely and episodically. And so a lot of it in terms of utilization depends on where people are in their particular phase of their journey, what is their job? What academic setting are they in? How frequently do they need to interact with people on a social basis? And you definitely see in that long-term safety study we've reported on more activity during the week, especially after people are back to work, back to school in the kind of rhythm of life that we're in now. You see more utilization during a week, especially during work kind of hours. Weekends, it tends to taper off, obviously, because people are not in similar stressful settings or may be social situations, a barbecue at your friends or you go to a sporting event where there's worry about how you're looking, how you're -- whether you're being judged or not being judged, which is really the -- what anchors this disorder, unfortunately. So more often during the week, less often during the weekend, and that's the pattern we saw early on in the open-label study we reported on, and it's reasonable to expect that sort of activity on a go-forward basis, at least that's what's anchoring a lot of our informed assumptions about how we could see the drug used in the real world. Elemer Piros: Thank you, Shawn. And do you see any difference between the number of people entering the open-label phase between PALISADE-2 and PALISADE-3, and roughly what percentage is that? Shawn Singh: Yes. I'm not going to remark on the percentages, but I can tell you, it's a high throughput rate we've seen historically in any open-label activity that we've got. And as to be expected, it's part of the reasons why people get interested in participating in the study in the first place is that they think if they complete it, there's an opportunity for the investigational agent to be part of their go-forward experiences. So I think the reasons people don't tend to go into an open label historically are associated with a change in job, a change of living location, something significant that's a life-changing event that allows them to -- or causes them to not be proximate to the site that they were involved in the randomized study. Elemer Piros: I see. I see. I just have 2 more if you have -- if you're okay with that. What would be the minimal effect size in terms of the SUDS or the CGI that would be deemed clinically meaningful? Shawn Singh: So, we're going to try to, of course, replicate what we were able to accomplish in PALISADE-2, right? So you always have to contextualize whatever your primary is with the outcomes that are from the other endpoints, especially in this case, the cross association with CGI-I and PGI-C. So you get to clinical significance or clinical meaningfulness when you look at all 3 of those, and we take a look at not only what happens with the SUDS, but also with the secondaries. So -- and it's -- I think we're targeting to try to replicate what we already believe is not only statistically significant, but a clinically meaningful outcome associated with the PALISADE-2 study. Elemer Piros: Understand. And lastly, how do you think about commercialization at this stage? On your own, be a partner? Have you thought about this recently? Shawn Singh: Companies -- yes, certainly we think about it all the time. Companies in positions like we are, if you have a contemplation for -- in the first commercial launch, you have to have a lot of good reasons for that. And here, as a company, we always position for optionality. There's many things that can happen. Key for us is to make sure we have the optimal opportunity to generate the value that could be associated with fasedienol if it gets approved. So there is certainly a very solid potential commercial plan. There's also opportunities should other strategic arrangements bring greater value potential. But yes, as a company, we have the expertise. We have the planning. We have execution in certain cases already underway to be able to bring this extremely innovative asset into the treatment paradigm where there is just nothing sitting there that's interesting and exciting for patients to be able to recapture the agency that allows them to tailor the use of a medication to fit how these stresses are impacting their lives day-to-day. And the world right now, it's a very interesting market out there in terms of the dynamics of telehealth and mental health, digital psychiatry, consumer-generated influencer-based activity across the socials, what we see with anxiety, very similar to what people see and hear about weight and a GLP-1 drug. So there's a transformed market environment over -- just even the last couple of years. And now you're also looking at a population of patients and maybe practitioners too, who really would prefer online engagement as opposed to in-person. So there's some really unique opportunities, especially with what we would hope to be borne out as the target product profile and the way to access not only practitioners, but also raise awareness among consumers. So it's a really exciting opportunity for the company around this very unique asset that fits in so many ways for what we think are the clarion calls of not only practitioners, but certainly patients. Elemer Piros: Yes. Exciting times. Looking forward to the read-out. Operator: There are no further questions at this time. I would now like to turn the call back over to Mark McPartland for closing remarks. Please go ahead. Mark McPartland: Thanks, operator, and thank you again, everyone, for joining us on the call today and for your continued interest and support. With a diverse and innovative pipeline and several key major milestones on the horizon, we believe Vistagen is entering one of the most exciting and potentially transformative chapters in our company's history. If you have any additional questions, please don't hesitate to reach out to us at ir@vistagen.com or through the Contact Us section of our website. We also encourage you, of course, to register for e-mail updates to stay informed about our latest news and developments from Vistagen. We truly appreciate your time, engagement and ongoing support, and we look forward to keeping you updated on our continued progress. This concludes the call. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Rajeev Sethi: Sure. Thank you, Christopher, and good afternoon, everyone. And thank you all of you for joining in today. Today is an important day. It's the first full quarter of XLSMART's journey. Just to remind you, our merger happened 15th of April -- 16th of April. So the last quarter was 2.5 months of combined operations. This time, it's the first full quarter, and the numbers which we are reporting are a result of that. And I'm pleased to share that the momentum continues to build across our businesses. We've delivered a strong performance. Revenue -- reported revenue is up 38% year-on-year, 9% quarter-on-quarter, underpinned by very strong subscriber quality, improving ARPU and good progress which we are making on the integration. Network integration specifically is progressing well. As you would know, national roaming for Smartfren customers was completed in record time. The MOCN rollout continues to expand, improving both coverage and quality for all our customers. Financially, we are seeing a very healthy growth, underlying growth. Normalized EBITDA and PAT reflect the strength of our core businesses, though the reported results still include temporary one-offs, which are normal for a merger, and they are related to integration and asset optimization. Synergies are taking shape. We'll speak a bit more about that in the next few slides. And we are accelerating value creation across operations, procurement and infrastructure. These initiatives are moving us steadily towards our ambition to become the industry's most efficient and agile service provider. Overall, I believe this quarter demonstrates resilience and strong execution as XLSMART continues to unlock long-term value from the merger. If I move to the next slide, post-merger, our integration engine is running at full speed. One example of that is our Customer Experience and Service Operations Center, CESOC, which was launched in July, a major milestone that allows us to centralize network monitoring, service quality and field operations across all the 3 brands we have. On the network side, we've started and progressed significantly towards consolidating overlapping sites, streamlining our vendor ecosystem and optimizing the tower utilization. All these efforts are resulting in tangible cost savings. I'm happy to report that we are on track to deliver between $150 million to $200 million synergies for this financial year 2025, largely coming from operational efficiencies and vendor rationalization. Full benefits, what we spoke about earlier, $300 million to $400 million run rate pretax. That will come from -- after the integration is complete, but good, solid start towards that direction. Obviously, the next in pipeline would be the IT system unification, which again would be a significant value generator, office integration and expanding our partnerships on the roaming side. And we'll also further align the organization to operate as one unified XLSMART. If I move to the next slide, please, which is talking about the customer experience. As we said earlier, customers and employees will remain at the forefront of whatever we do. Both quality and coverage of our network would be super important in this regard. And through MOCN integration, all 3 brand users, XL, AXIS and Smartfren, are experiencing much better download speed. They have gone up by as much as 70%. And the population coverage, specifically for Smartfren, has gone up by 38%. These network improvements translate directly to a better quality of service, which is a very key differentiator in today's competitive network telecom operations. We also celebrated our National Customer Day in September with nationwide campaigns through XL Point and SmartPoint, reinforcing our commitment to customer loyalty and engagement. We received significant positive feedback, and which is a clear sign that our investments are making a real impact on the ground. If I move to the next, which is on the network update. We have now integrated over 15,000 sites, which is close to 1/3 of the number of sites which we have to integrate, and extended network access for Smartfren users to 192 cities through national roaming. Our total BTS count reached more than 209,000 sites, up 27% year-on-year, with majority being on 4G. MOCN integration is on track to complete by the first half 2026, which is within the 4 quarters of the start of this project. And the results are already visible, as I spoke about earlier, better coverage, higher speeds and more consistent services across geographies. If I have to cite an example, this was the 2025 MotoGP event in Mandalika, where our network handled massive traffic volumes very easily, proving our readiness to deliver world-class connectivity across the country. If I move to the next slide, which talks about the 3 growth pillars. And this is something we've been talking about and we are very excited about. The 3 growth pillars, Mobile, Enterprise and Home. And each pillar by itself represents a focused growth engine, and it has a distinct strategic focus. But collectively, all of these will contribute to company's mission of connecting every Indonesian to a better life. If I talk about the first pillar, which is Mobile, it is represented by our 3 brands, XL, AXIS and Smartfren. I strongly believe that the multi-brand approach enables us to effectively target different customer segments, and it's a unique strength we have as compared to other operators in the market. And post integration, we have seen encouraging momentum driven by a simplified starter pack strategy and optimized product offerings, which is supporting a stronger market recovery and I'm sure will help sustain future ARPU growth also. We're also driving digital engagement through all the apps we have on XLSMART, MyXL, AXISNet, mySmartfren, which is now reaching more than 39 million active users on a monthly basis, which is up 21% year-on-year. This, of course, helps in improving customer stickiness and monetization. The second pillar is Enterprise, which we work under the brand XLSMART for Business. Here, our focus is to become a trusted partner for Indonesia's digital transformation for both private sector and also the government clients. A key milestone in this journey was the launch of ESTA Enterprise Smart Technology and Automation, which was launched in July '25. ESTA provides a full suite of industry solutions across connectivity, IoT, cloud, cybersecurity and automation. This will help position XLSMART not just as a telco, but as a strategic ecosystem partner, enabling digital transformation beyond connectivity. The third pillar is Home, anchored by our brand XL SATU, which continues to gain strong traction in Indonesia's fixed broadband market. We are reinforcing our position as one of the leading fixed broadband providers by focusing on user experience, flexibility and family-oriented solutions with the effort to stabilize the ARPU. XL SATU continues to drive deeper household penetration and strengthen customer loyalty, which is a key differentiator in this competitive market. So if I have to summarize, XLSMART's growth is fueled by these 3 complementary pillars, Mobile, Enterprise and Home, each targeting a unique opportunity while collectively driving sustainable long-term growth for the company. If I move to the next slide, Slide #9. It's talking a bit more about the enterprise business. And as I said, this is expanding rapidly, powered by the launch of ESTA. And it's a comprehensive digital suite, as I spoke about earlier. We also hosted BRAVO 500 Summit in collaboration with Ministry of Digital and Information, bringing together 500 of Indonesia's leading corporations. Our enterprise solutions now reach key verticals such as financial services, manufacturing, logistics, health care and natural resources, combining ICT services and big data analytics to deliver smarter and more integrated outcomes. We believe momentum is strong, and we see continued opportunities and more industries accelerate digital adoption. I'll take a pause now and hand over to my colleague, Pak Antony, to walk us through the financial results. Antony Susilo: Okay. Thank you, Pak Rajeev. I think the next topic will be the financial and operational highlights. Let me start with the operational performance first. So at the end of the quarter 3, our consolidated subscriber base already around 79.6 million customer base, reflecting a normalization following to our starter pack price adjustment, which is, I think, last -- the latest one that we did for Smartfren brand in the month of July or August. So all the 3 product brands starter pack already now, already adjusted. That's the situation on the starter pack price. Then on the -- what we call on the data traffic, I think despite of the decline in the subscriber count, the data traffic continued to grow, reaching to 3.9 exabyte or 3,900 petabytes, up to 53% year-on-year and 2% quarter-on-quarter. The ARPU improved to become IDR 38.9, blended ARPU, this one, from IDR 35,500 last quarter. This is a double-digit growth, which is around 10% Q-on-Q, highlighting our focus on -- focusing on the quality growth as well as the customer value. Okay. Moving to the next slide to the financials. The revenue grew by 38% year-on-year and 9% quarter-on-quarter to IDR 11.5 trillion, driven by the full quarter consolidation of Smartfren and higher mobile ARPU. The normalized EBITDA reached to IDR 5.4 trillion, up to -- increased 9% Q-on-Q and 24% year-on-year. This is reflecting the underlying strength despite of the ongoing integration costs. The reported PAT improved to a loss of IDR 1.38 trillion, while if you look at the normalized PAT, the normalized PAT already turned positive at IDR 1.15 trillion. This is, of course, after the adjustment of the one-off expenses, which is the accelerated depreciation, noncash item and also the one-off integration costs. The margins are stable, with the normalized EBITDA margin at around 47%. These trends actually confirms that the integration is progressing smoothly and the synergy already captured starting -- is already starting to flow through our financial numbers. Okay. Move on. This is maybe to give another explanation how do we calculate the normalized PAT, normalized profit after tax. In here, we are presenting both reported as well as the normalized EBITDA and PAT to provide a clear picture of the underlying performance during the integration period. The normalized figure already exclude one-off items such as integration costs. Number two is the accelerated depreciation, which is related, of course, to network consolidation. And then in Q3 2025, you can see that the reported EBITDA was IDR 4.9 trillion, with the normalization adding from IDR 554 billion in integration expenses. So it brings to the normalized EBITDA to around IDR 5.4 trillion. The reported PAT stood at a loss of IDR 1.38 trillion. But after adjusting all these integration costs, accelerated depreciation and asset impairment, the normalized PAT become positive at IDR 1.15 trillion. This approach basically to ensure we want -- if we want to compare with the previous year. So this is to show a better comparability and better to reflect the company operational performance. Okay. Move on to the next slide. So let me now walk through on the cost structure, our operating expenses. So OpEx increased by 10% quarter-on-quarter and 66% year-on-year, reaching to IDR 6.6 trillion in the third quarter 2025. This increase reflects the enlarged scale of our business because it's a consolidation of Smartfren and XL. So this is already including the -- including a higher infrastructure as well as the regulatory costs, as well as all the integration related activities. Of course, we remain disciplined on the cost management, ensuring that all the expenditures are tightly linked to the synergy realization and also creating long-term values. So that's the end of my presentation. I shall now hand over back to Pak Rajeev to provide the full year 2025 guidance, as well as the closing remarks. Rajeev Sethi: Sure. And thank you, Pak Antony. As Pak Antony mentioned, I'll talk about what's our guidance for 2025 full year. Revenue is expected to grow broadly in line with the market. On a reported basis, growth is expected to be between 20% to 25% year-on-year. EBITDA margin will remain between low to mid-40s range, mid- to 40% range. On CapEx, the capitalized CapEx is projected to be around IDR 10 trillion. And I think it requires a bit of a clarification. This is not a reduction in the investment. If you remember, when we spoke last time, we spoke about a number close to IDR 20 trillion. The orders which we'll be releasing to our vendors would be still close to that number. But what we'll be able to capitalize, which is put on air and start using, and therefore capitalized, would be a number which is close to IDR 10 trillion. And that's the number which we are stating here. The capitalized CapEx would be around IDR 10 trillion for this year. Synergy guidance, last time when we spoke, we gave a guidance of between $100 million to $200 million for this year. This year, we are revising it to the upward part of that guidance between USD 150 million to USD 200 million. It's driven by stronger-than-expected network and vendor efficiencies. We also remain on track to achieve our full synergy potential of $300 million to $400 million annually pretax once the integration is fully completed. And with this, our summary for the third quarter '25 ends, and I hand it back to Chris to take it further. Christopher Kusumowidagdo: Thank you, Pak Rajeev and Pak Antony for the presentations. [Operator Instructions] The first question comes from the line of Piyush Choudhary from HSBC. There are two questions. The first one is -- sorry, there are three questions. The first one is what is the like-for-like -- like-to-like mobile service revenue growth Q-on-Q in third quarter 2025, as 2Q does not have the full impact of merger? I think -- then second question, what is the breakdown of revenue in 3Q into your 3 segments, Mobile, Enterprise and Home? And the third one is normalized EBITDA margin is 47%. Where do you expect normalized margin to be, post-merger integration? For these questions, I would like to invite Pak David to answer the first question. David Oses: Okay. I'll take the first one, Piyush. So the like-to-like mobile service revenue growth quarter-on-quarter will be at 5%. Like-to-like will be at 5%. To the second part of your question about the initiatives taken to increase the mobile ARPU, I can share that, as you can see, we had a double-digit ARPU growth quarter-on-quarter. This has been done by many things, but we have taken out a lot of freebies. We have increased prices by taking discounts out. We have also increased minimum prices, especially in our personalized offers. So we have done a bunch of things in our very clear strategy to focus on quality subscribers. Now you can see, I think you can calculate as well that the yield, the revenue per gigabyte has increased high single digit, well, around 6% quarter-on-quarter. So the yield increased 6% quarter-on-quarter. This means that the revenue that we are getting for each of the gigabytes is increasing, that our prices per gigabyte have increased. So out of the ARPU double-digit growth, from 10%, we can say that more than half is due to the price increases. The other comes from more usage per subscriber. And again, how did we increase the prices? As I was saying, taking freebies out, increasing prices literally nominally, taking some discounts out, increasing minimum prices in personalized offers, et cetera, et cetera. For the second question, I will pass it to our CFO. Antony Susilo: Okay. The second question is about the breakdown of the revenues into 3 segments, Mobile, Enterprise and Home. I think just to give rough figures on the Mobile segment, it contributes around 80% to 82% contribution of revenue. And then Enterprise is around 10%. And Home is the smallest one. It's around, I think, around 6% -- 5% to 6%. So I think that's the breakdown of the revenues. And then number three, the question is about the normalized EBITDA margin, which is 47%. Where do you expect normalized margin after post-merger integration? Okay. So I think we know that this normalized EBITDA margin is already taking out the integration costs, which is, I think, what contributes a significant amount. But I think post-integration, which is after the next 2 years, 2028, I believe, because our plan to do the integration, everything to be completed within 8 quarters. So we are hoping that, of course, this EBITDA margin, 47% will even further improve because the company management always trying to do the cost efficiencies program, trying to make sure that we are aligned with the plan that we have, which is, of course, it's a cost efficiency program. So we are expecting a higher EBITDA margin similar to the other telco players. Christopher Kusumowidagdo: Thank you, Antony. Can you [indiscernible]. Hi Piyush. Piyush Choudhary: Could you also be able to share what's the breakup of your EBITDA margin among the 3 segments, Mobile, Enterprise and Home, at the moment? And one more, like David, are there any kind of incremental initiatives being taken in fourth quarter to further kind of enhance the mobile ARPU? And how are the kind of economic trends at the moment? If you can throw some light on October trends? Antony Susilo: Okay. On the breakdown of the EBITDA per business segment, I think, unfortunately, we don't really make that specific analysis because most of the cost is a common cost. So I think we only measure the -- what we call the direct EBITDA -- the direct gross profit. But I think from EBITDA point of view, I think we prefer to do it as a total basis rather than doing it for 3 segments. David Oses: Okay. So regarding this fourth quarter, yes, we have additional initiatives planned in order to increase the ARPU, one of them being price increases. So we are going to have, I would say, significant price increases in the different portfolios of our 3 brands in the coming weeks. As I was mentioning in our strategy of focusing on value customers, so far, it's looking good. So we are happy with the results. So we are going to continue in that direction. And the next step will be to increment prices of our value propositions, specifically in certain specific products. There was any other question? Piyush Choudhary: Thanks, David. So have these price initiatives already been done in October, or it's something which is planned for future? David Oses: So we are on it. So some small things have been done, some will be done almost -- I won't say as we speak, but relatively soon. Christopher Kusumowidagdo: Let's move on to the next question from [ Irwin Vijaya ] from [ Adana ]. Two questions. First one is, are you going to distribute 100% of the proceeds from treasury share as dividend? And then second one is how much restructuring costs do you have left? Or when will things normalize? I think for both questions, we can -- Pak Antony can answer. Antony Susilo: Okay. Thank you, Pak Irwin. I think -- yes, I think in terms of dividend, I think I forgot to mention it earlier on that one. So like this. I think there is no such relation in terms of the treasury shares that we sold, I think, last month with the dividend amount that we want to distribute. Yes, indeed, that the company was like to do a dividend distribution, which is I think we would like to seek approval from the shareholders where the EGMS will be done next week on Friday. So why the company would like to give the dividend distribution, I think as you can see in our Q3 performance results that it shows that actually, we are -- we can reach to a normalized PAT positive around IDR 1.8 trillion. So this is a healthier -- healthy indicators actually for the company because we can see that some of the performance, the costs, as well as the revenues is improving. So with that reason, then the company would like to distribute the dividends. In terms of cash flow, I think the cash -- how to fund these dividends, it's going to be done through our internal cash from the operations. Today, the company is sitting at a cash balance around more than IDR 4 trillion. So with that one, I think we are able to do a dividend distribution. So all in all, I think the dividends will be approved by the shareholders next week, waiting for the news for this to everybody on this subject. And then on the second question about the restructuring cost, actually, this is not a restructuring cost. I think if you are referring to integration costs because we are not doing any restructuring. It's only integrations. In terms of integration costs, I think you saw it from the slides that total integration cost that we have incurred this year until September 2025 is IDR 1 trillion. The target -- our budget for integration cost for this year is around IDR 1.5 trillion. So the remaining is around IDR 500 billion that maybe this one will be materializing in the next quarter, in the Q4. And when the things will be normalized, I think like I mentioned that the integration period will happen in the next 8 quarters. So I think this is the first -- the fourth quarter, 3 quarters already, Q2, Q3, actually second -- 2 quarters, actually. And then Q4, 3 quarters, hopefully, everything will be normalized starting 2027. Okay. So that's the answer, Pak Irwin. Christopher Kusumowidagdo: Thank you, Antony. Pak Irwin, do you have any follow-up questions? Unknown Analyst: No, thank you. Everything's clear. Christopher Kusumowidagdo: Let's move on now to the next question. This comes from the line of Ranjan Sharma from JPMorgan. What is the -- there is one question. What is the difference between CapEx guidance in 3Q to the one in given in 2Q? And what is the capitalized CapEx for this year? I think for this question, I would like to invite Pak Antony again to address the question. Antony Susilo: Okay. The -- yes, indeed, that the CapEx guidance for second quarter and third quarters, if you look at the figures, was different. I think the difference was because that initially in the second quarter, when we give the guidance around IDR 20 trillion to IDR 25 trillion, that one was on the early post-merger indication, where at that time, we use a PO issuance amount at around IDR 20 trillion to IDR 25 trillion that we want to spend for integration. However, I think we understand that we may want to use a capitalized CapEx instead of PO issuance. So in terms of capitalized CapEx, if we make some estimation this year, this year, approximately around IDR 10 trillion. So we are not changing the -- or making a revision on the CapEx amount. It's -- the amount is still the same in terms of PO issuance around that, IDR 20 trillion to IDR 25 trillion. However, capitalized CapEx is around IDR 10 trillion. For -- I think for Q3, I think we already booked capitalized CapEx around IDR 4 trillion to IDR 5 trillion. So the remaining IDR 5 trillion maybe comes in the Q4 2025. That's the answer Pak Sachin. Christopher Kusumowidagdo: Thank you, Pak Antony. Sachin -- sorry, Ranjan, do you have any follow-up question? Ranjan Sharma: Can I just check one more thing? Did you say you're looking to pay a dividend? Because in the last quarter, you were saying you will not pay dividend for 2 years. Antony Susilo: Yes, indeed, indeed. I think -- correct, I mean, we -- I think I remember last quarter, we think that we will not be able to pay dividends next year actually. Because the company, if you look at the PAT numbers is negative, right? So we will not be able to give a dividend next year. However, we see that there is an opportunity for us to give the dividend distribution this year. Because our -- basically, dividend normally is following the previous year profit, right? So I think if you look at the -- also following the OJK regulations, that we are allowed to give a dividend within this year. So with that consideration from the OJK regulations, from the company performance, the cash situations, so we decided that to give distribution -- dividend distribution to the shareholders. So -- but of course, this is subject to approval from the shareholders here next week. Ranjan Sharma: Sorry. So you're not looking to pay a dividend next year, but you want to pay a dividend for this year? Antony Susilo: Next year, unfortunately, looking at the numbers, we are not allowed to. Because it's a negative retained earnings. At this moment, Q3, I think we see that PAT is negative, right? So we will do it this year. So it's like maybe we can say as an acceleration. Ranjan Sharma: Okay. It's interesting because if I look at your balance sheet and your cash flows, they don't seem in the best position, right? So I'm just surprised to hear you're looking to pay a dividend. Antony Susilo: Well, from our point of view, when we look at our balance sheet cash flow also, I think we are still in the safe position. Like, for example, the gearing ratio, I think we are still below 4. So I think there is -- I mean, by giving this dividend distribution, we are not impacting to any -- to the ratios of the company. So with that one, I think we can -- we are able -- we have some capacity -- we have capability to pay dividend. Christopher Kusumowidagdo: The next question comes from Sachin, Sachin Mittal from DBS. So does revised lower CapEx include integration CapEx? I think this has -- yes, I think Pak Antony has already addressed on CapEx, but you might want to clarify whether this includes integration CapEx, Pak Antony? Antony Susilo: This CapEx, yes, includes integration CapEx. But again, like I mentioned, we don't make any revision on the CapEx amount. It's only that we -- now we are using capitalized CapEx instead of the PO issuance. I hope that one can answer, Sachin. Christopher Kusumowidagdo: Thank you, Pak Antony. Sachin, do you have any follow-up questions to the management? Sachin Mittal: Can you hear me now? Christopher Kusumowidagdo: Yes. Sachin Mittal: Okay. So I understand that you're taking now, longer time to basically to incur the CapEx. Again, I want to understand a little bit of what is the normalized level of CapEx because there is some integration CapEx involved, right? So how much is -- how do we think of the normalized CapEx? Because it seems like you're talking of now, 10 and 10, right, each year, FY '25 and FY '26. Is that the right way to think about it? Antony Susilo: For the integration CapEx, yes, we can say that. Although actually, the IDR 20 trillion, IDR 25 trillion over there is also consists of BAU CapEx. Some of them, yes. Rajeev Sethi: If I may just jump in here, Pak Antony. I would not want to classify this as integration CapEx because the -- as I think we spoke about last time also, it's just not about combining the two networks together where we are spending most of the money. It's readying the network for future, i.e., 5G, for example. So whatever network we are readying, it's readying for future. So it's very difficult to classify and say this is because of integration or this is for modernizing the network. The outcome would be a brand-new network ready for future. So that's one point. The second part is there is no change in the CapEx plan. It's just the way we were stating it earlier. When we spoke about CapEx earlier, IDR 20 trillion, IDR 25 trillion in 2025, it was largely the ordering amount. And that quantum of orders will go out during the course of this year. What we'll be able to put on here and capitalize, there is a process of getting the material in-house, putting it on our site, doing those acceptance tests, that will be around IDR 10 trillion, which again is as per the plan. It's only that earlier when we spoke about, we did not clarify that this is the ordering amount, the capitalization amount would be lower. So that's the second part. And I think one more part of your question was how much will this normalize into. I think after the integration phase is over, after the entire modernization is over, which should be done by -- largely by 2026, I think it will go back to a regular mid-teens level. That's the number which we anticipate in the long term. Christopher Kusumowidagdo: Thank you, Pak Rajeev. Let's move on to the next question. Sorry, Sachin, do you have any follow-up question before we move on? I think you have one question, follow-up on ARPU, please? Sachin Mittal: I mean, it's -- how are you seeing -- your subscriber decline was noteworthy, while other -- your peers did not see the subscriber decline. Was it too much sharp hike? And what does it mean for you in the current quarter? David Oses: Yes, correct. So -- and if you take a look to the subscriber changes, yes, with competitors and also ARPU changes, I think our ARPU growth, it's significantly higher than our competitors. Also, our subs decreased. As I was mentioning before, our ARPU increase comes mostly -- more than 50% from the yield increase. So we are able to monetize better the gigabytes and part also from the usage increase. Is it too much? No, it is not. Actually, again, you can see in the results that it's going in the correct direction. So those subscribers that we lost are -- I don't want to call them a user because they were using the portfolio that we have given to them, right, but are subscribers that were very low ARPU and/or very low yield. So those are subscribers that in our newer strategy don't have a fit in our company. Probably, they found somewhere better where they can -- at those low yields, et cetera, they can fulfill their needs. But I think our strategy is very clear, go for value subscribers. Having said that, again, in quarter 4, we expect -- we hope that the ARPU will keep increasing and that our strategy will keep moving in the same direction. As I was mentioning before, we already have aligned many price changes increases that we are going to implement in the coming days, and that some of which we have already been doing also in the personalized tiers, et cetera. Christopher Kusumowidagdo: Thank you, Pak David, for the clarification. Any follow-up questions? Sachin Mittal: No. Christopher Kusumowidagdo: Now let's move on to the next question from Henry Tedja from Mandiri Sekuritas. There are two questions. The first one, what is the -- what are the three drivers of purchase of bundled device and the software increase under the interconnection and other direct expenses? I think this is under the COGS. And second question is, could you share more details regarding the accelerated depreciation expenses increase? What kind of assets that drive the increase? I would like to invite Pak Antony to address the questions. Antony Susilo: Pak Henry, I think on the first question about the -- what are the key drivers for the increase on the COGS specific to the bundled device, I think as we explained, I think Pak Rajeev already explained that the company now focusing to the Enterprise segment. So like again, I explained, Enterprise segment contributes around 10% of the total XLSMART revenues. So because of this focus expanding this business segment, so we are sort of like have to purchase this device as well as the software to one of our enterprise clients. So of course, this, of course, is along with the increase of the revenue from the Enterprise as well. So I think that's on the explanation for number one. And number two, regarding the accelerated depreciation expense. Yes, I think this accelerated depreciation expense was -- resulted from the -- one of the example is the 900 megahertz spectrum. Because as we know that the company have to return the 900 megahertz spectrum to the government by end of 2026. So with that one, all the assets or the -- any equipment which is associated to 900 megahertz, we have to sort of like making an accelerated depreciation. And also another example also, we know that the company already choose the vendors to do the integration as well as the modernize the network, so -- which is the vendor is ZTE as well as Huawei. So the vendors that currently the existing equipment, which is not this ZTE or Huawei vendor, we have to do some dismantling. So we will not use this asset anymore. So with that one, we have -- also have to do some accelerated depreciation. So I hope that one can explain to you the nature of accelerated depreciation, yes. Why is it increased? Because we have to do it earlier, faster than the -- let's say it's supposed to be another 6 years, but now we have to do it within by end of 2026. Is that answering the question, Pak Henry? Henry Tedja: Perhaps if I can have two or more -- three questions. The first one, I guess, regarding the integration costs. I think you mentioned earlier that this year, the budget or the target will be IDR 1.5 trillion. So I'm just curious, how about next year? What will be the target for the integration cost next year and also for the accelerated expenses? And then the second question, I think regarding the CapEx, just to want to clarify. So does that mean out of IDR 20 trillion to IDR 25 trillion that was guided like the previous quarter, IDR 10 trillion will be capitalized and the rest will be expensed for this year? So that will be booked under the cash OpEx? And then perhaps the third one to Pak David. I think earlier, Piyush has asked about the latest economic trends. So I'm just curious how do we see the purchasing power in the last few weeks or in the last few months? So I think those are my three questions. Antony Susilo: Okay. Let me answer first on the question on the integration cost for the next year, yes. I think like I mentioned that I think the integration cost still continue until end of 2026 or maybe first quarter '27. So the amount of the integration cost, I will say that we don't have the numbers at this moment because we are still calculating the BP for 2026. But I think let's assume the same similar number, what we project. If let's say, this year is IDR 1.5 trillion, maybe approximately the same numbers, integration cost for next year. So that's on the integration cost. And then the second question is about -- second question, Pak Henry? Henry Tedja: Yes. The second question regarding the CapEx, you mentioned that some of the all capitalized. So I just want to clarify on that. Antony Susilo: Yes. So the PO amount, yes, it is around 20 to 25, but the capitalized CapEx is 10. But the remaining actually will not be -- we will not expense this. Or we call it as cash OpEx, no. But the remaining, I think, will happen -- will be materialized next year. So next year will be -- this sort of like will be carry over to next year, the remaining instead of OpEx. Still capitalized CapEx. Okay? So the next question. David Oses: Regarding the economic situation on the consumer side, to be honest, I mean, you can see the results. So for us, the last few months have been positive. I think we see a little bit more of confidence in the consumers, a little bit of [ reparation ], in that sense. Christopher Kusumowidagdo: Thank you, Pak David. Pak Henry, any follow-up questions? Henry Tedja: No. Thank you, Pak Chris. I think everything is clear. All the best for the management. Christopher Kusumowidagdo: All right. Now let's move on to the next question. I think we have the question from Arthur Pineda from Citi. There are one question. There is one question. Can you please remind us about your dividend policy? And do you pay this out of retained earnings or reported earnings? I think maybe, Pak Antony, you can clarify this later on. In addition, what are the considerations for paying for the dividend given that the company is targeting IDR 20 billion to IDR 25 trillion, which is above the operating cash flow? Pak Antony, maybe you would like to address this question. Antony Susilo: Okay. I think we know that our long-term goal is to deliver sustainable shareholders' returns. So I think looking -- as I already explained that the company show a negative PAT, not normalized PAT and the negative bottom line. So with that one, we expect that I think next year, there will be no dividend. So we think that we want to give the dividend within this year while we still can, still following the regulations. So I think with that one, with that consideration and also, of course, looking at our free cash flow and everything, balance sheet, I think it's doable from our side. I think when you mentioned about the IDR 20 trillion to IDR 25 trillion is above PCF. I think, again, like I mentioned, this IDR 20 trillion to IDR 25 trillion is a PO amount that we issued. But again, capitalized CapEx is only like half of it that we booked to our CapEx. This -- what you call, this year will be around IDR 10 trillion. And then from that one, actually, what I would like to say that we get soft payment terms from the vendor itself. So the IDR 10 trillion, although we separately capitalize it this year, we may not need to pay IDR 10 trillion to the vendors. So I think there are some agreement already from the -- from the vendor on the payment terms. So I think with that one, I think we are hoping that all of the shareholders agree for us to give the dividend distribution this year. Christopher Kusumowidagdo: Thank you, Pak Antony. Arthur, any follow-up question? Arthur Pineda: Just wanted to clarify with regard to the cash flow implications on CapEx. I know you mentioned IDR 10 trillion will be booked for this year and the PO is IDR 20 trillion to IDR 25 trillion. I'm just trying to figure out from a cash flow standpoint, how do we view this? The balance of around IDR 15 trillion, is that paid '26, '27? I'm just trying to figure out what it looks like from a cash flow standpoint. Antony Susilo: Yes. I think more or less, the payment will be done next year. But I think from the next year point of view, if I look at the capability from our side, let's say, we can generate like IDR 20 trillion cash flow from operation next year. So I think we are able to pay this CapEx PO. So I think well, maybe we may need to do -- bank some of the borrowings from the banks, but the amount may be not as big as like this CapEx because the plan to fund this PO from this CapEx will be funded majorly coming from our internal cash operations because we are able to generate like IDR 20 trillion per year. Arthur Pineda: Understood. I was just wondering in terms of the decision to pay the dividend now, given that I think there will be spectrum auctions coming up as well. How do you balance the deleveraging of the company and having the cash available for items like spectrum versus paying dividends upfront? I'm just wondering what the philosophy is and why pay now, given that there's still auctions coming? Antony Susilo: It's now or never. I think like I mentioned, next year, it will be difficult for us to give dividends. So the chance, the window of opportunity to give dividend only this year. And looking at the -- again, for me, I reemphasize that looking at our balance sheet, our P&L, our cash flow, it's doable. We can do it this year because like I mentioned also maybe the cash balance at this moment today, we have -- we are sitting like around IDR 4 million, almost IDR 5 trillion. This is our cash balance. So we are able to distribute the dividend. And the gearing ratio, I think, yes, we are still in the reasonable amount. We -- of course, we still monitor this, make sure it is not going to be beyond 4x, the gearing ratio. So with that consideration, that's why we are -- our intention, I think we can give dividend to the shareholders. Christopher Kusumowidagdo: Now let's move on to the next question From Bob Setiadi from CGS. Can you discuss about the accelerated depreciations? Are we going to see depreciation run rate in third Q for the next 6 quarters? Pak Antony, yes. Antony Susilo: Yes. I think, Bob, the accelerated depreciation, as I explained earlier, that this is related to the asset that we have to -- we will not use in the next -- after the integration, which is maybe one of the example, the 900 megahertz and also the other vendors, which is not being chosen one. So we have to do this accelerated depreciation because we will not use it. So are we going to see the depreciation run rate in the third quarter -- in the next 6 quarters? The answer is yes. By the end, I think until the integration period is over, expect hopefully, by -- hopefully, I would say by end of the December '26, next year, it's over. Then starting 2027, everything will be normal -- back to normal. Christopher Kusumowidagdo: Okay. Bob, any follow-up question for us? All right. Next question comes from [ Andy Kurniawan ]. So there are two questions. The first one is, can you share about the ARPU increase in average from your 3 brands, respectively? Was Smartfren increasing more by ARPU compared to your other brands in third quarter? And second one, has your subscriber decline Q-on-Q due to focus on quality subs? Can you share which brand that gave the contribution to the subscriber decline? Pak David, I'd like to invite to address. David Oses: Yes. So it's going to sound like a normalized answer, but to be honest, no. So Smartfren was not the one increasing more, the ARPU, and all the 3 brands have been in the same direction, both in the ARPU increase as well as in the subscriber rationalization. So we will have one of the brands with more or much higher percentage of the subscribers that left or the low-value subscribers. So it's been quite -- let me put it this way, democratic, both the ARPU increase as well the ARPU increase, the yield increase as well as the subscriber rationalization. Christopher Kusumowidagdo: Andy, do you have any follow-up question? Unknown Analyst: No, thank you. Christopher Kusumowidagdo: Let's move on to the question from Norman from CLSA. Congrats on strong ARPU uplift. First one on accelerated depreciation and impairment. Will we see more being booked in 4Q 2025? Second one is on OpEx. 10% Q-on-Q increase is quite significant. Is this a normalized quarterly run rate? Or we should expect some increase? For these two questions, I would like to Pak Antony again to address. Antony Susilo: Okay. Thank you. So Norman, I think on the first question on the accelerated depreciation, a similar question with the Bob Setiadi question. I already explained that, yes, I think in the next quarter, Q4 2025, the accelerated depreciation still continue even further until next year. Because, again, integration period is 8 quarters. That's why please expect that there is an accelerated depreciation until the end of the integration exercise is completed. And then on the second question on the OpEx, I think, yes, but the increase of the OpEx is mainly because of the, number one, that recall in the last quarter was only like 0.5 month's of Smartfren expenses was not there. And the second one, of course, this quarter-on-quarter because of -- mainly because of the integration costs that we have to book in the Q3 2025. But of course, once this integration cost is over, which is -- I think we can see that the integration costs in the previous -- in the slides that it was around IDR 800 billion already booked by September 2025. So by the time that this is -- integration cost is no more -- is already over, then our OpEx amount will become stable and our EBITDA margin hopefully can increase from time to time. So I think that's the explanation, Pak Norman. Norman Choong: I think on the first question, where I'm coming from is mainly because I saw the accelerated depreciation run rate was like IDR 700 billion last quarter. Now it's IDR 1.8 trillion this quarter. I'm just wondering, the first is why don't you just book everything within the short term? Or is it not doable because you are still removing asset? Second thing is I'm just trying to figure out when you say there's more coming, would we get a sense of like roughly how much? Or profit is really not a priority during the integration period? Antony Susilo: Yes. I think, yes, it was quite a surprise maybe to look at the first quarter, IDR 739 billion and then second quarter, IDR 1.8 trillion, I think. But I think my estimation that -- if you look at the numbers, I think more or less, this IDR 1.8 trillion already represent, what you call, represent the numbers for a quarter. But I don't want to say that this IDR 1.8 trillion can go up further. But actually, as a matter of fact, these numbers will go down. Because if there is a site -- there is an equipment where we dismantle faster, then we actually have to write off the assets immediately. I mean, we have to stop the depreciation. So that's the reason I think in Q3 was quite high because actually some of the assets, some of the equipment already dismantled, already turn off, and we cannot make depreciation. So we have got -- so from the 6 years immediately, only like 6 months, for example, that's the accelerating depreciation. So what I'm saying that in the next quarter, I'm hoping that these numbers -- of course, at this -- maybe next quarter still remain the same, but I think the following quarter, hopefully, because the equipment already -- most of them already dismantled, so it will be tapering down to a smaller amount. So to give you rough figures, maybe this year, maybe we will end up like IDR 4 trillion, plus/minus. And I think just to give you an emphasize that this accelerated depreciation is a noncash item. Christopher Kusumowidagdo: I think we still have time for one more question. I think one last question, we'll just address from John Te from UBS. That will be the final question. John, do you want to have your question to the management? John Te: Yes. I have two questions, if you don't mind. First is, I just want to understand maybe where we are in terms of site dismantling. So you mentioned 15,000 already done, and that's 1/3 of the base. Firstly, what is that base? Is this the -- is the 45,000, give or take, an end figure of the combined sites that you have? Or is this pertaining to another number? Second question is, perhaps we can clarify the IDR 500 billion. In terms of integration costs, how much of that would be for personnel and how much of that would be for site dismantling? Because I understand these two are the largest cost drivers for integration charges. The third one being personnel costs, I think the run rate has stayed at IDR 1 trillion, unchanged from the second quarter despite, I guess, some integration. Any comments on how you think of personnel costs as a percentage of sales or maybe the absolute number itself? Christopher Kusumowidagdo: Thank you, John. I think I would like to invite Pak Rajeev to address the first question on site dismantling. Rajeev Sethi: Sure. Just to refresh the memory, when we started this journey, XL Axiata legacy had around 43,000 sites and Smart's sites were around 22,000. Put together, around 65,000 sites, 65,000, 66,000. As we said, between 15,000 to 20,000 of those sites will not be required, which will feed into our synergy savings, which will mean that the end number of sites based on this part of integration would be closer to 50,000 sites. And against that, we are talking about 15,000 sites, which is just short of 1/3 of that number. So that's the number of 15,000. Ending number would be around 50,000 for this space. The second question was about the integration cost of IDR 1 trillion which has been incurred so far. And I think Pak Antony mentioned, we expect another IDR 0.5 trillion for the remaining part of the year. And this is a number which we shared earlier, IDR 1.5 trillion would be the integration cost for 2025. You're right. Most of this is people and the network integration. Unfortunately, I don't have the details to share further. But as you would know that the people integration project would be over hopefully by the first half of next year. We are running that process now, and then this will be a regular run rate. We do not try and drive the people cost as a percentage of revenue as a big driver. I think as management, we believe that people are -- good people are really important for -- in our line of business, in our consumer business. And we'll have an appropriate cost as we move forward. We really not want to benchmark that with other players, but we'll pay the right amount of money for the best quality talent which you can acquire. This was the second part. What was the third one, please? John, was there a third question? John Te: Yes. Well, that was related to the IDR 1 trillion in personnel costs quarterly run rate, but I think you managed to answer that in the previous question. If you don't mind me clarifying just one point that someone raised earlier, it's mid-teens CapEx as a target after the integration. By mid-teens, is this mid-teens CapEx to sales or mid-teens in absolute trillion rupiah? Rajeev Sethi: No, I think mid-teens absolute rupiah would be a bit too high. It will be mid-teens as a percentage to the revenue. Christopher Kusumowidagdo: All right. Thank you. Thank you, John. Thank you, Pak Rajeev. And ladies and gentlemen, that concludes our today's conference call. Thank you once again for joining us today. If you have any follow-up questions, please reach out to our Investor Relations. Stay safe and healthy, and we look forward to speaking with you next quarter. Thank you. Rajeev Sethi: Thank you.
Operator: Hello, and thank you for standing by. I would like to welcome everyone to the Aterian, Inc. Q3 Earnings Report. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, just press star then the number one on your telephone keypad. Now I would like to turn the call over to Devin Sullivan, Managing Director of The Equity Group. Please go ahead. Devin Sullivan: Thank you, Mark, and thank you, everyone, for joining us today to discuss Aterian's third quarter 2025 earnings results. On today's call are Arturo Rodriguez, our CEO, and Joshua Feldman, the company's CFO. A copy of today's press release is available in the Investor Relations section of Aterian's website, www.aterian.io. Before we get started, I would like to remind everyone that remarks on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on current management expectations. These may include, without limitation, predictions, expectations, targets, or estimates, including regarding our anticipated financial performance, business plans, and objectives, future events and developments, and actual results that could differ materially from those mentioned. These forward-looking statements also involve substantial risks and uncertainties. Arturo Rodriguez: Some of which may be outside our control and that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these risks, including our annual report on Form 10, as well as subsequent filings with the SEC. You should not place undue reliance on these forward-looking statements. These statements are made only as of today, and we undertake no obligation to update or revise them for any new information except as required by law. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past performance, and facilitate period-to-period comparisons of our core operating results. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indications are also included in our earnings release, which is available in the Investor Relations portion of our website. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We are unable to provide a reconciliation of non-GAAP and adjusted EBITDA margin to net income margin, the most directly comparable financial measure on a forward-looking basis without unreasonable efforts. Devin Sullivan: Because items that impact this GAAP financial measure are not within the company's control, and or cannot be reasonably predicted. With that said, I would now like to turn the call over to Arti. Please go ahead. Arturo Rodriguez: Thank you, Devin. And thank you, everyone, for joining us today. On today's call, I will be covering one, a brief overview of our Q3 results, two, a discussion of the tariffs' impact on our business, and an update on the proactive moves we continue to make to navigate this environment. Following my remarks, our CFO, Joshua Feldman, will walk through our third quarter financial results in greater detail. Generally speaking, tariffs and the trade policy beginning earlier this year impacted our business and industry, as well as consumer decision-making. These US policies made it difficult to navigate considering the speed they were implemented in and the magnitude of the tariffs themselves. Faced with these strong and ever-shifting headwinds, we responded with an aggressive, thoughtful strategy that we believe mitigated the impact that tariffs have produced, and most importantly, put us back on the path of stabilizing our business. As a result, we delivered on the improved performance we promised. Our results for 2025 improved across multiple metrics when compared to 2024, and we remain confident in our ability to deliver on our guidance. Let's look at what transpired in Q3. Net revenue was $19 million, a significant decline from Q3 2024, however, represented just a 2% decrease from the previous quarter. We also saw our Q3 2025 contribution margin improved by over 700 basis points from Q2 2025, back to over 15%. Our adjusted EBITDA loss improved by over 80% versus Q2 2025. The actions we took to rationalize our fixed cost and align our marketing spend to our new pricing reality have paid off. However, more work is needed, which I will address later in my prepared remarks. The net revenue decline from Q3 2025 to Q3 2024 was driven by two main factors. First, strategic price increases to offset tariff costs led to reduced run rates. This is especially acute in areas where we found our products to be one of the highest-priced offerings. We saw this in particular in two key product areas, humidifiers and steam mops. To this, our primary competition specifically in our dehumidifier and steam mop space is Amazon 1P, meaning Amazon buys from brands directly and sells it as an online retailer. And in those segments, we saw that Amazon did not raise prices significantly, if at all. As such, our best seller ranks were impacted and reduced. This led to slower unit velocity and made our products the higher-priced offering for most of the quarter. We believe we will continue to see our products being the highest-priced offering through 2025 before pricing becomes more competitive in 2026, specifically for dehumidifiers as the peak summer season is behind us. As for the steam mops, we have seen competition begin to raise prices. And as such, we believe our offerings will be more competitive early in 2026. The second factor contributing to the decline in revenue is a general slowdown in consumer spending. In several of our tariff-affected categories, particularly those where competition comes mainly from other third-party sellers, we maintain best seller rankings comparable to last year's levels. Yet have seen fewer units sold. This suggests that an issue lies not with our competitive position, but with reduced overall consumer demand likely due in part to uncertainty surrounding tariff trade policy, pricing pressures, softer market conditions, or a shift in discretionary spending. Regardless, we are very confident our core products and brands are still very strong and viable. And continue to have tremendous opportunities in marketplaces in the US and abroad. Now to the actions we announced in May. As reflected in our Q3 results, we continue to believe that the actions we took with respect to cost reductions, resourcing, product launch strategy, and pricing adjustments were correct. Here's an update on those six key points to that plan. First, the fixed cost reduction plan. As part of our immediate response to tariffs, we announced the fixed cost reduction initiative targeting $5 to $6 million in annualized savings. Today, we believe we have secured approximately $5.5 million of those savings, of which $3.8 million is primarily coming from headcount reductions we implemented in May and the remaining $1.7 million from vendor savings initially taking effect through the rest of 2025 with a more significant impact starting in 2026. In parallel, our team is actively leveraging AI to enhance productivity. Our focus for AI continues to be on creating operating leverage and scale for future growth, rather than immediate headcount reductions. For example, we have successfully implemented AI in our customer's experience operations, which has significantly improved service quality metrics even with a smaller team. This implementation has led to Aterian's tech and customer experience teams being recognized as a 2025 recipient of the Genesys Orchestrator's Innovation Award. This CX transformation led to a 30% improvement in service level performance during seasonal peaks and up to a 20% improvement in talk time across brands. Email handle times also dropped even as voice support launched with no headcount increase, highlighting scalable gains in efficiency and productivity. Our experienced agents now handle more complex interactions across new voice and chat channels, improving key metrics and significantly reducing our total cost of ownership. Ultimately, we are hearing, listening, and addressing our customers better and faster than we have before. Finally, we continue to see how AI deployed into our data platform along with some of our third-party tools can unlock efficiencies and insights to our operations. We see this as a continued area of opportunity for Aterian in finding ways to create savings and efficiencies. Two, accelerate resourcing. The financial incentive to move manufacturing out of China is less urgent the November 2025 agreement between China and the US, that reduced incremental tariffs to 20% from 30%. We continue to explore opportunities to diversify our supply chain when doing so can produce a material and substantial benefit. We still see opportunities to source from outside China in categories which are not only expected to benefit from the reduced 2025 incremental tariffs, but also are still affected from the 2017 section 301 tariffs. Which on average are an incremental 25% for certain of those products. For example, beverage refrigerators from China would be subject to approximately a 48% tariff. As such, we think opportunities to locate better sourcing for this product is prudent. We are currently reviewing our 2026 ordering plans and will provide better updated targets as part of our Q4 2025 reporting. Number three, pausing on launches in certain new categories. As far as the tariff moves, we paused new category launches from China in Q2 particularly hard electronic goods. However, now that the reciprocal tariffs have been reduced and appear to be stable, we are restarting new product launches in the hard electronic goods space for 2026. With a much more focused approach. Number four, strategic pricing adjustments. As we said earlier, we implemented price increases to mitigate the effects of the shifting cost structure related to tariffs. Although we have defensively raised prices first in many categories, we do not foresee the need to take significant additional price increases across our portfolio. What we do believe is that our current competitors will eventually increase prices including Amazon One P. As a result, our products should be priced more competitively in 2026 leading to improving run rates, assuming no material changes to consumer purchasing habits or additional changes to tariffs. New product launches in low tariff regions. We believe our push into consumables is still a strong strategic objective. Many of the items we are exploring can be sourced predominantly in the US and carry higher contribution margins in our broader product portfolio. Which over time will drive a higher overall profitability. Further, the US sourced nature of these products will limit our exposure to the continued risk related to tariffs and the uncertainty they can produce. Today, we have launched Squatty Potty wipes, which are receiving great reviews and just recently, we launched a line of Talos skincare under a healing solution brand. That are crafted from nutrient-rich 100% grass-fed tallow. Initial reviews for these products have been positive as well. We will continue to expand consumable product launches in the coming months, all sourced from primarily the US or tariff nations with acceptable levies. With the stabilization of our operations substantially in hand, our focus has returned to growth. This will be our primary and most pressing objective for 2026. And be defined by thoughtful decision-making, patience, and a goal of complementing this growth with sustainable profitability. Over the past quarter, we expanded our foundation of key marketplace channels by adding Home Depot, Best Buy, and Bed Bath and Beyond. This adds to our core US digital sales space, including walmart.com, target.com, eBay, our direct branded websites, and, of course, Amazon. In the past few months, we have also continued to expand our products offering in Amazon UK and expect to announce a few more sales channels over the coming months. As mentioned earlier, we have started to launch consumable products being led by our Squatty Potty wipes, and healing solution, Talos. Both products are receiving high review scores and are really great quality products. However, I want to reconfirm. These will be long-term plays. We have been very prudent in not overspending on marketing to allow us to further stabilize the overall business while still investing acceptable amounts to allow these products to grow. Over time, the contribution margin of consumable products will improve the company's overall profitability. In closing, we continue to deliver on our promises. Though the tariffs have impacted our run rates and velocity over this past several quarters, the swift actions we have taken have steadied Aterian. However, we still have a lot of work in front of us. We believe top-line growth is our biggest challenge, and we are committed to addressing it thoughtfully and profitably. We will continue to expand our marketplace channels here and abroad, in order to broaden our reach and meet consumers where they shop. Our push into consumables is off to a good start, providing a solid foundation to drive sales of our current products. And expand our consumer portfolio beginning in 2026 to deliver both higher sales and enhanced margin. The events of 2025 created a fundamental shift in our business and industry. Causing the significant progress we made in 2024 to seem like a distant memory. We are looking forward to 2026 with a renewed sense of optimism. And a shared goal to build a growing profitable company supported by great products, great people, and commitment to delivering long-term value to all our stakeholders. I want to thank our team, and their dedication and tenacity, to our shareholders, thank you for your continued support and patience. We believe the best is yet to come for Aterian. And with that, I will turn it over to Josh. Joshua Feldman: Thanks, Arti. Good evening, everyone. As Arti mentioned, Q3 was an important step forward for the business and a reflection of our ability to meaningfully address the disruption from this year's tariffs. When comparing our results to Q2 2025, revenue was broadly stable, contribution margin improved from 7.8% in Q2 to over 15% in Q3, and our adjusted EBITDA loss narrowed to just over $400,000 from a loss of $2.2 million in Q2. These results underscore the benefits of our cost reduction and our more disciplined approach to marketing and pricing in light of the new tariff environment. The improvements show that the actions we have taken this year are having a real impact on our results and strengthening the foundation of the business. We remain focused on driving profitable growth, maintaining cost discipline, and protecting liquidity as we navigate the current environment. I will now walk through the Q3 results and our financial position in more detail. Net revenue for 2025 declined 27.5% to $19 million from $26.2 million in the year-ago quarter, primarily reflecting the reduction in consumer demand as we increased pricing to mitigate the impact of tariffs on our cost of goods sold. Our launch revenue was $200,000 during Q3 2025, compared to $600,000 in Q3 2024. While we have postponed our Asian-sourced product launches for 2025, we plan on restarting these launches in 2026. We are also focused on consumables sourced in the US. Overall gross margin for the third quarter decreased to 56.1% from 60.3% in the year-ago quarter. The year-over-year decline was primarily related to product mix, impact of tariffs on our cost of goods sold, and a $400,000 charge relating to product remediation costs. Our overall Q3 2025 contribution margin as defined in our earnings release was 15.5%, a decrease from 17% in Q3 2024. Our contribution margin decrease primarily relates to the reduction in gross margin. Looking deeper into our contribution margin for Q3 2025, our variable sales and distribution expenses as a percentage of net revenue decreased to 42.8% as compared to 43.3% in the year-ago quarter, primarily due to product mix and a decrease in logistics costs. Our operating loss of $2 million in 2025 increased from a loss of $1.7 million in the year-ago quarter, primarily driven by reduced sales volume and contribution margin compared to the prior year period. Our third quarter 2025 operating loss included $700,000 of non-cash stock compensation expense and $400,000 of product remediation costs. While our third quarter 2024 operating loss included $1.8 million of non-cash stock compensation expense. Our net loss for 2025 of $2.3 million increased from a loss of $1.8 million in the year-ago quarter, primarily driven by the reduction in sales volume and contribution margin. Our adjusted EBITDA loss of $400,000 as defined in our earnings release decreased compared to an EBITDA gain of $500,000 in 2024. This change was primarily driven by lower sales volumes stemming from tariff-related price increases as well as a decline in gross margin. Moving to the balance sheet. At 09/30/2025, we had cash of approximately $7.6 million compared to $18 million at 12/31/2024. Most of this reduction occurred in the first half of the year. However, due to our fixed cost reductions and our pricing strategy, we significantly reduced the cash used in operations during Q3. Borrowings on our credit facility went from $6.9 million as of the end of 2024 to $6.2 million at the end of 2025. The credit facility balance is down $500,000 in the year-ago quarter. At 09/30/2025, our inventory level was at $17.2 million, up from $13.7 million at the end of 2024 and up from $16.6 million in the year-ago quarter end. Increased inventory levels are a result of lower expected demand for our seasonal air quality products resulting in a higher proportion of our working capital being tied up in inventory. As we noted in last quarter's call, we expect a reduction in this long inventory which we purchased in advance of tariffs over the next six to nine months. We also anticipate a working capital benefit in 2026 as we draw down this inventory to meet anticipated customer demand. As we look ahead to 2025, our focus remains on strengthening the business while positioning for renewed growth in 2026. The combination of targeted cost savings, US-sourced product launches, focused marketing, and disciplined cash management gives us confidence in our ability to navigate the ongoing tariff environment. We are maintaining our initial guidance of net revenue for the six months ended 12/31/2025, of $36 million to $38 million and adjusted EBITDA of breakeven to a loss of $1 million. This compares to net revenue of $34.8 million and an adjusted EBITDA loss of $4.7 million for the six months ended 06/30/2025. Importantly, based on our liquidity position, the cost-saving measures, and our focus on preserving cash, we believe we are well-positioned to navigate the current environment without raising additional equity capital for the foreseeable future in support of our day-to-day operations due to the expected working capital benefit. While tariff volatility is affecting the entire industry, Q3 showed that the actions we have taken to strengthen our balance sheet, streamline our cost structure, and sharpen execution are working. We have built a healthier foundation and our focus as we look to 2026 is returning to a sustainable top-line growth. Looking ahead, we are taking a disciplined and targeted approach, expanding our marketplace presence across key channels, leaning into consumables like Squatty Potty flushable wipes, and our tallow-based skincare line, continuing to use AI to drive efficiency and improve the customer experience. Over time, we believe these initiatives will support more durable growth and improve profitability. Our goal remains to be to build a stronger, growing, and profitable Aterian. I want to thank our team for their execution and our shareholders for their continued support. With that, we will open up the lines for questions. Operator: We will now begin the question and answer session. Again, if you would like to ask a question, just press star then the number one on your telephone keypad. And your first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Brian, please go ahead. Brian Kinstlinger: Hi, good evening. Thanks for taking my questions. I am wondering if you could dig into your new channel partners. So first, what percentage of revenue in the third quarter were sales through the Amazon channel versus other platforms? And then what are the early trends you are seeing on the new e-commerce sites? Which sites are you seeing more success versus maybe more challenges? Or measured approach? You have got a Home Depot, I think Best Buy, Bed Bath and Beyond, Target, Walmart. A lot of big names, some trying to assess, you know, where that success is coming from, if any, right now. Arturo Rodriguez: Yeah. And, Brian, how are you doing? And it is a good question. So you know, we are looking at it in the sense of we want to get the core channels up. And I think for the most part, we got all the big players in place. Some of those channels that we are launching, we are launching early. Such as Home Depot. We are getting it ready to understand how it works a bit better and how the marketing is going to work on that. But that is really a setup. So the reality, Home Depot has been a very tiny amount of sales for the period. Because that is really an investment and setup for next season's dehumidifier season, right, where we do think that can play a significant role in us regaining some of that market share. Through other channels. Best Buy will know more about it during Q4 because the reality is we put our PureSteam steam mop on that one. As part of a drive to sort of see how that channel will work during a holiday period. So we are still learning a lot about each of these channels. I think a lot of our focus is now about thinking about how to really merchandise them because I do think certain of our products will do really well in a Best Buy, something like as I mentioned earlier, the steam mop or some of the newer living products like the kettle. As opposed to Home Depot where I think predominantly that is going to be a dehumidifier or environmental appliance channel. So far, Amazon is still predominantly, you know, probably over 95% of our revenue for the quarter. But I would say that these are things that we are lining up to help us really start hitting the gas for in 2026, especially as we ramp up some of the marketing of those channels now that we feel comfortable with merchandising. Brian Kinstlinger: Great. That is super helpful. And then when I look at launch revenue, I think it was a quarter of a million dollars in the quarter. How is that tracking to your plans? And then moreover, how should we think about the bear and bull case in light of your comments about carefully deploying capital for marketing for launches? Arturo Rodriguez: Yeah. I will grab that, Josh. Yeah. So good question, Brian. You know, listen. The wipes are a bit different than some of our other products. Right? As we might have said in the past, you know, a lot of our Squatty Potty products are actually sold 1P. Right? We sell it wholesale to Amazon. So the wipes are no different. They are being sold to Amazon wholesale, so you do not get the same top-line dollar that we would theoretically see if we were selling directly. And so the numbers are probably a little bit muted there. At the same time, with all the noise going on with tariffs, we did hold back a little bit on the marketing dollars. And even to that, you know, Amazon does not let you necessarily do promotionals within the first thirty days of certain launches. The ones we standardly do. Right? You can do buying programs and other items like that, but there are limitations. So we knew going into this, this is going to be kind of a slow step. Some of the marketing that we kind of held back were more kind of, like, focused, more social-based marketing that I think we will reengage into 2026 since we will just get a natural kind of uplift as Q4 because of the holiday shoppers. In some aspects, we had to repivot some of the launch plans because of the tariff impact. That said, you know, end of the day, quality product is going to sell. It has got 4.6-star reviews, so we are very, very happy about how that is being how it is performing from a customer experience perspective. I think as we kind of get through the holiday period, we are going to continue to see that grow over time. This is a long-term play. You know? And that is why I kind of emphasize this. That this market is going to continue to grow for us, and we are going to continue to expand even recently, we just put it on to Walmart and Target. That was not on the day one kind of ramp up. We wanted to give Amazon kind of, like, a thirty-day exclusive there. And so we are going to start putting that in other channels. So I do see those numbers expecting to grow probably in Q2 in 2026 more than you see now. But keep in mind that, you know, the mix is a little bit different. It is more of a wholesale place, so the number is probably not as big as you would think. Brian Kinstlinger: Great. My last question is you were clear with the changes in tariffs in China you are not in a race to get out anymore. Especially in certain SKUs. Depending on, again, the tariffs. But how quickly can you adjust sourcing once you do identify new sourcing as necessary for a SKU, for example, you talked about refrigeration and the high tariffs in China there. How quickly can you find new sourcing? Arturo Rodriguez: It depends. I like, you know, our manufacturer for the beverage refrigerator, they do have facilities outside of China that actually manufacture that good. So in that case, Brian, it is just about making sure the good is still the same quality that we have gotten in China. And so we are very fortunate in that particular case. We are looking at sourcing that from outside of China, which will reduce the tariff impact significantly in that good. The dehumidifiers, you know, we did get out of China this year or a good second half, portion of those. But with the tariffs where they are today, you know, there is a question we are going through. Like, where should we source that? Should we go back to China? Because I think in some aspects, the margins may actually be slightly better assuming the tariffs hold. And so it really depends on the manufacturer partners you pick. And the size of those and how flexible and strong they have in sense of additional capabilities outside of China. Unfortunately, in some cases, like a lot of our kitchen appliances, which still we have been able to raise prices on, like, the new living products, for the most part, they are sourced in China, so we are making it work that way. But, really, where we are really focused on is our bigger, more cost goods, like a beverage refrigerator, like a dehumidifier. We do want to create optionality. And so it is about really making sure the manufacturers you partner with have that. And so it gives you some opportunities to sort of move as this continues to be volatile. Brian Kinstlinger: Great. Nice work on the changes and pivots to the business. Arturo Rodriguez: Thank you, Brian. Appreciate that. Operator: Again, if you would like to ask a question, just press star then the number one on your telephone keypad. There are no further questions at this time. We will now turn the call back over to Mr. Sullivan. Please go ahead. Devin Sullivan: Thank you, Mark. As usual, as part of Aterian's shareholder perks program, investors can sign up at aterian.io/perks. Participants have the ability to ask management questions during our earnings calls. I want to thank all of our Perks participants for their loyalty and their participation in the program, as well as for their questions. Management has picked a few of the more popular questions from the Perks program as well as from some other sources, and so I will read those now. Our first question, does the company have any plans to leverage its relationships with the big box retailers through which it sells merchandise, like Target or Walmart, to jointly spend on advertising? And then sort of, in addition to that, have you considered selling your products either in-store or online at places like Sam's Club? Arturo Rodriguez: I will grab that, Josh. Is that right? Thanks, Devin. Listen. Over time, we do believe big box retail is an important opportunity and strategic goal for Aterian, you know, including opportunities with the club stores. However, earlier this year with the unpredictability of tariffs, it made it difficult to progress that plan in 2025. We have put some products out there. We have PureSteam steam station going to Walmart this year and also our portable vacuum sealer from Living going to Walmart. So we have had some success there. But with the unpredictability of tariffs throughout the year, you know, the kind of process had to be put on hold and we had to refocus on the core business. But I definitely think over time, especially from a long-term perspective, there is a tremendous amount of opportunity for our brands to be in big box retail, including the club stores. Devin Sullivan: Okay. Great. The next question, does the company have any plans to break into the Amazon market in the EU and the UK, like the company has already done with MercadoLibre? Arturo Rodriguez: You want me to try that? Thanks, Josh. Listen. We already sell in the UK and EU through our Photo Paper Direct brand. The amount of revenue related to that is relatively small to the rest of the business. We already have sales there. What we have done in 2025, especially with the tariffs, we have started expanding that. We are bringing a lot of our core SKUs, what we like to call internally our marquee SKUs. That includes our steam mop, some of our irons, our kettle, you know, our hand blenders. We have been moving them to be sold both in the UK and EU. We have made good progress in the UK this year, and we are kind of excited to see how that is going to go for Q4 because it will be the first time, I think, we have a lot of these products lined up for the holiday season in the UK. Though it is obviously not as big as the US, but certainly, you will see an uplift. And so I think we are really bullish on the UK. EU will probably use more of a 2026 expansion for those marquee products and SKUs just because there is a little bit more compliance and, you know, tax slash legal things to go through as a company to make sure you are okay to sell there. But, certainly, we are quite bullish about the UK, and we are quite pleased with some of the progress, which we will be able to report in the Q4 2025 earnings. Operator: Great. Thank you, Arti. The next question. Devin Sullivan: What is the status of the share repurchase program? Arturo Rodriguez: Hey, Devin. As we mentioned in the prepared remarks, obviously, the tariffs had a big impact on our business this year. We had to change our pricing strategy, our marketing strategy, and because of the uncertainty of the tariffs, we decided in May to suspend the share repurchase program. And so while we believe we have stabilized the business, barring no other changes in tariffs, we do still think the prudent measure is to preserve capital. So we will, you know, assess the program going forward, but right now, we are going to stick with the suspension. Devin Sullivan: Okay. And our last question. Can you provide any insight regarding sales by the CEO and the CFO? At the same time, they are being compensated in shares? Arturo Rodriguez: Sure. So a large portion of the executive compensation does include restricted stock units. To tie, you know, the compensation to company performance. When these shares do vest, it does trigger an immediate tax liability. So the executives or we either cover this tax liability in cash or we go out and sell shares to cover the taxes. So this is specifically denoted on the form fours that are filed with the SEC. In the past two years or so, current management has not sold any shares outside of this sell to cover the tax liability. In addition to that, the board and executive management are subject to stock ownership guidelines that require us to hold a set amount of shares. And as such, again, a large portion of our realized compensation is tied to the performance of our stock. Devin Sullivan: Great. Thanks, Josh. That ends the perks question part of the call. We would like to thank everyone for their participation today. And, have a good rest of the evening, and we look forward to speaking with you in conjunction with our fourth quarter financial results. Thank you, everyone. Good night. Operator: That concludes today's call. You may now disconnect.
Operator: Hello. Welcome to the Blaize Holdings, Inc. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, 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 has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vernice Pozynski, Investor Relations. Vernice Pozynski: Before we begin the prepared remarks, we would like to remind you that earlier today, Blaize Holdings, Inc. issued a press release announcing its third quarter 2025 results. Earnings materials are available on the Investor Relations section of Blaize Holdings, Inc.'s website. Today's earnings call and press release reflect management's views as of today only and will include statements related to our competitive position, anticipated industry trends, our business and strategic priorities, our financial outlook, and our revenue guidance for the 2025 and full year 2025. All of which constitute forward-looking statements under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of material risks and other important factors that could impact our actual results, please refer to the company's SEC filings in today's press release. Both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today and other than as may be required by law, we undertake no obligation to update these statements as a result of new information or future events. Information discussed on this call concerning Blaize Holdings, Inc.'s industry, competitive position, and the markets in which it operates is based on information from independent industry and research organizations, other third-party sources, and management's estimates. These estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from Blaize Holdings, Inc.'s internal research. These estimates are based on reasonable assumptions and computations made upon reviewing such data and Blaize Holdings, Inc.'s experience in and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measure, please refer to today's press release. Operator: Good afternoon, everyone. Dinakar Munagala: Thank you for joining us today. Q3 was a breakout quarter for Blaize Holdings, Inc., defined by strong execution, commercial traction, and expanded global visibility. We delivered a solid quarter with revenue of $11.9 million, up 499% from Q2. We further expect the Q4 revenue to double from here. We secured a $30 million investment from Polar Asset Management Partners to support this acceleration following the close of Q3, to scale commercialization and the next generation chip development as we scale into 2026. Together, these results mark a step forward from validation to scale, demonstrating growing customer adoption and investor confidence in Blaize Holdings, Inc.'s strategy and solutions. We strengthened our ecosystem through two new key partnerships. First, we announced a collaboration with Technology Control Company (TCC). Second, we formalized a partnership with Reach Digital, the digital transformation arm of Reach Group, a subsidiary of International Holding Company (IHC), one of the largest investment holdings with a market capitalization of $240 billion. Blaize Holdings, Inc.'s presence on the global stage continues to expand. We participated in the world's most influential innovation forums: the Milken Institute Asia Summit 2025, the GITEX Global 2025 in the Middle East, and the Web Summit 2025 in Europe. Each reinforcing Blaize Holdings, Inc.'s growing role in shaping the future of efficient and deployable AI. Together, these achievements reflect a company executing with discipline and scale and demonstrate validation of the Blaize Holdings, Inc.'s hybrid AI platform through active deployments across key industries and geographies. They also validate the next chapter in AI's evolution, a new paradigm we call practical AI. This marks a turning point for the industry, from large models to practical outcomes, and from dependence on the cloud to sovereign AI infrastructure that organizations can now own and control. We call this next phase practical AI, AI that is useful, deployable, and sustainable at scale. First, practical AI is business-driven and outcome-focused. It solves problems that improve safety, productivity, and efficiency, helping customers optimize cost and create value across sectors such as smart infrastructure, defense, and industrial automation. Enterprises are prioritizing energy-efficient, cost-scalable inference while governments are investing in sovereign AI infrastructure that they can own and operate end-to-end. Second, it is hybrid by design. It combines heterogeneous compute, our graph streaming processor, alongside GPUs and CPUs, giving customers flexibility to choose the right fit hardware for each deployment, balancing performance, cost, and efficiency from cloud to edge. Third, it is efficient. Practical AI delivers a clear total cost of ownership advantage, achieving better performance per watt while reducing energy consumption and maintaining responsiveness. Efficiency defines the economics of AI at scale, enabling sustainable and sovereign deployments that work in the real world. Together, these principles—business-driven, hybrid, and efficient—define what practical AI means to our customers and partners. Let me highlight a few programs that illustrate our progress. First, Starshine Hybrid AI infrastructure, a $120 million collaboration with initial shipments in Q3 2025 and continuing through 2026. The partnership will focus on building AI infrastructure for smart city development, industrial automation, and public services across Asia. Second, TCC, the Saudi Arabia sovereign AI infrastructure announced in September. This partnership positions Blaize Holdings, Inc. as a technology enabler of Saudi Arabia's Vision 2030. TCC is working with us to build hybrid AI infrastructure. Together, we are developing energy-efficient AI systems to accelerate adoption across the kingdom's public safety and infrastructure sectors. Third, EutraSmart Infrastructure. Our AI-powered public safety rollout across India continues to advance. We are fulfilling Yota's purchase order and expect initial deliveries completed this year. Fourth, a new partnership with Reach Group, announced recently at GITEX Global 2025, strengthens Blaize Holdings, Inc.'s position in the Middle East through collaboration on practical AI solutions and regional infrastructure initiatives. Beyond these programs, we continue to expand our engagement worldwide through workshops with data center providers, sovereign operators, and system integrators while advancing proof of concept work in next-generation smart radar, facial recognition, and vision AI. Together, these initiatives strengthen Blaize Holdings, Inc.'s position as a practical, sovereign-ready AI platform partner, helping governments and enterprises deploy AI securely, efficiently, and at scale. On the technology front, Q3 was about execution. We continued the commercial rollout of the Blaize Holdings, Inc. AI platform, integrating hardware, software, and orchestration into one unified stack that simplifies deployment and accelerates time to value. The platform's orchestration layer gives customers flexibility for model packaging, deployment, and optimization across diverse environments. In hybrid AI infrastructure, Blaize Holdings, Inc.'s GSPs and GPUs work together, complementing each other to boost inference performance and power efficiency. At track scale, this combined architecture delivers up to 2.4 times higher performance per rack and up to three times better power efficiency, enabling greater performance per watt and lower total cost in real-world deployments. At GITEX Global 2025, we showcased these capabilities in live demonstrations from city safety analytics and incident detection to autonomous mobility, including ruggedized systems that operate reliably in environments up to 70 degrees Celsius. We are also continuing development of our next-generation chip, working closely with ecosystem partners to extend our leadership in low-power programmable AI. Next, we have strengthened our capital position. Earlier this week, we announced a $30 million private placement investment from Polar Asset Management Partners, reinforcing confidence in Blaize Holdings, Inc.'s long-term strategy and market opportunity. This new funding provides flexibility to advance commercialization, fulfill customer programs, and accelerate next-generation platform development. It positions us to accelerate the future of silicon development, expand ecosystem partnerships, and continue executing with financial discipline. Looking ahead, we expect continued growth momentum in Q4 and into 2026. Our priorities are clear: scale deployments, expand revenue through integrated AI solutions, and advance development of our next-generation GSP architecture. In 2026, our focus turns to global expansion of practical AI, delivering solutions that are efficient, scalable, and sovereign capable. We will deepen partnerships to drive adoption across key sectors such as urban AI, infrastructure build-out, defense, and retail. Our strategy centers on hybrid AI deployments that combine the strengths of Blaize Holdings, Inc.'s GSPs and GPUs across heterogeneous environments, enabling secure, energy-efficient, programmable AI infrastructure. Blaize Holdings, Inc. is helping lead this shift towards real-world, sustainable, and sovereign AI that bridges innovation with impact and turns technology into tangible progress for industries and societies. We reported revenue of $11.9 million for the third quarter, reflecting strong execution and continued growth. With that, I'll turn it over to Harminder Sehmi to walk through the financial highlights and our outlook for the remainder of the year. Harminder Sehmi: Thank you, Dinakar, and good afternoon, everyone. I'd like to start with a few highlights. We reported $11.9 million of revenue, beating the upper end of our guidance by $400,000. We beat our Q3 adjusted EBITDA loss guidance by $2 million, coming in at $11.1 million. This reflects better than expected execution and stronger operating discipline across the business. And we closed a $30 million financing with Polar Asset Management Partners. I will now move on to reviewing our financial performance for 2025 in more detail and provide guidance for the fourth quarter. The results that I'm sharing today demonstrate our shift from customer validation to growth at scale. This quarter, we delivered our strongest quarter yet with revenue of $11.9 million, which was a sequential increase of 499%. I'm pleased to report that revenue surpassed the upper end of our prior guidance range by $400,000. Approximately $10.4 million of the third quarter revenue was driven by the initial shipments of servers under the Starshine contract into the Asia Pacific region, which we expect to collect in full before the end of the year. Gross margin was 15% this quarter compared to 59% in 2025. As I noted in my remarks last quarter, as expected, initial gross margins related to the Starshine contract would be impacted by the higher component of third-party hardware in the system. Going forward, we're working with Starshine software teams to replace most GPUs in these servers with Blaize Holdings, Inc. GSP cards. This is expected to result in lower average selling prices for customers and improved margins for Blaize Holdings, Inc. in the quarters ahead. We continue to fulfill the Yota purchase order and anticipate that the initial approximately $6 million of revenue contribution will be completed this year. Let's now turn to our third quarter operating expenses, which I will discuss on a non-GAAP basis to exclude stock-based compensation charges. Research and development costs of $6 million were down slightly from $6.4 million in the second quarter and represented a year-over-year increase of 7%. Sales and general and admin costs totaled $8.5 million, largely flat versus the prior quarter and an increase of $3.6 million year-over-year. Blaize Holdings, Inc. remains disciplined on costs as the business grows. Our third quarter adjusted EBITDA loss was $11.1 million, down 1.8 sequentially and marginally up from Q3 of last year. This reflects better than expected execution and stronger operating discipline across the business. Reported net loss in the third quarter of $20.3 million was lower than the $29.6 million net loss for the second quarter. Both include significant non-cash adjustments related to stock-based compensation and fair value charges. The reconciliation between GAAP net loss and adjusted EBITDA is included in our earnings press release. We are very excited about our November 10 announcement of a $30 million private placement financing by Polar. This investment positions Blaize Holdings, Inc. to continue its trajectory of delivering results from contracts in hand, converting pipeline opportunities into new business, and advancing its chip roadmap. We welcome Polar as a long-term anchor investor in Blaize Holdings, Inc. We have also taken advantage of recent strong trading volumes to exercise our right to sell common stock to B. Riley under the committed equity facility signed in July. These initiatives have resulted in a significantly improved cash balance of over $60 million today. Combined with expected inflows from current customer contracts, we believe we're strongly positioned to fund our operations well into 2024. Total revenue for the fourth quarter is expected to be between $21.1 million and $23.1 million, almost doubling our third quarter performance. We anticipate adjusted EBITDA loss to be in the range of $15.6 million to $18.6 million, reflecting the variable nature of next-gen chip costs. The share-based charge and weighted average shares outstanding estimates are provided in our earnings press release. Looking ahead, our pipeline opportunities based on the current generation of silicon remain robust. Approximately $160 million from the Yota and Starshine deals are expected to support our revenue projections over the next six quarters or so. Our partnership with The Kingdom Of Saudi Arabia's Technology Control Company is progressing well. We anticipate initial revenues from delivering ruggedized AI boxes capable of operating in harsh high-temperature environments, and professional services to begin in 2026. We expect our recently announced partnership with Reach Digital to significantly enhance our profile as a provider of practical AI solutions. The Blaize Holdings, Inc. hybrid AI platform is resonating well in the market, and we look forward to providing further updates on customer progress. Let me highlight upcoming events for the financial community. Blaize Holdings, Inc. will be at the Craig Hallum Alpha Select Conference in New York on November 18 and at the Wells Fargo Annual TMT Summit in California on November 19. We look forward to seeing you at these events. Thank you. And with that, we'll now open the line for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. We ask that you please limit yourself to one question and one follow-up. One moment, please. Our first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy: Hi. Congratulations on the good results and the really strong revenue growth. You know, tied in with this Starshine project, how many more quarters do you think it will be before you start shipping the third-party hardware? Harminder Sehmi: Hey, Kevin. This is Harminder. So your voice is a little cracky, but let me just repeat what I understood you to say, which is how many more quarters before we start to shift to a GSP-heavy server. Was that right? Kevin Cassidy: That's right. You know, just when can gross margins start to expand again? Harminder Sehmi: Yeah. So we expect in the latter part of the second half of next year. Work has been going on with both software teams to create this orchestration layer that allows workloads to seamlessly go across both the GSP and the GPU. So as we start to shift, as that work completes, the servers that will start to ship perhaps in the second quarter onwards will have more GSP components in them. Kevin Cassidy: Okay. Great. And, yeah, I'm always interested in your next-generation silicon. Can you give us any hints on what you're targeting with that and what will be some of the improvements? Dinakar Munagala: Sure. I can take this. So as you know, in the key markets that we're in, the majority of the customers, we're actually capturing at the business outcome level. And our software is quite coming to life as well. The whole platformization, orchestration layer, now what this is helping us is taking all of this customer demand and feedback into the definition of the next-generation chip. Certainly, it will be addressing existing video image visual workloads. Also, we're expanding it outside of this into other areas to help us capture a wider set of workloads. So it is a time expansion for us when the silicon comes in. But the good part right now, because we're platformizing and our software is playing a role, it already helps us understand what the customer's needs are. And by adding this next-generation silicon, it further improves our margins. But including things like language models, etcetera, are part of it also there. New kinds of AI that are emerging by being programmable and having the flexibility of our architecture, we're able to address all of that. Kevin Cassidy: Okay. Great. Thank you. Operator: Thank you. And our next question comes from the line of Craig Ellis with B. Riley Securities. Craig Ellis: Yeah. Thanks for taking the question, and congratulations on the momentum in the business, guys. I wanted to start, Dinakar, just following up on comments regarding TCC and Reach. Is it possible for you to help us scope the size of those two deals? And if not in their entirety, help us understand how material they might be to 2026. Dinakar Munagala: Sure. Happy to. So the interesting thing is both of these are in the Middle East. So let me address the size of the opportunity, not getting into the exact opportunity size, but the market is rapidly growing there. There's a lot of demand for AI solutions and particularly practical AI solutions that can help their cities become safer, the defense entities, and so on. So we're fortunate to have been working with TCC specifically in the Saudi region. And this is all part of the Vision 2030 where they have pretty big plans, you know, we were collaborating on AI solutions there. And Reach is in UAE. So we have solid partners in both these countries. And each of these, as we solidify the contracts, we will start announcing them to the market. Harminder Sehmi: I don't know if Dinakar wants to add. Dinakar Munagala: No. No. You covered it. I just want to make one very important point. I mean, the proof points about technology and particularly where we are able to exist in very harsh thermal conditions, we were the only solution that was able to still continue to do high-performance compute at the edge up to 75-degree centigrade temperatures. Right. At a total cost of, you know, you can, of course, put a system together and have lots of extra cooling. And these are the kind of things that are now resonating really well with customers. Craig Ellis: Exactly. The temperature grade testing was done, and we passed with flying colors. And as Dinakar mentioned, right, they picked the hottest month of the year, which is September. We were literally on the rooftop testing these. So all of those results are helping us, you know, get into the commercialization phase, which is the next step. Craig Ellis: That sounds like it's very compelling. Proof points for your partners, and it should translate well into what your sales can do in other areas with that deployed. So a follow-up question given the momentum that you have with each of those partners, should we expect there to be meaningful revenue recognition next year? Or will we be in a planning and deployment phase that would precede sales and activity? Just trying to understand when these start to really tip towards revenue-generating partnerships for you. Harminder Sehmi: So, Craig, as I mentioned in my prepared remarks, I certainly expect that the TCC relationship will start to contribute towards 2026. The exact timing of that, of course, will depend on how the solutions are deployed. Reach Digital is a relatively recent engagement. However, what we're starting to see is that as certain solutions are deployed with one customer, I think the pace at which some of those other customers in the same industry or same vertical and how quickly they adopt should accelerate. Craig Ellis: That's very helpful. And then just building on that point and going back to Starshine where we are into development from early development, what are your customers learning about the advantages of the system and how is that impacting the pace at which they're choosing to move forward? Dinakar Munagala: So certainly, hybrid AI is very popular. Which is how we complement GPUs with Blaize Holdings, Inc.'s GSP for the best business outcome and better cost and better operational expenses. So this is certainly resonating. Plus, Blaize Holdings, Inc. is programmable. And therefore, the workloads that can seamlessly move across GPU and GSP is another advantage. So these are the key learnings. And they're applying it to real problems such as smart infrastructure, agriculture, and so on. Right? So this relationship is growing well. Harminder Sehmi: May I just add one more comment on that, which is the affordability side? If you have a server which is full of GPUs, you know, the reason why margins are low, but also, you know, the customer affordability is impacted. As we start to replace those with the Blaize Holdings, Inc. GSPs, the selling price of that server comes down significantly. And our margins, of course, increase because we don't have to necessarily pass all of that benefit on. And that's where we'll see probably an acceleration of adoption of solutions in 2026. Craig Ellis: It's a very good point, and ROI is one of the things that I've always found quite resonant with the solution that you're providing. Lastly, for me, I think the last time we spoke in a forum like this, we were talking about a pipeline that would have been quantified at about $725 million. Is that still the right way to look at the pipeline? And any color on where there might be candidates for conversion as we look across the fourth quarter and into early 2026? Thanks, team. Harminder Sehmi: So the pipeline still remains robust. It's, as you know, it's a living beast. The ones that we expect to convert, we've already talked about. Obviously, we continue to ship on our Starshine contract. We continue to work with Yota. You'll have seen an announcement that enhances their relationship with Yota into the Middle East. Whether that hits 2026 or so on, you know, will depend on how fast we work together. But we feel very strong and confident that the pipeline remains strong, and it's based on currently shipping product. And the more deployments that we start to make, then, as I said, the conversion should accelerate, and we should add more customers that are not in the pipeline today from those verticals into that pipeline. So we'll talk about that more when we do our annual results next year. Dinakar Munagala: And to your point, the whole ROI is the key metric. What's driving this acceleration. As we engage with one customer and they're seeing the ROI clearly, there's a land and expand within the customer, but also these same solutions are relevant across the entire geography, and we're getting that momentum as well. Craig Ellis: Excellent. Thanks, guys. Operator: Thank you. And our next question comes from the line of Richard Shannon with Hallum. Richard Shannon: Well, thanks, Dinakar and Harminder, for letting me ask a few questions. My first two questions are going to be interrelated, and the first one, Harminder, looks for you to just repeat one of your last comments in your prepared remarks. I think you mentioned something around $160 million from, I believe, added Starshine revenue over the next six quarters. Can you verify that I got that right? And I assume that next six quarters includes the fourth quarter that we're in now to 2027. Is that accurate? Harminder Sehmi: That's accurate. It's basically the $120 million and the $6 million that we announced a few months ago. And we're starting to deliver on those. And, yes, it includes Q4 of this year. It's across from Q4 of this year. Richard Shannon: Okay. And my second question is following up on the prior commentary you've had on your calendar '26 revenues. If I got my notes right here, you talked about at least $130 million for next year. Is that a number you're reiterating, or would you change that in any way? Harminder Sehmi: So we're not changing that at the moment, Richard. Dinakar Munagala: Okay. Harminder Sehmi: We feel confident that the minimum is $130 million. Yes. Richard Shannon: Okay. Perfect. Let's see here. Maybe a question on OpEx. You mentioned your guidance here for an increase in EBITDA loss. You mentioned that's related to the next-gen chip development here. Maybe give us a sense of the degree to which these elevated expenses will continue into next year. Harminder Sehmi: So I'll start on the numbers, and then maybe, Dinakar, you can add a little bit more. As a fabless company, we benefit from actually the core of the GSP, that design, which is around which we have all of the IP. That core design remains constant across our roadmap. That's number one. So the internal costs of getting additional features, making maybe a chip bigger, etcetera, are disproportionately low. They don't expand linearly, if you will. What we're then left with is the external cost of getting third-party IP, of just having a partner put that IP into our chip. And then, of course, the largest expense is the foundry itself. Those costs, we don't disclose how much those are. They're just commercially sensitive. But they're typically paid over a 20 to 24-month period, generally back-end loaded. And we write these costs off through our P&L. So it's the reason why in Q4, for example, I've got a slightly wider range on my adjusted EBITDA just because certain costs, particularly IP and so on, we have to pay before we can actually start the work. The NRE is generally spread over time. So it will have an impact on 2026, which we've accounted for. We've been very fortunate in the past of having strong partners that allow us some favorable payment terms, and we'll continue to pursue those. Richard Shannon: Okay. Great. One last question for me. I'll jump out of the line. Dinakar, you've announced a number of partnerships and contracts in the last number of months here. All of them are kind of based in Asia, Southeast Asia, which is interesting and noteworthy here. So I'd love to get a sense from you to the degree to which this is a core focus for you. What's kind of your advantage and what's driven your success there so far? And then to what degree should we expect you to announce Western world or even US-based partnerships and customers in the near future? Thank you. Dinakar Munagala: Sure. So Asia and the Middle East are areas where there's a lot of new smart developments, etcetera, particularly in the Middle East. As well as Asia has a lot of camera infrastructure that's trying to upgrade. So naturally, there's a good amount of business that's happening there. But our pipeline does span the US as well as North and South America, as well as Europe. In fact, and we will, as we are able to announce, we will. But we've been in smart retail kind of use cases in the Americas. And also smart restaurants where they're looking at using video analytics for better margins and so on. There are other practical AI use cases that are part of our entire platform, hardware plus software, that is undergoing POCs. And as we solidify and start booking revenue, we'll be sure to announce deals in the US as well. Richard Shannon: Okay. Great. Thank you, guys. Operator: Our next question comes from the line of Gil Luria with D. A. Davidson. Gil Luria: Yes. Thank you. Glad I was able to get through. Sounds like you're on track for this year, on track for next year. You're building up the book of business mostly through relationships. So I wanted to ask in terms of the conversion of the pipeline, is the strategy going to be mostly focused on the partners that you're accumulating, or is there more of a thought to also having more direct sales as you have opportunities with bigger customers? Dinakar Munagala: Thank you, Gil. I can start, and Harminder can add. Most of the large customers that we're engaged with, as they deploy, there is repeat business there. There's an expansion of scope within those customers themselves. And these are pretty large customers. So that opportunity exists. And more importantly, or equally important, the use case that we are perfecting with this one particular customer is relevant across the geography. Like, what we do in Saudi Arabia is relevant for, let's say, Qatar, and others. So there is an expansion within the geography as well. Especially the example that Harminder gave. We're able to withstand harsh temperatures, outdoor settings, and deliver smart infrastructure use cases. And there's massive construction that's happening there. So there is both within the customer and across. And some of these engagements, which are at various stages of POCs, etcetera, are with large direct customers. And while we can't name them today, as these get solidified, we will. So the answer is we have both channel as well as direct. Gil Luria: So you've mentioned it now two or three times, so I have to ask how hot was it on the roof in Saudi? Dinakar Munagala: It went to almost, I think, north of 80 degrees centigrade, I think is what we ended up with. Yeah, it was very hot. Gil Luria: Well, that's some commitment on your part. That's founder mode. Appreciate it. Thank you. Operator: Thank you. And our next question comes from the line of Scott Searle with Roth. Scott Searle: Hey, good afternoon. Thanks for taking my questions. Maybe just to quickly follow-up on the qualified pipeline. I don't think you gave a number, but I'm wondering if you could just provide directionally, has it continued to increase and the diversity of that pipeline, has it continued to expand? I would imagine given some of the announcements you've made, it's getting a little bit more diverse. And, also, as part of that, looking at some of those qualified opportunities, are these more GSP-heavy deployments out of the gate so we would expect as you convert and deploy, that these should have higher gross margins at the start of the contracts? And then I had a follow-up. Harminder Sehmi: Okay. So the pipeline, the way we look at the pipeline, there is a gross pipeline which is a significant pipeline. It's what when we first qualify opportunities, we say, okay. What's the likely outcome over the next two to three years from this customer or from these groups of customers? And then, what changes for us is depending on which customer is working faster or slower through the POC process, it allows us to put a higher percentage weighting, if you like, in terms of when things will close. So when I stand back, the $725 million number, anything that was not imminent was already out of that number. What I have not done yet is, some of the new engagement that we've got. We've got some high-level indications of what these might mean for us over the next couple of years. But when we do our annual results announcement next year, we'll provide a lot more detail around conversion and so on. The second thing to say is the Starshine deal is probably the only one in the pipeline where we are doing within the same box replacement of a GPU. And that's where the margins are lower and they'll become higher. If you look at some of the other deals that we've got, our servers are coexisting with the GPU server in a data center. And so that server is full of Blaize Holdings, Inc. cards. And it has Blaize Holdings, Inc. software on it. So in, for example, the Yota one we talked about, 15% of that being software revenues. So it kind of depends, but more Starshine happens today, happens to be the only one where we are at this low margin going up to higher margin. Dinakar Munagala: So the only other thing I'd add is that besides the existing smart infrastructure and defense, the industrial automation is something that's coming up. You asked us about trends in which areas. And the kind of adoption that's happening is including the software platformization, the software layer that we have. And that means higher margins as well for us in those outcomes where we participate with the customer at the business outcome level. So those are all helping us at the platform level consuming a software plus or Blaize Holdings, Inc. service. Scott Searle: Okay. Very helpful. Thank you. And if I could just a question on the competitive landscape. You guys have done a good job of not only from a product standpoint, but developing the ecosystem around it, is driving that opportunity set. I'm wondering what you're seeing out there as you're going to customers. Is the competitive landscape getting a little bit more competitive or thinning? You guys have certainly been able to go out and raise capital. But I think they lack the ecosystem development around that. So I'm just kind of wondering what you're seeing out there in the trenches in terms of the competitive landscape. Thanks. Dinakar Munagala: That's a very good observation. The topic is very important because it solves the end application. And in that category, customers typically prototype on GPUs even when it comes to actual deployment CapEx and OpEx budgets are very critical, especially in the world of in the physical world, you know. And therefore, complementing Blaize Holdings, Inc. servers is the way to go. That's how they achieve their CapEx results and within operational margins. So and coming to competition, right, the productized solutions that exist pretty much there's a couple of names, big handful of names we come across. It's and customers we are the places we're winning, it's because of our rather combined advantage that we bring to the table in terms of TCO advantage, with, you know, helping them with the CapEx and OpEx. And fully productized. So in that area, we don't come across, you know, because we're at the business outcome level. That's what Blaize Holdings, Inc. gets picked. Harminder Sehmi: Yeah. The keyword there, Scott, is programmability. There are other competitive solutions that might do one or two things. And what we've realized is that whilst there may be a place for that in certain parts of the market, but the kind of customers that want to deploy AI at scale want it to be a customizable, programmable solution. Right? So no longer are we having a conversation, you know, how many tops do you have on your card? It is can I run my real-world application at a cost that makes sense for me? And if you're, by the way, a tier two cloud service provider who's making zero money today by running all of your infrastructure on GPUs. Well, you know, with working with Blaize Holdings, Inc., you now have a chance, more than a chance, of providing services to customers and making money. Scott Searle: Great. Thanks so much. Operator: Thank you. I'll now hand the call back over to Dinakar Munagala for any closing remarks. Dinakar Munagala: Before we close, I wanted to share a few quick highlights of this quarter. We delivered $11.9 million in revenue, beating the upper end of our guidance and marking a 499% sequential increase. We're confident that Q4 revenue will reach nearly double our Q3 performance, reflecting strong momentum heading into 2026. Excluding non-cash adjustments, we beat our Q3 adjusted EBITDA guidance by $2 million, reflecting stronger execution and operational discipline across the business. We began initial shipments under the Starshine contract into the APAC region, which we expect to collect in full before the end of the year. We closed a $30 million investment with Polar to accelerate commercialization, next-generation chip development, and expansion across key markets. Finally, I want to recognize our team for winning second place at the Milestone Systems Developer Summit in Copenhagen today with our emergency first responder VLN. It's a great example of how Blaize Holdings, Inc. technology is making cities safer and smarter through innovation. You can find the award-winning video demonstration on our Blaize Holdings, Inc. AI YouTube channel. Thank you to our customers, partners, and investors for your continued confidence. We're proud of what we've achieved this quarter and even more excited about what's ahead. Thank you. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Good afternoon, and welcome to the Jefferson Capital, Inc. Common Stock's Third Quarter 2025 Conference Call. With us today are David Burton, Founder and Chief Executive Officer, and Christo Ryolov, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company's most recent filings with the Securities and Exchange Commission. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made here and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements except as required by law. Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release. And now I'll turn the call over to Mr. David Burton. David Burton: Thank you, operator, and thanks, everyone, for joining our investor call. Let's dive into the financial performance highlights. In the third quarter, we again generated strong results for shareholders. Our collections were $237 million, up 63% versus 2024. We continue to perform well versus our underwriting expectations. We generated the largest third-quarter deployments in the company's history with $151 million invested, up 22% versus 2024. Our estimated remaining collections were $2.9 billion, up 27% year over year, driven by our continued deployment performance and attractive returns. Revenue for the quarter was $151 million, up 36% versus the prior year period. We delivered a sector-leading cash efficiency of 72.2%, driven in part by strong collections from the Conn's Portfolio purchase, which we completed in the fourth quarter of last year. We generated strong cash flow, with LTM adjusted cash EBITDA of $727 million, which in turn improved our leverage to 1.59 times, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.74, and the Board of Directors has declared a common stock dividend of $0.24 per share. Next, on October 28, we completed an amendment of our senior secured revolving credit facility, increasing capital commitments to $1 billion and reducing pricing. This is an important milestone which positions us well for the significant market opportunities ahead, and Christo will provide additional detail on the upside in his prepared remarks. Finally, we are very excited about the previously announced BlueStem portfolio purchase, which we believe solidifies our leadership position as a strategic acquirer of a wide spectrum of dislocated consumer credit assets. We expect the transaction to close later in the fourth quarter, and I'll share additional detail further on in the presentation. Next, I'd like to offer a brief market update and cover some of the macroeconomic indicators to provide better context for why we remain bullish on the investment opportunity for our business. I'll start with delinquency trends, which remain elevated across all non-mortgage consumer asset classes and create favorable portfolio supply trends for our business. An important component to better understand the state of the consumer is the current level of personal savings. During the pandemic, consumers accumulated abnormally high savings as a result of the unprecedented levels of government stimulus. By 2022, the excess savings had been depleted, and in fact, the current level of personal savings at $1.1 trillion is lower than the long-term pre-pandemic average from January 2013 through December 2019, and the reduction in personal savings in real terms is even more substantial when considering inflation. This suggests that consumers have a more limited ability to absorb unanticipated temporary financial hardships, which is an important driver for delinquency and charge-off volumes. Next, regarding the insolvency market, we've seen a well-pronounced increase in the number of insolvencies both in the US and in Canada from the pandemic trough in 2021, which in turn has fueled a resurgence in supply of insolvency portfolios. Insolvency evaluation and servicing requires highly specialized expertise, a robust data set to develop accurate forecasts, and a technologically advanced servicing platform, and we remain one of the very few debt buyers in the US and by far the largest debt buyer in Canada that can take advantage of this opportunity. Finally, this backdrop is also underpinned by a low level of unemployment, which supports the expected liquidation rates on our existing portfolio and gives us confidence in underwriting new purchases. All of these trends point in one direction: elevated levels of consumer delinquencies and charge-offs, which we are seeing across all consumer asset classes, and which we believe create a long runway for a robust portfolio supply over the coming quarters, coupled with continued strong collection performance on the existing book and on any future portfolio purchases. Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections were $237 million, up 63% year over year, driven by strong deployment growth in 2023 and 2024. The Conn's portfolio purchase represented $50 million of collections for the quarter. Our collection performance continues to reinforce the accuracy of our underwriting models. A key trend in collection performance has been the increase in legal channel collections. Jefferson Capital, Inc. Common Stock utilizes the legal channel in instances where we believe the account holder has the ability but not the willingness to pay. We've achieved a number of important process improvements, specifically in the US, have significantly compressed the timing from placement of the account to filing of the suit, which in turn has accelerated suit volumes. The inventory of suit-eligible accounts has increased given the significant growth in deployments over the past three years. So over time, we expect to see continued growth in legal collections. Our portfolio purchases for the quarter were $151 million, up 22% year over year. Year-to-date deployments were $451 million, up 24% versus the same period in 2024. Returns remain attractive, and we remain confident in the deployment landscape. As of September 30, we had $316 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters. Our estimated remaining collections as of September 30 were $2.9 billion, up 27% year over year, with ERC related to the Conn's portfolio purchase comprising $179 million of the total. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio, with 61% of our ERC expected to be collected through 2027. We expect to collect $894 million of our September 30 ERC balance during the next twelve months. Based on the average purchase price multiples recorded thus far in 2025, we would need to deploy approximately $456 million globally over the same timeframe to replace this runoff and maintain current ERC levels. I would note that as of September 30, we had $273 million of deployments contracted via forward flows for the next twelve months. Moving on to slide seven, I'd like to review in more detail another core pillar of our business model and a critical building block of our differentiated return profile: our best-in-class operating efficiency. We seek to own the high-value-added aspects of the purchasing and collection process, including proprietary portfolio and consumer payment performance data, advanced analytical and modeling capabilities, certain proprietary technological capabilities, and the collection processes and techniques that we believe create both a competitive advantage for the company as well as a significant barrier to entry. In contrast, we seek to outsource the aspects of the collection value chain that we view as commoditized or operationally intensive and do not produce a competitive advantage, such as running large domestic call centers. We utilize champion-challenger performance measures to allocate portfolio segments to the best servicers, and our internal collection platform is required to compete for market share against our external vendors in both the agency and the legal collection channels. Our mostly variable cost structure provides flexibility to scale deployments depending on market conditions. The benefits of our relentless pursuit of operating efficiency are evident in our efficiency metrics relative to the rest of the sector. As I mentioned, our cash efficiency ratio for the quarter was 72.2%. It was aided by collections on the Conn's portfolio purchase, which carry lower cost to collect, given the significant portion of paying accounts in the Conn's portfolio. When excluding the Conn's portfolio collections and expenses, the cash efficiency ratio would have been 68.8%, which remains materially higher compared to other public companies in the sector. Our leading operational efficiency is a powerful competitive advantage and, coupled with the strong returns on our differentiated investment strategy, supports consistent, attractive shareholder returns. Next, I wanted to provide an update on the previously announced BlueStem portfolio purchase, where we are acquiring a portfolio of credit card assets from affiliates of Bluestem Brands. The portfolio was originated by Bluestem to finance e-commerce purchases of home goods and consumer products and consists of small balance revolving credit card receivables for which new purchases have been suspended. The transaction does not include a back book of charged-off receivables. Similar to the Conn's portfolio purchase, the transaction is structured with a cutoff date, in this case, June 30, 2025. Jefferson Capital, Inc. Common Stock will pay a gross purchase price of $303 million to acquire receivables with a face value of $488 million as of the cutoff date. At closing, the gross purchase price will be adjusted for interim portfolio cash flows net of servicing expense. Assuming, for illustrative purposes, that the deal closes on December 1, we expect the net purchase price to be $195 million, and that number would be lower if the transaction is completed further out. Given the significant portion of paying accounts and the short duration of the assets, we expect the half-life of the ERC to be less than one year. Unlike the Conn's portfolio purchase, Jefferson Capital, Inc. Common Stock is not acquiring any employees or physical facilities. Instead, the portfolio will be serviced by CardWorks Servicing going forward. $20 million of the purchase price will be held in escrow to secure implementation obligations relating to the servicing transfer. Jefferson Capital, Inc. Common Stock does not intend to pursue ongoing originations through the Bluestem platform, and the transaction does not include any Bluestem retail operations or assets. We expect closing in the fourth quarter of this year, subject to customary conditions, including an HSR approval. I believe the Bluestem portfolio purchase positions us well for a wide spectrum of opportunities involving dislocated consumer finance portfolios. A number of nonbank consumer credit originators are facing challenges, and a consumer finance business is one that requires significant scale to support profitability. A portfolio sale is frequently the value-optimizing option, and liquidity upfront is paramount, particularly in any lender-driven processes or where the decision has been made to cease new originations. The potential buyer universe in these situations is limited, given the significant operational complexity, risks of portfolio deterioration related to a servicing transfer, and the potential for disruptions related to that servicing transfer. These opportunities remain episodic in nature, and as such, they require a particular set of circumstances; they are difficult to predict from a timing perspective. As it is not possible for us to induce this type of transaction, Jefferson Capital, Inc. Common Stock remains uniquely positioned to react to these opportunities as they arise. We have specialized capabilities in hard-to-value and hard-to-service asset classes, particularly in small balance portfolios, which have given us an edge in both the Conn's and the Bluestem transactions. These capabilities are hard to replicate as they are underpinned by over two decades of data, coupled with our proprietary analytics. We have the deep operational experience to manage the servicing transfer at close and also to improve servicing efficiency as we manage the portfolio runoff. And finally, we have a low-cost funding structure with ample capital availability, which allows us to offer speed and certainty of close, critical transaction components for the seller in situations where business disruption is rapidly eroding the value of the assets. With that, I'd now like to hand over the call to Christo for a more detailed look at our financial results. Christo Ryolov: Thank you, David. Taking a closer look at the financial details for the third quarter, revenue was $151 million, up 36% year over year. Changes in recoveries rounded to $0 for the quarter, reflecting the accuracy of our modeling and our execution against the under forecast. Operating expenses were $80 million, up 59% year over year, corresponding to an increase in collections of 63%. Court costs increased to $14.9 million, or 66% year over year, as a result of the trends in increased legal channel volumes that David reviewed in his comments. This is an upfront expense to support future collections through the legal channel, and the accelerated time to suit put forward these expenses to the current core. We expect court costs to remain at this level, given the increased inventory of suit-eligible accounts resulting from the significant overall portfolio growth over the past several years. We also recorded $8.8 million stock-based compensation expense from vesting of restricted shares related primarily to the company's 2018 award plan. As a reminder, there are 6.4 million shares of restricted stock, which are subject to a three-year time vesting requirement in equal increments from the date of the initial public offering. These shares are legally issued, and the company includes them in the share count for the adjusted EPS. The related expense is a noncash item, which does not reflect any new awards post-IPO, and as such, we treat the expenses as an add-back. Adjusted pretax income was $54.8 million for the quarter, up 30% year over year, resulting in an adjusted pretax ROE of 51.7%. We realized a material level of collections on portfolios purchased in 2023 to 2024, including the Conn's portfolio purchase, which in turn drove a near doubling of adjusted cash EBITDA to $206 million for the quarter. Finally, for the third quarter, Jefferson Capital, Inc. Common Stock recognized portfolio revenue of $22.4 million, servicing revenue of $1.9 million, and net operating income of $16.5 million related to the Conn's portfolio purchase. Our credit profile remains strong and positions us well for future opportunities. As of September 30, our net debt to adjusted cash EBITDA improved to 1.59 times following the Conn's-related uptick last December as a result of strong collections for the quarter. This leverage ratio is significantly better than our publicly traded peers. Over the long term, our target leverage ratio is in the range of two to two and a half times. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend. On October 27, we completed an amendment of our senior secured revolving credit facility, which achieved a number of capital structure objectives and substantially improved the terms. We increased the aggregate committed capital by $175 million to $1 billion and added two new lenders to the bank group. We refreshed the tenure of the facility to five years, an effective two-and-a-half-year extension. We improved pricing by 50 basis points across the grid and eliminated the credit spread adjustment, an aggregate interest expense savings on the drawn balance of 60 basis points. We also reduced the nonuse fee rate for unutilized commitments by five basis points. Finally, we implemented a handful of housekeeping borrower-friendly changes to better align the credit agreement with public company precedent. The facility was undrawn at September 30, and in addition, we had $42 million of unrestricted cash on the balance sheet to supplement our liquidity needs, including the expected closing of the BlueStem portfolio purchase. We have earmarked $300 million of the RCF capacity to repay our 2026 bonds in May 2026. Given the maturity was fully prefunded with a $500 million unsecured issuance earlier this year, and at this point, we are not taking on any market risk. We plan to keep the bonds out as long as possible to take advantage of the attractive 6% coupon. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of close in periods when portfolio activity increases, but the funding markets could be constrained or unavailable. With regard to our capital allocation priorities, our primary focus remains on deploying capital to purchase portfolios in the track its risk-adjusted returns. The fourth quarter typically offers an elevated level of deployment opportunities, and we're well positioned with capital to respond. Our board has declared a quarterly dividend of 24¢ a share, which represents approximately a 5% annualized yield. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector. It also reinforces long-term discipline around investment returns. We will evaluate share repurchases at the appropriate time while also aiming to maintain trading liquidity in the stock. And finally, we have a long history of successful M&A. We intend to remain disciplined and opportunistic. Now we'll be happy to answer any questions that you may have. Operator, please open up the line for questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of John Hecht with Jefferies LLC. Please go ahead. John Hecht: Thanks very much for taking my questions. On another good quarter. A lot of good stuff going on. First question, just as, you know, as you guys have diversified channels, and geographies, is there any you know, yeah, I guess, any details on the seasonality of collection that you've discovered that that are worth noting, or is it pretty much consistent across the board? David Burton: John, there was a little bit of background noise there for a second. Would you mind repeating that question? John Hecht: Sorry. Can you hear me? David Burton: Yes. Yeah. John Hecht: Okay. Yeah. The question is, you know, you've diversified your channels as sources and geographies. And is there any you know, differences in seasonality of collection across those channels or geographies that's worth pointing out. David Burton: Sure. So I think the most notable and pronounced seasonality is really kind of twofold. One is sort of global, and the other one is more US-centric. The US-centric one is relates to the seasonality relating to tax season refunds where collections are most elevated between the months of February and April. And the global characterization from a seasonality perspective affects deployments where historically, the fourth quarter has been the largest quarter for deployments. And that is fairly universal across all our geographies. I will note that many of the banks in Canada have a year-end that doesn't coincide with the calendar year. But even in Canada, the nonbank institutions tend to have a calendar year-end. And so we tend to see increases in deployments in the fourth quarter across all our geographies. John Hecht: Okay. Very helpful. Thanks. And then you you guys mentioned the the core cost because of the the activity going on in that channel, the core costs were elevated in the quarter. Sounds like that's gonna know, at least continue for some period of time I guess, you have any granularity for how we should think about that expense in the coming quarters? Christo Ryolov: Yes, John. Thanks. I think probably the best way to think about this is if you take we reported $15 million of court costs for the for the quarter. I'll think of this as as as maybe slightly higher elevated level for the fourth quarter and then run rate for, you know, 2026. The aggregate amount of call cost for 2026 would be based on run rate from this score. John Hecht: Okay. And then last question is yeah, you guys have obviously comms and now Boostem to accretive transactions. Anything worth noting just from a pipeline perspective? David Burton: Let's see. I think the thing I would note is we have looked at more transactions in the, you know, active or performing category this year, I think, than any other year. I suspect part of that is because after conducting the Conn's transaction, there was a general awareness about our capabilities. To value and close complex transactions. And I suspect that that's helped us be identified as a suitor for more opportunities like that. I will say that these are not opportunities that we prospectively can create. And rather we, like, respond to them. And And there tends to be a complex set of circumstances. That, you know, drive those processes sometimes involving, you know, lender decisions. And so that also makes them probably more speculative in terms of whether or not they're going to close. And so you know, all of that is to suggest that we expect to look at more of those transactions But the certainty around whether or not those will be transactable is is is all you know, that's very speculative at this point. But you know, we hope to report at some point in the future that we've been successful at acquiring portfolios that are similar to a Bluestem or Conse. John Hecht: Great. Thank you guys very much. David Burton: Thank you, John. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Please go ahead. Mark Hughes: Yes. Thank you. Good afternoon. Crystal, the comms portfolio, the operating income if I remember properly, it was $20 million last quarter. $11 million this quarter, Was there any seasonal fluctuation with that, or is that just the timing of the runoff of the portfolio, the collections on the portfolio and $11 million is kind of the starting point from here. Christo Ryolov: Yeah. This is very much the reflective of the runoff of the portfolio. We've discussed previously, we expect the financial impact of that transaction to largely be contained within this year. And driven by the relatively short duration of the of the portfolio as previously discussed. Mark Hughes: Very good. And then the mix on the portfolio purchases, David, you talked about more insolvency paper. Anything else you'd highlight Credit card, utilities, anything else that you are seeing any noteworthy trends in the quarter? David Burton: Yeah. I think the only noteworthy trend really was the continuing growth in insolvencies. And there have been elevated opportunities across all the asset classes. But as you may remember, know, insolvencies had kind of trended down pretty continuously through kind of the '21. And since then, they've been kind of growing more quickly in 2024 and five. Than they were previously, but that growth began before '24. Mark Hughes: And one final question, if I could. The stock-based comp, $9 million in this quarter, what should we think about 4Q and into next year? Christo Ryolov: So we have disclosed that the aggregate amount is $87.3 million. And that'll be over 2.74 years. So if you take that as as 11 quarters, and divide that gives you around $8 million a quarter. And that number is Thank very much. Thank you. Mark Hughes: Okay. Appreciate that. Thank you. David Burton: Thanks, Mark. Operator: Our next question comes from the line of Bose George with KBW. Please go ahead. Bose George: Hey, guys. Good afternoon. Actually, when we think about the earnings contribution from Bluestem, should the cadence of those cash flows look a lot like what we saw from Conn's? Christo Ryolov: Yes. The the it has a similar kind of short duration. A pretty rapid pace of collections. So while not know, exactly the same, it would take a similar shape. Bose George: Okay. Great. And then on the cash efficiency side, is that is that gonna be similar? So this could know, essentially be sort of boost the cash efficiency as this comes in as well? David Burton: Absent anything else happening, the answer to that would be yes. But keep in mind that the Conn's portfolio will continue to diminish in its overall contribution to our overall collections. While the Bluestem portfolio will begin increasing after closing. So you've got kind of two offsetting impacts. But both of the portfolios are enhancements to our cash efficiency ratio. Bose George: Okay. Great. And then actually, there's one more. There's been obviously a lot of noise in some asset classes like auto in the market. Are you seeing anything, you know, in terms of opportunities as a result yet? David Burton: So there is a you're you're right to point out that there is a lot of activity in auto with more rapid increases in delinquencies, particularly in the non-prime sector. And so we are seeing more opportunities in auto generally, but in particular, the nonprime. Bose George: Okay. Great. Thanks. Operator: Our next question comes from the line of David Scharf with JMP Capital Markets. Please go ahead. David Scharf: Hi. Good afternoon. Thanks. Congrats all around. Lots to digest. Wonder if I can maybe just follow-up on the last question on the efficiency ratio. You know, Dave, just maybe to help investors or myself kinda get a clearer picture of sort of the margin potential. For the business. If if we exclude cons in obviously, Bluestem going forward and just focus on that call it 8%. Can you give us some maybe directional color on whether that has been increasing? Or whether the increase in legal collections, which is a more expensive channel, will will probably keep that at that level for a while. David Burton: Great great question, David. And let me see if I can be helpful here. Putting cons and bluestem aside, you would have seen continued improvement in our cash efficiency ratio on kind of a consecutive basis. And that was occurring despite kind of lower overall collections from our insolvency business as a percentage of our total. And insolvency collections carry with them a much lower cost to collect compared to distressed. And so I would expect two impacts as we move forward when excluding both cons and Bluestem. And that would be I would expect for us to produce continuous efficiency gains in our cash efficiency ratio as we continue to implement a myriad of strategic initiatives that are precisely designed to deliver efficiency improvements. And we have had a myriad of those underway this year and are have made the anticipated progress. But every year, we put together a host of what those initiatives should be for the for the coming year. And so I would expect that to be continuing. The other aspect would be that our mix of collections for insolvencies I would expect to kind of increase. Pretty much sort of on the margin, not some kind of a massive overall increase, but that will also contribute to some an overall improvement in our cash efficiency ratio. David Scharf: Got it. That that's helpful. It it sounds like it it's clearly been improving even without the performing cons in there. Hey. Another topic you know, you you you talked about the existence and difficulty in timing. Whether actions take place of of other portfolios like like Conn's and Bluestem Fingerhut. But curious, are there any other asset classes that you're starting to take a closer look at? I actually received an email today from you know, word of a private student loan portfolio of charge offs being for sale. And I know those are higher balanced than your core focus on small balance accounts, but you know, I'm curious if the student loan market is one you're maybe gonna revisit or if there's anything else that's showing up. Particularly since your IPO and you become more visible? David Burton: Sure. So first of I appreciate that question. Student loans in particular is something that the company has a fair amount of experience in. We haven't been an active purchaser of private student loans for some time. In part because there was a fair amount under the last administration of speculation around whether or not student loans broadly would become something that becomes subject to, you know, forgiveness. And even though that wouldn't in any eventuality, likely be the case for a private student loan versus a a US Department of Education originated student loan. The consumer could change their payment priority or payment preference and we wouldn't want some type of exigent you know, government regulatory change. To kind of impact the our own anticipated expected return. So you know, for that certainly with the new administration had kind of sort of quieted down. That discussion, although more recently, there's been some recent resurgence of discussion about student loan forgiveness. So I I I still have apprehension about making any material deployments in the private student loan space. Until that kind of noise subsides. All of that being said, there also has been some discussion more recently that the federal government has begun some consideration about their own consideration of selling their student loan which is something that I don't think has ever been considered or undertaken before. And so that kind of a transaction would likely create the kind of certainty that would give us the kind of encouragement to deploy. And I think we're one of the few companies have both the data the analytics, and the capability for actually underwriting and executing against private or federal government student loan portfolio. David Scharf: Got it. No. Clearly, a lot's in flux right now. Maybe just one more if I can squeeze in. Returning to Bluestem, just wanna make sure I understand. And the you know, illustrative example you you gave about sort of a net purchase price, of a $195 million. It the transaction were to close on December 1. Would that approximate the receivable balance that would be booked at that time? David Burton: No. No. No. There's a substantial discount to what the then face value. And I think the ratio would be sort of. David Scharf: Oh, no. Not the face value, but it's a $195 where the actual purchase price. David Burton: Yes. That yes. Sorry. A little bit. We've got got mostly in translation here. The transactional capital to see at the significant discount to face value but the receivable balance you book on our balance sheet would be approximated by the purchase price. David Scharf: That's okay. So so it would be about a $195 million of finance receivables on on your balance sheet. And then as we think about the pace of liquidation, it looks like the gross purchase price of $303 down to $195 at December 1. Does that imply a $107 million of collections during what time frame? From from June 30 to December 1? David Burton: Yeah. So the cutoff date is June 30. And in the example that we provided for the $195 million, that was a example of a December 1 closing date. And that doesn't imply a $107 million of collections because there's there are collections happening, and then there's also receivable balances that are changing. But I think the best way to think about it is the original kinda gross purchase price against the then total receivable balances of as of June 30. David Scharf: Oh, got it. Got it. Perfect. Thank you. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Please go ahead. Robert Dodd: Hi, guys, and congrats on the quarter. On sticking with Bluestem for well, the the the concept of Bluestem slash cons. I mean, what mean, obviously, you you you priority for deploying capital, number one, is to buy put. Portfolios. But, I mean, how would you if if you had your wishes, what kind of mix would you like to be acquiring of lumpy but performing portfolios versus non Obviously, the performing applies much for you. You get the collections much quicker. It's great ROI. But then you have to find another one. And and so what's the what's the balance of of where you like that to be going forward? David Burton: Yeah. So I I may answer the question a little differently than you've asked it, but I hope it kind of gets at least the way we think about deployments. From a risk-adjusted return standpoint. And as you've sort of noted and we've discussed, we deploy capital in a bunch of geographies. Across a number of asset classes. And we we seek each year to widen that funnel. And the purchase of performing portfolios like cons or Bluestem, are just another demonstration of using our capability to deploy capital at attractive risk-adjusted returns. And so I look at active or performing portfolios as just another expansion of our funnel of opportunities. And we're largely agnostic across that funnel of opportunities because we have underwriting models to be able to forecast accurately. And then, you know, onboard and and execute against that forecast. Across all these asset classes, geographies and active or nonperforming portfolio. So you know, it it of course, it's nice to be able to deploy a lot of money against an attractive risk-adjusted return opportunity. And so you know, active portfolios are helpful in that regard because you can put a lot of money to work in a single transaction. But whether it's retail installment loans or credit card or auto. You know, I I think we are quite happy underwriting and executing against any of those kinds of opportunities. And would be at the ready to deploy our capabilities for any attractive opportunity across a number of asset classes. And so I I you know, small balance, of course, is creates a further kind of competitive advantage because not as many folks have the data or the platform that is able to underwrite and execute against those. So that certainly is maybe more attractive to us or at least would would have maybe even less competition than you know, a large balance credit card portfolio. But even that, I think I don't think any of our public competitors have deployed capital against a performing credit portfolio, for example. Large balance, small or small balance. So I think this whole category of the ability to make an attractive investment in performing portfolios is something that is unique to Jefferson Capital, Inc. Common Stock. Amongst our peers. Robert Dodd: Oh, I I I agree with you, and I appreciate that that color. Thank you. You're kinda tying on to that. I mean, if if Bluestem works out as a big right, you're at 1.5 times leverage now, roughly, ahead of Bluestem. But, you know, given how fast Conn's liquidated and and lowered your leverage after an initial peak. Mean, the outlook is is, prospectively, you know, your your your leverage will be you know, down again. This time next year, we'll be looking, you know, well unless there's a lot of other moving parts, obviously. But, you know, it it's realistic that that your leverage could be even even further below the low end of your your target. By the time Bluestem gets onboarded and, you know, it's six months to its life if it performs anything like Conk. So what what do you guys get your thoughts there? I mean, obviously, you know, there's the dividend. But what else would you look at given, you know, the potential outlook for leverage? Not a bad thing. Over the next, you know, twelve to eighteen months, maybe. David Burton: So great question and a great observation that we obviously are operating below our target leverage and that's before we get an accelerated amount of cash flow that we would derive from the Bluestem purchase once it closes. I I just wanna kinda flag for you, Robert, that we also have a bond maturing in the middle of next year. Mhmm. For for $300 million. And we would plan to utilize our revolver for that and why that doesn't increase our net debt. It it does show demonstrate our utilization of our existing capacity. Under our billion-dollar revolver, which we just upsized and for which we had nothing drawn on. At the and so we would certainly hope and the primary focus would remain deployment against portfolios in our geographies or potentially in a new geography. And and we are you know, we certainly have available to us you know, potential changes to the dividend or share repurchase or whatever as Christo referred to in his in his prepared remarks. And then, you know, lastly, you know, we've had a history of doing disciplined M&A. That have all worked out quite well for us. And so we've we find ourselves in an environment and with a capacity to consider really all of the above. As a means to to optimize shareholder returns. Robert Dodd: Got it. Thank you. David Burton: Of course. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Mr. David Burton for closing comments. David Burton: Thank you. Looking forward, we're excited about the growth prospects for our business for the remainder of this year and beyond. We have built an outstanding platform. Over the past twenty-three years, and we are in a great position to capitalize on opportunities as the market continues to evolve. Thank you all for attending today's investor earnings call. We look forward to providing a further update on our fourth-quarter investor call next year. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good afternoon, and welcome. Thank you for joining us to discuss Fluent, Inc.'s third quarter 2025 earnings results. With me today are Fluent's Chief Executive Officer, Donald Huntley Patrick, Chief Financial Officer, Ryan Macnab Perfit, and Chief Strategy Officer, Ryan Schulke. Our call today will begin with comments from Donald Huntley Patrick and Ryan Macnab Perfit, followed by a question and answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will also be made available following the call on Fluent's website. To access the webcast, please visit the Investor Relations page at www.fluentco.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call will contain forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made during this call only speak as of the date hereof. Actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with the company's business. These statements may be identified by words such as expects, plans, projects, could, will, estimates, and other words of similar meaning. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Fluent's business, we encourage you to review the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During the call, management will also present certain non-GAAP financial information relating to media margin, adjusted EBITDA, and adjusted net income. Management evaluates the financial performance of the company's business on a variety of indicators, including these non-GAAP metrics. The definitions of these metrics and reconciliations to the most directly comparable GAAP financial measure are provided in the earnings press release issued today. With that, I'm pleased to introduce Fluent's CEO, Donald Huntley Patrick. Good afternoon. Thank you all for joining our call today. Donald Huntley Patrick: I'm here together with Ryan Schulke, our Chief Strategy Officer and company co-founder, and Ryan Macnab Perfit, our Chief Financial Officer. Our strategic momentum continues to accelerate, establishing an industry leadership position in commerce media. However, as we expected, our third quarter financial results demonstrate a challenging environment due to timing delays onboarding the new partners who are fueling our transformative pivot into the rapidly growing commerce media industry. On a segment basis, commerce media solutions revenue in the third quarter grew over 80% year over year, while increasing its portion of contribution to consolidated enterprise revenue from 16% in Q3 2024 to 40% in Q3 2025. As Fluent expanded its position in the commerce media industry. As of 09/30/2025, our commerce media solutions business surpassed an annual revenue run rate of over $85 million as we grow our market share based on the consumer value we are creating for our partners and advertisers. Q3 Commerce Media Solutions finance results would have been even more impressive in the quarter if not affected by two factors I'd like to call out. Number one, some new partner wins launched on our platform later in the quarter than anticipated and, therefore, had less impact on our revenue and gross profit for the quarter. These wins will impact full quarters moving forward. Number two, consistent with the industry, we saw some advertiser pricing and budget pullback in the later part of Q3. This appeared tied to advertiser-specific issues, which you are seeing continuing in early Q4. Our positive Commerce Media Solutions growth trend was not enough to offset our owned and operated marketplaces decline, which remained near 50% year over year, exacerbated by strong advertising and regulatory headwinds. That being said, we are very pleased with the growth of ecommerce media solutions. And as commerce media solutions becomes a bigger piece of our consolidated revenue pie, expect enhanced results and profitability to closely follow. Contributing to our enthusiasm for commerce Media Solutions, we announced several new and expanding partnerships in the quarter with leading industry partners like Databricks, and top-tier brands, including Authentic Brands Group, the world's leading sports, lifestyle, and entertainment brand owner. Partnerships like these are the cornerstone of our commerce media solutions growth. Our marketplace credentials continue to be validated by a stable of iconic global brands who are choosing to partner with us. Our growing list of world-class partners recognizes the fundamental value we are creating in building consumer loyalty. As we consistently exceed our partner's revenue and our advertisers' return on ad spend expectations. Lastly, during the third quarter, we completed a $10.3 million equity raise that included new fundamental institutional investors and insiders, which significantly strengthened our balance sheet and provide us with additional capital to continue investing in the growth of our commerce media solutions. Slide four reiterates just how excited we are about the commerce media solutions and the tremendous upside that is presenting us for our business. Commerce Media Solutions has a current annual run rate of over $85 million, up from $80 million a quarter ago, and we expect this growth to continue as we capture a larger share of the market. Taking a step back for a moment, what's most important to the business and for our shareholders is ultimately having our financial scorecard reflect our strategic vision. As such, and as we have identified as a core milestone in our strategic plan, we expect our financial pivot will deliver trend line shift in Q4, where Fluent's gross profit is expected to grow by double digits quarter over quarter for the first time in ten quarters resulting in positive adjusted EBITDA. I want to reemphasize that our enthusiasm for ecommerce media position is numbers validated. Our current second half momentum is expected to deliver triple-digit revenue growth year over year, a testament to our commerce media solutions platform capability that is earning us world-class brand partnerships. We believe this will result in strong Fluent enterprise and a double-digit year-over-year revenue growth in 2026 as our overarching shift in mix strategy begins to drive improved consolidated results. As you can see by the graphs on slide five, commerce media solutions made up 40% of our total revenue in the quarter, up from 16% in third quarter 2024 and 4% in 2023. Looking ahead, we see the opportunity to better leverage our owned and operated business and the strong brand equity we built in the marketplace over the last decade. As a springboard, for more aggressive growth for our commerce media solutions. More specifically, as the marketplace continues to evolve, we are beginning to see a convergence between our owned and operated in commerce media capabilities the commerce media marketplace. Creating differentiated opportunities with our partners and advertisers that we are uniquely qualified to address. Commerce Media Solution provides highly engaged and extremely valuable audiences for advertisers. The convergence of owned and operated rewarded experiences, and commerce media is enabling us to build unique proprietary demand for our partners while enhancing our competitive advantage. An example of this convergence during Q3 is that we were able to deepen our penetration with two existing owned and operated advertising verticals into the commerce media marketplace, which quickly grew past 40% of our commerce revenue. Building unique supply and demand increased our commerce media competitive moat, and rationalizes the continuing value of our owned and operated marketplace. We expect that Commerce Media Solutions revenue will surpass owned and operated in 2024 as the main driver of consolidated revenue, supported by increased activity in commerce media, around the holiday season. We entered several new and exciting partnerships in the quarter, which will be key drivers both of our commerce media solutions and our consolidated revenue growth. Our partnership with Databricks allows us to enhance and expand our data collaboration capabilities, which we expect to significantly enhance the performance of our commerce media solutions. As a part of this partnership, we also welcome the board to key leadership hire in Virginia Marsh, who joined Fluent as head of data and agencies to drive and support the ongoing growth of our data collaboration capabilities. Also in the quarter, we expanded our existing partnership with Authentic Brands Group, a leading sports, lifestyle, and entertainer brand owner generating over $32 billion in global annual retail sales. Through this broader agreement, Fluent will support post-purchase monetization for additional brands such as Reebok, Vince Camuto, Volcom, Champion, RVCA, DC Shoes, and more, with the goal of adding millions of annual transactions to our growing commerce media partner network. Another one of our many partner integrations is our strategic partnership with Rebuy Engine, a leading ecommerce personalization platform for Shopify brands. This partnership opened an expansive network of over 12,000 active ecommerce brands on the Shopify ecosystem, which is a new channel and business opportunity for us. Our integrated solution, Revi Monetize powered by Fluent, continues to perform well as this partnership scales across the Shopify platform. In fact, we saw more than 1 million ad unit sessions in September alone, representing a 79% increase on a month-over-month basis. This channel provides a catalyst of upside as we cultivate new business relationships where we did not previously have access. Before turning the call over to Ryan, I would like to provide a quick update on our outlook. As we move through the fourth quarter and close out 2025. Regarding our future, we believe this is just the beginning. As we aggressively scale our commerce media business, we see an exciting emerging market development before us. I'll provide a thumbnail sketch today that will further delineate in future earning releases in 2026. I referenced the industry-wide strategic convergence before us, where the commerce media, the rewarded owned and operated marketplaces continue to evolve and merge. And where our loyalty marketing strategy can create competitive advantage for Fluent. We believe we are uniquely differentiated in the space to win big, by leveraging what we've learned and perfected in our rewards grounded owned and operated properties, premium pricing, high intent audiences, and CRM-driven optimization. Although it's early, this converging marketplace has the potential to significantly accelerate Fluent's consolidated business growth. We look forward to updating you further as we progress. Thank you, Don. Thanks to everyone for joining us today. I'll now provide a review of our third quarter results. Total consolidated revenue was $47 million in 2025, Ryan Macnab Perfit: compared with $64.5 million in the prior year. However, commerce media solutions grew 81% to $18.8 million compared with $10.4 million in 2024. Commerce Media Solutions has demonstrated continued momentum with the annual revenue run rate from this business now exceeding $85 million and its revenue representing 40% of our total consolidated revenue in 2025, compared with just 16% in the third quarter last year and 4% in 2023. Commerce Media Solutions continues to grow at a rapid pace, which is our expectation as we invest in and scale this business. With the bump in consumer spending that we see around the holiday season, we expect CMS to overtake our owned and operated business in 2025 as the main driver of consolidated revenue. This will be a key inflection point for Fluent. Owned and operated revenue decreased 52% from the prior year, and we expect the year-over-year decline of roughly 50% to continue into Q4 as we focus more of our effort and capital on commerce media growth. Media margin in the third quarter was $12.8 million, which represents 27.2% of revenue compared to $18.2 million or 28.1% of revenue last year. Commerce media solutions media margin in 2025 was $4.6 million or 25% of the Commerce Media Solutions revenue, compared with $3.5 million or 34% of revenue in 2024. As we mentioned in our second quarter call, margins were compressed in Q2 due to a strategic choice to offer more flexible pricing structures to win new partners and penetrate into new placements beyond post-transaction. We saw this strategy start to pay off in the third quarter as Commerce Media Solutions gross profit margins increased sequentially to 22% as compared to 18% in 2025, or an increase of roughly 400 basis points. As we continue to monetize these new opportunities, we expect commerce media gross margin to return to the high twenties over time. On a GAAP basis, total operating expense in 2025 totaled $14.7 million compared with $17.2 million in 2024. Interest expense in the third quarter decreased to $711,000 from $1.3 million in the prior year period based on a lower outstanding loan balance and lower interest rates. We reported a net loss of $7.6 million in the third quarter compared with a net loss of $7.9 million in the prior year period. Adjusted net loss, a non-GAAP measure, was $6.5 million equivalent to a loss of 23¢ per share, compared with an adjusted net loss of $3.7 million or a loss of $0.22 per share in 2024. Adjusted EBITDA in 2025 was a loss of $3.4 million compared with an adjusted EBITDA loss of $71,000 in 2024. We believe we are in a good position with the growth and seasonality of Commerce Media Solutions to achieve adjusted EBITDA profitability in the fourth quarter of 2025, and as we continue to drive our shift in revenue mix to focus more on CMS, we expect adjusted EBITDA to be positive for the full year 2026 as well. Shifting now to our balance sheet. We ended the quarter with $9.2 million in cash and cash equivalents, and an additional $710,000 in restricted cash. During the quarter, we successfully completed a private placement in excess of $10 million, including both fundamental institutional investors and insiders, representing shareholder confidence in our long-term strategy. This transaction provided us with the working capital to support the continued growth of our commerce media solutions business and our strategy to drive revenue growth and adjusted EBITDA profitability in 2026. Our total net long-term debt was $26 million at 09/30/2025 compared with $35.6 million at 12/31/2024. We had an outstanding principal balance of $22.6 million on our credit facility with SLR Credit Solutions. This facility provides us with a $20 million term loan and a revolving credit facility of up to $30 million that matures on 04/02/2029. We will continue to strategically utilize debt as a source of capital as our scales. Donald Huntley Patrick: This has been a very exciting year to date for Ryan Macnab Perfit: Fluent as it pertains to our commerce media solutions business. Looking ahead, we believe that we are ideally positioned with a clear and defined strategy, a proven growth catalyst, and the liquidity to continue investing in commerce media solutions to capture additional share of this rapidly growing market. In addition to the enhanced revenue, margin performance, and cash flow that we anticipate as commerce media solution scales, we remain confident in our expectation that we will achieve positive adjusted EBITDA in 2025 as well as full-year double-digit consolidated revenue growth and full-year adjusted EBITDA profitability in 2026. With that, we will now open the call up for questions. Operator: Thank you. And wait for your name to be announced. Our first question comes from the line of Maria Ripps from Canaccord Genuity. Donald Huntley Patrick: Hi. This is Matt on for Maria. Thanks for taking our questions. Just wanted to ask about the rebuy partnership. I mean, the momentum you're seeing in commerce media more broadly is encouraging and that seems like you're seeing some strong results early from rebuy. Don, I think you said 1 million ad unit sessions in September, I believe. Could you just expand upon some of the trends you're seeing with earlier client cohorts in terms of retention and wall share post tracks? Post transaction inventory. And then as we think about, like, ad load on these sort of, you know, post transaction pages, is there opportunity to expand that over time, or is it pretty static? And I just have a quick follow-up. Thanks. Yeah. Hey, Matt. Thanks for your question. I'll hit rebuy first, and then we can get to your ad load questions. So what's really exciting is we're only five months into We signed this in June. You know, and it we a lot of the first part was around the tech integration the marketing integration. So we're quite excited by the momentum that it has, and it is now one of our top five media partners across our entire network. So it has been expanding and it's been expanding aggressively. So we're quite excited about the opportunities. As you know, you know, that also opens up the Shopify ecosystem. Us. So, you know, it it that they are our main channel in which to get access to over 12,000 merchants that they work with. On the Shopify ecosystem. So it's a phenomenal partnership. Very early days. It is expanding rapidly. As you talked about. And and we see even deeper expansion and other solution expansion with these with rebuy as we head into 2026. So I would tell you from a from a standpoint of where we're at, we're quite excited, and it's very early days in a very large market that we did not have access to previously. And the trends, you know, they have a lot of small merchants small merchants that, you know, do less train you know, under a million transactions annually, where our enterprise sales group goes after, obviously, you know, a large large enterprise brands that do, you know, millions of transactions annually. So us for us to work through rebuy, it's a very efficient channel. And a very successful channel for us. Does that answer your question, Matt, around trends? Or in rebind? Yeah. Yes. Very helpful. Thanks. Operator: Yeah. And then I didn't understand if you just expand a little bit, you had a question around ad Donald Huntley Patrick: load. And expansion of ad load. So can you just expand on that? Yeah. I I I guess I was just is is there an op opportunity to sort of add more, like, you know, add impressions on the post transaction page, or are they pretty saturated already? Ryan Macnab Perfit: You know, with with with with with how how you guys are approaching it now? Donald Huntley Patrick: Yeah. Understand the question. That's a good it's a good one. So, ultimately, it comes down to consumer experience. And each each partner we have obviously has a different type of experience that gets to post transaction. So, for example, if you were a consumer on one of our one of our media commerce partners and you already were served something around loyalty. You already were served a survey, etcetera. We will then tend to lower that the number of impressions that we that we extend to them in a post transaction spot. If they're not served at, we might serve you know, two or three type of impressions. So it really comes down to the consumer experience on our partners' site. And I think it's one of our competitive advantages where we're really we really understand how to curate a consumer experience that's meaningful and effective. That's long term drives loyalty for that for that consumer on that property. So it's very, very partner specific. Where we are making expanding our ad our ad serving is outside of post transaction. So we are doing things around pre checkout areas. We're starting to put some some we have a number of different solutions that are going out, before that post transaction, and you'll hear us talk a lot more about that expansion of our solution of our a very adjacent solution set. In the commerce market as we get into 2026. Ryan Macnab Perfit: Got it. Thanks. Looking forward to that. That was very And then just just really quick on the Authentic Brands partnership. Is this is this a, like, a greenfield win net new for Fluent, or does scaling this relationship essentially mean that you'll be you'll be taking share from other other other providers? Donald Huntley Patrick: Yep. We another great question, Matt. We had a number of authentic brands originally. And a number of the other they have a, obviously, a portfolio of brands. Some of their other brands with the largest competitor. So in this specific example, winning the Offend brands was a conquest over over the largest competitor in the marketplace. Ryan Macnab Perfit: Got it. Got it. That's good to hear. Thanks very much, guys. I'll jump back into the queue. Donald Huntley Patrick: Thanks, Matt. Operator: Thank you. One moment for our next question. Our next question comes from the line of Patrick William Sholl from Barrington Research. Ryan Macnab Perfit: Hi. Thanks for taking the questions. Patrick William Sholl: I was just wondering if you could talk a little bit the ad pullbacks that you talked about in the prepared remarks. Was that specific to the commerce media segment? Or more broadly? And then, like, could you just maybe talk about like, some of the industries affected and what if that macro driven or what could be driving that? Yep. Donald Huntley Patrick: Hey, Pat. Thanks the question. So I'll start at the highest level and then I'll kind narrow it down deeper. For the most part, for all of 2025, our our partners have been what I'll call more conservative and more short term in sort of their thinking process. Obviously, they've, you know, Ryan Macnab Perfit: all had to deal with tariffs, the impact of tariffs, the lack of visibility in their businesses, and and what would really come Donald Huntley Patrick: So for the most part of 2025, we saw a very know, more of a shorter term thinking around budgets and and moving things around in order to in terms of where the efficiency of that channel existed. So we've seen that repeatedly, you know, in in in with our with our partners, they quite honestly said, you know, what if they had one strategy and then new tariffs came in at a different country that they were involved in, obviously, they had to sort of pivot and move and and so we in general, that's what we've seen throughout the course of the year. Specific to my comment on the earning script, and this kind of led us to a different a very what we're really excited about on the strategic path here is there's been some traditional advertisers that have been in commerce media for a while. And there were specific things that were going on in their industry. And that require that basically had them pull back some budgets or lower pricing as we saw in the later part of Q3 and early part of Q4. So it was very specific to their business and the industry that they they existed in. One of the things we've talked about and one of the things we're really excited by, Pat, is, you know, the word convergence and and how we're kinda looking at that business. So know, we've we launched commerce media knowing that our owned and operated properties provided us great competitive advantage with that first party data asset. And our performance marketing expertise of curating audiences and building those audiences in a meaningful and effective way. Because of some of this pullback, we have now started bringing our owned and operated advertisers who have not advertised before on commerce media into commerce media. So not and we've been able to teach them how to buy show them how their ROAS works, and really get them to scale. And the number we gave in the earnings was over 40%. Ryan Macnab Perfit: Of our Donald Huntley Patrick: monetization in Q3 was tied to these new proprietary advertisers that we're bringing onto our network. So we're quite excited by that. Obviously, the supply of our media is is proprietary. They're three-year contracts, and we provide a unique proprietary supply for advertisers. Now we're able to provide go to our media partners and say we have now have a unique and competitive and differentiated audience to connect and make it a more meaningful experience to you. So it's still very early days around that, but but we're very excited about how that owned and operated advertisers can start to purchase in a meaningful way a pre and, quite honestly, a premium pricing way to drive a differentiated marketplace for ourselves. Patrick William Sholl: Okay. And then on the 2026 outlook, Ryan Macnab Perfit: could you Patrick William Sholl: maybe sort of talk about, like, what you're seeing in terms of, like or what what you feel needs to happen with in the o and o segment assuming that you're continuing to grow at a really solid clip, within commerce media, but what needs to happen within the O and O segment to to hit the profit trends and, you know, perhaps also the the revenue growth. So I guess, you know, double digits is a is a wide range. Donald Huntley Patrick: Yeah. Ryan Macnab Perfit: Yep. So we've we've stated, you know, we've grown commerce media Donald Huntley Patrick: obviously doubled it from 24 to 25. We believe will double it again in from 25 to 26 based on the wins that we've had in '25 and our pipeline and things that are coming on board early twenty twenty six. So that is is, you know, Ryan talked about in his comments, that shifting of the mix and being the majority of our business is the core driver to our consolidated earnings, both consolidated revenue growth and back to profitability. The owned and operated business has declined significantly 50% year over year. And we, in our forecast, anticipated to continue to decline. Although we are seeing we're starting to see some You know, it it it exhibits some stability. It was negative 3% when you looked at Q2 to Q3. And we think this convergence that we've talked about where we can bring our We've seen similar type of trends so far in Q4. advertisers, unique advertisers on will help provide some of that stabilization. But for the forecast, and the guidance that we're giving you, we continue to project that that owned and operated business will decline. Patrick William Sholl: Okay. And and then back to the the commerce media side, talked about the high 20% margin range from its current level. Operator: Guess, Patrick William Sholl: how quickly do you sort of do you anticipate, like, achieving that that type of level? Mean, like, you bring on new partners and you might have, like, a minimum guarantee or a lower initial but I guess, yeah, just over the longer term, how does that sort of blend higher? Donald Huntley Patrick: Yeah. You know, from from a from a macro perspective, Pat, we've obviously you've seen an increase from from Q2 to Q3. We anticipate, and we are seeing an increase a similar increase from Q3 to Q4. The margins have been lower margin drivers have been what we talked about. New solutions that we brought on that we're scaling. We also have provided some short-term incentives to get some partners onto our platform. And in terms of, you know, implementing different revenue splits or bonuses. And then the last piece that's affecting that is I'll call the mix of what I'll call enterprise channel, which is working directly with these brands. And then also the like, Rebuy is a channel partnership, and we obviously have lower margins in that because, obviously, they're they're they're sharing those margins with us as a channel partner. So some of it's mix, but a lot of it has to do with that that scaling that we have around those new solutions. And eliminate and and the the short-term incentive start to start to wear off. So we see us getting into 20 in the late twenties continue to incrementally increase on a quarter by quarter basis. Operator: Okay. Thank you. Donald Huntley Patrick: Alright. Thanks, Pat. Operator: Thank you. One moment for our next question. Our next question comes from the line of William Joseph Dezellem from Tieton Capital Management. Patrick William Sholl: Thank you. When when one goes on the Dick's Sporting Goods website, it and you complete the purchase, it is powered by Fluent. So my question for you is is did we read that correctly? First of all, is DICK'S Sporting Goods now a a client that you've not referenced in your release here? And, secondarily, if that's accurate, when when did that relationship begin? Donald Huntley Patrick: Yep. Thanks, Bill. Thanks for the question. So, you know, we're often not allowed to disclose our partners without their approval from a marketing perspective. But you are absolutely right. DICK'S was one of the large enterprise clients that we brought onto our platform in Q3. And Ryan Macnab Perfit: know, Donald Huntley Patrick: as you know, Dick's and the other ones that we brought on, they're they're iconic world-class brands. We're really proud to work with them. I also wanna thank you for supporting Dick's Sporting Goods and Florida at the same time, Bill. Dickson specifically is a really exciting win for us back in twenty four. They ran a RFP, and they did not select Fluent. They selected the largest competitor in the market in '24. In '25, they came back to us. And said they weren't happy. They weren't getting the results or partnership they wanted. And they came to us in less in in a in a very short time. So getting that type of win back and having proved out our value proposition with that is in a very, obviously, a very exciting opportunity for us and one we can continue to leverage with our brand. You know, we are working with some of the largest and most sophisticated brands in the in the world. And, you know, we're quite proud that, like, a validation of a dick's coming after choosing someone else coming back to us really reinforces our leadership position in Fluent. And also the leadership position we have in commerce media that we built in a in a very, very short time frame. And Have you been on any other other websites for us? Bill? William Joseph Dezellem: Possibly a few, but let's stick with this one for a moment if if I may. Good. So when did when did this actually convert over It sounds like it converted from your largest competitor to you all. When did that conversion take place? Donald Huntley Patrick: It took place in September. So came on the end of at very '3. William Joseph Dezellem: So that did not have a great influence on the on the third quarter results then. Donald Huntley Patrick: That's right. I mean, most of, you know, the commerce media business did grow 80%. As you know, we've clearly we've clearly signaled that we we expect it to grow over over 100% for the year, and we believe we are still expected to get there. There's some fluctuations quarter by quarter, and that's a good example of a fluctuation The you know, they came on if they came on in in July or August, it would have a bigger impact on our financials. A delay that is primarily again, we have to match up to what our partners need and and their timing around how they can implement in their in their tech road map Ryan Macnab Perfit: know, Donald Huntley Patrick: getting live in in September was was certainly affected Q3, but going forward for the life of contract now, we have them every single quarter. William Joseph Dezellem: That's helpful, Don. And clearly, DICK'S is a is a high volume a high volume retailer Donald Huntley Patrick: But William Joseph Dezellem: we don't have a an understanding or a perspective of how their volume would match up relative to the rest of your business. So maybe just taking what they did in the last year, with the with the competitor, if they were to repeat that in the next twelve months? What proportion of your Media Solutions business would would they represent? Donald Huntley Patrick: Yeah. They'll that's a good question. They'll be a top five partner for us from from a session standpoint. So between rebuy and DICS, you know, we've added two you know, top five partners in that in the quarter scaling. Rebuy obviously came on in June, but really scaled throughout the throughout the third quarter. William Joseph Dezellem: Okay. That's that's helpful. And then you you kind of addressed this, I think. But the 80% growth that you had in the third quarter in in Commerce Media Solutions didn't match with triple digits that you've talked about. And and did you essentially just say that was simply a timing of not having a couple couple clients come on as quickly as you had anticipated? Donald Huntley Patrick: Yes. When if you take a step back, it will you know, quarter by quarter will fluctuate based on the timing of when things go live on our platform. And, you know, we we we anticipate as being continuing to double from 24 to 25. And as I said, we feel very good about doubling again in '26. William Joseph Dezellem: That's that's helpful. And and then the 400 basis point sequential gross margin improvement in that business, that was simply tied to the roll off of some initial incentives with some some larger customers is that is that what we understood your earlier comments to to explain. Donald Huntley Patrick: Yeah. It came it came from what I'll call all three bills. The first is, obviously, we had some other commerce media solutions that were we're investing in and scaling. And, obviously, much like the post transaction business when we started it, you know, the margin was lower. And as we scaled, it got got to higher margins. So some of that was new solutions that that started to show better margins. Some of it was some of these incentives that we put in place. And then, you know, even though rebuy has grown significantly and is a top five, you know, overall, the mix of of, you know, what I'll call channel partnerships versus William Joseph Dezellem: And and then given that some of these new Donald Huntley Patrick: Enterprise. The enterprise mix was larger in Q3. William Joseph Dezellem: CMS solutions or that you're ramping kind of not in the post post transaction arena. You must have some pretty meaningfully frankly, pretty exciting expectations for those if if what you were doing on the front end was enough to And then to influence the margin negatively in Q2, swing more favorably in Q3. Is that correct? Or are we reading too much into that? Donald Huntley Patrick: You're right. You're right about your assumption, Bill. We we can again, we'll we continue to see you know, we we look at the margins overall but we also look at the margins when they need solution. In terms of what's the target If it's below, it's an investment If it's, you know, if that we have very strict margin restrictions in terms of how we look at the businesses and and scale the businesses. So, you know, we consciously maybe make investments in certain areas, either to get to critical mass or win a large brand that we know we can leverage, and and leverage to get more business from. William Joseph Dezellem: Okay. And I realize I'm taking probably more time than than I should here. But but if if that's the case and you're able to scale that, quick here, from Q2 to Q3, Would the implication be that in '26, these new solutions that, hopefully, you'll be talking more about in future quarters, that those will be needle movers in '26 Yes. But we also will add other Ryan Macnab Perfit: adjacent solutions also, Bill. Donald Huntley Patrick: So the answer is yes. The ones that we've started that were scaling will be needle movers in 2026. Absolutely. Ryan Macnab Perfit: But we'll also you know, we we are we are in a Donald Huntley Patrick: fortunate position that as as we've talked about, commerce media is exploding in growth, there's lots of lots of tailwinds. Ryan Macnab Perfit: And our our ability to drive superior results Donald Huntley Patrick: compared to our competitors with our partners, you know, obviously, we're able to start to move into other solutions for them and help them, which makes us more strategic and also obviously allows us to to drive better revenue, better margins. So know, we we we're gonna balance those two as we as we go and and we balance them in 2025. Balance them again in 2026. William Joseph Dezellem: So, Don, then if if we read that forward, we would be we need to expand our horizon and not be so narrow-minded as thinking that commerce media solutions is really primarily or totally a post transaction business. You're building a lot around that is what you're saying, and that this is gonna we need to be broader in our thinking in terms of of what you're going to be doing for your your customers in that division. Donald Huntley Patrick: Yeah. It's absolutely right. Bill. It's it's a broader opportunity in a in a much larger share of the market. We you know, post transactions where we got in, it was it quite honestly is the hardest place to get access to because it's the most valuable place for a commerce partner when when consumer has their credit card out and buying. It's also the most valuable piece for our advertisers. So we got into the right spot. We've been able to prove our results and get our brands, and we are gonna now leverage that into adjacent solutions by leveraging you know, the technology investment and the data investment that we've already built up over the years. So it we we it will allow us to be stickier with our Ryan Macnab Perfit: our Donald Huntley Patrick: with our partners and also more valuable and strategic. William Joseph Dezellem: Great. Thank you. I I have a couple of more questions, if I may. First of all, is that the owned and operated essentially stabilized as you pointed out this quarter. Sequentially. And that sounds like it's continued in the fourth quarter. Ryan Macnab Perfit: What are the dynamics that William Joseph Dezellem: are leading to this this positive change? Yep. Yep. You know, it's it's always a a number of factors Donald Huntley Patrick: Bill, you know, that that business has obviously been hampered by the FTC. Settlement and our limited ability to get to the media. Or the diversified media platforms are very concentrated. Number one was those platforms have been relatively stable, which has helped us. But I think the more important play here in the strategic play is the convergence that we've been talking about. We've been able to bring we've been able to help bring you know, our our owned and operated advertisers that have not previously been an advertising commerce media. We've been able to bring them in, and that also allows us to leverage our our relationship across both owned and operated and commerce media with these advertisers. So and that has that clearly allows us to be looked upon as a more strategic partner for them, which allows us to to manage across those two different platforms more effectively. So I think a lot of it has to do with obviously, the platforms. But more importantly, we're able to now provide proprietary demand for our and exclusive demand to our to our media partners at the same time having that you know, media partners and providing exclusive supply to these advertisers. So it's that flywheel that we believe is the core of the assets of the owned and operated business that we've leveraged to get into it. We've said it's a huge competitive advantage to us. It has proven out so far from us being able to deliver better results. And now we're starting to see the flywheel around how we how we can provide even more differentiated solution and marketplace. William Joseph Dezellem: Congratulations on that. One one additional question, please. So the nine months adjusted EBITDA as listed in the release, is a negative $9 million. But you've said that the full year is going to be positive. So the implication are we doing this right? The implication is that the fourth quarter adjusted EBITDA needs to be at least $9 million plus. Donald Huntley Patrick: Yep. I Bill, I think you read it wrong. We said that our Ryan Macnab Perfit: Q4 adjusted EBITDA will be positive. William Joseph Dezellem: Okay. You've not said that the full year will be positive? Next year full year will be positive. Yes. Donald Huntley Patrick: We said in 2026, the full year, that will be positive. Yes. Driven by triple-digit growth in commerce media, and and really shifting. We're at we're at the point where, you know, it it's gonna be greater than 50% of our business. And that commerce media growth will now start to drive the consolidated results of the William Joseph Dezellem: Great. Thank you for clarifying, Meyer. And congratulations on the turn that's happening. Donald Huntley Patrick: Yep. Thank you, Bill. Operator: Thank you. At this time, I would now like to turn the conference back over to Donald Huntley Patrick for closing remarks. Donald Huntley Patrick: Thank you. We remain bullish about our prospects and are very excited about the momentum we're generating as we lean into a significant Ryan Macnab Perfit: what we believe is a mega growth opportunity Donald Huntley Patrick: in commerce media. As for the numbers, we want to emphasize for clarity. We expect Fluent to achieve consolidated double-digit revenue growth in 2026. Driven by triple-digit growth in commerce media solutions as well as adjusted EBITDA profitability in Q4 2025 and full-year adjusted EBITDA profitability in 2026. Thank you for joining our call today. We look forward to updating you on our progress in the next earnings release. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the Cibus Third Quarter 2025 Results Conference Call. [Operator Instructions] And please note, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Carlo Broos, Chief Financial Officer. Sir, please go ahead. Carlo Broos: Thank you, and good afternoon. I would like to thank you for taking time to join us for Cibus' Third Quarter 2025 Financial Results and Business Update Conference Call and Webcast. Presenting with me today is Peter Beetham, Co-Founder, Interim Chief Executive Officer, President and COO; and Greg Gocal, Co-Founder and our Chief Scientific Officer. Before we begin the call, I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and future operational goals and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to Cibus' SEC filings for a list of associated risks. This conference call is being webcast. The webcast link along with our press release and corporate presentation are available on the Investor Relations section of cibus.com to assist you in your analysis of our business. And with that, I would now like to turn the call over to Peter. Peter Beetham: Thanks, Carlo, and good afternoon, everyone. This past quarter has further focused our commercialization and production activities. I clearly see our company as a coiled spring, ready to deliver gene-edited traits for years to come. Today, I am excited to share the significant commercialization momentum we have generated since implementing our streamlined strategic focus. The progress we have made in just the past few months validates our decision to focus on our highest value near-term revenue opportunities. As we've discussed previously, we are primarily focused on our weed management traits, bringing herbicide-tolerant crops to new markets and providing great options for farmers, while we also achieved early revenue for our biofragrance business. The progress that our talented team has been able to make within our focused strategic framework is remarkable, and I believe the results speak for themselves. What you'll hear today demonstrates our drive toward our commercial goals. When we announced our streamlined focus in July this year, we committed to you that this would help solidify our path to our near-term revenue opportunities. Today, I'm pleased to report that we're delivering on that commitment. But before diving into our results, I want to take a moment to emphasize some recent exciting news about our Board. We strengthened our Board with 2 appointments this quarter. In September, we welcomed Kimberly Box as a new Board member. Kim brings exactly the kind of leadership we need as we move into this commercialization phase. She has deep experience in technology operations, strategic transformation and scaling innovation into global markets. Experience gained while employed at Hewlett-Packard in executive roles over 30 years. And, just last week, we appointed Craig Wichner. Craig's deep expertise as a recognized leader in regenerative and sustainable agriculture, including farmland investment management as the Founder and Managing Partner of Farmland LP brings valuable perspective as we advance towards commercialization. Both directors will play key roles in supporting our commercialization efforts and long-term value creation. Now, let me start with the headline accomplishments for the quarter and year-to-date. We have now signed 7 Rice customer agreements in the USA and Latin America, now representing approximately 5 million to 7 million addressable acres for our Rice herbicide tolerance traits, HT1 and HT3, and if fully developed, represent an opportunity to capture over $200 million in potential annual royalties. The expansion of our customer base, including additional customers in Latin America and our recent positioning for entry into the massive Asian markets via India, showcase the commercial opportunities driven by our technology and the value proposition we can deliver to seed companies worldwide. Now let me move to our priority pipeline traits and programs. I'll begin with an update on our Rice herbicide tolerant traits, HT1 and HT3. These 2 traits, as I mentioned, continue to represent over $200 million in potential annual royalty revenues across our initial target geographies. These traits are progressing on schedule toward targeted initial commercial launch in Latin America beginning in 2027, followed by expansion to the United States in 2028 and then Asia closer to 2030. Every quarter, we are moving closer to that pivotal revenue expansion inflection point. Our year-to-date commercialization progress in Rice has been exceptional. This is especially true within Latin America, where we now have 5 Rice customer agreements signed. Latin American markets have historically lacked access to advanced weed management solutions in Rice, representing a transformative opportunity to Cibus to deliver significant value to farmers while building our commercial foundation ahead of our U.S. and Asia targeted launches. Recent examples include our agreements signed in August, expanding our Latin American customer base through a partnership with Centro Internacional de Agricultura Tropical or CIAT, which works with the Latin American Fund for Irrigated Rice or FLAR and participates in the Hybrid Rice Consortium for Latin America, HIAAL. Cutting through this web of acronyms, I want to emphasize that through this important collaboration, we have the opportunity to make our HT traits available to rice farmers across Latin America. FLAR will be a great partner and has a great track record that includes launching rice varieties in 17 countries. Further, we signed a collaboration agreement in August with Semillano, then more recently with [indiscernible]. Both of these are important Colombian rice seed companies, marking continued momentum in this strategically-important geography. Then, just last month in October, we began collaborating with strategic growth advisory firm, AgVaya, to develop a comprehensive strategy for establishing Cibus' access to seed companies in India. This is tremendously exciting because India is the world's second largest rice producer and the world's largest exporter with approximately 120 million acres under cultivation. This collaboration will focus on enabling joint development and commercialization relationships for advanced herbicide and sustainability traits, creating opportunities for Indian rice seed companies and public agencies to integrate our cutting-edge gene editing solutions. So, when you step back and look at what we've accomplished just in 2025, the commercial traction is undeniable. We've expanded our Rice program to a global platform spanning 3 continents and targeting the world's most important rice growing regions. We've built relationships with both large multinational seed companies and regional leaders and we're on track to initiate our first field validation trials in Latin America by year-end with delivery of initial Cibus HT traits to our Latin American customers anticipated in Q4 2025. What's enabling our customer momentum is our standardized Rapid Trait Development System or RTDS that allows us to edit customers' elite germplasm and return it with specific traits in approximately 12 to 15 months. RTDS represents a fundamental breakthrough in agriculture's innovation, offering the industry a dependable, time-bound model for trait development using gene editing that seed companies have never had access to before. Our RTDS is becoming recognized as an essential extension of seed company breeding programs, and that recognition is translating into expanding commercial partnerships. I'll shift now to an update on our partner-funded and supported sustainable ingredients program. I'm pleased to share that we achieved critical milestones this quarter with the successful completion of pre-commercial pilot runs for 2 biofragrance products, validating our technology is ready to expand to full commercial scale. This positioned us to receive initial payments, offsetting related R&D expenses in Q4 2025, representing our first proceeds from this program. This is a monumental milestone for our entire team who have been working tirelessly. And this is yet another element supporting our conviction that our business represents a coiled spring showing great promise. From there, we're positioned for targeted expansion throughout 2026 as we advance our Rice traits toward full commercialization during the subsequent years in 2027, 2028 and beyond. Our biofragrance program demonstrates the versatility of our capabilities in creating value beyond crop productivity traits. We're generating strong interest in the consumer-packaged goods industry for bio-based fragrance products that can replace expensive natural extraction processes or less preferred synthetic alternatives. We believe the long-term opportunity in this area is immense. Now, let me move to regulatory, which we believe is a key catalyst for acceleration of the global growth of gene edited products and continues to improve. The EU regulatory process for new genomic techniques remains active and on a path to completion. Key legislative language has now been agreed upon with final text being refined across remaining amendment categories and anticipated to resolve within the next few months. Beyond Europe, our positive determination in Ecuador, ongoing approvals across North and South America and progressing regulatory clarity in India and parts of Asia are creating a foundation for global market access. The California Rice Commission's approval of our field research proposal marks the first time that gene edited rice has been authorized for planting in California, another important validation of how our technology is synergizing with the broader regulatory environment. So, turning briefly to our operational progress. We've made significant progress on our commitment to disciplined capital allocation. We successfully completed the consolidation of our Oberlin, California facility into our San Diego location during Q3. These and other actions are driving us toward our target of approximately $30 million in annual net cash usage for 2026. This capital discipline extends our runway while ensuring we are resourced to capture the revenue opportunities ahead of us. We continue to allocate resources to our highest value programs while maintaining the development momentum required to hit our commercialization targets. And with that, I will now pass the call over to Greg to discuss our opportunity pipeline traits and programs. Greg? Gregory Gocal: Thank you, Peter. I'll keep my remarks focused on the key technical milestones we achieved this quarter that support both our priority programs and our broader opportunity pipeline. On the Rice platform, I'd emphasize that the enhanced editing efficiency we've achieved is directly enabling the customer expansion Peter described. We're not only signing agreements, we're actually delivering edited, elite germplasm back to customers on predictable timelines. That technical execution is what's driving the partner interest we're seeing, and it's validating our industrialized breeding approach. Using our RTDS, we are changing the way plant breeders think about the future of trait development. The unprecedented speed of our technologies to edit elite genetics will only accelerate with our continued improvement and strategic use of AI/ML technologies. Turning briefly to our opportunity pipeline. I want to highlight 2 significant technical validations this quarter. First, in our North American field trials, our HT2 herbicide tolerance trait validates the path for developing not only for that chemistry, but for any chemistry in this family. For sclerotinia resistance in canola, bioassays for plants bearing 2 of our modes of action demonstrate enhanced resistance. It's important to remember that both HT2 and Sclerotinia resistance have broader potential application to crops like soybean. Further, these results position both traits well for potential partner development. Our HT2 trait is being offered to seed licensing partners for funded, continued development opportunity. Second, we completed our second year of field trials for our Pod Shatter Reduction trait in Winter Oilseed Rape, showing promising performance in several customers' elite germplasm. For the 2026 field season, we're pleased to see implementation of the U.K. legislation, enabling our gene-edited trait germplasm to be growing like conventional germplasm as we seek funded partnerships for continued development. Finally, the soybean platform continues to generate partnership interest as we seek to access a 125-million-acre opportunity. The key message I want to leave you with is this. Our RTDS platform is proving its value across multiple crops and increasingly complex traits, whether it's delivering Rice traits to 7 different customers, scaling up biofragrance production or validating next-generation herbicide tolerance traits in canola, we're demonstrating the versatility and commercial potential of our technologies. This technical foundation, combined with our growing regulatory track record, positions us exceptionally well to advance high-value traits through partnerships while maintaining focused execution on our priority revenue drivers. And with that, I'll hand the call over to Carlo for a financial update. Carlo? Carlo Broos: Thank you, Greg. Looking at our financials for the third quarter. Our cash and cash equivalents as of September 30, 2025, were $23.9 million. Taking into account the impact of implemented cost-saving initiatives and without giving effect to potential financing transactions that Cibus is pursuing, we expect that existing cash and cash equivalents is sufficient to fund planned operating expenses and capital expenditure requirements into early in the second quarter of 2026. I'd note that our commercialization focus has enabled us to streamline our expenses and operations significantly. We have reduced operating expenses by almost $5 million in the first 9 months of 2025 across our SG&A and R&D spending. Moving to our operating results for the third quarter. Revenue for Q3 was $615,000 compared to $1.7 million in the year ago period. This decrease reflects timing of partner-funded program activities. Research and development expense was $10.8 million for Q3 compared to $13 million in the year ago period. This $2.2 million decrease is primarily due to cost reduction initiatives that we have implemented as part of our streamlined operational focus. Selling, general and administrative expense was $5.2 million for Q3 compared to $7.7 million in the year ago period. The $2.5 million decrease is primarily due to cost reduction initiatives. Royalty liability interest expense was $9 million for Q3 and in the year ago period. This is due to the recognition of interest expense on the royalty liability. Nonoperating income net was nominal for Q3 compared to income of $7.7 million in the year ago period. The decrease in income is driven by the fair value adjustment of the company's liability classified common warrants in 2024. Net loss was $24.3 million for Q3 compared to $201.5 million in the year ago period. The significant year-over-year improvement reflects the $181.4 million noncash goodwill impairment charge taken in Q3 2024. As Peter mentioned, we successfully completed consolidation of our Oberlin facility during Q3 2025, and our Roseville facility consolidation remains on track. These actions, along with the reduction in force completed in July, demonstrate tangible progress toward our goal of reducing annual net cash usage to approximately $30 million by 2026. This disciplined approach to capital allocation extends our cash runway while positioning us to capture the significant revenue opportunity ahead with initial revenues beginning in 2026 and meaningful commercial expansion thereafter. With that financial overview, let me turn it back to Peter for closing remarks. Peter Beetham: Thank you, Carlo. Let me close with the key message I want you to take away today. The gene editing revolution in agriculture is happening now, and Cibus is positioned like a coiled spring at the forefront of this transformation. As I have mentioned previously, crop seed genetics are the engine room of the world's food and feed production. The fact that we are prioritizing Rice is exciting, not only as an extraordinarily large potential annual royalty for shareholders, but a much needed advancement for helping to improve productivity of a major crop that helps to feed billions of people. When we look at what we've accomplished just so far in 2025, 7 Rice customer agreements spanning 3 continents, successful biofragrance scale-up with an initial payment for our pre-commercial product, and we believe a clear path to approximately $200 million in potential annual royalty revenue from Rice traits alone. Our commercial traction is tangible. We have traits moving into customer germplasm, and we continue to see positive field trial results. We're operating in an increasingly favorable global regulatory environment. And we have commercial launches beginning in 2027 with initial revenue starting in 2026 with biofragrances. This isn't a distant aspiration. This is the reality of our near-term commercial opportunity. Our streamlined business focus is working. We remain laser-focused on executing our right commercialization timeline, scaling our sustainable ingredients revenues and building the foundation for sustainable cash flow generation. We're displaying disciplined capital management, extending our runway and positioning Cibus to capture significant value as gene editing becomes one of the standards for agricultural innovation. I'd like to thank you for your support, and we look forward to updating you on our continued progress next quarter. Operator, we're now ready to take questions. Operator: [Operator Instructions] We'll go first this afternoon to Laurence Alexander of Jefferies. Kevin Estok: This is Kevin Estok on for Laurence. I guess my first question is around, I guess, what the chances were for potential R&D sharing or bespoke R&D projects in 2026? Peter Beetham: Thanks for the question, Kevin. This is Peter. I'm going to start this -- answer this question, then quickly hand it over to Greg because I think there's some wonderful opportunities in this space. I think the key message here is that, as I just mentioned in my closing remarks, the gene editing is happening now. It's not about the technology coming of age, it's actually come of age. And what we're finding now is the real catalyst behind getting to commercial products is regulatory with tailwinds from a regulatory standpoint. And so, we're seeing a lot of inbound interest in regarding partnerships on expanding beyond our current focus, which is rice, canola and soybean and our productivity traits. So, I believe there is significant opportunity in 2026 to expand some of our R&D collaborations. Greg? Gregory Gocal: Thanks, Peter. I think we have, as Peter said, a lot of opportunity. The opportunity is not only in the platforms that we're focused on today, but also well beyond that. We've developed really, I think, a unique approach within the industry of starting with single cells that we edit and regenerate to whole plants. We have that capability for a broad variety of crops, and we've developed many platforms in our past. Further, we've also got multiple traits that we believe are primed for development. For instance, our HT2 trait as well as various modes of action for Sclerotinia resistance that show really great promise in controlled environments and we're working through validating those in the field. So, thanks for the question, Kevin. Kevin Estok: Understood. And I guess my second question, you guys -- I read your commentary about sort of the EU regulations. And I guess I was just -- obviously, we're kind of getting towards the end there, but things have moved a little bit slower than originally expected. And I guess I was wondering what your thoughts were on sort of when you think that will finally be finalized. Peter Beetham: Thank you, Kevin, for the question. This is Peter. I like the fact that you think it's a little bit slower because for people in the industry, this last year has been accelerated beyond what we expected. It's exciting for us in that the fact that Europe for many years -- for literally over 2 decades has been recalcitrant to understanding how to get regulatory through for genetically-modified organisms. What's been exciting for us on the gene editing front, which is different is that from 2018, they've made a concerted effort to bring forward legislation. And that legislation was voted on last year in 2024. And this 2025 has been the year where they've been working on the final text. And we believe, based on our understanding through industry groups in Europe as also some of our seed company partners is that by year-end, they'll have completed that text. And so that final text will start the process of implementation across Europe. And that's a really exciting moment, not just for us, but the whole industry. Carlo Broos: Can I fill in like a few seconds, Peter? Kevin, sorry, this is Carlo. I'm from Europe. So, I always like these questions, of course. I was not at Euroseeds this time, but we had a few colleagues over there. And it was quite remarkable. I think almost all the seed companies were realizing that new breeding technologies and gene editing is to come. So, I think it was a theme #1 at Euroseeds this year just a few months ago. So that makes me super excited just realizing what that will mean for us. Operator: We'll go next now to Matthew Venezia of AGP, Alliance Global Partners. Matthew Venezia: So, firstly, when we look at the major rice markets that you guys are going to be selling in Latin America, U.S. and India, how should we be looking at the acres that you have accessible, the total addressable market and kind of what is put into the calculation of your total addressable market in these markets? Peter Beetham: Matt, thank you for the question. This is Peter. Yes, look, we're super excited about the AgVaya collaboration. I think that this is a group that has years of executive experience in large multinationals and building businesses in the seed and trait business in India. And I think we've been very fortunate to work with these guys to really map out our opportunity in India. India has over 120 million acres of rice. It is the second largest exporter of rice in the world. It's a market that we believe we can access through this sort of collaboration with AgVaya. Again, we're looking at this in the -- to build relationships with seed companies, bring in material and get it back to them so that we can launch towards 2030, 2032. As you understand, we do collect royalties. So, our estimated trade fees around this will be in alignment with what we've seen and talked about in Asia, which can be $1 to $2 per acre, a little bit more. That's exciting for us because I think there's an opportunity to really expand that. And I'm going to hand it to Greg because he's just actually come back from India where he talked to a number of seed companies. Gregory Gocal: Yes. Matt, I'm really, really excited about what -- I mean, we're on the beginning of a path with our -- with Indian seed companies, working with AgVaya, who's helping us with those relationships and helping us develop our presence within India. There is massive demand for rice, but also massive demand for potentially other crops there. In some areas in India, you're rotating rice twice a year. So, it becomes like some of the markets within Latin America. So excellent question. Yes. Matthew Venezia: And in Latin America and the U.S., how many acres are addressable through the current customers that you have right now for Rice? Peter Beetham: So, Matt, thank you for the question. As we mentioned in our remarks, this last quarter, we've signed on some additional seed companies in Latin America. We're up to 7 total, 2 in the U.S. and 5 now in Latin America. And that allows us to really address that market. What we're saying right now is between 5 million to 7 million. So we've increased it by a couple of million acres from where we were last quarter in Latin America. And that takes us again over this $200 million annual royalty goal and objective we have. Matthew Venezia: Got it. And then lastly from me, obviously, canola Pod Shatter Reduction, that was not a trait that panned out right away the way that you thought. Why are HT traits different from PSR? And why are they easier to fit into breeding programs for seed distributors and seed companies? Peter Beetham: Thanks, Matt. That's a great question. What we've known in this industry for many years is that weed management or herbicide tolerant traits are really like the operating system for many crops. So when a farmer plants seed every year, they need to control their weeds, and they either use selective herbicides or non-selective herbicides. And what is really well known now is that that business model is really well understood. In fact, on the GMO side of the business, they're still collecting about $4 billion of annual royalties on a trait that was developed in the '90s. What we're able to do is bring novel traits to the marketplace to give farmers options to control their weeds. And so I believe that herbicide tolerance or weed management solutions have a lot of traction quickly into the market. And that is one of the reasons we're signing up a number of companies in both U.S. and Latin America. And as we mentioned in our remarks, HT2, another herbicide tolerance trait, we had great field trials this year. We reported on those early. And that's in canola, and that is in North America. So, there are basis for planting crops. And I think that trait is not only multiple geographies but multiple crops. A little different to Pod Shatter in that Pod Shatter Reduction is more confined to smaller geographies, and the option now we are looking at is further in the U.K. and Europe for our Pod Shatter trait in 2028. Gregory Gocal: And to add a little bit to Peter's comments on weed management. So, weed control systems are an operating system for farmers. It's an expectation in developed agriculture that you have a weed control package to enable cultivation even on smaller acreages I mean, like Latin America and India. Weeds take away water, nutrients and sunlight away from plants that reduce yield. And so, we -- I mean, we are not a chemistry company. but over our history, we've been able to develop gene-edited weed control solutions for at least 4 groups of chemistry, and I believe there's even more potential beyond that. So, we're excited with where we are, and we believe that there's strong value for both seed companies, growers and our shareholders in the weed control traits we're developing. Operator: We'll go next now to Sameer Joshi with H.C. Wainwright. Sameer Joshi: It's good to see there has been some initial commercialization of biofragrances. Should we expect sort of ramp-up quickly in 2026 on this and get to double-digit millions? Or should we expect sort of single-digit million revenues from this in 2026? Peter Beetham: Thank you, Sameer. This is Peter. I really appreciate your question. Biofragrance, we're excited to run through our pre-commercialization scale up this year and has been very successful. We see opportunity beyond the 2 fragrances that we have scaled. And so, we do see a ramp-up in 2026. We see that the total opportunity in the $20 million to $40 million revenue range. But for -- early on, that will be -- it will be in the single-digit millions. But it is just the tip of the iceberg in our minds. The fragrance market is over $65 billion, and this area is looking for alternatives, particularly for the natural fragrances out there. So, there's an opportunity, I think, that could expand beyond that. Sameer Joshi: Understood. And then, as I understand, the cost-cutting efforts included focus on HT1 and HT3, but there are pipeline traits that you have available for partnership. And there was some announcement in October about the HT2. So, I was just wondering, are there any money being spent still on these pipeline traits? Or -- and should we expect that to reflect in the R&D or some other line on the income statement? Peter Beetham: Sameer, thank you for your question. I think that you've captured this fairly well. I think that -- with regards to our expanded pipeline traits in crops like HT2, we're excited with the field results this year. We are in discussions and looking for partners for this area. Right now, it's not a lot of resource. For us, we've developed that trait. We've been able to do the edits very efficiently, and we're excited to sort of think through the next steps with -- again, this is a multi-crop, multi-geography trait. So, I think this is exciting for 2026. Sameer Joshi: Understood. And then last one from me. The AgVaya relationship that is being developed, and I think Greg mentioned other crops as well. So, it's relationship with seed companies in India, but how about the regulatory environment? And what kind of requirements do you have to meet in order to sell in India? Gregory Gocal: Excellent question, Sameer. This is Greg. So, one of the people who I had the opportunity of meeting was the former Minister of Agriculture in India. And as I think you realize from some press releases over the last 6 months or so, the first gene-edited rice has been planted in India. So, there's a lot of appetite for traits in India. And because of that, we're excited with the acceptance, but also with the demand for -- in the first instance, our HT1 and HT3 traits there. Operator: We'll go next now to Austin Moeller at Canaccord. Austin Moeller: So just my first question here on the biofragrance products. So, will those be hitting store shelves in 2026 in a pilot capacity and then scaling up into 2027? And then, how much should we think about the ramp in '27 being in terms of revenue? Peter Beetham: Thanks, Austin. This is Peter. I'll answer the first part of this question and hand it off to Carlo. We are working with an, as yet undisclosed CPG, with regards to fragrances and getting into products. So, there's -- what our role is with regards to Biofragrance is the scale-up that we've already done on a pre-commercialization step this year and going through to a full commercial scale next year. That will be included in various formulations is our understanding. We don't know exactly which products will end up in next year. We have some guidance on that, which we've given the market. And we look forward to announcing when those products actually hit the shelves. Carlo Broos: Peter, the only thing I would like to add because you specifically asked about '27, that's still single digit, but then we take off. Austin Moeller: Okay. And do you have any specific updates you can provide on the European parliament? Peter Beetham: Yes. Thanks, Austin. Let me start. I'm going to dive into what's happened in the last couple of months because I think we've talked about the history of the EU regulatory, but the trialogue as they call it, which is the discussion around the Parliament, the Council and the Commission has gone very well with the Danish leading that -- the council discussions. They are working on a number of areas, what they call the amendments to the legislation for the final text. And we've been very encouraged with where they've ended up, particularly on some of the detail around how many edits and how many genes within a plant genome are acceptable. It all matches everything that we do internally here at Cibus. And beyond that, labeling and patent discussions have also gone well. So, they're very close to, I believe, final text. The next 4 to 6 weeks are going to be very interesting to watch as they move through that. The next country who will take this on is Cyprus. If it does flow over into Q1 2026, which we don't expect today, they are also very supportive of completion based on the understanding of how the amendment should be changed. Operator: We go next now to Alex Hantman at Sidoti. Alex Hantman: Just given the current cash position and runway into early Q2 '26 that you mentioned, could you talk a little bit about kind of the size and range of non-dilutive, dilutive financing options you're exploring? And what milestones do you expect to achieve with the next [ period ]? Peter Beetham: Thanks, Alex, for your question. This is Peter. I think that I'm going to let Carlo answer most of that question. But to start with, we have made a lot of great progress with regards to our near-term revenue opportunities. A combination of that with the catalyst of the tailwinds, we believe, from the regulatory front allows us to be well positioned to look at strategic alternatives of financing the company. And at this stage, we don't have anything more to report on it than that. Carlo Broos: Yes, I think correct, Peter. I think all options are still on the table. Like in the past, right, it is not any different at the moment. I think most important is that we progress so well on our milestones. And I think that's what investors want to hear to continue to support us in the near-term. What you said on the burn, I think you've seen that very spot on. I think quite impressive. A couple of things we did. So, we implemented RIF just after summer, but we did much more than that. So, there's also streamlining facilities. We've shut down the Oberlin facility, some other cost saving initiatives, all to get ready for that $30 million annualized net burn next year. But I think most important is that we continue strongly to deliver on the milestones. Alex Hantman: Great. And congrats again on the biofragrance side, initial payment. I had a question on the trait side. Can we get an update on automations and improvements on the real-time -- real delivery system? I think we heard a little bit about AI and ML technologies from Greg, but just curious about from edit to stable trait line technology these days. Gregory Gocal: Yes. So, excellent question, Alex, and really proud of what the team has been able to accomplish and is continuing to, in our facilities, we're always pushing to become more efficient. So, efficiency is improving editing frequency, which I'm really impressed with for Rice over the last year, it's increased by an order of magnitude. The regeneration frequency for our key crops, really impressed by the improvements there. And to your point, in terms of automation, so we're a semi-automated process, but a lot of the really repetitive mundane tasks we're able to do with robotic assistance, which really enables our team of scientists to focus on the hard problems and the more repetitive tasks are handled by robots, both for some of our cell culture process, but also for a lot of the liquid handling. And then, because we've been around for a quarter of century, we're able -- we have a lot of data in the editing space, in the what to edit space where -- and also with what you've seen generally for structural biology and intelligence there in terms of predicting and helping support some of the edits and accelerating the what to-edit space so that we're making the right choices as we move edits into our production pipeline. So, excellent question, Alex. Operator: And gentlemen, it appears we have no further questions this afternoon. Dr. Beetham, I'd like to turn things back to you, sir, for any closing comments. Peter Beetham: Thank you, and thank you all for joining us on today's call. As I've said in the past, I continue to be so proud to be part of the Cibus team. As you've just heard, we've made excellent progress this past quarter with a renewed focus and streamlined business. What I hope you've heard is that gene editing is happening now, and it's delivering across multiple sectors. As Greg just mentioned, some of the incredible things that are going on in the company with regards to the understanding of what to edit with AI and ML as well as automation for us to be time-bound and predictable for our seed company partners, delivering back their elite genetics is really going to drive our near-term revenue. So, we're excited to be leading this charge in the ag industry. And we do see these near-term revenue targets like herbicide tolerance in Rice, a clear path to that market, which is fantastic. You think about the focus with regards to the different geographies we're targeting. This is a huge commercial expansion of trait royalties. That's why we see ourselves as a coiled spring. But finally, we clearly see the seed industry also recognizing the global harmony of regulatory. As Carlo mentioned, our team just coming back from Euroseeds, understanding that this is a tailwind behind our expanded business opportunities, and we really look forward to a great year in 2026 and beyond. So, again, thank you for joining. Thank you for your support and time today. Operator: Thank you, Dr. Beetham. Again, ladies and gentlemen, this will conclude the Cibus Third Quarter 2025 Results Conference Call. Again, thanks so much for joining us everyone, and we wish you all a great remainder of your day. Goodbye.