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Operator: Greetings. Welcome to Rent the Runway, Inc.'s third quarter 2025 earnings call. At this time, all participants will be in listen-only mode. Please note that this conference is being recorded. I will now turn the conference over to Cara Schembri, Chief Administrative Officer and General Counsel. Thank you, Cara. You may now begin. Cara Schembri: Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q3 2025 earnings presentation, which can be found in the Events Presentations section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the fourth quarter and fiscal year 2025, and statements regarding the recapitalization transactions and our business initiatives. These statements are subject to various risks, uncertainties, and assumptions that could cause our results to differ materially. These risks, uncertainties, and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-Q that we plan to file shortly. We have no obligation to update any forward-looking statements or information except as required by law. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release slide presentation posted on our Investor Relations website and our SEC filings. And with that, I'll turn it over to Jennifer Hyman. Jennifer Hyman: Thanks, Cara, and thank you, everyone, for joining. We have been laser-focused on two clear priorities. First, completing a strategic recapitalization of the business to significantly strengthen our balance sheet. Second, bringing the business back to growth through a new inventory strategy, increased product innovation, and improved connection to our core customer. Now that we are here in Q3, I am pleased to say we have delivered both of these goals. We have strengthened our financial foundation by reducing our total debt from approximately $319 million to approximately $120 million and extending the maturity to 2029, giving us years of additional runway. With the recapitalization, two highly respected private equity firms with deep experience in the consumer retail space, Nexus and Story3, alongside our long-term existing lender, contributed new capital to further support the business and its growth initiatives. In addition, they will join us in the boardroom to provide their expertise and support. And importantly, the Rent the Runway, Inc. business is growing again. We are on track for 11% to 14% year-over-year revenue growth in Q4, up from 1% revenue growth year-over-year in Q4 2024. Q3, well, fiscal year 2025 ending active subscribers grew 12% year-over-year as our base of inventory has grown and we have enhanced the customer experience. Importantly, despite raising prices in August, we continue to see improvement in both acquisition and retention versus the prior year. We believe that customers are responding positively because the end-to-end experience on our app, discovering inventory, personalization, and getting the inventory you want is better. And that shows up first in retention as existing customers are the first to notice. Inventory-related cancellations, which are related to availability, selection, and quality, year-to-date, is down over 20% year-over-year. And in Q3, was down nearly 30% versus last year. We tracked three important input metrics that are indicators of customer engagement: Net Promoter Score, visits, and heart. All of which are up. Our Q3 subscription Net Promoter Score was up 43% year-over-year, 67% versus Q3 2023, and 100% versus Q3 2022. We believe that this demonstrates a multiyear rebuild of customer trust. Customer engagement is at its highest level in recent years. The average active subscriber visited our app over 20 times per month in Q3, which is 34% higher year-over-year. Parts per subscriber, one of the most important inputs to loyalty, as we see them as proof of the customer finding and loving the inventory, are up 15% year-over-year in Q3. And because she is more engaged, she is willing to spend more money with us. Revenue per subscriber is also up, driven primarily by our August 2025 price increase, changes to our late fee policy, and the accelerated performance of our add-on business. To give our subscription programs even more flexibility, we optimized the add-on experience by clearly displaying to our subscribers that our pricing is prorated based on her billing cycle. This strategic clarity, along with the improved inventory experience, drove a 17% year-over-year increase in the subscription add-on rate in Q3 2025. We also recently launched an instant gratification feature which transforms in-stock notifications into immediate revenue by allowing one-off orders of inventory when she is out of shipments. We believe that our subscriber base is willing to pay more for immediate access to the inventory she wants when she wants it. In Q3, we rolled out some meaningful pages designed to improve the customer experience, driving growth and customer satisfaction. Key highlights include, one, a personalized homepage redesign on our app aimed at shifting discovery to her preferences. Since launch, engagement with our new homepage is up 57% versus the prior version. A reminder that a major focus this year has been not only on increasing inventory supply on our site but also making it easier for customers to discover relevant inventory. And add to that. Two, a better onboarding experience for early-term subscribers with the aim to increase loyalty. We launched several features for new users to help educate her about RTR and to give us information about her style. RTR 101 is a step-by-step guide for new subscribers aggressively guiding and handholding them into early days. We also added a Harding quiz for her to give us quick feedback on styles she likes or does not like, which we use to personalize her experience. Early results show this feature increasing average hearts by 70%. Three, add-on pricing transparency and one-off shipments to drive incremental revenue for subscribers, creating more visibility around pricing and the value she is getting by adding on to her order, has significantly boosted add-on revenue. One-off shipments is the first time you have ever been able to add one-off items ASAP when you are out of swaps for the month. The goal is to give her more flexibility to rent what she wants when she wants. Number four, better search and discovery experiences. We launched a detailed taxonomy which provided an incremental 70 pathways for her to explore the inventory. And we leaned into machine learning capabilities to draft improved similar style recommendations resulting in a 70% increase in click-through rate. We continue to see that mainstream adoption of secondhand clothing is growing, women from all geographies and backgrounds are now embracing and considering rental more than ever. The TAM has continued to grow. And I have conviction that Rent the Runway, Inc. is the brand with the clearest long-term advantage. To sustain this growth, our focus now turns to improving customer acquisition. First, we are focused on making paid marketing even more efficient, through channel diversification and better creative. Our early results show meaningful improvements in CPA and conversions. Second, and more importantly, we are shifting more acquisitions towards organic community-driven channels. Historically, over 80% of Rent the Runway, Inc.'s acquisition paid for word-of-mouth. As paid channels have grown more expensive and less efficient, this shift is not only strategic, it is a return to our roots. RTR pioneers the belief that the most powerful marketing channel is an obsessed customer. We bring our model and our brand around that principle. Exceptional customer experience fuels advocacy, our depth and breadth of inventory unlock moments worth sharing. Community behaviors like reviews, photos, events, and referrals scale organically. And our brand identity reflects her aspirations so she sees herself in us. Today, we have conviction that we have the building blocks in place to reignite organic growth at scale. We have defined four pillars: One, activate our communities so they feel seen and proud to share. Two, make sharing fun and easy. Three, tell authentic personality-driven stories. And four, create and own the cultural conversation around rental. Our news program, the community-driven content engine launched this year, has already generated 10 million impressions in Q3. Thousands of posts showcase the product in real life. And when we use this content in paid channels, it delivers a 20% lower CPA and 40% higher conversion than other creative. Our City Ambassador program launched in October and scaled rapidly to 875 ambassadors. In just over two months, they produced over 2,700 reviews, and several hundred referrals. Their referral rate is significantly higher than what we see with regular subscribers. These are passionate users acting as on-the-ground evangelists for our brand. We told you we would recapitalize the business and significantly increase our in order to reignite growth. We have done that. And today, our Q3 results are clear. Retention improved. NPS increased, engagement accelerated, community passion is stronger, and subscriber growth was robust even with a price increase. I am confident that this is what it looks like when the Rent the Runway, Inc. experience gets better when the fundamentals of the model begin to accelerate. We are focused on building a larger, healthier, and more durable business. One that grows through exceptional customer experience and passionate community advocates. Advocacy. Thank you for joining us today. With that, I'll turn it over to Siddharth Thacker. Siddharth Thacker: Thanks, Jennifer, and thank you, everyone, for joining us. I would like to discuss three topics before turning to business results. Our continued growth momentum, cash consumption this year, and our recently closed recapitalization transactions. Let's begin with growth. As evidenced by Q3 results, subscriber growth continued to be strong, with 12.4% growth versus Q3 2024 even with the August 1 price increase. Revenue growth improved considerably, from negative 7.2% in Q1 2025 and 2.5% in Q2 2025 to 15.4% in Q3 2025. Subscription growth was the strong driver of total revenue growth, in light of weakness in our reserve business. As outlined in our guidance, we expect continued strong revenue growth in Q4. We believe that our investment in inventory this year is driving accelerated growth and improved customer satisfaction. We are growing without spending significantly more year over year in paid marketing, which we believe highlights the strength of the retention improvements we have seen. Second, we have been transparent about our fiscal year 2025 goal to invest in inventory, to improve customer experience and accelerate growth. Which is driving increased cash consumption from near breakeven levels in fiscal year 2024. This rental product investment is directly visible in lower gross margins at approximately 29.6% this quarter versus 34.7% during the same quarter last year. As we discussed over the last two earnings calls, we have nearly doubled our units of inventory purchased this fiscal year. At this time, we do not expect increases in inventory receipts of this magnitude in fiscal year 2026. We have continued to make progress in acquiring inventory on better terms especially through share by RTR program. We believe our incremental margins are solid, even at current levels. Over time, we expect the combination of growth and these inventory cost improvements to deliver improved cash flow generation. Finally, let me discuss the completion of the recapitalization transactions we announced in August. The transactions provide Rent the Runway, Inc. with additional financial flexibility to execute on our growth plan by reducing our debt burden, and by extending our debt maturity. We also believe that we will benefit from a considerable experience and fresh perspective that new members of our Board of Directors will bring. Let me now review results for the third quarter before turning to Q4 and full year 2025 guidance. We ended Q3 2025 with 148,916 ending active subscribers, up approximately 12.4% year over year. Average active subscribers during the quarter were 147,645 subscribers versus 130,796 subscribers in the prior year, an increase of 12.9% year over year. Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q2 2025 versus the same period in fiscal 2024, higher subscriber acquisitions due to higher promotional activity and improved subscriber retention versus Q3 2024. Ending active subscribers increased 1.7% from 146,373 subscribers in Q2 2025. Total revenue for the quarter was $87.6 million, up $11.7 million or 15.4% year over year, and up $6.7 million or 8.3% quarter over quarter. Subscription and reserve rental revenue was up $10.7 million or 16.1% year over year in Q3 2025 primarily due to higher average subscribers, and higher average revenue per subscriber, due to the subscription price increase effective August 1. Partially offset by lower reserve revenue versus Q3 2024. Other revenue increased $1 million or 10.4% year over year. Fulfillment costs were $24 million in Q3 2025, versus $21.4 million in Q3 2024 and $22.5 million in Q2 2025. Fulfillment costs as a percentage of revenue were 27.4% of revenue in Q3 2025 compared to 28.2% of revenue in Q3 2024. Fulfillment costs declined as a percentage of revenue primarily due to higher revenue per order driven by our August price increase, partially offset by higher transportation costs as a result of carrier rate increases and higher warehouse processing costs. Gross margins were 29.6% in Q3 2025 versus 34.7% in Q3 2024. Q3 2025 gross margins reflect higher revenue share costs as a percentage of revenue due to greater share by RTR inventory levels partially offset by lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue. Q3 2025 gross margins decreased quarter over quarter, from 30% in Q2 2025 primarily due to higher revenue share costs as a percentage of revenue. Q3 2025 operating expenses were 7% higher year over year due primarily to higher employee expenses. Total operating expenses, which include technology, marketing, and G&A, were 45.2% of revenue in Q3 2025 versus 48.7% of revenue in Q3 2024 and 51.7% of revenue in Q2 2025. Adjusted EBITDA for Q3 2025 were $4.3 million or 4.9% of revenue versus $9.3 million or 12.3% of revenue in Q3 2024. The decrease in adjusted EBITDA versus the prior year is primarily a result of higher revenue share expenses due to greater share by RTR inventory level. Free cash flow for Q3 2025 was negative $13.6 million versus negative $3.4 million in Q3 2024. Free cash flow decreased versus the prior year, primarily due to lower adjusted EBITDA and higher purchases of rental products on account of our inventory strategy, for fiscal year 2025. I will now discuss guidance for Q4 2025 and fiscal year 2025. For Q4, we expect revenue to be between $85 million and $87 million. We expect adjusted EBITDA margins to be between 11-13% of revenue. For fiscal year 2025, we continue to expect double-digit growth in ending active subscribers. We expect fiscal year 2025 revenue to be between $323.1 million and $325.1 million. We expect adjusted EBITDA margins to be between 4.9-5.5% of revenue. We continue to expect free cash flow to be lower than negative $40 million primarily due to costs associated with the recapitalization transaction. We believe our business is showing improved momentum as evidenced by growth in the active subscriber base and we plan to prudently manage investments to continue to drive growth for the rest of fiscal year 2025. In conclusion, we are pleased with the improved growth momentum we have seen this year. I believe that Rent the Runway, Inc. is in the strongest position it has been in several years. We look forward to continuing to delight our customers and to driving sustainable growth in the years ahead. Thank you, everyone, for joining us. We look forward to speaking to you next quarter. Thank you. Operator: This concludes today's conference. You may now disconnect your lines at this time. We thank you for your participation, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Ferrellgas Partners L.P. Q1 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Michelle Maggi, Vice President, Corporate Affairs. Please go ahead, Michelle. Michelle Maggi: Thank you. Good morning, everyone. Thank you for joining us today for our first quarter 2026 earnings conference call. We released this morning premarket our earnings. And if you haven't seen it yet, you can find it on our website under the Investor Relations tab at ferrellgas.com. With me today is Tamria Zertuche, our President and Chief Executive Officer; and Nick Heimer, Ferrellgas' Controller. Today's call includes prepared remarks where Tamria and Nick will go over our first quarter results for fiscal 2026, concluding with responses to submitted questions. Please note that this call may contain forward-looking statements as determined by federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed forward-looking statements. These statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, except to the extent required by law. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also available for replay via our website. With that, I will turn the call over to Tamria. Tamria Zertuche: Thank you, Michelle, and thank you to all joining our call today. I'm proud to share results, a strong first quarter, reflecting the dedication of our 4,000 employee owners who provide not only warrants and energy to our customers coast-to-coast, but also the solid financial and operational results that position us for sustainable long-term growth. Throughout the quarter, our team stayed focused on what matters most, serving our customers safely and efficiently. Our mission to grow the business continues in FY 2026 through several key strategic priorities. Most notable are safely building a profitable customer base through both organic growth and acquisitions, increasing operational efficiencies and improving margin performance. A key component in achieving our strategic priorities occurred in October 2025 when we strengthened Ferrellgas' financial foundation with a few essential moves. We retired $650 million of senior notes due in 2026 and replaced them with $650 million of new notes maturing in 2031, extending our debt time line and improving flexibility. We also expanded our revolving credit facility, giving us even more opportunity to grow. These actions set us up to invest confidently in the business and to capture new growth. Against this backdrop, we're also encouraged by the national shift in the energy conversation, which increasingly recognizes propane as an affordable, versatile and essential component of a long-term national energy strategy. Turning to safety for a moment. We continue to focus on our safety investments. This quarter, we continued our in-cab safety technology investment, enhancing the driving skills of our professional drivers. We also took a leading role in the industry and successfully transitioned to the new PERC Education Program. This is a function-based, modular and more targeted approach to employee safety and technical training. These programs, among others, are important factors to lowering our recordable injuries. Ferrellgas stands out in a highly fragmented market, thanks to our nationwide footprint and our unmatched customer service. This quarter, we had several key drivers to our performance. In the retail business line, we secured 7 new national contracts and renewed 5 existing ones. Together, those represent about 3.5 million gallons, highlighting our ability to win and retain large nationwide customers. At the same time, demand in our autogas division is rising as customers such as school districts appreciate the lower carbon footprint of propane versus diesel. The tailwind of electric vehicle subsidies is tapering off, opening new growth opportunities in this segment of the business. A further focus was on our temp heat market, where our strategy resulted in a 37% increase in tank sets over prior year. The wholesale team also successfully executed in the first quarter. Blue Rhino was prepared for a robust hurricane season, but quickly adjusted to lower storm-related demand by performing well on controllable metrics of efficient routing, flexing labor to the demand and upgrading production facilities to meet our future growth. Ferrellgas remains deeply committed to making a meaningful difference in the communities we serve. In the first quarter, we strengthened this commitment by expanding our partnerships with organizations such as Operation Warm and Operation Barbecue Relief. Working with Operation Warm, we provided coats to children in Indianapolis. And through Operation Barbecue Relief, we helped deliver hot meals to first responders across St. Paul, Kansas City and Tampa. Our focus on community extends to our people as we celebrated Customer Service Week and Driver Appreciation Week and awarded Ferrellgas scholarships and recognized outstanding performance through our Flame and Golden Rhino Awards. Beyond these efforts, Ferrellgas employee owners supported community, veterans, first responders and youth initiatives nationwide. I will now turn the call over to Nick Heimer, our Controller, to review our first quarter financial accomplishments. Nick? Nicholas Heimer: Thanks, Tamria. Turning to our first quarter results. Performance was in line with our expectations despite, as Tamria said, not seeing the volume we have historically experienced in the first quarter due to the lack of landfall hurricanes. For the first fiscal quarter, adjusted EBITDA, a non-GAAP financial measure, decreased by $6.5 million or 18% to $29.3 million compared to $35.8 million in the prior year quarter. After EBITDA adjustments primarily related to the prior year first quarter $125 million Eddystone litigation settlement, this quarter's decrease was primarily driven by increases of $5.6 million in operating expense and $2.1 million in general and administrative expense. The $5.6 million increase in operating expense was due to increases of $4.1 million in personnel costs, $900,000 in vehicle expense and $600,000 in plant and other. The $4.1 million increase in personnel costs primarily related to the increases of $5.5 million in workers' compensation accruals and $2.8 million in payroll costs. The increase in payroll costs reflects planned merit increases for both field and corporate support employees and in field-related headcount to address customer demand. These expenses were partially offset by a $3.3 million decrease in medical and pharmacy claims expense. The $2.1 million increase in general and administrative expense was driven by $1.3 million in compensation costs related to the vesting of fiscal 2025 phantom plan grants for nonemployee directors as well as the timing of adjustments to incentive accruals. Gross profit was flat with $100,000 change compared to the prior year quarter, which is typical in the first quarter as the company prepares for the upcoming winter season. Margin per gallon increased 6% in the first fiscal quarter and a revenue decrease of $8.9 million or 2% was offset by a cost of product decrease of $8.8 million or 5%. The company recognized a net loss attributable to Ferrellgas Partners L.P. of $26.9 million and $146.7 million in the first fiscal quarter of fiscal '26 and '25, respectively. As noted above, the first fiscal quarter of fiscal 2025 included the $125 million Eddystone litigation settlement. Back to you, Tamria. Tamria Zertuche: Thank you, Nick. We are confident that by safely delivering the best customer experience in the propane industry, we will continue to attract new customers and expand our market share. Our strategy rooted in disciplined growth, operational excellence and a strong customer focus positions us to perform well in today's evolving energy landscape and to stand out from the competition. Each quarter, we are strengthening our track record of steady improvement, and I remain confident in our ability to achieve sustained long-term growth. Finally, I want to once again thank our employee owners for their dedication in delivering a strong quarter and preparing us for another successful winter heating season. Thank you for joining us today and for your continued interest in Ferrellgas. Tamria Zertuche: We did receive several questions through the Investor Relations inbox at Ferrellgas. Thank you for those. Really, they could be best moved into maybe 4 categories. So I'll just tackle the first one. The first question really involves plans regarding Class B potential future distributions. So as discussed this morning, we are very pleased to have successfully completed the refinancing of our notes that were due in '26 and the amendment and extension of our revolving credit facility. We really believe that these transactions together, they improve our credit rating and our with our operational results, they really afford us the flexibility to make the best decisions for our company and our stakeholders. So thank you to our bank group and to all who follow and invest in our story. We appreciate the questions that we've received regarding the Class B units as well. But as a reminder, we do not comment on our distribution policy, and we will continue to evaluate all our strategic opportunities. If you have specific questions around the technicals of the Class B units, you may find really a complete overview in our public documents. We did receive several questions around Safran Advisors and Andy Safran in his role with Ferrellgas. Andy Safran in particular, is doing a fantastic job of guiding us through the different pieces of our capital structure, first through the refinancing and now looking at strategic opportunities for the company. I'm fortunate to have Andy with me representing the great work of our employee owners that quarter after quarter, they perform. So it's an easy story for Andy and us to tell. Nick, there is a question here around our acquisition strategy. Would you like to take that one? Nicholas Heimer: Yes. Sure, Tamria. Happy to take that. I'd say Ferrellgas has a very strong M&A team with Richard Mayberry running point for that group. We've always maintained a healthy pipeline of opportunities, which is under continual evaluation. During the winter season, a lot of that M&A activity tends to pause, but we certainly do see opportunity to continue delivering on our track record to strategically acquire where appropriate, where we can generate high returns. Tamria Zertuche: The next question is around [indiscernible] go ahead and kind of explain where we are on that and what's left on that matter. Nicholas Heimer: Yes, sure. Happy to speak on that one, too. We will be making our final payment of $37.5 million on the Eddystone settlement January 15. That amount is currently secured by a letter of credit. So with that LC removed, we will be net neutral from an available liquidity perspective within our credit agreement. Tamria Zertuche: Thank you, Nick. I think that wraps up the questions that we received on quarter 1. Thank you to everyone for joining the call and your continued support of the company. I will now hand it back over to the moderator. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. Thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Thank you for standing by and welcome to Destination XL Group's Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to John Cooney, Chief Accounting Officer. Please go ahead. John Cooney: Thank you, operator, and good afternoon, everyone. As you saw earlier today, we announced a merger agreement between DXL and FullBeauty as well as our third quarter fiscal 2025 earnings results. Joining me today are Harvey Kanter, DXL's President and Chief Executive Officer; Peter Stratton, DXL's Chief Financial Officer; and Jim Fogarty, FullBeauty's Chief Executive Officer and incoming Chief Executive Officer of the combined company. Today's discussion contains certain forward-looking statements concerning the announced merger between the company and FullBeauty, including an overview of the transaction and the future opportunities and expectations that the combination of these businesses will provide. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors that affect the company. Information regarding risks and uncertainties is detailed in the company's filings with the Securities and Exchange Commission. During today's call, we will also discuss some non-GAAP metrics to provide investors with useful information about DXL's third quarter financial performance. Please refer to our earnings release, which was filed this afternoon and is available on our Investor Relations website at investor.dxl.com for an explanation and reconciliation of such measures. I would now like to turn the call over to DXL's CEO, Harvey Kanter. Harvey? Harvey Kanter: Thank you, John, and good afternoon, everyone. Today marks a pivotal step in redefining inclusive apparel as DXL and FullBeauty join forces to create a retailer that sets a new standard for choice, quality and customer experience. We are pleased to be speaking with you about the opportunities we see ahead for the combined company to accelerate growth, improve operational efficiency and deliver long-term value for our shareholders. On our call today, Jim Fogarty and I will begin by sharing additional insights about our 2 companies and the compelling benefits of this combination. I will then turn it over to Peter to review DXL's financial results for the third quarter of 2025, which were announced today in a separate release. I'll now begin by walking through why we believe our business fits so well together. It starts with our complementary missions and the ways in which we target underserved consumers and the fragmented markets that provide significant growth opportunities. At DXL, we are driven by a mission of providing Big + Tall men the freedom to choose their own style. We offer the best brands through our broad and deep assortment of national and private brands, most of which are exclusive across styles that provide options for most any occasion. Our clothes are made with the highest standards of construction and quality. In our stores, our customers will find a level of service that gives them a better experience than they can get anywhere else, bar none. We are solving problems for our customers. The Big + Tall man has largely been ignored by the apparel industry. There are few brands, fewer styles and even fewer sizing options out there at most other retailers. For the Big + Tall man, his clothes are largely chosen for him, not by what he likes, but purely by what exists. DXL fixes that. In so doing, we create significant growth opportunities for our business. And when the Big + Tall man shops at one of our stores, they are getting the brands, quality, style and experience that they simply cannot find anywhere else. Jim will tell you more about FullBeauty's history, but they also solve this issue. They solve this issue by building on a business that has been dedicated to serving plus-size women and Big + Tall men since 1901. Their company's journey has been marked by transformation, evolution and purpose, adapting to new technology, platforms and customer behaviors. FullBeauty today provides an unparalleled fit and experience with each product meticulously crafted to cater to the customers' needs. FullBeauty's broad and balanced portfolio offers thoughtfully curated assortments aligned with evolving customer preferences, fashion trends and a wide range of end use, price points, looks and styles. Through an unwavering focus on the brand experience and creating meaningful connections with their customers, FullBeauty has set itself apart in the market as a differentiated and reliable choice for plus size and midsized customers. Our companies share a belief in the importance of rigorous design, sizing and manufacturing processes, and this focus has allowed both FullBeauty and DXL to distinguish themselves in the market and build strong loyalty with our respective customer bases. The merger of equals we are announcing today creates a scaled category-defining retailer for inclusive apparel. Together, we have unmatched know-how, manufacturing facilities and proven capabilities to deliver high-quality bespoke pieces for our customers that are not merely just graded up but thoughtfully created with Big + Tall and plus-size individuals in mind from the very start. This is what has set each of us and our companies apart in the broader retail industry, and we are confident it will be foundational to our success as we enter this next phase. By building on our combined strengths, we will meet the opportunity by creating a powerful engine for innovation, combining data science, digital scale, proprietary fit technology and differentiated store expertise. It also strengthens our financial position, providing us the profitability and flexibility to generate strong free cash flow. That financial strength, along with synergies we expect to capture will provide the resources to reinvest in our business and further reduce our leverage. Ultimately, together with FullBeauty, we will be better positioned to create value for our shareholders by serving our customers across the plus size and Big + Tall apparel markets with more brands, more styles and more options, whether they shop with us in our stores or online. And with that, I'll hand the mic over to Jim so he can share more about how this combination will create a scaled category-defining retailer. Jim? James Fogarty: Thank you, Harvey. This is an exciting day for both DXL and FullBeauty, and I'm pleased to be speaking with you all about this transaction. Today, we are creating a new entity that we believe is greater than the sum of its parts. Today's inclusive fashion market remains highly fragmented with few players offering comprehensive solutions for plus size and Big + Tall customers. Together, we are building the first true scaled, profitable omnichannel platform that finally treat sizing inclusivity as a category, not a niche. This is not a merger to simply get bigger. It is a merger to become a category-defining leader and to create more value than either business could deliver on its own. Despite the underserved market opportunity, the sector has traditionally lacked coordinated offerings, leaving many customers with limited choices and inconsistent shopping experiences. This merger positions us to address these gaps by bringing together 2 leading companies with complementary strengths, creating a retailer that delivers greater assortment, improved fit and a powerful omnichannel experience. For DXL shareholders, this means owning a larger, more diversified company with higher EBITDA and stronger value creation prospects than DXL on a stand-alone basis. The combined company will be larger, stronger and more flexible. As a result, we will be well positioned to invest in long-term growth, joining forces as one best-in-class inclusive sizing retailer, our combined company will be one of the largest players in the inclusive sizing clothing sector by both sales and store count. For the last 12 months ending October 2025, DXL and FullBeauty generated approximately $1.2 billion in combined net sales. Assuming no pro forma adjustments, adjusted EBITDA was approximately $45 million. With the $25 million in expected annual run rate cost synergies, adjusted EBITDA for the LTM would have been approximately $70 million. We'll talk more about synergies in a moment. Uniting FullBeauty's leading pure-play direct-to-consumer capabilities with DXL's expertise in men's Big + Tall retail will create a powerful omnichannel and data-driven platform. Together, we will have a customer database of approximately 34 million households. Our leading direct-to-consumer presence will be 73% of total sales, and our nearly 300 stores will be 27% of total sales. With more first-party data, the combined company will be better able to offer more personalized marketing, make better inventory decisions and deliver higher customer lifetime value. We expect to deliver sustainable growth, stronger margins and long-term shareholder value while expanding choice for customers. Our combined customer offering will be diversified across brands, gender, assortment and channel to offer unparalleled depth and breadth in options, whether our customers shop in-store or online. FullBeauty's distinctive women's brands as well as Big + Tall KingSize brand will join DXL's Big + Tall specialty to create a meaningfully expanded portfolio of both private and national brands. Our combined product mix is expected to be approximately 54% women's and 46% men's, delivering day-to-day staples, activewear, intimates, accessories and decor, spanning value to premium across lifestyles and occasions. The differentiated core capabilities that each of our companies bring to the table will enable us to accelerate growth. DXL's store infrastructure and expertise creates potential for brick-and-mortar expansion at FullBeauty. DXL's well-established relationships with national brands provide opportunities for KingSize and FullBeauty's women's brands to enhance their merchandise offerings. Meanwhile, FullBeauty brings an existing private label credit card program that can be broadened to include DXL, a universal cart website infrastructure that can increase cross-selling and sales at both DXL and FullBeauty, marketplace expertise that can be leveraged to increase DXL sales as well as a print catalog capability that can be leveraged to increase DXL sales. Further, we will be able to accelerate the work both companies are already doing to remain agile and responsive to evolving customer needs and shopping habits. Our shared focus on fit, flexibility and ongoing customer support positions the combined company to meet new and existing customers at every stage of their weight fluctuation journey, including those using GLP-1 medications through offerings such as DXL's FiTMAP and FullBeauty's free exchange program. As we invest in enhancing and expanding our product range across the combined enterprise, we will also continue adding sizes at the lower end of our current range to offer an even broader range of options. In addition to cost synergies, I want to remind and reinforce that this combination unlocks meaningful commercial synergy upside by applying the strengths of both organizations to create a company with greater revenue potential than either business could achieve alone. FullBeauty has demonstrated an ability to drive commercial synergies across previous integrations, and we expect to apply that same playbook to drive incremental commercial growth with DXL through aforementioned universal card platform cross-selling, marketplace expansion, website conversion, private label credit card penetration and print and digital marketing. Likewise, DXL's brick-and-mortar and national brand expertise will also drive incremental growth within FullBeauty. Let me now turn it back to Harvey to discuss the technical aspects of the transaction and certain of the financial benefits. Harvey Kanter: Thanks, Jim. Let me start with an overview of the merger transaction. Under the terms of the agreement, FullBeauty will merge with a newly formed subsidiary of DXL with DXL remaining as a publicly traded entity. The transaction is 100% stock for stock with DXL shareholders owning 45% and FullBeauty shareholders owning 55% of the combined company. As part of establishing a strong financial foundation for the combined company at closing, a certain of FullBeauty's equity and debt holders will complete a committed subscription of $92 million through the sale of common stock in exchange for a combination of new equity and outstanding debt equitization. This will result in a term loan outstanding at closing of approximately $172 million with a maturity of August 2029. The combination is expected to generate $25 million in run rate annual cost synergies by 2027. We intend to begin capturing these synergies promptly after the closing of the transaction with a significant portion to be actioned within the first 12 months. We will take a scientific approach to driving efficiencies across the combined company through cost of goods sold, organizational and non-organizational expenses. With meaningfully enhanced scale, we will be able to optimize our factory base and supplier network, improve our inbound freight and logistics and leverage improvements in outbound shipping rates. Taken together, this will allow us to streamline our factories and resources for product creation while maintaining agility to pivot sourcing operations to mitigate tariff exposure. We will also be able to consolidate our workforce and streamline corporate functions to create a leaner, more efficient organization. Finally, by unifying our business overhead across the combined organization, we will benefit from improved pricing efficiency on corporate programs, streamlined customer-facing spend categories and reduced spending for non-organizational and contract programs. Turning now to the road map to completing the transaction and our integration plans. Looking ahead, the transaction is expected to close in the first half of fiscal 2026, subject to customary closing conditions and approval by shareholders of DXL. I'm pleased to note that the Boards of Directors of both companies have unanimously approved the merger. In addition, DXL has entered into voting support agreements with one of our largest shareholders, Fund 1 Investments and with each member of the DXL Board, under which the parties have agreed to vote all of their respective shares in favor of the transaction. These agreements represent approximately 19.4% of DXL's existing voting shares, further reinforcing our confidence in a successful closing. Upon close, the company will trade under the ticker symbol of DXLG. The combined company's headquarters will remain in Canton, Massachusetts, and the combined company expects to maintain a significant presence in New York, Indianapolis and El Paso. The combined company will be led by a proven management team that includes members from both organizations. Upon closing, Jim will serve as our Chief Executive Officer; and Peter Stratton, current CFO of DXL, will serve as the Chief Financial Officer of the combined entity. This experienced team is highly qualified to deliver on the promise of this merger. The Board will be composed of 9 directors, 4 directors from each company and 1 independent director to be mutually agreed upon by the go-forward directors prior to closing. There are, of course, many decisions to be made throughout our integration planning. We look forward to keeping you apprised of further details as we have updates to share. And now I'd like to turn the call over to Peter for a quick update on DXL's third quarter earnings results. Peter? Peter Stratton: Thank you, Harvey, and good afternoon, everyone. I'll just take a few minutes to run through the highlights of DXL's third quarter financial performance. Net sales for the third quarter were $101.9 million as compared to $107.5 million in the third quarter of last year. The decrease in net sales was primarily due to a decrease in comparable sales of 7.4%, partially offset by an increase in noncomparable sales from new stores. Although sales were below our expectations, the quarterly comp was an improvement from negative 9.3% in the first half of the year. We continue to see a shift towards our value-driven private brands as customers remain cautious with their discretionary spending. These private brands sell at lower average unit retails but generate higher margins. By month, our comps were negative 6.7% in August, negative 9.3% in September and negative 5.8% in October, with October our best month year-to-date. Our gross margin rate, inclusive of occupancy costs, was 42.7% as compared to 45.1% in the third quarter of last year. Deleverage on occupancy costs contributed 210 basis points of decline and merchandise margins decreased by only 30 basis points, primarily impacted by promotional offers and tariff increases. Tariffs impacted our third quarter margins by approximately 60 basis points, and we expect the impact on our fiscal year 2025 margin to be approximately $2 million. We did see favorability in Q3 due to the shift in product mix from national brands to private brands. Our SG&A expense as a percentage of sales increased to 44.7% as compared to 44.1% in the third quarter of 2024. Our ad-to-sales ratio for Q3 was up slightly at 6% from 5.7% last year, and we have been seeing strong returns from our paid search and social channels. EBITDA for the quarter came in at a loss of $2 million as compared to earnings of $1 million for the third quarter of last year. We continue to feel very good about the overall strength of our balance sheet. Total inventory levels are down 4.6% to last year and clearance levels remain at approximately 10%, which is in line with our target and with last year. We finished the quarter with cash and short-term investments of $27 million as compared to $43 million a year ago, with no outstanding debt in either period and excess availability of $73.6 million under our revolving credit facility. The $16 million decrease in cash from a year ago can be accounted for with $13.1 million in capital spent on new store development during the past 12 months and $3.3 million in share repurchases in the fourth quarter of fiscal 2024. For the 9 months year-to-date, our free cash flow, which we define as cash flow from operating activities less capital expenditures, was a use of $20.2 million of cash as compared to a use of $7 million last year, with the decrease primarily attributable to lower earnings. Now I'll pass it back to Harvey for some concluding remarks. Harvey Kanter: Thanks, Peter and Jim. On behalf of Jim and I, we want to take a moment to recognize our teams, both at DXL and FullBeauty for their dedication and hard work every day. Our success is built on their commitment and the efforts of our colleagues across the stores, distribution center, corporate offices and the guest engagement centers. Everything we accomplished, including our ability to reach this milestone transaction is possible because of them. Thank you for joining us today to learn more about this compelling transaction. I am confident that FullBeauty and DXL will reach even greater heights and together than either business could have achieved on its own as a stand-alone. And with that, operator, we will open the floor for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeremy Hamblin of Craig-Hallum Capital Group. Jeremy Hamblin: Congrats on the transaction. I wanted to start by just getting a fuller picture of the expected capital structure. Post-closing, we see the $72 million -- $172 million term loan. But wanted to just get a sense for kind of the expectations of where total debt would be post-closing, kind of expected cash post-closing and then hear a little bit more about the expected terms within the term loan. Peter Stratton: Sure. So Jeremy, let me start with that question. So first of all, I should just note that we will have an awful lot more information coming out in the proxy statement, which we're going to be working on soon, but I'll try to give you some sense of how we're thinking about it. So as you saw in the release, what's happening is it's a 100% stock-for-stock transaction. We will be welcoming new shareholders into the company who are shareholders of FullBeauty today. And to answer your question about debt, the total debt that we're expecting upon closing is the $172 million. As I said, there's going to be a lot more that will be coming soon, but that's just a quick start with how to think about it. But certainly, Harvey or Jim can add anything else to that I think appropriate. James Fogarty: I would just add that the maturity is out to August of 2029 on the term loan, and it's LIBOR plus 750. Jeremy Hamblin: Great. Okay. And so then -- right, so DXL has had the $27 million here in cash. So just in terms of understanding what the balance sheet looks like for FullBeauty. So the total debt load is going to be $172 million post close. And then just kind of an estimate, we're looking to see an estimate of what the post-closing cash balance you would expect for the combined entity? Peter Stratton: So Jeremy, again, I'm not going to get into those pro forma numbers right now. We will have a lot more information coming in the proxy statement. But as of right now, what we're announcing is we wanted to make sure that everyone was clear on the term loan that Jim just referenced. That's going to be the outstanding debt that we're expecting upon closing. Jeremy Hamblin: Okay. Got it. And then just another one kind of post-closing combined entity expectations around CapEx, given that FBB is more of a DTC business. But just on a go-forward basis and kind of assuming some of the investments that you'll be making in the business, but kind of the ongoing CapEx that you would expect for the entity? Peter Stratton: Sure. So I'll speak to it qualitatively, I guess, is the best way to say it. I think one of the most exciting things about this transaction is the commercial synergies that both sides see. Now of course, we both have infrastructure and maintenance CapEx that needs to be maintained, whether it's maintaining distribution facilities, investments in IT and technology. But when I think about commercial synergies, there will be questions about where do we want to go with store operations. That's certainly one of the strengths that we bring to this transaction. And I think FullBeauty does not operate any stores today. So I think we will be looking at all kinds of commercial synergies and industrial logic that makes sense. That's going to become more clear, I think, as the 2 teams start working together and coming up with what are those operational plans that we want to be pursuing in the immediate term. Jeremy Hamblin: Got it. Maybe this is a question more for Jim. But Jim, I wanted to understand, obviously, it's been a challenging couple of years for DXL. And wanted to understand what FBB was seeing in terms of trends, kind of sales trends over the past year and whether or not with kind of the number of brands that you have under the umbrella, if there are particular brands that are very strong and those that may be -- are any of the brands getting shed kind of post-closing? James Fogarty: No plans for that currently. All of our brands serve a purpose. If you look at -- I think there's a slide in the investor presentation, you'll see that we break our brands down into what we call the new mall brands and the classic mall brands. Our new mall brands service millennial, younger Gen X demo. And then the classic mall brands have historically serviced the sort of older Gen X and into young boomers demo. And we've leaned into the new mall, and we've seen some better results there. And then we're continuing the classic mall is sort of the mainstay of the business for many, many years. And so we've built up a networking effect within that classic mall where we have very loyal customers, big percentages of our business are done by customers who bought more than 4 times from us lifetime. We have a very strong extended plus size business within that classic mall. And we try to drive -- we'll take a new customer into classic mall in one of our brands, let's say, Woman Within. And then that relationship will try to grow with a basically a strategy of driving her -- and you'll see we operate with a universal web cart. So if you were able to load into womanwithin.com, you would see other surrounding brands. And we try to then encourage that customer to not only be a customer of Woman Within, but if she needs something nice for the weekend, she might move over to Roaman's. If she needs workwear, she'll move over to Jessica London. And so we're basically trying to build multiple brand relationships with that customer and then also multiple categories, move her into multiple categories as well. And then classically, direct-to-consumer, CRM, customer lifetime value driving, just getting more transactions and more loyalty with that customer over time. So I'm giving you like the quick history. And then we, as a company, introduced -- bought a brand called Eloquii, and we built out a new mall presence toward that younger demographic. And so we're seeing nice performance with that new mall lean as well. And then I would just double back and say, from our standpoint, we've always prided ourselves on being high free cash flow generators. So Peter will handle the sort of specific numbers there, but we have been CapEx light and strong free cash flow driving. You'll see those numbers from us over time. And I concur with Peter's -- and you saw it in my remarks that we're pretty excited about the -- not only the synergies on the cost side to sort of deliver those, that's super important. But also, we believe the -- and would reinforce that the commercial synergies in the transaction are exciting. The capacity and capabilities that we bring to the DXL brand and vice versa, I won't go through that all again, but we're pretty excited about that. So I'll leave it there. Jeremy Hamblin: Great. Last one, actually kind of building on that point. In terms of managing kind of 2 really separate businesses that are in the same servicing similar customer sets, DXL has been very kind of hesitant to lead with promotion and fairly disciplined now for the -- certainly since Harvey's tenure. Just want to understand in terms of thinking about how the FB portion of the organization versus DXL, I'm sure this has been something discussed, but in thinking about how to kind of to market the brands and how to position from a price point and promotion, how do you create synergy among those 2 organizations? Peter Stratton: So let me start with that one. And then, Jim, I'd love for you to comment on some of the specific questions about FB. So Jeremy, so we mentioned we're targeting $25 million of run rate cost synergies. We're going to start capturing those we think, pretty quickly after closing. There will be a lot of actioning on that coming in the first 12 months. But I think there's going to be opportunities with cost of goods. We both have a pretty diverse manufacturing footprint around the world. There's certainly going to be organizational efficiencies and reduced overhead. But ultimately, I think what we collectively are excited about are those commercial synergies I was alluding to earlier and how can we accelerate growth through cross-selling, cross-channel capabilities, stores, DTC. I really think this is a tremendous opportunity for each company to bring their best attributes and skill sets and be able to build upon each other's distinct capabilities. James Fogarty: Yes. And I'd just add to it. So first, we take the job on the cost synergies quite seriously, and that wouldn't be surprising. But we -- and as Peter said, we're going to get at it promptly. And it's a whole -- and we -- the 2 organizations have spent a lot of time working through where we think those synergies are and details and organizational details but also contract details. And so it's in the same places that Peter is talking about the sourcing organization, shared contracts over time, the organizational piece, we don't -- sort of the streamlining of leadership, of course, is obvious, but then also inside the organization, just trying to be as lean as we can be. And then also outbound shipping, inbound logistics, all of those in addition to the core product costs, we're going to -- and then there's, of course, the duplication of audit and tax and all of those sort of normal things. And so we'll work that piece. In terms of the organizations together, if you think about it, we're still in the planning stages, but we have a great brand in KingSize, a Big + Tall brand. And DXL, of course, is a very powerful brand in Big + Tall. And we've sort of known and respected one another's brands for years. They're bigger than our KingSize brand by a decent click. But we are a little bit more value moderate with KingSize and they're a little bit more moderate. So we think there's a positioning there where we can envision having a universal cart with our 2 men's brands, KingSize and DXL, sort of feeding cross-channel traffic to one another in a direct-to-consumer sense. And we have all sorts of things to think through. As you know, DXL was moving towards private label, increasing private label penetration. That's where we're strong. They're strong on the national brand side. So we think there may be some really nice crossover potential that we have to work through from making -- the 2 brands will absolutely have a place together. And we've always found 1 plus 1 equaling 2.5 sort of thing and making them stronger. But we'll try to be as lean and efficient in all of that and be very -- even when we're thinking about capital and utilization of capital, be very disciplined capital allocators as we sort of work these things together. Operator: Our next question comes from the line of Michael Baker of D.A. Davidson. Michael Baker: Okay. Congratulations on the transaction. Can I follow up on Jeremy's question about the capital structure? Again, forgive my ignorance, maybe it's in here somewhere. But -- so just to be clear, we're not issuing any more stock here. It's still the same, roughly, what, 58 million shares of stock outstanding. Is that right? So that same stock outstanding number that we're using? Peter Stratton: Yes. No, Mike. So it is going to be a stock issuance deal. We will be issuing stock to combine the 2 companies. As we were talking about, Jim was mentioning FullBeauty brings a high strong cash flowing business. DXL has a strong balance sheet. There's a lot of synergies that we think we'll find, but this is essentially a stock deal. Michael Baker: So I guess then you got to -- do we know how much stock is going to be issued or what the -- how much we're... Peter Stratton: Yes. So as we mentioned in the terms, it's going to be 55% to FullBeauty and 45% to DXL will be the pro forma ownership. Michael Baker: Understood. Okay. I got you. Okay. And then for -- again, on the capital structure, is there -- so the $172 million term loan, that's -- FullBeauty doesn't come with any debt? Because I know in the past, FullBeauty had existing debt, but has that been paid down? Or is there FullBeauty existing debt that we need to consider? Peter Stratton: Right. So that $172 million that Jim was referring to, that is FullBeauty debt that is being assumed by DXL in the transaction. As Jim was mentioning in his prepared remarks, the owners at FullBeauty have equitized a significant chunk of that. There's a $92 million paydown, which brings us down to the $172 million. And the extension -- the term debt is being extended out to August of '29. Michael Baker: Okay. Okay. That helps clear it up. Now can I ask -- so based on the trailing 12-month numbers that you provided of $1.2 billion and $45 million in EBITDA. And we know DXLG's last 12 months numbers of about $445 million and I'm missing my numbers, but about $6 million in trailing 12-month EBITDA. So we can back into what FullBeauty would be doing over the last 12 months, which, correct me if I'm wrong, but that seems to be down a little bit from the last -- I think FullBeauty, the last time we have numbers from you was from your ICR presentation for fiscal year 2023. So I guess -- again, following up on a previous question, can -- Jim, can you talk about the types of trends you've been seeing in terms of top line growth or declines in EBITDA profitability over the last couple of years? James Fogarty: Yes. So -- and that will all be part of the sort of statements, but just to give you a kind of quick frame. Peter took you through the comps of DXL of late. We've been about the same level of comp as DXL in the last period of time. So we have continued to work on our -- in the environment where the moderate value customer has been squeezed. We've continued to work hard on our cost structure, and we've continued to work hard on making sure our marketing expenses are right. And so that's all evident in the EBITDA flow-through that we have on our revenue. And we think that, again, both of these businesses are in much better versus our stand-alone plans, if you will. We -- the reason we're coming together is we see incredible ability to find and deliver on these synergies, these cost synergies as well as the commercial synergies we've been referencing. And that makes the business work really well. And so we think it's a great deal for the DXL shareholder as it is for our own organization to combine and combine forces and get stronger. Harvey Kanter: Michael and Jeremy, thank you so much for asking your questions. Operator, it looks like there's no one else left in the queue with questions. So I would just like to thank everyone for their attendance on the call today. You know that we have a number of follow-ups. As Peter mentioned, we'll be working on the proxy and that you should see in the first quarter at some point. And we know we'll have ongoing discussions and need to follow up with all of you. So I wish you the very best of holidays if we don't talk to you live, and we look forward to catching with you in the weeks and months ahead. Have a wonderful holiday. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everyone, and welcome to the Johnson Outdoors' Fourth Quarter 2025 Earnings Conference Call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors Chairman and Chief Executive Officer. Also on the call is David Johnson, Chief Financial Officer. [Operator Instructions] This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the call. I would now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman. Patricia Penman: Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2025 fiscal fourth quarter. If you need a copy of today's news release, it is available on our website at johnsonoutdoors.com under Investor Relations. I also need to remind you that this conference may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors' control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have additional questions following the call, please contact Dave Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold. Helen Johnson-Leipold: Thanks, Pat. Good morning, everyone. Thank you for joining us. I'll begin by sharing perspective on our fiscal 2025 performance as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we'll take your questions. After a slow start to the beginning of the year, new product successes drove double-digit growth in the second half of the year, resulting in a solid finish to fiscal 2025. Total company sales for the full fiscal year were flat compared to the prior year. Although we still have a lot of work to do to get our profitability where it needs to be, our operating loss of $16.2 million improved compared to fiscal 2024. While the marketplace is still uncertain, we feel good about the momentum we're seeing and the execution of our plans to accelerate the growth of our business and brands. In fishing, demand exceeded expectations for Humminbird's new XPLORE Series and MEGA Live 2 fishfinders. In addition to XPLORE winning best in category marine electronics honors at ICAST this summer, we were also honored to recently receive the Anglers' Choice Award. This is a meaningful award because consumers themselves directly vote for their favorite new fishing product. As always, we're focused on finding out what anglers want and need and then turning those insights into cutting-edge technologies to give them the best fishing experiences possible. We will continue to invest in being an innovation leader to drive future growth. In our Camping and Watercraft business, sales declined for fiscal 2025, driven primarily by the closeout of Eureka! inventory in 2024 after we exited that brand. Excluding the impact of Eureka! sales in the prior year, this segment grew by 2%. Demand for JetBoil's new fast boil cooking systems continued to outpace expectations. And Old Town's fishing kayak line is doing well in a watercraft marketplace that overall is still struggling. Both Old Town and Jetboil remain strong leaders in their markets, and we are committed to the long-term opportunity in these 2 brands. In Diving, sales were up for the fiscal year due to modest improvements in certain regional markets. While we continue to work on integrating the acquisition of a long-time supplier during the fiscal year, we also focused our efforts on innovation. Recently, SCUBAPRO launched the new Hydros Pro 2, a buoyancy control device built for ultimate performance in all dive conditions. Hydros Pro 2 builds on the award-winning legacy of our original Hydros Pro, and we've seen great reception so far with lots of enthusiasm at DEMA, the world's largest scuba diving trade show. We look forward to shipping Hydros Pro 2 beginning this month. Along with diving innovation in all business segments, we focused on strengthening our digital and e-commerce capabilities. Our goal is simple: make our products easy to find wherever consumers choose to shop. The landscape keeps changing, but our efforts to expand our digital footprint are already fueling growth, and we're excited about the progress. Digital and e-commerce continue to be an area of opportunity, and we're committed to building on that momentum. Finally, our cost savings program remains a priority company-wide, and we continue to work on driving optimal product costs and enhancing operating efficiencies. Cost savings will continue to be a key priority in fiscal 2026. Overall, we're pleased with the solid finish to our fiscal year. While it's still too early to tell if the outdoor recreation marketplace has turned the corner, we do expect global macroeconomic challenges to continue to drive uncertainties and our strategic priorities remain more important than ever. Heading into fiscal 2026, we feel confident that our ongoing investment in the consumer-driven innovation and digital and e-commerce excellence, along with our continued hard work on operational efficiencies are the right drivers to position Johnson Outdoors for future success. Now I'll turn the call over to Dave for more details on financials. David Johnson: Thank you, Helen, and good morning, everyone. Loss before income taxes for 2025 was $9.3 million compared to a pretax loss of $29.9 million in fiscal 2024, with the improvement mainly due to the $11.2 million write-off of goodwill in the prior year as well as an increase in gross margin and decrease in operating expenses versus the prior year. In fiscal 2025, we saw a tax expense of $25 million compared to a tax benefit of $3.3 million in the prior year. The current year expense was driven by a $25.9 million noncash reserve on U.S. deferred tax assets. This reserve reflects the company's assessment of the realizability of those assets in light of recent operating losses and may be released in future periods when profitability improves. Gross margin for the fiscal '25 improved to 35.1%, up 1.2 points from the prior year. We're pleased with our progress on cost savings initiatives, which offset increases in material costs. Overhead absorption from higher volumes and reduced inventory reserves added to the improvement in gross margin. Operating expenses decreased by 8% or $20.2 million from the prior fiscal year. Key drivers of the expense change were the write-off of the goodwill in the prior year, a decrease in promotional spending versus the prior year period and lower deferred compensation costs between years. For the third year in a row, we were able to drive positive cash flow from operations. We continue to make progress on our inventory levels in fiscal 2025, which was one of the drivers of positive cash flow. Our inventory balance was at the end of the year was $170.7 million, down about $39 million from fiscal '24. Regarding tariffs, we've made progress on our mitigation strategies, and we'll continue to make adjustments as the tariff situation evolves. Our balance sheet remains debt-free. We have a healthy cash position, and we remain confident in our ability and plans to create long-term value for shareholders. Now I'll turn the call over to the operator for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Anthony Lebiedzinski from Sidoti. Anthony Lebiedzinski: Certainly great to see the strong year-over-year sales gain in the fourth quarter along with the gross margin improvements. So as we think about the fourth quarter revenue gain, correct me if I'm wrong, but I think it was mostly volume driven. Just wondering if you have seen this momentum continue into early fiscal '26. Helen Johnson-Leipold: We were really excited about what happened in the third and fourth quarter. And we just -- every month, things grew and the markets looked better than they have. And we don't give too much forward-looking statements. But I would say, so far, at least it's just very early in the year, but there's -- the market momentum is continuing as far as we can see. But there's no -- we're not ready to say the market has turned the corner. This is our sell-in period, and time will tell, but the season -- hopefully, it will be a very good season. So right now, knock on wood, things look pretty good. Anthony Lebiedzinski: That's great to hear. Okay. So it sounds like you are seeing some green shoots, I guess. I know you've put in a lot of focus on product innovation, and I know you highlighted a few products that did very well for you. Just wondering about the pipeline coming up for '26. I know you don't want to share specifics given competitive reasons, but anything you can just talk at a high level as far as new product pipeline for next year? Helen Johnson-Leipold: Well, we did -- yes, in diving, we talked about our new buoyancy compensator. And we've still got momentum in fishing from the launches that we had this past year. And launches are over more than 1 year. So we feel good about the momentum. We're focused on building the pipeline across every business. And again, Jetboil had positive results for their innovation, and that will continue into this season. So innovation is our key priority, and we will always focus on that. And it's critical during the time when it's so competitive out there and consumers are a little bit price sensitive. It's all about innovation. So that is a key focus. And we feel good about that -- it's one of our key priorities. Anthony Lebiedzinski: Got you. Okay. And then as it relates to the tariffs, I know, Dave, you touched on this a little bit, but I think you guys did take some pricing actions a little bit in July, I think more so in October. If you could just comment on the extent of that and what's been the reception from the retail partners that you work with? David Johnson: Yes. We did take pricing where it made sense. We were very strategic about what we wanted to do there. And so far, it's been okay. I mean the retailers understand our trade partners understand it. It hasn't affected the business right now. And as Helen alluded to, we're preseason right now. So it will be up to the consumer when those [indiscernible] to the shelves and make their decisions. But so far, so good. Anthony Lebiedzinski: Okay. That's good to hear. And then with the work that you've done on improving your operational efficiencies and enhancing your manufacturing processes, is there a way you can perhaps put a number on that in terms of how much it helps your gross margin? And do you think there are more opportunities to further expand on that? David Johnson: Yes. I mean we felt really good about the progress we made this year, and it was over 1 point of gross margin that we drove to the bottom line through the efforts. And we've got a full portfolio of cost savings initiatives going into fiscal '26. So we're going to continue the efforts, it's across the board. And that will be critical, again, to help manage the tariff situation and help manage the competitive environment. Anthony Lebiedzinski: Got you. Got it. All right. And then I guess lastly for me, I know the tax rate was impacted by the deferred tax valuation. But just kind of going forward here, how do we think about the effective tax rate for fiscal '26? David Johnson: Yes. I mean with the reserve in place, we would expect the tax rate going forward to be normal in a more normal range. So mid- to high 20s, something like that. So yes, going forward, we would expect that. Operator: At this time, I would now like to turn the conference back over to Helen Johnson-Leipold for closing remarks. Helen Johnson-Leipold: Thank you for joining us today, and I hope everybody has a happy holiday season. Have a good day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to Zedge's Earnings Conference Call for the First Fiscal Quarter of 2026. [Operator Instructions] I'll now turn the call over to Mr. Brian Siegel. Sir, the floor is yours. Brian Siegel: Thank you, operator. During today's call, Jonathan Reich, Zedge's Chief Executive Officer; and Yi Tsai, Zedge's Chief Financial Officer, will discuss Zedge's financial and operational results that were reported today. Any forward-looking statements made during this conference call during the prepared remarks or in the question-and-answer session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results in the future to differ materially from those discussed on today's call. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in Zedge's periodic SEC filings. Zedge assumes no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that our earnings release is available on the Investor Relations page of the Zedge's website and has also been filed on Form 8-K with the SEC. Finally, on this call, we will use non-GAAP measures. Examples include non-GAAP EPS, non-GAAP net income and adjusted EBITDA. Please see our earnings release for an explanation of our use of these non-GAAP measures. Now I'd like to turn the call over to Jonathan. Jonathan Reich: Thank you, Brian, and good afternoon, everyone. It has only been about 6 weeks since our last call, but we have continued to demonstrably execute against our stated priorities with discipline, focus and a strong sense of momentum. The themes we outlined last quarter remain the same ones guiding us today and form the strategic foundation for fiscal 2026. The early results of this quarter reinforce that our approach is sound and that our operating model is gaining strength. Of course, we will modify our course if things change materially. We delivered a solid start to fiscal 2026 with a return to mid-single-digit revenue growth and continued progress across our strategic priorities. What stands out to me this quarter is the quality of that growth for the Zedge marketplace. Subscriptions remained a powerful engine with active subscriptions reaching a record 1.1 million, up more than 50% year-over-year. Average revenue per monthly active user increased again supported by healthy CPMs, higher-value users and continued optimization and improvement in our ad and subscription stacks. This all happened while management was navigating through the anticipated declines at Emojipedia and GuruShots. The important takeaway is that strength across the rest of our ecosystem more than offset those headwinds. Our core business is healthy, resilient and strengthening. I am encouraged by the traction we are seeing with DataSeeds. While the number of closed deals remain small, interest from world-class companies is growing. Recently, we received a second order from an existing customer, a leader in the AI sector. The new order size was approximately 25x the value of the original order placed in Q4 FY '25. This follows the B2B playbook, where the prospect places a modest initial order that is graded and accepted based on our ability to meet their technical specifications. Assuming we fulfill these requirements, the customer then scales order sizes, and we deliver custom fully rights cleared image, video and audio data sets at spec. Our pipeline is robust with dozens of prospective customers and order sizes that start at thousands of dollars and grow from there. Although it is early, and we will not close every opportunity. The strength of engagement speaks to the confidence customers are developing in our ability to execute. A key part of our value proposition is the DataSeeds Production Cloud, or DPC. This is a managed global network of professional photographers, videographers and graphic artists who produce high-quality, purpose-built datasets on demand. Rather than relying solely on a static catalog, we can fulfill bespoke customer briefs that require controlled and consistent inputs with precision. This asset allows us to deliver rights cleared, ethically sourced and consistent datasets, which are essential for training advanced AI models. The DPC gives us a capability that is difficult to replicate and becomes more valuable as customer requirements become more specialized. We are also seeing meaningful confirmation of the broader market opportunity. For example, Reddit recently announced significant licensing agreements that allow major technology companies to use its content for AI model training. These deals demonstrate that enterprises are willing to pay for rights cleared and high-quality human-generated data at scale. That trend reinforces the demand environment we are serving. While Reddit provides access to broad conversational data, DataSeeds is focused on producing custom and highly structured visual and audio datasets that align with each customer's exact technical needs. This positions us well, as companies look for reliable and legally sound sources of training data. Turning to Tapedeck. The pilot continues to progress and early artist feedback remains positive. Tapedeck is designed as a music service that gives independent artists a transparent and attractive economic model and the ability to earn more from their work than they would on traditional streaming platforms. Now the foundation of the service is in place, and our next steps focus on expanding the catalog, increasing listener engagement and refining the features that deepen the connection between artists and their audiences. As we evaluate performance metrics, we will determine the timing for expansion across Android and web. Our approach remains disciplined. We want to ensure that Tapedeck scales in a way that delivers value to artists and listeners while maintaining a clear path to financial return. I also want to highlight continued progress from our product innovation team. Our framework allows us to validate demand before writing code and then leverage AI-driven development tools to accelerate build cycles. Syncat was the first example of this approach, and we expect to introduce additional Alpha products throughout fiscal 2026. Each concept is designed to be small, focused and capable of scaling if it demonstrates early product market fit. More shots on goal with low initial investment give us meaningful optionality while maintaining strong financial discipline. As I often remind our team and our investors, Rovio failed more than 50 times before launching the multibillion-dollar Angry Birds franchise, so iteration and experimentation matter. Before I turn the call over to Yi, I want to address free cash flow because several expected factors influenced our results this quarter. Free cash flow this quarter reflected the timing of restructuring-related compensation tax payments, which have now largely been completed. We also reinvested part of our restructuring savings into high potential initiatives including DataSeeds, Tapedeck and our innovation pipeline. In addition, we experienced some quarter-specific movements in receivables and payables. These items created temporary pressure, but they do not change our expectation for strong cash generation across the remainder of fiscal 2026. This is fully aligned with the operating framework we discussed last quarter and the restructuring actions we executed earlier this year. Stepping back, we entered fiscal 2026 with a leaner cost structure, a more efficient operating model and multiple growth vectors that span both consumer and enterprise markets. We have a strengthening marketplace with a subscription engine that continues to scale, an emerging enterprise business with DataSeeds and a pipeline of new products designed to broaden our reach. We also maintained our disciplined approach to capital allocation. During the quarter, we repurchased 240,000 Class B shares and paid our first quarterly dividend, which reflects our confidence in the long-term value creation potential of the company. We are executing from a position of confidence, discipline and momentum. Our focus remains simple: build products people love, scale the ones that perform and allocate capital in a way that expands long-term shareholder value. With the foundation we have in place, we believe fiscal 2026 will be a year defined by growth, innovation and expanding operating leverage. Wishing all a wonderful holiday season. Thank you for your continued support, and we look forward to sharing our progress in 2026. Now I will turn the call over to Yi. Yi? Yi Tsai: Thank you, Jonathan. Total revenue for the first quarter was $7.6 million, up 5.8% from last year. There were a couple of items to note here. First, Zedge Marketplace revenue was up nicely from last year, driven by strong advertising CPMs and subscription revenues. Also offsetting growth at Zedge Marketplace was a meaningful decline at Emojipedia, consistent with Jonathan's comments earlier and on our last call, as well as the expected year-over-year drop at GuruShots. Although sequentially, the business was effectively flat, showing stabilization. Advertising revenue was up 6% for the quarter, as strong growth in the Zedge Marketplace was offset by lower ad revenue at Emojipedia. Zedge Plus subscription revenue increased 29% year-over-year, and our net active subscriber base grew 54%, reaching nearly 1.1 million subscribers. We continue to optimize our subscription plans and are seeing the benefits of those changes. Deferred revenue, which primarily represents subscription-related revenue, reached $5.7 million, up 7% sequentially and 55% year-over-year. This is an important metric, as it reflects future revenue that carries essentially a 100% gross margin. Zedge Premium GTV was down 3.7% from the year-ago quarter. And average revenue per monthly active user increased 29.2%, continuing the shift toward higher-value users and improved monetization efficiency. This quarter, note that our digital goods and services revenue includes both GuruShots and DataSeeds with the vast majority being GuruShots at this stage, as we recognized very little DataSeeds revenue in the quarter. We expect to begin lapping some of these weaker GuruShots comparisons in fiscal 2026. Cost of revenue was 7.3%, which was up from 6.4% last year, due to the reduction in partner discounts from Google Cloud Services as well as the introduction of Tapedeck licensing fees and DataSeeds production costs. SG&A decreased about 13% to $5.9 million for the quarter. This reflects the net savings from our restructuring, partially offset by investment in ramping DataSeeds and Tapedeck. GAAP income from operations was $0.9 million compared to a loss of $0.5 million last year, primarily due to the restructuring savings we have seen this year. GAAP net income and EPS was $0.8 million and $0.06 compared to losses of $0.3 million and negative $0.02 last year, respectively. On a non-GAAP basis, net income was $0.9 million, and EPS was $0.07 compared to breakeven last year. Cash flow from operations was $0.8 million and free cash flow was $0.6 million for the quarter. Free cash flow was negatively impacted by approximately $350,000, cash outflow for tax withholding payments related to compensation associated with the restructuring that are not expected to repeat going forward as well as the timing of certain accounts receivable and accounts payable. Adjusted EBITDA for the quarter was $1.2 million versus $0.3 million last year. From a liquidity perspective, we ended the quarter with $18.5 million in cash and cash equivalents and no debt. The sequential decrease includes our repurchase of approximately 240,000 shares during the quarter and as of October, about $600,000 remains available under our current buyback authorization. Thank you for listening to our first quarter earnings call. We look forward to updating you again soon when we report results for the second quarter of fiscal 2026. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question is coming from Derek Greenberg with Maxim Group. Derek Greenberg: Congrats on the quarter. My first question is just on the DataSeeds offering. I was wondering if you could help us understand how this gets recognized as revenue in terms of what line item that shows up in? And then just the structure of -- if you receive an order, is that recognized within that quarter or is it recognized over time? Or just how to think about these things? Jonathan Reich: Yi, do you want to handle that. Yi Tsai: Yes. So DataSeeds, when we receive the order, we start production, we only recognize the revenue when the products are delivered and accepted. So it could be across quarter. For the time being, because the revenue is still insignificant, we just group it under digital goods and services, the same line as GuruShots legacy business. Did that answer your question, Derek? Derek Greenberg: Yes. That's helpful. And then in terms of just visibility or conversion, is there a general framework to think about how long it takes you to convert on some of these opportunities in the pipeline or what the typical sales process might look like? You had mentioned there's a ramp where the initial order was smaller and then it can scale from there. And I was wondering if you could just add any more details that might be helpful. Jonathan Reich: Derek, it's Jonathan. Thank you. At this point, not a lot more details other than to say we've got a robust pipeline. And from the point that we actually receive a lead, there are a lot of operational things that have to happen aside from the production of the content itself, including contract negotiation and the like. And we are investing a lot of time in terms of ensuring that from an operational perspective, we're being efficient. I think that we'll need another couple of quarters until we have the clarity as to what happens from the point that we receive an order until it actually is delivered and being able to qualify based upon what type of content, the magnitude of these orders and various time frames accordingly. I wish I could give you more now, but it's really still very early in the process. Derek Greenberg: Okay. Got it. That makes sense. Could you talk a little bit more about just GuruShots and how that product is tied to DataSeeds? Jonathan Reich: Sure. That's a great question. So there are a couple of facets to that answer. First of all, we have delivered content from both the existing catalog where users have opted in to have their content used for AI training as well as from launching competitions specific to meeting the prospects content needs. And in terms of something that we've talked about in the past, mainly GuruShots 2.0, what is the direction that we want to take the product. We have not -- and we said this last quarter, we've not made a decision as of yet. We're going to need to get more runway under us in order to determine whether or not we want the direction of the foundational photo competition game to be there for content acquisition or to heavily weight it towards the gaming aspects that it has existed as up until now. Derek Greenberg: Okay. That makes sense. Jonathan Reich: And then there's one sort of final piece there, and that is actually tapping into the creator community that exists to generate custom made or bespoke content needs that prospects have and that is a work in progress. Derek Greenberg: Okay. Got it. And then just in terms of where that segment is on an operating loss/income basis. I was wondering if you had that number on hand in terms of where GuruShots is operating at? Yi Tsai: Yes, I can take that, Jonathan. Yes, so as we ramp in up DataSeeds, we incur certain fixed costs. And that, obviously, right now, it's not at breakeven. We still incur losses. So part of the GuruShots operating losses can be attributed to DataSeeds. And in terms of legacy business, right now, if you look at our financial, we're going to publish later this afternoon, it's stabilized at around $150,000 per month. It's just incurring some losses. We're still not at breakeven point yet. But as Jonathan mentioned, when we evolve GuruShots 2.0, it hopefully bring it up to the breakeven point. Does that answer your question, Derek? Derek Greenberg: Yes, that's very helpful. And then in terms of Emojipedia. You've previously called caught out some potential weakness there. [Technical Difficulty] I was wondering what the impact there looks like? And if you expect going forward further declines or if you think it has the potential to stabilize where it's at? Jonathan Reich: Yes. I'm sorry, my phone rang. Derek, can you repeat the question? Derek Greenberg: Yes. Just on Emojipedia, how that's doing in terms of if you anticipate further declines there, more of a stabilization? Jonathan Reich: Sure. I can't answer that as of now. I think we're going to need another quarter to see how Google continues to advance with the copy-paste feature and what's happening with AI overviews. But my hope is that some of the activities that we have underway to protect our property will translate into slowing or ceasing the impact that has happened up until now. And then separately, from an industry perspective, there has been a lot of banter around how do websites that have been impacted by these AI overviews, how are they ultimately compensated, and we are monitoring that closely to ensure that if there is a mechanism that comes up and is accepted by the industry that we are able to benefit from that. Derek Greenberg: Okay. That makes sense. And then just on the restructuring costs. You had mentioned free cash flow was impacted by a little bit of leftover restructuring costs. I was wondering if we could potentially quantify the impact of those costs? And then maybe I think you had mentioned you plan on reinvesting this amount maybe into new products. I was wondering if you could just talk about that a little bit? Jonathan Reich: Let me talk a little bit about the reinvestments and then Yi can get in and provide the actual dollar amount. So the intention is that we take a portion and depending on where we see opportunity to invest that in accelerating, whether it be the innovation track that we have, whether it be DataSeeds and so on and so forth, but doing so in a measured fashion such that we are monitoring our KPIs and that we are seeing tangible results from those investments. The innovation team itself, it's a little bit more nuanced because we will have likely many ideas that we test and that do not ultimately convert into full-fledged products. The idea there though is that we act quickly in order to move on to the next one if the ones that we select do not ultimately yield the results that we expect. And I just want to remind you about something that we said last quarter, and that is before we undertake the development of a new product, before we even code any of the programming needed, we are actually doing marketing feasibility tests as well as competitive research in order to substantiate that the opportunity is there. Once we've crossed those hurdles, then we are in a position where we WAT code and get an MVP, a lean MVP out in a contracted period of time and then begin to iterate from there with gating processes along the way. Yi, do you want to get into the numbers? Yi Tsai: Yes. So at the end of July, we paid out the severance pay for 2 senior people in Norway. So associated with those severance payment, the company payroll tax is about 14%. And from an employee point of view, they need to withhold pay taxes about 45%. And then additionally, there was some option exercise. They have a large gain, and the company is responsible for up to 14%, again, payroll taxes and tax withholding. So at the end of July, we booked somewhere around $330,000 withholding taxes, which was paid out in October, and that impacted our free cash flow during Q1 '26. Derek Greenberg: Okay. Got it. That was really helpful. My last question is just on the share buyback program. I was wondering how much was left in that program? Yi Tsai: Yes. There, we have $600,000 left under the current $5 million buyback authorization. Operator: [Operator Instructions] Okay, as we have no further questions on the line at this time, this will conclude our question-and-answer session and conference call. We thank you for attending today's presentation, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter and Full Year 2025 Quanex Building Products Corporation Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand it over to your first speaker today, Scott Zuehlke, Senior Vice President, CFO and Treasurer. Please go ahead. Scott Zuehlke: Thanks for joining the call this morning. On the call with me today is George Wilson, our Chairman, President and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I'll now turn the call over to George for his prepared remarks. George Wilson: Thanks, Scott, and good morning to everyone joining the call. I'm encouraged by what we were able to achieve in 2025 despite a challenging macroeconomic environment. Throughout the year, we executed on a disciplined strategy centered on operational rigor, cost efficiency and long-term value creation. We successfully resegmented our business to better align with market opportunities. We established new commercial and operational excellence teams to drive improved performance, and we delivered synergy realization above our original $30 million commitment. In addition, we intensified our focus on working capital efficiency and free cash flow generation while further strengthening our balance sheet. Most importantly, we also continued to improve our safety performance, positioning the company at a world-class standard, which is a critical foundation for sustainable operational reliability and future growth. These achievements collectively reinforce our confidence in the company's future. I'll now provide a brief commentary on the broader macro environment, followed by a summary of our quarterly performance before turning the call back over to Scott for a more detailed financial review. From a macro perspective, the market continues to face demand headwinds. Globally, affordability remains a significant challenge as inflationary cost pressures and ongoing housing inventory shortages continue to drive pricing higher. In the U.S., these factors, combined with a wait-and-see approach ahead of anticipated Federal Reserve rate cuts have kept many consumers on the sidelines. We expect this dynamic to persist into 2026, which we believe could result in a generally flattish demand environment overall. Looking ahead, further interest rate movements, broader economic conditions and regional supply-demand imbalances will ultimately determine whether demand strengthens or remains subdued. That said, we continue to believe the long-term underlying fundamentals of the residential housing market are positive. Demographic trends, household formation and the persistent structural housing shortage all point to substantial latent demand even if near-term conditions are causing consumers to delay purchasing decisions. These same long-term indicators form the basis of the profitable growth strategy that we presented at our Investor Day last February. Our thesis remains intact and the strategic initiatives we outlined are still progressing as planned. While near-term macro pressures have impacted recent results, we remain confident in our long-term outlook and our ability to capitalize on the opportunities ahead. Now for a brief summary of Q4. Market conditions and order demand tracked in line with our expectations during the fourth quarter of 2025. Volumes in our Hardware Solutions segment were up approximately 1% and volumes in our Custom Solutions segment were essentially flat compared to the prior year. However, volumes were pressured in our Extruded Solutions segment, mainly driven by weaker demand across our European and international markets where macroeconomic conditions remain more challenging. Operationally, adjusted EBITDA was impacted by lower volumes in the Extruded Solutions segment as well as costs associated with addressing the operational issue at our window and door hardware facility in Monterrey, Mexico. As discussed on our prior call, the manufacturing issue was identified in Q3, and we quickly determined the root cause and then proceeded to implement a comprehensive remediation plan to correct the issue and stabilize the plant. We noted then that the plan would take time to fully implement, and we continue to work closely with all affected customers to minimize disruption. I'm pleased to report that we are slightly ahead of our initial time line and now expect to return to normal operating conditions early in calendar year 2026. Turning to the balance sheet and cash flows. We are extremely pleased with the progress we are making. As we continue to advance our initiatives around working capital optimization and return on net assets, we are seeing consistent free cash flow generation. This strong cash performance has enabled us to further reduce debt while also being opportunistic in repurchasing shares in the open market. Our current capital allocation priorities remain unchanged. We will continue to focus on debt repayment while opportunistically repurchasing shares when open trading windows allow. Despite the current market headwinds, we believe the resegmentation of our business, combined with synergy realization and operational improvements underway across our facilities, position us to deliver value to our customers and support our long-term profitable growth strategy. I'll now turn the call over to Scott, who will discuss our financial results in more detail. Scott Zuehlke: Thanks, George. On a consolidated basis, we reported net sales of $489.8 million during the fourth quarter of 2025, which represents a decrease of approximately 0.5% compared to $492.2 million for the same period of 2024. We reported net sales of $1.84 billion for the full year, which represents an increase of approximately 43.8% compared to $1.28 billion for 2024. The increase for the full year was primarily driven by the contribution from the Tyman acquisition that closed on August 1, 2024. We reported net income of $19.6 million or $0.43 per diluted share during the 3 months ended October 31, 2025, compared to a net loss of $13.9 million or $0.30 per diluted share during the 3 months ended October 31, 2024. For the full year 2025, we reported a net loss of $250.8 million or $5.43 per diluted share, mainly due to the noncash goodwill impairment reported in the third quarter compared to net income of $33.1 million or $0.90 per diluted share for the full year 2024. On an adjusted basis, net income was $38 million or $0.83 per diluted share during the fourth quarter of 2025 compared to $38.5 million or $0.82 per diluted share during the fourth quarter of 2024. Adjusted net income was $106.4 million or $2.30 per diluted share for fiscal 2025 compared to $97.5 million or $2.66 per diluted share for fiscal 2024. The adjustments being made to EPS are primarily for transaction and advisory fees, amortization of the step-up for purchase price adjustments on inventory and AR related to the Tyman acquisition, restructuring charges, goodwill impairment, amortization expense related to intangible assets, a onetime depreciation adjustment, a pension settlement refund and foreign currency translation impact. Note that our full year effective tax rate decreased from 24.3% at Q3 to 22.6% at year-end. Q4 delivered lower pretax income, excluding discrete and the level of unfavorable permanent tax adjustments decreased relative to our Q3 estimates. With a smaller income base and lower unfavorable permanent items, the overall blended tax rate was reduced for the full year. On an adjusted basis, EBITDA for the quarter decreased by 12.6% to $70.9 million compared to $81.1 million during the same period of last year. For the full year 2025, adjusted EBITDA increased by 33.2% to $242.9 million, which reflects the contribution from the Tyman acquisition and is a new record for Quanex compared to $182.4 million in 2024. On a consolidated basis, the decrease in adjusted earnings for the fourth quarter of 2025 was mainly due to lower volumes related to ongoing macroeconomic uncertainty, coupled with low consumer confidence and the operational challenges at our plant in Monterrey, Mexico that were previously mentioned. The increase in adjusted earnings for the full year 2025 were primarily attributable to the contribution from the Tyman acquisition, combined with the realization of cost synergies. Now results by operating segment. We generated net sales of $226.9 million in our Hardware Solutions segment for the fourth quarter of 2025, an increase of 1.4% compared to $223.6 million in the fourth quarter of 2024. We estimate that volumes were up about 1%, reflecting low growth in the international hardware and North American screens product lines. Pricing was flat in this segment. The tariff impact was about 1%. Foreign exchange was about a 1% benefit, offset by a negative impact of approximately 2% for Monterrey versus Q4 of 2024. For the full year, we reported net sales of $841.7 million in our Hardware Solutions segment, an increase of 96.7% compared to $427.8 million in 2024. The increase was mainly due to the contribution from the Tyman acquisition. Adjusted EBITDA was $29 million in this segment for the fourth quarter or 9.3% lower than prior year, mainly due to an approximately $8 million negative impact related to the operational challenges at our hardware plant in Monterrey, Mexico, partially offset by a favorable cost roll. We made the decision to move to a 24/7 operation in Monterrey in September, which increased labor and expedited freight costs for the quarter, above our initial estimate, but had the positive impact of enabling us to reduce the backlog in a more efficient manner. Adjusted EBITDA increased by 72.7% to $88.8 million in this segment for the full year, driven by the contribution from the Tyman acquisition. Our Extruded Solutions segment generated revenue of $168.6 million in the fourth quarter, which represents a decrease of 6.4% compared to $180.1 million in the fourth quarter of 2024. We estimate that volumes were down approximately 8% year-over-year in this segment for the quarter, with pricing flat and a positive foreign exchange translation impact of about 1.5%. For the full year, we reported net sales of $646.6 million in our Extruded Solutions segment, an increase of 15.5% compared to $560 million in 2024. Again, the increase was driven by the contribution from the Tyman acquisition. Adjusted EBITDA declined to $31.7 million in this segment for the quarter versus $37.9 million during the same period of last year, mainly due to decreased operating leverage related to lower volumes in addition to an unfavorable sales mix. For the full year, adjusted EBITDA came in at $123.4 million in this segment, which represented an increase of 10%. We reported net sales of $103.4 million in our Custom Solutions segment during the quarter, which represented growth of 2.1% compared to prior year. We estimate that volumes were flat and price increased by approximately 2% in this segment for the quarter. For the full year, we reported net sales of $388.2 million, which represents an increase of 25.5% year-over-year. Adjusted EBITDA declined to $10.7 million from $15.6 million in this segment for the quarter, mostly due to higher raw material costs and index pricing. Adjusted EBITDA increased by 43.2% to $42.9 million from $30 million in this segment for the year, which was driven by the contribution from the Tyman acquisition. Moving on to cash flow and the balance sheet. Cash provided by operating activities increased significantly to $88.3 million for the fourth quarter of 2025, which compares to $5.5 million for the fourth quarter of 2024. Cash provided by operating activities for the full year 2025 increased by about 86% to $164.9 million compared to $88.8 million for the full year 2024. We maintained focus on managing working capital throughout the year and made progress moving some of the legacy Tyman businesses towards more of a make-to-order model, which decreased inventory and improved cash conversion cycle days. We generated free cash flow of $102.3 million for the full year 2025, an increase of about 98% compared to 2024. As a result, we were able to repay $75 million of debt in 2025. In addition, our liquidity increased by 10% to $372.2 million in the fourth quarter of 2025 compared to the third quarter of 2025, consisting of $76 million in cash on hand plus availability under our senior secured revolving credit facility due 2029, less letters of credit outstanding. As of October 31, 2025, our leverage ratio of net debt to last 12 months adjusted EBITDA was unchanged at 2.6x as compared to the prior quarter. The debt covenant leverage ratio calculation used for quarterly compliance with our lenders is defined in amendment #1 to our second amended and restated credit agreement. This ratio was 2.5x as of October 31, 2025, and excludes real estate leases that are considered finance leases under U.S. GAAP and is calculated on a pro forma basis to include last 12 months adjusted EBITDA from the Tyman acquisition, $30 million of EBITDA for the synergy target related to the acquisition and cash only from domestic subsidiaries. Since we now have 4 full quarters of owning Tyman and have realized the full $30 million of synergies that our lenders gave us credit for, we don't intend to reference the debt covenant leverage ratio going forward. As George mentioned in our earnings release, our long-term view continues to be favorable as the underlying fundamentals for the residential housing market remain positive. However, while we enter fiscal 2026 with a cautious outlook due to the ongoing macroeconomic challenges, we are optimistic that demand for our products will improve as consumer confidence is restored over time. Our current view is that fiscal 2026 could be flat compared to fiscal 2025 from a revenue and adjusted EBITDA perspective with puts and takes, but the first half of 2026 may be more challenged than the first half of 2025, which would imply a somewhat improved second half year-over-year. Having said that, and consistent with the last few years, based on current macro indicators, recent conversations with our customers, limited transparency and varying opinions on the macroeconomic outlook for 2026, we are again taking a measured approach to guidance. We intend to revisit guidance for 2026 when we report earnings for the first quarter. We will stay focused on the things that we can control with an emphasis on generating cash to continue paying down debt and opportunistically repurchasing our stock. In the meantime, please use the following cadence for the first quarter of 2026 versus the fourth quarter of 2025. As a reminder, due to the typical seasonality of our business, our first quarter is usually the weakest quarter of the year. With that said, on a consolidated basis, we expect revenue to be down 16% to 18% in the first quarter of 2026, compared to the fourth quarter of 2025. Adjusted EBITDA margin, again, on a consolidated basis, is expected to be down 800 to 825 basis points in the first quarter of 2026 compared to the fourth quarter of 2025 as lower volumes impact operating leverage. Notwithstanding the significant progress we have made towards stabilizing the operation in Monterrey, we also expect a negative impact of about $3 million during the first quarter of 2026 related to that plant. In addition, the following modeling assumptions should be reasonable for the first quarter of 2026. SG&A of about $73 million, D&A of about $26 million, adjusted D&A, excluding intangible amortization of about $16 million, which should be used to calculate adjusted EPS; interest expense of approximately $12.75 million and a tax rate of 23.5%. Operator, we are now ready to take questions. Operator: [Operator Instructions]. Our first question will come from the line of Julio Romero from Sidoti. Julio Romero: Scott, did I hear you correctly that the negative EBITDA impact in the fourth quarter from the Monterrey challenges was $8 million? And if so, your EBITDA margins for the Hardware Solutions segment would have been in the 16% range in the quarter? Scott Zuehlke: Yes. So if you recall on the last quarterly call, we talked about Monterrey being about a $5 million negative impact in Q3. We estimated at the time that 4Q impact would be about the same at $5 million. But the reality was since we went to a 24/7 operation and higher labor costs, higher expedited freight costs, that ended up being around $8 million. And then we alluded to about a $3 million hit we expect in the first quarter. But to your point, yes, it would have been better, but we also had a favorable cost roll impact in the fourth quarter that impacted the -- or helped the Hardware Solutions segment. Julio Romero: Understood. And then the $3 million drag expected in the first quarter, does that -- does your current kind of informal outlook assume that goes to 0 beyond the first quarter? Scott Zuehlke: Yes, that's our expectation. George Wilson: Yes. Our decision to add the 24/7 and do some different things in the plant to speed up that recovery plan. That was really the intent to drive the back order levels down faster than we anticipated. And we're having some very good success at making progress towards that goal. Julio Romero: Well, it sounds prudent that you're able to get your arms around it for sure. Maybe thinking about the informal outlook, does your current informal outlook assume -- what does that assume from a market volume perspective in terms of the volume you'll get in the first half and the amount of procurement synergies you'll be able to realize as a result? Scott Zuehlke: Yes. The way I would -- I mean, obviously, somewhat premature until we come out with official guidance. But the way we're looking at it right now for next year from a revenue standpoint, if we say flattish, maybe flat to down volumes with flat to up pricing is how I would look at that. But then on the EBITDA side, the positives would be obviously less Mexico cost next year, plus some additional synergies offset by higher SG&A due to inflation, higher benefits and then bonus accrued at Target. That's kind of how I would look at it. Julio Romero: Understood. Last one for me is you were able to pay down debt pretty aggressively here in the fiscal year. You also repurchased roughly $3 million of stock here in the fourth quarter. But the shares have been pretty depressed here. Can you just talk about if you were limited by the open repurchase window timing at all during the fourth quarter? And then also if you could comment on whether you've been active on the buyback kind of post quarter end? Scott Zuehlke: Yes. So we were active somewhat in 4Q. I think we made a conscious decision in the second half of last year to really focus more on paying down debt because the number -- out of pretty much every investor call we had since last 2 quarters, there's a real focus on net leverage. Even though our balance sheet is in good shape, we think it's very healthy, there's this sentiment out there amongst investors that anything above 2x net leverage is a concern. So with that in mind, we chose to pay down debt, even though our shares, we still feel are very cheap. Looking ahead, going forward, clearly, we will be opportunistic. We don't have big windows in between quarters in which we can be in the market. So keep that in mind as well. The other thing to think about is the first quarter and really the second quarter are our low watermarks for the year. So we're trying to balance cash flow generation, stock repurchases with also with debt paydown. We've typically been a net borrower in the first quarter in the past. So we just try to balance all of that. I hope that helps. Operator: Our next question will come from the line of Steven Ramsey from Thompson Research Group. Steven Ramsey: I wanted to think about for 2026 with the persistently challenging demand backdrop more recently and looking forward, are you seeing any irrational competitive response in certain geographies or certain product categories? George Wilson: We -- Steven, we really haven't seen a lot of what I would call irrational pricing where people are going to the market to try to fill up volume. We just haven't seen that. And I think there's still a mentality in the marketplace that supply chain risk for all people is of great priority and importance. So I think our customers evaluate those type of pricing decisions and have to balance, is it the right move to just move to another supplier based on price. There's much more involved in those types of decisions right now. And I would say that, that's the truth globally. So things like being able to supply facilities from multiple ship-to points in a lot of cases, offset price. Now with that being said, I think we -- as commodity prices stabilize or come down, I think we will see pricing pressure, but we're really not seeing anything that I would call irrational at this point. Steven Ramsey: Okay. That's great to hear. And then also looking at 2026 and the various product components within each segment, are there any certain products that you expect to be better than the flattish level for the year? George Wilson: I think the one area that is being potentially impacted by tariffs and everything that's going on in the macro drop would be the wood components part of our business that falls under the -- yes, the Custom Solutions group. As those tariffs continue to hang out there and be uncertain, I think that there's an unknown. But if the tariffs stick at a higher level, there could be some opportunity to in-source that demand back into the U.S. to mitigate tariff risk around the globe. So that could be an area of upside. Everything else, I think right now, it's a wait and see, but that's the one area where there could be some potential opportunity. Steven Ramsey: Okay. And then on the benefits of the resegmentation, this was a talking point from the Investor Day. You mentioned it. Again, are there any early positive takeaways and results with the resegmentation so far, is there any benefits embedded in the 2026 EBITDA outlook? And then maybe any of the nuances by segment on the sales or margin side with this resegmentation? George Wilson: Yes. It's still a little early. We're only now 2 quarters into this. But what I would tell you, I think we're already seeing operational improvements by the sharing of best practices, for example, in the Extruded Solutions Group, where you had silicone extrusion, butyl extrusion and then you layer in the Schlegel piece of the business that we acquired from Tyman that has a completely different type of material that they extrude, but it's an extrusion process. And so the sharing of best practices in that division is already paying some operational dividends. I think we're starting to see and put together a plan on what our global footprint will look like. That's long term in nature. But I think we've got a really good feel and good opportunities for what I would say are mid- and longer-term opportunities to continue to grow to better serve our customers, provide new products and new services. And so my biggest excitement right now relies around the process improvements as well as some of the innovation that's being driven through that. So we probably exceeded my expectations from those points already. Operator: Our next question will come from the line of Reuben Garner from Benchmark. Reuben Garner: So the Mexico issue seem to be on track, kind of cleared up faster than you expected, which is great to hear. George, just curious, it's been a few months since that came about. Can you go into a little detail about the efforts you guys have made internally to make sure that there weren't risk of similar or other issues at different facilities from Tyman? George Wilson: Yes. So obviously, being a manufacturing company, things happen in plants. And we identified the issue fairly quick. And when we did, we put a plan in to remediate. And as you mentioned, I'm very happy and pleased with the efforts to get to there. I think we did a great job of mitigating the issue in a relatively quick period of time. Obviously, as a part of that, and I wouldn't just frame it around the time of acquisition, but we looked at every one of our facilities and said that these types of scenarios exist anywhere. So we did a deep dive on that. That's part of what we deem problem-solving philosophy where we go in and we try to identify any like situations. And we have not found that anywhere, and we spent enormous amount of time and effort making sure that the issues that we identified were not going to be replicated or have the risk of being replicated at any other facility. So I feel pretty good about the controls we have in place that we won't see it anywhere else, and I feel really good about the issues to fix the situation in a relatively short period of time to eliminate this on a go-forward basis in Monterrey. Reuben Garner: Great. And then a clarification on the comments for Q1. Scott, did you say SG&A of $73 million? And if so, maybe I've got it wrong in my model, but that's a big change from where it was a year ago, I think $20 million almost higher on a similar revenue number and also higher than what you just did in the third and fourth quarter. So can you just talk about what's going on there? Is there anything onetime? Is that a good run rate for the full year on a quarterly basis? Scott Zuehlke: Yes. I think that's a pretty decent run rate on a full year. I mean when you compare it to the later part of last year, one of the main things that sticks out is accruing at target now this year versus last year when we knew halfway through the year, we weren't going to hit those targets. So SG&A came down. There was a couple of onetime benefits last year, first quarter just related to some issues from the legacy Tyman business. And then clearly, when you go into a new year, there's you budget for higher benefit costs, higher inflationary measures, merit increases, things of that nature that just increase SG&A. Now clearly, with that in mind, our job, though, as manager it is to the extent we can operationally become more efficient to offset increased costs as we move through the year. Reuben Garner: Great. And then I'm going to sneak one more in. You talked about potentially a little bit of price. I assume some of that is carryover from actions throughout this year, maybe related to tariffs and that sort of thing. What are you seeing on the cost side in terms of cost of goods? Is that pretty stable? What -- I guess, ultimately, what does price cost look like in your outlook for '26? George Wilson: Yes, I'll pick this one, Reuben. Really, from a cost basis, things have I would say, generally stabilized. There's a couple of areas across the different product lines, especially around oil type-based products, anything that's going through a cracked chemical type of process. I think we anticipate we'll see continued inflationary pressure there. But overall, materials have stabilized and the supply of those materials have stabilized. So to be determined. Tariffs do have a big impact right now, but that seems to have softened a little bit or at least not changing on a daily basis. Operator: [Operator Instructions]. Next question will come from the line of Kevin Gainey from Thompson, Davis & Company. Kevin Gainey: Congrats on another quarter. Maybe we could talk about the synergies to start first and how you guys are thinking how quickly you might be able to achieve the $15 million to get to the ultimate $45 million? And then maybe if you could break down how you're approaching those synergies from like a cost procurement footprint perspective? Scott Zuehlke: Yes. I think to get at the remaining, really, it's a little less than $15 million because we did realize some in the fourth quarter of 2024. But the way we're looking at fiscal 2026, and I mentioned it earlier about we do expect some additional synergies, probably in the $5 million to $10 million range, and the range is really because of volumes. If volumes are better, then we could be towards the higher end of that range because of procurement synergies. If volumes are worse, it could be on the lower end. So there's a range there. And then going into 2027, there's still some more synergies that we could get at. Outside of that, there are some specific timing of when synergies may hit in 2026, really more on the SG&A side, and I'll just -- I'll leave it at that. Kevin Gainey: Sounds good. And then as you guys think about the pricing gains that you got in 2025. How much of that was really inflation linked versus kind of structurally? And do you think you have any concerns around givebacks in '26? George Wilson: As I look at pricing, I think we've been very focused on how to best serve our customers. And I think that's always been our sales philosophy. So our price increases that we pass on in the market really do revolve around inflationary pressures. And so our job and our philosophy with our customers is any sort of margin improvement on our part shouldn't come at the detriment of our customers. Our job is to pass along cost as is true cost. And then for us to improve our margins, that's all driven by operational performance. I think that, that's our philosophy and how to be a good supplier, and we are not predatory in any way, shape or form in terms of how we price to our customers. So in that respect, I think our ability to hold on to price should be pretty strong because I don't think we're out there and we have all the data in the world to support the inflationary costs that we're passing along. I think we're proud of the fact that, that is the approach we take to pricing because I think long term, that's what builds relationships with our customers, and we'll continue to do that on a go-forward basis. So again, long answer to your question, but I think the ability to hold on to price should be pretty strong because it's supported by what we've eaten in terms of cost increases. Kevin Gainey: Might be a long answer, but I think it was a great answer. Maybe if you guys could talk about demand as well from kind of parse between new residential versus repair and remodel and whether one feels stronger than the other and how you're thinking about it for '26? George Wilson: Yes. I think for us, our products are fairly agnostic to either of the markets. So that we determine that really by our customer mix. I think right now, we're seeing really similar type of impacts on both R&R and new construction. I do believe that the R&R piece will be -- we see that leads, at least for us because we're weighted more to R&R. I think as we see new construction start to improve, the interesting metric that we'll keep our eye on is the size of homes and multifamily versus single-family and what does that mix look like, the number of window openings in a house. impacts the volume impact of new construction for us. So I think R&R will be the leader on any sort of recovery and that the new construction will be, again, more driven by interest rates and the movements of the Fed as well as availability and affordability of the new housing market. So they're both impacted pretty equal though right now from what we see. Kevin Gainey: Appreciate the color. And then one final one just on cash flow. You guys typically burn cash in the January quarter. Is there any reason to expect you wouldn't have slightly negative free cash flow in Q1? Scott Zuehlke: I mean it's possible. I think it just depends on how December and January play out. I mean, as we sit here today, November came in pretty much as expected. So no surprises yet. George Wilson: The one thing on cash flow that -- again, a lot of it will depend on volume. Scott Zuehlke: And the timing of CapEx. George Wilson: Yes, CapEx. The other thing that happened this year, I mean, it wasn't a banner 2025. So as we've stated, the incentive payouts to the executive team and the organization wasn't as high as it typically would be. So it was pretty much under target. So the cash flow outlay to any sort of incentive payment is going to be lower in Q1 than we've typically seen. So this is one of the lower incentive payouts that we've seen in the past future. So that should help cash flow in Q1. Operator: [indiscernible] the queue, I would like to hand back over to George Wilson for any closing remarks. George Wilson: I'd like to thank everyone for joining. I want to take a moment to wish everyone a very safe and happy holiday, and we look forward to providing the next update to everyone in March. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good morning, ladies and gentlemen. Today is Friday, December 12, and welcome to the Butler National Corporation Conference Call. [Operator Instructions] Your call leaders for today's call are Jeffrey D. Yowell, Christopher Reedy, Adam Sefchick and David Drewitz. I would now like to turn the call over to Mr. David Drewitz. Go ahead, please. David Drewitz: Thank you, Luke, and welcome, everyone, to the Butler National call. And before we begin, please note that certain statements made on this call may be considered forward-looking statements under the Private Securities Litigation Reform Act. These statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially. Please refer to our filings with the SEC for a full discussion of these risks. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied. These risks and uncertainties are described in our filings with the Securities and Exchange Commission, including our most recent Form 10-K and Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. With that statement completed, I will now turn the call over to Jeff Yowell, the Executive Chairman of Butler National Corporation. Jeff, it's all you. Jeffrey Yowell: Thank you, David, and thank you to everyone joining us today. We appreciate your participation as we resume our quarterly earnings calls. These calls are an important part of our commitment to transparency and to keeping shareholders informed about Butler National's performance and direction. Today, you'll hear from our President and CEO, Chris Reedy; and our CFO, Adam Sefchick, who will review the company's financial and operational highlights for the quarter. Chris will also discuss ongoing initiatives across our Aviation and Gaming segments. And then Chris, Adam and I will address several of the questions submitted in advance by shareholders and analysts. With that, I'll turn it over to Chris. Christopher Reedy: Thank you, Jeff, and thank you, shareholders, for your interest in Butler National Corporation. We are pleased to return to hosting shareholder conference calls. This past quarter reflects record performance for Butler National and recognition of continued efficiencies as we pass the fiscal year midpoint. The surge in operating and net income of 46% and 67% on a 9% increase in revenue demonstrates the effort that the Butler team is expending to be more efficient. The overall increase in revenue and efficiency is driven by gains in our Aerospace Products segment. These results reflect a 20% increase in revenue from aerospace products in the second quarter. Remember, Aerospace Products includes aircraft modifications or Avcon, avionics and Special Mission Electronics, which we commonly refer to as gun control units and cabling at our Tempe, Arizona operations. With aircraft modifications, we're working diligently to bring outside parts manufacturing back in-house with our recently acquired Newton, Kansas fabrication facility that provides about 5x as much fabrication and the recently upgraded CNC equipment. We are looking to bring back in-house $100,000 worth of parts manufacturing that we've had to outsource over the past year. Bookings and future business activity have not slowed. The backlog reflects our strong continuing demand for our [indiscernible] positive on our level of business. With our question and answers following our CFO discussion, I'll provide a little more insight as to business activities. The management services segment continues to work to stabilize the legacy gaming activity. The economic factors we discussed at the annual meeting, low cattle prices, reduced speed processing and the distressed agricultural economy play a significant role with the legacy gaming results. Sports wagering continues to contribute positively to the financial results. We appreciate our relationship with the Kansas Lottery and DraftKings. I'll now turn the call over to Adam Sefchick, our Chief Financial Officer, to review the financial results in more detail. Adam Sefchick: Thank you, Chris. I'll provide a more detailed look at our quarterly financial performance. Total revenue for the quarter was $23.3 million compared to $21.3 million same quarter last year, up 9%. Aerospace segment revenue was $14 million compared to $11.7 million same quarter last year, a 20% increase. Professional Services Gaming segment revenue was $9.2 million compared to $9.7 million same quarter last year, a 5% decrease. Net income for the quarter was $6 million, up from $3.6 million same quarter last year. The $6 million net income does include a $1.5 million gain on the sale of the casinos administrative building that occurred in the quarter. Earnings per share for the quarter were $0.09 and $0.15 for the first 6 months of the fiscal year, and our cash position remains strong. From the Aerospace Products segment, the increase in revenue is primarily due to a $1.2 million increase in aircraft modifications and a $1.1 million increase in special mission electronics. From a percentage perspective, both costs and expenses decreased compared to the same quarter last year, and this resulted in an operating margin of 38% in the current quarter compared to 21% in the prior fiscal Q2 with an operating income as a percentage of revenue. Our backlog remains robust at $46.3 million. With respect to management services gaming, economic challenges in the local market due to the cattle and agricultural industries continue to impact discretionary spending in the area and has led to a decrease in our casino gaming revenue. While costs were flat for gaming, expenses were up 9% and trying to recognize some additional efficiencies with the casino, we did sell the administrative building, which was located about 4 miles from the casino, which is sold for about $2.4 million. And additional CapEx will be spent in the fiscal year -- in this upcoming fiscal year to construct a replacement facility immediately next to the casino for training and storage. We purchased 687,000 shares of our outstanding common stock during the second quarter. We've also purchased new production equipment for our airplane -- aircraft modification fabrication facility. This concludes the financial overview. I'll now turn it back over to Jeff and Chris to begin with the Q&A. Christopher Reedy: Thank you, Adam. I'll read the questions that have been submitted. The first question is about earnings calls. Butler National is resuming earnings calls after a period without them. Can you talk about what prompted that decision and how you see the calls fitting into the broader approach to investor communications going forward? Jeff, as Chairman, I'll let you begin with this one. Jeffrey Yowell: Okay. Thank you, Chris. We believe that resuming quarterly earnings calls is an important step in strengthening communication with our shareholders and the investment community. Butler National has evolved significantly in recent years, both operationally and strategically, and we want to ensure that our investors have a clear view into that progress. These calls are an opportunity for us to provide more context around our financial results, highlight developments in our aviation and gaming operations and answer key questions that we receive from shareholders. Our goal is to make transparency a regular part of how we communicate as a public company. Christopher Reedy: Our next pre-submitted question is, Avcon continues to be a key contributor to Butler National's growth. Can you discuss the current status of your major STC projects and how management views the demand outlook for aircraft modification and engineering services? Let me address this question as it relates to operations. We shared the Avcon direction at the annual meeting, and I'll refer you back to the slide deck on the Butler National website to supplement my points. Avcon remains a strong performer and a core part of our long-term strategy. The demand for aircraft modification and upgrades work continues to be steady, particularly among operators who are extending the service life and efficiency of their existing fleets. While the government shutdown did impact some of our business, we continue to work around the challenges to meet customer needs. We currently have several STC programs in process. Most of the process -- or most of the projects are focused on the special mission modifications that we expect to commercialize in the near term. The FAA certification process can take time, but we're encouraged by the pipeline of projects and the level of customer engagement we're seeing. The government -- with the government shutdown, we were impacted by FAA inactivity from the fire extinguisher project to the Avcon King Air expanded door. We're extremely excited about our large airplane special mission modification project. Overall, we believe the business jet turboprop special mission market presents a continued opportunity for Avcon's engineering experience. Our next pre-submitted question is, Boot Hill Casino & Resort has remained a consistent performer. How are gaming trends shaping up this year? And what initiatives are in place to enhance the guest experience or expand entertainment offerings? I'll take this question as well. Boot Hill Casino continues to deliver solid, stable results. Visitation has remained constant, and we've seen consistent slot and table game volumes throughout the year. While we believe the local economy, beef prices, packing plant operations and the agricultural commodity prices continue to impact discretionary spending, we are still working diligently to increase patronage and control costs. We continue to invest in the customer experience and improvements from technology updates to facility enhancements. We just completed renovation of the casino restaurant Fireside Grill. The gaming market remains competitive but stable, and Boot Hill's location and established customer base gives us a strong foundation for sustained performance. The next question is, the company has maintained profitability and a strong balance sheet. Can you share management's current priorities around capital allocation, whether that's reinvestment in operations, debt reduction or potential shareholder returns? Adam, will you address this? Adam Sefchick: Thank you, Chris. We've maintained focus on disciplined financial management and maintaining flexibility. Our first priority continues to be reinvestment in operations, particularly in aviation, where new STC development and engineering capacity can generate attractive returns. In the last year, we have invested over $1.75 million in fabrication expansion, including the new fabrication facility in Newton for aircraft modifications as well as the expansion to the KC Machine fabrication facility. Additionally, we have invested about $0.75 million in new CNC equipment orders. We've also made progress in strengthening the balance sheet through debt reduction and prudent cash management. We have also purchased over approximately 1.5 million shares of stock in the quarter. For now, maintaining that strong financial foundation gives us the ability to pursue growth opportunities responsibly. Christopher Reedy: Our next pre-submitted question is, looking ahead, how is Avcon positioned to expand its customer base or capabilities? Are there specific market segments or technologies you're targeting for future growth? I'll take this question as it follows up on the first question about Avcon operations. We see continued opportunity to expand Avcon's customer relationships, especially with operators seeking custom modifications and specific aircraft solutions. We are also investing in capabilities that align with emerging market needs. For example, technical or sensor modification -- modernization, special mission conversions and aerodynamic improvements that extend the operational value of existing aircraft platforms. Avcon is working both STC approved as well as contracts requiring no STC for the installation of significant sensor upgrades with mission electronic systems. We have taken our engineering beyond the strictly structures focus of the early 2000s to be recognized now as a systems integrator. Avcon's strength lies in its engineering expertise and flexibility. This allows us to adapt quickly to market demand while maintaining our focus on quality and certification integrity. Our next question is a good follow-on to the last. Can you update us about new products, including cargo door and electronics and new customers? I'll address this one also. We continue to make meaningful progress across several Avcon and Butler National product and modification programs. The expanded door opening, also known as the King Air cargo door, the installation of the expanded door opening on the certification aircraft is complete. FAA approval of the certification plan was received last month, which is an important milestone. We are currently optimizing certain components, including items like the door seal. Once 2 outstanding elevator parts that were damaged during the hangar incidents this past summer are replaced, the aircraft will be ready for flight testing. We anticipate conducting those flight tests in February and based on FAA time lines, expect to secure the STC roughly 30 days thereafter. We have 2 additional aircraft scheduled for installation at our New Century facility. Following those installations, we expect to support customer training and international installations. Large airplane systems integration project. Avcon is now engaged in a multimillion dollar electronics and systems integration program for a repeat customer. This aircraft is currently in our New Century facility. And while the details of the project are confidential, the scope reflects Avcon's continued expansion into complex high-value modification work. We look forward to providing additional detail when permitted by our customer. A new Radome design STC project. Separately, Avcon is developing a new Radome and related electrical systems integration package for a very large business aircraft. This effort represents another meaningful opportunity to broaden our avionics and structural modification offerings. As the project advances, we will continue to update shareholders on key milestones. Another interesting project is our mosquito control King Air modification. We are supporting a unique application for a coastal government entity. Our modification involves designing and integrating a dispersing system for aerial mosquito control operations. While niche, this project highlights the versatility of our engineering and certification capabilities and may lead to additional mission-specific opportunities. As far as customer activity and international growth go, Avcon continues to attract new customers, particularly in international markets while maintaining strong relationships with our long-standing clients. Our sales team is actively engaged worldwide as demand for modification solutions remain strong. Special Mission Electronics, our gun control team in Tempe. At Butler National Tempe, we are completing the next-generation M134 mini gun control unit, including a more environmentally adaptable model that is designed for our European customers. The redesign incorporates customer-driven improvements in size, shape and environmental performance. These enhancements reflect ongoing investment in our related electronics capabilities. Our next pre-submitted question is, what are Butler National's top strategic priorities over the next few years? And how do you define success in terms of creating long-term shareholder value? I'll address this question as we shared the direction at our annual meeting and are moving forward with that action. Our strategy is straightforward: to grow shareholder value through consistent execution and prudent capital allocation. In aviation, we're focused on expanding Avcon's STC portfolio, increasing engineering capacity and deepening our customer relationships. We see an opportunity for our manufacturing capabilities to expand. We are reaching out to our customers about strategic manufacturing opportunity as an ITAR or military supplier of parts, both from electrical fabrication and from the machining businesses. In gaming, our goal is operational stability and cash generation that supports reinvestment across the company. Success for us is steady growth in earnings, balance sheet strength and maintaining a disciplined approach that positions Butler National for sustainable performance over the long term. Our next pre-submitted question is, how should we view the significant improvement in aerospace performance in fiscal year '25 and '26? Is this temporary, driven by defense spending or a sustainable base for mid- to long-term growth? I'll address this as another good operations question. Both Avcon and Tempe have benefited from improved activity, but for different reasons. At Tempe, current demand levels are influenced in part by defense-related spending, and we expect that to remain supportive under our current federal policies. At Avcon, the improvement reflects ongoing engineering and development work, efficiencies in our modification programs and continued strength in international special mission demand. Avcon's business is driven less by U.S. defense spending and more by global customer needs and the introduction of new FAA-approved products over time and our capabilities provide the foundation we can build on. But as always, we are cautious about making longer-term projections. Our goal is to continue executing well and expanding opportunities responsibly. Additionally, the improvements in efficiencies are the result of structural changes we made and not just a reflection of customer demand. For example, we elected to focus on higher-margin businesses. We shut down our JET or Jet Autopilot business and sold the remaining [indiscernible] in January of this year. We have reorganized avionics to be a supportive element of Avcon. While we cannot know the strength of future demand, we believe the performance improvements driven by reduced personnel costs, greater accountability and a focus on higher-margin products will be permanent. Adding to the previous question, it was asked, what is a reasonable midterm margin expectation for Aerospace? Is 25% EBIT sustainable? Or should we expect mid- to high teens as historically seen? I'll continue to answer this question as well. Margins in the Aerospace segment can vary depending upon the mix of work between development programs, repeat modification projects and kit sales. Some quarters may reflect higher margins when we have a greater proportion of repeat projects or kit deliveries. When Avcon or Tempe are allocating resources to develop new products or obtain new FAA STCs, margins will naturally be lower in those periods. Over time, the goal of these development investments is to create repeatable projects and modifications that can produce the higher-margin work. Because the mix can shift quarter-to-quarter, we do not provide specific midterm margin targets, but we continue to focus on managing resources efficiently and growing the base of repeatable offerings. The next pre-submitted question is, how are you able to earn such high margins in special mission projects -- Special Mission Electronics relative to the rest of Aerospace? I'll take this question as well. The Special Mission Electronics business benefits from proprietary software, firmware and hardware designs that we have developed over many years. As production volumes increase, we are able to realize efficiencies that improve margins. Tempe's work is also more production-oriented compared to Avcon's modification projects, which are often custom in nature and more labor-intensive. We have also taken steps to improve efficiency at Tempe as we meet customer requirements with repeat orders. The margin profile naturally improves. Avcon can also achieve strong margins on repeat installations and kit sales, but the mix of custom engineering work varies from project to project. The next pre-submitted question involves the topic about which we received significant feedback. Was there consideration of a reverse split in the past? And if so, is it being considered? Jeff, would you like to address this one? Jeffrey Yowell: Yes, Chris, I will address this one. The Board previously sought shareholder authorization for a potential reverse split in connection with the fiscal year 2024 Annual Meeting. That authorization ceased upon having our annual meeting on October 1, 2025. The proposal did receive majority shareholder support. However, we also received meaningful feedback expressing mixed views about reverse splits in general. After considering shareholder input and evaluating market conditions, the Board elected not to proceed at this time. Our focus remains on driving organic operational performance and growth. While uplisting considerations were part of the initial evaluation of a reverse split, the Board believes that any capital market actions should align with both company readiness and shareholder interests. At this time, we do not have plans to pursue a reverse split. Christopher Reedy: The next question closely follows the previous question. Can you elaborate on the adverse feedback regarding a reverse split? And what are the other requirements aside from the $2 minimum share price for uplisting? I'll take this one because I visited with a large number of people who really disfavored a reverse split. The shareholder feedback we received reflected concerns that a reverse split can be viewed as an artificial method of increasing the share price and that companies with strong fundamentals should reach listing thresholds organically. The Board considered that input carefully, which contributed to its decision not to proceed at the time. With respect to uplisting, in addition to minimum bid price, NASDAQ has requirements related to financial metrics, corporate governance, committee independence, application reviews, background checks and certain fees. We evaluate these criteria from time to time, but any decision to pursue an uplisting would depend on what is in the best interest of the company and our shareholders. The final pre-submitted question that we will address is Butler National's stock currently trades on the OTCQX. And some shareholders have asked why the company has not pursued an uplisting to NASDAQ or another national exchange. Can you talk about management's thinking around that decision and what uplisting is and whether [indiscernible] future plans? Jeff, would you like to take this one? Jeffrey Yowell: Thank you, Chris. That's a good question. We've carefully evaluated the requirements and implications of uplisting to a national exchange such as NASDAQ. To answer the question, uplisting continues to be a goal for Butler National. Stock price has been the most significant element of NASDAQ uplisting. During the fiscal year 2024 Annual Meeting just over a year ago, the company placed voting for a reverse split on the proxy with the primary purpose of increasing share price for uplisting. We received significant adverse feedback. While our stock price has risen and company performance continues to be positive, uplisting would require expanding the Board and also implementing a range of additional governance, cost and administrative requirements that in the Board's view would not meaningfully change the company's liquidity or valuation in the near term. At this time, the Board believes that Butler National's current structure, including a 5-member Board is appropriate for the size and complexity of our business and allows us to remain efficient and focused. Our focus right now is on operational execution and consistent financial performance, which we believe are the real drivers of long-term shareholder value. As the company continues to grow, our market profile expands, we will revisit the topic if and when the timing and structure makes strategic sense. That wraps up the Q&A part of our call. I'd like to add a few closing remarks. I would like to thank everyone who submitted questions and joined the call today. As we look ahead, Butler National remains committed to investing in innovation within Aerospace segments, improving operational efficiency across all segments and building long-term value for our shareholders. We're pleased to reintroduce our quarterly earnings call format and look forward to maintaining open communications with shareholders as we continue to execute our strategy. That concludes our call. A recording of this call will be available on the Butler National Investor Relations website following this call for 30 days. Happy holidays to everyone. Christopher Reedy: Happy holidays.
Operator: And thank you for standing by. Welcome to Netskope Third Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] I'd now like to hand the conference over to Michelle Spolver, Chief Communications and Investor Relations Officer. You may begin. Michelle Spolver: Good afternoon, and thank you for joining us today. With me on the call are Netskope's CEO and Co-Founder, Sanjay Beri; and CFO, Drew Del Matto. The press release announcing our financial results for the third quarter of fiscal year 2026 was issued earlier today and is posted to our Investor Relations website at investors.netskope.com, along with a supplemental presentation. Before we begin, let me remind everyone that some of the statements we make on today's call are forward-looking, including statements related to our guidance for the fourth quarter and full 2026 fiscal year, growth opportunities and competitive position. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future. For a detailed description of the risks and uncertainties, please refer to our SEC filings as well as our earnings press release. Finally, unless otherwise noted, all financial metrics we discuss on this call other than revenue will be on an adjusted non-GAAP basis. We have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release. Now let me turn the call over to Sanjay to discuss our business and high-level Q3 financial performance. Sanjay Beri: Thanks, Michelle. Welcome, everyone, and thank you for joining us to discuss Netskope's third quarter fiscal year 2026 results. I'm very pleased to be here on our first public earnings call following our IPO in September. Our founding vision was anchored in redefining security and networking for the modern era of cloud and now redefining it for the modern era of cloud and AI. We see that vision realized every day. Netskope is the secure and fast on-ramp to everything enterprises access from the Internet, including websites, cloud and AI to their own infrastructure, private apps, LLMs and data centers. We are helping thousands of enterprises modernize and operate safely in both cloud and hybrid environments. This is happening in the context of an ever-evolving landscape of sophisticated threats, exploding data volumes and the fast accelerating revolution of AI. With a projected total available market size at $149 billion by 2028, Netskope's opportunity is massive, and we are truly just getting started. Turning to our Q3 metrics. I'm proud to say that we delivered very strong performance across all key metrics. Our team executed exceptionally well, continuing to expand our global footprint, innovate and extend our market-leading fully converged security networking and analytics platform and demonstrate accelerated top line growth while generating incremental leverage from our foundational investments. This strong execution resulted in a 34% year-over-year increase in annual recurring revenue, reaching $754 million and Q3 revenue growth of 33% to $184 million. Prior investments in our Netskope One platform and NewEdge global private cloud network continue to demonstrate significant leverage. We built Netskope to scale, and that is reflected in our ability to generate $11 million in free cash flow in Q3 as well as improved operating margin by 11 percentage points year-over-year and deliver free cash flow margin of 6%. Our Q3 results also showed robust performance across all geographies, driven by continued adoption of our Netskope One security networking and analytics platform of products. This adoption is reflected in a strong net retention rate of 118%. We also achieved broad vertical diversification, including expanding across financial services, health care, manufacturing, energy, retail and government. Drew will give more color on our Q3 financials and other key metrics in a few minutes. But first, let me share some context on the trends shaping our business and driving our momentum. Cloud and AI have completely revolutionized work. We are more dispersed, more productive and more automated than ever, and the pace of change is accelerating. Not since the Internet has there been such a transformative shift. Organizations today gain competitive advantages by leveraging a dynamic ecosystem of devices, applications and AI agents that interact and communicate using the modern language of the Internet. These interactions are accelerating in speed, scale and complexity, generating massive amounts of data across tens of thousands of SaaS and AI apps, websites, public cloud, on-premises systems, e-mail, endpoints and data stores. The vast majority of this data sits outside corporate IT's visibility and control, and the rapid adoption of generative and agentic AI is like throwing gasoline onto the fire, creating even more data, more ways to misuse data and more risk for data loss. Cloud and AI have also transformed the cyber threat landscape. Adversaries are finding new ways to trick organizations and their employees into downloading and opening high-risk file types, such as executables, archives, documents and scripts while evading inspection. They are also targeting cloud and SaaS apps directly, stealing tokens and credentials and luring victims into authorizing the attacker to directly access their data, bypassing the endpoint completely. These cyber threat actors are leveraging AI to accelerate their attacks, whether it be through deep fakes and social engineering or in finding zero-day vulnerabilities in software. This has created a need for modern security and networking solutions that enable organizations to use cloud apps and AI, but facilitate access in a way that doesn't put corporate assets at risk or degrade network performance. Legacy and first-generation cloud security and networking providers manage access to applications by giving administrators the binary option of blocking or allowing applications, thus creating a difficult trade-off between employee productivity and corporate security. These solutions were built during prior eras when security and networking requirements were different, users worked differently and attackers themselves were far less sophisticated. All of this reinforces why enterprise buyers are highly focused on making smarter investments in platforms built for the modern world of cloud and AI. They strive to spend more intelligently by cutting operational overhead and investments in legacy products that cannot address today's problems. Today, IT security and networking teams need a comprehensive yet adaptive approach to protecting their users and data while safely enabling the use of cloud and AI. And that is why Netskope was created. That is exactly what we deliver, and that is what is driving our growth and market leadership. For those new to the Netskope story, let me explain. Netskope sits at the intersection of security, networking, cloud and AI. We uniquely enable enterprises to modernize their security networks and use the cloud and AI securely in their organizations, all while delivering an exceptional end-user experience. Our Netskope One platform was designed for a world where users, devices, applications and AI agents can access anything from anywhere. Our platform reads the language of the modern Internet, including APIs, JSON-based data flows and machine-to-machine protocols. It understands digital interactions at a granular level, determines who or what is involved, what they're trying to do and with which data. We can then enforce granular policies and put appropriate guardrails in place to allow IT business leaders to safely say yes instead of no to unleash innovation, business efficiencies and intelligence from the cloud, web, SaaS apps, private apps and AI, including generative AI. We also understand data and data interactions with unmatched precision and context. We discover, classify, analyze and protect data in real time, in motion and at rest either in SaaS apps, public cloud, generative AIOs, agentic AI workflows, websites, e-mail endpoints, data lakes or on-prem apps. We can track movement of that data across different parts of an organization and make sure it's being used in the right way by enabling organizations to implement granular policies around their most sensitive data based on risk and context. We do all this through our Netskope One platform of over 20 security networking and analytics products that were purpose-built organically from the ground up to be unified. One engine, one console, one client, one gateway and one global network that all operate seamlessly and simply together to deliver the best security and performance with fewer resources to implement and operate. This is an important distinction for Netskope and our customers. It means that when customers adopt one of our Netskope One products, it's much easier and efficient for them to implement and operate the second, third and subsequent products. Our customers view this as a tremendous benefit and realize that all platforms are not created equal. A platform isn't merely a collection of organic and inorganic products bundled under one price list. A true platform is defined by genuine integration and seamless unification. Customers also get an exceptional end-user experience from Netskope. This is in part due to the fact that our Netskope One products all run on our NewEdge private cloud network, which is one of the world's most connected and high-performing networks. NewEdge has been architected to be an intelligent, highly scalable, low-latency global network with each data center designed to run our full stack of integrated products at high speed to every customer worldwide. In security, there's always been a paradox that if you add functionality, it makes things slower and the end user experience worse. Netskope shatters this paradox with NewEdge and our Netskope One platform. By converging security networking and analytics and a unified platform on NewEdge with shared context, intelligence and policy enforcement, we reduced latency for end users even in the largest, most complex environments and also provide data sovereignty not afforded with other infrastructures. To do this correctly, we also recognize that network infrastructure and operations teams need advanced capabilities. And so we built products like Netskope One DNS-as-a-Service, Cloud Packet Stream and Dedicated Egress IP addresses so that our customers could regain control over how traffic gets managed. In many cases, NewEdge becomes our customers' new network, ensuring high security without degrading network performance or the user experience. Finally, it's important to point out that AI is foundational to the Netskope One platform. It is not an add-on or a feature. It is fundamental to how we operate and even innovate. AI is intrinsically woven into our platform for superior threat detection, proactive data protection, digital experience management and the enablement of the adaptive real-time policy enforcement I just mentioned. Our commitment in this area is powered by 2 distinct world-class internal teams that work closely together and have been in place for many years. Our Netskope Threat Labs, a team whose experts have discovered over 1,400 zero-day threats in the wild and Netskope AI Labs, which has created more than 170 proprietary AI and ML models and holds over 50 patents specific to AI and ML applications in security. These teams ensure that our platforms remain technologically superior and ahead of the constantly evolving cyber threat curve. I've spent a lot of time over the past months in one-on-one small group and advisory Board meetings with customers and prospects around the world. Across my many discussions, one theme stood out, how to safely adopt cloud and AI at scale. Organizations want to modernize their security and infrastructure, reduce technology sprawl, safeguard sensitive data, ensure data sovereignty and manage GenAI and AI safely. The adoption of GenAI and custom AI tools is occurring at lightning speed. And with it comes even more data, a new and more complex attack surface and the need for internal resources to manage and secure these tools. IT leaders want to responsibly allow employees to use productivity-enhancing AI apps and tools safely and with appropriate granular guardrails to reduce risk while actively fostering innovation and efficiency. They also want to safely use AI models and apps to connect to internal and external tools and data sources, allowing the AI to perform actions like accessing files, querying databases or calling APIs. Netskope has a distinctive ability to help customers achieve this balance based on the technology differentiators I just explained. This includes understanding the modern language of GenAI apps and their detailed digital interactions with both humans and nonhumans at a very granular level. For example, the preciseness and depth of our ability to recognize the AI application, trusted originating device browser user or agent, the instance of the app, the activity being performed, the data being transacted with and returned and the normal behavior expected and troublesome deviations. This all leads to broad and precise discovery, visibility and protection and granular adaptive policy enforcement for AI. We have over 1,000 customers using us today to protect GenAI interactions, and this number is continuing to grow quickly. When securing AI end-to-end, it helps to use the analogy of a house. AI has a basement, a back door and a front door. The basement is the AI platform itself, which must be scanned for vulnerabilities, misconfigs and unintended access and includes proprietary data used by LLMs that requires granular controls to keep sensitive information locked down. The back door represents interactions with external data, LLMs, MCP and other agent-to-agent traffic, which must be monitored and secured in real time. The front door is where users and agents interact with AI and production, requiring granular controls on prompts and responses to prevent data leakage and block malicious behavior. And of course, every other entry point must be protected so that AI systems and data are accessed only as intended. Our current platform enables customers to protect key areas of this AI house, and we have many exciting innovations on the horizon in this area. Let me now pivot to some of our key achievements during the third quarter, beginning with go-to-market. We saw significant customer wins across verticals and geographies. We landed important net new and expansion wins with customers seeking to modernize their security and infrastructure, address greenfield use cases, consolidate vendors and replace legacy and first-generation cloud security products with our Netskope One platform. Common use cases included enabling fast and secure cloud, web and AI access and secure application usage, including for generative AI apps, achieving highly effective and efficient unified data awareness, protection and loss prevention, both for data in motion and at rest and simplifying and modernizing infrastructure, including replacing legacy VPNs with our Zero Trust architecture, branch firewalls with our SD-WANs and migrating their networks to our high-performance private cloud. Notable wins during the quarter included a Fortune 200 biotechnology company that replaced multiple legacy and first-generation cloud security tools with a unified SASE deployment of over a dozen Netskope One products. Also, a Fortune 50 global pharmaceutical retailer that selected Netskope to redesign their Internet edge connectivity supporting 50,000 employees in 8,000 locations. They purchased several Netskope One products to construct the Zero Trust architecture for their globally distributed enterprise environment and safe AI, cloud and SaaS app usage, including generative AI. We also won a global manufacturing and energy conglomerate that chose Netskope for data protection, secure cloud access and NewEdge global scale connectivity to meet strict data sovereignty requirements. And finally, a financial institution that previously attempted to modernize its environment using another cloud security vendor, but was unable to get the implementation operational due to platform complexity and architectural overhead. They selected Netskope for true platform unification, from network to gateway to client and to console across all their use cases, including secure web access, data security posture management, Zero Trust application access, cloud firewall and SD-WAN. All these new logos were won against primary competitors due to Netskope's superior technology that shined in bake-offs. And all were platform wins that included multiple Netskope One products. Multiproduct adoption has been increasing and is a key driver of our accelerating ARR and strong NRR. As of the end of Q3, 53% of our customers were using more than 4 Netskope One products and 26% were using more than 6. Expanding with existing customers through cross-sell and upsell of more products as well as more regions, more applications or more users represents a large growth driver for us, and we continue to execute well on this in Q3. A few notable expansion wins were a major SSE contract with one of the largest U.S. federal civilian agencies that increased from a piloted project of a few Netskope products for 7,000 users to 8 products for 300,000 users. Netskope was selected to address critical security needs, meet M-21-31 cybersecurity requirements across levels EL1, 2 and 3 and protect sensitive data across all cloud apps. We delivered a single FedRAMP High platform with no reliance on VPNs. That enables efficient, modern Zero Trust, advanced security and meaningful cost savings. And we also won another sizable multiproduct expansion deal for a large SASE deployment. This customer, a leading supplier to the global automotive industry, began its journey with us 2 years ago, initially purchasing a small footprint of core products for a small portion of its geographic footprint. In Q3, they expanded to 7 products across the Netskope One platform and tripled the number of global locations. As these and many other customer wins validate, our differentiated technology, innovative vision and customer-first philosophy are key elements in our success. They are also consistently validated by important technology industry analysts who have broadly recognized Netskope as a leader across several key markets. Netskope's placement as a leader in both the 2025 Gartner Magic Quadrant for Secure Services Edge for 4 consecutive years and a leader in the 2025 Magic Quadrant for SASE platforms for 2 consecutive years serves as an undeniable testament to this. In Q3, we were also named a leader in the Forrester Wave for SASE, scoring the highest overall among all vendors as well as scoring highest within its strength of offering category. And Netskope was also recognized as a leader in GigaOm's Radar reports for both data loss prevention and SD-WAN solutions, all testament to our superior technology, competitive advantage and astute and innovative vision. Our market leadership and industry recognition stems largely from our strong focus on innovation. I've long believed that in security networking, companies either innovate or die. Netskope innovates. We innovate constantly to help our customers stay ahead in the relentless battle against cyber criminals and navigate the ever-evolving digital threat landscape. Our customers appreciate the organic built ground up and truly integrated benefits of our offerings and the Netskope One platform. During the third quarter, we delivered several security networking and AI innovations, including advancing our universal Zero Trust network access solution to extend Zero Trust to IoT and OT devices, improve dynamic risk assessment and enable the consolidation of legacy technologies beyond just VPN to also include network access control and virtual desktop infrastructure. We also continued our AI-powered innovations that improve the efficiency and effectiveness of security teams. This included an integrated AI agent for Netskope One private access that provides insight into existing ZTNA network topologies and private application configurations for automated natural language policy recommendations. This helps administrators reduce their attack surfaces and optimize network operations. Additionally, we began a limited release of our model context protocol server, which leverages this common language of AI to enable customers to easily and securely share Netskope security context with major LLMs like cloud desktop, Microsoft Copilot, Google Vertex or Amazon Bedrock to enhance critical enterprise workflows. On the networking side, we expanded our NewEdge private cloud with new data centers in Malaysia, Toronto, Hawaii and Oman to meet growing customer demand and our continued commitment to delivering best-in-class network performance. NewEdge now covers close to 80 major metropolitan areas with over 120 data centers globally. Remember, Netskope NewEdge was uniquely and meticulously designed. We do not play marketing games with how many regions or data centers we have. Unlike others, all our regions and data centers are available to every customer and all have full edge compute and run all services. We also released several new products stemming from our technology alliances with Microsoft and CrowdStrike. Netskope One now uniquely fully integrates with Microsoft Purview, combining Netskope's deep DLP enforcement with Purview's data classification policies. We also announced general availability of Netskope One advanced SSE for Microsoft Entra Global Secure Access and new protections for Microsoft 365 Copilot conversations, including GenAI queries, responses and AI-generated content, all using our market-leading data and threat protection delivered through our new CASB API for Microsoft 365 Copilot. Together, these integrations help Microsoft customers accelerate their Zero Trust journey while protecting users' data and applications without compromising performance or experience. And finally, through our strong technology alliance with CrowdStrike, we released a new Direct to Zero Trust app. which provides out-of-the-box integration between Netskope One and CrowdStrike Falcon to enable the bidirectional sharing of indicators of compromise without the need for extensive manual integration work by the customer. We operate in a market where superior technology matters a lot. We often get asked, what sets Netskope apart from others? What drives customer adoption and satisfaction and what fuels our market leadership. As market analysts and our thousands of customers validate, the core of our differentiation is our technology and the vision that it was born from. Innovation is the heartbeat of Netskope. We are committed to continuing to invest in R&D to drive innovations that expand our industry-leading security, networking and analytics platform and help our customers safely unleash the power of cloud and AI to stay ahead of the cybersecurity curve. In closing, I'm pleased with our Q3 performance and proud of our team for demonstrating the guts, resolve, integrity and tenacity that are at the core of Netskope's culture to execute incredibly well in our first quarter as a public company. Our innovation engine is delivering seamlessly integrated products that are pushing boundaries in AI security, data protection, networking and analytics. And our road map has many exciting solutions in these areas on the horizon. At the same time, our go-to-market engine and machine is [ revving ]. We continue to attract top industry talent to support growing demand, ramp our reps swiftly, leverage and expand our technology and channel partnerships and grow our brand awareness to drive incremental [ at bats ]. We look forward to the exciting road ahead and thank our customers, partners and you and long-standing investors for their support. With that, let me now turn it over to Drew to provide financial details on the third quarter and our outlook for the fourth quarter and fiscal year 2026. Drew? Andrew Del Matto: Thank you, Sanjay, and hello, everyone. As Sanjay shared, Netskope delivered a very strong third quarter, highlighted by accelerating growth in both ARR and revenue. Our ongoing investments in innovation and our go-to-market motion are driving tangible results as noted by our 11 percentage point improvement in operating margin. Netskope is built to scale, which positions us very well for continued efficient growth. For those coming up to speed on Netskope, let me point out that we have a SaaS-based business model where we generate nearly all revenue through subscription sales of our cloud-based Netskope One platform of products. Because of this, we view ARR as an important metric in evaluating our current business performance. We generally price our subscriptions per user based on the scale of the customer's organization and the number of products deployed. I will now share the financial highlights for Q3 fiscal 2026. As a reminder, all financial comparisons are on both a year-over-year and a non-GAAP basis, unless stated otherwise. ARR growth accelerated to 34% and totaled $754 million at the end of Q3. Total Q3 revenue grew 33% to $184 million. We also experienced strong revenue growth across the geographies. Revenue in Americas grew 34%, EMEA increased 34% and APJ grew 29%. Our teams executed well, and our investments in our sales organizations are paying off. In terms of customer metrics, the number of customers generating more than $100,000 in ARR in Q3 grew 24% to 1,444. Enterprise and large enterprise segments are our focus and more than 85% of our ARR comes from $100,000-plus ARR customers. Furthermore, the average ARR from this key segment increased 10% year-over-year to more than $450,000 per customer. This is indicative of our success in both expanding our existing installed base and securing significant new enterprise deployments. Our Q3 net retention rate, or NRR, was 118%, consistent with what we saw in Q2. Our strong NRR illustrates both the enduring value and stickiness of our solutions with customers as well as our ability to effectively upsell additional products and use cases to our installed base. In addition to NRR, we look at multiproduct adoption to demonstrate our expansion opportunity within our customer base. As of the end of Q3, 53% were using 4 or more products and 26% were using 6 or more products. We're pleased with this product adoption and also know that we have meaningful white space opportunity for expansion by cross-selling our Netskope One platform of more than 20 products. Moving on to the rest of the income statement, where we saw the benefits of Netskope being built to scale. Gross margin was 75%, an increase of approximately 5 percentage points from Q3 last year. Our gross margin expansion is being driven by the efficiency of our NewEdge architecture, which is generating better unit economics as we scale. Q3 operating expenses totaled $166 million, up approximately 3% sequentially. We realized a modest benefit to operating expenses in the quarter from the timing of a few onetime items that are now expected to fall into Q4. As I shared a few minutes ago, operating margin improved 11 percentage points year-over-year to negative 15%. R&D was 38% of revenue in Q3, down 300 basis points year-over-year as we realized the benefits of early investments in a common data platform and hiring at high talent, cost-efficient locations. We also saw improving sales and marketing efficiency, which improved 300 basis points to 41% of revenue as we continue to invest in quota-carrying sales reps. Our consistent year-over-year improvement in both gross margin and operating margin demonstrate how we've built Netskope to grow and scale efficiently. Net loss per share was $0.10 using 245 million weighted average shares outstanding. Note that our non-GAAP EPS excludes the change in fair value of the convertible notes we issued when we were a private company. The magnitude of this adjustment is unpredictable and can vary significantly from quarter-to-quarter due to stock market volatility and other factors outside of our control. Note that it's a noncash item and is not strategically relevant to our core operating performance. Therefore, this adjustment is excluded from our non-GAAP net income and EPS going forward. We've also updated our historical periods to reflect this presentation for comparability. Fully diluted share count using the treasury stock method was approximately 506 million shares as of October 31, 2025. As part of our going public process, we recognized a large onetime stock-based compensation expense as the liquidity condition on outstanding restricted stock units was satisfied. This expense resulted in a GAAP net loss in Q3 of $453 million. Stock-based compensation, including related taxes for the quarter was $416 million, driven primarily by onetime expenses related to the vesting of RSUs in connection with our initial public offering. Going forward, we are focused on managing dilution. We anticipate that stock-based compensation expenses will decrease significantly in Q4 and for the most part, normalize thereafter. We generated $11 million in free cash flow, representing a 6% free cash flow margin. We're pleased with our ability to drive positive free cash flow as this demonstrates the leverage inherent in our model. While we continue to realize the benefits of being built to scale on margins and cash flow, our path to sustainable positive free cash flow is not expected to be linear. The timing of cash collections can vary, and we expect to continue investing in the business for long-term growth. We also surpassed $1 billion in remaining performance obligations, or RPO, reflecting 41% year-over-year growth. And finally, we ended the third quarter with $1.2 billion in cash, cash equivalents and marketable securities. This includes approximately $992 million in IPO proceeds, net of underwriting discounts and commissions. Before I share our guidance for the fourth quarter and fiscal year 2026, let me briefly outline some factors that should be considered. We plan to focus our investments on innovation as well as growth. This includes hiring engineers and data scientists in focused areas to drive Netskope's road map and innovation strategy. We'll also continue to focus on hiring and ramping reps to address growing market demand for our cloud security, networking, analytics and AI solutions. Also, we expect continued improvement in our gross margin as we work toward an 80% target over the long term. The foundational investments we made in building our NewEdge private cloud network allow us to scale efficiently going forward. Also, as a reminder, we are in the midst of a shift in our customers' billing terms. where our multiyear contracts are now primarily billed annually. In the past, a higher percentage were billed upfront. This shift is expected to increase the predictability of future cash flows. Note that this transition creates some near-term variability in cash conversion, free cash flow and calculated billings. And finally, we're encouraged by cloud modernization and AI tailwinds that favor Netskope. However, we're still early in our public company journey and also in an uncertain macroeconomic and geopolitical environment. We've built our guidance with these factors in mind. Let me now provide our guidance for Q4 and the full year fiscal 2026. As a reminder, these numbers are all non-GAAP, unless otherwise stated. For Q4 FY '26, we expect total revenue in the range of $188 million to $190 million, representing growth of approximately 27% at the midpoint, operating margin of negative 13% to negative 14%; net loss per share of $0.05 to $0.07 using approximately 400 million weighted average common shares outstanding. Please note, this excludes the change in fair value of the convertible notes I noted earlier. For the full year fiscal 2026, we expect total revenue in the range of $701 million to $703 million, representing growth of approximately 30% at the midpoint; gross margin of approximately 75%, operating margin of negative 16.5% to 17%, with investments focused on supporting our continued innovation and go-to-market expansion initiatives. Net loss per share of $0.51 to $0.53 using approximately 215 million weighted average common shares outstanding. Note, this also excludes the change in fair value of the convertible notes. Free cash flow in the range of $5 million to $8 million. In closing, we remain confident in our ability to execute on our long-term strategy and innovation, driving strong revenue growth and capturing market share. We remain focused on prioritizing disciplined execution, strategic investments that accelerate growth, strengthen our competitive advantage and continue to drive margin expansion and cash flow velocity while maintaining market leadership. Our innovation drives the flywheel for our growth, and as such, we'll continue to invest in our R&D engine and go-to-market while remaining fiercely committed to delivering profitable growth. Thank you for your time today. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Meta Marshall with Morgan Stanley. Meta Marshall: Congrats so much on a great first quarter out of the gate. Sanjay, maybe a question for you. Just as you're seeing kind of increased attach of additional modules, are there any trends in the modules in which you're seeing traction with? And how does that change how you think about product road map? Sanjay Beri: Yes. Great. Great question. If you look at the use cases, and I always come back to use cases, one of the top use cases for us is securing cloud and web access. Securing AI in the past 6 months has been a big one. That has drove and continues to drive our next-gen swing and our premium version of that. In addition, the consolidation for remote users and contractors has really driven our ZTNA offering. And the last one I would say is, especially with generative AI, data protection becomes even more important. People want to use and unleash AI, but they need to protect their data. And our unified data protection products, all the way from the endpoint to our in-line capabilities to our DSPM offering have also seen great growth. Operator: Our next question comes from the line of Brian Essex with JPMorgan. Brian Essex: Drew, Sanjay, congrats on your first public quarter. Drew, I caught your comments on sales productivity. I was wondering if you can unpack that a little bit. I think pre-IPO, you accelerated hiring of quota-bearing reps and about half of those were still unramped. Could you help us maybe give us an update in terms of where you are in that ramping process? What percentage of reps might be now in that mature category? And how aggressively might you be hiring as you kind of like enter the end of the year? Andrew Del Matto: From a rep perspective, we're on track for hiring. When you look at -- you can go to our website, and you will see just a slew of open racks for sales teams. And so we continue to accelerate hiring globally. We're getting some of the best reps you'll find out there. I just came from one of our new hire trainings, a room full of amazing reps, hunters. And so this is really the place to be if any reps are listening, and we want to come to a great place with an over 80% conversion rate on POC, please come here. But -- so we're on track and our ramp time frames are the same, usually around 9 to 12 months. Operator: Our next question comes from the line of Matt Hedberg with RBC. Matthew Hedberg: Great. I'll offer my congrats as well. Sanjay, for you, obviously, agents and agentic technologies on everybody's mind. And it feels like you guys are well positioned to help customers think through their agentic journey. Just kind of curious on how you think of that piece as part of the growth story here? Sanjay Beri: Yes. Great. It's a great question. I recently did a tour kind of across the world with customers' prospects and agentic AI, agentic workflows, securing enabling AI, top topic. If you look at where we're positioned, we see the traffic of all of our customers. We see their human traffic, their nonhuman traffic. All their AI applications go through us. So they could be using ChatGPT, they could be using AI within a SASE app. An AI agent could be originating that. We see that. And because we understand the language of AI, APIs, we see it at a more granular level than anybody else. We see -- oh, they're using Gemini, a personal instance and they're about to say reformat this health care data. Well, guess what, Netskope can stop that, yet still allow them to use that AI. And so I call that the front door of AI. It's users, AI agents, applications using LLMs and using AI. We see it, we understand it, we can protect that data and then we can put guardrails around it. And so absolutely right in our wheelhouse, and it's a big reason that we're seeing sort of the success across different verticals that we are. Operator: Our next question comes from the line of Shaul Eyal with TD Cowen. Shaul Eyal: Sanjay, Drew, Michelle, congrats on the first quarter as a public company. Thanks for the data on module growth during the quarter. I think it's a great practice. Also, great job on deals over $100,000. Any color you can share with us on 7-digit transactions during the quarter? And are there any 8-digit deals in the pipeline? Sanjay Beri: Yes, it's a great question. So I think we highlighted a couple of great wins. We mentioned, for example, a Fortune 50 global pharmaceutical retailer, 50,000 employees using us for AI, cloud, SaaS, generative AI. We talked about another one where a financial institution needed to modernize and they consolidated multiple products from network to gateway to on-prem clients and so on. Those type of multiproduct where you can see now over half of our customers have 4 products, now we have 20. Those kind of multiproduct convergence where you're looking at what I call enterprise customers, right, well over 20,000, 10,000 users. Those have really been great wins for us. And the beautiful thing is the greenfield opportunity is, hey, we have 20 products. The average customer has just over 4. Our pipeline, we're not necessarily talking about specifics on that. Michelle Spolver: Can I -- I'm going to add one thing. Sanjay highlighted 2 of the larger deals that we're landing. Also remember, we have a lot of white space on the expansion side. So one of the expansion deals that he highlighted also was a very large deal. Operator: Our next question comes from the line of Brad Zelnick with Deutsche Bank. Brad Zelnick: Excellent. And I echo my congrats as well. Drew, any help that you can offer in how we should think about ARR and net new ARR seasonality into Q4 and anything we might contemplate maybe even into next year? And I appreciate your comments about all the assumptions in your guidance, but also as a brand-new public company, I mean, you guys are growing in excess of 30% at real scale. I mean, it really stands out, really great. But anything you can do to help calibrate the kind of beats that we might expect going forward would be helpful. Andrew Del Matto: Okay. Well, I think there's a couple of questions there. I think your first question really was on ARR, Brad. So we're not guiding ARR, but I do think it's helpful. We may want to just help you a little bit from a modeling perspective. If you look over really the last year, you could see that ARR was growing about 1 point faster than revenue. So just one way to kind of think about how to think about that. And then also last Q4 was very strong. It's a very strong quarter for us. So what I would consider a high bar. And Q3, also a very strong quarter. We just saw 34 -- ARR accelerating to 34%. In terms of just the guidance, again, newly public company, we are being prudent. And we also -- what Sanjay was just talking about, we have a lot of reps ramping. We continue to hire, and it's very hard to predict the rate at which we'll hire and the rate at which they'll ramp. Operator: Our next question comes from the line of Rob Owens with Piper Sandler. Robbie Owens: Hope to focus a little bit just around new customer acquisition and what you guys are seeing, both from a size of new lands and how that's comparing as well as are these greenfield lands or are you seeing replacement of existing technologies in terms of older SASE implementations? Sanjay Beri: Yes, it's great. Great question. When you look at lands, there's a percentage that is greenfield. You think about the use case, securing AI enabling AI. People don't really have anything for that. Those are greenfield use cases. You think about unifying data protection, that's greenfield. No one has anything really for identifying data in their data lake for [ RAG ], but maybe they have something on endpoint. And so there's a combo, data protection, greenfield and you're replacing endpoint, e-mail, in-line DLP systems. So greenfield, a mix. And then there's pure replacement. Legacy appliances dominate. You have first-generation cloud security providers. We mentioned one who the customer could not get implemented. And so there's also a lot of that where they want to take the next step in securing cloud and web and modernize their VPNs. And so that is replacement. So it is a spectrum, and we do see all of them. As far as just size, I think you had a question on landing. You can calculate kind of our -- from previously, our average ARR and beyond. And obviously, for us, it's always been around over $150,000 or so on, and it's $170,000 now. So it continues to grow and customers continue to land with more products and then they continue to expand with more. Operator: Our next question comes from the line of Ittai Kidron with Oppenheimer. Ittai Kidron: Congrats, again, guys, on the first great successful quarter out of the gate. I wanted to focus on the Americas, Sanjay and Drew. I mean clearly, that's a region that you've been investing significantly in recently. I think, Drew, if I got this right, I think you mentioned Americas grew 34% year-over-year. Correct me if I'm wrong, but it didn't seem like the growth there was any materially different than the other regions. So I would love to see if you can get some color on your progression in the Americas? And how should we think about the growth pattern in that specific area? Andrew Del Matto: Yes. So you have the right numbers. We mentioned that revenue in the Americas grew 34% in EMEA, same rate and APJ, just under 30%. And so for us, when you think about the Americas, specifically, last year, we obviously focused on taking the next step in our Americas team, right? We brought on some great leaders. We mentioned we brought on great leaders below our main leader and so on. And we've been in a big phase of just recruiting new reps. And as Drew mentioned, the focus is getting those reps ramped, getting them fully productive and so on. And so we see pretty consistent growth across all geographies, and that's great because that's great diversification for us. Operator: Our next question comes from the line of Trevor Walsh with Citizens. Trevor Walsh: Interesting to hear about the Microsoft partnership, especially on the purview side and what you're doing around data security. Sanjay, I was wondering if you could just maybe weigh in a little bit on how you're thinking about maybe not just the Microsoft partnership, but more broadly with some of the -- with other large platforms and how you're balancing kind of the co-opetition piece there and as customers move towards consolidation kind of larger platforms, like how you're kind of balancing that module uptick that you're seeing with those -- where you choose to kind of do higher level integration? Sanjay Beri: Yes. So first of all, I've always believed that in security and networking, there is not one platform. Nobody wants one. I remember sitting in a room of 100 CIOs, and I asked them, where would you want to be on a spectrum of 100 to 1? Nobody wants 100, but nobody wants 1. And so the reality is they want a few, a few core platforms. and we're one of those. We consolidate 20-plus different things. It used to be called data network security, converged into one, right? But there are other platforms. There is your identity platform, your EDR, SecOps. And our philosophy is, look, we fight a common enemy and the industry needs to play well. It needs to integrate. It needs to have an open ecosystem. And so for us, that's what we focus on, right? We have integrations with pretty much every platform, security networking out there, and that includes Microsoft. We integrate with everything Microsoft has from endpoint to identity to SecOps. And so that announcement in that framework was just the next step, integrating with their Copilot, Purview and more. And our philosophy on that integration will continue. Operator: Our next question comes from the line of Gregg Moskowitz with Mizuho. Gregg Moskowitz: Okay. Great. Congratulations on the terrific quarter. I don't want to overstate this, but a few investors have become a bit more concerned about a slowdown or a general slowdown in network security growth this year and other aspects of network security, I should say, and whether that could portend some sort of incremental pressure on SASE going forward. Based on the strong Q3, I'm sure you're not seeing any signs of this today, but it would still be helpful, Sanjay, just to get your perspective on this. Sanjay Beri: Yes. So I always say customers now, they don't want to throw more bad money after bad money. What's bad money in network security. Appliances, things that don't understand natively cloud, AI, things that were built to do web filtering, but not the world that people want now, which is not a [ louver ] block. And so in the broader spectrum of network security, we feed off that. We're good money. And so for us, the reason we see this acceleration in the TAM and the opportunity is people want to spend on things that move them forward in the cloud and AI world. And a lot of network security is not that. And so for us, why we don't concern ourselves with that stat or so on is we're the benefactor of that migration of that spend, right, to the right side of history, which is how do we enable cloud and AI. So SASE, one of the fastest-growing markets in security, I foresee for the next 10 years. Operator: Our next question comes from the line of Eric Heath with KeyBanc. Eric Heath: Congrats on the strong start as well. Sanjay, I do want to come back to the comments on Microsoft. And if you can just expand a little bit more about the uniqueness of this Microsoft partnership relative to others in the industry. And then maybe, Drew, now that it's recently [ GA ], what this could mean to the model, if anything, as we look out into next year? Sanjay Beri: Yes. So when you look at the Microsoft partnership, we integrate with everything Microsoft has. And what we announced was -- and actually, what they announced was that they had chosen one SSE provider to go to market with. And the first one they decided was Netskope and they announced that at our conference earlier in the year. And that was what we partially announced in this announcement. The second was a lot of our customers came to us and said, "Wait a minute, you already secure all my cloud. You already secure all my web, you secure all my private apps. You understand AI and now you're going to secure that for me. We're using Microsoft Copilot. Well, guess what we can do with Copilot. We can watch everything they do in the Copilot conversations and make sure they're not conversing in the wrong way with sensitive data or make sure that there aren't threats. And so that multipronged partnership across the AI ecosystem of Microsoft, that's what our customers wanted, and that's kind of what we delivered. And so for us, when you look at organizations, mid- to large enterprises across the world, they want this independent layer, all AI, doesn't matter where it comes from. Anthropic, comes from Google, comes from Microsoft. doesn't matter what SASE app I use. It doesn't matter what website I go to. They want this independent layer that understands it and put guardrails on it. And so naturally, we're not going to go partner with 100,000 systems and app providers. We don't require the partnership. But the big ones, we both see great go-to-market and technical value of doing it. And Microsoft is obviously perhaps one of the biggest. Andrew Del Matto: Yes, Eric. And then just on the second quarter -- the second question, excuse me. The way to think about it, it's just part of the overall modernization trend that's accounted for in the $149 billion TAM that we share. So obviously, we'll account for that when we do guide at the end of next quarter or next quarter's earnings call. Operator: Our next question comes from the line of Shrenik Kothari with Baird. Shrenik Kothari: Congrats on the strong start, Sanjay, Drew and team. I had a question on NewEdge, right? You have clearly invested in infrastructure full compute with the NewEdge POPs. And as LLMs, AI agents interact in real time, I would imagine latency, inline enforcement matter more and more. Do you see the edge itself as a big differentiator in customer conversation decisions and especially where potentially hyperscaler footprints are thin? And just how do you see your investment strategy going forward? Sanjay Beri: Yes. So the short answer is yes. NewEdge is a huge differentiator. I can't tell you how many conversations I go in, and the infrastructure operations person says, "Wait a minute, you're faster. I mean I can just see it. No matter where I am in the world, I use NewEdge, my end users see that their experience is faster." You think about that and you think about AI and you think about that, hey, over time, over half the transactions on the Internet won't be from humans. They'll be from AI agents. And that AI agent network, that highway, that's NewEdge. Because when you think about us, we're about 10 milliseconds from anybody in the world. And when you come to us, you don't go over the Internet to get to where are you going? You're going to Gemini, are you going to Anthropic, right? We're one of the most peered connected networks in the world. And so for us, just like AI is an accelerator for security, it is an accelerator for the advantage we have in our infrastructure and optimizing the end user or end agent experience. Operator: Our next question comes from the line of Gray Powell with BTIG. Gray Powell: Yes, congratulations on the first quarter out of the box. It's great to see. So I just want to focus back in on some of the headline numbers. The acceleration in net new ARR really stood out this quarter and it's been impressive all year. And I know there's a number of factors that are driving that between sales and marketing investments and new products. Would it be possible to just sort of talk about what exactly is driving the improvement or maybe rank order what's driving that improvement? And then just how should we think about the sustainability of this improved productivity that you're seeing? Sanjay Beri: So from a net new perspective, we're a mix, right? We're hunters. So we're landing new logos, as you saw many, and we're expanding within our existing accounts, which you can see the growth of how many customers have 4 products, 6 and so on, right? This steadily increasing our NRR of 118. And so that net new ARR, it's a mix of both, net new logo and the prolific kind of upsell opportunity we have because the average customer is 4-plus and we have 20-plus modules. And so that's a mix. Now on the go-to-market side, as you know, one of our big focuses last year was making sure worldwide we had all the sales leaders that can take us for many, many, many years to the next stage. And we brought those on. And then we brought on reps and we started ramping them and so on. And so we feel good about our go-to-market execution worldwide. You can see that in the growth, for example, in the Americas. And so that's also another driver. The summary for you is if you think about Netskope, we win over 80% of the time if we get a spot at the table, we get a POC. So the Nirvana and the whole focus of our company is just broaden our awareness, right? And one of the reasons we went public broaden our awareness, right? When you write articles, that broadens our awareness. And so for us, a lot of that driver will also just be, hey, we're getting more at bats. We know that if we get in at bat, we have an amazing batting average. And so a lot of that also is just the go-to-market expansion, the awareness expansion that will come over time as well. Andrew Del Matto: Yes. Great question, Greg. But if you go back over the last 18 months, 2 years, we put the leadership team in place. They've done a phenomenal job of building the go-to-market engine. And now it's really all about hiring reps. And we talked about that, the hiring there and the ramp time and that impact. And what you're seeing now as we invest more reps, 34% ARR growth, 44% net new ARR growth in the quarter. So we're seeing the results that we expected to see, and they're executing very well. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michelle for closing remarks. Michelle Spolver: Great. Thank you, Towanda. And with that, we conclude our third quarter fiscal 2026 earnings call. Thank you for joining us all today, and we look forward to engaging with you in the weeks and months ahead. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: BillionToOne Third Quarter 2025 Earnings Call. [Operator Instructions]. Please be advised that today's call is being recorded. I would now like to hand the call over to your speaker today, David Deichlerm Investor Relations. Please go ahead. David Deichler: Good afternoon, everyone. Thank you for participating in today's conference call. Joining me on the call from BillionToOne, we have Oguzhan Atay, Co-Founder and Chief Executive Officer; and Ross Taylor, Chief Financial Officer. Earlier today, BillionToOne released financial results for the third quarter ended September 30, 2025. A copy of the press release is available on the company's website. Before we begin, I want to remind you that during this call, we may make forward-looking statements within the meaning of federal securities laws. Such statements about future events may include statements about our financial outlook and performance, market size, products and services, reimbursement coverage, future clinical performance and other statements. We caution you that such statements reflect our current best judgment, and actual results may differ materially from those expressed or implied in any forward-looking statements. Risk factors that may cause our results to differ are discussed in our filings with the SEC, including our previously filed registration statement on Form S-1, our quarterly report on Form 10-Q to be filed following this call and the current report on Form 8-K filed today. Any forward-looking statement made during this call is made as of today, December 9, 2025. If this call is replayed or reviewed after today, the information made during this call may not contain current or accurate information. BillionToOne disclaims any obligation to publicly update any forward-looking statements, whether because of new information, future events or otherwise, except as required by law. And with that, I'll turn the call over to Oguzhan. Oguzhan Atay: Thank you, David. Good afternoon, everyone. Thank you for joining our third quarter earnings call. Today marks our first earnings call as a public company, and we look forward to continuing a dialogue with the investment community as our business grows in the years ahead. In November, we completed a successful initial public offering on NASDAQ, raising $314 million in gross proceeds for the company. I'd like to start this call by thanking our dedicated and hard-working employees, along with our shareholders, all of whom made this substantial milestone possible. A new chapter for BillionToOne is just beginning, and I am excited for our future as a public company. At BillionToOne, we have 4 pillars of differentiation that we believe makes us a different type of molecular diagnostics company. Everything that we do starts with a revolutionary single molecule next-generation sequencing platform. This is enabled by our patented QCT, quantitative counting template technology, which achieves single molecule level sensitivity and precision. With our technology, we have built unique category-defining products, both in prenatal and oncology. In prenatal, we are redefining what it means to do noninvasive prenatal testing with our UNITY products by enabling a more efficient and more sensitive test to help mothers understand health status of their developing babies. In oncology, we offer Northstar Select to help guide therapy selection across multiple indications and Northstar Response, which helps physicians monitor the patient response to therapies. Both our prenatal and oncology products are highly differentiated and have a direct impact on critical decision-making for patients. Our unique technology and product portfolio have led to exponential growth rates even as we reached $334 million in annualized revenue run rate or ARR in the third quarter. That said, we believe that we are just scratching the surface of what is possible. With our smNGS technology, we believe that we are uniquely positioned to address more than $100 billion in U.S. market opportunity over time. Importantly, having a unique technology and differentiated products allowed us to achieve a superior gross margin profile, achieving 70% in the Q3 2025, even with subscale ASPs and using only about 1/4 of our current lab capacity. We believe that we have significant opportunity for further ASP growth and COGS per test reductions, both in our prenatal and oncology product lines. Last but not least, I am perhaps most proud of our capital and operational efficiency, which have allowed us to achieve emerging profitability while growing at 100-plus percent, an unprecedented feat in molecular diagnostics. As I shared with the private and public investment community over the last 5 or more years and throughout the IPO roadshow, our long-term goal is to build a category-defining generational company and become a member of the S&P 500. Our third quarter performance and achievements allowed us to continue to make important strides towards this goal, and the results are simply stunning. Our revolutionary smNGS platform and products continue to be validated by publications and partnerships, including 2 prenatal publications, a head-to-head study on Northstar Select and an exclusive agreement with Johnson & Johnson, all of which I will cover on the next few slides. On revenue and test volume front, we continue to scale rapidly as we reported 51% test growth and 117% revenue growth year-over-year in the third quarter. Gross margins were a remarkable 70%, a 17 percentage point expansion from last year due to robust outperformance in ASPs and continued reductions in cost per test. We were able to achieve this growth with emerging GAAP profitability, reporting 11.5% positive GAAP operating margin and bringing all year-to-date GAAP profitability metrics to be positive. Ross and I will take you through our quarter in more detail, but I'd first like to provide you with an update on a few exciting publications and business developments. We have recently had impressive prenatal and oncology publications in peer-reviewed journals. Notably, the largest study of cystic fibrosis in any prenatal setting published in the Journal of Cystic Fibrosis demonstrated 100% sensitivity for UNITY in identifying high-risk cystic fibrosis pregnancies. Importantly, 95% of these cases were eligible for cystic fibrosis modulator therapies, highlighting the clinical utility of our approach. Another UNITY publication in pregnancy validated the clinical utility of fetal antigen cell-free DNA testing and highlights the advantage in providing precision to pregnancies that are at risk for hemolytic disease of fetus and newborn, or HDFN, which UNITY provides. Finally, we also finalized an exclusive agreement establishing us as the official companion diagnostic partner to Johnson & Johnson for hemolytic disease of fetus and newborn. This positions our UNITY Fetal Antigen test for treatment of HDFN as the first CDx of its kind in the NIPT space, and we have successfully met all milestones to date. Turning to oncology. Northstar Select demonstrated superior sensitivity in a prospective head-to-head validation study published in the Journal of Liquid Biopsy. In this study, we asked clinicians across the country to use whatever liquid biopsy that they are using for standard of care. But for the same patient on the same day as part of the same blood draw, send us another tube of blood as well. We did not prescribe what test that they should use. We did not create inclusion/exclusion criteria. And at the end, we reported our results and other liquid biopsy companies reported their results. And here, we show that in this head-to-head study, we detected 51% more pathogenic SMVs and 109% more copy number variants versus these competitors. These publications further validate the transformative nature of UNITY and Northstar test. With these differentiated products, we have been able to drive rapid growth. Our rapid growth is becoming even more impressive as our organization scales. In Q3 2025, total test accessioned in the quarter grew 51% year-over-year to 163,000 tests. Strong test volume growth was driven by expanded geographic coverage by our growing commercial team as we enter new markets and increased commercial density in existing markets while expanding in-network status with commercial payers. We also have seen acceleration even with larger health system adoptions, which was one of the drivers of our growth. We believe that the competitive product launches for fetal risk assessment validate the market need that we had identified in this market more than 5 years ago. Given the significant technology differentiation, more than 5 years of peer-reviewed publications and significant product advantages we have, we haven't seen any impact on our business so far as it can be seen in the growth that we achieved in this quarter and until today. It's also important to note that we have achieved this phenomenal growth without having invested as significantly in EMR. That said, as we are seeing more of our growth to start to come from broad health system adoptions across the United States, we decided to invest more heavily in this area. As such, we have signed the contract with Epic for Aura implementation. While this may take 9 months to become live, once live, we believe this will remove one of the biggest impediments to faster UNITY adoption in health systems across the United States. Total revenue in Q3 2025 was $83.5 million, which was an increase of 117% compared with $38 million in the third quarter of 2024. Our results in this quarter were driven by robust test volume growth, along with expanding average selling prices or ASPs across all products, drivers of which I will discuss in more detail shortly. Exceptional performance across every metric drove sequential growth of 25% from the second quarter. ARR of $334 million represents an approximately $69 million increase sequentially compared to ARR in the second quarter, highlighting the demand for our test and the general momentum of our business. This outperformance was driven by rapid growth in both prenatal and oncology revenues. In the third quarter, prenatal revenue was $74 million, representing growth of 101% year-over-year. The oncology business is growing even faster than our prenatal business, delivering $8.7 million of revenue in the third quarter, growing 664% compared to the third quarter of last year. The revenue performance was driven by rapid test volume growth of both Select and Response test as well as improved ASPs. We have seen tremendous growth in oncology over the last 2 years from when we first launched our Northstar products and continue to expand our oncology sales team as we grow. We believe there exists a large opportunity for Northstar in the future with expanded coverage decisions, especially for Response to support meaningful revenue opportunities in the years to come. Our superior gross margin profile is driven by both expanding ASPs and a reduction in cost per test. Overall blended ASP was $501 in the third quarter, a remarkable increase of 44% year-over-year and a sequential quarter-over-quarter growth of 10%. The primary drivers of ASP growth have been expanded payer coverage in prenatal as we grow our commercial contracting efforts to where we now have approximately 235 million contracted lives. We have also brought reimbursement in-house last year, and our team is continuing to make strides towards getting more of our tests to be paid. Finally, we have seen more Medicaid loading and covering the UNITY Carrier panel PLA code, which has contributed to incremental ASP improvement. We continue to expand, expanded coverage for specific parts of our test as we continue to drive ASP improvement over time. In addition to driving ASP growth, we have remained committed to our operating philosophy of continuous improvement to reduce the total cost per test. In the third quarter of 2025, our blended cost per test decreased by 10% to $151, primarily driven by our cost initiatives and increased volumes driving fixed cost per test lower. This decrease came despite an increasing shift to a higher proportion of revenues coming from oncology, which, of course, as you know, has higher COGS per test as well as higher stock-based compensation expense as we move towards being a public company. As overall COGS has decreased and overall blended ASPs have increased, gross margins have rapidly expanded. Our gross margins were 70% in the third quarter compared to 53% in the third quarter of 2024, a remarkable 17 percentage point increase. Since our earliest days, we have been highly capital efficient, prioritizing spend with purpose and focus on efficiency. We expect to maintain the same disciplined approach to investment and growth to drive profitability as we continue as a public company. With that, I will turn the call over to Ross to review our financial results and provide 2025 guidance before I conclude. Ross Taylor: Thank you, Oguzhan. As Oguzhan noted, total revenue in the third quarter of 2025 was $83.5 million compared to $38.4 million in the third quarter of 2024, representing an increase of 117%. Furthermore, revenue growth for both our prenatal and oncology product lines was strong in the quarter. Our prenatal revenues consisting of both our clinical testing revenues of $74.1 million and roughly $800,000 in revenues from clinical trial support and other services increased just over 100% to $74.8 million in Q3. Our oncology revenues increased 7.6x to $8.7 million in Q3 of 2025 compared to the same period last year. And oncology revenues increased 76% sequentially from $4.9 million in Q2 of 2025. Our total revenue growth was driven primarily by test volume growth across both prenatal and oncology as well as expansion of our prenatal and oncology ASPs. Our total revenues included true-up revenue resulting from higher cash collections related to tests delivered in prior periods. True-up revenue was $3.7 million in Q3 of 2025 and $8.7 million for the 9 months ending September 30, 2025. In comparison, true-up revenue was $1.4 million in Q3 of 2024 and $10.2 million for the first 9 months of 2024. Excluding true-up revenue, total revenue growth in Q3 was 116% compared to the same period last year. Gross profit in the third quarter of 2025 was $58.4 million, compared to $20.2 million in the third quarter of 2024, resulting in a gross margin of 70% in the third quarter of 2025 and 53% in the third quarter of 2024. The increase in gross margins was primarily attributable to increases in our overall ASP and a decline in our overall cost per test. I will note that ASPs and cost per test improved in all of our product lines this quarter. Total operating expenses were $48.8 million in the third quarter of 2025 compared to $32.8 million in the comparable prior year quarter, representing an increase of 49%. Within total operating expenses, R&D expense was $13.0 million in the third quarter of 2025 compared to $9.6 million in the comparable prior year quarter, while SG&A expense was $35.8 million in the third quarter of 2025, compared to $23.3 million in the comparable prior year quarter. We continue to scale our operating expenses to support rapid growth with efficiency and discipline. Operating income was $9.6 million in the third quarter of 2025 compared to an operating loss of $12.6 million in the third quarter of 2024. Our Q3 operating profit margin was 11.5%. Q3 2025 is the first quarter in which we achieved positive GAAP operating income, and it occurred more quickly than we expected as a result of the strong improvement in revenues and gross margins that we experienced in the quarter. We expect to operate our business such that we continue to generate positive GAAP operating income in the future. Net income available to common shareholders was $1.5 million or $0.10 per diluted share in the third quarter of 2025, compared to a net loss of $14.9 million or $1.47 per diluted share for the same period in 2024. Weighted average diluted shares outstanding used to calculate net income per share were 15.6 million shares in Q3 of this year. Cash flow from operations minus capital expenditures and investments was $7.9 million in Q3 of 2025 and $6.5 million for the first 9 months of 2025. Net cash flow was $6.2 million and $3.7 million for the same periods, respectively. Following the upsized IPO and execution of the green shoe, diluted shares outstanding are expected to be in a range of 55 million to 56 million over the next several quarters for modeling purposes. Please note that weighted average diluted shares will be lower in the fourth quarter given that the IPO occurred in early November. Lastly, we are well capitalized with a very strong balance sheet. We ended the third quarter with approximately $195 million in cash and equivalents. Subsequent to the third quarter, we received approximately $314 million of gross proceeds or $286.4 million in net proceeds from our initial public offering. Our very healthy balance sheet positions us for strong growth moving forward, particularly given our intent to continue to manage the business for profitability and positive cash flow. Finally, I will provide our full year guidance for 2025. We expect 2025 total revenue of $293 million to $299 million, representing a remarkable growth of 92% to 96% compared to 2024. Embedded within this guidance is fourth quarter revenue expectations of $84 million to $90 million, which is growth of over 86% to 100% compared to the fourth quarter of last year. We note that despite Q4 historically being a seasonally slower quarter for our business due to fewer number of accessioning days in most of the larger clinics and health systems, preferring to push their switches from one laboratory to another laboratory in January, our business momentum remains strong in Q4. This is leading us to expect modest sequential quarter-on-quarter growth from Q3 to Q4 even after an exceptionally strong Q3 that had every single metric outperforming our expectations. At the midpoint, the year-over-year growth we are projecting for Q4 is the second highest year-over-year percentage that we expect to achieve since July of 2024, highlighting our continued momentum. Additionally, we expect positive GAAP operating income for both Q4 and the full year of 2025. I will now turn the call back over to Oguzhan to conclude. Oguzhan Atay: In summary, BillionToOne has made substantial progress this year, including outstanding performance in the third quarter of 2025. Yet we believe our journey is just beginning. We are transforming health care, one molecule at a time, one patient at a time to build a category-defining company and become the first one in our space to enter S&P 500. As a summary, in this quarter, we have had new publications supporting the superiority of our test and technology. Our Q3 outperformance was across all key metrics, leading to the best quarter over last year. And we are continuing to make investments, both in the growth of our sales team and investment in areas such as EMR. This is resulting in a guidance of a year-over-year growth of 10%, both for Q4 and full year 2025. I am very excited for the future of BillionToOne, and I'm confident in our ability to positively change the trajectory of millions of patients' lives. I will now turn the call over to the operator for the Q&A. Operator? Operator: [Operator Instructions]. And our first question will come from the line of Mark Massaro from BTIG. Mark Massaro: Congrats on your first quarter as a public company and on the IPO. So I wanted to start, it's nice to see the positive GAAP net income come in. I heard you talk about expecting that to continue to be positive in Q4. I am curious, is that also your plan to be positive in 2026? Now I recognize that you're ramping up some investments in the business probably in oncology as well. So how should we think about 2026 GAAP net income or even adjusted? Oguzhan Atay: Thank you, Mark, and thank you for your kind words. While we are going to be leaving the kind of exact guidance for 2026 to JPMorgan Healthcare Conference, I think we have iterated previously that it is our aim to continue to grow our company in a profitable way. That is a goal that I think we will continue to maintain for years to come. Mark Massaro: Okay. Great. And then maybe on the oncology side, I recognize it's early days. But I'd be curious, I think you've got your first test reimbursed by Medicare, I think the second test. I would be curious, Oguzhan, how you're thinking about timing there? And then can you just give us a sense for how significant of an investment you're planning to make in 2026? I don't need dollars, but just conceptually from a strategic standpoint. Oguzhan Atay: Yes. Thank you, Mark. We have already invested significantly in clinical studies for our Northstar Response coverage. We believe that we have already completed the studies that we need to be able to get coverage. We will be supplementing it with additional studies in 2026, but we believe that the first Medicare coverage for Northstar Response based on the timing of MolDX discussions and back and forth as well, will come before the end of 2026. Operator: And our next question will come from the line of Andrew Brackmann from William Blair. Andrew Brackmann: Maybe just given this is the first time sending guidance as a public company, can you maybe just sort of talk about the overall process that you had in place for setting guidance? And I guess related to that, just the overall philosophy when it comes to sort of embedding conservatism or sort of [ errand bars ] around the forecast year? Oguzhan Atay: Thank you, Andrew. I think we have been operating close to a public company for the last 2, 3 years now. As you may remember, we had even shared some of our projections back in JPMorgan earlier this year in the conference, both for actually 2025 and 2026. And as you can see from the numbers that we have been able to provide, we have been conservative in those projections. In general, I think our business has been very repeatable and predictable in general, but there are also a lot of tailwinds that we don't put into our models, especially with respect to ASP growth. So a lot of our test volume numbers are still conservative, but predictable, but then ASP increases tend not to be embedded into the guidance as much. So a lot of the tailwinds that we see with respect to increased coverage, increased contracting due to more of our tests getting paid result in outperformance compared to what we project. I would also note, though, we are almost to the end of this year. So the guidance that we are showing at least for Q4 and 2025 is actually relatively accurate. Ross Taylor: Yes, I might just add. I think in some ways, the numbers we've put out for the Q4 guidance is somewhat analogous or similar to what we did with the Q3 flash numbers in the S-1. We tried to kind of bracket our expectations. So I think we put out a pretty reasonable guidance range for Q4. Andrew Brackmann: Okay. I appreciate all that color. And then with respect to the investment in the EMR, I recognize that it's going to take several quarters to sort of roll out here. But I guess conceptually, how should we be sort of thinking about the opportunity and sort of the impact that this can have for your business? When you're speaking with customers, how much of this is sort of -- how much of those conversations are driving this decision? And how should we sort of think about the effect and the realization that you might be able to see? Oguzhan Atay: Yes. Thank you, Andrew. And this is an area that I think many of the analysts also have uncovered in their independent searches as well. This is an area that we haven't invested as heavily compared to other companies because it can be significantly additional cost to be able to do some of these, it can cost millions of dollars. But I think what we are realizing and recognizing is that as we get into more and more health systems, this actually becomes really the only impediment for getting very large volume health system accounts switched to us. So we believe that this is going to essentially accelerate our adoption in these large health systems pretty significantly once it is live. It is also something that we have been probably the only standout company that hasn't done this. So I think it is pretty remarkable that we have been able to grow without the existence of this, but really this opens up almost about half of this prenatal market that has been previously much more difficult for us to penetrate that they really want those EMR integrations to be able to order this. As you know, especially in the prenatal setting, ease of use is critical. In fact, it is one of the value propositions of UNITY Fetal Risk screen. It allows a much easier way to screen for pregnancies for a very comprehensive set of conditions. But of course, not having EMR was essentially contradictory to that ease of use. So by being able to invest in here, I think we are going to get to parity with others, and that will really drive our continued growth at the rates that we have seen in the past. Operator: [Operator Instructions]. Our next question will come from the line of David Westenberg from Piper Sandler. David Westenberg: I echo the response. Congrats on the IPO and coming out of the gate strong here. So your clinical spending annually is somewhere around $50 million versus some of your competitors that are spending 10x that. Do you think you're spending sufficiently? And how are you thinking about design in studies in oncology? We appreciate the data you gave about 51% increases in indels, SMVs and a copy number variation, et cetera, of 100%. But ultimately, your test is about finding more actionable mutations that get patients on the right therapy. Do you think that you could be running bigger studies, which may be say OS and disease-free survival, I would make an argument that you are like your competitors, building markets in this as well. So I know that was one question, but I have one follow-up. Oguzhan Atay: Thank you, Dave, for the question. So I think we recognize that it is important to invest in clinical studies. But when we are investing in clinical studies, we are also really trying to understand what the question that we are answering is and whether that is going to be incremental to what physicians want. So with respect to therapy selection, of course, I think agree with you that we are finding -- and we have shown, I think, pretty conclusively that we are finding more mutations. Does that lead to better outcomes, clinical outcomes for the patients. In our discussions, at least with the physicians, that is not a question or a concern that they have. So we could run those studies, but I don't think it would change essentially the adoption curve that we are seeing in this very established area of therapy selection. On the other hand, though, as we go into more new areas like response monitoring and MRD, I believe that larger studies and more investment is certainly needed because those are the areas that physicians are maybe a little less comfortable, right? If they see essentially an EGFR mutation or a KRAS mutation that we detect, I think the physicians, I think, intrinsically understand and know that, that is going to lead to a better outcome for the patient. But it is not, I think, as clearly demonstrated in the response and MRD areas, not just by us, but broadly by all of the different diagnostics companies that especially outside of the adjuvant setting, if you detect progression early, if you are doing surveillance with MRD, is that leading to better clinical outcomes. And in those areas, I think it is important to continue to invest, but we are always going to be very thoughtful about what studies that we are running. So we will continue our investments. We will increase our investments as we go into -- especially into MRD. But I would also think that there are a lot of investments that happen in this field that might not really move the needle. So we really want to work on studies that actually make -- that answer the questions that oncologists have and that is, I think, really important and different in different areas. For therapy selection, I don't think that is OS, but in response monitoring and MRD, it may very well be. David Westenberg: And then sticking with oncology, how do you see the mix between monitoring and therapy selection in terms of test numbers per patient? And can you discuss how -- if a doc might ever use just one of your tests and use a competitor for maybe the other? I wouldn't think that would be that common, but can you talk about circumstances what it is? I'm just trying to think about that mix on a go-forward basis and any kind of variables that would change that? Oguzhan Atay: Really good question. Because Response is a monitoring test, we see roughly a 2:1 ratio for Response test to Select tests. So 95% of our providers, as we also discussed in the roadshow, actually use Select and Response together. So it is very rare for a physician to only use Select or only use Response. But what we see after they use Select and Response together, some physicians would actually repeat both Select and Response, whereas other physicians might do more Response test until they see progression and then they use another Select test. So on a per patient basis, we are actually seeing certainly more than one Select usage, and then we see 2:1 ratio of Response to Select, but this is kind of a more blended basis just because different physicians use this differently. Some of them only -- along with Select, some of them use Response to follow-up and then they see progression and then they use Select. Operator: And our next question will come from the line of Casey Woodring from JPMorgan. Casey Woodring: Congrats on the IPO. I guess the first one, just curious on sales force expansion. Curious what the expectation is in terms of how many reps do you expect to hire in 4Q? And then any thoughts on how you expect to expand the sales force in 2026, both in prenatal and oncology? Oguzhan Atay: Thank you, Casey. I think we have been very consistent in the way that we have been growing our sales team. We grow our prenatal sales team with 8 to 10 net rep addition per quarter and around 4 to 6 or 7 on the oncologist side per quarter. Of course, it changes from quarter-to-quarter, but we have been very consistent about how we are adding these reps. It allows us to grow in a way that our service level remains excellent. Our turnaround time remains great. Are -- all the support functions are growing similarly at same rates. It also really allows us to hire best of the best, really the top 1% of the candidates. So we have been -- I think looking at our sales efficiency numbers, it might look like it would make sense to really accelerate this growth because our sales teams are very efficient and very effective. But we believe that doing this in a kind of methodical, deliberate way has served us really well until now. So we want to keep using the same strategy on a go-forward basis as well. Casey Woodring: Got it. That's helpful. And then maybe my follow-up, you mentioned better traction with Medicaid for the UNITY Carrier panel -- so UNITY Carrier Panel code, I should say. I guess how much did this contribute to ASP growth in the quarter? And how should we think of that contribution in 4Q and beyond? Oguzhan Atay: It is difficult to prescribe essentially one change to specific dollar amounts of ASP. But just to give you a sense of how important this can be, the carrier code, standard carrier panels versus our PLA code is almost a 2x difference in where the ASPs are. So from that perspective, essentially, even a single Medicaid incorporating our PLA code into their coverage policy, can be significant. And it is not just significant with respect to the state Medicaid lives that allows us to go then to manage Medicaid in that state and be able to add our PLA code to those contracts as well. So it does take a while for its full impact to be embedded into our ASPs, but it really sets a different, I think, long-term ASP goal for us as we essentially get more Medicaid covering our PLA code. Operator: And our next question will come from the line of Brandon Couillard from Wells Fargo. Brandon Couillard: Ross, the 70% gross margin in the quarter, pretty strong performance. Do you expect that to be the new baseline as we look out exiting the year and into '26? And just talk about what additional areas you still see room to lower the COGS per test over the next year or 2? Ross Taylor: Yes. I don't think we're quite ready to talk about 2026 and gross margins, Brandon. But I think that you have an expectation that we remain somewhere in the high 60s is probably a pretty reasonable expectation for at least the next several quarters. I think you know that we do have a negative mix shift that we're confronting as the oncology products are lower gross margin, but growing much faster. So that does create a kind of negative mix shift versus prenatal. So we had really nice gross margins in Q3, but I don't think our expectations have really changed for gross margin versus what we've talked about recently. Oguzhan Atay: Yes. As a minor addition to that, Brandon, I think it really depends on the rate at which our ASPs grow, rate at which our COGS decrease and in comparison to the mix shift. Our prenatal ASPs are growing, I think, quite nicely. Our COGS continue to decrease as we are using more of our lab capacity. And that is particularly true on the oncology side as well. So if you look at each of these products, ASPs are growing, COGS are decreasing. Each gross margin is expanding over time. But given that our oncology revenue is growing faster, it essentially you have those opposing forces. So it really depends on exactly essentially how fast the gross margin of each product continues to expand versus the growth rate of each of those products. But as Ross said, we expect to essentially maintain high 60s, low 70s as we continue to grow. Brandon Couillard: Okay. That makes sense. And then one clarification, Ross. Is there any true-up revenue that's embedded in the fourth quarter revenue guide? And then Oguzhan, as we just think about '26, can you just talk about the major data readouts or clinical or reimbursement milestones we should keep on the radar for next year? Ross Taylor: Sure. Just on the revenue question, Brandon. During this year, the first 9 months, our true-up revenues range between 3% and 5% of revenues. And I think our expectation would be that it's probably somewhere in that range in Q4 as well. So a small amount of true-up, I think, consistent with what we've seen this year. Oguzhan Atay: And the question in terms of the readout, we are continuing to do our clinical studies, especially on Northstar Response. And in support of getting coverage for Northstar Response, I think the biggest milestone would be getting our first Medicare MolDX coverage for Northstar Response. So this is one of our big initiatives and big goals for 2026. And given that we have this 2 Response to 1 Select ratio, any increase in Response ASPs would be significant for both our oncology gross margins as well as our oncology revenues. Operator: Our next question will come from the line of Tycho Peterson from Jefferies. Tycho Peterson: One of the common questions we've gotten post IPO was just on MRD and any time lines you can provide on when we can start expecting data, what indications you may prioritize and pursue and what gives you kind of the right to win there? Can you maybe just touch on that as we think about the pipeline? Oguzhan Atay: Certainly. I think the way that we think about MRD is that MRD is going to be split into 2 areas, especially over time, especially as we get out of the colorectal cancer to other cancer types, tumor-informed and tumor naive. And as you are seeing, I think, more and more, tumor-informed essentially is going to get very competitive. Essentially achieving a 1 to 10 PPM clinical LODs is going to be possible with many different methodologies and these ultrasensitive tests are going to be really competing with each other with good clinical data over time as well on the tumor-informed side. Our goal is to focus on the tumor-naive MRD. And there, actually, our technology solves the fundamental problem that forces all these different companies to actually focus on tumor-informed MRD, right? Why does anyone develop a tumor-informed MRD? Certainly, it is not the cheapest, and it is not something that the physicians want. It is more difficult to use. They do tumor-informed MRDs because if you know where to look at in cell-free DNA, you are going to be able to achieve these ultrasensitive levels. Our technology, our smNGS, QCT quantitative counting template technology solve exactly this noise problem. Right? Essentially, what we are doing is we are removing this noise that they are trying to remove by having a tumor-informed MRD. So from that perspective, we believe that we can achieve ultrasensitive levels of sensitivity with a tumor-naive test that no other company has been able to get anywhere near until now. So that is, I think, on the technology side, why we believe that we have a right to win in tumor-naive MRD and why we can solve a problem that really stump lot of different methodologies that it is really a technology question, and our technology is very uniquely positioned for that noise problem that the fact that people are doing tumor-informed MRD solves. In terms of our data readout and approach there, which is going to be a pan-cancer assay, similar to our response monitoring approach that we have taken there. But of course, we will want to launch with data. So we are expecting the launch to be towards the end of 2026, essentially at around the similar times that we expect to get coverage for our response test. From our growth perspective, we have always had this philosophy of having only one test that doesn't have broad coverage and high gross margins. So once we have our response monitoring covered by Medicare, we want to launch MRD for a pan-cancer indication, but we, of course, know that we are not going to have coverage for our MRD at least for the first year of commercialization. Tycho Peterson: Okay. That's very helpful. And then on UNITY, I think you said certain parts could see expanded coverage. I assume that's on the carrier screening side. And any change on the competitive front? Obviously, we saw your competitor introduced the Fetal Focus assay. Any change you're seeing in the market today? Oguzhan Atay: As I sit here in December 9, I see no impact in our business from competitive launches. In some ways, it is as if it didn't happen. So from that perspective, we continue to grow as expected. I think it is a good thing. In some ways, it can lead to guideline changes, more awareness, but we also have a significant, I think, lead in our approach here, in our ease of use, in the way that we are approaching this particular market. So, so far, no impact, as you have seen in the Q3 numbers and I think as embedded into our Q4 guidance. Operator: I'm not showing any further questions in the queue. I would like to turn the call back over to Oguzhan Atay for any closing remarks. Oguzhan Atay: Thank you, and thank you for all the questions. This was our first earnings as a public company. We are very excited about the future of our company and how we can continue to grow, continue to change standard of care, continue to create a different type of molecular diagnostics company that can combine hyper growth with profitability. We believe that we have shown how this is possible, and we are on a 20-mile march to show that a company in this space can even enter S&P 500. So thank you for all the questions and listening to us today, and we look forward to seeing you in future earnings calls. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
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