加载中...
共找到 15,717 条相关资讯
Mexico will put tariffs on Chinese imports of up to 50%. This new policy aligns with US efforts to tighten trade barriers with China.
Operator: Good day, everyone, and welcome to the Live Ventures Fiscal Year 2025 Conference Call. [Operator Instructions] Now I'll turn the call over to Greg Powell, Director of Investor Relations. Please go ahead, Greg. Greg Powell: Thank you, Elvis. Good afternoon, and welcome to the Live Ventures Fiscal Year 2025 Conference Call. Joining us this afternoon are Jon Isaac, our Chief Executive Officer and President; and David Verret, our Chief Financial Officer. Some of the statements we are making today are forward-looking and are based on our best views of our businesses as we see them today. The actual results could differ materially due to a number of factors, including those outlined in our latest Forms 10-K and 10-Q as filed with the Securities and Exchange Commission. We have no obligation to publicly update any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. You can find a copy of our press release referenced on this call in the Investor Relations section of the Live Ventures website. I direct you to our website, liveventures.com or sec.gov for our historical SEC filings. I'll now turn the call over to David to walk us through our financial performance. David Verret: Thank you, Greg. Good afternoon, everyone. Before discussing our financial results, I'd like to touch on a few key highlights from the year. We are pleased to report that our portfolio companies have spent the past year strengthening operating disciplines and optimizing their cost structures. Fiscal year 2025 marked a significant turnaround for Live Ventures. Decisive actions, including hiring a new executive team at Flooring Liquidators, implementing strategic pricing initiatives as well as targeted cost reduction measures drove our progress despite a mixed economy. These efforts contributed to a $10.2 million or 231.7% increase in operating income compared to the prior year when excluding the $18.1 million goodwill impairment recorded in fiscal year 2024. Additionally, we reported adjusted EBITDA of $33.4 million, an $8.9 million or 36.3% increase compared to fiscal year 2024. This strong performance came despite continued softness in the new home construction and home refurbishment markets, which continue to weigh on our Retail-Flooring and Flooring Manufacturing segments. Let's now discuss the financial results for the fiscal year ended September 30, 2025. Total revenue decreased approximately $27.9 million or 5.9% to approximately $444.9 million for the year ended September 30, 2025, compared to revenue of approximately $472.8 million in the prior year. The decrease is attributable to the Retail-Flooring, Flooring Manufacturing and Steel Manufacturing segments, which decreased by approximately $33.3 million in the aggregate, partially offset by an increase of approximately $6.5 million in the Retail-Entertainment segment. Although revenues declined in fiscal year 2025, we are pleased to report that fourth quarter showed year-over-year improvement with the fourth quarter of 2025 generating higher revenues than the fourth quarter of 2024. Retail-Entertainment segment revenue for fiscal year 2025 was approximately $77.5 million, an increase of $6.5 million or 9.1% compared to the prior year. The revenue growth was driven by strong consumer demand for vintage and collectible media. Retail-Flooring segment revenue for fiscal year 2025 was approximately $122.3 million, a decrease of $14.7 million or 10.7% compared to the prior year. The decrease was primarily attributable to the disposition of certain Johnson Floor and Home stores in May 2024 as well as decreased consumer demand driven by the ongoing weakness in the housing market. Flooring Manufacturing segment revenue for fiscal year 2025 was approximately $121.6 million, a decrease of $11.5 million or 8.6% compared to the prior year. The decline in revenue was primarily due to reduced consumer demand as a result of the ongoing weakness in the housing market. Steel Manufacturing segment revenue for fiscal year 2025 was approximately $132.6 million, a decrease of $7.2 million or 5.1% compared to the prior year. The decline was primarily driven by lower sales volumes at certain business units as we focus on higher-margin business, partially offset by incremental revenue of $11.1 million at Central Steel, which was acquired in May 2024. Despite the decline in revenues, gross profit for fiscal year 2025 increased approximately $900,000 to $145.7 million. Gross margin increased 210 basis points to 32.7% as compared to 30.6% in the prior year period. The improvement in gross profit was attributable to increased gross margins in the Retail-Entertainment, Steel Manufacturing and Flooring Manufacturing segments, primarily due to improved efficiencies as well as the acquisition of Central Steel in May 2024, which has historically generated higher margins, partially offset by slightly lower margins at the Retail-Flooring segment. General and administrative expense decreased by approximately $4.3 million or 3.6% to $113.7 million. The decrease was mainly attributable to targeted cost reduction measures, including lower compensation, reduced professional fees and other expense reductions across the Retail-Flooring and Corporate and Other segments. Selling and marketing expenses decreased by $5.1 million or 22.6% to $17.3 million. Selling and marketing expenses were lower in the Retail-Flooring and Flooring Manufacturing segment as we prioritize higher impact, more efficient marketing initiatives to ensure continued support for revenue growth. In connection with our continued efforts to strengthen the balance sheet, total debt declined approximately $33.5 million in fiscal year 2025, which includes a $19 million modification to the Flooring Liquidators seller note. As a result, interest expense decreased by approximately $1.3 million or 7.7% to $15.6 million. For fiscal year 2025, net income was approximately $22.7 million and diluted EPS was $4.93, compared to a net loss of approximately $26.7 million and a loss per share of $8.48 in the prior year. The increase in net income reflects stronger operating performance and the additive benefit of onetime gains realized during fiscal year 2025. Net income for fiscal year 2025 includes onetime items totaling a net gain of $28.2 million, primarily consisting of a $22.8 million gain from the modification of the Flooring Liquidators seller notes, a $2.6 million net gain on earnout and holdback settlements and a $2.1 million gain related to employee retention credits. Net loss for fiscal year 2024 includes an $18.1 million goodwill impairment charge in the Retail-Flooring segment. Adjusted EBITDA for fiscal year 2025 was approximately $33.4 million, an increase of approximately $8.9 million or 36.3% compared to $24.5 million in the prior year. The increase in adjusted EBITDA is primarily due to improved operating performance during fiscal year 2025, reflecting the company's targeted cost reduction initiatives. Turning to liquidity. We ended the fiscal year with total cash availability of approximately $38.1 million, consisting of cash on hand of approximately $8.8 million and availability under various lines of credit of approximately $29.3 million. Our working capital was approximately $62.1 million as of September 30, 2025, compared to $52.3 million in the prior year. As of September 30, total assets were $386.4 million and total stockholders' equity was $95.3 million. As part of our capital allocation strategy, we may make share repurchases from time to time. We believe our stock repurchases represent long-term value for our stockholders. During the fiscal year ended September 30, 2025, we repurchased 59,704 shares of the company's common stock at an average price of $8.85 per share. In conclusion, we are pleased with our results for fiscal year 2025. We are not just holding steady. We are building a durable platform of businesses that move and matter in the real economy. Throughout the year, we strengthened our operational discipline and improved our cost structure while navigating ongoing softness in the new home construction and home refurbishment markets. Our team executed well in a challenging environment and delivered solid margin improvements. Across our portfolio companies, our businesses are stronger, more efficient and more resilient than a year ago. Looking ahead, we believe the actions taken this year position Live Ventures for continued progress as we focus on driving sustainable profitability and enhancing the overall performance of our businesses. We will now take questions from those of you on the conference call. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question today comes from Joseph Kowalsky of JD Financial Planners. Joseph Kowalsky: With regard to the shares that are repurchased, have you ever reissued shares either in conjunction with buying a company or otherwise? Or do you have some sort of a collar or price where you'd say this is a good price to buy shares, either PE or PEG or something like that. This is a good price to buy shares. This is a good place to issue shares? Do you do it strategically like that? That's my first question. My second question is with regard to debt. Do you intend to pay down the debt entirely? Is there a certain debt level that you think might be reasonable to keep for the longer term? I don't know based on the interest rates, if it would make sense, but that's my second question. And then my third question is, have the interest rate reductions benefited the company in any way? And I thank you very much. And I'll be quiet now. David Verret: Okay. So the first question is about issuance of shares. We may from time to time, we have in the past at least issued some shares in connection with acquisitions to help from a financing standpoint. And so I think it's going to be depending on kind of where we feel like the market is representative to our value of the company and whether that makes sense or not. We do kind of monitor kind of where our purchase levels are as far as what price we will execute the repurchase program. And it's somewhat fluid as we monitor again, kind of where the markets are relative to our price and our valuation. Joseph Kowalsky: And by the way, I'm sorry to interrupt, I said I'll be quiet, but I think your purchase -- average purchase price was excellent either way. David Verret: Yes. Yes, yes. And so -- and it can be fluid depending again on how the markets are and our valuation. So -- but we also see that it is a tool in a form of consideration that can be given in future acquisitions. So it's something that we evaluate as we're going through the acquisition process on cash, borrowing and stock. Those are kind of our levers. With regards to the paydown of debt, yes, we're very excited about lowering our debt levels and we will continue to pay down that debt. There will be a point where once the debt gets to kind of a little more moderate level that we can evaluate where our money can be spent and provide the highest return for our shareholders, whether that is continuing to pay down debt or using that money in acquisitions and so forth. So again, that's going to be something that we'll evaluate as we go. But over this last year, one of the things that we focused on was really getting that debt level down. And with regards to interest rates, we're excited. There's been, I guess, 3 rate cuts over the course of this year. So that will certainly improve or help us on our interest expense going forward. And also, there's the big beautiful bill, which I believe has also some relief on the interest rate deductions that you can take versus where we are today. So I think we see some positive things in nature of that even in the future. But yes, it has benefited us. And I think actually, the interest rates will also benefit us even more when that kind of trickles down into the housing market and really stimulate the housing sales and purchases as well as flooring remodels and things like that. Operator: [Operator Instructions] We have no further questions at this time. Greg, I'll turn the program back over to you for any additional or closing comments. Greg Powell: Okay. I just want to thank everyone for joining us today. We were really proud of the year, and we look forward to delivering more results in the upcoming year. Thank you for joining us. David Verret: Thank you. Operator: That concludes our meeting today. You may now disconnect.
Operator: Good morning, and thank you for attending the D2L Inc. Q3 2026 Financial Results. My name is Rica, and I'll be your moderator for today. [Operator Instructions] This morning's call is being recorded on December 11, 2025 at 9 a.m. Eastern Time. I would now like to pass the conference over to your host, Craig Armitage, Investor Relations. Thank you. You may proceed, Craig. Craig Armitage: Good morning. Listeners are reminded that portions of today's discussion will include statements that contain forward-looking information. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information. Further, certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. For identification and discussion of such risks, uncertainties, factors and assumptions as well as further information concerning forward-looking information, please refer to the company's annual and interim management's discussion and analysis and the most recently filed annual information form, in each case as filed under the company's profile on SEDAR+ at www.sedarplus.com. In addition, during this call, reference will be made to various non-IFRS financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted gross margin and free cash flow. These non-IFRS measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other public companies. Please refer to the company's MD&A for the 3 and 9 months ended October 31, 2025 and 2024 for more information about these and certain other non-IFRS financial measures, including where applicable, a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures from our financial statements. With that, I'd now like to turn the call over to John Baker, Chief Executive Officer of D2L. Please go ahead, John. John Baker: Thank you, Craig, and thank you, everyone, for joining us for our Q3 earnings call. We released the financial results after markets closed yesterday, which you can find on the Investor Relations section of our website at d2l.com. Please note that the results we're discussing today are in U.S. dollars. I'm joined this morning by Josh Huff, our CFO, and we look forward to taking you through the results today and addressing any questions. Q3 was more challenging than anticipated with growth rates reflecting both lower services revenue and higher churn in our U.S. K-12 market. That said, we're making good progress across our key growth pillars, including higher education, corporate and international and seeing strong indicators that reinforce our confidence heading into Q4 and for the year ahead. Quickly, looking at a few key financial highlights for Q3. Subscription and support revenue rose 6% to $49.4 million. Annual recurring revenue grew 6% over last year's Q3 to $213.4 million, and adjusted EBITDA was $7.9 million with adjusted EBITDA margin at approximately 15%. For the year-to-date, SaaS revenue was up 10% and adjusted EBITDA increased 33% with a margin of 15%, and we're on track to land within our guidance for the full year on these two measures. It was also another solid quarter for ARR bookings from our two growth markets, higher education and corporate. We generated ARR of 10% year-over-year in these two markets in an environment where U.S. Higher Education activities remained subdued for the last year. Looking forward, pipeline generation has been better than forecast for multiple consecutive quarters and remains healthy. In North America Higher Education, we're seeing a gradual improvement in market conditions with early signs of increased activity as institutions redirect attention to investments that improve outcomes, find new pathways for growth and strengthen student retention and experiences. Our competitive position has never been stronger, and we continue to win more than 50% of the time. In Q3, these new customers included the University of Central Arkansas, which selected Brightspace to replace its legacy system and transform the learning experience for more than 10,000 learners. St. Ambrose University, a leading private institution in Iowa with a strong focus on personalized learning and Oregon Health & Science University, a premier academic health center, chose Brightspace to power the learning for the next generation of health professionals. In the K-12 market, we've experienced higher churn from U.S. customers this year, largely from their internal leadership changes and a reversion to more traditional models of education in that region. Globally, we're seeing healthy K-12 client adoption metrics as many countries, states, provinces and districts look to improve the quality of their educational experience with our learning platform. And for context, K-12 represents roughly 12% of our ARR at the quarter end, and we're intensely focused on continuing to provide great service to some of the largest K-12 school districts in North America and globally. Internationally, our teams continue to perform well and expand D2L's footprint across targeted countries. Our year-over-year international ARR growth exceeded 15% in Q3, and we're seeing similarly strong pipeline trends. Among the new customers this past quarter, we welcomed the University of West Scotland, one of Scotland's largest modern universities serving approximately 20,000 students. And also in Europe, we added a leading global banking institute, which is advancing skills and standards for thousands of banking professionals. We continue to expand our reach in corporate learning globally. In Q3, new customers included the Florida Center for Nursing, a large statewide center dedicated to strengthening the nursing workforce and supporting health care education initiatives, the Professional Association for dentists in New Zealand and one of the largest nursing unions and professional bodies for converting to Brightspace to power the professional development for its extensive membership. We're also expanding employee training underneath our SVP, Kevin Capitani, who joined D2L this fall and has quickly made a positive impact both within our go-to-market and product road map. Kevin brings 30 years of leadership in technology and learning, including 20 years at SAP and most recently as President of Pearson North America. I've recently been on a number of global trade missions, and it's clear that employee training and upskilling are big areas of focus for leaders in business and governments. I see this as a significant growth pillar for D2L in the future. Platform expansion and upsell is another growth pillar for the company, and I'm pleased to report that we're seeing a healthy pipeline generation for new products, including our AI offering, Lumi. Now 5 quarters into our launch, we have more than $2 million in ARR from Lumi, and our pipeline for the product is growing significantly. AI remains front and center for our engagements, both with existing customers and prospects, confirming our view that AI will act as a significant catalyst for a new investment cycle. Our investments into our product are growing customer adoption and expanding use cases that demonstrate improved learning experiences and outcomes. D2L is well positioned to help our clients lead the transformation of learning. And with that, I'll turn the call over to Josh. Josh Huff: Thanks, John, and good morning. The Q3 results were mixed. We had healthy bookings and pipeline generation in our core growth markets, giving us confidence moving forward. This was offset partially by some expected impacts from the year-over-year comparative period and higher churn in U.S. K-12. Total revenue for Q3 was $54.1 million, in line with the same period last year. This was impacted significantly by a year-over-year comparative period that included a $1.2 million professional services revenue true-up adjustment. Subscription and support revenue increased 6% to $49.4 million, reflecting new customer growth and strong expansion from existing customers and was partially offset by the U.S. K-12 market churn. For the fiscal year-to-date, SaaS revenue grew at 10%. Annual recurring revenue grew by 6% to $213.4 million. We saw continued strength in new ARR bookings from our global higher education and corporate markets. As John highlighted, Q3 ARR growth was 10% in these markets combined. Professional services and other revenue decreased 38% to $4.7 million. This decrease in part reflects the revenue true-up adjustment included in the prior year and a continued cautious spending environment in the U.S. market, resulting in reduced near-term demand for larger engagements such as our curriculum advisory services. We've made significant progress on gross margins over the past several years. However, the Q3 gross margin decreased mainly because of additional costs for the planned migration of a database technology, which had a roughly 200 basis point impact the course of fiscal 2027 and for this technology change to create incremental margin benefits in fiscal 2028 and beyond. As a result, adjusted gross margin was 67.8% compared to 69.9% in the same period last year. And gross profit margin for subscription and support revenue was 71.1%, down from 72.7% in the prior year. Gross profit margin for professional services was 20.4% in Q3 compared to 45.2% in the comparable period last year, which was impacted by the true-up adjustments. For the year-to-date period, we continue to demonstrate meaningful operating leverage. Total OpEx increased by 1% over the prior year and OpEx as a percentage of revenue decreased by 320 basis points. In Q3, operating expenses were $32.5 million, consistent with the prior year, and OpEx remained the same as a percentage of revenue at 60%. We view this as a very important period as we work to become #1 in targeted learning markets globally and increasingly establish ourselves as the next-generation learning platform. And we are investing in product innovation and market expansion accordingly. In terms of earnings and cash flow in the quarter, adjusted EBITDA was $7.9 million compared to $10.4 million in the same period last year. The year-over-year decrease is explained by the prior year professional services true-up and the current period database technology migration. For the year-to-date period, we reported a 33% increase in adjusted EBITDA and adjusted EBITDA margin was just over 15%, consistent with the midpoint of guidance for the full year. Income for the period was $4.4 million versus $5.5 million for the same period in the prior year, and free cash flow was $18.8 million, up from $11.3 million in the same period last year. And for the fiscal year-to-date, free cash flow grew 15% to $32.2 million. Our financial position remained very strong at quarter end with no debt and $110.5 million in cash and cash equivalents, providing us the flexibility to invest in growth opportunities as we move forward. In terms of uses of cash, we repurchased and canceled 223,500 Subordinate Voting Shares under our NCIB program in the third quarter, bringing the total for the fiscal year-to-date to roughly 600,000 shares as of October 31, 2025. And this week, we announced the launch of a new NCIB with increased capacity commencing December 12. Our capital allocation continues to support a low dilutive impact. The weighted average diluted shares outstanding increased by less than 1% over the past 12 months. With 1 quarter left to go in the year, we refined our full year guidance. We are now expecting subscription and support revenue in the range of $198 million to $199 million, implying growth of 10% over fiscal 2025. Total revenue in the range of $217 million to $218 million, implying growth of 6% over fiscal 2025 and adjusted EBITDA in the range of $32 million to $33 million, implying an adjusted EBITDA margin of 15%. In closing, we're executing with discipline while navigating a dynamic market environment. In our core growth markets, we're seeing a better-than-expected pipeline and healthy ARR growth. Combined with a strong global competitive position, a healthy balance sheet and growing cash flow, these trends reinforce our confidence leading into Q4 and the year ahead. With that, we will open the call to questions. Operator? Operator: [Operator Instructions] Your first question comes from Doug Taylor with Canaccord Genuity. Doug Taylor: I just want to dig into the churn you're seeing in the K-12 market. Some rough math here, if it's 11% of your ARR suggests the churn is pretty substantial. And so I just want to -- I want to understand a little bit what's happening there with respect to those organizations? Is it them reducing the number of students covered? I don't think there's some competitive displacement, but maybe you could just flesh that out for us a little bit in terms of what's happening in the remaining exposure? John Baker: Doug, it's the 1 or 2 key clients that are making a move to a competitive solution. So there is a small element of that. But the rest is largely leadership making a decision to go from supporting full online experience, supporting a hybrid approach where, for example, on a snow day, like they are having in Ontario today, the students would actually be able to switch back to an online experience in a heartbeat to much more of a traditional model of education and reducing the reliance on digital. So that -- there seems to be a number of schools that have made that pivot back to something that we would have seen probably 15, 20 years ago. And I'm hopeful that over time, we get them back on the right track for supporting this digital expansion with traditional K-12 education, like we're seeing in other jurisdictions and like we're seeing in other jurisdictions through the rest of the world. Doug Taylor: So just maybe to put that another way, given the budgetary environment, they're moving to a less feature-rich LMS platform if they have one or -- and then maybe in the competitive situations that you described where they're moving to another platform, is that based purely on pricing? John Baker: I'd say in the ones that are making the move to another platform, yes, I think it's largely based upon pricing. And in another case, it's -- I don't think it's budget. I think it's just new leadership with a new vision for where to take the institution and taking it back into more traditional routes versus digital leadership route, routes that have been established for -- and the one case I'm thinking of 10 to 15 years of really pioneering a better learning experience through digital and just going back to a more traditional approach. So it's more of a pullback versus a complete removal of the platform in that particular case. But I do think as we continue to work with that client in particular, we will see them continue to invest more and more in digital over time. And so I do think while we are seeing some impact in the K-12 sector in the U.S. beyond the U.S., we're actually seeing good strength in that market. Doug Taylor: That's an interesting new leadership approach. we've got now your updated guidance for this year, reflecting some of the puts and the takes that you've mentioned, and we've still got this medium-term guidance that's, I guess, about 2 years out now. And I know we'll get guidance for next year in a couple of months. But I just -- maybe I could get you to qualitatively at least talk about how we should map the impacts we're seeing here as it relates to the top line puts and takes and also professional services to the extent you can on to next year's model, I think that would be very helpful? John Baker: Yes. I think maybe we'll split this question with myself and Josh. From my vantage point, just traveling the world over the course of the last few months, it's very clear that there's good healthy pipeline demand. International is going well, corporate is going well. Higher education is going very well. And even in some of the global opportunities we're seeing in K-12, we see good growth opportunities. The key for the year ahead is converting that pipeline into good growth. And we've got, at this stage, good confidence in a good quarter ahead and in the year ahead and our progress towards that medium-term model that we've articulated is unchanged, Doug. So feeling very good based upon what we're seeing in the field and based upon what we're seeing with pipeline generation. But Josh, I'll let you take part of this question as well. Josh Huff: Yes, Doug, I appreciate the question and recognize there's a bit of a step from the 6% to the 10% to 15%. As John mentioned, we feel very confident in our competitive position and the investments we're making. And then maybe more specifically, if you just look at sort of the near-term compression we saw from the U.S. K-12 churn in a lower-than-typical higher ed new logo market. And so [ ex K-12, ] we have reported year-over-year ARR growth of 10%, again, in a muted higher ed market. And as we look forward, we remain confident in the ability to grow very effectively in those core markets of international and higher ed, international, higher ed and corporate. And we also see an increasing opportunity within the employee training corporate environment, where we're making very pointed investments from both a product and a go-to-market perspective. So the net of all that, we remain confident in the fiscal '28 operating model and are making the right investments. Operator: Your next question comes from Gavin Fairweather with Cormark. Gavin Fairweather: I appreciate the comments on the pipeline, and I was hoping to dig a little bit deeper. Curious if you have any stats you could share on the pipeline growth or the build versus budget, which sounds like it's been strong or kind of how the shape of the pipeline is looking in terms of top versus bottom of the funnel? John Baker: That's a great question. So we've now -- this will be our multiple consecutive quarters of reporting better-than-expected pipeline generation. Just to give you a bit of a ballpark, we're entering into Q4 with probably the healthiest pipeline that we've seen in more than 3 years. And so we're feeling very good about the top of the funnel performance. And as we see it fall through to getting into deals in progress with clients, feeling very good about our ability to execute and win those deals. And so I think that sets us up for a good quarter ahead and a good year ahead as the team is doing a good job on execution there right now. Gavin Fairweather: Appreciate that. And then just maybe on the employee training market. I did see the addition of a new leader there, and you continue to advance your product for those employee training use cases. But how should we be thinking about the build-out of the go-to-market team in fiscal '27 and kind of the time lines to increase deal flow and ARR build in that segment? John Baker: Well, I think that's one of the nice things actually is we're actually feeling very good about having the capacity with the sales team. We've done the hiring already for next year, this year to make sure that we're well set up for success with an overcapacity for us to deliver in the year ahead. So that build-out has largely been done. We are going to continue to build out the employee training part of our business. We've done a number of hires there already, but that will continue to grow. We expect that, that will hit in terms of improving our ability to close more and more deals in that space in the early in the new year as those folks come up to productivity. So feeling pretty confident relative to, let's say, 2 or 3 years ago, where we struggled with having the right talent in the right seats at the beginning of the year. This year, we're well ahead of schedule. And I'm optimistic that will help us hit the ground running fast in the new year. Gavin Fairweather: That's great to hear faster than I would have thought. And then just quickly on K-12. When you look at the shape of the renewal book, kind of coming up? Are you thinking that maybe this might be the peak headwind to sequential ARR and we can expect a bit more of a moderated pace of headwinds going forward? How would you characterize that? John Baker: We're aware of one other large K-12 school that's planning on making a move next year that's shifting to a competitor. We know that, that shift has not gone well at all. We're trying to do everything we can to support them, get them to be retained, if you will. But other than that, there's no other signs from any of the other K-12 business that we have outside of that U.S. client, and it's not impacting our ability to grow the business next year, both for our core plans for the business or for our medium-term model. And globally, as I said, in K-12, we're actually seeing good opportunity for expansion. So I think there's just a bit of an air pocket in one of our key markets. Operator: We now have Erin Kyle with CIBC. Erin Kyle: I wanted to follow up with a question on the K-12 churn as well. You mentioned competition in the space. I think we know there's some other large players that have been in the space for a while. But some of the larger AI players like Google and OpenAI have been rolling out AI offerings for education in the last couple of weeks and months here. So I'm wondering if you've been seeing increased competition or any churn tied to customers looking at those options as well? John Baker: The quick answer is no. That's not the competitors that we would be losing to. We're actually harnessing many different AIs to support the growth of our platform. So in other words, taking Cloud or OpenAI or dozens of others to incorporate those into our product as part of our Lumi offering. And so in our market, everyone needs a core learning platform and the key is to harness these AI technologies to make it easier to build questions, build assignments, build learning activities and experiences. So those folks would be more natural partners for us versus direct competitors. Erin Kyle: Okay. That's helpful context there. And maybe I'll just switch gears to the higher education space. And maybe if you could just give us an update on the competitive landscape in that space and whether you've noticed any shift in the last several months following Anthology's Chapter 11 filing. Any changes to your win rate there? Anything you can share on that space in particular? John Baker: That's a great question, Erin. So obviously, the market has changed a lot in the last quarter with Blackboard filing for bankruptcy and going through that process. What we have seen and can report is that our pipeline continues to grow. Our win rate continues to grow. And I think we're well positioned to be very competitive against all of our competitors in the higher education market. So you've got Blackboard going through bankruptcy and restructuring. That's not going to be easy for their customers. It's not going to be easy for their teams. You've got Instructure now entering multiple years of being owned by private equity, and you've got Moodle going through a leadership change as well as a new ownership. And so these are all big internal changes that these organizations are grappling with. While we're very much focused on delivering world-class product, world-class service to our customers and helping them deliver outstanding results for their students, helping them grow in new ways, supporting different models of learning. I think we're well positioned to go win in this market. Operator: We now have John Shao with TD Cowen. John Shao: Could you give us some color regarding where you see your adjusted EBITDA margin is going to land? Right now, the average is around 15%. So where do you see the upside? Or should we expect a balance point after which we're going to see more investments? Josh Huff: Yes. Thanks for the question, John. The current period, as you can see through our guide, is a 15% adjusted EBITDA margin, which is sort of where we've been the past quarter or so. As we articulated last quarter and you see again this quarter, we are working through that database technology migration. And so that does create a bit of sort of a short-term bubble cost, if you will, relative to what would otherwise be our margin profile. So as we work through that throughout fiscal '27, that impact will moderate. And then we'll get to a point in F '28 where we can start to see incremental margin benefit from that migration of that technology. And then as we build towards F '28, we will continue to seek opportunities for operating leverage. And so we very much feel confident in the build from today to the 18% to 20% margin profile in our F '28 operating model. I will mention, as we do that, we're obviously looking for efficiency gains such that we can make the right investments. We see this as a very important time for us to establish ourselves as that next-generation platform and continue our sort of momentum in global higher education and really establish ourselves in corporate learning. And so it's a balance for us as it has been in the last few years of balancing sort of prudent disciplined investment while we grow the business. John Shao: Got it. That's great color. And if you're going to deploy capital towards M&A again, do you think some of your consideration or preferences will be different today versus a year or 2 years ago? On that front, with the cash balance at a recent high, how should we think about your capital allocation priorities? Josh Huff: Yes, it remains similar. So it's a balance of making use of our free cash flow to organically invest in the business through our sort of margin profile, but also a balance between a buyback program. We just launched -- relaunched the NCIB program for another year with additional capacity year-over-year. And then we'll also continue to look for opportunities inorganically to add to the business, which we continue to see as a good way to grow the business and really kind of making use of that position as a platform in our ecosystem. Operator: We now have the next question from Thanos Moschopoulos with BMO Capital Markets. Thanos Moschopoulos: John, now that you've been selling Lumi for a few quarters, any themes you're seeing with respect to the kinds of clients, institutions that are adopting it versus the ones where the sales process has been more challenging? And then any learnings in terms of how do you well -- maybe best manage that process in driving adoption? John Baker: Well, I think with Lumi, I haven't really run into clients that say no, just for clarity. It's just taking time for them to actually work through the procurement of it. That's a good question. Most of the clients that I'm talking to now are really just starting with a toe in the water versus jumping in full steam ahead. So they're wanting to try out a smaller adoption of Lumi to support basically stepping into this new technology area versus it being a massive deployment where they upskill all of their people right out of the gate. The one challenge that I think we've got to work on is like internal branding of Lumi in the product. The one thing that we stood out for us is our clients understand it, our reps understand it, but the actual end users don't know they're actually using Lumi yet. And so we're seeing wild adoption. We're seeing like almost -- well, over 8,000% year-over-year adoption of folks that have implemented Lumi. So the internal utilization is going up. But I think we can turn up the dial a little bit on the growth of Lumi with that continued investment that we're making in the product, but also with helping a little bit of brand awareness within the product itself. Those are important for us to unlock this next level. That said, pipeline is great. Client response to it has been fantastic. The new technology that we're rolling out to support even now generating new types of content activities within the learning platform, I think have been really well received. And some of the new functionality around virtual tutoring and support on giving feedback to students, also really well received by faculty and also the students themselves. So the team is doing a really good job on delivering great product that's in high demand from clients. I'm not seeing any pushback on the actual product market fit itself. That seems to be hitting really well. I think the key now is for us just to continue to do what we're doing in terms of building a great reference base, building out these efficacy studies, demonstrating real impact and value and getting in the hands of more clients. Thanos Moschopoulos: Great. And then on the corporate market, just to clarify, would you characterize the growth in corporate as being similar to higher ed? Or is it any better? And then just how have you seen the environment evolve in recent months? And you talked about a healthy pipeline there, but any specific themes or dynamic you're seeing in corporate? John Baker: Well, I think maybe Josh can comment on this as well, too. But just from my vantage point, traveling with a number of CEOs in the last 2 months have been an eye-opener. There's a tremendous talent bottleneck in a number of different industries, which we've got to resolve. There's a disconnect between what employees have as knowledge and skills today and what their employees are actually looking for. And so I think there's going to be this big investment in upskilling and also work to be done supporting graduating students into fields that are in high demand, where there's a gap between what the employers are looking for and what the employees or potential employees have as a skill set. So I think this is a tremendous growth opportunity for the future. And we're digging in with a number of CEOs and actually on another trip starting this weekend with a number going over to France to visit some different industries over there as well as meeting with a few domestic CEOs from here in North America at the same time. I do think this is a big growth opportunity. But the challenge now is making sure that we're well positioned as the next-generation learning platform to support that upskilling of the employee and to help these big companies really tackle these talent bottlenecks, whether it's in semiconductor or power utility or technology, you name it, there's a lot of different industries struggling with this right now. Josh Huff: Yes. Just additional -- Thanos. Yes. So corporate, we continue to see as a market that can grow at approximately or above 15% year-over-year, and that's what we've continued to see. Right now, the training organization part of corporate is where we've seen sort of the most consistent growth. What we're really excited about in addition to that is we're making some meaningful investment this year in our product on the employee training side as well as building out that go-to-market capability under Kevin's leadership, which sets us up very well to start to contribute towards that growth profile in a more meaningful way from the employee training side. So certainly excited about the years ahead as we really mature our position in market. Operator: We have Paul Treiber with RBC Capital Markets. Paul Treiber: Just a question on ARR growth. You gave the comment that ARR growth, excluding K-12 was 10% this quarter. How does that compare to the last several quarters? And yes, if you can just put some context around that 10%? Josh Huff: Yes, sure. So this is obviously a year where the North America higher ed market, which is a big part of our business, has had lower new logo activity. So we would expect that profile to be larger in normal periods of time. But where we've sort of outside of that lower macro environment of North America higher education, we're very pleased with the growth in international as well as corporate, we just mentioned. International, this is the second quarter in a row where we've seen ARR grow year-over-year greater than 15%, which is sort of what we've targeted and expected from that business. And so certainly pleased with some new leadership that joined over the past year and really just across the business, embrace and an investment into the success of our international growth. So slightly lower, Paul, to answer your question, just based on that lower RFP activity level in North America higher ed. In that lower activity environment, we're still winning at a very high rate, and we're confident in our competitive position as that fog starts to lift in the coming quarters. Paul Treiber: Okay. That's helpful. And then just on the pipeline, you sound quite bullish on the pipeline. Can you speak to, one, what's driving the momentum that you're seeing in the pipeline? And then secondly, how conversion rates have been tracking, and it sounds like they've increased. And what's been driving the increase in conversion rates? John Baker: Well, I can speak to some of that and maybe, Josh, you can fill in any gaps, if you will. But what we're seeing with the pipeline is a slow build. As Josh pointed out earlier, we've been in a situation where a lot of clients in North America, in particular, have had to readjust based upon policy shifts that were outside of their control. So they've gone through some of that shift. And now we're starting to see the pipeline start to rebound even at a faster pace than we did earlier in the year. And that's largely institutions going, okay, we've made our changes that we need to accommodate. And now we're ready to invest to support a better student experience to adopt new AI technologies to support a better learning platform to engage in new activities that are going to help us grow in terms of workforce upskilling. So there's a number of different drivers for that change within the clients. And what we're trying to lean into is leveraging AI as a key catalyst for a big replacement cycle ahead. We believe that an AI-enabled learning platform, which makes it so much easier to build content, learning activities, assignments, activities to support assessment, interactives, practices, give feedback, provide tutoring. All of these are very compelling and save our clients hundreds of thousands, if not millions, by shifting to us as a platform. We've got to now convert that. And what we're seeing with the pipeline build, maybe another key nuance is that it's not just coming from the traditional Moodle and Blackboard, it's also now coming from Canvas. We're seeing a good inbound activity from all of those platforms. And I think our team has done a good job over the course of the last 3 years where our win rate has been north of 50% and continuing to tick it up year over year over year, just making ourselves a much better product and also at the same time, delivering better service for our clients, is the reason why many of these institutions want to shift. That said, like all of our competitors have done their best to keep this -- try to encourage their clients to stay at the status quo and not look to the market. But when they do look to the market, we do very, very well. And so our conversion rate on those opportunities is very high. And so we want to just continue to lean in on that motion and turn that pipeline into significant revenue in the year ahead -- quarter ahead, I should say, too. Operator: We have Suthan Sukumar with Stifel. Suthan Sukumar: For my first question, I wanted to touch on the pipeline color that you provided. I mean it's good to hear that you're seeing this consistent expansion in the overall pipeline. Can you speak a little bit about what might be different quarter-to-quarter and maybe year-over-year with respect to the current sales cycle/sales process as you look at converting that pipeline? John Baker: Well, I think the key is we're seeing the fog lifting a little bit. I wouldn't say we're clear at this stage, but we're seeing a natural bounce back in our key markets, international, corporate higher education, even some markets for K-12 globally are seeing the clients have made their adjustments and are now ready to buy. So we're really seeing 2 key things. One, clients that we have really want to invest in new technology like our AI platform, Lumi. Also Creator+ is gaining some significant traction within our base. I'm quite excited about both of those. And I do think there's a whole other set of services that our clients are going to want to drive. Now we haven't seen it fully tick back up, but we've seen it bounce back up in the last month or 2 is our learning services. That's been a weak spot for us over the course of the last year. But it seems like more clients are now starting to buy those services than we did in the past. And I do expect, hopefully, in the quarter or 2 ahead that, that will bounce back to a much more normal buying cycle as well. And then on the prospect side, what you have is all of our main competitors are running legacy technologies that are not AI -- fully AI-enabled. They're making announcements about strata to support AI, but by and large, it's mostly vapor for most of our competitors. And so I think the market is waking up to needing AI to support the workflows that all the students and faculty use globally. And that's a compelling factor for us building pipe and also now converting it into one opportunities. Suthan Sukumar: Okay. Great. No, that's helpful. For my second question, I wanted to touch on the corporate learning opportunity. I think earlier in the call, you touched upon adding more resources to focus on the employee training use case specifically. Can you talk a little bit about what's left to do from a product perspective? And given the new leadership hire here, when do you expect to be able to go to market with that refined go-to-market strategy and product offering to truly capture that opportunity? John Baker: Yes. So I think the way I would frame it is our product is extraordinarily good at delivering a fantastic learning experience. So building incredible learning activities that are engaging, that are inspiring that aren't your typical corporate boring laughable typical experience when it comes to compliance as an example. Many employees will laugh if you ask them, do you enjoy your learning experience today? It's largely old technologies that have been around for 20, 30 years, that's what the current state-of-the-art is in corporate. And so we're coming in with a modern, fresh approach to delivering that learning experience. But what we're missing is some of the admin capability that some of these other platforms have built out that grew up in corporate. The admin capability in a traditional higher education system was set up by the SIS and other vendors. And so we've got to close those gaps as quickly as possible. And we're working through many of them. So we launched, for example, 2 months ago, a good set of capability that closes a number of those gaps, and we'll continue to close more in the future. But for clients that are looking to upskill their people with the best possible learning experience and don't mind a little bit of extra administrative overhead, we're the perfect solution for them today. And I can assure them that we'll be the easiest to use platform on the admin side in not the too-distant future. Operator: We have Brian Peterson with Raymond James. Brian Peterson: Just one for me. So John, I just want to make sure we understood on the K-12 side. for the customers, are some of those leaving D2L altogether and maybe there isn't that opportunity to reengage? Because I think you used the word pullback or maybe is this something where they're spending a little bit less and then you have the opportunity. Is there any way to kind of segment of the customers that are transitioning? How many are still remaining customers and how much they are still remaining versus some that you could win back? John Baker: Yes. Well, the majority that we're talking about here are sort of downgrading, going back to more of a traditional model. So it's more of a pullback in terms of their investment in digital. But I do expect to regain some of that footing with those clients as they understand the use case a little bit better and as they want to embrace technology to support the traditional class experience, we're actually a great fit for that model. The other -- there's 2 or 3 clients that are actually transitioning to a competitor over the course of the next year. That's a bit more painful for us. Also, I think it's been very hard for the customers that are actually going through the transition as well. We're very good at supporting these large implementations within the CUS market with a premium learning experience. And I think our competitors are struggling with those transitions. So I'm not counting out our ability to go back and win back some of those accounts over time. But we're also learning some lessons in terms of like what we've got to do to make sure that we've got the right relationships, and we're building the right shared vision for the future. There are some things that we've learned as lessons as well. But it's a small number. It's just -- it is a painful air pocket for us right now in K-12 U.S. Operator: [Operator Instructions] And we have [ Daniel [indiscernible] with Iberian Asset Management. ] Unknown Shareholder: I have a question about the share buyback program. Is the primary intention of this program to offset the dilution from options and restricted share issues? Or is there more to it? And if it's just to offset dilution, is there sort of any price you pay when you buy back shares? Josh Huff: Yes. Thanks for the question. Yes, the buyback program is really a consideration of multiple things, which can include sort of the dilutive consideration, which for the past 2 years, we've been less than 1% in our dilution. And then we're also contemplating sort of the various alternative uses of cash and what we believe to be the return sort of profile of those uses of cash. And so we do foresee continuing to make use of the buyback program for the next year as part of that NCIB program we just launched this week. John Baker: Thanks, Daniel. I think that's the first investor call that we've ever had in terms of having investors speak on the call. So I really appreciate it. Thanks for the question. Unknown Shareholder: Well, thanks for letting me on. Operator: Thank you. I can confirm we currently have no further questions. So I would like to conclude the question-and-answer session. And I'd like to now hand it back to John Baker for some final comments. John Baker: Well, thank you, everyone, for joining us today on our call, and we're looking forward to updating you after our Q4 results. Have a good holiday season, and I look forward to joining you in the new year. Thank you, everybody. Have a good day. Operator: Thank you for all attending. I can confirm that does conclude the D2L Inc. Q3 2026 Financial results. Thank you all for your participation, and please enjoy the rest of your day.
Operator: Welcome to Comtech Telecommunications Corp.'s Conference Call for the First Quarter of fiscal 2026. As a reminder, this conference call is being recorded. I would now like to turn the call over to Maria Ceriello, Senior Director of FP&I of Comtech. Please go ahead, Maria. Maria Ceriello: Thank you, operator, and thanks, everyone, for joining us today. I'm here with Ken Traub, Comtech's Chairman, President and CEO; and Mike Bondi, our CFO. After Ken and Mike's remarks, they will be available for questions together with Daniel Gizinski, President of our Satellite and Space Communications segment; and Jeff Robertson, President of our Allerium segment. Before we get started, please note we have a detailed discussion of the quarter in the press release and 10-Q we issued this afternoon, which are available on our website as well as the SEC's website. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company, the company's plans, objectives and business outlook and the plans, objectives and business outlook of the company's management. The company's assumptions regarding such performance, business outlook and plans are forward-looking in nature and always involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's SEC filings. With that, I will turn it over to Ken. Ken? Kenneth Traub: Thank you, Maria, and good afternoon, everyone. I appreciate you joining us today. Today marks a sort of anniversary for me and a milestone for Comtech. My first day as CEO of Comtech was on January 13, 2025. And on that day, we belatedly reported the company's first quarter of fiscal 2025 financial results. Those were tough times for Comtech as we reported a GAAP net loss of over $148 million as well as significant other challenges facing the company. At the same time, I announced a transformation program anchored on earning the trust of all of our key stakeholders and restoring the company to financial health. I am delighted to confirm that Comtech has been successfully transformed. As evidenced by our recent financial reports, we are now a much stronger company in virtually every respect. Financially, operationally, organizationally and strategically. This is the result of the successful execution of our transformation initiatives and the dedication and determination of the Comtech team. Our entire team takes pride in how much we have been accomplishing and building a stronger Comtech poised to capitalize on attractive opportunities ahead in each of our business segments. Mike will discuss financial performance in detail, and I will cover some key themes. I've always believed the most important financial metric for any company and particularly a company like Comtech is cash flow. I have seen companies get into trouble when priorities shift and success is measured by other metrics such as revenue growth or non-GAAP measures like EBITDA, but cash is the key. It is what we need to pay our debts, pay our vendors and invest in our future. Consequently, the improvement in our cash flow generation is the most notable development in Comtech's financial performance. After previously reporting negative operating cash flows for multiple quarters, Comtech reported today its third consecutive quarter of healthy positive operating cash flows. By way of comparison, in the first quarter of last year, Comtech had a negative cash flow from operations of approximately $22 million. The significant improvement in operating cash flow reflects a substantial increase in operating income resulting from enhanced operational efficiencies, streamlined product lines focused on strategic, higher-margin products, reduced cost structures and improved terms with customers and vendors as well as more efficient working capital management due primarily to improved accountability and process disciplines. Our success in generating operating cash flow has enabled us to build our liquidity to $51 million as of the end of the first quarter. This is the healthiest liquidity that Comtech has had in a long time. Our lenders recognize our progress and credibility in improving performance and prospects early, which facilitated negotiations with them on the new investments and amendments we negotiated in both March and July. The significantly improved terms of our credit agreements provide us with much better financial flexibility, protections and confidence. All of this has put Comtech in much stronger financial footing with the acute financial concerns of the past behind us and increasing confidence in our future. Most importantly, our stronger financial position is recognized and appreciated by current and prospective employees, customers and vendors. I believe this creates a positive flywheel effect as our recent revitalization of our financial position is reassuring to employees, which aids in retention, recruitment and motivation, reassuring for customers, particularly those that rely on us for mission-critical technologies and services and reassuring for vendors who now see us as a reliable partner, ready to deepen critical relationships. Now I'll provide some commentary on our business units. Our Satellite and Space Communications business has been successfully transformed under Daniel Gizinski's leadership as well as the strong operational, technical and financial team we have built in that segment. As a vivid illustration of that transformation, Satellite and Space contributed over $3 million of GAAP operating profit in the first quarter of fiscal 2026, which compares to about $119 million of GAAP operating loss in the comparable period last year. In addition to the noncash charges for goodwill impairment and write-down of receivables and inventories in fiscal 2025 that have not recurred, this improvement reflects significantly higher gross profit due to enhanced operational efficiencies and product mix improvements as well as lower selling, general and administrative expenses, offset in part by higher investment in research and development. In the first quarter, Satellite and Space was awarded about $8 million in funded orders from an international reseller of our troposcatter family of systems, including Modular Transportable Transmission Systems and Multipath Radios intended for use in multiple international government end-user applications. MPR continues to be an opportunity where we believe we can provide a more differentiated solution at higher margins. As mentioned on last quarter's call, in fiscal 2025, we began deliveries of initial production units to our prime contractor in support of a next-generation satellite modem contract. We will be transitioning into full production during fiscal 2026 as the program transitions from a multiyear development period into a production-oriented stage. A second next-generation product with the same prime contractor has also significantly progressed in development and is expected to begin production deliveries in fiscal 2026. These are important milestones as they signify the long-awaited migration from low-margin, nonrecurring engineering efforts to higher volume production with improved operating margins and faster cash conversion cycles. Now I will provide commentary on our Allerium segment, formerly known as our Terrestrial and Wireless Networks segment. Allerium, led by Jeff Robertson, continues to perform well with adjusted EBITDA of $11.3 million, which is a modest improvement from the prior year period of $11.0 million. As anticipated, Allerium experienced lower net sales for our call handling solutions, offset in part by higher net sales of our next-generation 911 services. As I mentioned on last quarter's call, in early November, we secured a multiyear contract extension from Allerium's largest customer, a leading telecommunications company in the United States, known for its network reliability and security. This contract award is valued in excess of $130 million and is for a scalable service. The agreement reinforces Allerium's commitment to helping carriers and public safety organizations modernize critical infrastructure and optimize service reliability with confidence. Securing long-term commitments from customers provides an anchor of stability and enables us to invest with confidence in building sustainable long-term partnerships. With strategic wins in the United States, Canada and Australia, we believe Allerium's position as a trusted leader in 911, next-generation 911 and public safety applications positions us increasingly well when it comes to delivering similarly sophisticated solutions for other types of emergencies. During the first quarter, Allerium was also awarded over $15 million of incremental multiyear funding related to the continued development of next-generation solutions for a state in the Southwestern region of the United States. Allerium also received various funded orders from another top-tier U.S. mobile network operator totaling almost $6 million, primarily for maintenance and new feature releases associated with previously deployed wireless location-based solutions. With that, I'll turn the call over to Mike to walk through the financials. Mike? Michael Bondi: Thank you, Ken, and good afternoon, everyone. Net sales for the first quarter were $111 million. This compares to $130.4 million in the immediately preceding quarter and exceeds the midpoint of our revenue guidance provided on November 10. As anticipated, the first quarter reflects the impacts of earlier-than-anticipated orders and net sales as well as certain contracts nearing completion in the fourth quarter of fiscal 2025. Performance in the first quarter, particularly in our Satellite and Space Communications segment also reflects the impacts of timing delays in orders and net sales as a result of the recent U.S. government shutdown as well as the decision to phase out and eliminate certain low-margin revenues. Gross profit in the first quarter of fiscal 2026 was $36.8 million or 33.1% of net sales, representing a substantial 153.3% increase from the $14.5 million or 12.5% of net sales in the first quarter of fiscal 2025. The gross profit percentage in the more recent quarter also represents a sequential increase from the 31.2% of net sales in our fourth quarter of fiscal 2025. We continue to make progress in improving our product mix, including our ongoing shift back to higher volume production orders in our satellite ground infrastructure solutions product line as certain legacy low or no-margin nonrecurring engineering contracts draw nearer to completion. The sequential improvement in our quarterly gross margin percentage builds upon the quarterly trend achieved throughout fiscal 2025, which reflects the impact of our initiatives to reduce cost of goods sold and improved product mix. In our first quarter of fiscal 2026, we reported an operating loss of $2.8 million, which compares to an operating loss of $129.2 million in the first quarter of last year and an operating income of $1.9 million in the immediately preceding quarter. Our first quarters of fiscal '26 and 2025 reflect several noncash and onetime charges as further discussed in our Form 10-Q filed earlier today. Excluding such items, our consolidated operating income for the first quarter of fiscal 2026 would have been $6.6 million or 5.9% of net sales as compared to operating income of $9.9 million in the fourth quarter of fiscal 2025 and an operating loss of $33.7 million in the first quarter of fiscal 2025. The improvement from the operating loss in the prior year period reflects significantly higher gross profit, both in dollars and as a percentage of consolidated net sales and significantly lower selling, general and administrative expenses. The more recent improvements in our financial performance resulted in $9.6 million of adjusted EBITDA for the first quarter and $13.3 million in our fourth quarter of fiscal '25 as compared to an adjusted EBITDA loss last year of $30.8 million in the first quarter of 2025. Net bookings were $101.9 million in the first quarter, resulting in a book-to-bill ratio of 0.92x. This compares to 1.1 in the prior year comparable period and 0.72x in the immediately preceding quarter. Bookings for our first quarter included approximately $27 million of initial funding toward the multiyear contract extension that Ken mentioned earlier, which is valued in excess of $130 million. The more recent improvements in our financial performance resulted in cash flows provided by operations of $8.1 million for the first quarter of fiscal 2026 and $11.4 million in the fourth quarter of fiscal 2025, substantial improvements from the negative $21.8 million of cash flows used in operations in the first quarter of last year. As Ken mentioned, this marks our third sequential quarter of positive operating cash inflows. The significant improvement from a year ago reflects favorable changes in net working capital requirements due primarily to improved accountability and process disciplines as well as the timing of and progress toward completion on contracts accounted for over time, including related shipments, billings and collections. These activities allowed us to further reduce receivables and inventory levels from July 31, 2025. Also, as a result of our enhanced liquidity, operating cash flows in the more recent period reflect our concerted efforts to maintain lower levels of accounts payable in order to improve vendor relations and gain further traction in negotiating more favorable vendor payment terms. Turning to the balance sheet now. As previously disclosed, we amended our credit facility and subordinated credit facility on October 17, 2024, March 3, 2025, and July 21, 2025, to, among other things, suspend testing of the net leverage ratio and fixed charge coverage ratio covenants until the 4-quarter period ending on January 31, 2027. As of October 31, 2025, total outstanding borrowings under our credit facility were $135 million, of such amount, $17.6 million was drawn on the revolver loan. Subsequent to quarter end, on December 1, 2025, we repaid $5 million against the revolver. Total outstanding borrowings under our subordinated credit facility at quarter end were $101.5 million, including interest paid in kind or accrued on the $35 million of subordinated priority term loan. Such total amount does not include the $25.7 million of make-whole amounts associated with the $65 million portion of such credit facility as of such date. The liquidation preference on our outstanding convertible preferred stock was $208.7 million, excluding potential increases in the liquidation preference and other obligations that could be triggered by, among other things, breaches of covenants and/or asset sales resulting in a change in control of the company and our available sources of liquidity on October 31, 2025, totaled $51 million, which includes qualified cash and cash equivalents of $41.4 million and the remaining available portion of the revolver loan of $9.6 million as of quarter end. Now let me turn the call back over to Ken. Ken? Kenneth Traub: Thank you, Mike. To sum up briefly, Comtech has executed a successful transformation and is now a much stronger company. Our revitalized financial health is increasingly reassuring to current and prospective employees, customers and vendors. To reiterate, I believe this creates a positive flywheel effect as our recent strengthening of our financial position is reassuring to employees, which aids in retention, recruitment and motivation, reassuring for customers, particularly those that rely on us for mission-critical technologies and services and reassuring for vendors who now see us as a reliable partner, ready to deepen critical relationships. Before we move to the Q&A, I would like to highlight that we also announced today that Mary Jane Raymond has joined our Board of Directors. With Comtech's recent positive momentum, it is a good time for us to enhance our Board, and we look forward to benefiting from Mary Jane's broad governance, finance, internal control oversight, M&A and operational capabilities. Please join me in welcoming Mary Jane. As a reminder, Jeff and Daniel will be joining us for Q&A. With that, operator, please open the call to any questions. Operator: [Operator Instructions] Our first question comes from Mike Crawford with B. Riley Securities. Michael Crawford: First off, that $130 million of new bookings, should that all flow to backlog in the current quarter? Kenneth Traub: So a portion of it was a booking in the first quarter, and -- but the great majority of it is -- will be booking in the second quarter. Michael Crawford: Okay. So -- and that will go into backlog in the second quarter, that's great to have a nice [ start ] for the book-to-bill. And then just more broadly, do you think of these cross currents that you've discontinued some low-margin products, but now you're transitioning the higher volume production on some new digital modems. Like how should we think about return to top line growth, whether it's this fiscal year or next? Kenneth Traub: Our focus, Mike, is optimizing for cash flow. So we have deliberately shrunk to be in the position to now regrow. We feel like we're at that inflection point, and we are in a good position where we've phased out some low-margin, unattractive business while we're focusing on better strategic, higher-margin, long-term opportunities. So we do believe that we are at that inflection point where we've improved margins, and we have attractive growth opportunities ahead. Michael Crawford: Okay. And then just final question for me is any updated thoughts on what some of your best options are now to do with your PIK preferred stock obligation. Kenneth Traub: I'm not going to comment on that right now, Mike. It's an important element of our capital structure. And as you know, we're looking at a variety of options to improve our overall capital structure, but we're not ready to announce anything specific at this time. Operator: [Operator Instructions] At this time, there are no further questions in queue. I will now turn the meeting back to Ken for any additional or closing remarks. Kenneth Traub: Well, thank you, operator. And with that, we'd like to wish everyone a wonderful holiday season, and we look forward to speaking with you all soon. Happy holidays. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Ignacio Sison: Good evening to everyone. Thank you for joining the Del Monte Pacific results briefing for the second quarter and first half ending October for fiscal year 2026. Representing the company in this call are Cito Alejandro, Chief Operating Officer of Del Monte Pacific and President and COO of Del Monte Philippines; Parag Sachdeva, CFO of DMPL and DMPI, and I am Iggy Sison, Chief Corporate Officer of DMPL. We were planning to go straight to Q&A earlier, but since the results have just been uploaded with our apologies, we will request Parag to go through at least the second quarter and first half results just to begin the briefing. And this can be followed by the Q&A, which will be moderated by our colleague, Jennifer Luy. Parag Sachdeva: Thank you, Iggy, and good evening, everybody, who is on the call. Thanks for making time. Pleased to share with you our second quarter results for fiscal '26. Our revenue has grown by 10% in the first quarter (sic) [ second quarter, ] driven by higher sales in the Philippines and international markets. Our local business or domestic business grew by 9.3% in local currency, whereas our international business grew by 6.6% driven primarily by fresh, which in itself had an outstanding quarter, growing by 22.5%. So overall, very robust results. And when it comes to processed exports business, that's more timing of supply, and we expect a pretty strong quarter for processed exports as our supply is going to be much better in the second half. Our margin performance also, as you can see, was 660 basis points higher at 34.2%, driven by increased volume, better pricing and lower calorie and plantation costs with improved pineapple recovery and -- which is also a function of higher yield in the plantation and better fruit size distribution. So all the parameters that we were seeing had come across as headwinds in fiscal '24 have been progressing in the right direction and are tracking ahead from a plan perspective. Our EBITDA at $51.5 million, driven by higher sales and margin, is up by 39.2% and consequently, our net profit as well has increased by almost $14.5 million or significantly higher versus second quarter last year. Net debt during the same period has gone down by roughly $50 million or 4.8% as we continue to pay down our loans from internally generated cash flows. Our net debt to EBITDA at 6.1x is 2.2x better, resulting from debt reduction and improved profitability. Our cash flow from operations continues to be strong. For the quarter, we did $85.9 million. It was slightly lower than last year, and that's mainly because of inventory buildup ahead of the peak season and also since we had a pretty good pine supply in the second quarter as compared to our plan, which we will be able to sell very easily in our third and fourth quarter. So feel very good about our business and particularly cash as well, cash performance, too. So moving on to the next slide. In terms of the first half results, very much in line with what I mentioned on second quarter. Our turnover was strong at 11.3% with a double-digit growth that we saw in our Philippines business and also international business, just like the second quarter grew by 6.5%, primarily driven by our fresh exports, which was -- which grew at 16% in the first half. Gross profit was up 580 basis points due to the very reasons that I mentioned in second quarter. EBITDA 26.2% at $90.7 million, really driving an improvement in net profit by a significant percentage at $22.3 million. So net-net, our first 2 quarters and first half results have been very strong from a revenue growth perspective, from a gross margin perspective, EBITDA, costs, all have been falling in place, and we are also showing reduction in net debt, as I mentioned in the second quarter results. Cash flow from operations. Continue to have a strong momentum, whereby we are improving our working capital performance in addition to driving cash from profitability too. So at $162.7 million, very much in line with first half of fiscal year 2025. In addition to that, I would like to also address our capital structure improvement and strategic intent that we had shared with you, we continue to work on various options to improve our capital structure. That does include sale of certain noncore assets. That's something that we are pursuing as well as we continue to evaluate interest from certain investors in DMPI despite the softness in the equity markets that has particularly impacted Philippines in the last 2 or 3 months. We continue to get good interest from certain investors, and we are in continued discussions with them to address and raise equity in fiscal year 2026. With that, let me open it up for questions as Iggy had first outlined. Ignacio Sison: Thank you, Parag. Are there any questions from... Jennifer Luy: Yes, we have a few questions. Ignacio Sison: Okay. Jennifer Luy: Okay. How sustainable is the increased gross margin moving forward? Parag Sachdeva: We do think the gross margin is sustainable. We have good momentum on our fresh business. And from a cost perspective, as I mentioned, we are seeing the results of improved productivity from our plantation area, which had been a major setback in fiscal year 2024. We do have improvement opportunities further to continue the margin trajectory going forward, both from a cost perspective, whereby we are laser-focused on reducing our profit leaks. That includes continued reduction in areas like defectives, line losses and also reducing any obsolescence or inefficiencies that we have in our business. So with those in play, I do think our margin performance would continue to be in the same levels, if not better, in the coming quarters. Jennifer Luy: Thank you, Parag. Our next question is, how sustainable is the growth of fresh pineapple sales moving forward? Luis Alejandro: Do you want me to answer that? Parag Sachdeva: Yes, sir. Ignacio Sison: So a bit of a background of what is driving the growth of the fresh market now. First of all is we have improved our quality delivery over the past 12 months. And as you know, in fresh, quality is king. And that has been our focus relative to our competition where quality is now an issue, okay? Number two, our demand in the key markets of China and Korea remains solid. In fact, a recent study that was released is the very optimistic reading of the China market in terms of growth over the next 3 years. And even in China, we have not yet again penetrated in the Tier -- much of the Tier 2 and the Tier 3 cities. And these are the priorities that we will have over the next 3 to 5 years. The third thing is we have the land. We are planted. And we know exactly how to deliver the volume over our LRP. As you know, pineapple is a 3-year cycle. So our LRP is fixed all the way to 2030. By doing so, we are able to really work on the sustainability of the growth that we have today. And so far, I can tell you that with the new leadership we have, we have 2 Costa Ricans right now leading our plantation operations and working with the local team, developing the talents of the local team. So that has worked well for us. And then finally, of course, I don't want to mention it, but our competitors are having a lot of agricultural problems. That we want to simply take credit for it, but it does help as far as supply arrangements are concerned. So that's the way I would frame the question on, is it sustainable? And yes. And I think the only way it can be sustainable is to make sure that the commercial as well as the supply chain side are well connected and well managed for us to deliver our future goals, which the immediate future goal we have is 2030. Parag Sachdeva: Just to build on Cito's explanation, I also want to emphasize that in the last couple of years, our success story has been continuing to focus more on Deluxe variety of fresh business, which has worked very well for us and has been a bigger contributor year-on-year in terms of our total fresh sales. This has brought in a major factor on differentiating a much more premium variety of pineapple that the consumers have really accepted in all our core markets. So that differentiation with more and more focus on quality sets us up in a very good direction from a sustainable growth perspective. Jennifer Luy: Thank you, Parag. Thank you, Cito. The other question is update on capital raising, which you've touched on briefly earlier, unless you have other things to add on capital raising. Parag Sachdeva: No. I think we have continued interest from strategic investors, which we are pursuing. We can't probably share more at this stage, but would just like to mention that the headwind we are cycling at the moment is really the market sentiments, particularly in the last 2 or 3 months. But otherwise, the interest continues, and we also are continuing to actively pursue those interests that are in front of us. Thank you. Jennifer Luy: A follow-up to that is, what are the noncore assets to be disposed? And is this significant? Parag Sachdeva: Yes. Subject to certain approvals, we are looking at some noncore investments, financial investments that DMPL has. That's what we can share at this stage as an avenue of continuing to generate more liquidity and lowering our leverage. Jennifer Luy: Thank you, Parag. Next question is, do you expect the second half earnings to be better than first half? And what would be the drivers? Parag Sachdeva: I would say in the second half, we would still have a pretty strong trajectory. Margins will be also strong. But at the same time, we would continue investing in driving growth in our in our domestic business in the third and fourth quarter. We also would like to remind the investors that particularly in the third quarter of the calendar year, there has been some slowdown that has been experienced in Philippines. It's very well known that the GDP grew just at 4% in the third quarter. So there could be some impact from that from a volume performance perspective. Though with the plans we have, we feel we will -- we feel that we have good momentum in terms of getting the volume growth that we are experiencing from our core business in third and fourth quarter. But there are some risks around volume that we may experience because of the macroeconomic conditions that we have seen in the third quarter of calendar year recently. So I would say it would be good and strong, but will it be the same? I would suspect not. So if we have delivered $22 million of net income in the first half, second half projections are somewhat less because we are more interested in longer-term growth and our investments in the second half are higher than the first half. Jennifer Luy: Thanks, Parag. We don't have any more questions. Parag Sachdeva: All right. Thank you so much.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Nordson Corporation Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions] I will now hand the conference over to Lara Mahoney. Please go ahead. Lara Mahoney: Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and Chief Executive Officer; and Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, December 11, 2025, to report Nordson's fiscal year 2025 fourth quarter and full year results. You can find both our press release as well as our webcast slide presentation that we will refer to on today's call on our website at nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 30 days. During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation where we will note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda on Slide 3. Naga will discuss fourth quarter and full year highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments. Dan also will talk about the year-end balance sheet and cash flow. Naga will conclude with high-level commentary about our enterprise performance, including an update on the Ascend Strategy, as well as our fiscal 2026 full year and first quarter guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and hand the call over to Naga. Sundaram Nagarajan: Good morning, everyone. Thank you for joining Nordson's Fiscal 2025 Fourth Quarter and Full Year Conference Call. I am pleased to share our solid fourth quarter results. Sales were up 1% over prior year inclusive of the divestiture of our medical contract manufacturing business that closed on September 2. Adjusted earnings per share grew 9% over the prior year, reaching the high end of our fourth quarter guidance. Notably, we achieved record EBITDA of $256 million, expanding EBITDA margin to 34% in the quarter. We also generated record cash flow of $194 million in the quarter, which is a conversion rate to the net income of 128%. This enabled us to continue repurchasing shares, paying dividends and further reducing debt. This is a strong operational result, and I want to thank the Nordson team for their ongoing commitment to delivering value to our customers and shareholders. As I turn to fiscal 2025 financial highlights on Slide 5, I want to reflect on the progress we have made since launching the Ascend Strategy 5 years ago. In addition to Nordson's legacy strengths of leadership positions in diversified niche end markets, high recurring parts revenues, a direct-to-customer model and differentiated products built on deep knowledge of our customers' demanding applications, the Ascend Strategy has added new capabilities, including the NBS Next growth framework and a division-led structure, which have empowered our teams to respond rapidly to changing market conditions. And certainly, we have navigated effectively through significant macroeconomic changes over the last 5 years. 2025 was no exception and Nordson delivered strong results. In line with our initial guidance, we achieved record sales of $2.8 billion, up 4% from last year. Despite the macro disruptions, we delivered record adjusted earnings per share of $10.24, exceeding the midpoint of our initial full year guidance. We maintained our average gross margins of 55% in an evolving tariff environment, demonstrating the value and differentiation we provide to our customers. Throughout fiscal 2025, we also continued to strengthen our portfolio. The integration of Atrion Medical has been a success and it contributed nicely to sales and EPS growth in the first year. We also strengthened our medical portfolio through the divestiture of our contract manufacturing business, driving immediate improvement in our margins and increased focus on our remaining differentiated medical businesses. All of these actions delivered EBITDA of $900 million, achieving our 2025 Ascend Strategy goal. I would also like to highlight our full year free cash flow conversion of 136% of net income. Our strong cash generation enabled us to repurchase about $300 million in shares, increased dividends for the 62nd consecutive year and reduced our net debt, ending the year at a 2.1x leverage ratio, near the low end of our targeted range. I'll speak more to the enterprise performance in a few moments, but first I'll turn the call over to Dan to provide more detailed perspective on our financial results for the fourth quarter and fiscal year 2025. Daniel Hopgood: Thank you, Naga, and good morning to everyone. I'll start on Slide 6, which summarizes our overall results for the fourth quarter. Fourth quarter 2025 sales were $752 million, up 1% compared to the prior year's fourth quarter sales of $744 million. Organic sales decreased 1% compared to the fourth quarter of 2024, with growth in our medical segment being offset by softness in selected industrial and advanced technology systems product lines during the quarter. Currency translation had a positive impact of 2% during the quarter, and we saw a small net positive from a combination of both the Atrion acquisition which anniversaried in late August, and the divestiture of the medical contract manufacturing business, which we completed in early September. Adjusted operating profit increased 6% year-over-year to $218 million, reflecting both strong gross margin performance and improved SG&A leverage during the quarter. EBITDA was also up 6% year-over-year at $256 million and reached 34% of sales. This represents a 160 basis point improvement over the prior year fourth quarter. Adjusted operating profit and EBITDA margins benefited from solid operational performance, improved portfolio mix as a result of the divestiture of our medical contract manufacturing business and the restructuring actions that we announced earlier in the year which have now been substantially completed. It's worth highlighting that this is our third consecutive quarter of improving EBITDA margin amid the dynamic trade environment. This is a testament to our ability to execute and deliver operationally in dynamic times while also creating value through strategic M&A activity. If we look now at nonoperating income and expense during the quarter, interest expense improved $4 million year-over-year driven by reduced leverage and a stable to declining rate environment. This benefit was essentially offset by an increase in other nonoperating expenses during the quarter. Tax expense was $31 million in the fourth quarter for an effective tax rate of 17.1%. This brings our full year tax rate to 18.9%, which is slightly better than our original guidance range for fiscal 2025. All of this resulted in GAAP net income that totaled $152 million or $2.69 per diluted share. Excluding nonrecurring acquisition and restructuring-related expenses, as well as charges associated with the exit of the medical contract manufacturing business, adjusted earnings per share totaled $3.03 per share, a 9% increase over the prior year and $0.08 above the midpoint of our quarterly guidance, reflecting our strong operational performance during the period. Not only was this a strong year-over-year improvement in earnings, but on a dollar basis it also represents a quarterly record for the company. Now let's turn to Slides 7 through 9 to review our fourth quarter segment performance. Industrial Precision Solutions sales of $362 million decreased 2% compared to the prior year fourth quarter. Organically, IPS was down just under 4% in the quarter, with currency providing a favorable impact of about 2%. Although it was another quarter of improvement sequentially, year-over-year declines in our polymer processing product lines and some smaller reductions in our industrial coating systems outpaced solid growth in precision agriculture and packaging product lines. For both polymer processing and industrial coating systems, we see continued signs of stabilization and improvement in our backlog and order rates, so these areas should no longer be a drag on results heading into the first quarter of fiscal 2026. EBITDA for the quarter was $137 million, or 38% of sales, reflecting consistent and strong operational performance on slightly lower sales volumes during the quarter. Turning to Slide 8, you'll see Medical and Fluid Solutions sales of $220 million, an increase of 10% compared to the prior year's fourth quarter. Organic sales volume was up nicely at 7% driven by broad-based demand across all of our product lines. I think it's fair to say that the destocking that was impacting our interventional product lines is now fully behind us, and we see good, stable demand in our order books heading into the new year. The final acquisition impact from Atrion, net of the sales reduction from divesting our medical contract manufacturing business, added a net 2% to sales during the quarter. After a successful year 1 integration, it's also worth noting that Atrion is now contributing nicely to organic growth that we achieved during the quarter. Finally, currency had a modest favorable impact on the overall sales versus the prior year. EBITDA for the quarter was $88 million, or 40% of sales, which is an increase of 21% compared to the prior year EBITDA of $72 million, or 36% of sales. This was a fantastic result with EBITDA margins up 380 basis points versus the prior year. While a big part of the margin improvement in the quarter is driven by the divestiture of our contract manufacturing business, our teams also continue to execute quite well and are now fully benefiting from the normalization in demand. Turning to Slide 9, you'll see Advanced Technology Solutions sales of $171 million, a decrease of 4% compared to the prior year's fourth quarter. This change included a decrease in organic sales volume of roughly 5% with a small positive currency benefit. The year-over-year organic sales decline was driven by weakness in x-ray systems demand. We continue to see strong growth in electronic dispense product lines and stable demand for optical, acoustic and other product lines, but these were overshadowed by near-term weakness in x-ray systems during the quarter. As a reminder, our ATS revenue tends to be a bit lumpy quarter-to-quarter based on systems delivery. That said, we continue to see strong underlying momentum in our ATS end markets despite the lower year-over-year result in the fourth quarter. Fourth quarter EBITDA was $43 million, or 25% of sales, a decrease of 10% from the prior year fourth quarter EBITDA of $48 million, or 27% of sales. The decrease in EBITDA margin was reflective of lower sales volume and some unfavorable product mix during the quarter with stable underlying product line performance. Now turning to Slide 10, I'd like to make a few comments on our full year results. As Naga mentioned, fiscal 2025 full year sales were a record $2.8 billion and an increase of 4% year-on-year. Our acquisition and divestiture activity added a net 6% to sales for the year, while organic sales were down roughly 3% and currency was a modest benefit. Looking back at the full year sales result, organic sales were really weighed down by three specific areas: polymer processing systems, our automotive-related systems and selected X-ray Inspection applications. In all cases, the core fundamentals of these businesses remain strong, and as we exit the year, we see good stability in our backlog and order rates, meaning we've seen the trough. EBITDA for the full year increased 6% to a record $900 million, or 32% of sales. This reflects a full year incremental EBITDA margin of 49% and marks the fifth consecutive year that the Ascend Strategy has delivered strong EBITDA growth. This results in GAAP diluted earnings per share of $8.51 for the year and adjusted diluted earnings per share of $10.24, both up 5% from the prior year and representing a new record for adjusted diluted earnings per share. In a year that's been full of surprises, we're quite proud of these results, and we like where we're positioned heading into fiscal 2026. Finally, turning to the balance sheet and cash flow on Slide 11. At the end of the fourth quarter, we had cash on hand of $108 million and net debt was approximately $1.9 billion, resulting in a leverage ratio of 2.1x, a significant reduction from where we started the year. While we did benefit from roughly $30 million in net proceeds from the contract manufacturing sale, our free cash flow really enabled this debt reduction. And our free cash flow generation remains quite strong, an annual record of $661 million, and a cash conversion rate of 136% on net income. This strong cash conversion was primarily driven by targeted improvements in working capital, which is an area that we remain focused on. As a result of our strong free cash flow during the year, we were able to repurchase approximately $300 million in shares, reduce our net debt by about $224 million and pay $179 million in dividends, while continuing to invest approximately $60 million in capital projects to drive organic growth. This positions us quite well heading into 2026 for continued returns to shareholders with plenty of firepower to continue to add attractive assets to the portfolio. In summary, we had another strong operational quarter, and we finished the year strong, exceeding our original profit commitment for the year despite a very dynamic macro environment. We closed fiscal 2025 with a strong balance sheet while returning value to shareholders due to record free cash flow generation and we took action to optimize our medical portfolio, positioning us for continued profitable growth. As we enter fiscal 2026 with our key market headwinds behind us, we're well positioned to capitalize on profitable growth opportunities and we're confident in our ability to convert those opportunities to bottom line results and value. With that, we'll now turn to Slide 12, and I'll return the call to Naga. Sundaram Nagarajan: Thank you, Dan. In October 2024, we announced our 2025 to 2029 performance targets. In 2029, when we look back on our financial performance for that period, we expect to deliver an average annual growth of 6% to 8% in revenue, balanced between organic and acquisitive growth and 10% to 12% in adjusted EPS growth. In 2025, we managed effectively through some dynamic macroeconomic conditions and made progress towards our goals. Turning to Slide 13, I'd like to talk about what we are seeing in our end markets as we enter fiscal 2026. Starting with our Industrial Precision Solutions segment, we continue to see sustaining investments in packaging and product assembly end markets. Precision agriculture demand is sustainable in Europe and South America given the strengthening demand for increasing yields and quality in these regional markets. Demand in auto and polymer processing end markets has stabilized. Through it all, aftermarket parts remain a stable part of the IPS revenue portfolio, contributing to growth and delivering attractive margins. Overall, we expect the IPS segment to return to more normal growth rates of low single digits. In Medical, customer destocking is behind us and our core business is returning to mid-single-digit organic growth. The demand drivers fueling this end market such as the aging of the population and shift towards noninvasive surgeries remain consistent and our medical team has a healthy pipeline of customer projects. In ATS, our semiconductor applications are well positioned to benefit from investments in the semiconductor cycle. We remind our investors of semiconductor applications account for approximately 50% of ATS revenue. While timing of orders remain lumpy, our team is winning share based on our ability to deliver innovative new products in short lead times. This is possible because we have holistically applied NBS Next. In addition to being located close to the customer, our products deliver leading productivity and quality in complex advanced packaging applications of semiconductors used for AI, cloud computing and more. The remaining exposures within ATS are automotive and general electronics where the demand is stable but dampening the higher semi growth rates. Encouraged by our end market demand trends and being prepared to operate in a range of macroeconomic environments, we are entering 2026 optimistic to deliver solid growth. Now turning to the financial outlook on Slide 14. [ We enter ] fiscal 2026 with approximately $600 million in backlog, up 5% from the prior year-end, excluding backlog associated with the divested business. Based on the combination of order entry, backlog, current foreign exchange rates and anticipated end market expectations, we anticipate delivering full year sales in the range of 1% to 6% above fiscal 2025 sales. This sales guidance assumes 1% benefit from foreign exchange rates which will be offset by the divested medical contract manufacturing business. Importantly, this implies a midpoint of 3.5% demonstrating solid progress towards our long-term organic growth annual target. Full year 2026 adjusted earnings are forecasted to be in the range of 6% to 12% growth per diluted share with a midpoint of 9%. Adjusted earnings growth is also progressing well toward our annual adjusted EPS growth algorithm. For modeling purposes, in fiscal 2026, assume an estimated effective tax rate of 18.5% to 19.5%, capital expenditures of approximately $55 million to $65 million and interest expense of approximately $85 million to $95 million. Based on seasonality, we expect our fiscal first quarter to start modestly growing nicely over prior year. As you will see on Slide 15, first quarter fiscal 2026 sales are forecasted in the range of $630 million to $670 million and adjusted earnings in the range of $2.25 to $2.45 per diluted share. The Nordson team consistently delivers operational excellence and strong cash flow due to our unique competitive advantages. Coupling with our expectations for end market growth, we are looking forward to a solid fiscal 2026. As a growth compounder, we will continue to reinvest in the business while returning cash to our shareholders. Again, I want to thank our employees, customers and shareholders for your continued support. We will now open the phone lines for questions. Operator: [Operator Instructions] Your first question comes from the line of Mike Halloran from Baird. Michael Halloran: So first question is on the ATS segment, specifically the semi side. In the past, the higher growth areas have been driving the strength in that piece. Are you seeing any broadening out across the semiconductor applications yet or is it still concentrated in some of the areas, data center, wherever, AI, where you've seen strength traditionally? In other words, have you seen that broaden out to some of the more traditional electronic applications, auto, wherever else you want to talk to? Sundaram Nagarajan: Yes. I would say the strength continues and remains in the semiconductor space for the AI applications, cloud computing and such. But automotive is certainly starting to stabilize for us and general electronics has been pretty decent through all of it, just lower growth, Mike, when compared to the semiconductor growth rates. Just for color, 50% of the revenues come from the semiconductor space, about 15% or so in the automotive and the rest is in electronics, so. Michael Halloran: Okay. And then on the margin side of things, maybe just some help on trajectory into this year. Very robust margins, particularly MFS this quarter. Is this the right zone to think about sequentially as we work through the year, next year? Or are there any one-offs? In other words, are these the right margin levels to build off of -- are these the representative margins to build off of adjusting for revenue levels as we work through '26? Daniel Hopgood: Yes, it's a good question, Mike. I would say, as I look at IPS and ATS, I think certainly the right jump-off point and in line with historical performance. On the medical side, we had a really strong quarter. I don't know that 40% plus is the right way to think about it. I think we're very comfortable maintaining the upper 30s in our medical business. They had a really strong performance this quarter. Certainly, I wouldn't expect a lot of degradation, but there were some strong benefits associated with the portfolio changes that we made, as well as some operational tailwinds that we had. And so I think the upper 30s in the medical is certainly sustainable. 40% is a bit of a notable achievement this quarter. Sundaram Nagarajan: One thing I would add, Mike, is that think of a 100 basis point improvement for the segment margins with the action of the divestiture, is maybe the way to think about it. Operator: Your next question comes from the line of Jeff Hammond with KeyBanc. Daniel Hopgood: Jeff, we can't hear you if you're there. I think we might have a technical difficulty. Jeff's not coming through. Mitchell Moore: Yes. Can you hear me? Daniel Hopgood: Yes, we can. Sundaram Nagarajan: We can. Mitchell Moore: Sorry about that. This is Mitch Moore on for Jeff. Just within IPS, it seems like polymer processing weakness has been masking some of the more stable growth in other parts of that business. Just as we look to 2026, what are you expecting from the polymer processing versus kind of the rest of the business? And if you could talk about order intake there and how much that's contributing to backlog and expectations for the year. Sundaram Nagarajan: Yes. For polymer processing, what I would tell you is what we have seen in order entry and backlog buildup, we're at the bottom and our expectation is, going into the year, that things improve from where we are, certainly not getting any more difficult than being a drag on IPS. Mitchell Moore: That's helpful. And then just on 1Q and ATS, looks like there's some pretty healthy growth implied in 1Q. Just if you could help us walk through how much of that is comps, how much of that is underlying markets getting better or timing of shipments? Just if you could help us -- help me walk through that. Daniel Hopgood: Yes. No, happy to add some color. I would say, from a demand standpoint, we see good underlying stable demand and growth, as Naga mentioned, particularly in the semi space, but also a good, stable ongoing growth in the electronics, automotive and general electronics space. As you think about first quarter, as you'll recall, we did have a slow start to the year in ATS last year. And so there are some favorable comps year-over-year, and that's driving part of the performance in Q1. As we sit here today, entering the year, we're in a much stronger position from a backlog standpoint from where we started the year last year. So we're off to a good start, I would say, certainly for the first quarter. Some of that is the prior year comp. But really, it's really driven by ongoing demand and a stronger backlog entering the year is really the big driver. Operator: Your next question comes from the line of Matt Summerville with D.A. Davidson. Matt Summerville: Can you guys hear me okay? Sundaram Nagarajan: Yes. Daniel Hopgood: Yes, we can. Matt Summerville: Okay, perfect. So can you put a little bit of a finer point on what you're seeing with respect to X-ray Inspection in the sense that I would imagine if a lot of the semi-driven growth is being steered by AI, cloud, kind of the more technologically rich chip architectures, I would think the pull-through in almost more of a real-time pull-through on x-ray would be more pronounced maybe than what you're seeing. So can you kind of talk about why the two pieces of the business may be decoupled, whether you think that's sort of temporary? Just kind of walk me through that again, specifically focused on x-ray. And then I have a follow-up. Sundaram Nagarajan: Sure. On the x-ray side, think about x-ray, it has great exposure to our semiconductor, but it also has a pretty solid exposure to automotive. So some of these differences you're seeing in x-ray when compared to ATS, you also can attribute to some of the automotive exposures we have in that business. We certainly like the trends that we are seeing in the business right now. We've got a number of new products that are launching and so we are pretty excited about going into this year. I think x-ray begins to contribute to ATS's growth. The one other point that I would make for you on x-ray is that if you think about these composite structures that people are building, where you have both logic as well as memory on that, there are parts of that structure cannot be inspected with x-ray, right? There are parts that need to be inspected with x-ray and there are parts that cannot be. And for Nordson's position, we have both those technologies. So you typically use acoustic for memory and you use more x-ray for -- you use x-ray for logic chips, right? So if you think about those two, we certainly benefit from them. But there is a transition in technology that is happening in testing as we speak and we have some new technologies that we are testing right now which certainly will have an impact, but probably not in '26, probably in '27. So overall, the x-ray business is in a good spot, certainly did not contribute last year. Some of that is automotive exposure. But we feel like our x-ray business is in a good spot going into this year and will contribute to growth in the ATS segment. Matt Summerville: And then just as a follow-up, with Atrion seemingly in a good spot, maybe just talk in a little bit more detail about M&A actionability from here on out at 2.1x net leverage and whether or not at 250-ish, wherever your stock is going to trade today, are you still a buyer in the open market? Sundaram Nagarajan: Yes. I'll wait for that -- I'll pass that part of that question to Dan. But first, let me take the M&A piece of it, right? Just as a reminder, Matt, you know this about us. Our goal with M&A remains the same as what we shared during our Investor Day, which is really adding highly differentiated businesses that are additive to the growth of the portfolio, right? That's while remaining strategically and financially disciplined. So that is the strategy. Nothing really has changed. We have a pretty healthy pipeline. We continue to be in part of processes. Obviously, in some cases, we are not successful because we choose to exit the process or in some cases, we just -- that the project ideas did not meet our financial criteria or strategic criteria, right? So we continue to have a robust pipeline. We continue to work the pipeline. You did not see any actionability in '25, primarily because we didn't have projects that met both those things. And clearly, stock price was very favorable for us to be supportive of our stock by buying back share. So Dan, let me have you address the last part of Matt's question. Daniel Hopgood: Yes, yes. And just to add maybe some color on the capital allocation thinking, our goal and frankly, one of the strengths of the company with our strong cash flow is the ability to be balanced. And so you're going to continue to see us not just do one or the other, but continue to do both, meaning returning cash to shareholders and continuing to identify and bring in high-quality assets to the portfolio. So let's say, I like your thinking, let's say that we're in a 250 range today. We think there's still upside to our stock. We've just authorized late last year an increase in our authorization that gives us coverage in the near term. And I would say we're going to continue to be balanced in deploying the strong cash that we generate, both continuing to work our acquisition pipeline and balancing that with shareholder returns. Operator: [Operator Instructions] Your next question comes from the line of Andrew Buscaglia from BNP. Andrew Buscaglia: So maybe a high-level question on your guidance to start out. You -- Dan, you kind of mentioned these tougher markets seem to have troughed. So that's an interesting comment. Yet the low end of your guidance really doesn't assume much growth this year, and it seems unreasonable if some of these tougher markets, you're past the worst. So what's giving you the hesitation to guide at the low end, such a low range? And can you walk through maybe where you see some risk and you don't want to stick your neck out just yet? Daniel Hopgood: Yes. No, it's a good question, Andrew. And again, I would say, put the guidance in perspective, it's a range of potential outcomes, right? And we think it's important as a company to plan for both the upside and the downside. I think at this point in time, obviously with our first quarter guide, we're going to have -- we're expecting to have a strong start to the year. We think it's prudent to plan for kind of our midpoint guidance. And on the downside, I would say that contemplates something happens this year. Now certainly, sitting here today, I would tell you, we don't see a lot of indicators of any downside, but we still think it's prudent to plan for any potential outcome. And as the year plays out, we'll continue to update our guidance based on what we're seeing. But sitting here today, we feel very good, but we think it's still important to make sure that we're -- as we've learned, if nothing else this year, a lot can happen in a year and being prepared for any potential outcome in the marketplace is important. That said, where we sit today, we feel quite good. We're going to have a strong start to the first quarter, which is implied in our guidance, and we'll see how the rest of the year plays out. Does that make sense? Andrew Buscaglia: Yes. No, it's fair. Yes, that's fair. Yes. And maybe focusing on your IPS market for a second, there's some enthusiasm amongst investors around improving industrial production, PMI factors this year, especially if we don't have another tariff situation. But I would think that -- can you talk about your IPS segment as it pertains to that? I mean it's weak and it's been tracking that -- somewhat tracking that comment for of weak and kind of weak industrial factors, but also you have that ARAG weakness that's masking it or exacerbating it. So yes, can you talk about how you perceive that business in terms of sensitivity to the industrial economy and your outlook there? Sundaram Nagarajan: Yes. So if you think about -- maybe just for a brief moment, talk about 2025, then talk about 2026. If you think about 2025, the IPS segment was weighed down, the performance that is published in the print is weighed down by plastic processing and automotive, right? That's -- and that kind of takes -- took away most of the progress that the team has been delivering in our core IPS businesses. And precision ag grew double digit in the year, right? So that is 2025. As we look into 2026, we continue to see investments in packaging and product assembly, our hot melt adhesives businesses. We feel very good about the order entry and the backlog in our precision ag businesses. Now remember, precision ag for us is a European business. It's not a North American business. We are a market leader in Europe and in South America. So we see -- we feel good about that. And if you think about our aftermarket parts, which is upwards of 55%, 56% of this business revenue comes from aftermarket parts. So we feel really good about stable demand there, right? And then polymer processing has troughed, automotive has troughed. And so any nominal recovery there is all upside to this business. So as we sit here today, this business getting back to GDP plus kind of growth is what we are planning for. Operator: Your next question comes from the line of Chris Glynn with Oppenheimer. Daniel Hopgood: Chris, if you're there, we can't hear you. Christopher Glynn: Okay. I was showing unmuted and then it prompted me to unmute again and again. Can you hear me? Daniel Hopgood: We can. Sundaram Nagarajan: We can. Christopher Glynn: Okay, great. Just want to drill back down into a little bit at the lower end. It sounded like what that contemplates is more the hypothetical versus anything you're seeing. But wanted to understand how the dynamic of lumpiness of electronic processing systems orders might play into it. Does the idea of lumpiness get negated on a 12-year basis and fiscal '26 should fully participate in what you've often characterized as the beginning of a multiyear run for ATS? Daniel Hopgood: So I think that's the right way to think about it. I mean, a, your initial comments, look, we were planning for a range of scenarios and certainly part of that range is a downside scenario, right? But sitting here today, I would say that's more of a hypothetical. I think that's a good way to think about it. With regards to ATS, that's kind of exactly how we think about it. And I'll maybe point to 2025 as an example. We had a couple of quarters of 15% growth. That's not necessarily a run rate on a 12-month basis. If you look at our full year, we grew our ATS segment about 4%. And so looking at -- we expect good mid-single-digit growth over, I think, to your point, maybe a 12-month period is a good way to think about it. That said, you're going to see some peaks and valleys, right, over that period based on delivery timing. Does that make sense? Christopher Glynn: Yes, makes sense. And then just last one on polymer processing, obviously you had an excellent fiscal '24 and a pretty steep downturn in fiscal '25. You've said that is categorically behind you. Is -- are there rumblings customer activity in polymer processing? And is that a factor that could push you nicely to the upside of the guidance range? I think last quarter on the call it was referenced a couple times about customer discussions in polymer processing having turned decidedly. Sundaram Nagarajan: Yes. Look, I think the best way to think about it is we have hit the bottom. When we look at activity in the marketplace, on the system side of the business, we still seem to be in a good place. Order entry is starting to look good, starting to look at backlog building. But there is also a dies business in there which is not growing at the same clip as our systems business there. So it's one of those cases where we believe that we have bottomed out. Even in the dies business, it has bottomed, it is not going any further down. The recovery seems to be different in these two businesses. So now we're getting a little bit more detail, more detail than we normally talk about, Chris, but we're providing this just to help you understand. So the best way to think about polymer processing is, we're at the trough. We're expecting some nominal growth is what we are expecting in our guide. Should there have something bigger and better than what we have planned, then that definitely puts us on the upside for that segment. Daniel Hopgood: And I would just add to that similar comments with regards to our automotive businesses. Automotive, we're not -- we see that, that's troughed, it's stabilized, we're expecting nominal growth, but we're not expecting any big recovery in our automotive markets. Sundaram Nagarajan: Sorry, Chris. And this is why we give a range, particularly this early in the year, so. Operator: Your next question comes from the line of Brad Hewitt with Wolfe Research. Bradley Hewitt: So you mentioned backlog is up 5% year-over-year, but could you quantify how backlog trended sequentially? And then any additional comments on the sequential backlog trends by business would be helpful. Daniel Hopgood: Yes. So backlog is up 5% versus where we started last year. Backlog is down sequentially, but that's actually normal, Brad, because Q1 is always seasonally our lowest quarter given holiday and other schedules. And so that kind of sequential reduction in backlog is a normal trend, is the way that I would think about it. What's more important is I think the comparison year-over-year starting point standpoint. I think that's the right way to think about it. Bradley Hewitt: Okay. Great. And then as we think about seasonality throughout the year, in terms of the revenue and EBITDA split, is it fair to assume roughly normal seasonality for 2026? And then in terms of organic growth, do you think that should be similar in first half versus second half? Daniel Hopgood: Yes. I would say we're planning for a normal year from a seasonality standpoint. Typically, what you see is Q1 is always our lowest start given the timing of the year, the holidays as well as kind of the year-end timing of shipments and customer activity. And then you see that sequentially improve throughout the year. I would say we would expect a normal kind of seasonal trend at least sitting here today across our business. Sundaram Nagarajan: I mean there is some Chinese New Year that moves from quarter-to-quarter, but there's a nominal impact. This year, Chinese New Year would be in the second quarter, so. Operator: Your next question comes from the line of Walter Liptak with Seaport Research. Walter Liptak: Naga, congratulations on the 5 years of NBS Next. And so I wanted to ask, as you look back, what do you think went best for you guys and what was the toughest? And if I'm recalling, there was a little bit more of like a growth focus on your NBS Next. How do you feel about that now? And what should we be thinking about over the next 5 years? Sundaram Nagarajan: Yes. No, thank you, Walt. If you think about NBS Next and if I were just to sort of go back to where we started. Where we started was the company's greatest opportunity was growth. And so really we structured NBS Next around how do we deliver on that great growth opportunity for Nordson. And it all started with strategic discipline. So if you think about how the company thinks about strategic discipline across all of our divisions that is well potted down, this is how our teams think about how do I resource a new growth opportunity? How do I build a new product line? How do I innovate around a new product opportunity? How do I operationally be positioned for that growth? So I'm really happy where we are as a company in terms of using segmentation in our strategic discipline. So strategic discipline really is segmentation. And so using segmentation, our teams identify the best growth. We're able -- we are now beginning to holistically implement. I would say in terms of leadership level performance, this is sort of the process metrics we use within the company to say where we are at in the effectiveness. I would tell you we are halfway there is probably the best way to think about it. So we still have plenty of room left in terms of continuing to deliver growth with this framework. If you take the 5 years -- take the first 2 years as the years when we built this framework, deployed it, trained, getting really good at it, and the next 3 years is really starting to deliver results. If you think about EBITDA margins, we went from 27% to 30% in that first period. And then if you think about the next period where we're beginning to deliver growth results, the expansion from 30% to 32%, right? So what you really see is the company using the framework to drive growth. Where we are today and where we have the greatest opportunity is, over this period of time, the company's operational excellence have gotten really great, innovation has gotten stronger, and commercial excellence is sort of where we are spending most of our time today. And so I'm super excited. The team is really working incredibly hard in sort of how we play in the markets we have chosen to play in. And so all of the work in the next couple of years is around commercial excellence, connecting the dots between segmentation, innovation, operational excellence and commercial excellence. Walter Liptak: Okay. Great. And on the profitability side, as you pointed out, the profits were good. Are we -- what inning are we at now, do you think with that, that operational EBITDA part of NBS Next? Daniel Hopgood: Yes. So I guess what I would say, I'll go back to Naga's comments, growth is our best opportunity as a company. And I think I would say that's where the margin enhancement comes from going forward is continuing to effectively grow the organization and basically throwing off normal incrementals that will lead to natural margin accretion over time. That's our primary focus and I think our best opportunity. That doesn't mean that there aren't things that we can -- yes, you can always improve your operations, you can always get better. But I would say our best opportunity is continuing to grow the organization and growing it more aggressively and allowing that to be basically your margin accretion. Sundaram Nagarajan: One thing I would add to that is just over the long term, Walt, don't hold us to some short periods of time here. If you think about an average 35% incremental for the company blended between acquisitions and organic growth, a 35% incremental implies over the longer term our margins start to converge on that number, right? And we're running at 32% today. But that is primarily through growth. And I think that is the key, hopefully you take away is we are solely focused on growth, which is a big part of who we are and -- but growth in a very profitable way. As you have seen the team demonstrate year in, year out, operationally, pretty darn good incrementals. So if you sort of take that incrementals and sort of project out to the longer term, that's what you would end up. Hopefully, that helps you. Walter Liptak: Okay. It does. Operator: Your next question comes from the line of Robert Jamieson with Vertical Research Partners. Robert Jamieson: Can you all hear me? Daniel Hopgood: Yes. We hear you fine. Robert Jamieson: Perfect. Perfect. Well, congrats on the quarter and all the colors have been very helpful this morning. Just wanted to touch on full year EPS guidance. And with the midpoint at 9% growth in your long-term target range of like 10% to 12%, what bridges you from the midpoint to achieving the upper end of that target range? Would you expect that to be primarily operational execution, maybe some help from share repurchases? Or are there potential upside scenarios in your end markets? And where do you think that might come from if we did see that -- the top end of the range being achieved? Daniel Hopgood: Yes. Well, relative to 2026, I mean, certainly that 9% is a midpoint and also based on a midpoint growth. So stronger growth in our base business would be certainly one item to bridge that. The other thing I would point out is the 10% to 12% growth was a combination of organic and inorganic. And we're not factoring in any acquisitions this year. That doesn't mean that we're not working on -- actively working on opportunities, and that would be additive to the organization as well. So I think a combination of those two, continuing to grow our base business with our NBS Next formula that will deliver upside. 3.5%, I think it was a good midpoint aiming target, and that's what we kind of factored into our long-term thinking. Delivering better than that in certain years will deliver higher earnings growth as well as continuing to add attractive assets to the portfolio. Robert Jamieson: Okay. Great. And then just nice free cash flow conversion last couple quarters, can you talk a little bit about the working capital improvements and sustainability there? Have there been structural improvements there that would be able to -- for you all to sustain conversion above your long-term average rate? Daniel Hopgood: Yes. No, it's been -- our teams have done some nice initial work. It's been really a targeted focus area for us, simply because we see it as an opportunity to continue to enhance our working capital utilization. I would tell you, not only is it sustainable, we think there's more opportunity ahead of us. And so we are certainly focused on that. And I would expect us to continue to generate strong cash flow performance going forward. Operator: There are no further questions at this time. I will now turn the call back to Naga for closing remarks. Sundaram Nagarajan: Thank you for your time and attention on today's call. We're making great progress on the Ascend Strategy, and we are positioned well to deliver solid growth in fiscal 2026. We wish you a happy holiday season. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Ignacio Sison: Good evening to everyone. Thank you for joining the Del Monte Pacific results briefing for the second quarter and first half ending October for fiscal year 2026. Representing the company in this call are Cito Alejandro, Chief Operating Officer of Del Monte Pacific and President and COO of Del Monte Philippines; Parag Sachdeva, CFO of DMPL and DMPI, and I am Iggy Sison, Chief Corporate Officer of DMPL. We were planning to go straight to Q&A earlier, but since the results have just been uploaded with our apologies, we will request Parag to go through at least the second quarter and first half results just to begin the briefing. And this can be followed by the Q&A, which will be moderated by our colleague, Jennifer Luy. Parag Sachdeva: Thank you, Iggy, and good evening, everybody, who is on the call. Thanks for making time. Pleased to share with you our second quarter results for fiscal '26. Our revenue has grown by 10% in the first quarter (sic) [ second quarter, ] driven by higher sales in the Philippines and international markets. Our local business or domestic business grew by 9.3% in local currency, whereas our international business grew by 6.6% driven primarily by fresh, which in itself had an outstanding quarter, growing by 22.5%. So overall, very robust results. And when it comes to processed exports business, that's more timing of supply, and we expect a pretty strong quarter for processed exports as our supply is going to be much better in the second half. Our margin performance also, as you can see, was 660 basis points higher at 34.2%, driven by increased volume, better pricing and lower calorie and plantation costs with improved pineapple recovery and -- which is also a function of higher yield in the plantation and better fruit size distribution. So all the parameters that we were seeing had come across as headwinds in fiscal '24 have been progressing in the right direction and are tracking ahead from a plan perspective. Our EBITDA at $51.5 million, driven by higher sales and margin, is up by 39.2% and consequently, our net profit as well has increased by almost $14.5 million or significantly higher versus second quarter last year. Net debt during the same period has gone down by roughly $50 million or 4.8% as we continue to pay down our loans from internally generated cash flows. Our net debt to EBITDA at 6.1x is 2.2x better, resulting from debt reduction and improved profitability. Our cash flow from operations continues to be strong. For the quarter, we did $85.9 million. It was slightly lower than last year, and that's mainly because of inventory buildup ahead of the peak season and also since we had a pretty good pine supply in the second quarter as compared to our plan, which we will be able to sell very easily in our third and fourth quarter. So feel very good about our business and particularly cash as well, cash performance, too. So moving on to the next slide. In terms of the first half results, very much in line with what I mentioned on second quarter. Our turnover was strong at 11.3% with a double-digit growth that we saw in our Philippines business and also international business, just like the second quarter grew by 6.5%, primarily driven by our fresh exports, which was -- which grew at 16% in the first half. Gross profit was up 580 basis points due to the very reasons that I mentioned in second quarter. EBITDA 26.2% at $90.7 million, really driving an improvement in net profit by a significant percentage at $22.3 million. So net-net, our first 2 quarters and first half results have been very strong from a revenue growth perspective, from a gross margin perspective, EBITDA, costs, all have been falling in place, and we are also showing reduction in net debt, as I mentioned in the second quarter results. Cash flow from operations. Continue to have a strong momentum, whereby we are improving our working capital performance in addition to driving cash from profitability too. So at $162.7 million, very much in line with first half of fiscal year 2025. In addition to that, I would like to also address our capital structure improvement and strategic intent that we had shared with you, we continue to work on various options to improve our capital structure. That does include sale of certain noncore assets. That's something that we are pursuing as well as we continue to evaluate interest from certain investors in DMPI despite the softness in the equity markets that has particularly impacted Philippines in the last 2 or 3 months. We continue to get good interest from certain investors, and we are in continued discussions with them to address and raise equity in fiscal year 2026. With that, let me open it up for questions as Iggy had first outlined. Ignacio Sison: Thank you, Parag. Are there any questions from... Jennifer Luy: Yes, we have a few questions. Ignacio Sison: Okay. Jennifer Luy: Okay. How sustainable is the increased gross margin moving forward? Parag Sachdeva: We do think the gross margin is sustainable. We have good momentum on our fresh business. And from a cost perspective, as I mentioned, we are seeing the results of improved productivity from our plantation area, which had been a major setback in fiscal year 2024. We do have improvement opportunities further to continue the margin trajectory going forward, both from a cost perspective, whereby we are laser-focused on reducing our profit leaks. That includes continued reduction in areas like defectives, line losses and also reducing any obsolescence or inefficiencies that we have in our business. So with those in play, I do think our margin performance would continue to be in the same levels, if not better, in the coming quarters. Jennifer Luy: Thank you, Parag. Our next question is, how sustainable is the growth of fresh pineapple sales moving forward? Luis Alejandro: Do you want me to answer that? Parag Sachdeva: Yes, sir. Ignacio Sison: So a bit of a background of what is driving the growth of the fresh market now. First of all is we have improved our quality delivery over the past 12 months. And as you know, in fresh, quality is king. And that has been our focus relative to our competition where quality is now an issue, okay? Number two, our demand in the key markets of China and Korea remains solid. In fact, a recent study that was released is the very optimistic reading of the China market in terms of growth over the next 3 years. And even in China, we have not yet again penetrated in the Tier -- much of the Tier 2 and the Tier 3 cities. And these are the priorities that we will have over the next 3 to 5 years. The third thing is we have the land. We are planted. And we know exactly how to deliver the volume over our LRP. As you know, pineapple is a 3-year cycle. So our LRP is fixed all the way to 2030. By doing so, we are able to really work on the sustainability of the growth that we have today. And so far, I can tell you that with the new leadership we have, we have 2 Costa Ricans right now leading our plantation operations and working with the local team, developing the talents of the local team. So that has worked well for us. And then finally, of course, I don't want to mention it, but our competitors are having a lot of agricultural problems. That we want to simply take credit for it, but it does help as far as supply arrangements are concerned. So that's the way I would frame the question on, is it sustainable? And yes. And I think the only way it can be sustainable is to make sure that the commercial as well as the supply chain side are well connected and well managed for us to deliver our future goals, which the immediate future goal we have is 2030. Parag Sachdeva: Just to build on Cito's explanation, I also want to emphasize that in the last couple of years, our success story has been continuing to focus more on Deluxe variety of fresh business, which has worked very well for us and has been a bigger contributor year-on-year in terms of our total fresh sales. This has brought in a major factor on differentiating a much more premium variety of pineapple that the consumers have really accepted in all our core markets. So that differentiation with more and more focus on quality sets us up in a very good direction from a sustainable growth perspective. Jennifer Luy: Thank you, Parag. Thank you, Cito. The other question is update on capital raising, which you've touched on briefly earlier, unless you have other things to add on capital raising. Parag Sachdeva: No. I think we have continued interest from strategic investors, which we are pursuing. We can't probably share more at this stage, but would just like to mention that the headwind we are cycling at the moment is really the market sentiments, particularly in the last 2 or 3 months. But otherwise, the interest continues, and we also are continuing to actively pursue those interests that are in front of us. Thank you. Jennifer Luy: A follow-up to that is, what are the noncore assets to be disposed? And is this significant? Parag Sachdeva: Yes. Subject to certain approvals, we are looking at some noncore investments, financial investments that DMPL has. That's what we can share at this stage as an avenue of continuing to generate more liquidity and lowering our leverage. Jennifer Luy: Thank you, Parag. Next question is, do you expect the second half earnings to be better than first half? And what would be the drivers? Parag Sachdeva: I would say in the second half, we would still have a pretty strong trajectory. Margins will be also strong. But at the same time, we would continue investing in driving growth in our in our domestic business in the third and fourth quarter. We also would like to remind the investors that particularly in the third quarter of the calendar year, there has been some slowdown that has been experienced in Philippines. It's very well known that the GDP grew just at 4% in the third quarter. So there could be some impact from that from a volume performance perspective. Though with the plans we have, we feel we will -- we feel that we have good momentum in terms of getting the volume growth that we are experiencing from our core business in third and fourth quarter. But there are some risks around volume that we may experience because of the macroeconomic conditions that we have seen in the third quarter of calendar year recently. So I would say it would be good and strong, but will it be the same? I would suspect not. So if we have delivered $22 million of net income in the first half, second half projections are somewhat less because we are more interested in longer-term growth and our investments in the second half are higher than the first half. Jennifer Luy: Thanks, Parag. We don't have any more questions. Parag Sachdeva: All right. Thank you so much.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Mitek Reports Fiscal 2025 Fourth Quarter and Full Year Financial Results. [Operator Instructions] This call is being recorded on Thursday, December 11, 2025. And I would now like to turn the conference over to Ryan Flanagan with ICR. Thank you. Please go ahead. Ryan Flanagan: Thank you, operator. Good afternoon, and thank you for joining us today to discuss Mitek's Fiscal Fourth Quarter and Full Year Fiscal 2025 financial results. Joining me today are Chief Executive Officer, Ed West; and Chief Financial Officer, Dave Lyle. Please note that today's call will include forward-looking statements, and because these statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance, and a variety of factors could cause actual results to differ materially. A description of these risks and uncertainties can be found in our 10-K filing dated December 11, 2025, and our other SEC filings. These forward-looking statements include, but are not limited to, our expectations around consumer demand for our products and services, expansion of our Check Fraud Defender or CFD, data consortium, the ongoing stability of our check verification business, our growth and investment plans, expected improvements in gross profits and unit economics, improvement to operating leverage and scale, expected free cash flow conversion rate and our FY '26 financial outlook and guidance. Except as required by law, we do not undertake any obligation to update these forward-looking statements. This call will also include references to non-GAAP adjusted results. Please reference this afternoon's press release and our Investor Relations website for further information regarding forward-looking statements and reconciliations of GAAP to non-GAAP financial measures. With that, I'd like to turn the call over to Ed. Ed? Edward West: Thank you, Ryan. Good afternoon, everyone, and thank you for joining us today. For those less familiar with Mitek, we provide the identity verification, authentication and fraud decisioning infrastructure that high assurance institutions rely on to onboard customers, authenticate users and protect what's real across digital interactions. We closed fiscal '25 with a strong fourth quarter, coming in ahead of our expectations, driven by broad-based demand across our portfolio of business. As we reflect upon fiscal '25, one constant stands out. The fraud landscape is changing at an extraordinary pace as generative AI is accelerating both the volume and sophistication of fraud and identity-based attacks. AI is lowering the cost of creating deep fakes and synthetic identities for fraudsters. The Deloitte Center for Financial Services estimates that AI-enabled fraud in the United States could reach $40 billion by 2027, and recent industry research shows that a majority of financial institutions now view synthetic identity fraud as their most urgent emerging threat. In recent conversations with several of our largest banking partners, we have heard the same message. AI-enabled fraud attempts have risen sharply over the past year and institutions are turning to Mitek with a clear mandate to help protect their customers and their business as these attacks scale. Before returning to key takeaways, I want to highlight a brief operational update. To deliver on our commitment to improve transparency and provide a simpler view for our investors that matches how customers buy and how we are operating, we're updating our external reporting beginning this quarter. We are now disaggregating our revenues between fraud and identity and check verification. Customers are increasingly asking us to address fraud holistically, not as an isolated identity or payments problems. This has led to tighter integration across our identity, biometrics, authentication and fraud capabilities. Those solutions are included in the fraud and identity portfolio. Check verification includes the heritage mobile deposit and check intelligence solutions. With synthetic fraud accelerating, financial institutions are clear about what they need, fewer point solutions and a core partner who can help secure digital interactions across the entire customer journey. I would now like to discuss a few key takeaways for you as we exit fiscal '25. First, fraud and identity now accounts for over half of our total business. Growing more than 15% year-over-year, it is now firmly established as our growth engine for revenue and SaaS expansion. Second, SaaS revenue growth accelerated to 21% in fiscal '25, a meaningful acceleration from mid-single digits in fiscal '24, while the mix of SaaS increased to 43% of total revenue. These trends contribute to an improvement in the quality and predictability of our revenue. And third, we strengthened the company's foundation in fiscal '25 operationally, commercially and technically, setting a stronger base for fiscal '26. Adjusted EBITDA margins were 30%, and we improved execution across go-to-market and customer delivery. We are now reinvesting in R&D, go-to-market expansion and advanced decisioning to create a more unified and insight-rich customer journey. At the start of the year, we said fiscal '25 would focus on the fundamentals, fixing the foundation and restoring operational discipline required for scalable, profitable growth. Our results this year show that we've done exactly that. We simplified how we run the company, consolidating go-to-market and the product and R&D groups are now under unified leadership. As a result, non-GAAP operating expenses declined 2%, while revenue grew nearly 5%, driving improved efficiency and an 11% increase in revenue per employee. Our identity portfolio was again a major driver of performance. Over the past year, we consistently highlighted that increasing automation and cost efficiencies, combined with continued revenue growth was a key factor to reaching a profitability fulcrum point on a fully burdened basis. With automation now at approximately 90% and identity revenue at roughly $77 million, an increase of 12% year-over-year, that profitability fulcrum point has now been achieved. At the same time, we're seeing a clear shift towards higher assurance identity journeys that require more verification steps. And despite that added complexity, our high level of automation is enabling scale while continuing to expand margins. We see this playing out in both North America and EMEA. In North America, several of our largest financial institutions expanded with us across multiple business units and moved identity earlier in the onboarding flow, combining identity verification with fraud checks in a single stack. In EMEA, banks in the U.K. and Europe are adding new use cases and adopting authentication products such as MiPass, while digital ID initiatives in markets like Spain and Italy are beginning to drive higher verification and authentication volumes. SaaS revenue mix rose to 43% of total revenues, keeping us firmly on track toward the goal we laid out for SaaS to approach half of total revenue. We are also seeing strong leverage in our platform model with gross profit per journey materially higher than that of a single signal workflow. Check Fraud Defender continues to gain traction. ACV grew 50% year-over-year, while data sets configured in the consortium expanded to over 1/4 of all U.S. checking accounts, and that figure is approaching 50% when including FIs in pilot phase. We believe the expansion in data set coverage of checking accounts in the U.S. is quite unique and is a leading indicator of the value for consortium members because accuracy and value scale with consortium breadth. Check Fraud Defender ACV for the year came in below our initial goal, primarily due to the timing of large enterprise deployments. Several large FIs moved through multistage validation and procurement cycles more slowly than anticipated, shifting the decisions into fiscal '26, but not changing the underlying demand. Our expanding footprint is already driving tangible customer outcomes. At our October sales kickoff, multiple large FIs shared that Mitek is preventing millions of dollars of fraud. This feedback underscores the differentiated value of our consortium and the strength of the model as we scale into full production. All of these efforts made fiscal '25 translated into higher margins and stronger free cash flow, which Dave will cover in more detail. With a more unified foundation in place, we are entering fiscal '26 from a position of strength and with a clear mandate from our customers. They want us to unify even more of what we do and help them grow safely. While fiscal '25 was about strengthening the foundation, fiscal '26 is about moving into our next phase, unify and grow. unifying our identity, authentication and fraud capabilities into a cohesive insights-driven platform and scaling it across our customer base. When we help institutions open more accounts digitally, move more transactions through safer channels and keep bad actors out, we then deepen our role in their core customer journeys and grow our SaaS revenue. To guide this next phase, we have organized fiscal '26 around four key pillars that we want to share with you. Our first pillar is to fortify our check verification franchise, the durable platform, including mobile deposit and check intelligence that established our long-standing relationship with many of North America's largest financial institutions and has earned us a reputation as a market leader through scale and accuracy. This franchise remains one of the strongest assets in our business, providing the reliability and trust that our customers expect. Despite periodic fluctuations from license renewal timing, check verification has remained remarkably stable over the last several years. That stability reflects the scale and mission-critical nature of a portfolio that supports approximately 1.2 billion mobile check deposit transactions every year with high margins and high levels of reliability. Our second pillar is to unify our fraud and identity capabilities and expand that portfolio. Fiscal '26 is about showing up as one Mitek across that full journey, increasing our fraud and identity SaaS footprint by enabling customers to grow digital adoption and transaction volume without corresponding increases in fraud losses or manual costs. Fraud and identity now represents just over half of our business and remains our fastest-growing portfolio. The continued shift towards SaaS, high automation and multisignal journeys is improving margins across the broader portfolio. In fiscal '26, we plan to grow the fraud and identity portfolio through deeper signal-rich identity journeys, broaden engagement with customers across additional lines of business and geographies, expand the Check Fraud Defender consortium and continue to drive commercial expansion across our customer and geographic base and growing network of channel partners. Customers are increasingly deploying multisignal workflows that combine documents, biometrics, liveness, behavioral analytics and third-party data, which materially improves their economics by reducing fraud losses, lowering manual review and improving conversion. At the same time, as more institutions contribute data to the CFD consortium, detection accuracy improves and loss rates decline, strengthening the value of the network for every participant, including Mitek. Our third pillar for fiscal '26 is to invest in the areas that we believe we have a clear advantage and where we can lead. As I mentioned earlier, our customers do not just want us to deliver signals, they want a partner who can lead them through this shift by returning data-driven insights for a simple risk-adjusted decision they can act on in real time. This is why our fiscal '26 investments are focused on AI-supported insights and decisioning, biometrics, data and intelligence and targeted go-to-market and delivery capacity. Given our history and expertise, we have a strong basis of differentiation with financial institutions and high assurance use cases. This is where incremental investment dollars will have the greatest impact. You'll see this focus reflected in our financials. We expanded adjusted EBITDA margin to 30% in fiscal '25, and we are deliberately reinvesting to fund these initiatives in fiscal '26 while still delivering attractive margins. We expect improvements in gross profit dollars and unit economics as richer decisioning increases value per workflow. You'll see more of our OpEx shift towards R&D and go-to-market as we fund these higher ROI initiatives. Fiscal '25 proved we can grow margin through operating leverage and scale. Fiscal '26 is about investing behind the capabilities where we can lead and evolving our solution set, all with the goal to accelerate growth. Our fourth pillar is maximizing value through disciplined capital allocation. To lead in the areas where we hold an advantage, every dollar of capital must be deployed deliberately to earn a high return, either reinvested into the capabilities that strengthen our long-term leadership and growth or return to shareholders. We will measure our impact via improving revenue quality and growth, margin durability and strengthen free cash flow conversion, all with a clear capital allocation framework to ensure that we maintain a strong balance sheet while balancing investments with returning capital to shareholders. Our Unify and Grow framework reflects where the market is moving and how our customers are asking us to partner with them. By unifying our capabilities and reinvesting in the technology, data and decisioning layers where we have a structural advantage, we are positioning Mitek for durable recurring high-quality organic growth. We expect to expand our SaaS base. increase fraud and identity revenue and extend the reach and value of our consortium. Now before I turn it over to Dave, I also want to recognize our nearly 600 teammates around the world and our trusted partners. Fiscal '25 was a year of meaningful change across the entire company, operationally, commercially and technically. And the team delivered with focus, discipline and a deep commitment to our strong purpose-driven mission of protecting our customers and their users. The progress we made this year, including simplifying how we operate, elevating customer support, strengthening the core technology behind our platform and returning to growth reflects the commitment and execution of our people. Their work is the foundation for the results you're hearing today and gives us confidence as we enter fiscal '26. With that, I'll hand it over to Dave. David Lyle: Thanks, Ed. As you just heard, we are exiting fiscal 2025 with a clear framework for fiscal 2026. This afternoon, I will focus my commentary on three areas. First, I'll review our fourth quarter results and will discuss revenue using the historical deposits and identity categories. Then I will review our full year performance using the new fraud and identity and check verification reporting structure. And then finally, I'll walk through our fiscal 2026 outlook and how it supports the pillars Ed laid out. Starting with fourth quarter results. Total Q4 revenue was $44.8 million, up 4% year-over-year, with SaaS revenue growth of 19% being a highlight. Revenue results exceeded the midpoint of our guidance range by roughly $4 million as several large deposit deals closed sooner than forecast from higher transactional volumes, and we saw stronger-than-expected identity transaction volumes. Identity revenue was $21 million, up 7% year-over-year, driven by 14% SaaS growth from continued transactional volume overages and deposits revenue was $23.8 million, up 1% year-over-year, driven by growth in CFD SaaS revenue. Q4 non-GAAP gross margin was 84%, down approximately 200 basis points year-over-year, driven by higher investment in SaaS services delivery. Q4 non-GAAP operating expense was just under $25 million, improving 5% sequentially from Q3, driven by lower external services spending and the timing of marketing events. On a year-over-year basis, Q4 non-GAAP operating expense increased by approximately $3 million, normalizing for a reduction in bonus accruals and a reversal of doubtful accounts in the prior year, underlying operating expense was essentially flat. Tying this all together, adjusted EBITDA was $12.9 million in the quarter or a 28.7% margin. After other income, interest and tax, non-GAAP net income came in at $11.1 million or $0.24 per diluted share on 47.3 million shares. As Ed mentioned earlier, we have updated our external reporting. Under the new structure, deposits maps to check verification, Identity maps to fraud and identity and Check Fraud Defender has moved from deposits to fraud and identity. We are also simplifying our revenue categories. Going forward, the primary change will be the combination of license and maintenance into a single line to better reflect how customers contract and pay for those items. The 10-K provides results in both the prior disaggregated format and the new reporting format, allowing investors to compare historical performance across the two presentations. With that framing, I will now walk through full year 2025 performance. Starting with Fraud and Identity for fiscal year 2025, Fraud and Identity revenue was $90 million, up 15% year-over-year with growth led by our SaaS offerings, primarily driven by continued volume expansion in our core customer base. What stands out this year is how consistent customer behavior has become across regions and customer tiers. Large banks and enterprise customers are converging on the same pattern, shifting identity earlier in the onboarding flow, consolidating fraud and identity workflows and standardizing on bundled stacks rather than fragmented point solutions. Taken together, fraud and identity is now operating at increased scale and more durable economics, positioning us well for continued growth in fiscal 2026. Turning to check verification, comprised of our Mobile Deposit and Check Intelligence products. This portfolio remains an important cash flow generator for the company. Check verification revenue for fiscal 2025 was $90 million compared with $94 million in fiscal 2024, a variance mostly related to deal timing year-over-year. This year's performance reflects the resiliency of a portfolio that has operated in a relatively defined annual revenue range for several years despite overall check volume declines in the U.S. and the digestion effects of an unusually large revenue recognition event in fiscal 2023 from a single large channel partner when we recognized roughly four years' worth of revenue in a single quarter. On a consolidated basis, total revenue for fiscal 2025 was about $180 million, split evenly between fraud and identity and check verification. Our 4% consolidated revenue growth breaks down cleanly as follows: SaaS, which grew 21% year-over-year, contributed roughly 8 points of growth. Licensed software and support reduced growth by roughly 4 points as expected, reflecting the ongoing overall mix shift from software term licenses to recurring SaaS. For the full year, non-GAAP gross margin was about 85% compared with about 86% in fiscal 2024. The modest step down is consistent with our transition to a heavier SaaS and services mix. SaaS and services carry blended margins in the mid-70s percent range versus nearly 100% for licensed software. As is typical with a mix shift towards SaaS, the margin rate compresses slightly, but absolute gross profit dollars continue to grow. Importantly, automation and richer identity fraud journeys are lifting gross profit per journey, which offsets some of the mix impact and supports long-term scale. Non-GAAP operating expense for fiscal 2025 was $100.9 million, improving 2% from last year and an improvement in operating expense intensity from 60% to 56% of revenue. Breaking that down in G&A, vendor consolidation and tighter procurement reduced external spending, bringing G&A intensity down from 20% of revenue to 18%. We also streamlined finance and accounting processes, which lowered our reliance on external advisers. Sales and marketing intensity improved from almost 22% to under 21%, driven by stronger alignment between marketing programs and pipeline generation and a shift away from higher cost event-driven activity toward digital and partner-led demand generation. R&D intensity improved from 18% to 17% of revenue as we completed several platform consolidation initiatives, reduced reliance on higher cost contractors and increased engineering productivity through automation and broader adoption of AI-assisted development tools. Adjusted EBITDA for fiscal 2025 grew by 15% to $54 million, representing a margin of 30%, up from 27% a year ago. Non-GAAP net income for fiscal 2025 was $45 million and roughly flat with fiscal 2024, even though adjusted EBITDA increased by 15%. This result was driven primarily by a higher non-GAAP tax rate, 21% in fiscal 2025 compared to 9% in fiscal 2024. The increase reflects higher pretax income across jurisdictions and lower tax deductions from stock-based compensation and other payroll-related items. Free cash flow for the full year was $54 million, which equates to 100% conversion of adjusted EBITDA compared with just under 65% last year. While operational discipline and lower non-GAAP cash adjustments contributed, this conversion level is above what we consider a longer-term steady state, and it's important to highlight a couple of nonstructural tailwinds that will dissipate over time. First, following the expected payoff of our 75 basis points convertible debt on February 1, 2026, we will no longer receive the interest arbitrage benefit. Second, there is an initial working capital step change benefit as revenue mix changes, which should be followed by an ongoing but smaller growth linked benefit as SaaS base expands. And third, by 2028, we will have exhausted the benefits associated with the catch-up provisions within the recent tax legislation, which will lower the cash tax rate during fiscal year 2026 and fiscal year 2027. Taking these items into consideration, over the longer term, we believe a more realistic steady state is around 75% conversion, which we believe is consistent with recurring revenue software peers. Our approach to capital allocation remains consistent and disciplined. We first fund high-return initiatives in the business while ensuring the balance sheet remains resilient, balanced with returning excess capital to shareholders. We ended the year with about $196 million of cash and investments and approximately $157 million of total debt, resulting in $40 million net cash position. Combined with our committed term loan and revolving credit facilities, this provides full flexibility to retire the $155 million of convertible debt maturing in early calendar 2026 while preserving ample liquidity to fund product development and enable additional share repurchases. Regarding share repurchases, in fiscal 2025, we repurchased approximately $5 million of shares. And since fiscal year-end through December 10, we have repurchased an additional $7.7 million, leaving $13.6 million remaining in the current authorization to execute through May 2026. Let me now turn to our fiscal 2026 outlook. We expect fiscal 2026 revenue of $185 million to $195 million, implying roughly 6% at the midpoint. This range reflects the balance of stable check verification and accelerating fraud and identity demand. With the first quarter nearly complete, Q1 revenue is tracking to between $41 million and $44 million. We expect fiscal 2026 to be slightly more back half weighted, reflecting a gradual ramp in fraud and identity SaaS. We expect fraud and identity product portfolio revenue of $101 million to $105 million in fiscal 2026, which would represent approximately 15% growth at the midpoint and would maintain the same growth rate we delivered in fiscal 2025. We expect modest gross margin pressure in fiscal 2026, largely due to mix shift towards SaaS and services as we invest ahead of expected demand growth. We still expect gross profit dollars to continue to rise despite this compression, assuming the midpoint of the revenue guidance range. On operating expenses, we expect to increase R&D intensity as we accelerate development. This investment will be funded by continued leverage in G&A and by lower sales and marketing intensity as we unify our go-to-market teams, automate more of the cycle and improve sales operations and analytics. Taken together, these offsets allow us to maintain or improve overall operating expense intensity versus fiscal 2025, even as we invest behind our product road map. We expect fiscal 2026 adjusted EBITDA margins in the 27% to 30% range. At the midpoint, this implies adjusted EBITDA dollars remaining roughly flat year-over-year, reflecting deliberate reinvestment rather than a step back in earnings power. We believe that rising demand for fraud and identity solutions and strong unit economics makes this a good place -- a good balance between delivering profitability and deploying capital into high-return R&D and go-to-market initiatives. We also expect adjusted EBITDA to continue converting to free cash flow at attractive rates during fiscal 2026 with normalization towards our long-term target over time. Regarding taxes, we expect fiscal 2026 non-GAAP tax expense, which reflects cash taxes to decline meaningfully from fiscal 2025. This change is driven by changes in U.S. tax legislation, particularly the revised treatment of capitalized R&D. As a result, we expect a fiscal 2026 non-GAAP tax rate of roughly 10% of non-GAAP pretax income. Before we turn to Q&A, I want to highlight an important milestone. Over the last several quarters, we've said we would finish the cleanup of material weaknesses in our internal controls. As disclosed in our filings today, we have now fully remediated all previously reported material weaknesses. This outcome reflects multiyear investment in people, systems and technology to strengthen our processes and control environment. This is a significant accomplishment and a meaningful step forward for the company. We want to thank our teams across the organization and particularly our accounting team for their discipline, commitment and very hard work throughout the process. Finally, our updated investor presentation and the Q4 and full year supplemental financial package are available on our Investor Relations website, including trended historical data for our new product categories and revenue classification. With that, operator, we are ready to take questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Mike Grondahl from Northland. Mike Grondahl: Dave, if your SaaS business is doing really well, if you had to sort of distill one or two drivers behind that growth, how would you describe those? Edward West: Mike, as you point out, we did see an acceleration of SaaS growth throughout the year and feel really good about where the year is ending up. Underlying demand, frankly, what's the big driver of this is what's happening in the market. And we feel like Mitek is really well positioned based on what all is happening with the growth in synthetic fraud because of generative AI, and the growth we're seeing there, the rising fraud, frankly, essentially fraud being democratized. That's been a driver of the needs because of our partnerships and credibility of working with some of the largest financial institutions around the world. So we're seeing growth in the overall relationships in terms of new products, new solutions with those institutions. We're seeing growth in transactions, as I mentioned, bringing up our verification process and also fraud checks earlier up as new customers are coming on board. We're seeing more in authentication because of this. And frankly, just the -- with that market continuing to expand, we feel very good about the growth there going forward. So that's the key driver of this. And frankly, the -- what we capture in terms of the outlook this year has been -- is capturing that increasing demand. Mike Grondahl: Got it. And then any more details you can share on Check Fraud Defender number of banks or revenue or just kind of progress momentum you're seeing there? Edward West: Well, as I mentioned on the call, we saw 50% growth in overall ACV. And probably the biggest metric there, Mike, to be really very encouraging is the amount of data sets that we now have compiled and configured within the consortium. So, today, we're over 25% of all checking accounts in the U.S. -- in the United States, we have visibility into and built those data sets. And when you include the institutions who are currently in pilot phase, that actually approaches 50%, nearly 50% of all U.S. checking accounts. That is, we believe, a significant asset for the consortium and ultimately, this franchise. And it goes back to what I mentioned a minute ago about more signals that we can provide customers around potential fraud and insight, the more valuable the franchise is. So the progress there, the data sets that are being built, the momentum, the engagement with financial institutions and some of the largest institutions in this country are seeing the benefits and it goes back to your previous question, hey, what's driving all this? And it's just the accelerating growth of fraud and synthetic fraud around the world. Operator: And your next question comes from the line of Jake Roberts from William Blair. Jacob Roberge: Great to see the strong results, good quarter there. Ed, when you initially joined, you talked about getting organic growth back above 10%. Obviously, still building some things out on the fraud side. But now that you've been here for over a year, do you feel like you're starting to get more visibility into that path with SaaS really starting to accelerate this year? Edward West: Yes. Great question, and thanks for the comment on the results. Again, a lot of work by everybody across this company. Having seen the accelerating growth in SaaS, as we were just talking about, over 21% growth and the growing in demand. But what's most important about getting to that -- our goals, where we want to is that longer-term double-digit growth rate and organic growth -- the good news is the market is moving in the right direction. We feel like Mitek is really well positioned to capitalize on that. And it's going back to that credibility that we have some of the largest financial institutions in the world, the growing need for fraud and identity detection. All of that compiles, I think, and leads to decent confidence in going to our longer-term growth objectives there. Jacob Roberge: Okay. That's helpful. And then now that you've done a lot of the heavy lifting on consolidating the platforms and also kind of your go-to-market motion into One Mitek over the past year, what inning do you feel like we're in with those changes on both the go-to-market and product into the One Mitek story? And then how do you feel like the visibility into the business has changed over the past year now that you're not operating several different sales forces and systems? Edward West: Well, obviously, that improves every day and gets better and better. And last year was a year about fixing the foundation and integrating these various businesses, getting people to working together as one solution and having that strong purpose-driven mission. But frankly, we've moved from that phase and now into the unify and grow where we've got to bring together that integrated platform approach and driving more data and insight and signals, richer signals to provide insights to our core customers. We're early on in there because that's -- we're bringing these pieces together. We have a lot of capability and credibility and insights, but that's why building out these various forms, whether that's building up the consortium, bringing more value to those enterprise. We're early on in that. That's still not a mature business as we've talked about. Then also fighting the fraud that evolves and change every day. I think we've got a good grasp on having the discipline on how we're operating across the platform. Now I think we're just now beginning to get into the groove of really seeing that come together in terms of value creation for our customers and ultimately for Mitek. Jacob Roberge: Very helpful. And then, Dave, if I could just sneak one more in. I know you're still sunsetting some of the legacy hardware assets. Can you help us understand what that headwind will be on revenue growth this year? And will those hardware products be fully sunsetted this year? David Lyle: Sure. Yes, we've actually expected a more rapid falloff, as you know, in revenue from those -- that hardware product. It just survived for longer than we thought, which actually is a good thing from a revenue perspective. But we're down into the immateriality level of revenue dollars. So it will have a little bit of an impact, but nothing like it's had historically in the last couple of years. Edward West: Next question, operator. Operator: And your next question comes from the line of Surinder Thind from Jefferies. Surinder Thind: Ed, can you maybe talk about the level of investment that you're making at this point? Is that kind of a normalized pace? Or are we early in an investment cycle where maybe there's a lot of ideas to pursue given how things are changing? Just any color on that as you think about the year ahead and obviously, the next couple of years? Edward West: Sure. Well, I think Dave outlined in his remarks just in terms of the -- what that investment looks like this year. And that's really driven. As you know, we've been very disciplined about the operations, driving margin, the performance, integrating the business. This is really driven by the confidence that we see where we're positioned with customers, what's happening in the market and how do we accelerate growth because of what's happening and making sure we're capitalizing on that as a business for everyone involved. Longer term, we continue to -- we're very margin focused. We want to continue to grow free cash flow and margins. So -- but I think we've outlined the amount of investment here and continuing to drive performance from there. Surinder Thind: So, Ed, maybe a clarification on my part. I guess what I was trying to ask is more about like are we in a period where you could -- if you wanted to invest even more at this point? Or are you pursuing all of the ideas that you want to pursue in relationship to obviously, I understand you have to balance margins and stuff. But just that's what I was trying to get a better handle on the longer term... Edward West: Sure. Yes. I would say we want to be prudent and balanced with the business. anybody can say they always can invest more. There are clearly continue to be things, but we just want to be prudent. We want to deliver the results and be a balance in it, just like we've talked about in capital allocation and maintaining that flexibility. But right now, we feel good about where we are, the position and what we have. David Lyle: Yes. We think, Surinder, we have the kind of right balance like Ed was talking about. The big focus, as Ed also stated on R&D, more specifically on AI decisioning, biometrics and fraud intelligence. And then on the go-to-market side of the equation, it's time to strike a little harder there and put a little more investment there. Most of the investment is going to be in R&D. And I think this is a good pace to do it looking into 2026. Surinder Thind: Got it. And then when we kind of think about -- you talked a little bit about Check Fraud Defender and all the good stuff that's going on. You also highlighted the idea that some of the larger financial institutions are taking their time. Is that something that might potentially change as we go ahead? Or is that just as you've now kind of worked through this process, that's just how it is, meaning that if you layer on a number of these FIs taking time, ultimately, the growth rate would accelerate, right? But I'm just trying to understand the dynamic there of how we think about the decision-making at the large FIIs and what that really means for the FD's growth rate. Edward West: Yes. I think the more data that you have, the incremental value creation just increases. And so the more value everybody sees that should accelerate over time. And we've continued to build out the business, the insights and the value there. But these are very large institutions. They take their time. They've got built-in processes that they go through. The good news is it's coming along. It's been happening and will continue. We think that, that would accelerate over time. But our focus is getting the data and the insight that then we can share with the customers and create more value for them and Mitek. Operator: And your next question comes from the line of George Sutton from Craig-Hallum. George Sutton: Nice results. So when we're talking about synthetic fraud, I wondered if we can get a little more granular in terms of how the discussions with the customers are going. You've been trying to migrate folks from point solutions into the MiVIP platform and the full stack. Is synthetic fraud helping drive those discussions? Or are you seeing new interest from new parties specific around synthetic fraud? Edward West: Well, going to the former -- thank you, George, is synthetic fraud, obviously, whether they're injection attacks, presentation attacks, template attacks that are happening, deepfakes, all this, and that's accelerating. And the reason we take a highly layered approach to detection, which is why having that orchestration and VIP is very important. And the more insight and signals we can bring to that, the more detection we can deliver. That's why, again, we have unique assets with the biometric and liveness capabilities combined with other signals, we can bring in other third-party signals and all these different pieces come together in a platform approach to provide more data. And as that synthetic fraud is increasing, is helping out on that detection. But it's changing. It's changing daily. Some of the fraud vectors change rapidly, and that's why staying in front of that and having that core partner is very important. I think as this continues to grow, as your second point of that, it logically would start impacting other organizations as well and seeing other use cases where it's important to bring these biometric liveness and other fraud detection and synthetic fraud detection capabilities to bear on applications that we may not have been thinking about a year or so ago that we're now seeing today. George Sutton: Got you. So I wondered if we could walk through the pilot process for the banks, these large banks. Obviously, the network effect is starting to occur here. I'm just curious, how are they viewing their pilot process? Are they're obviously looking for incremental value of being part of the consortium versus something they would have identified themselves. Can you just walk through kind of the touch points there? Edward West: You just outlined it, being a part of the consortium start seeing the value of, okay, now I'm seeing data, have access to data that I didn't have on my own, for example, where we can talk about the amount of the coverage. A lot of times, we'll go into and meet with an institution, we'll already have insights and data sets on their customers that they didn't give to us, but because we see it in many other financial institutions so frequently that we've been able to build up that profile to then have that conversation. That gets folks attention. Now they start seeing the benefit of being a part of a consortium versus just having an on-premise software solution themselves that is now maybe not seeing all of the signal-rich capabilities about being a part of a broader consortium. So now just going through that just takes time. You walk through, you get the data, you do the test, do the pilot, and it just evolves over time and getting people more broad. You're talking about very large institutions who have done it in certain ways. And the more data they have, they see, now they see the benefits and then participate in the consortium. We have multiple top 10 institutions, some of the largest in the country in working with us. And so we're encouraged about the progress at what we see ahead. George Sutton: Got you. Just one other thing. We're 80% or so through the fiscal first quarter. And we also line up with the fiscal year-ends of most of your customers. I'm just curious if you can -- are there any sort of things you would point to that might be a focus for this quarter versus what you were seeing in Q3 or any meaningful deltas? Edward West: No meaningful deltas other than just continued -- directionally, I think, has informed the guidance that we've outlined for the year, and Dave walked through both the year. And frankly, we gave you some more color on the quarter based on where we are. Operator: And your next question comes from the line of Allen Klee from Maxim Group. Allen Klee: Could you comment a little on the mobile deposit business on -- in terms of -- it looks like if you back in, you're implying a decline. Are you thinking that this business is kind of going to be in secular decline or some stability at some point? Or how are you thinking about it? Edward West: Well, I'll tell you, let me just turn it over to Dave to walk through in terms of what your point there, Allen, is kind of backing into what that means from a guidance. David Lyle: Yes. The way we kind of look at it is looking historically at the stability in the overall transactional volume that we see for Mobile Deposit, it's been a $1.2 billion plus for years, right? And so we've managed pretty well just through adoption, I think, to keep those volumes where they -- in a pretty stable position. What we've seen over the past couple of years is more about deal timing from a revenue perspective. If you remember, Allen, there was a very large channel partner deal that allowed us to -- or required us to recognize four years of revenue in a single quarter in 2023, essentially taking out sequential years ahead of additional revenue from that customer. That circles back, by the way, next year in 2027, where we'll have a renewal there. But that creates -- the digestion of that deal created some pretty big declines over the years. And we also have -- depending on when larger customers run out of transactions and have to renew, that timing matters in a pretty significant way. You even saw some of that at the end of Q4, where we had some expected upsides. When you have expected upsides in that time period, it's usually because they run out of transactions earlier, which is a good thing. So we know that overall checks are coming down over time. And eventually, they will start to see a more secular decline from our transaction volume. But right now, we're seeing stability in that -- in the volumes. Edward West: Yes. So just kind of long-term takeaway or to summarize that is just separating out the underlying transaction volumes, which is right, has been around $1.2 billion versus the rev rec based on those ongoing purchases of the volumes. Allen Klee: Okay. And then just from a capital structure perspective, is it reasonable to assume that you will pay off the entire amount of the convert when it comes due or that you might use some of your facilities to keep more cash around? David Lyle: Yes. The decision -- so first of all, yes, we're going to pay the debt off completely when it's due February 1, 2026. We haven't yet communicated how we're going to do that. We have that $100 million facility, the $75 million term and the $25 million revolver to give us flexibility. We'll make that decision closer to the time we actually pay it off. It could be a combination of both borrowings as well as cash from our cash balance. Edward West: And as Dave pointed out, we have close to end of the year, roughly $196 million in cash plus those facilities. Operator: There are no further questions at this time. I will now hand the call back to Mr. Ed West for any closing remarks. Edward West: Great. Well, thank you. Thank you very much for your interest and time. You've got a highly enthusiastic team and company based on the position where we see things evolving in the market and very energized about what's happening. So thank you for your interest, and we look forward to visiting with you all over this next quarter. Have a great day. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the ADF Group Inc. Results for the period of 3 and 9 months closed on October 31, 2025 conference call. [Operator Instructions] This call is being recorded on Thursday, December 11, 2025. I would now like to turn the conference over to Mr. Jean-Francois Bourse, ADF Group's Chief Financial Officer. Please go ahead. Jean-François Boursier: Good morning, and welcome to ADF's conference call covering the third quarter and 9 months ended October 31, 2025. I am with Jean Paschini, Chairman of the Board and CEO of ADF, who will be available to answer your questions at the end of the call. I will first update you on our quarterly and year-to-date results, which were disclosed earlier this morning by press release and then proceed with a quick update about our operations, including the first-time consolidation of Groupe LAR, the acquisition of which was finalized on September 18. First, a word of caution. Please note that some of the issues discussed today may include forward-looking statements. These are documented in ADF Group's management report for the third quarter and 9 months ended October 31, 2025, which were filed with the SEDAR this morning. Revenues for the quarter ended October 31, 2025, at $71.4 million were only $8.5 million lower than last year. Year-to-date, revenues stood at $179.9 million compared with $262.2 million for the 9-month period ended October 31, 2024. While the corporation's order backlog is more than adequate and as we already mentioned in previous communications, the uncertainty surrounding the U.S. tariffs has created an nonrecoverable delay in fabrication hours, mainly at ADS plant in Terrebonne, Quebec. We closed the third quarter ended October 31, 2025, with gross margin of 27.6% as a percentage of revenues, down from 30.4% for the quarter ended October 31, 2024, while the year-to-date gross margin as a percentage of revenues at 23.8% is also down from the 31.7% margin for the 9-month period ended October 31, 2024. The decrease in revenues required ADF to implement a work sharing program during the second quarter ended July 31, 2025, at its Terrebonne plant. This program has allowed the corporation to mitigate the negative cost impact of the decrease in fabrication hours, but not entirely. Tariffs also had an indirect negative impact on the corporation's margins which is caused by the increase in the price of steel set by the U.S. steel mills. Adjusted EBITDA for the quarter ended October 31, 2025, at $18.4 million compared to $24 million for the same quarter ended a year ago, while year-to-date adjusted EBITDA stood at $32.5 million compared to $72 million for the 9 months ended a year ago. Again, it is worth mentioning that while the financial results for the period ending October 31, 2025, are severely impacted by the tariffs and associated turmoil, last year's results benefited from an exceptionally favorable product mix. Selling and administrative expenses for the 3 months ended October 31, 2025, stood at $3.1 million, posting a $1.3 million increase compared to the same period ended a year ago. This variation is mostly explained by the adjustment in the market value of DSUs and PSUs in line with the corporation share price during the period analyzed. Year-to-date, these expenses stood at $15.3 million, which is $0.5 million lower than the same period a year earlier. This variation, although to a lesser degree, is also due to the adjustment in the market value of DSUs and PSUs. We, therefore, closed our third quarter with net income of $10.3 million or $0.36 per share compared with $16.4 million or $0.55 per share for the corresponding quarter a year ago. Year-to-date, net income stood at $20 million or $0.70 per share compared with $47.7 million or $1.53 per share for the same period ended October 31, 2024. As previously mentioned, the October 31, 2025 quarter end included the first -- for the first time, the inclusion of Groupe LAR into our consolidated results. As such, and for the period starting September 18, 2025 to the end of the quarter on October 31, 2025, LAR increased our revenues by $6.2 million, adjusted EBITDA by $0.5 million and net income by $0.2 million. We closed our third quarter with $37.7 million in cash and cash equivalents, $27.3 million lower when compared to the January 31, 2025, closing balance. The Groupe LAR acquisition explained $16.4 million of this variance, plus the working capital we invested to support LAR operations since the acquisition. Working capital as at October 31, 2025, reached $101.4 million for a ratio of 2.27:1 compared with a working capital of $109.2 million or a ratio of 2.36:1 as of January 31, 2025. Year-to-date, operating cash flow reached $13.4 million for the 9-month period ended October 31, 2025, while we spent $8.7 million on property, plant and equipment and intangible assets acquisitions, including the upgrade of ADF ERP system, which is scheduled to take place over the next 3 fiscal years. In addition, and as mentioned with the July 23 multiyear contract announcement, we will be investing in new equipment at our Terrebonne site, which should bring our full year CapEx investment at approximately $11 million. Finally, we closed the quarter and 9 months ended October 31, 2025, with an order backlog of $497.1 million compared with $330.3 million on the same date a year earlier and $293.1 million on January 31, 2025. It should be noted that ADS order backlog as at October 31, 2025, includes the order backlog of Groupe LAR totaling $91.9 million and does not include the option to extend the long-term contract announced last July by 5 years. Although still not at last year's level, our third quarter results have improved when compared to recently closed quarters. we are still seeing the effect of the new U.S. trade policies as they continue creating uncertainties in our markets. This said, and as we have explained at our last quarter end call and also in more detail on our October 29 analyst call, we are now working hard on Groupe LAR's integration into our operations. We are already seeing the impact from our acquisition as our consolidated backlogs U.S. content, which made up 95% of our January 31, 2025 backlog is now only representing 43% of our October 31, 2025 backlog. This is the first of many positive impacts we will see in the coming quarters as we fully integrate LAR and execute our investment plan. We are still finalizing the final detail of this important investment, but we will provide additional information in future communication as it becomes available. The U.S. market remains a key market for ADF, but we are now better positioned to face the new North American landscape. We will continue our methodical and measured development approach while maintaining our tight management of operational risks, delivering solid results to our shareholders. Thank you for your interest and confidence in ADF. Jean and I will now answer your questions. Operator: [Operator Instructions] Your first question comes from Nicholas Cortellucci with Atrium Research. Nicholas Cortellucci: Jean and JF, congrats on the quarter here. First one is just on the LAR Groupe acquisition. Maybe just walk us through the steps of integration you guys are going through right now and what that looks like and what kind of synergies we can expect on the revenue and the cost side? Jean-François Boursier: Well, as we mentioned at the -- on the call at the end of October, still -- well, besides the financial integration and the first consolidation, we're working hard looking at how we will invest in Atlas plant in at LAR's plant in Lac Saint-Jean region. We need to increase capacity in light of the upcoming volumes. So obviously, a lot of emphasis being put on this investment and also how to finance that investment. So that's really the emphasis we're putting now also working with them on the bidding process, trying to go back because, obviously, with -- through the acquisition process, they had to sort of slow down their bidding process because of other operating issues they had while we were doing the acquisition. But now that everything is behind us and that we're -- everybody is fully on board, we're back on the bidding trend. Good things are coming, as we also mentioned on our October call with the analysts. So really working with them on the bidding process. We're hopeful to be able to have a nice announcement in the coming quarters. But if we're successful at signing those jobs, we need to make sure also that we're able to have sufficient capacity. So working with all of that. So a lot of work going on. Obviously, the fact that both operations have similar values really helped on the integration process. So that the process really goes well, and everybody is eager to get LAR back on its usual trend and actually even better. As for synergies, we're still evaluating them. Obviously, some of them will come with -- as the integration goes, just from an administrative perspective, there will be synergies also as we combine the operation. And obviously, once we are able to have the new investment in with the equipment -- the new equipment, we can actually expect further efficiency improvement and additional synergies. Nicholas Cortellucci: Right. Okay. Perfect. And then maybe just a bit on margins. If we calculate the margins from the numbers you guys reported, it was a bit lower than what you guys report. So where do you see that going over the long term? What is kind of the target EBITDA margins or even gross margins for the acquisition? Jean Paschini: Well, like we said before, like Jean-François said before, that facility, that shop was almost bankrupt. So right now, we are working with everybody, putting up systems, a lot of integration that we're doing. I want this shop at LAR to be able to do the same margin as of here in Terrebonne and in Great Falls, by investing the money that we're going to invest, the Board of Directors approves it. The new facility is going to be very sophisticated and margins are going to be, like I said, as high as we have them here. Nicholas Cortellucci: And then I know you guys have made a big shift over to Canada. But if we are to get some type of resolution on the trade front over the next year, how quickly can you flip the switch and get back to what you guys are doing last year and the year before with a lot of these U.S. contracts? Jean Paschini: Well, it's -- when the switch is on, we have a lot of clients in the U.S. on the other side of the border. So -- but right now, those clients are not able to guarantee that there's not going to be any tariffs. So by doing that, they're shifting work to somebody else. But whenever there's an agreement between Canada and the U.S., then listen, we're going to return, and we're going to make sure that we will get work and -- get work and produce. But still, what happened with the new President, it can happen years -- it can happen again. So we're working hard to diversify our backlog. I think at the beginning of the year, it was 90% U.S. Now we're up to 57%. So we have to keep Canada, and we have to keep all North America to make sure that we won't get -- we won't get shipped it again. Jean-François Boursier: Nic, the goal is really not to exit the U.S. market. From a steel manufacturing standpoint, U.S. market is still the biggest market and a key market. Obviously, there are some struggles now, as Jean explained, because of the tariff and the uncertainty, but we're not -- definitely the idea is to have a better balanced backlog, which we achieved, but not shifting the U.S. volumes, to Canadian volume, it's just increasing. The Canadian volume and increasing the overall backlog. And by doing that, we were still keeping U.S. market as a key market, we have to. And -- but this said, we need also to be smart about it. And I think with the acquisition and the better balance, we're definitely reducing, mitigating the risk coming from the tariff uncertainty. Nicholas Cortellucci: Yes. Absolutely. Okay. That makes sense. And then just last 1 for me. If you could give us some commentary on Q4 and how that's shaping up, what should investors expect? Jean-François Boursier: Q4 should be similar to Q3. We're expecting again a good quarter. So I'll leave it at that. It's -- Q4 is going to be a good quarter. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Mr. Jean-Francois for closing remarks. Jean-François Boursier: Thank you. Again, we wish to thank you for your interest in and support of ADF Group. Jean, and I would also like to take this opportunity to wish you all a safe and happy holiday season. Have a nice day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, and welcome to the DLH Holdings Corp. Fiscal 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead. Chris Witty: Thank you, and good morning, everyone. On the call with me today is Zach Parker, President and Chief Executive Officer; and Kathryn JohnBull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the Investor page. I would now like to provide a brief safe harbor statement, which is also shown on Slide 3 of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2026 and beyond. These statements are subject to various risks and uncertainties, which could cause actual results and events to differ materially from such statements. Please refer to the risk factors contained in the company's annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. On today's call, we will be referencing both GAAP and non-GAAP financial measures. A reconciliation of our non-GAAP results to our reported GAAP results is included in our earnings release and in the investor presentation on DLH's website. President and CEO, Zach Parker, will speak next, followed by CFO, Kathryn JohnBull, after which we'll open it up to questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach. Zachary C. Parker: Thank you, Chris, and good morning, everyone. Welcome to the fourth quarter conference call. I'm pleased for the opportunity to report our financial results and provide color regarding the current environment and our outlook. Before getting into the meat of the presentation, I'd like to take a moment to state how important our people have been to DLH this past year. It has been a time of transformation with both challenges and opportunities, and we have relied relentlessly on our excellent staff to get us through. They continually surpass our expectations due to their passion, persistence and work ethic. So once again, I want to say thank you to everyone at DLH. Throughout the year, we have achieved great success and national award recognition for major accomplishments in developing innovative countermeasures for diseases and health risks to citizens, service members and veterans. We also elevated the readiness posture of our naval fleet and we have made major advancements in developing top commercial data science and analytics platforms to drive solutions in digital transformation and cybersecurity. I'll address that a little bit later. We are again, very much indebted to our great talent. We ended the fiscal year 2025 in position for the opportunities of tomorrow, completing a pivotal year that involved, of course, the transition of several contracts to small business set-aside contractors as we had articulated and anticipated over the recent years. While we, at the same time, have developed additional capabilities and found additional industry providers. We were impacted by the change in priorities that come with every new administration. However, what did not change was our commitment to investing in talent, tools and technologies developed to develop solutions for our pursuit of higher value-added technology-powered applications and our utilization of the company's prodigious cash generation to pay down debt and strengthen our balance sheet. As we begin fiscal 2026, we are optimistic about the growth opportunities in our addressable market. Now turning to Slide 4. I'll provide an overview of our achievements and outlook. We accomplished a great deal this past year and remain on track for enhanced performance going forward. We've expanded our role in various leading industry organizations and research consortiums. More recently, I met with the administration's leaders at the White House, enabling us to collaborate with the top strategic decision makers and more closely align our business with national priorities and emerging security needs. We achieved Cybersecurity Maturity Model Level 2 Certification, CMMC, an important credential for our industry. The CMMC program is designed to enhance the force -- the protection of sensitive but unclassified information shared by the Department of War with its contracting base. Level 2 certification demonstrates overall excellence in cybersecurity, positioning DLH to compete for higher-value business opportunities within our addressable market, including the C6ISR community. That is command, control, communications, computers, cyber, combat systems, intelligence, surveillance and reconnaissance. The achievement validates our ability to carry out national security missions with efficiency, security and agility. Customers know that DLH can leverage its core competencies and capabilities along with commercial best practices to deploy resilient systems built to withstand the rigors of the modern cyber threat environment. These capabilities are present also in a recent award with the National Institute of Health. Our specialized staff will design and implement cloud security migration strategies built on agility and impactful security. Our experts will deliver full project management life cycle solutions to modernize information technology, to improve the customer experience and business processes, to optimize system performance and to integrate emerging technologies such as artificial intelligence. It is a great program that will continue to showcase many of our leading cutting-edge transformational capabilities. In addition, as Kathryn will review further momentarily, we were recently awarded an extension of our IDIQ contract by the VA to continue providing pharmaceutical and medical logistics services at multiple VA mail order regional distribution centers. The ordering period for this vehicle runs through November of 2026. Strong cash flow during the quarter resulted in further significant debt reduction of $10.7 million, resulting in a fiscal year-end debt balance of $131.6 million. Suffice it to say that our steadfast commitment to delevering the balance sheet means that all mandatory term debt payments have been made through September 30, 2026, a year ahead of schedule. Let's turn to Slide 5 for a review of our ongoing strategic transformation heading into fiscal 2026 and beyond. As we discussed earlier this fiscal year, DLH's transformation into a leading technology, engineering and scientific research solutions provider is illustrated through our core capability pillars, which are described in 3 areas: digital transformation and cybersecurity, systems engineering and integration and science, research and development. Across each of these, DLH professionals and our world-class data science cell have applied impactful cutting-edge solutions on behalf of our customers' mission-critical and evolving challenges. To complement these capabilities, DLH has developed a suite of branded competitive differentiators, which help customers across all target markets execute their missions with increased speed, reduced cost and enhanced precision. Investing in proprietary tools within our DLH innovation labs framework further differentiates our company and advances our organic growth aims. To that end, I am pleased to report that fiscal 2025 brought significant progress towards refining these differentiators and bringing our value solutions to market. Today, I will add further color to one of those tools, DLH Cyclone, an AI/ML-powered data science engine. Cyclone unleashes the infinite power of our clients' data. Cyclone is a disruptive competitive force challenging traditional norms for large-scale data analytics. It transforms the environment in which data ETL processes occur and includes data warehouses, data lakes, building blocks and so on. It uniquely harnesses the power of optimizing data science and evolving technology tools. In short, Cyclone accelerates the speed of actionable intelligence and visualization for users and decision-makers at reduced cost, particularly when compared to existing government systems and commercial platforms. Cyclone specifically can ingest and process data from a nearly unlimited number of potential sources, spanning scientific and operational domains, including clinical, electronic health records, geospatial, atmospheric, tactical, logistical and beyond, all while maintaining robust data prominence. Leveraging our advanced machine language expertise, Cyclone organizes unstructured, diverse and vast data elements into real-time analytics. Having seen DLH Cyclone in action at trade shows, live demonstrations and transformational value propositions, several current and potential adjacent clients have expressed interest in transitioning to our Cyclone platform to improve efficiency, transparency and reduce costs. DLH Cyclone, NEURA and DLH Nexus labs, exemplify the strategic transformation of our company. These tools are expected to be -- continue to be valuable resources to our customers across our markets, looking for efficient, cost-effective solutions to navigate big data challenging budget cycles, system disruptions and the like. They cover a wide range of use cases, providing digital secure sandboxes to pilot and test new tools and products to ingest data in simulated environments to support logistics decision-making, research and development or training as well as advancing the biomedical research initiatives such as precision medicine, biodata catalyst applications and chronic disease eradication. We are confident that with our top talent, our strategic differentiators and best practices, DLH will soon return to low double-digit organic growth in the future. With that, I would like to turn the call over to our Chief Financial Officer, Kathryn JohnBull. Kathryn JohnBull? Kathryn M. Johnbull: Thank you, Zach, and good morning, everyone. Thanks for joining us as we report our fourth quarter results for fiscal 2025. Turning to Slide 7. I'd first like to provide a high-level overview of some key financial metrics for the 3 months ended September 30, 2025. We reported revenue of $81.2 million in the fourth quarter versus $96.4 million in the prior year period, reflecting contribution from contract awards, offset by the impact of program timing, contract unbundling, government efficiency initiatives and the conversion of certain programs to small business set aside contracts as discussed in the past. In total, the revenue contraction due to such small business set aside conversions, including CMOP, was approximately $11 million in the quarter versus 2024, accounting for most of the decrease in revenue. Of the year-over-year decline, approximately $7.5 million was related to transitioned CMOP locations and $2.9 million was from the unbundling of certain other contracts. The acquired small business programs, which had a minor effect on the revenue decrease, have now materially completed their runout. During the quarter, one CMOP location transitioned to another vendor at the end of August. In October, the company was awarded a sole-source IDIQ contract to continue providing pharmacy and logistics services for multiple locations. We have already been awarded task orders under this IDIQ and expect to continue providing these services while the VA completes its procurement and transition process. Since the end of the fiscal year, the VA has transitioned an additional location, and we currently provide services at the 3 remaining locations. We reported EBITDA of $6.6 million for the fourth quarter versus $10.7 million last year. EBITDA was down primarily due to the overall lower revenue level and corresponding pressure on gross margins as we retained our investment in key innovation resources necessary to address our growth pipeline. EBITDA as a percent of revenue was 8.1% this year versus 11.1% in fiscal 2024 through scaling activities implemented in late Q4 and current Q1 as well as with growth, we expect to return to our normal historical levels of gross and EBITDA margins. From a cash standpoint, we generated approximately $10.7 million in cash during the quarter, as Zach mentioned, due to increased collection of receivables and sound working capital management. For the full year, as shown on Slide 8, we reported revenue of $344.5 million, EBITDA of $34 million, approximately 10% of revenue and free cash flow of $23 million. While these figures reflect the challenges we have experienced during the fiscal year, they also reflect the importance of the diversification strategy we have executed over the past years. While we are disappointed by some of our valued customers exiting our contract portfolio due to the contract unbundling and set aside imperatives of the prior administration, we are excited about the opportunities to build upon the foundation of technology-powered solutions and services we have assembled and that we offer today in the -- as a highly relevant service in today's market. Now turning to Slide 9. Let me wrap up with a summary of our debt reduction efforts, which remain a key focus area for DLH. We reduced debt by $10.7 million during the quarter, ending the fiscal year with $131.6 million of debt outstanding, a total reduction of $23 million over the 12-month period. We have now made all mandatory term debt payments through September 30, 2026, a year ahead of schedule. We anticipate fiscal 2026 debt reduction to align with our historical performance of converting approximately 50% to 55% of EBITDA to debt reduction. Leveraging our strong balance sheet, reliable cash flow generation and robust credit facility, we are adequately capitalized to execute our growth strategy. This financial foundation ensures we can aggressively pursue our busy pipeline of opportunities, confidently manage our existing book of business and make strategic necessary investments in our people and programs, ultimately securing stakeholder value. With that, I would now like to turn the call over to our operator to open up for questions. Operator: [Operator Instructions] The first question comes from Joe Gomes with NOBLE Capital. Joseph Gomes: So I want to start off here. A lot of moving parts. The Head Start program, obviously, you guys put out an 8-K that program is transferred to small business. But you also mentioned there that there is the possibility of a protest. I was wondering if you have protested that. If so, where are we in that? Or is that now just lost? Zachary C. Parker: Yes. Joe, thank you for the question. No, we were not a participant in the protest effort. As you may recall, we saw Head Start moving in that direction when the Biden administration in '24 or early '24, issued the executive order to pursue more small business set asides to include unbundling contracts such as that one. We had hoped and we're working at some of the higher levels that the government would change that strategy. But it became pretty clear last year, particularly when the actual RFP started to come up, that was the commitment. So we are not participating in the protests for any of that work. Joseph Gomes: Okay. And then on CMOP, you mentioned that originally -- you had the 4. They transitioned one here at the end of November. They have 2 more solicitations out. When do you think your best guess of when the other 2 awards are made? And correct me if I'm wrong, but so far, you guys haven't been able to garner any of those even as a subcontractor? Or do you think that there's a possibility that you would get any of the remaining 3 that are still out for new awards? Zachary C. Parker: Yes. Just -- I appreciate that, Joe. Yes, again, as you may recall, originally before they made their major commitment to move from solutions to just more staffing, we did have bids on a number of those through our joint venture. We've removed all of those bids, and we've had -- and so we're not bidding as a joint venture on any of them. We did, however, support a small business partner on a couple of them. A couple are still pending, and we'll keep you posted on those. Those decisions are anticipated to occur somewhere over the coming quarter or 2. So we'll keep you posted on that. For greater color on the rest of your question, I'll turn it over to Kathryn. Kathryn M. Johnbull: Yes, I think that's right. There are 3 locations remaining, which we will continue to operate as the VA executes their strategy to transition to temporary staffing firms that are operating the programs. The interval has been roughly not -- of course, past is not always prologue, but the interval has typically been about 3 months between. Joseph Gomes: And then you mentioned that you expect to return to your historical gross and EBITDA margins. When do you think we would see that given where we stand today? Zachary C. Parker: Yes. So there's a couple of factors in play there. First of all, as we kind of described, let me give you some color around just the VA kind of work. While we've enjoyed a good long-term relationship with the VA. We continue to have strategic objectives to support the VA. While CMOP has moved to temporary staffing, we've been actively positioning for new business within the organization for more enriching EBITDA margin generation kind of work because it will be back to technical and solutioning sort of work. We anticipate some of those awards once we get through -- once the government gets through this holiday period and this budget drill that very likely in Q1 -- calendar Q1, we'll start to see some of that emanate. In addition, we've got -- 2025 has really been pretty static with regard to new contract awards in our marketplace. So a lot of the deals that we were anticipating, RFPs and potentially revenue in '26 -- '25 are now starting to hit. We've got -- we're in proposal development phases on a few of them. We are in potentially awaiting award on a couple that could, of course, occur very early. And most of those jobs are going to be positive to our margin basis. I will say, however, that we -- where we're finding this administration really making a stronger commitment on these procurements has been in the support of the military and with the Department of War in that business area, which is been one where we have a very ripe pipeline as well. And some of that work ranges from digital transformation and cybersecurity as well as some integration and logistics work. And so it will be a function of how those come out timing-wise. Some of those are more cost reimbursable type contracts that do not lend themselves to much more in the fee generation area as we would in some of our time and material and fixed price. So it's going to be a function of how those come in and how we will evolve as the contract structures will govern some of that growth. But we do feel really still very optimistic that the growth will be reflected in both the defense and nondefense work. And in general, those things associated with digital transformation and cybersecurity have been able to have us return back to some really strong values there. Kathryn, any additions? Kathryn M. Johnbull: I would add to that. And really, the fundamentals of the company are the hallmarks of how we're built is to achieve growth and scale and cash flow generation. So we do believe that the growth is critical, essential to allowing us to return that scale that allows us to get back on that path of our historical growth and EBITDA margins, Joe. So that is stating the obvious here. That's why growth is the imperative and really why we've worked hard to diversify the base of customers and capabilities and to really keep ourselves relevant and invest in the innovation necessary to be competitive in those fronts. So we're excited for those opportunities to finally be coming to life, as Zach indicated, and we think we will fare well as we compete through those. Joseph Gomes: And one last one for me. What's the size of the pipeline today? Zachary C. Parker: It's very strong, Joe. As we ended the fiscal year, we were north of $3 billion. And again, for us, we describe those largely as qualified opportunities over a 24-plus month period. And so it still bodes well for a very healthy financial growth prospects. Operator: [Operator Instructions] As it appears that there are no further questions, I would like to turn back to Mr. Parker for any closing remarks. Zachary C. Parker: Thank you, Chloe. This has been a really, really great year for developing and setting us up nicely, we think, for the coming years, FY '26 and beyond. We anticipate giving additional color. We look forward to seeing any or many of you in our upcoming annual shareholder meetings. I want to thank you all for joining us today. Have a blessed day and happy holidays, and we'll chat with you again soon. Bye for now. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Culp, Inc. Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead. Dru Anderson: Good morning, and welcome to the Culp conference call to review the company's results for the second quarter of fiscal 2026. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in the tables to the press release included as an exhibit to the company's Form 8-K filed yesterday and posted on the company's website at culp.com. An Investor Relations presentation is also available on the company's website as part of the webcast of today's call. I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead. Robert Culp: Thank you, Dru. Good morning, and thank you to everyone for joining us today. With me on the call is Ken Bowling, our Chief Financial Officer. Before I begin my remarks, I do want to briefly pause and wish one of our longest and most loyal investors, John Baum, a happy birthday. John, we appreciate you and wish you all the best. I will now begin the call with some detailed comments. And as mentioned in the introduction, we have posted a slide presentation to our website that provides some information that is supplemental to what we will speak about today and to our results and strategies. That slide presentation is simply entitled Culp, Inc. Second Quarter Fiscal Year '26 Supplemental Information. Ken will then review the financial results for the quarter. And after that, I'll briefly review our business outlook for the remainder of fiscal '26, and we will take some questions. At a headline level, our results for the second quarter were similar to our first quarter in the sense that we continued our push to improve our operating performance and make significant progress throughout our business in the face of challenging macro conditions. It's well documented and likely familiar to all of you that the home furnishings industry has been abysmal from an actual unit sold perspective. The tide generally remains out for housing and related furniture purchases, and we are improving our business gradually and in spite of these conditions. While we are seeing some encouraging signs of demand stabilization and sales growth in our bedding business, we have still yet to see the broad market recovery across home furnishings that many in the industry think could soon be pending. The macroeconomic data remains stubbornly low with consumer confidence down based on a variety of factors and the housing market working through challenges, including some of the highest levels of unsold homes in years as well as higher interest rates. There is acute pressure on housing affordability, which continues to put downward pressure on unit sales across the entire industry. We illustrate some of these dynamics and impacts on Pages 12 through 18 of our supplemental deck, which again is posted on our website. In the face of a difficult top line environment, we've continued to focus on 2 overarching strategies at Culp, winning market share and adjusting our cost structure to both achieve profitability in the current market cycle and position Culp to accelerate growth when conditions ultimately improve without the need for additional investment. That last point is one I'd like to reemphasize because with the adjustments we've made to optimize our platform that we'll talk about in detail today, we have the capacity to absorb additional production driven by any uptick in demand without the need to spend significant capital dollars. Our team has been aggressive, and we have made great progress on both of these key strategies. With respect to market share, we believe that our ability to sequentially increase our overall sales in the second quarter despite having 1 less week than the first quarter and to increase sales in our bedding segment, both sequentially and year-over-year in this demand environment are a testament to our growing share with key customers. Our stylish and innovative products, along with our global platform for bedding and upholstery fabrics continue to provide a unique and increasingly valuable proposition for customers. Moreover, we believe that the consolidation activity we are seeing downstream, especially in the bedding market, bolsters our competitive position with key customers. Our experience has been that larger customers generally gravitate to the reliability of suppliers with compliant multi-location manufacturing flexibility, scale-driven cost advantages and above all, the proven track record of product innovation and on-time performance that we offer. The supply chain complexities presented by the new global trade and tariff landscape actually provide us with additional competitive advantages, particularly as the pace of new tariff implementation settles, and we have more time to react with product strategies and pricing adjustments. Recent evidence of this are the surcharges and cost adjustments we will be implementing in response to the most recent round of increased and in some cases, unexpected tariffs on Turkey, Haiti and other imports during the second quarter. As we've said before, the winners in a fluid trade environment are very likely to be companies that can give customers multiple geographic manufacturing options to better navigate tariff impacts. Unlike some of our competitors, we've been very intentional over the years in building out a multi-location strategy with robust domestic manufacturing as well as nearshore and multiple offshore operations. A map of our manufacturing and sourcing locations is included on Page 19 of the supplemental slide deck. Today, for mattress fabric products, we have our expanded U.S. platform for production, finishing and distribution as well as long-time supply partners in Turkey and Asia. For cut and sewn mattress cover products, we have our nearshore production in Haiti, which is situated directly on the border of the Dominican Republic as well as Asia supply chains in both Vietnam and China. In upholstery, we have a well-established Asia presence with solid and growing Vietnam supply options for both fabrics and sewn kits. And we also continue assessing various options in other parts of the world. Notably, only approximately 30% of our China-produced fabrics ship in the U.S. So we have some protection currently from fluctuating tariffs in that scenario. For window treatments, we have our U.S. platform for drapery and roller shades as well as several strategic supply partners. Bottom line, there is no slam dunk strategy for handling the current tariff environment, but we believe our global production footprint and proven ability to pivot our platform as necessary, provide customers with country of origin and speed-to-market optionality that is unique, and we can provide them preferred delivery and customer service wherever they want to be supplied. We feel strongly that tariffs can ultimately be turned into an advantage for Culp, but the pace of legislative change creates a lag before we can compensate with pricing and/or product strategy. Turning to our operating performance for the quarter. I'd like to take a moment to review everything our team has done to drive the improvement we've seen in recent periods. There has been a truly formidable amount of work done on our platform, beginning with the restructuring project completed last fiscal year. That project was quite comprehensive and involved the consolidation of our North American bedding operations, including the closure and sale of our Canada facility, expansion of knitting and finish capacity to our U.S. facility, transition of our damask lines to a sourcing model, consolidation of our Haiti cut and sew operations and the reduction of our bedding workforce by almost 35%. We also rationalized our upholstery finishing operation in China and significantly reduced our overall administrative SG&A expenses as part of the project. A summary of those actions is detailed on Page 8 of the supplemental deck. We continue to expect approximately $11 million in annualized cost -- $11 million in annualized cost savings and efficiency gains from this project, and we've already seen those gains begin to reflect in our financial performance over the prior several quarters. The actions in our bedding platform have been particularly impactful with gross profitability in that business almost tripling year-over-year in the first half of fiscal 2026 and driving over 20% improvement in our consolidated operating results for the quarter. We followed up that restructuring project with an initiative to integrate our 2 former stand-alone divisions, mattress and upholstery or what we used to call CHF and CUF into a unified Culp branded business. The substantive actions of this reorganization are detailed on Page 10 of the supplemental deck. As part of this integration, which we are calling project Blaze, we transitioned our division presidents into company-wide Chief Commercial Officer and Chief Operating Officer roles and blended other operations, resources and personnel. We are also in the final stages of transitioning our U.S. upholstery distribution and window treatment operations from leased facilities into our owned campus in Stokes town, North Carolina. Both of these consolidations are on track to begin positively impacting our results in late Q3 and the remainder of the second half of fiscal '26. And together with other integration initiatives are expected to generate annualized cost savings and efficiency gains of approximately $3.5 million. We also recently implemented price adjustments intended to address baseline tariff uncertainty and rationalize gross margins. We expect these adjustments to generate approximately $2.5 million in annualized margin improvement in our bedding segment, and that began in late second quarter. And as I previously mentioned, we are initiating additional surcharges and other product strategies in response to new tariffs during the quarter that will be effective in late Q3 and all of Q4. Importantly, we are not done with our work to enhance our operating profile and generate profitability across market cycles, including the current one. We are moving forward with additional measures involving the reduction of our lease facility footprint in China that should be completed this fiscal year, and we are identifying further SG&A and other cost reductions. Commensurate with our warehouse consolidation, we have also worked to rightsize and effectively manage inventory, recognizing some noncash impairments and related charges in Q2, while focusing on turning aged inventory into cash and filling our warehouse with strategic inventory that our customers prefer. As we eventually move into Q4 and into fiscal year '27, we will have a much cleaner and strategic inventory and distribution platform in North Carolina to better service our markets and customers. From an all-in perspective, starting with our restructuring project in fiscal '25 and continuing through the completion of these other initiatives I mentioned, we expect to enter fiscal '27 with a benefit of over $20 million in annualized cost savings and enhancements going forward. The overall summary of this is on Page 11 of the supplemental deck. I am extremely proud of how our team has embraced the challenging industry conditions and seize the opportunity to transform our business into a leaner and more agile organization. Turning to our bedding business specifically, summarized on Page 5 of the supplemental deck. The sales momentum we have recently seen in that business, again, including both sequential and year-over-year growth during the quarter is highly encouraging. A lot of this activity was generated by some nice trends in our knit fabric and sewn cover product lines, which are areas we believe we have a lot of white space to drive profitable growth with our restructured bedding platform. We feel good about our current product offerings in this business and believe that our go-to-market strategies are on point. Also, as I mentioned, we are seeing some indications that the bedding market is stabilizing, and there continues to be more industry commentary indicating that the bedding market is due for an increase in unit activity driven by historical product replacement cycles. The industry consensus view supports that we're now over 4 years into a period of demand down cycle. We included in our presentations on Pages 16 through 18, some excerpts from recent research published by UBS, indicating that the current market downturn has now extended beyond the typical duration of prior downturns, and there is a significant amount of pent-up demand relative to historic trends as a result. We generally agree with that view and believe that the industry is due for an increase in unit activity, although the timing of that is, of course, the critical question that no one knows for certain. Turning to our upholstery business, summarized on Page 6 of the supplemental deck. Market conditions there are comparably more unsettled and pressuring sales, which had a notable impact on our expected consolidated gross profit dollars during the quarter. The current weakness in consumer sentiment and housing is still heavily dampening buying activity, particularly among the lower and middle income segments that the prevailing portion of our residential fabric customers typically target. Despite the difficult environment, we were pleased to be able to maintain relatively stable sales within our U.S. residential fabric customer base during the quarter. While our residential sales to customers in China and other foreign countries declined due to what appear to be more challenged revenue conditions in those markets. The macroeconomic uncertainties also impacted our hospitality and commercial upholstery business with many hotel, office and other public space projects temporarily delayed in recent periods. However, that business remains an important part of our upholstery strategy, and we continue to believe it should drive solid long-term growth over time. Despite the challenging top line environment for home furnishings, we continue to maintain a strong competitive position and believe that the foundation is there to grow upholstery over the long term. We have market-leading innovation and design capabilities along with a flexible platform, and we continue to gain new opportunities by segmenting our product and sales strategies to focus on mid- to upper price point furniture as well as the value segment. Our product lines have continued to generate positive reactions to industry events and shows, including the recent furniture market and the Interwoven fabric Show, both in High Point, which will ultimately lead to winning placements with customers. Furthermore, with the uncertainty around tariffs, we are able to offer customers multiple options via our extensive Asia operations, including Vietnam, while also having the flexibility to consider options in other regions to enable a preferred response. We are encouraged that we were able to maintain solid gross margins in our upholstery business during the second quarter despite lower-than-expected sales. Nonetheless, we are heavily focused on integrating that business with our bedding business and generating operating improvement. Our upholstery business is already relatively asset-light and less capital intensive compared to our bedding business and its vertical manufacturing platform, and it's been consistently profitable. The consolidation of our U.S. upholstery distribution and window treatment manufacturing into a shared management model, along with the reduction of our facility footprint in China should enhance further our upholstery profitability in the near term and position it to accelerate when top line conditions cycle favorably. In closing, I want to emphasize that we are now in the final innings, so to speak, of a comprehensive multiphase transformation of our business. We will finish the fiscal year with a rationalized and fully optimized global platform for both bedding and upholstery products that we believe will create a significant long-term value for shareholders. Our key investment highlights are included on Page 21 of our supplemental slide deck. To be clear, we are committed to alter strategies and make changes within our business to adjust to market demand. Our highest priorities in the near term remain returning Culp to overall profitability in the current cycle and effectively managing our debt levels, and I can assure you that we will not take our eye off of those goals. With that, I'll now turn the call over to Ken, who will review the financial results for the quarter, and then I'll review our outlook for the remainder of fiscal '26. Kenneth Bowling: Thanks, Iv. Here are the financial highlights for the second quarter. Consolidated net sales for the second quarter were $53.2 million, a sequential improvement from the first quarter sales of $50.7 million, which included an extra week and a decline from prior year period sales of $55.7 million. The year-over-year decline was driven primarily by the continued industry-wide softness and the tariff-related uncertainty that Iv discussed. Consolidated gross profit for the quarter was $5.8 million or 10.9% of sales compared to the prior year period gross profit of $6 million or 10.8% of sales. Excluding restructuring-related expenses, adjusted consolidated gross profit for the quarter was $6.7 million or 12.6% of sales compared to the prior year period adjusted gross profit of $6.8 million or 12.1% of sales. This gross profit improvement was driven primarily by cost and efficiency gains from the restructuring of our bedding segment completed last year. SG&A expense for the quarter was $8.7 million, an approximate 7% improvement compared with SG&A expense for the prior year period, reflecting cost savings from our restructuring initiatives. Loss from operations was $3.5 million for the quarter compared to the prior year period loss of operations of $5.4 million. Excluding restructuring and related expenses, adjusted operating loss for the quarter was $2 million compared to the prior year period adjusted operating loss of $2.6 million. EBITDA adjusted for the impacts of restructuring-related expenses, stock-based compensation and other noncash charges was a negative $1 million for the second quarter, an improvement on lower sales compared to negative $1.1 million in the prior year period. Our year-over-year operating performance improvement for the second quarter benefited primarily from continued momentum in our bedding segment, driven by the positive impacts of last year's restructuring. Operating performance also benefited from the continued profitability in the upholstery fabrics segment despite the low revenue industry environment and tariff-related challenges Iv spoke to. The effective income tax rate for the second quarter was a negative 5.1% compared to 0.9% for the same period a year ago and continues to be impacted by the company's mix of earnings between our U.S. and foreign subsidiaries. Our income tax payments totaled $1.7 million for the first 6 months of this fiscal year. Importantly, as of the end of last fiscal year, we had $88.1 million in U.S. federal net operating loss carryforwards with related future income tax benefits of $18.5 million. Before we take a look at our operating segments, once again, please note that following the integration of our 2 former divisions, we now refer to our CHF mattress fabrics business as our bedding segment and our CUF upholstery fabrics business as our upholstery segment. Moreover, as part of that integration, we now manage and assess SG&A expenses on a consolidated basis. As a result, we no longer report operating performance at the segment level, just down to the gross profit level. For the bedding segment, sales for the second quarter were $30.8 million, up approximately 10% sequentially from the first quarter and up over 2% compared to the prior year period. As Iv spoke to, sales continued to be pressured by low industry demand and challenges from consumer spending and housing market trends, but we were able to continue our trend of winning share in key targeted areas. The restructured cost platform in our bedding segment drove a gross profit of $3.1 million or 10.1% of sales, a 200 basis point improvement from the prior year period. We were pleased to see the profitability momentum in this segment continued during the quarter. For the upholstery fabrics segment, sales for the second quarter were $22.4 million, sequentially flat with the first quarter and down approximately 12% compared to the prior year period. This year-over-year decline stemmed from continued softness in the home furnishings market and corresponding weakness in the residential upholstery channel as well as additional pressure on demand from tariffs. Gross profit in the upholstery segment was $3.6 million or 16.1% of sales, down from $4.3 million or 16.9% of sales in the prior year period and driven largely by lower comparable sales. Now I'll turn to the balance sheet. We reported $10.7 million in total cash and $18.3 million in outstanding debt as of the end of the second quarter with a net debt position of $7.6 million as compared to a net debt position of $7.1 million at the end of the first quarter. The outstanding debt was primarily incurred to fund worldwide working capital and restructuring activities, but also includes approximately $3 million incurred voluntarily to take advantage of borrowing opportunities at current preferred rates in China. We continue to believe this decision was prudent given today's challenging economic environment and uncertain trade relations. Further, we were able to invest these proceeds into a high-yield savings account in China at a rate materially higher than the interest rate paid on the debt. This strategy more than covers our interest cost for the debt while at the same time giving us significant flexibility in managing our worldwide cash position. Cash flow from operations was a negative $1.2 million for the first 6 months of this fiscal year and primarily driven by operating losses, which compares favorably to negative $2.6 million in the prior year period. Adjusted for capital expenditures, proceeds from the sale of PP&E and other items, free cash flow was just about breakeven at $10,000 and down favorably from a negative $3.4 million in the prior year period. Generating free cash flow and reducing our debt continue to be among our highest priorities. Capital expenditures were only $218,000 for the year-to-date period, down from $1.6 million in the prior year period with lower spending driven by strategic efforts to closely manage capital and focus on maintenance projects and initiatives with a quick payback. We expect capital spending for fiscal 2026 to be lower than fiscal 2025 levels as we continue to spend only as necessary. Our liquidity as of the end of the second quarter was approximately $28.1 million and consisted of $10.7 million in cash and $17.4 million in borrowing availability under our domestic credit facility. As a reminder of liquidity purposes, the net book value for our owned manufacturing campus in North Carolina as of the end of the quarter was around $12 million and has an estimated market value of $40 million to $45 million. Our liquidity highlights are briefly summarized on Page 7 of the supplemental deck. With that, I'll turn the call back over to Iv to discuss the general outlook for the third quarter, and then we will take your questions. Robert Culp: Thank you, Ken. Due to the market and macroeconomic uncertainty and the fluid tariff landscape we've talked about today, we are only providing limited forward guidance at this time. Despite what we anticipate to remain a challenging demand environment for home furnishings in the near term that pressure sales in both of our businesses, we currently expect steady consolidated sales performance in the third quarter and throughout the remainder of fiscal '26 with higher expectations for the bedding segment. Moreover, we expect the cost and efficiency benefits flowing from the transformation of our bedding and upholstery platforms, along with recent pricing action to drive improving gross profit and lower SG&A, resulting in continued significant improvement in operating loss and near breakeven to positive adjusted EBITDA for the third quarter. As Ken spoke to, while we intend to continue utilizing borrowings as necessary under our credit facilities during fiscal '26, to fund working capital needs as well as integration and efficiency initiatives, we will continue to aggressively manage liquidity and capital expenditures to prioritize free cash flow. On that point, we are owed approximately $4.7 million in cash in the fourth quarter on the sale of our Canada facility, and we anticipate that those funds may be received earlier, perhaps in the third quarter. Thank you again for your time listening today, and we'll now take some questions. Operator: [Operator Instructions] Our first question comes from Doug Lane with Water Tower Research. Again, that's Doug Lane with Water Tower Research. Robert Culp: Operator, I'm wondering if he's dialed in on the other line. Douglas Lane: I'm sorry, can you hear me now? Robert Culp: Yes, sir. We got you, Doug. Douglas Lane: Yes. I was encouraged to see the free cash flow breakeven and the use from cash from operations -- the cash used from operations being cut in half. So all the work you're doing is starting to come through, and I'm just trying to get a feel for where we are in the realization of all these cost savings. I know in the implementation, maybe you said you're in the late innings, but of that $20 million on Slide 11, about how much of that do you think is already being realized in the P&L and how much is still to come? Robert Culp: Yes. Doug, thank you for that question. It's a lot. I tried to regurgitate all the stuff we've done over the last couple of fiscal years. And it's really -- when you think about it and write it down and script it the way we have, it's a considerable amount of effort. So it's coming in, in different phases. We had -- obviously, the big work we did with our Canada facility is really helping us this year. That's in. The additional savings that we did and the price adjustments to deal with baseline tariffs, that all started to impact us maybe in late Q2. And then the new things we've announced or the plans with consolidating warehouses and moving our read window production and further adjustments are really a late Q3 impact. So by the time we get to Q4, we would expect to have majority of everything done, and we would have as clean of pictures we have -- we could have from a cost standpoint. Now unfortunately, what that's doing is just we're continuing to reoptimize the platform to deal with very challenged conditions. So we're not banking on any kind of improvement. We hope and have feelings that it could start to come, but we're just doing all we can do to restructure the platform so that Q4 quarter is clean quarter and all gears turn towards being profitable in this cycle. And then when the business turns, we don't have to have capacity to really start showing more fruitful results on top of that. So I hope that helps. Douglas Lane: No, that does help. It sounds like heading into fiscal '27, you'll have a pretty clean run rate here. And then it's just a question of the benefit of the next up cycle, whenever that happens. It's going to happen and we just don't know when. Robert Culp: Yes. And I guess I would say I just -- 100% yes. We are very -- fiscal '27 will be a very clean position heading into the market. What we don't know is if it continues to lag or for some reason, it were to get worse. We don't believe that's the case. But if it did, we'd take more action. I just think I want investors to be clear that we are positioning ourselves to do whatever it takes to adjust to the demand cycle. And unfortunately, we've had things that have been lagging more than we expected, so we make more changes. But optimistically, we're clean in '27 and maybe even in fourth quarter and hope to see some demand that's moving the right way, at least a little bit. Douglas Lane: Is there any way -- have you done any math on what the incremental margin would be on the next point of sales growth? So as sales start to move up, what would be the contribution margin from that incremental point of sales? Kenneth Bowling: Yes, Doug, this is Ken. And we've said this before. I mean, we've got so much buildup leverage in our ability to capitalize on any increase in sales. And as Iv said, I mean, we've got all the cost reductions to be implemented in the fourth quarter. And so we're going to be able to gain a lot of those sales dollars as far as the contribution margin is concerned. I mean we're set on SG&A. We've got fixed costs in place. So we're going to be able to keep a significant amount of those incremental dollars as we grow the business based on the platform we have today. Douglas Lane: Got it. That makes sense. And I know you mentioned new tariffs in Turkey and Haiti. Can you give us a feel for when were those implemented? And when do you think you'll be able to benefit from whatever mitigation efforts you put in place for them? Robert Culp: Certainly. And I think I'm trying so hard to have, Doug, you and other investors understand tariffs have been a real -- I mean, it's just been a real pit to the business. I mean it's been so disruptive the way they've come in. But optimistically, we feel like we can handle it. We've gotten better at this. And we believe because of our platform, it's actually an advantage. So it's like any kind of -- when you think about strength and weaknesses, they can sometimes be both. And I think tariffs have been a challenge on the industry and are impacting sales. But I do think for us, they can become a strength because we have ways to navigate it. So to answer your question directly, it's -- what's happening -- what happened in Turkey and Haiti, we had a baseline of tariffs. And then Turkey, for example, went from a 10% to a 15%. It just got changed on the reciprocal part of the ending of Liberation Day. So we had to deal with that extra 5% that wasn't planned. And that comes in immediately. We are built on that day 1, and it could take us 60 days with a customer or with a strategy to adjust that. So that's a lag for us. Haiti, we had 8 years of tariff-free treatment from regulation in Haiti. And all of a sudden, that because of government, I'll call it, dysfunction or delay, there has been a lag on renewing that agreement. We think it will get renewed. But in the short term, we've gone from 0 tariff to 15% overnight. So we have to adjust that. And we will adjust it and believe it's -- we can easily adjust it, but not as quick as the pain. So that's why it's at least a 60-day lag for us with the change in tariff to then change the strategy or pass that price. And that's what we've been working on really for the last -- ever since the announcement of tariffs, we've been working on that. And we do feel close to the end, but it's knock on wood what tomorrow might bring. Douglas Lane: And the tariff situation on a week-to-week basis, is it still somewhat volatile? Or do you think it settled a little bit? Robert Culp: I believe, and I want to believe it's starting to settle. I think that we have seen a slight reduction in some Asian tariffs. So there are things that are starting to neutralize. And again, we've become very proficient. I don't wish we were proficient, but we've become very proficient on managing tariff change, and we have ways to mitigate it. So nothing -- I'm not scared or worried about that. It's just the timing sometimes that it takes to get it fixed. Douglas Lane: Well, clearly, you've been working hard in a very difficult environment. So we stay tuned. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Iv Culp for any closing remarks. Robert Culp: Thank you, operator. And again, thank you to everyone for your participation and your interest in Culp, and we certainly look forward to updating you our progress next quarter. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the TC Transcontinental Fourth Quarter and Fiscal Year 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, December 11, 2025. I would like to turn the conference over to Yan Lapointe, Senior Director, Investor Relations and Treasury. Mr. Lapointe, please go ahead. Yan Lapointe: Thank you, Joel, and good morning, everyone, on the call. Welcome to Tom Continental's Fourth Quarter and Fiscal 2025 Earnings Call. Before we begin, please note that you can find on our website our quarterly report, including financial statements and related notes as well as the slides supporting management's remarks. A replay of this conference call will also be available on our website shortly after the call. Please note that this conference call is intended for the financial community. Media are in listen-only mode and should contact Laurence Boucicault, Senior Adviser Corporate Communications, for more information. We have with us today our President and Chief Executive Officer, Thomas Morin; and our Executive Vice President and Chief Financial Officer, Donald LeCavalier. As referenced on Slide 2, some of the financial measures discussed over the course of this conference call are non-IFRS. We can refer to the MD&A for a complete definition and reconciliation of these measures to IFRS. In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today. Forward-looking statements also involve numerous risks and uncertainties, known and unknown. The risks, uncertainties and other factors that could influence actual results are described in the fiscal 2025 annual MD&A released yesterday and in the latest annual information form. With that, I would turn the call over to our President and CEO, Thomas Morin. Thomas Morin: Thank you, Yan, and good morning to everyone. We spoke only a few days ago, so welcome again. This morning, we will review our Q4 and year-end results and provide an outlook for the new TC Transcontinental following the announcement of the sale of our Packaging business, which is expected to close in the first quarter of calendar 2026. 2025 was a year of tremendous progress on safety. The improved processes we put in place enabled us to reduce the number of accidents by an outstanding 39% year-over-year after a reduction of 9% between '24 and '23. I'm very proud of the work packaging and retail services and printing teams in getting us closer to our 0 injury vision. Once more, I am pleased to report an improvement in our adjusted net earnings per share for the fourth consecutive quarter, resulting in a significant growth in net earnings per share of 10.7% for the fiscal year 2025. The Packaging sector's organic top line growth in the fourth quarter is primarily due to driven by higher volumes. For the full year, Packaging's adjusted EBITDA was up 3.7% over the previous year when excluding the effect of the sale of industrial businesses. In a weak demand environment, this result is primarily due to our cost reduction initiatives and a favorable exchange rate. Turning to Retail Services & Printing. After an excellent performance in the first 9 months of the fiscal year, Q4 was a difficult quarter as a direct consequence of the labor conflict of Canada Post. Since last week, we back to 4.8 million weekly copies of Radar distributed by Canada Post across Quebec and British Columbia. And we're exploring opportunities for our customers to expand Radar's geographical footprint in fiscal year 2026. Turning to our newspaper printing business. We're pleased with the 10-year extension of our printing agreement with the Globe and Mail announced yesterday. Our partnership with the Globe and Mail is the longest-standing partnership in Canadian newspaper printing with a collaboration that spans 40 years. Through 4 decades, both organizations have consistently invested in improving capabilities and expertise to maintain an exceptional performance. And as mentioned by Andrew Sanders, the Globe CEO print is viewed today as a powerful and trusted medium in the media landscape. In Q4, we've also been able to renew multiyear contracts with major retailers for an expanded range of services from flyers to in-store marketing to content solutions. Q4 was also marked back with the acquisitions of Mirazed & Intergraphics right on the heels of the acquisition of Middleton in Q3. We are pleased with this achievement, which brings our ISM business close to $300 million in revenue. For the full year, our adjusted EBITDA for the sector was stable compared to the previous year despite the Canada Post situation. In summary, we delivered a solid financial performance in 2025 this was largely due to our discipline in implementing our priorities and controlling our costs. As discussed on Monday, our robust financials puts us in a favorable position to begin an exciting new chapter in the history of TC Transcontinental. Over to you, Donald. Donald LeCavalier: Thank you, Thomas, and good morning, everyone. Moving to Slide 5 of the earnings call presentation. For the fourth quarter, we reported revenues of $732.4 million, a 2.3% decrease versus last year. This decline was caused by lower volume in the retail services and printing sector and the impact of the sale of the industrial packaging operations. It was partially offset by the recent acquisitions in ISM, higher volume in the packaging sector and a positive exchange rate impact. Regarding profitability, adjusted EBITDA decreased by 3.2% to $137.6 million. This decrease is mainly due to lower volume in the retail services and printing sector caused in part by the effect of the labor conflict at Canada Post. Financial expense decreased by $3.1 million, mainly due to a lower debt level following strong cash flow generation in the last 12 months. Adjusted income tax decreased by $2.2 million to $19.4 million and represented an effective rate of 22%. This led to an adjusted earnings per share of $0.82, a 3.8% improvement compared to $0.78 for the same quarter last year. On a full year basis, adjusted earnings per share grew by 10.7%, mainly due to improvement in profitability and lower share count. Now moving to Slide 6 for a sector review. In packaging, we generated organic revenue growth of 2.8% in the quarter. This was mainly due to volume and was more than offset by the impact of the sale of the industrial packaging activities in November 2024. In terms of profitability, adjusted EBITDA in packaging grew by 3.3% to $67.9 million. Margins increased by 60 basis points to 16.4%. Following the announcement of the sale of the packaging sector earlier this week, we will disclose the sector as discontinued operations in the first quarter of fiscal '26. Moving to retail services and printing sector on Slide 7. After a solid performance for the first 3 quarters of fiscal '25, the results of the fourth quarter were significantly impacted by the Canada Post labor conflict. Revenues decreased by 4.3% to $275.9 million. Adjusted EBITDA decreased by $9.5 million or 14.9% to $54.1 million. The decrease in revenues and adjusted EBITDA are mainly due to lower volumes for flyer printing activities as they were impacted by Canada Post disruption. Now turning to cash flow. As expected and in line with normal seasonality, the fourth quarter of fiscal 2025 was a strong quarter. We generated $172.5 million from operating activities compared to $185 million in the previous year. We had a positive working capital of $64.9 million, offsetting a large portion of the working capital usage of the first 9 months of the year. Our CapEx at $23.3 million were in line with last year to bring us to a full year total close to $100 million, a $22 million reduction versus last year. Despite our recent acquisitions in ISM, we continue to improve our net debt ratio to reach 1.59x at the end of fiscal year compared to 1.68x 3 months ago. Moving to the sale of our packaging assets. We expect the transaction to close in the first quarter of calendar 2026. We plan to use the proceeds from the transaction for an approximately $20 per share distribution to shareholders. In addition, net of transaction fees, we will view the majority of the remaining proceeds to reduce our net debt. We expect a pro forma net debt of about 1.7x post transaction. In terms of outlook for 2026 on the upside, we expect growth in our ISM activities organically and with the impact of our acquisitions. Also, the impact of the Canada Post labor conflict should be limited to our first weeks of the first quarter of fiscal 2026. We also expect growth in our media business. We will align our corporate costs with the size of our business as we always -- we have always done. The 2026 corporate expenses will depend on the date of closing. While we expect to reach a lower run rate in the second half of fiscal year, you can expect to see the full impact of the cost reduction in fiscal 2027. On the [ downside ], we expect lower volume in our traditional activities, including book printing that had a very strong fiscal 2025. As a result of this consideration, we expect to deliver a stable adjusted EBITDA in fiscal 2026 compared to 2025. In terms of capital allocation, we expect CapEx for our remaining business to be around $60 million in fiscal year 2026. As for cash taxes, it should be around $30 million in fiscal year 2026. On that note, we will now proceed with the question period. Operator: [Operator Instructions] Your first question comes from Adam Shine with National Bank Financial. Adam Shine: Okay. Maybe let's start with Thomas Morin. On book printing, the indication in Q4 was that it was just slightly lower. So can you maybe speak to whether you are still seeing volumes for that U.S. outsourcing customer. And as much as the outlook, as Donald referenced, suggest that book printing does face a tough comp and could be lower? Any particular optimism in regards to how that particular customer continues with you and/or opportunities given where FX continues to stand to pursue other outsourcing opportunities in book? And then I'll just follow up with another question. Thomas Morin: Sure. So we had, as you know, a pretty good year 2025 in book. And this was mainly due to what you mentioned. In other words, gaining shares and getting businesses in the United States, leveraging on the exchange rate. This is unwinding as we speak. We had a couple of nice good contracts, which are coming to an end. What that's explaining why the volumes start to go down and why the outlook for next year is not as good as this one. Now that being said, the team has started already and earlier on this year to develop a long list of prospection and business development in the United States. So it's a bit too early to say, but what I can tell you is that the team has been extremely active in identifying leads, and we expect some of these leads to unwind in 2026. Donald LeCavalier: Yes. And just to add on Thomas comments regarding your question, I think what's plain for us, Adam, as you know, is we're still closed, well, this morning at $138 million. And one of the reasons we were able to gain new business last year was the fact that about the same time last year, we were at $140 million and actually, the big contract that we won was in that period last year, early 2025. So therefore, we're confident. But we said it in a couple of calls earlier that was a big onetimer, very positive for us. So this is why in the forecast we remain confident, but we say it might be a decrease. Adam Shine: Okay. And then pivoting to in-store marketing, obviously, you guys have been pretty excited about this, not just at F '25 but in prior years. Can you maybe talk, Thomas Morin to the scope of the opportunity? I think you're continuing to look at strategic acquisitions in ISM. Is there a particular objective in mind in terms of level of sales by the end of this year or perhaps over the course of the next 2, 3 years? Thomas Morin: Yes. So ISM and actually a pretty good Q4. I think the top line grew organically by 1.8% on top of which comes the acquisitions. This segment is still extremely fragmented, Adam. So there is a lot of small companies. We have identified. We have a long pipeline of opportunities. There is, as we speak, 2 acquisitions ongoing, and we expect to close 1 and maybe 2 within the next 2 quarters. We don't have yet a full target for this segment. I mean I think we need to continue to integrate those businesses and deliver the value from these acquisitions. But definitely, there is a lot of opportunities from coast to coast in this segment. Operator: Your next question comes from Sean Steuart with TD Cowen. Sean Steuart: Question pulling apart the 2026 guidance for flat EBITDA for the continuing operations. Can you address some of it in your comments on the previous question. But buried within the flat EBITDA guidance, can you speak to organic revenue growth expectations for ISM and some of the other bespoke growth businesses versus what you would expect in the legacy printing? Just trying to understand some of the puts and takes in overall organic growth expectations. Donald LeCavalier: Yes. We could -- in terms of organic growth in fiscal 2026, we definitely see ISM, obviously, the impact of acquisition will bring growth for sure. And we see this growth bring this group still continue to bring organic growth. We see opportunities with the acquisition we have done to even increase the products that we sell to our current clients. But that will be impacted by the -- what we call the traditional. So Radar has been stabilized, the flyer market in Quebec, but we need to stabilize the rest of Canada Radar right now is in Quebec and BC. And we're right now facing some decrease in the flyer market in the rest of Canada. And also, there's the book impact we just mentioned. So as we said in the call on Monday, we're still -- it's slightly decreasing if you look at net-net organic growth, but we're getting closer where the group that are growing in our ISM or even book that we think that might be opportunity will compensate for the decrease of the more traditional activities. Sean Steuart: Okay. And with respect to the corporate cost savings, if this transaction closes calendar Q1, I think the indication was you expect corporate costs to be halved over time. Can we assume sort of half of that half is in fiscal 2026? What's reflected in the overall EBITDA guide with respect to corporate cost reduction? Donald LeCavalier: Yes. We've been prudent regarding the guidance. When we say we should -- what we should remain flat is that the RSMP will probably because of what I said, net of acquisition might be negative because of this decrease in book and book for following a very strong year. But we're proactive as we speak. We're always being proactive, obviously, you know us to let go cost to adjust the structure. But too early to tell because there's timing, but we're confident that at the end of fiscal year, we will be able to remain flat, and we will take all the action to protect that. Operator: Your next question comes from Stephen MacLeod with BMO Capital Markets. Stephen MacLeod: Just wanted to drill down a little bit on ISM and maybe the outlook for 2026 and beyond. Can you just remind us kind of what the underlying growth rate -- organic growth rate is within that business? And do you have an estimate of what your market share might be in that segment? And then, I guess, thirdly, are there any other -- I know it's very fragmented, but are there any other sort of larger or medium-sized players that were you to do an acquisition, it would be more additive to sales than perhaps a tuck-in or something like that. Thomas Morin: Yes. So the organic growth for ISM is around 2% if we look at it from a 12-month standpoint. As I said, there is a long list of small businesses. I'm talking about business is about $20 million to maybe $40 million altogether. There is a couple of larger players in Canada, but there's a long, long, long tail obviously. I think your question is around what is the overall target of the share of wallet we would have difficult to say given this fragmentation of the market, but I would say it's probably in the 20-ish percent max at this point in time. Stephen MacLeod: Okay. That's good color. And then maybe just more of like a housekeeping question, but once the packaging sale is done completed in Q1. Will you be breaking out corporate costs from within your other segments, so we can see how that moves in isolation? Donald LeCavalier: Yes, that's a very good question and actually something that we're working, and we will be proactive to update the market regarding that. But we're not done yet how we will present the result, but you can expect that we will certainly present it a different way. The corporate costs, if you look at what will remain as a new company, it's made, it will be probably more as a one group with different segments. So that's something that we're working on as we speak. Stephen MacLeod: Yes. Yes. Okay. Okay. That's great. And then I just wanted to -- I just wanted to ask about corporate costs. Just with respect to the previous question. I guess -- I mean, I know it's -- I know that there are some moving parts around that for fiscal 2026 and how corporate costs declined post sale. But I'm just curious, I mean, it would be fair to assume that you would see some reduction in fiscal 2026. Is that correct? Donald LeCavalier: That's for sure. That's for sure. Unless we said we hope and we expect that transaction will be closed in the first quarter of fiscal '26 calendar. And so therefore, we will be acting during the year to adjust the corporate cost structure. Operator: [Operator Instructions] Your next question comes from David McFadgen with Cormark Securities. David McFadgen: Great So a couple of questions. You talked about in your release that the retail printing or retail services and printing EBITDA was down it seems largely due to Canada Post disruption. What would it have been excluding Canada Post. Donald LeCavalier: I'll say that we have about $5 million to $6 million negative impact from Canada Post. David McFadgen: Okay. All right. And then in terms of the outlook, can you give us an outlook for EBITDA, but what about revenue would you thought through some of the puts and takes here in terms of revenue. But what was your expectation for overall revenue for 2026? Donald LeCavalier: As I said earlier, we expect, obviously, growth in ISM for first acquisition and then organic growth. That should be -- that will be negatively impacted by the rest of the business, the book printing that, as we said earlier, might have some negative following a very strong 2024. And the flyer market for rest of Canada. So overall, as we said also Monday, I think we're getting close where the new -- the ISM and media activities will compensate. But in 2026, we might see slightly negative in terms of organic growth on the top line. Also important to understand, as you know, in the model, the more we switch to Radar, it does impact also our so top line usually not the same one in EBITDA, but since we're using less paper, that may have an impact also. So this is something to consider in 2026 like it happened in Quebec in 2024/'25. David McFadgen: Okay. All right. That's helpful. And then just on the dividend, I would imagine you're probably not going to raise just a normal dividend in 2026 and you would properly wait until you see EBITDA growing or revenue growing organically? Is that a fair assumption? Donald LeCavalier: Well, I think the first good news for 2026 is we will -- following the closure of the transaction, we will have an important distribution of cash to the shareholder. And I'd like to highlight that we've been very active also in our 2 recent years, either by buying back or a dividend special dividend. And we said in our presentation on the IR side that we expect to continue obviously pay dividend, obviously, smaller company, but still a very good yield, but this is something that will need to be approved by the Board. Once the transaction is over to see where we're going in fiscal '26. But as we said also Monday, this Newco, if we call it will produce a lot of free cash flow, room for CapEx, room for M&A and also room for paying back -- giving back capital to the shareholders. Operator: Mr. Lapointe, there are no further questions at this time. Yan Lapointe: Thank you, everyone, for joining us on the call today, and we look forward to speaking to you soon. Operator: Ladies and gentlemen, this concludes your conference call for today. Thank you for participating. Please disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corp. Third Quarter 2026 Earnings Webcast. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Earl Armstrong. Please go ahead. Earl Armstrong: Thank you, Kevin, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 third quarter which began August 4 and ended November 2, 2025. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2026 third quarter results. Any forward-looking statement speaks only as of today and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. Earl Armstrong: For the third quarter, consolidated net sales from continuing operations were $70.7 million, a decrease of $11.9 million or 14.4% compared to the prior year period. The decline was largely due to the timing of shipments in our hospitality business, where several large projects shipped in last year's third quarter. These impacts were partially offset by solid sales in our core operations with Domestic Upholstery up 3% and Hooker Branded up 1.1%. Gross profit decreased by $2.4 million, which was expected given the lower sales volume. However, gross margin improved to 25.6%, up from 24.8% last year, reflecting margin expansion at Hooker Branded and stable performance in Domestic Upholstery which helped to offset the volume-driven margin pressure within our hospitality business. Earl Armstrong: Our operating results for this quarter also reflect a $22.1 million or $16.7 million net of tax in noncash impairment charges. These charges included $14.5 million on Sunset West goodwill, $3.2 million for certain Home Meridian trade names, of which $2.6 million related to the discontinued businesses and $558,000 for the remaining and $556,000 for Bradington-Young trade name. The noncash impairment charges also include $3.9 million associated with the sale of the discontinued operations. Similar to the volatility experienced in 2020, today's macroeconomic environment is creating unusual pressure across the home furnishings and the broader consumer discretionary sectors. These pressures contributed to a sustained decline in our share price during third quarter, which dropped to a low not seen in quite some time. This triggered an interim impairment analysis under U.S. GAAP. The market-based valuation inputs, including trading multiples and discount rates were adversely affected, and this resulted in the impairment. Importantly, these are noncash accounting charges, they do not change our strategic view of these brands or businesses nor affect our liquidity in our ongoing operations. Earl Armstrong: Additionally, we recorded approximately $600,000 in restructuring costs this quarter, primarily severance associated with our cost-reduction initiatives. After incorporating these items, operating loss from continuing operations totaled $16.3 million and net loss from continuing operations was $12.5 million or $1.18 per diluted share. Earl Armstrong: Turning to the year-to-date results. Consolidated net sales from continuing ops for the first 9 months were $211.1 million, down $22 million or 9.4% compared to the prior year. Similar to the quarterly trend, the decline was driven by lower hospitality shipments following unusually large project activity in the prior fiscal year. This was partially offset by a 1.1% decrease -- increase in Hooker Branded sales, while Domestic Upholstery remained essentially flat for the 9-month period. Gross profit for the 9-month period decreased $2.9 million, but consolidated gross margin improved to 25%, up from 23.9% in the prior year period. This margin expansion reflects meaningful improvements in Domestic Upholstery supported by lower direct labor, warehousing labor and material cost, while margins at Hooker Branded remained stable. Operating loss from continuing operations was $17.4 million, which includes the same $15.6 million impairment charge and $1.7 million in restructuring costs. Net loss from continuing ops for the 9-month period was $13.6 million or $1.29 per diluted share. Earl Armstrong: Also, as previously disclosed on December 1, 2025, the company announced a strategic divestiture of value-priced home furnishings brands, Pulaski Furniture and Samuel Lawrence Furniture formerly held within the Home Meridian segment. These brands are being reported for the fiscal '26 third quarter as discontinued operations and held for sale. The remaining former division of HMI, Samuel Lawrence Hospitality, will be redesignated to the all other category within our segment reporting. We expect to close on this transaction later this month. Speaking to discontinued operations, combined net sales for PFC and SLF declined down $11.3 million in the third quarter and $22.5 million year-to-date, driven by significantly lower unit volume as macroeconomic pressures and tariff-related hesitation continued to weigh on value-oriented consumers. We also incurred $2.6 million in restructuring charges for the quarter and $4.1 million year-to-date tied to the exit of our Savannah warehouse in the third quarter. Persistently low sales, and unfavorable product and customer mix, restructuring costs and $2.6 million trade name impairment contributed to the significant operating losses in both periods. Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 third quarter results. Jeremy Hoff: Thank you, Earl, and good morning, everyone. During one of the most persistent downturns in industry history, we've spent the past 2 years taking disciplined actions to reshape Hooker Furnishings into a higher margin design-driven company. As part of this strategy, it became increasingly apparent we needed to exit low-margin, more tariff sensitive categories and direct our focus towards our strongest brands. At the same time, our multiphase cost reduction measures have reset our expense structure driving over $25 million in annualized savings through structural improvements that we believe will result in profitability even in a sustained tough environment. With our stronger balance sheet $7.5 million returned through dividends and $63.8 million of available borrowing capacity at quarter end, we're also enhancing shareholder returns through a new share repurchase authorization and a recalibrated dividend that preserves flexibility today while building long-term shareholder value. Jeremy Hoff: Our operations delivered modest sales and margin improvements this quarter in Hooker Branded and Domestic Upholstery. We are encouraged by commitments to our new Margaritaville license collection at the recent Fall High Point Market. Margaritaville represents a significant organic growth opportunity supported by the immersive 14,000 square foot showroom experience we debuted at High Point Market and the 55 committed retail galleries across the U.S.. The excitement for this launch and the initial purchase commitments we've received are beyond historic levels for any Hooker product line the company has launched by about 3 to 4 times. We believe Margaritaville home furnishings will drive meaningful incremental revenue across the business, especially moving into the second half of next year when the collection is shipped and placed at retail. We also believe that Margaritaville's growth will be truly incremental, not cannibalizing existing product placements and will be a profitability driver as well. We think we have essentially created a whole new business for Hooker. We believe the launch of Margaritaville together with the recently announced expected sale of Pulaski and Samuel Lawrence Furniture enables us to realign our portfolio around our strongest brands and position Hooker Furnishings for consistent long-term performance. At the same time, we have made significant strides with our cost reduction initiatives to achieve higher-than-anticipated savings and have completed our new expense structure which will provide continued savings in fiscal '27. Together with the major shift in our warehousing strategy, we've also been able to mitigate tariff exposure and better serve customers by allowing collections from our various suppliers to be mixable in single containers and provide 6- to 10-week fulfillment to our customers' door. We are more confident today that Hooker has the potential to shift from a cost reduction story to an organic growth story, and we see a clear path to profitable growth by focusing on our core expertise of better to best home furnishings. Jeremy Hoff: I'd also like to comment on our adjustments to import tariff increases and uncertainties. Over 40% of our net sales are produced or assembled domestically, significantly reducing our tariff exposure. We believe the tariff environment has largely stabilized with a 20% tariff on casegood imports from Vietnam and a 30% lumber tariff on all imported upholstery -- upholstered furniture implemented November 1. In addition, since tariffs disproportionately affect the more value-priced HMI lines that are held for sale, the divestiture will be beneficial in mitigating current or future tariffs. Coupled with targeted pricing actions and strong vendor partnerships we have largely mitigated the tariff impact. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments, along with our cash, debt, inventory and capital allocation strategies. Earl Armstrong: Thank you, Jeremy. Beginning with Hooker Branded. Net sales increased 1.1% in both the third quarter and the 9-month period, driven by higher average selling prices despite lower unit volume. Gross revenue was essentially flat, but reduced discounts and lower returns and allowances slightly lifted net sales. Gross profit rose $1.2 million in the quarter with a 300 basis point margin improvement supported by price increases and reduced discounts. Warehousing cost increased modestly due to higher rent and labor tied to consolidation activities. For the 9-month period, gross profit increased $653,000 while gross margin stayed flat as price increases and lower returns were offset by reduced margins on discounted inventory balancing and slightly higher warehousing costs. S&A expenses decreased $990,000 in the quarter or 310 basis points with current year restructuring costs of $390,000 compared to $950,000 last year. Over 9 months, S&A fell by $1.7 million, with lower compensation and spending partly offset by other costs. The segment reported GAAP operating income of $711,000 for the third quarter compared to a loss of $1.5 million. Hooker Branded backlog grew 17.2% from fiscal year-end and 7.9% from the prior quarter, supported by a 4.1% increase in incoming orders. Earl Armstrong: On the Domestic Upholstery front, its net sales rose $870,000 or 3% in the third quarter and were essentially flat for the 9-month period. Gross profit increased $261,000 in the third quarter with gross margin remaining consistent year-over-year as major cost components held steady. For the 9-month period, gross profit rose $1.5 million and gross margin improved 170 basis points due to lower direct material and labor costs and improved production efficiencies. S&A expenses in that segment decreased $263,000 in the third quarter, with restructuring costs significantly lower than last year. Over 9 months, S&A expenses declined $560,000. The segment reported GAAP operating loss of $14.7 million for the third quarter, driven entirely by the $15.6 million in noncash intangible impairment charge. Domestic Upholstery backlog fell from year-end but rose year-over-year on a 3.5% increase in orders. Earl Armstrong: Concerning discontinued operations, combined net sales for PFC and SLF declined, falling $11.3 million in the third quarter and $22.5 million over the 9-month period. Profitability there was further impacted by a $2.5 million fixed asset write-off tied to the Savannah warehouse exit, elevated freight costs and low sales volumes that caused under-absorption of warehouse and international operating expenses. Persistently low sales, and unfavorable product and customer mix, restructuring costs and $2.6 million trade name impairment contributed to the significant operating losses in both periods. Earl Armstrong: Turning to cash, debt and inventory. Cash and cash equivalents stood at $1.4 million, a decrease of $4.9 million from year-end as cash generated from ops was used to repay $17.9 million of the term loan, distribute $7.5 million in cash dividends and fund $2.4 million in capital expenditures. Inventory levels decreased from $66.2 million at year-end to $52.1 million at quarter end. Despite these outflows, the company maintained its financial flexibility with $63.8 million in available borrowing capacity under its amended and restated loan agreement as of quarter end. This was net of standby letters of credit. As of December 9, 2025, the company had approximately $2 million in cash on hand with $63.7 million in available borrowing capacity, again, net of standby letters of credit. Earl Armstrong: We also announced today that our Board has authorized a new share repurchase program, under which we may repurchase up to $5 million of our -- $5 million of our outstanding common shares. In connection with the repurchase authorization, the Board is recalibrating the annual dividend, which will result in a 50% reduction to $0.46 per share annually beginning with our expected December 31, 2025 dividend payment of $0.115 per share. We believe these actions appropriately balance capital return and liquidity needs and will enhance long-term shareholder value. This repurchase authorization doesn't obligate us to acquire a specific number of shares during any period, does not have an expiration date, but it may be modified, suspended or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market or through privately negotiated transactions or otherwise in compliance with applicable laws, rules and regulations and subject to the company's cash requirements for other purposes, compliance with covenants under our loan agreements and other factors that deems relevant. Now I'll turn the discussion back to Jeremy for his outlook. Jeremy Hoff: Incoming orders for branded segments have increased quarter-over-quarter for 2 consecutive quarters. While macroeconomic headwinds, including elevated housing prices, inflation, low consumer confidence and ongoing tariffs remain largely unchanged. These challenges were most acute in the higher volume, lower-margin discontinued business. With our more efficient cost structure and sharper portfolio, we believe we are better positioned to improve profitability even in a prolonged downturn. Our real advantage going forward is focus. Our team is now fully aligned around our core businesses, enabling us to drive organic growth and build sustainable profitability. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Kevin, for questions. Operator: [Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski: So first, just wanted to go over some of the timing of shipments in your hospitality division. You did note that it impacted sales. Any way to put a number on that as far as how much of an impact that had on the quarter? Earl Armstrong: No, we've not really typically disclosed that individually for that brand. I can tell you that, that brand last year was fortunate enough to have a huge part in 2 of the largest hotel projects in the United States. It's a project-based business, and they just unfortunately, don't repeat like that every time. Anthony Lebiedzinski: Okay. Got you. All right. So you guys have certainly done a lot to improve the business certainly with these changes strategically. So as we think about the core business, Hooker Branded and Domestic Upholstery both had the sales gains, which was good to see in the quarter here. How should we think about your ability to sustain these sales gains kind of going forward? Would love to hear your thoughts on that. Jeremy Hoff: I would -- Anthony, I would say that those -- both Domestic Upholstery and Hooker Branded, we feel some momentum from a product standpoint in both of those segments. And in our industry, it's -- product is what wins the game. So we've had -- we've put together several markets in a row of significant product introductions. And of course, this last one we just talked about that being the kind of the biggest ever that we've had as far as amount of commitments that we came out of the market with. So having said all of that, we can't really do anything about the environment we're in macroeconomic-wise. But I feel as good as I felt about those areas of our business as far as how we can compete and how we can compete for market share for sure. Anthony Lebiedzinski: Got you. And just curious, what have you guys heard from your retail partners about Black Friday sales and traffic to their stores? Any sort of -- can you give us any sort of commentary that you've heard from your customers? Jeremy Hoff: I mean there's still -- I'm hearing relative positivity from our customers at these peak retail times. I mean we heard it for Labor Day. I think Black Friday is coming back as fairly good. But we just need in our markets, we just -- everyone needs more consistency. We need more consistent demand. And I think you could say that for every business out there. So we're -- I think these peaks are pretty good, but we just need the rest of the times to be better than they are currently. Anthony Lebiedzinski: Understood. Okay. Got you. Okay. And then -- so as we think about the discontinued operations, can you give us a sense as to how much revenue those 2 brands did for HMI for last fiscal year or maybe the trailing 12 months? And kind of how much of a drag was that on your operating income as we look to recalibrate our models? Earl Armstrong: Last question first, it was a significant drag on operating income. We're going to -- and I believe the statements that you'll see in the 10-Q which we expect to file on time in the day, Friday. And then there's also an associated 8-K that will have some pro forma financial information in there, I think that will that will help. I would tell you now, but we're still in the process of quality checks and finalizing those to make sure we're spot on. Anthony Lebiedzinski: Understood. Okay. Got you. I guess, Earl, last question, think about the business longer term. So obviously, you recognize that the current environment is still choppy or challenging. But as we look back historically before HMI was acquired approaching 10 years ago, I think, or 9 years ago. As we think about the company back then that you guys were posting operating margins in the high single digits, approaching 10% actually, I think, in 1 year. So with all these changes to the business that you've put in place, is it reasonable that when things get better, you guys could back to the historical type of operating margins? Earl Armstrong: Yes. Anthony Lebiedzinski: Okay. That's great to hear. All right. Well, best of luck, and I'll pass it on to others. Jeremy Hoff: Thanks, Anthony. Earl Armstrong: Thank you. Operator: Our next question comes from Dave Storms with Stonegate. David Storms: Appreciate you taking my questions. I want -- I did want to start with one check. I noticed on the announcement for the HMI sale that the lease for the High Point showroom, will be a part of that. Are you expecting to maintain your showrooms in Atlanta and Vegas? Or are those also operations that you're looking to exit in the near future? Jeremy Hoff: We've already -- we exited Atlanta, I believe, last year, Earl. Is that correct? Earl Armstrong: Exactly. Jeremy Hoff: And we have our flagship showroom, I'll call it at Showplace, which will, of course, remain. And we will keep probably a small presence in Las Vegas, which is really somewhat insignificant from a cost standpoint. David Storms: Understood. And excuse me for misspeaking around the Atlanta showroom. Jeremy Hoff: That's okay. David Storms: Perfect. Appreciate that. My next question, I did want to touch on Margaritaville. There's obviously a lot of excitement around that going into next year. Is there anything you could do to help us understand maybe what the margin profile for that new line will look like maybe relative to your current margin profile or some of the other backlog that you're seeing right now? Jeremy Hoff: I would say if you just simply look at historical Hooker Branded margins, and it's actually somewhat of a hybrid. So you have some Domestic Upholstery in there, too, and maybe look at it from a 60-40, which is our company makeup of percentage of casegoods to Domestic Upholstery. I think if you look at it kind of from that standpoint, you could come up with a pretty close answer. David Storms: That's perfect. And then I did want to ask one question around maybe cost cutting. I know you guys are well ahead of your targets there. It was mentioned that you're looking to see continued savings in fiscal '27. Any sense of maybe the magnitude of areas of focus there? Is that going to look like just regular corporate cost cutting? Or is there going to be a number put on it the way you did with this last round of cost cutting? Jeremy Hoff: I would say we'll be able to better hone in on a number at our next -- when we announce next. And then if you think about the fact we just got out of the High Point -- we're getting out of the High Point showroom for HMI, that was a major expense. There are things that -- the reason -- one of the biggest reasons we're able to get additional savings is the divestiture of those brands. And that's going to create additional opportunity. Having said that, we did hit over the $25 million mark at the end of the third quarter, as we had said in the previous call, which we're really proud of, and it really puts us in a strong position in our cost structure to win. And I said in my comments that shifting from cost savings to organic growth story, I can tell you, I'm very excited about that. That's a lot more fun to talk about. So we're looking forward to getting into that mode. David Storms: No, perfectly reasonable. I appreciate that. One more question, if I could. We've seen the Fed has been cutting rates and the quantitative tightening. You mentioned the branded orders are improving. Are there any other green shoots that you're starting to see that might show demand coming back? I know you're well positioned for when demand does come back, but just anything that you're seeing that might indicate that time line for some of that demand to come back? Jeremy Hoff: I wouldn't say that we're necessarily seeing green shoots. I would say that we're seeing a level of cautious optimism from our partners, our retailers, our -- you hear from designers. So the market was very optimistic. But it's not really necessarily from, as you stated, green shoots. So we're looking for those daily, and we're ready to see them. But on a really positive note, we feel really confident where we are from an expense structure standpoint and from a business standpoint to kind of weather whatever this is for a period of time. David Storms: Understood. That's all very helpful. I appreciate the time, and good luck in the next quarter. Jeremy Hoff: Thank you. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Jeremy for any further remarks. Jeremy Hoff: I'd like to thank everyone on the call for their interest in Hooker Furnishings. We wish everyone happy holidays and a prosperous and healthy new year. We look forward to sharing our fiscal 2026 full year results in April '26. Take care. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Monika Wszeborowska: I'm Monika Wszeborowska. Welcome, everybody, wholeheartedly to the results presentation conference. Marcin Bojko, Deputy Chair of the Board and Chief Financial Officer of the group; and Magdalena Kopaczewska, director for Investor Relations are going to be your host today. Unknown Executive: Ladies and gentlemen, our meeting today is going to be devoted to summing up the results of the LPP Group for the third quarter of the current year. In our case, that means August, September and October. And it is what we will start with. Throughout the conference, we will also tell you about our plans for the nearest future and more long distant plans, and we will complete the meeting with a Q&A session. You have a chat box at your disposal. You can see that chat box on your screen, it's going to stay active and it's obvious to you, should you want to pose a question. If you still have any questions to clarify after the meeting has come to an end, please get in touch with our Investor Relations department, lpp.investor.relations@lpp.com and the media are invited to contact media@lpp.com. Our meeting today will last more or less an hour. So we will try to have wrapped everything up by 7 p.m. and stick to this time framework. Unknown Executive: Let's move on to summing up the results, financial results for the third quarter of the present year. Yes, without further delay since we have a lot of material to cover, let us move on to summing up Q3 2025. The most important pieces of information, like-for-like stores that is those that have been in our network over 12 months, 4.3% of growth in like-for-likes. In a moment, we will see the details, but it is a very nice result. The stores that have been with us for a long time is not the only part of our business. We've been growing systemically. You've noticed that maybe recently that 232 stores opened, including 200 in Sinsay brand, but we also keep on going in the other pillar of ours that is e-commerce sales, PLN 1.7 billion in sales increased by 22% year-on-year in constant currencies, so great dynamics. And what always comes as good piece of knowledge is the payment of the second tranche of the dividends, PLN 330 per share, so over PLN 1.2 billion paid dividends. Recently, the percentage of the dividend is around 4. These are our plans. So this piece of information is always very positive, one that we eagerly share with you. These are our operational results. As for financial results. Here, we have 4 main indicators. Sales in the first -- third quarter, PLN 6.1 billion, 22% dynamics. EBITDA, PLN 1.7 billion; EBIT, PLN 1.2 billion; and net profit, PLN 800 million. big, nice numbers in Q3. They are really lifting our spirits. When we look at the comparison, EBITDA is 48% of growth year-on-year, EBIT, 61% and net profits, 39% growth year-on-year, so increases over the dynamics of sales, which, of course, means greater profitability, as we will see in greater detail in the slides to come. The business results that you've seen in the previous slide nicely translate also on to the financial results. And to begin with, maybe there is one more important disclaimer to share. The results that we've been looking at in terms of profit are those that have been adjusted, which means that they are purely business like results, everybody that is with us here today and go over our cyclical reports to weeks ago, we published one. The decision of the Board having analyzed the market situation was to write off around PLN 800 million from the result. And the write-off result is from the situation of the Russian company of the Russian investor, who in 2022 took over the business after this investment, and we informed you about that in September. We talked about it at -- in extension but the situation is dynamic and after new information that we described in the [indiscernible] report, we had to reevaluate the situation and that is what it led to in terms of business decisions. Just to remind you, the write-off is a noncash one, so it does not mean any cash outlooks from the company. The situation of the company is really comfortable, and I believe that this is something that is reflected in the results we are presenting today. We have enough resources to develop to invest, including into logistic related CapEx. And as we have commented, that is also, of course, stem from the current analysis of the situation, but we see no reasons to change anything in the dividend policy either. We simply keep on focusing on pure business and the results that you see presented in this slide and in the slides to come, focus purely on business. Unknown Executive: 2025 is also an acceleration of our growth. And traditionally, we show you the status. 232 stores opened in Q3, nearly twofold acceleration over 30, 32 stores in [indiscernible] reserve house Mohito. And the third quarter, over 2,000 [indiscernible]. In the third quarter, we completed with a network that altogether has nearly 3,500 stores. Now moving on to the details of financial results. We are going to look at particular indices in greater detail, the comparable sales like-for-like. This is what we started at the beginning with the 4.3% generated over the last quarter in a broader context, 7.5% in third quarter of the last year. So the basis was high in the period that you can see presented in the slide that was the highest one so the base was demanding. That is why we talk about 4.3% as something positive and something that we are actually happy about. Now, and let's take the results in comparable like-for-likes, and we add new sales then we can see that in the third quarter, the increase in sales reached 22%, 22% off-line and nearly 21% in e-commerce. But up to the 9 months, the entire business' growth bias 20%. An additional piece of information is that there is an increase of net foreign exchange rates that was minus 1% and 5%. So if we purify the results by the macro impact, that would have be higher by 1.5 percentage points. That's our first leverage. Unknown Executive: The other one is gross profit margin. After the last Q&A session that we had in September, during that session, we signaled that there is the mathematically logical potential for increasing the margin because the second half of the year is clearly better. We've contracted a collection at a more favorable exchange rate. And back then, we could already signal that. Now I'm happy that nothing went wrong. And we can see that everything went according to our plan, and we can report nice, high margin. And again, as was the case with like-for-likes and the scale that you can see here, the highest margin in the last period is to be seen. [indiscernible] was very strong in recent years, and that's something that is also favorable. So sales, gross margin and the third leverage, that is SG&A costs. And in this context, so we are most happy about this particular leverage. Everything is in our hands. At the end of last year, we commented that we are building this scales, the cause, the dynamics that were higher, some of the locations, logistical locations only open themselves and they only learn how to be efficient. But starting with Q1 this year, the costs behave the way we wish them to. We are efficient in the so-called back office. We have mastered the development rules there. We know that the teams that we have are sufficiently efficient and we can grow with them. But two greatest leverages standing behind the drop of cost is, of course, logistics and marketing apart from the off-line stores when we think about the broadly understood [indiscernible], this is the biggest group and owing to our investments in this area, we can optimize the cost. And the other part is performance marketing and here, giving you precise digits. This is -- we spent not even 8% in relation to the profit from the e-commerce channel compared to 9% last year. So this 1 percentage point is quite a leverage. And all in all, when we put these three components together, what we get a really nice dynamic in profit growth. We saw nice numbers at the beginning. We are very happy about those growth because probably at this point last year, there was a lot of uncertainty. Of course, we believe in our strategy is well thought over and now we are bearing fruit of the hard work that we carried out over the last months. The increase in profitability of around 5% at the EBITDA or EBIT level. These are really great results in the third quarter in terms of net profit is around 2.5%. But again, giving you a broader context. This year, we've accelerated with investments quite much. We used the existing banking limits that we have quite extensively put it again, as informed towards the end of November, a big success of the entire organization and of the team involved in the project made it possible for us to close the complex refinancing structure of our debt so we can enjoy financial stability for the next 3 to 5 years, depending on the area of financing and ever since then. So ever since Q4 in consecutive periods, those financial costs are going to be even more optimized. So everything is heading in a really nice direction. And the 9 months with each quarter, we were kept accelerating also show that when you look at the dynamics on average plus/minus 30% of increase at any level reminding you that sales after 9 months grew by 20%, then automatically, that translates into the increases in profitability at any level. Unknown Executive: Now we can smoothly go to the operational indices inventory. The images [ read great ]. The last bar that you can see is below the second quarter, particularly the line that shows you the value of our inventory per square meter. It dropped significantly here during the first half of the year, where we entered the first half with higher inventory levels. You might remember that in June, we reduced our guidance. With this stock, we've been working pretty actively what was supposed that was delayed in terms of suppliers. And then we lowered the purchase budgets for consecutive periods in order to make some space for this inventory. So this is the result that we got to. We still have some more goods coming before the end of the year, but I don't think that we will get anywhere near 2000. I remember what I said in September when we commented on behalf of the company, still in the first quarter, maybe in the first half, we'll be working in this inventory that we are shifting from those periods. You can see, especially in the Sinsay brand, this margin was under slight pressure, but we can see looking at Q3 that in terms of business challenge, we can really generate nice results. Inventories, of course, are related to the working capital. This is a quite boring slide. We've been able for some time now to generate a negative level and new financing gives us additionally more comfort in terms of reverse factoring inviting. So yet another area as Warren Buffet said that banking should be like that. And we are happy to have this boring comfort, so to speak. Unknown Executive: Now in terms of logistics, it is marked by high CapEx, our CapEx is for [indiscernible], the blue bar is looking from -- looking bottom up, these are expenditure for stores. So just to remind you, EUR 450 per square meter in Sinsay brand and EUR 800 in other brands is the average. And in terms of logistics, this is the medium part. This is the area that we sped up on already last year, over PLN 1 billion spend this year, but we will see on the slides that still next year, we'll be spending. We are spending a lot, but less then this year is going to be spent. But as we saw in the OpEx part, these are high-quality investments, and they really allow us to generate nice savings this operational level. And what makes us happy is that our growth is dynamic and fast, but all that is carried out with safe debt level. The first and second quarter, slightly high. But then 1.3 debt to EBITDA that was really comfortable, now it's 1.1. So the situation is really safe. And I guess that the commentary, well, is not really necessary here. Unknown Executive: So that was the summary of the third quarter and the 9 months, but it is December already. So in Q4 we can now observe what is happening on the market. So over to Magda. Magdalena Kopaczewska: Thank you. Before we move on to our plans and goals for 2025 and '26, A few words about the fourth quarter. In November, we have Black Friday and Black Week. So we can say this is the season for discounts in stores. Today, it's not that clients are not that enthusiastic but the spending these days are much higher than on weekends before and after the black week. We started on the 26th of November, so on Wednesday, and that ended on the first of December. So during Cyber Monday. In conclusion, we can say that we are very happy about the Black Week and this season, 32% in omnichannel. This is the increase online and 25% off-line. Looking at the fourth quarter, from the first November to ninth December, we can say that the fourth quarter began a bit below our expectations. But from the second weekend in Poland, the sales improved. Most probably, this was affected by strong October, where most of the clients did their shopping over there as for the autumn apparel. And then the clients are waiting for the Christmas season. So this shows -- this is presented here in the slide. As for the -- when we look at the fourth quarter, we look at it positively because the trade in December might be supported by the calendar related effect. Christmas Eve is going to be a day off. We also have working Sundays, and the data shows that the average Sunday, these are higher sales than on the Christmas eve. In conclusion regarding the fourth quarter, I would like to say that we plan to open 350 to 400 new stores of all our brands, the majority related to Sinsay. And now we can move on to detailed plans as for 2025 and '26. Unknown Executive: When we look at 9 months of -- a very good 9 months, and we add on top of that, the prospects rather optimistic presented by Magda, we can see improving dynamics. We can confirm what we signaled in Q&A in September. So the market situation and the results that we saw at that time were delivered in the third quarter. So we have now a few weeks of this year, and we can improve our guidance, so the new expectations for this year, at least PLN 23 billion of sales in both channels, 20% increase in off-line and off-line, it does not change compared to the previous information, significantly increased gross profit margin from 54% to 55%. OpEx related to sales, so 40.5% to 41%. And that is the SG&A of sales. So whether this is EBITDA or net profit, naturally, this is increasing compared to our expectations. CapEx, small reduction. This is more cash that stays with the company. This results only from a smaller number of stores open. And net debt rather comfortable PLN 1.1 billion. So such updated guidance for '25 is our new ground for our goals for our targets for '26. The financial year is going to be reported in the second half of March. But we want to provide you the knowledge during this meeting. So here, we have '25 in the first column. So the higher forecast for this year. And from that, we move on to '26. What do we expect? at least PLN 28 billion of sales, over 20%, maybe 25% in offline even as for the increase in '26 after the third and fourth quarter, we can see that the gross profit margin is dropping a bit. This results from the natural participation of Sinsay. We know that this profit margin is a bit lower. With more development it's going to be more diluted. As for SG&A of sales and CapEx give us still room to generate this positive result, so around 40%, 41%. And when we see the EBITDA, similar results as this year, and '22, '23. This is the EBITDA margin. CapEx, a bit smaller compared to this year. This results from lower spending on Logistics. This year, we had accumulation in 2016. We are going to spend for robotization and this is only one investment, one warehouse in [indiscernible] debt net and the floor space increased comparable, so nothing is happening. This is really very positive borrowing situation. Unknown Executive: So that was the conclusion as for the 9 months from spring. We have this 3-year strategy, a short-term strategy in our company. We provide reports and we provide where we are up to '27. So after this strong acceleration. We have some observations. We continue with our strategy, but some things needed to be adjusted, so the direction does not change. So this is our direction, Sinsay is the growth engine for LPP. The development is going to involve opening of new stores in smaller towns. Maybe not so many locations here in heritage brands with brands that have significant ambitious goals -- single-digit like-for-likes to cover the inflation. And of course, the top target growth with focus on profitability. In June, we showed you the update of the information. Why Sinsay is this drive engine, why we focus on Sinsay, why this is working. We can see that after 9 months of results. When we look at operational details and financial details, the off-line store, 30% of EBITDA here. We know that we have some challenges as for managing the stock. So even with a standard issue here, we can generate significant EBITDA. Historically speaking, whether this is '24, '25, you can see the share of profitable stores. This is much better. When we add more details, on the left, you can see a graph, profitability per store size. So the mini, these are the smaller ones. You remember in June, this format was stopped for a moment. So this -- the tests are happening. We have first conclusions. It is very promising, but we wanted to make sure that when we go back to this plan, these stores are going to be profitable, and we will have good know-how, how to do that, what is happening, what is the offer for the customers. So until we have certainty, we freeze this idea. We can see that other store sizes are very profitable. and the biggest ones even much, much better. This translates into a very good payback period, 16 months. This is one month lower than before when we compare the year with significant challenges in Eastern Europe, [ 20 -- 12 ] or 13 months. This is a good result. So we are very happy about where we are with Sinsay going into the future. Unknown Executive: I believe that from your perspective, a good important information. So the updated plan for the launch of new stores, so we planned 1,000. We can see that the fourth quarter is going to be the more intense. Some are going to be shifted to the next year. In some regions, we observed a certain slowdown in Slovakia, in Czech and Hungary. These are the regions we don't see a significant interest in such stores on the market. These regions are rather cautious in their approach. So we stop for a moment, the mini format, as I mentioned, until we have hard data and conclusions and certainty. We don't -- though that we have a significant group, we have information coming to us. So when we have certainty, we will go back to that very quickly, but we need to be sure. And in the East Ukraine, we had a significant challenge related to the quality of data. So we entered 15,000, 20,000 towns, and then it turned out that this town was much, much smaller. So we decided that we are not going to enter towns around 30,000. So when we take all these elements into consideration, it means that we take care of the profitability and the updated forecast for the future results from that. So we focus on the higher margin. And in '26 and '27, we can see the potential for slow gradual acceleration. The development of off-line, not only Sinsay but our heritage brands, they also have -- are ambitious in like-for-likes. But e-commerce, we also want to have 20%, 20% plus as for growth. And we have significant leverage. So new markets, Central Asia, our mobile app. This is also working very well, 80% in online through an app in Sinsay. And we broadened our offer in non-government segment, in the following months, this is going to be a very intensive work for us, as for optimization of our offer. But we can see that the sales is good. We still need to work on the margin, but we had a lot of the tasks, and we are going to move on into these aspects. So that is all regarding to sales. Unknown Executive: The allocation of capital, again a positive note going bottom up. PLN 1.6 billion, a simple number of openings, times, CapEx and visits, and the [ medium one ], these are the expenditure on logistics. We could see the leverage in this area is particularly clear and visible. There's a clear return on investment. So next year, PLN 700 million, and we are continuing robotization in main locations and completing one center in [indiscernible] in terms of a building and 2027 will be the continuation of equipping warehouses and adding robotic solutions. We are still thinking about one more location in terms of e-commerce, but this is still under the analysis of [indiscernible] in two years' time, this is the upper number that we expect. Unknown Executive: Now if we sum it all up in 2027, that is the last year that we are running to a, now, 3-year perspective, we are reducing top line a bit. So this growth in terms of revenue, so minimum PLN 33 billion in 2027, [ 1.7 ]. That's the growth factor versus 2024. Now [indiscernible] consecutive so gross margin and OpEx, we are improving quality here, clearly, and we see that this operational leverage is working increase of EBITDA at the level of 1.8 versus 2024. So that's improvement in profitability between 21.5% and 22.5%. So systematic growth of revenue. This is what we expect. And of course, that also means that we need to not think about increasing dividends equally. We are a dividend company, as I mentioned, and it has been the case for some years now, the dividend yield is on the rise, and we do not have any reason to modify this trajectory. And I believe that what we started with this positive tone, and I guess we can end also on a similar note. So great results after 9 months updated strategy, but we are remaining on the same trajectory. We know where we are heading recently are approaching it in a slightly different way. The prospects of growth and dividend sharing with our stakeholders, of course, does not change. So I guess we can swiftly move on to our Q&A session now. Unknown Executive: Let us start then, question number 1 concerns insurance related to the fire in Romania and there is a request to define insurance liabilities, what value do we have here in the balance sheet? How much was already given by the insurer? Which quarter was it put into the books? So the main numbers and the main events in the second quarter, PLN 351 million. So the write-off was the loss that we suffered concerning our assets and goods because we rented out the building itself, but the equipment was ours. And we also had the audit term it is possible for us to book it, and that was the second quarter. Now the current update around 2 weeks ago, we got an advanced payment that was precisely PLN 20 million. Yesterday or the day before yesterday, that's the latest piece of information, we got informed that further EUR 200 million would get into our account owing to this loss concerning the liquidation and the financial part of it. So you need to understand that from the formal side, these are thousands and thousands of documents that we need to deliver but our accountants teams work on that regularly, and we can see that it is heading in the right direction. So these are the amounts that are going to be booked in Q4. And we keep on working systematically on that, so further amounts we'll get into our account. The other part, business interruption insurance, so the loss of margin and additional operational costs this period expires after 9 months. So it will be only in spring in the end of March when we will start summing it up and talk about the payments. So no earlier than probably in Q2, Q3 that we can expect any income from that side. Unknown Executive: Now inventories quarter-to-quarter dropped by over PLN 400 million. Could you explain that? Well, yes. As I've mentioned, we simply had too much in terms of goods. And once again, 1,500 stores, the initial plan, we will see that we'll open 910 talking about Sinsay so we entered it with a great stock. So this drop after the first quarter when the bikes was positive, we would still be testing what the reason was. We didn't put the break to hold so much. But then as we saw months passing, we -- it became clear that we need to do something about it. And the results offered themselves in quarter 3. So there is no mysterious knowledge, it is the simply hard work of our teams and here, those that deliver the goods and our designers [indiscernible] '26. So the spring and summer season that we are entering slowly, we'll have a greater share of the goods that were ordered beforehand. But we can see that in the first half of the year, we will be -- we'll get [indiscernible] over and done with. It's just a standard business challenge that we are managing as we go. Still on the inventories and the stocks, it's about the optimum level of inventories for another year. So what would be the level we would like to keep it at between PLN 1,700 and PLN 1,800 per square meter. Unknown Executive: Can you see any chance to benefit -- to increase, improve LFL in Sinsay, what would contribute to that? It is a very good question and again, a broader context. When we look at a slide from our presentation with like-for-likes, we will see that, of course, our appetites were greater, but it is the market. Our teams do their utmost, and we always offer the best voted with their decisions. We have our conclusions. We are entering the SS season with our homework done and lessons learned and 2023 was another period when we had a lot of inventories and the margins were what they were -- the like-for-likes were what they were. Reserved is a different brand. The first half of the year was actually in the same situation, minus 5% on likes in the first quarter and similarly in [ December ], we know how to do our homework. But number-wise, I would call for -- looking at 2024 and since what quarterly dynamics, we had 11 even 12% in like-for-likes. So what naturally this is something that is nearing the average and this biannual approach is not as pessimistic as this readout for the last quarter might suggest. Let me maybe add on the structure of likes for Sinsay. The women collections have very good likes and a different group has lower like, there are questions concerning competitors and whether women collection in Sinsay has poor likes. Well, that's not the case. And since we talk about competitors, how do you evaluate the risk of aggressive strategy of Chinese platforms and their impact on LPP business? And how are you going to compete against these Chinese platforms? I believe that our business model is the best response and I replied to that competition. We are present in two channels, offline and online. The client always has a choice to come and see and they do not need to buy something we've never seen. So we bet on quality, we bet on safety, our application and security. When you look at our application in the second but last quarter, our application was the top 1 in terms of the fashion category than it was in top 2. So those results are improving. We can see that the app is appreciated by the customers. We offer good and fast -- quickly delivered collections. So we can say that this is the reply to the competitors. And talking about the cost, this is the third biggest cost that is performance marketing. That's advertising online. We spend, nevertheless, year-on-year, and thus the internal budget that we planned, we spend even less. So we have quite a reserve here and a lot of tools to sustain this competitive spirit. We always observe our competitors humbly, we treat it as something that makes us perform better. We can see that we have efficient tools that enable us to compete even now. Unknown Executive: What do you expect -- when we talk about refinancing and savings, and I can't say that the margins, given our scale and the oversubscription that we've commented over 50%. And the margins are much better than they were and versus even monitoring, say, the current reports of other players in the Polish market, those margins are attractive. In terms of a precise estimate, of what kind of saving it is, we will leave it to ourselves because well, the consumption of it will simply be different. There are no two really comparable years. We can see that the Sinsay model is working, and there are the flows as we expect. And what's most important is that in this new structure, we have this comfort of 3 years of current limits that we can flexibly prolong and CapEx that is financing of investment, that's them, a prospect of 5 years to come. That gives us a lot of comfort that in our strategy, we can focus on the development of the business, we are safe in terms of our assets, we can pay out dividends. And financial institutions are interested. So that shows that the broadly understood financial market also believes in our model because these amounts in time, they show the scale of this commitment and hope in the development of us as LPP Group. Unknown Executive: How about the current situation in the German, U.K. and Ukrainian market? German and U.K. markets enjoy a very sound situation to put it briefly. The likes are improving. That's obvious. Starting in 2023 autumn in the U.K., we added to new stores. I'm talking about the reserved brand in Great Britain in the U.K. They've been on the rise. EBIT is not positive there yet. But every quarter, every season is of a better -- and starting from the beginning of the year, the likes are double digits. Similar is the case in Germany, it's a great e-com market as well when a new reserved store was opened in Oberhausen, we have 18 stores there altogether, I'm looking for confirmation, yes. So there are 18 stores there, and it's just there is a brand. In e-commerce, of course, we offer other brands as well, again, high increases post covered we negotiated favorable conditions. So last year, the German company celebrated their tenth anniversary, and we are very happy that last year, they proved to double digital profitability, and it sticks to it. And the third country asked about was Ukraine, right? Yes, and it nicely relates to the question about likes because those who have been with us and follow our detailed data, Again, I encourage you to keep a close eye on our Investors Relations website. We keep developing the Ukrainian market. So it weighs a lot, particularly in Sinsay and we're talking about certain normalization year-on-year, so very high like last year and now natural drops. So Ukraine is the biggest market with this normalization is really high. After the water, there came a drop, then was the balance of -- that was very high, 40%, 50%. Now we have a double-digit minus there. So again, that's only natural. But when we look at the profitability, the Eastern markets are still most profitable markets in the group. That is why we systematically keep investing there. I mentioned the number of openings. We look at the profitability we keep on learning. That was the first year of the acceleration of our growth, but we draw conclusions as we go. June showed that we are not afraid to stop or to take a step backwards in order to take two steps ahead after. We are focusing on profitability. That's a natural process. So that's what it is like. Unknown Executive: From some time, we can observe negative LFL regarding Sinsay. What is the diagnosis in your opinion in this situation? And what activities do you plan to improve the situation? I believe a similar situation was already asked, so natural like-for-likes, natural grounds, we start from figures. But of course, the appetite is much, much higher. We learned from the past new project, new season, new hope. So we can do the best work, but the client is going to actually come to the store and buy. So we discussed that good like-for-likes are ground for the new motivation program for our teams, but I don't think they need additional motivation. We want to provide best collections for our clients on natural motivation is the main factor. This is what we believe we can do and the history shows we can. Unknown Executive: Expansion, Uzbekistan, Kazakhstan, these are new markets with new stores you launched over there. Do you plan to open in new stores around Central Asia or perhaps other markets are also the topic? Central Asia, yes, we opened almost all markets. In Moldavia, we are also there. Sorry, the end of the year is very intensive as for the financial aspect. So we -- this was our debut in Moldavia. We -- this year was a record year as for the loan opening of stores in new markets. So as for the launch, this is all now we are building the scale in particular markets. So we do not plan to launch new stores and enter new markets. So this slowdown regarding Czech and Slovakia focuses our attention on this on the new market. So we are going to look for the potential. So 950 Sinsay stores is going to be delivered. Unknown Executive: In the fourth quarter, what impact do we have from higher winter temperatures on the sales. We are looking at the calendar. We want to be fair and very transparent. So we are the last to look for excuses as for the temperature. I remember times during my term of office, when September was really difficult because they were really -- the temperatures were really high. And the demand shifted into October. That was 24 and '23. In May this year, it was the coldest May ever. So the first week of June was really difficult. And yes, these were the objective reasons for that. Now higher temperatures, Yes, we -- as Magda presented, the dynamics are improving. That was a long weekend. The clients were probably waiting for the black week. So this is our diagnosis. So the trend is improving like-for-likes from negative are going to positive numbers from October, November to December. So let's not talk about temperatures now. We have still working Sundays, Christmas time and New Year's so let's wait for the final results. Unknown Executive: What are the plans regarding the marketplace? We've been analyzing all options regarding e-commerce. The app is working really well. Many clients are drawn by Sinsay apps. So this is 30% of business with e-commerce. So this is a really strong instruments in this marketplace is a natural step. But I believe that this is too early now to talk about it. We are going to analyze that. So once we have a precise information, we will go back during our regular quarterly meetings. The marketing level what was the marketing level regarding the guidelines for '26, that was 9%. When we look at guidance, '26, '27, you believe operational effectiveness is going to improve. In what areas do you plan the improvement and whether this is the result of opening new stores? Very good question with a partial answer. Yes, this is affected by a larger percentage of Sinsay. So the gross margin is going to drop. But Sinsay it's lower -- as for the CapEx, it's not that expensive as other markets, it's improving our leverage. But here we have the area where we can see positive impact looking at the next two years, this is logistics. So more investment, we can see after this sample in bids our biggest e-commerce warehouse, 100,000 square meters. It is working perfectly on the largest case. So the cost regarding to logistics, this is the second group of our cost. So that was a really small change that is generating a significant potential. So what is behind that. Can you tell what was the guidance for '26 regarding the level of sales within the whole group, but also regarding the Sinsay brand? We have ambitious targets, but in our model, these are single digit or lower amounts within single-digit figures. Unknown Executive: You decided not to enter towns, smaller than 30,000 inhabitants. Do you believe this is related to the Polish market? No, that was a comment regarding Ukraine from the logical point of view. So the data for smaller towns. Well, the situation regarding the war is difficult. We have doubtful quality regarding the data. So if we have a lower number of citizens in smaller terms, so we want to develop, but we want to be also profitable. So this is our cautious approach to that. On a long-term basis, when we look at the logic. So when we do we want the company to grow 20% year-over-year. So don't we expect positive results from this operational leverage or perhaps Sinsay is less profitable than other brands. So maybe this is a side effect of this development. Well, here, this is also a good question. We have our internal targets. We also have guidance. So this year, taught us a lot. We are more humble. So that was a really safe level that we can deliver Internally, our appetite is much larger, of course. This leverage is at the level of one so close to EBIT, so zero plus, we would say. But we believe that it's going to be there. So we have these brackets we want to operate in, so the top or low level of the margin, I believe that with such approach, this margin will be noticeable, more noticeable. So within a 2-year perspective, we are going to report that on the regular basis. So you will then be able to update with more recent information. Unknown Executive: Do we have -- are you planning to have more write-offs regarding the Russian business? No. This PLN 800 million in the backup, we also have information regarding that. So this is the total write-off so as a company, we are going to fight with the Board as well, we are in close contact. We are going to fight back. But for now to make it easier for us, for a discussion, we want to focus on business these days. So we don't want to go back to it every quarter. So this is a total write-off what happens later on, that would be a plus results. So we just wanted to address this topic and talk about likes, improvement, growth investments in new markets. Unknown Executive: What markets, in your opinion, are the weakest after the third and fourth quarter? I would like to repeat what I said before, Czechoslovakia and Hungary and Ukraine as well. We can assess that from the perspective of like-for-likes with leased dynamics. Ukraine, of course, when the rates and the bombing is increasing, then we also have drops in the sales. Estonia. It's a small market. I also mentioned that before, we can see that in like-for-likes. The priority -- the governmental priority is to focus on the fiscal approach and the taxation. So this result -- this is the situation. Unknown Executive: What about any potential attacks on your sites in Ukraine? Well, we cannot predict that. We know the operational side. As for our stock, we don't have just one good location. We keep our stock in different locations. So we have a diversity in our approach. This is what we've changed after recent events. Unknown Executive: Does the financing make it possible for takeovers or maybe you are planning to approach that differently. Refinancing allows us to do much more. But for now, as [indiscernible] of the capital, when we referred to CapEx, these are investment expenditure logistics sense, new stores and the dividend paid to our shareholders. We don't have such M&A ideas. We can see that in '25, we have a lot of data. We need to be flexible in our reaction. So we need to do business. Maybe another comment. We also have such topics or such offers regarding M&A but as LPP, we are generating bigger profit over weekends. So this is not like the scale we would like to look for. We focus on our organic growth. Unknown Executive: Another two questions refer to the prospects regarding Europe or Great Britain. Do you believe that since the expansion over this market is possible? Or do you plan a significant growth -- better growth of reserved brand in these markets? As for the first question, Sinsay in the West, no, Note that we close our options for us, but we want to focus on the quality. We observe the market. We can see the history as Marek, our CEO, is looking. We are -- draw conclusions. Other companies went there a bit wrong and had to close business and went bankrupt. So the Sense model is designed to be effective regarding OpEx in the West, it's difficult to look for such cost-related effectiveness so that the workforce and lower CapEx. So we focus on Central Europe, Eastern Europe, Central Asia, Southern Europe, this is what we presented in the slide. So these are the regions that we really focus on with our activities. We can see that we have really good returns on investments, 12, 13, 16 months. So below our benchmark much, much faster. And this is what we focus on. So since they -- and Western Europe, this is not the direction that we want to follow these days. As for reserved and other brands commenting much wider. As I said with the strategy with a larger space, reserved needs at least 1,600 meters. It's difficult to find in Western Europe, referring to question regarding Germany or U.K. So in U.K., we needed 10 years for this profitability in Germany. We are still working on it. So when there is a situation favorable for investment. We are going to go for it. But when we have a good location, we are going to consider that. So like the new opening in Oberhausen, this proves that. But whether this is the scale, well, right now, we don't see this potential regarding to the size of the stores. We focus on the growth of reserved basically in online. We can see a significant potential. Unknown Executive: What is the payback period from investment in robotization? Up to 2 years. Unknown Executive: And the last question, we answered that, but we want whether this write-off from Russia is going to affect the payment of the dividend. A very good question. Yes. We started with the dividend. So I believe this is the last question regarding Q&A. So we are going to complete with a dividend as well. No, it is not going to affect the dividend. As we communicated, we have resources, but the Board recommendation and the resolution is going to be adopted for the future. But business-wise, the write-off was a noncash write-off. So the reported profit was just adjusted by this write-off. You can go back to the backup and clear net profit is going to be grounds for the payment of dividends. The dividend was on 70% of net profit. Nothing changes here. So this is the level we have resources. We have really comfortable situation of 1.1 leverage, a very good level. So to reiterate about it. No, it is not going to affect the dividend, payout sharing the profits with you. After 9 months, this prospect is really good. Unknown Executive: [indiscernible] on this optimistic note that we are closing meeting. This is the last conference this year. On behalf of the entire LPP Group, we would like to wish you first and foremost, a very healthy, jolly merry Christmas. May this season be the period of relief have from everyday struggles and for next year, we wish you all the best in making your dreams and targets come true, both in your private and business lives. Thank you very much for today, and see you at another results conference that we are planning for spring. Thank you very much. Goodbye.
Operator: Greetings. Welcome to Vera Bradley, Inc.'s Third Quarter Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. Anyone today should require operator assistance, please press 0 from your telephone keypad. Please note that today's conference is being recorded. At this time, I'll turn the conference over to Mark C. Dely, Chief Administrative Officer. Mark, you may now begin. Mark C. Dely: Good morning, and welcome, everyone. We'd like to thank you for joining us for today's call. Some of the statements made during our prepared remarks in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties, that could cause actual results to differ materially from those that we expect. Please refer to today's press release and the company's most recent Form 10-Ks filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. Mark C. Dely: First, we are sharpening our brand focus. Leveraging our joyful and authentic brand DNA through innovative product relevance and storytelling. To reconnect with our loyal customers while engaging new audiences. Ensuring consistent messaging across all consumer touch points. Second, we are resetting our go-to-market approach by transforming our product, planning, promotional, and inventory decisions through data-led insights. To create more productive assortments supported by integrated marketing. Third, we are rewiring our digital ecosystem. To optimize performance across all digital touch points. From social media and vb.com to our outlet online presence and emerging social commerce platforms ensuring clear brand identity, and channel roles supported by cohesive storytelling, for customer acquisition and retention. Fourth, implementing Outlet 2.0 under the umbrella of a broader reinvention of our physical retail. To develop a more brand-enhancing and productive outlet experience given the importance of this channel to our business. This aligns with our efforts to create cohesive customer experiences across all digital and brick-and-mortar channels. And finally, we are reimagining how we work, by building critical new capabilities and aligning our organizational structure operating model, and culture for sustainable future growth. Before diving into our progress on each of these five transformation initiatives, I would like to briefly discuss our results. For the third quarter, we registered revenues of $62.3 million, 11.7% below prior year. This compared to a 24.6% decline during the second quarter. Revenues in our direct business segment were $49.7 million, 5.3% below prior year compared to a decline of 16.2% in the second quarter. Importantly, we achieved sequential improvement in our key metrics in nearly all direct segment channels. Highlighted by positive comparable channel sales in our brand channels that have been product-led and have continued for five months extending from back to school through the Black Friday weekend. Additionally, we are making progress on improving profitability and cash management through more disciplined pricing and promotional strategies. In summary, while we recognize there's still significant work ahead, these early wins in our direct segment give us confidence that our focused approach to product innovation, brand storytelling, and operational excellence is moving Vera Bradley, Inc. in the right direction. We remain committed to building upon this foundation as we continue executing our transformation strategy. Now let me dive a little deeper into each of these five transformation initiatives the progress we have made, and the impact it is already having on our business. Strategic initiative number one, sharpening our brand focus. As we continue our Project Sunshine transformation, we are fundamentally reshaping how Vera Bradley, Inc. operates. We lost track of what made Vera Bradley, Inc. special and unique. And what customers loved about us. We became indistinguishable from other brands and over-reliant on promotions with an aging customer base. We are now moving to recapture our joyful, authentic DNA that our customers love. While attracting new generations through innovative products and compelling storytelling. As we continue to sharpen our brand focus, we've developed new brand guidelines that are both modern and authentic to who we are. We are being intentional about what Vera Bradley, Inc. represents. We are feminine. Creative, cheerful, whimsical, joyful, fun, colorful, approachable, high quality, and smart value. Equally important is what we are not. We are not trying to be luxury, high fashion, or sophisticated. In ways that make us seem exclusive, intimidating, or too expensive to our customers. This clarity in our brand identity is helping us reinforce the unique and differentiated positioning that made us successful to begin with. And sharpened how we show up and communicate with consumers. We need to stay true to the joyful, functional, and accessible brand that our customers fell in love with while ensuring we remain and compelling to new generations. This brand clarity has already been informing our product development, marketing campaigns, and customer experience all across all touch points. And we believe this authentic approach will help us reconnect with our core customers while attracting new ones. Who are seeking the joy and optimism that only Vera Bradley, Inc. can deliver. This is the market white space that only Vera Bradley, Inc. can own. As we continue to execute our Project Sunshine strategy, we remain focused on what our customers truly value about Vera Bradley, Inc. Our research confirms that customers are drawn to three core pillars that define our brand promise. First is joyful functionality. The thoughtful organization, lightweight materials, and practical designs that make daily life and travel easier for our customers. Second is our distinctive patterns and color palette. Those signature prints and border iconography that allow our customers to express their individuality and optimism in ways that no other brand can deliver. And third is smart value. Providing high perceived quality at an attainable price point, This is not just about promotional pricing, but about making our customers feel smart about the investment they are making. As we continue our transformation journey through Project Sunshine, I want to emphasize how our approach differs fundamentally from our previous project restoration initiative. We are building from our DNA, not rebranding. Leaning into Vera Bradley, Inc.'s distinctive heritage in cotton, color, prints, joy, and craft rather than trying to emulate other brands. This time, we are focusing on both new and existing customers. Engaging them through lifestyle and needs rather than trying to grow only with new customers and moving loyal shoppers to outlet channels. Our strategy is focused on a realistic, disciplined, and sustainable build rather than an overnight turnaround. Most importantly, we are carefully integrating data and insights into every decision from product development and pricing to storytelling. Using results and customer understanding to drive our decisions. We are also fundamentally changing how we work, with clearer roles, cross-functional alignment, and shared incentive designed for peak performance. This disciplined customer-centric approach gives us confidence that we are building the foundation for sustainable, profitable growth while staying true to what makes Vera Bradley, Inc. special. Beginning with product, which has been our primary focus to date, I'm pleased to report that we continue to see momentum in several areas that give us confidence that Project Sunshine is moving in the right direction. Building on the success of our back-to-school business, highlighted by product wins across iconic backpacks and lunch bags, Q3 results were positively impacted by the return of additional iconic styles, and proven heritage-inspired prints and border iconography. Including the Vera tote, and Glenna Satchel, the original 100 bag, and our patchwork Rachel Ditzy, and mistletoe lattice prints. Our refocused investment in cotton was also a key driver of performance during Q3. Our shift to a social-first marketing approach is also delivering measurable results, driving new customer acquisition on vb.com while significantly expanding our social media reach. We're thrilled that our initial orders of the original 100 bag sold through across the majority of SKUs. At the same time, our social campaign, including the New York City Rockettes, drove new consumers to purchase on vb.com. The 100 bag is also attracting a younger customer. Achieving more than twice the penetration of Gen Z customers than we currently have across the business on other products. Our collaboration with Anthropologie also garnered significant social media impressions, and the customer response to the product demonstrates our ability to reach new customer segments, and has fueled additional collaboration plans. For spring summer and '26. For spring summer 2026, we have made a larger commitment on the original 100 bag. With more depth and exciting new prints and colors, in addition to relaunching the iconic Hathaway tote. That can be reversed inside out, bringing joy to our customer with value-added design and delightful function. It comes in three sizes, including a crossbody, These products will be supported by strong integrated marketing. So far, the feedback from our teams, and key wholesale accounts has been very encouraging. Next up, resetting our go-to-market approach. As part of our comprehensive Project Sunshine transformation, we are fundamentally updating our go-to-market approach. To deliver what our customers truly need and value. We are taking action across six critical areas. First, we're rationalizing our SKU count and making bigger commitments. Focused on hero styles that resonate with our consumers. Second, we're clarifying our go-to-market process and channel assortment strategy. To ensure the right products reach the right customers through the right channels. Third, we're implementing integrated social-first marketing to support our hero styles. Building on the success we've seen with campaigns like our back-to-school initiative, with a joyful and nostalgic tone. Fourth, we're revamping our inventory management and planning capabilities to improve turns and reduce excess stock. Fifth, we're driving pricing and promotion governance to protect margins while delivering smart value, to our customers. And finally, we're building robust analytics and business intelligence capabilities to inform data-driven decisions. This represents a complete rebuilding of the engine that turns our creativity into commercial results. And we are already seeing early positive indicators from these efforts in our sequential quarterly improvements and enhanced operational discipline. Next, we are aligning next, rewiring our digital ecosystem. We are aligning our digital ecosystem to drive growth and meet our customers where they shop. While digital is already a significant part of Vera Bradley, Inc.'s revenue and profitability, it should operate as an interconnected flywheel. With each channel fueling momentum for the next. While also helping to create a seamless customer experience. A well-connected ecosystem builds exponential value, and each campaign interaction and conversion adds to the flywheel. The goal is to create a connected experience powered by shared data unified storytelling, and coordinated execution. We see this as mission-critical for our transformation our and are investing the necessary capabilities and resources to bring this to life. Now, Outlet 2.0. As part of our comprehensive Project Sunshine transformation, we are making considerable progress on our Outlet 2.0 initiative. Which represents a fundamental shift in how we approach our outlet channel strategy. Building on the pilot program we launched during the holiday season, Outlet 2.0 is designed to elevate customer experience while maintaining our smart value proposition. The enhancements include a curated, more focused assortment with an initial 35% SKU reduction strategically adding new brand product from our heritage and select IP collections, We have introduced elevated visual merchandising elements, including mannequins, light boxes, and brand fixtures that hero our signature color pattern, and lifestyle stories. Additionally, we have refreshed our marketing elements with lifestyle imagery and product storytelling infused with the color and femininity that defines Vera Bradley, Inc. Our enhanced selling experience incorporates updated training improved in-store tools, and personalized selling spaces designed to add on sales. We are taking a disciplined test and learn approach with ongoing results tracking from our Q4 learnings. Informing our future rollout strategy. This transformation makes us moves us from a discount-focused model to a smart value curated experience. That reinforces brand equity while driving conversion and profitability. Reimagining how we work. As part of our fifth strategic initiative under Project Sunshine, we are fundamentally reimagining how we work. To build the agile, responsive organization needed to capitalize on Vera Bradley, Inc.'s iconic brand positioning. We're shifting from what I call a relay race mentality where work is passed between functional silos to operating like a crew team. Where every function moves in rhythm, toward the same goal. This transformation involves reimagining our organizational design and operating model, evaluating key processes to unlock efficiencies and simplify work, and ensuring we have the right skills, capabilities, and roles in place to support our key growth initiatives and new processes. We're not just talking about efficiency improvements. Building the foundational capabilities that will enable us to move faster make better decisions, and execute with the precision that our customers and shareholders expect. This organizational evolution is critical to our success. And through Project Sunshine, we're actively engaging our entire organization along this journey. To ensure we have the collective expertise and passion needed to deliver sustainable results. We are pleased with the progress we are making with Project Sunshine. And expect the cumulative impact of these initiatives to continue to positively impact the momentum of our business going forward. To sum up, we're refocusing the brand on our heritage of joy color, and authentic connection. Through innovative products and compelling storytelling that resonates with both our loyal customers and new generations of consumers. We've deepened our customer understanding through enhanced research segmentation, and our new customer intimacy program, which is already informing our product development and marketing strategies. Our commitment to reducing discounts while protecting margin continues to show progress as we've improved inventory turns streamlined their SKU count, and enhanced our planning and forecasting capabilities all while shifting to a smart value positioning anchored in quality, rather than constant promotions. We are removing organizational silos, by redesigning our processes and leveraging data to drive actionable insights for decision making across all functions. Additionally, we're driving a more sustainable business model by leveraging technology to improve efficiency, reduce manual tasks, and increase our agility to address the changing market landscape. Throughout this transformation, our unwavering focus remains on profitability, cash generation, and building a sustainable cost structure. That supports our long-term growth objectives. These foundational improvements are already contributing to sequential improvements we've seen across our channels, and we remain confident these five strategic pillars represent a holistic transformation that builds on our distinctive brand heritage while positioning Vera Bradley, Inc. for long-term success in an evolving retail landscape. And finally, I would like to update you on our CEO search. We continue to be focused on finding the right future leader for Vera Bradley, Inc. It's a critical decision for the business, that we want to get right. While we do not have any updates currently, we are moving forward rapidly with Project Sunshine and shoring up key leadership positions across the business including the recent appointment of our chief brand officer. With that, I will turn the call over to Ian Martin Bickley for a detailed financial review and then we'll be happy to take your questions. Thanks, Ian. Good morning, everyone, and thank you for joining us. Ian Martin Bickley: I have a few brief comments to make about our performance for the quarter. For the sake of clarity, all the numbers I am discussing today are non-GAAP and exclude the charges outlined in today's press release. A complete detail of items excluded from the non-GAAP numbers as well as a reconciliation of GAAP to non-GAAP. Can be found in that release. For the 2026, our consolidated revenues totaled $62.3 million, compared to $70.5 million in the prior year third quarter. Net loss from continuing operations for the third quarter totaled negative $8.3 million or negative $0.30 per diluted share compared to negative $3.7 million last year negative 13¢ per diluted share. Results from continuing operations for the quarter were significantly by a $5.9 million inventory write down related to the brands to strategic product shift toward cotton and heritage prints along with a $4 million write off of television media credits, were acquired to support the company's project restoration efforts and won't be fully utilized with the focus on digital and performance marketing. The previously mentioned charges had a negative 35¢ impact on diluted earnings per share for the quarter. In terms of segment performance, Vera Bradley, Inc. Direct segment revenues for current third quarter totaled $49.7 million a 5.3% decrease from $52.5 million in the prior year third quarter. Comparable sales similarly declined 5.8%, which represents our third quarter of sequential comparable sales improvement. Initial efforts to improve products along with a return to back to school resulted in positive brand comps and overall positive growth versus last year. Total revenues year over year were also impacted by five new store openings and 14 store closures since the prior year third quarter. Vera Bradley, Inc. indirect segment revenues for the third quarter totaled $12.6 million a 30.2% decrease from $18 million in the prior year third quarter. The decrease was primarily was related primarily to a decline in specialty and key account orders, which were partially offset by increased liquidation sales. The quarter's performance also marks a sequential improvement relative to the preceding quarter. Third quarter gross margin totaled $26 million or 41.7% of net revenues compared to $38.4 million or 54.5% of net revenues in the prior year. The decrease in year over year margin rate resulted from previously mentioned inventory write down as well as additional duty expenses partially offset by pricing improvements. Excluding the inventory write down, gross margin for the current quarter was 51.2%, which represents our third consecutive quarter of gross margin improvement. SG and A expenses totaled $37.4 million or 60% of net revenues compared to $43.6 million or 61.8% of net revenues for the prior year third quarter. The $6.2 million decrease in expenses was primarily due to lower compensation expenses and other cost reduction initiatives, which were partially offset by the previously mentioned media credit write off. Third quarter operating loss from continuing operations totaled negative $11.1 million or negative 17.8% of net revenues compared to negative $5 million or negative 7.1% of net revenues in the prior year. Operating loss, excluding the previously mentioned inventory reserve immediate credits, write off totaled negative $1.2 million or negative 1.9 of net revenues. Continuing our efforts from last quarter, we are focusing on store performance, inventory levels, and website performance in order to improve product availability and navigation of the online outlet website. We are pleased with the trajectory of the improvement made to date, evidenced by sustained sequential comp improvements across three of our four direct channels and continued cost efficiency focus. The team continues to review our processes and actions to identify opportunities for new approaches to how we work. Turning to the balance sheet. Cash and cash equivalents at the end of the quarter totaled $10.7 million, We had borrowings of $10 million on our $75 million ABL facility at quarter end. Our third quarter inventory decreased year over year by 24.3% to $82.9 million compared to $109.6 million at the end of third quarter last year. Furthermore, our inventory balance has declined 9.3% from the 2025 and remains lower even after accounting for the inventory reserve recorded this quarter. We recognize that inventory performance is a key opportunity for our business, and are focused on developing strategies to improve our turns over the next twelve months. We made good progress on aligning our receipts with sales expectations quarter along with continued focus on assortment optimization to reduce SKU counts while developing strategies to reduce lead times enabling faster response, where we see consumer excitement for our products. In closing, we remain committed to disciplined expense control and inventory management during this turnaround period. We are confident that these actions, combined with the execution of our strategic initiatives, will lead to improved performance and enhance shareholder value over the long term. This concludes our presentation, and we can now open it up to questions. Operator: Thank you. We'll now be conducting a question and answer session. If you like to ask a question at this time, please press 1 from your telephone keypad and a confirmation tone indicate your line is in the question queue. May press 2 if you'd like to remove your question from the queue. Ian Martin Bickley: For participants using speaker equipment, may be necessary to pick up your handset before pressing the star keys. Operator: Thank you. And one moment while we pull for questions. Thank you. Our first question is from the line of Eric Beder with SCC Research. Please proceed with your question. Good morning. Eric Beder: Good morning. Good morning, Ian. Ian Martin Bickley: Hi. So lot of changes this quarter, more rolling into Q4. Eric Beder: When we roll into 2026, what you would be thinking about as the kind of the key signpost that Project Sunshine is starting to have an even greater impact than it had in Q3 and into Q4. Ian Martin Bickley: Yeah. Thanks, Eric. Look. I think from day one, I've really believed that product is really the key. And, as you know, this was the first thing that we really began to focus on. We were able, obviously, to have a more limited impact on product for back to school and holiday. Although some successes. And, really, the first sort of window where we've been able to have a significant impact on product will be 2026, really starting with product that will flow between January and July. What gives us a lot of confidence is that, you know, our sort of strategy around refocusing on the reinvention of iconic styles, with critical, delightful function. Returning heritage-inspired prints, and the border iconography, reinvesting back into cotton. Which, you know, is now north of 50%, and it was below 40% and sort of much more qualitative and impactful IP products. As well as really focusing on sort of occasions that we can own like back to school, spring break, Mother's Day, travel. All of that, what we see and what we're doing, is working. And so we're entering really into the spring summer season with confidence knowing that we've been able to make bigger commitments into the things that we really believe are going to work. And I believe that, you know, success with product will be the most important thing that can turn the business. Frankly, is you know, the positive experience that we're having in our brand channels right now, I believe, is primarily product-led. Eric Beder: Okay. When you look at Outlet 2.0, Ian Martin Bickley: Yes. Eric Beder: Some ways, it's a we, you know, we visited two of them, and it's a great concept. It also in some ways provides for some consumers who have lost kind of their full price store a way for them to still see and touch kind of full price items. I'm curious what's kind of been the response to consumers to seeing kind of full price items in the Outlet 2.0 stores. And when you look at it, does that become a bridge given that a lot of you know, there's been a lot of closures in the full price stores. Ian Martin Bickley: Yeah. No. Great. Listen. Great question. I'll first talk about Outlet 2.0, and then I think I'll talk more broadly about sort of distribution and how customers can access, you know, the full price product and brand experience. Look. On Outlet 2.0, it's early days. You know, we launched seven pilot stores this holiday season. I would say that the qualitative feedback that we're getting from our teams as well as customers has been very positive. You know, positive about sort of the overall store environment, positive that it's, you know, more brand enhancing. Positive about the customer journey in the stores, with much clearer destinations and heroing of lifestyles and different products. You know, stronger visual merchandising, also supported by in-store, imagery. And you know, what we have seen again, at a very, very high level and recognizing it's early, you know, is even with sort of the very strong focused assortment editing of the assortment of SKUs, You know, we've seen sort of performance in line with stores that, you know, have 35% more SKUs. We're also seeing a positive impact on the profitability of each customer that comes in the store. Know? So we're leveraging the traffic that we do have because it's gonna take longer to get traffic to come back with stronger, conversion. And we're also seeing that, you know, the more time that these Outlet 2.0 stores have, to work through sort of the new system. The better they're performing. And, frankly, we're already seeing certain things in Outlet 2.0 that we feel we can take to other stores without having to do the full sort of Outlet 2.0, you know, update. Where we can get some wins. We also are planning to do more follow-ups, you know, visiting, we're gonna be visiting, a couple of the stores, with the team next week. We're also planning to do some customer intercept. So, you know, it's very much a test and learn, approach. To your question, specifically about full price product, you know, we're seeing very encouraging reaction to customers on the limited assortment of heritage product and select IP that we put into these stores. We think there's potentially more, potential there. And but, you know, again, that's I think, improving to the sorry. Impacting sort of the impact we're having on, you know, the profitability of each customer. More broadly on sort of how customers can really access you know, our brand proposition. You know, clearly, vb.com today is probably our most important vehicle. And we're continuing to really upgrade the customer experience there. To really, you know, represent the best of what Vera Bradley, Inc. can be. And, you know, we also you know, are looking very carefully at our overall full price brand fleet. But we have to, you know, get more confident, I think, in the business before we start making big commitments there. So we're the meantime, we're leveraging our outlet channel. And, also, you know, we are putting another big focus onto our wholesale accounts, especially our specialty accounts. I mean, those you know, as I said in the first call last quarter, you know, it's specialty retail and wholesale that actually are the ones that helped to build Vera Bradley, Inc. into a nationwide brand. And you know, we still feel very strongly that the with those strong relationships we have there, which, you know, we're focused on building. That they can continue to play a very, very important role in our transformation. Eric Beder: Yeah. I agree. I think also think there's somewhat of a lagging indicator but we'll see. Final question. I'd say to one two questions here. One one on inventory losing really impressive job reducing inventory. How should we be thinking about the opportunities, I guess, to tap working capital and get more productive going forward with the inventory. And, you know, how long of a journey do you think it can be to go young go a little find that younger customer That's a that's historically, it seems it takes a few years to start moving that kind of average age down Thank you. Yeah. Great question. I'll let Marty handle the first part on the inventory, and then, maybe I can talk about sort of the know, your question about the younger customer. Ian Martin Bickley: Thanks for the question, Eric. On inventory, we definitely see the opportunity for improvement there and to improve our know, from a productivity standpoint, And today, our turns are less than two, but we have seen you know, we're starting to see the improvement in turns this quarter, and we think that we're on track through our planning processes and other activities we're taking on to kinda move that into the greater than two to three range you know, over the course of the next twelve to eighteen months. Ian Martin Bickley: Great. And look, Eric, I think on the younger customer, you're right. It will take some time. And look. I think first and foremost, we have a significant opportunity in front of us, right, to reengage with our loyal customer, who is still you know, the biggest and most important part of our business. We have an opportunity to reengage them with the brand, bring back lapsed purchasers. I think also get them you know, used to buying, you know, better products that really invoke what I like to think of as the OG Vera Bradley, Inc. with, you know, not only the iconic styles and function, and prints, but also, you know, bringing back some of that craft. If you look at the 100 bag you know, where we have that sort of iconic quilt through lining, you know, the reversible tote, which we're introducing for spring, is really phenomenal. You know? It's basically a two-in-one bag. And so we have that opportunity But I think where we're now focused you know, besides product, you know, with the recent appointment of Melinda as our chief brand officer is now also starting to shift some of that focus into the marketing and the digital commerce, which are both areas where I believe we have significant opportunity to reinforce you know, the great work we're doing on product with great storytelling, that can you know, and targeted storytelling that can really, you know, spark the emotion of younger customers. And, you know, we saw in a limited way with the 100 bag, right, which we weren't able to have as much product as we wanted to have. We didn't have quite all the right focused marketing. But even that, you know, we saw twice the penetration of Gen Z customers on that bag that we've we have across other products in the range. And that for me is super encouraging. And I think the speed at which we can travel is all about what we see and how agile we can be at leaning into things and making them bigger. Okay. Eric Beder: Alright. Great. And good luck for the rest of the holiday season. Ian Martin Bickley: Thank you. Thank you. Operator: As a reminder, if you'd like to ask a question, you may press 1. Thank you. Ian Martin Bickley: At this time, ladies and gentlemen, this does conclude our question and answer session, and we'll also conclude today's conference. We thank you for your participation. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to Ciena Corporation's Fiscal Fourth Quarter and Year End 2025 Financial Results Conference Call. All participants will be in listen-only mode. By pressing star then 0 after today's presentation, to ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Gregg Lampf, Vice President of Investor Relations. Please go ahead. Gregg Lampf: Thank you, Drew. Good morning, and welcome to Ciena Corporation's 2025 fiscal fourth quarter and year-end results conference call. On the call today is Gary Smith, President and CEO, and Mark Graff, CFO. Scott McFeely, executive adviser, is also with us for Q&A. In addition to this call and the press release, we have posted to the Investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items for the fiscal quarter and year-end. Our comments today speak to our recent performance, our view on current market dynamics and drivers of our business, as well as a discussion of our financial outlook. Today's discussion includes certain adjusted or non-GAAP measures of Ciena Corporation's results of operations. A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release. Before turning the call over to Gary, I remind you that during this call, we'll be making certain forward-looking statements. Such statements, including our quarterly and annual guidance, commentary on market dynamics, and discussion of our opportunities and strategy, are based on current expectations, forecasts, and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation that we posted earlier today, are an important part of such forward-looking statements, and we encourage you to consider them. Our forward-looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-Q and in our upcoming 10-K filing. Ciena Corporation assumes no obligation to update information discussed in this conference call, whether as a result of new information, future events, or otherwise. As always, we'll allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up. With that, I'll turn the call over to Gary. Gary Smith: Thanks, Gregg, and good morning, everyone. Today, we reported record fiscal fourth quarter and full-year revenue of $1.35 billion and $4.77 billion, respectively. These records are a direct result of our sustained purposeful investment and focus on leading high-speed connectivity technologies, together with disciplined execution and deep collaboration with our customers. Combined, these advantages have positioned and will continue to position Ciena Corporation to deliver value in the AI ecosystem, serving both cloud and service provider customers for many years to come. Our progress in driving value from our operating model is also reflected in Q4 earnings per share of $0.91, up 69% year-over-year, and full-year EPS of $2.64, up 45% from fiscal 2024. Lastly, we generated record orders for the year of $7.8 billion, which resulted in our entering this year again with a record backlog. These strong results really underscore our overall market leadership position, as well as the ramping broad-based demand across our business. To this point, I'd like to provide some insight into what we believe to be robust and durable demand over the next several years. Firstly, we continue to see accelerating demand from our cloud customer providers, and that includes the large hyperscalers and the emerging Neo scaler segment that we talked with you about last quarter. In fact, cloud providers today are as focused on scaling their network as they are on their access to power. Orders from cloud providers are very strong and ramping across our portfolio, and they constitute a substantial portion of our growing backlog. It's important to note that this accelerating demand is being driven by several dynamics. And as counterintuitive as it may seem, the cloud providers have largely actually underinvested in their networks to date, particularly relative to other areas of AI infrastructure. The major hyperscalers who are seeing rapid traffic growth not only have the capital to invest but also have real sustainable business models that are currently constrained by the need to dramatically scale their global networks. These cloud providers cannot and do not intend to strand their significant investments in AI-related data center infrastructure. And I would stress that that traffic needs to leave the data center to be monetized and operationalized. And we are their strategic technology partner for those network requirements. Secondly, demand from our service provider customers continues to grow steadily as they too reinvest in their transport infrastructure, after years of digesting accumulated inventory and also focused on other areas of their networks, most notably and specifically 5G. In addition, service providers' businesses are also being fueled by AI through the enterprise cloud demand and specifically cloud providers' need for managed optical fiber networks or MOFN. As a proof point here, we have recently won and are working to deploy a large MOFN project in India with two service providers for a major hyperscaler. Additionally, in the quarter, we have secured multiple major MOFN wins in other regions, including several in new and emerging geographies for our business. As a result of these dynamics, service provider orders were up nearly 70% for the year. In fact, our top three service providers' revenue from 2024 to 2025 grew 16%. Due to the increasing momentum across both cloud and service providers, Ciena Corporation's optical market share has continued to grow and extend our overall leadership, adding two points year-to-date, and we expect further gains clearly in 2026. In order to address this accelerating demand, we are committed to increasing investments and working with our supply chain partners to scale the business. With product delivery lead times extending in the face of this unprecedented demand, we are proactively expanding our capacity to ensure our ability to timely meet our customers' demands. Indeed, this has already yielded results for fiscal 2025, as we delivered double our initial revenue growth expectations for the year. Mark will discuss how we are stepping up investments to support demand and the expanding opportunities we expect over the coming years. You know, the simple truth is that AI continues to drive network expansion across all our customer segments. And the scale of investment currently underway is massive and accelerating faster than anything we or indeed the industry have seen to date. And I would also mention that unlike the COVID-inspired supply-demand imbalance, we are seeing this demand be installed and leveraged for real near-term revenue opportunities at our customers. As evidenced by accelerated implementation services that increased in revenue by 34% in fiscal 2025. With that, I'd like to take a moment to share our sort of broader perspective on the AI opportunity as it relates to high-speed connectivity. As bandwidth continues to grow inside the data center, and as this traffic flows out of the data center, AI inference models are moving closer to the network edge. And for the reasons that I mentioned earlier, we will continue to expand our existing leadership and addressable market in high-speed connectivity in the WAN. In addition to the wide area network, we're also seeing a significant addressable market opportunity in and around the data center. It is, I think, well understood that cloud providers are investing heavily in data centers to deliver on the current and future promises of AI. Many third parties are estimating capital spending of more than $7 trillion through the end of the decade in all AI-related infrastructure. And this is obviously necessitating the need for both training and inference workloads at massive scale. As a result of the massive growth in AI workloads and to address growing power and space constraints, cloud providers are planning and building distributed AI data center training clusters, or AI factories, which require multiple clusters to act as one. In fact, along with those power and space constraints, the ability of the cloud providers and specifically the major hyperscalers to scale their global networks is becoming the critical long pole in the tent for them to operationalize AI for both training and inference purposes. Within these data center environments, there are three key connectivity requirements: to scale up within a data center rack, to scale out between racks in a data center, and finally to scale across between geographically distributed data centers which must operate at the highest levels of performance, with super high capacity and the lowest latency possible. With our innovation and time-to-market leadership in high-speed connectivity solutions, our position could not be better to fulfill this critical demand. This growing AI-driven opportunity for Ciena Corporation is what we refer to as in and around the data center. In fact, our in and around the data center opportunities grew threefold from 2024 to 2025 and are a major contributor to our 2026 expected growth rate. We have proactively invested in our portfolio to this growing market segment. And with a few notable examples. First is our interconnects portfolio, comprising both our power and space-saving ZR and ZR plus pluggables, and our optical components. We expect interconnects to play a meaningful role in scale-up, scale-out, and in fact scale across workloads. In fiscal year 2025, we surpassed our target of more than doubling FY24 pluggable revenue, reaching revenue of more than $168 million. In the quarter, our WaveLogic 6 nano 800 gig pluggables have shipped for initial revenue. And since the end of the quarter, we have shipped 800ZR plugs to three additional cloud providers for testing and certification. And with regard to components, we address the cloud provider's preferred disaggregated consumption model with our high-speed coherent and other industry-leading WaveLogic technologies, including our DSP, Surtees, and other high-speed analog and electro-optical components. In addition, our components business now includes the electrical and optical interconnect solutions from our acquisition of Nubis Communications. The Nubis technologies and expertise will help us address the scale-up and scale-out opportunities inside the data center. We're excited to have the Nubis team as part of Ciena Corporation, and are on track to GA the first products in fiscal 2026. And as we've previously noted, as technology advances, and data rates increase, the components portion of our interconnects portfolio primarily represents revenue opportunities beyond fiscal 2026. In addition to our interconnect portfolio, as market needs continue to evolve driven by AI, we're seeing new architectural applications arise in and around the data center. With two recent cloud provider use cases I think of particular note. The first use case is the scale across architecture, linking geographically dispersed AI training clusters using our market-leading RLS photonic line system, WAV servers, and interconnects portfolio. This is an opportunity we discussed over the past couple of quarters, where a large hyperscaler is linking two regional data centers to build an AI backbone. I'm pleased to report that this hyperscaler is now extending this architecture to more locations. Additionally, I am pleased to announce that two more major hyperscalers have chosen our optical solutions for their scale across training applications as well. The second use case is out-of-band network management. Ciena Corporation's unique DCOM solution leverages our XGS and other routing and switching products and was initially designed with Meta to meet hyperscale requirements. Today, I'm pleased to announce that our DCOM business with Meta has expanded, as they plan to deploy in multiple new data centers. Also, we're engaged in advanced technical discussions with additional hyperscalers to deploy this DCOM solution in their data centers. I'd like to briefly acknowledge here that the scale across and DCOM wins are just the most recent AI-related use cases to materialize for us in recent months. They are great examples of how we co-create and productize with market-leading solutions to address critical customer scaling requirements. And we fully anticipate continuing to develop additional innovative solutions with our customers as they monetize AI across the various architectures. Before I turn it over to Mark, I really want to reiterate that as we leave Q4 and indeed the entirety of 2025, we have absolute conviction that the positive market dynamics and our technology leadership provide us with increasing confidence that the durability of demand and our business and financial trajectory are very strong. I'll now hand it over to Mark for a closer look at our Q4 and fiscal 2025 performance and outlook. Mark? Mark Graff: Thank you, Gary, and thank you to everyone for joining the call this morning. Before I review the specific results for Q4 and the full year, I'd like to provide an update on the priorities I outlined in the last earnings call. Specifically, gross margin performance, working capital management, and capital allocation. First, gross margin performance. You've seen that our Q4 gross margin sequentially improved and exceeded the midpoint of our guide by 90 basis points. This was largely due to higher revenue and software mix. We have had constructive discussions with our customers to improve fair value exchange with those improvements appearing in late 2026 given the large backlog entering the year. Additionally, we are navigating through particular headwinds from ramping NPI products and rising input costs as supply becomes further constrained due to fast-growing demand. All told, I expect year-over-year gross margin improvements with second-half margins being higher than first-half margins. Second, working capital management. We have improved our cash conversion cycle by 34 days sequentially, largely on faster collections and improved inventory days. In fact, our inventory turns improved by four-tenths of a turn. We left the year with $1.4 billion in cash, after generating $371 million in cash from operations in Q4 and free cash flow of $326 million. With respect to capital allocation, we completed the first year of our most recent $1 billion stock repurchase authorization, repurchasing approximately $330 million for the year at an average price of $83.34. We invested $140 million in capital expenditures in the business, focused on developing the next generation of leading products and enabling capacity to nearly double our 2025 growth rate. We also completed the cash purchase of Nubis, supplementing our interconnect portfolio to service the in portion of in and around the data center opportunity. We have also reallocated resources that will allow the company to meet the growth challenges ahead with new business processes and technology rationalization. Finally, let me turn to operating leverage. We will hold to our commitment of flat OpEx in 2026 while investing in new opportunities for our interconnect portfolio. Now let me turn to the specifics of our Q4 and full-year performance. As Gary noted, Q4 revenue reached $1.35 billion, up 20% year-over-year and $70 million above the midpoint of our guide. For the year, annual revenue was up 19% to $4.77 billion, a new record. Q4 was strong across all lines of business. Specifically, our Optical business was up 19% year-over-year, driven by strength in RLS, which was up 72% year-over-year. Our routing and switching business grew 49% year-over-year, with the 3,005 series product revenue doubling on a combined basis, with the DCOM opportunity driving much of this growth. Global Services had a strong quarter, growing 25% year-over-year driven largely by advisory and enablement, and installation and implementation services, which grew 53% and 45% year-over-year, respectively. I'd also like to note that Blue Planet had a very successful year achieving $34 million of revenue in the quarter, a record $115 million in fiscal 2025, and achieving full-year profitability. We had three 10% revenue customers in Q4, including two global cloud providers and one tier-one North American service provider. We are exiting the year with about $5 billion of backlog, of which approximately $3.8 billion is hardware and software, with the remaining being services. This backlog supports a large share of our fiscal 2026 revenue expectations, and we see indications of strong demand continuing into 2027 and beyond, giving us exceptional visibility and confidence in our outlook and medium-term expectations. Adjusted gross margin in Q4 was 43.4%, 90 basis points above the midpoint of our guide, driven by higher revenue and software mix. For the year, adjusted gross margin was 42.7%. We continue to mitigate most of the impacts of tariffs, as we are currently constructed. And the net impact of tariffs is immaterial to our bottom line. We continue to monitor the situation and work closely with both our supply chain and customers as necessary. Q4 adjusted operating expense was approximately $409 million and $1.51 billion for the year. Excluding the higher incentive compensation, we achieved in-line OpEx for the quarter and underspent slightly for the year, reflecting our ongoing disciplined approach and operational efficiency. This led to Q4 adjusted operating margin of 13.2%, up 250 basis points sequentially and 320 basis points year-over-year. Operating margin for the year reached 11.2%, up 150 basis points from fiscal 2024. We achieved EPS of $0.91, up 69% year-over-year, with annual adjusted EPS of $2.64, up a healthy 45%. Finally, cash from operations was $371 million in the quarter. For the year, free cash flow reached $665 million after $140 million in capital expenditures. Now turning to guidance. Last quarter, our confidence and visibility due to AI-driven dynamics enabled us to atypically provide an early outlook for 2026. As we move into the new fiscal year, for all the reasons Gary and I have discussed, those dynamics and the customer demand environment not only remain robust, they have accelerated. As a result, today, I'd like to update that guidance from September as our outlook has improved even from just a few months ago. We now expect revenue in fiscal 2026 to be approximately $5.7 billion to $6.1 billion, or nearly 24% annual growth at the midpoint, versus the 17% growth rate discussed in September. We continue to expect gross margins for fiscal 2026 to be in the range of 43% plus or minus a point, and as I mentioned earlier, we continue to work to mitigate input cost pressures through supply rebalancing, designing costs out, and additional pricing actions over time. We expect the impact of these mitigation efforts will be realized in late fiscal 2026. With these dynamics, we expect the margins to improve from the first half to the second half as cost reductions and pricing actions take hold. We expect adjusted operating expense in fiscal 2026 to be flat at approximately $1.52 billion after accounting for the Nubis operating expenses post-acquisition. With respect to operating margin, we previously advised an acceleration of our longer-term goal of 15% to 16% operating margin from 2027 into 2026. We now expect fiscal 2026 operating margins to improve further to 17% plus or minus a point. Our capital expenditures for fiscal 2026 are expected to be between $250 million and $275 million. This is higher than our typical capital intensity, in order to invest in supporting expected robust demand in late 2026 and into 2027, as well as incremental costs for three-nanometer mask sets. In fiscal 2026, we expect to repurchase approximately $330 million in shares under our 2024 stock repurchase authorization plan. Finally, with respect to Q1 guidance, we expect to deliver revenue in the range of $1.35 billion to $1.43 billion, adjusted gross margin between 43% and 44%, and adjusted operating expenses of approximately $380 million, yielding an operating margin of 15.5% to 16.5%. To conclude, Ciena Corporation had a strong 2025, and we are looking to an even stronger 2026. We are thoughtfully allocating our owners' capital to deliver value both to our customers and for our owners. We are singularly focused on executing our strategy and winning in the market. With that, let me turn it back to Gary. Gary Smith: Thank you, Mark, and let me reiterate those comments. We had an incredibly strong quarter and fiscal 2025, which we believe is a seminal one for Ciena Corporation, and one that provides a remarkable springboard for continued growth. Our momentum continues to build, our balance sheet has never been stronger, and industry dynamics have never been more positive for Ciena Corporation. We are executing well and have high confidence we will continue to do so. We remain very focused on our strategy and continue to deliver the world's best high-speed connectivity that really underpins today's AI-driven environment. With that, we'll now take questions from the sell-side analysts. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Ruben Roy with Stifel. Please go ahead. Ruben Roy: Thank you, and congratulations, Gary and Mark. Just great to see the progress here. So the first question, Mark, when we think about the guidance and the raise, Gary talked about some of the new use cases and more hyperscalers looking at either scale across or also discussions around DCOM with other hyperscalers. How much of that is in the new guidance versus just continued sort of growth across, you know, the existing relationships that you have? And then the second question for Gary is just thinking about the new scale across opportunities. Gary, you gave us some metrics around the first wins in terms of either revenue or bandwidth and bandwidth measured in petabit. Are the discussions that you're having in the wins with the new hyperscalers similar? Or if you could maybe give us a little more detail on those, that'd be great. Mark Graff: Yeah. Hi, Ruben. This is Mark. Thanks for joining. In terms of how much of the new opportunities that Gary talked about are in the guide, they are all in the guide. You know, if you think about the in and around data center, which many of the wins that Gary's talked about include, you know, we're seeing nearly a tripling of the percent of revenue from what we saw in 2025 of low single digits to, you know, to the percent of revenue that we have in 2026's guide of low double digits. And so, you know, I think we've captured a lot of that. Obviously, we're continuing to work to satisfy all that demand, but you've seen it it's all included in there. Short answer. Gary Smith: Ruben, to the second question around, you know, the sort of models around the across piece. First of all, I'd say, there are obviously all of these hyperscalers are not sort of homogeneous around their business models and therefore their, you know, their network requirements reflect that. So they are different. Notwithstanding, they all need to train. So what we're seeing with the initial hyperscaler is obviously just expanding the amount of sites, and that will happen over multiple years. We've had two other hyperscalers now adopt our architecture, so we've got three out of the four hyperscalers have selected us for their scale across training models. In terms of, you know, how quantifying how much they are, they're clearly, you know, hundreds of millions each. But they are different in terms of their scale at this stage. But really, that's just, you know, we're just beginning to see the traffic come out of the data center for training around these regional bones or clusters. We're just beginning to see that. And I don't think that, you know, there's gonna be a cookie style sort of, you know, of the traffic at this point. Ruben Roy: Yep. Makes sense. Thanks, Gary. Operator: The next question comes from Simon Leopold with Raymond James. Please go ahead. Simon Leopold: Great. Thanks for taking the question. Yes, I wanted to maybe expand a bit on the scale across outlook. In particular. So you've gotten these two additionals that certainly earlier than we were expecting. I want to see if you can give us maybe a timeline of when you would expect those two other hyperscalers to really kick into the numbers, how imminent that is? And then maybe you could talk about sort of a longer-term cadence of scale across activity. Because I think when you first disclosed it, you talked about the initial customer perhaps having opportunities of, you know, eight or nine kind of projects. So now that we see additional hyperscalers entering the fray, how would you look at it more broadly over the multiyear number of projects? That's question number one. Question number two is, hopefully, the easiest one you'll get today. But if you could just break up the 10% disclosures, you said two cloud and an operator. If you can give us the detail, that'll ultimately be in your SEC filings. But if we could break that down, I'd appreciate it. Thank you. Gary Smith: Simon, let me take the first part of that. In summary, I would expect us to take revenue for all three of these hyperscalers in 2026 or begin to take revenue in '26. I think the large part of this is going to be scaling up in 2027 and through 2028. I mean, these are, you know, enormous amounts of scale and commitments around massive amounts of fiber between data centers, which takes time from an infrastructure point of view. I believe we'll take revenue on all three during the course of this year. So, I mean, I really see the ramp on this as we get to '27 and through '28. I mean, this is gonna be the backbone for these training models. I would also say at this stage, it is all US-centric around the training models as well. Mark Graff: Yeah. So, Simon, let me hit your second question. Yeah. The three plus 10% customers that we had in Q4, one was AT&T. You'll see that in the K. The other two were not being specific on who they were. But collectively, for Q4, those three covered just under 44% of Q4's revenue. And then for the full year, it was one cloud provider and one service provider that collectively and it was AT&T as the service provider. Collectively, for the year, they covered about 28% of our revenue. Simon Leopold: Yeah. Can you give us that split? So, what each one was within that 44% in the quarter? Mark Graff: Yeah. I'll have to get back to you, Simon. I don't have that specific in front of me. Simon Leopold: Thank you. Operator: The next question comes from Atif Malik with Citi. Please go ahead. Atif Malik: Hi. Thank you for taking my questions and great job by the team. First one for Gary. Gary, in September, you talked about the '26 and early '27 adoption for CPO, NPO type trotters. Are you seeing an acceleration over there? Gary Smith: I would say that, yeah, we're engaged with multiple opportunities with them. Obviously, we're waiting for the first GA product. But we have a lot of market engagement even prior to our acquisition with them. I would say, you know, Atif, that what we've seen since, you know, and this is early days, we only did the acquisition last quarter. But I think we've seen sort of accelerated now that they're part of a broader company. Scott, do you wanna? Scott McFeely: Just, Atif, just to remind you, there are sort of at a high level, two product families within Nubis portfolio. One is a linear retimer that is very effective in terms of extending the life of active copper cable. And we see that as a, you know, an opportunity that will start in '26. The optical part of the second part of the portfolio, we see more as a '27 and beyond opportunity. But as Gary said, we're getting great feedback from customers on a bunch of different dimensions. First of all, that sort of open ecosystem approach to CPO. Secondly, just the caliber of the team. And then I'd say more an internal reaction. And we, you know, one of the big things, one of the big filters as we looked at this company did we think they're a good cultural fit? And I'd say ninety days in, we're absolutely thrilled with that. Atif Malik: Great. And as my follow-up, Mark, a nice debut on gross margins and keeping OpEx discipline. You have talked about advantages from bringing lasers in-house. Wondering what else is driving sustainable outlook for operating margins of 17%. Mark Graff: Yeah. So there's a couple of things that I would say. You know, the first is one of the big things that we're working on in the first half of the year is ramping our 800 gig pluggables. And so as we ramp that, you know, you basically get yield economics, which lower the unit costs over time. And we expect that, you know, as we go through Q2, Q3, Q4, we'll see significantly lower costs than we're seeing at the beginning of the year. So that would be the first aspect that I would say. The second aspect is, you know, the conversations that we've had with a lot of our customers have yielded, you know, good results. And so once we get through the backlog that we're entering the year with, a lot of those new orders will start to see the benefits of those pricing discussions. And so we would exit, you know, the year at a higher entry rate, higher exit rate, than we feel that we'll see in the first half of the year. Atif Malik: Thank you. Operator: The next question comes from George Notter with Wolfe Research. Please go ahead. George Notter: Hey, guys. Thanks very much. It seems like there's just obviously tons and tons of demand here. Could you give us more on what you're doing on the supply side of things? Just curious like what do you see as the supply constraints in the business? Is it, you know, is it fabbing chips? Is it contract manufacturing? Like, anything you can tell us on, you know, what those bottlenecks are and what you're doing to open those up would be great. Thanks a lot. Mark Graff: Yeah. Hey, George. It's Mark. I'll start and then hand it over to Gary and Scott for more color. So a couple of things. You heard me talk about a pretty nice increase in our CapEx year on year. And within that, there's about a 50% increase in what we're doing to ensure that we could have more capacity to support what will really be end of year and into 2027 demand. But what we're seeing is really a constraint on the photonics parts. Right? And I would say optical parts in general. And we've worked really closely with our key suppliers, and I know you know who those are, to make sure that we can secure supply. And the investments that we've made in 2025 actually yielded a doubling of the growth rate from what we expected a year ago. Right? And so between that, the level of vertical integration that we've got, and just what we control, as well as the investments that we're making in 2027, we're trying to support as much of that revenue as we possibly can through, you know, '26 and into '27. Scott McFeely: And, Mark, I'd add to that in terms of the constraints you talked about in terms of the industry optical component subsegment, if you like. An advantage that we have there's a couple of advantages that we have, I think, relative to other peers. Number one is we have a very tight relationship with the cloud providers. You know, we have market share leadership there and, you know, a great set of relationships. So even though the demand outstripped what everybody expected, I think we had the earliest view of that in the industry, and therefore, you know, our conversation with those industry component suppliers started earlier than everybody else. So that gave us a benefit. I think as we talked about in the past, you know, we're more vertically integrated than anybody else. So to some degree, we do have a little bit more control of our own destiny. And part of the reason why the last ninety days we've been able to take 2026 out is the activity that we did in '25 that allowed us to double our growth perspective in '25 is carrying over into '26. So we're getting more confident in our ability to deliver to that demand as well. George Notter: Got it. And then one last one. What are lead times right now? Any sense for kind of what blended or average lead times would look like for you guys? Thanks. Gary Smith: This is Gary. It really varies by specific product areas. I mean, they're all generally, you know, in the optical infrastructure base, so sort of think scale across RLAS. They have extended out. But it depends on the product grouping. You know, what we're working on within, as Mark and Scott said, you know, we're confident. You look at the midpoint of our guide, you know, which is what 24% growth for this year. So that's the work that Scott said, we did kind of last year to increase capacity and component supply. We're now working on towards the '26 and '27 and making sure that we're, you know, we're in a good position from that point of view. So, hopefully, by the time we get to, you know, the end of the year, we get to '27, you know, lead times can come down a little. You know, we're seeing increased demand, including order flows in Q1, being strong as well. George Notter: Thank you. Thanks, George. Operator: The next question comes from Tal Liani with Bank of America. Please go ahead. Tal Liani: Hi. I have three questions. The first one is historical perspective. You guided before to 8% growth. And that you increased it multiple times, and now you're guiding for 30% growth for next quarter. That's a massive change. So you didn't have good visibility before for the growth. And the question I'm asking myself is do you have now good visibility going forward? So can you take us through the historical perspective? Meaning, what happened over the last four or five quarters that drove up the growth so much better than expectation. And you spoke a little bit about customer concentration, but what kind of what happened that enabled this kind of growth? Stop here, and then I'll ask my other questions after because they're more on the margin side. Mark Graff: Yeah. Hey, Tal. It's Mark. I'll start and Gary can add in here. I think there's really a couple of dynamics that's going on. One is the close proximity that we have with, you know, our hyperscaler customers has really allowed us to get insight into what their demands are and how we plan for those demands. And they followed that demand up with pretty significant orders. Right? So, I mean, you heard Gary talk about, you know, we achieved $7.8 billion of orders, you know, over 2025. As we look at what we're seeing in Q1, we're essentially sold out. Right? If we had more supply, we'd be able to sell more. And so we've got really good visibility of what, you know, the next several quarters look like just because we've got those orders in place. And then, you know, the last thing I'll say before Gary can chime in is through 2025, I think our supply chain team has done quite a good job of squeezing every drop of blood from the stone that they can to drive that revenue. We're investing, we invested, you know, in 2025. We're increasing that investment by about 50% through 2026. And we're seeing those annualization layers kind of help us drive higher revenue that, you know, for the year, we expect a midpoint growth of 24%. Gary Smith: Yeah. Tal, I would say sort of zooming out from this is sort of big picture. I think, you know, everything Mark said there, I think we've done a good job operationally of scaling it up quickly. I would say that what's behind that really with the cloud guys just in general is that I think early in the year there, you know, at the beginning of '25 as we're to get through it, was a realization that their networks needed to be scaled massively. And if you think about the sort of hierarchy of flow around long poles in the tent and focus areas, obviously, there's been tremendous focus in the context of AI infrastructure around GPUs, TPUs, and getting access and scaling those up. Power within the data centers, etcetera, I think you began to then see, you know, oh, the network. And that coincided with, you know, the need for back networks to train across multiple data centers. And the increase they were seeing in inference traffic. Obviously, this is uncharted territory from a, you know, a network perspective. But I think they're now coming up to speed very quickly that, you know, it's now the network as the gating item. And I think there was a real realization of that in the first part of '25, and you're seeing that play through now. So that's the sort of context that I would offer on that. Scott McFeely: And, Tal, within that, if you go back, you know, a year or eighteen months, we talked quite a bit about our belief system of, you know, optics and particularly coherent optics having a bigger and bigger role to play in the network inside and around the data center. And what we weren't sure of though, and we were overt about this, what we weren't sure about is the timing of when you see that inflection point. What's happened in that period is with the scale across network is you're seeing that inflection point. You know, new use cases for coherent optical high-speed connectivity. Tal Liani: Got it. My second question is on margins. In previous cycles, your margins shot up all the way to even 49%, even over 50 if we go back a few years. And cycles always had a direct impact on gross margin. Like, you always had a stagnant margin as well. This time, because it's coming in pluggables, because it's coming in cloud, your margins are 40 c. You're guiding to 43, 43 and a half. And the question is, is there a chance that the margin will also have a gross margin will also have a cycle with revenues? Or what needs to happen for the gross margin to have a similar cycle to revenues? Mark Graff: Yeah. I think how I would respond, Tal, is, you know, there's a couple of headwinds that we're seeing, at least in the near term. And I've talked about the 800 gig. So we're in an NPI phase of that product, so that's creating some headwinds that we expect to kind of normalize out through the end of the year. The other piece is I think that customers are starting to see the value in what we're providing both in space savings and power savings. And we're getting some benefit from that relative to the value that we're delivering. So I think between those two things, we're seeing that. And my sense is that that's going to be more sustainable than the cyclicality that we've seen in the past. Because we're really starting to talk about a foundation level of benefit that our customers are seeing. And, you know, as Gary said, they're realizing that they've underinvested in the network, both on the cloud provider side and the service providers are catching up as well. And so I think we're gonna see steady improvement to what we've described previously as our aspiration to get back to the mid-forties at this point, we kind of view as a waypoint, not the endgame. So I think we're on a steady track. You'll see sequential improvement. We'll exit the year better than we will perform in the first half of the year, but I'm pretty confident that we're gonna see ongoing multiyear gross margin expansion. Tal Liani: Thanks, Tal. Thank you. Operator: The next question comes from Samik Chatterjee with JPMorgan. Please go ahead. Samik Chatterjee: Hi. Thanks for taking my questions. Maybe for the first one, I had a question on scale across. And Gary, you mentioned the additional engagements with hyperscalers. Are you seeing any engagements yet from the Neo Clouds on front, or would you expect most of that neo cloud demand for scale across to come through the hyperscale itself? And can you help us think about margin in for scale across relative to like, there's a heavy mix of time systems as well as capacity. So how should we think about margin implications of scale across ramping here relative to your corporate average? And I have a quick follow-up. Thank you. Gary Smith: Yeah. I think largely at this stage, the training at scale across AI backbones is largely a purview of the large hyperscalers. And I think the NeoScalers, there's a couple of them that are using the back they're on the back of that for one of the better description. So I think this is largely right now given the frankly, the scale of it with the hyperscalers. And, you know, I don't see that, you know, I think it's gonna take a while for that to bleed through into the neo scalers. In terms of the deployment there, you know, as Mark said, you know, it's gonna be a combination of next-generation line systems, you know, RLS, which is also, you know, fairly recent into market and also with the 800 gig plugs as well. So, yes, in the early stages, that's a sort of headwind from a margin point of view, which is why we're kind of guiding as we are. But as that gets, you know, as those platforms get more into volume, the yields improve, you know, and we get through that MPI phase on both of those, then we'd have better margins as we exit the year. And, of course, you've also got, you know, the benefits of just scale and volume as well. Samik Chatterjee: Okay. Got it. Got it. And just for my follow-up, I mean, clearly, if FY26 is your guidance largely covered by the backlog. When you look at now sort of the long-term guide that you had provided of to 11% growth, like, what level of visibility are you getting from your about fiscal 2027? Are they sort of giving you more detailed plans for the out years just so that you can pan out capacity? And does that sort of imply that your growth rate sort of stays above the eight to 11% level in sort of the out year as well? Mark Graff: Yeah. Hey, Samik. It's Mark. A couple of things. One is, you know, when we talked about the longer-term guides last quarter, we kind of took those off the table. Just because, you know, in the medium term, we're not very good at calling, you know, calling the growth rates on the upside. Right? So that 11 to eight to 11% I think is off the table. We're not really talking to 2027 at this point. But I would say, overall, maybe qualitatively, we feel very strong going into '26. We think a lot of that momentum continues into 2027. And the proof point there is really the implement the increase that we've seen in our CapEx for capacity, which is up 50% year on year. Gary Smith: You know, I think the other thing you could obviously extrapolate out, we're not sort of guiding into '27 right now. We're just starting '26. But clearly, dynamics have changed here. And that's why I said this is a sort of 2025 was a seminal year for us in this regard. I mean, I think you're seeing multiple scale across wins that will they are their very nature, they're going to be multi-year. So that gives us confidence in '27 and '28. The other thing I would say is that's really all the context of our optical WAN type business in and around the data center to it. All we're making tremendous amounts of investments and progress on the other dimensions there, you know, sort of inside and around the data center, which are completely new markets for Ciena Corporation. And the revenues to those are largely, you know, we're taking some now. We're making good progress. Largely 2728 plays. And specifically, coherent inside the data center. You know, that's all additional revenue to us in addition to all the things we've talked about right now. So that gives us confidence in the multiyear dimension to this. Samik Chatterjee: Got it. Great. Thank you. Thanks for taking my question. Operator: Thanks, Samik. The next question comes from Tim Long with Barclays. Please go ahead. Tim Long: Thank you. Two questions for me as well. First, Gary, following on what you were just talking about, could you maybe talk a little bit about DCOM and see if you can, you know, somewhat scale that for us and, you know, good news that it's expanded with Meta and being tested at others. Could this be a type of technology that would really, you know, accelerate that move into the data center as it gives you kind of a beachfront? And then second, on the telco side, I get the MOFN part in 5G currently, but tends to be a little bit more cyclical than probably what you're gonna see from hyperscalers. How do you look about sustainability of that business, you know, over the next few years on the telco specifically side? Thank you. Gary Smith: Yes. On the DCOM part of that, obviously, that was co-created specifically with Meta over a period of time. And I think what we're seeing with that is the expansion of the opportunity within their data center piece to that. It saves power and space for them, which is, you know, absolutely critical. And, you know, we've seen an expansion even in '26. And you're talking hundreds of millions of dollars of this. And as they refresh and build out new data centers, that's become part of their adopted architecture. So, you know, I think this, again, is gonna be a multiyear opportunity within Meta. You know, and I also think about, you know, these large hyperscalers really when you think now about the diversity of portfolio that we're dealing with them, they're really markets in their own right given their size and scale. We're also, as you said, engaged deeply with two to three other hyperscalers around this kind of architecture, and I would expect to see wins during the course of the year and adoptions for additional cloud players for DCOM. So and it gives us, you know, an entree point into the data center together with Nubis, together with the scale across because that is actually even the scale across is actually installed inside the data center. So you put all those things together and we're definitely under the tent here. And that's before, you know, the Nubis, which will start to deliver product, you know, in '26 and before the opportunity with Coherent inside the data center. To your point on the telco piece, I think they've kind of been underinvested in transport, frankly, for the last five years ever since COVID began. They didn't want to mess with their networks during COVID. Then you had the supply chain whiplash. And then you had this massive investment they all had to make in 5G, which largely has not yielded the financial returns that they'd anticipated. Now you're seeing, I think, a multiyear investment back into transport. They are largely underinvested in networks. And I think whilst that's not at the rapid scale and growth rate of the cloud, I think it's nice, steady, you know, mid-digit kind of, single-digit growth within the telco space. And I think that's quite sustainable. What is amplifying that, though, is the AI traffic for things like MOFN. And you saw last year hundreds of millions of dollars of our telco business was in fact MOFN, specifically for hyperscalers. And you saw it, you know, typically, we'd seen it. We're also seeing it now in North America ramp up as well. So, you know, you put those two things together, and I think that gives confidence around that telco, which is half of our business, currently, having nice sustained growth rates, albeit lower than the cloud players. Tim Long: Thank you very much. Gary Smith: Thank you. Operator: Take one more question, please. Operator: Thank you, sir. And that question will come from Ryan Koontz with Needham. Please go ahead. Ryan Koontz: Super. Thanks for the question. You know, Gary, maybe you can just take a step back and work regarding your great growth you're seeing here in the cloud segment. How has your product mix changed over, say, the last twelve months? Obviously, a lot around scale across and RLS and DCI where you're historically more of a long haul and subsea player. Can you give us any kind of a perspective there on the product mix? Gary Smith: Yeah. I would say it's sort of, you know, we're laying more track at massive scale because it's, you know, that than we would normally see. You're specifically seeing that with scale across, you know, because they're laying the tracks down first. So, you know, what much higher proportion of line systems would be, you know, the initial take on that. Now that will then move to plugs. We're seeing, you know, obviously, a very large ramp up in our 800 gig plugs. We think will be, you know, largely adopted amongst most of the hyperscalers. And that is a different mix than we've seen traditionally. And, you know, more intelligence on the line systems, then also, you've seen traditionally. Because given the massive scale that they're gonna need to put in with multiple fibers across it, then, you know, you're gonna need to increase the intelligence and the scalability of the line systems. Uplift that with DCOM, which, you know, frankly, you know, was a as fat and very quickly emerged as a portfolio offering. You know, that was not projected into the '26 plan, you know, when we did that in our three-year planning piece. So the mix has changed quite a lot around that architecture. Ryan Koontz: Really helpful. And just a quick follow-up if I could. Just around, you know, growth limiters outside of your control as it relates to fiber supply, permitting, labor, and, you know, really putting these lanes in the ground, you know, what kind of supply constraints are you seeing for the industry for your cloud customers? Gary Smith: You know what? I think a large the relationship with the fiber providers, people at Corning, etcetera, is very tight amongst the cloud players and the service provider. Particularly the wholesalers, people like Lumen who publicly talked about that. So I think there's a lot of commitment to scale capacity. So, you know, we're seeing that happen. The other thing I would say that's a real opportunity for us because we have the largest optical support and services organization in the world. And we are increasingly engaged with the deployment of these. In fact, our largest service customer last year was a cloud provider for the first time. And we're now providing multiple services across the high and we see that as an area of tremendous growth to help, you know, to your point, facilitate the delivery of this infrastructure. Ryan Koontz: Super helpful. Thanks, Gary. Gary Smith: Thank you. Thanks, Ryan. Mark Graff: Thanks to everyone for joining us today. We look forward to catching up with folks today and over the next week or so. Happy holidays and Happy New Year to all. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to The Lovesac Company Third Quarter Fiscal 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. We ask that you please limit yourself to one question and one follow-up question. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Caitlin Churchill, Relations. Thank you. You may begin. Caitlin Churchill: Thank you. Good morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President, and Keith Siegner, Chief Financial Officer. Shawn Nelson: Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections, and our plans and prospects. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company's filings with the SEC, which includes today's press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law. Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release. Now I would like to turn the call over to Shawn Nelson, Chief Executive Officer of The Lovesac Company. Shawn? Shawn Nelson: Good morning, everyone, and thank you for joining us. I'll start by sharing a high-level overview of our third-quarter results, provide an update on our Design for Life product platforms, and touch on our views for the remainder of the year before passing the discussion over to Mary Fox, our President. Mary will discuss our tailored customer acquisition engines and key growth enablers. Finally, Keith Siegner, our CFO, will review our financial results and provide more detail on our Q4 and fiscal 2026 outlook. Beginning with our third quarter, macro conditions proved a little more challenging than we anticipated, with consumer uncertainty leading to meaningful choppiness week to week, particularly in our lower dollar volume transactions. As a result, third-quarter net sales were $150.2 million, about $1 million below our guidance range. While we are not happy with this outcome, it's important to note that our focus on secular growth initiatives such as new products and the beginnings of a major evolution in our marketing tactics enabled a slight year-over-year growth in net sales. Reflecting market share gains as compared to our category, which we estimate declined approximately 2% for the comparable quarter and 4% year to date. Adjusted EBITDA and net loss for the third quarter were within our guidance ranges. Pressured by a 240 basis point decrease in gross margin resulting from increases in tariffs and transportation costs as well as increased promotional intensity, offset by price increases, cost savings, and vendor concessions. Total omnichannel comparable net sales decreased 1.2% for the quarter offset by contributions from new and non-comp touch points. Our balance sheet remains strong with inventory and net cash at healthy levels. And as Keith will outline later, we remain on track to end the fiscal year with a more optimized inventory carry versus the prior fiscal year and a very solid net cash balance with no borrowings. We've remained active on bringing Design for Life product innovation. You all know about our new Snug platform already. It has become an important part of our sales mix and in-store presentation. During the quarter, we also successfully launched our national advertising campaign for Snug, which Mary will talk more about in a bit. But there was even more news for the fourth quarter and the holiday season. We launched an exciting extension to our wildly successful accent chair line with the Pillow Sac Chair Junior. It delivers the same cloud-like comfort, premium materials, and design versatility now thoughtfully scaled for smaller settings from living rooms and apartments to bedrooms and reading nooks. We also introduced a fourth arm option for sectionals. The swept arm, taking a nod from the snug where swept arm has been the runaway favorite style, Sactionals customers asked, and we responded. The instantly popular swept arm brings a more modern aesthetic to the platform. A refresh of our Sactionals quick ship cover assortment and on-trend limited edition fabrics for sacks and foot sacks round out a busy few months of new product launches at Lovesac. Let's spend a minute on our brand evolution and strategic shifts. First, last quarter, we discussed the initial learnings from our brand evolution refresh. And the implications for our strategic road map. We knew we needed to sharpen and focus our positioning to not only allow us to confidently extend this brand further, but also deeper into the categories where we already have strength. We are rebuilding our marketing playbook on the foundations laid by our new team, which should enable us to compete more vigorously for share in existing and new rooms. Second, now four years into the category declines with uncertainty around the consumer remaining, it's more clear than ever that prudence mandates we should be pragmatic about modeling upside potential in this macro backdrop. Or even from secular initiatives, in this context in the near term. We will not base our plans on expecting any recovery from the consumer or the category in the near to medium term. Combining these two considerations, we believe the optimal approach over the next few quarters the strategic sweet spot, is to harvest the brand that we've built to date shoring up our place in the living room and aiming to take even more share in these realms while reinforcing our brand equity. We see massive opportunity to ignite the core Lovesac business through Design for Life product extensions and by leaning into the green shoots where seeing in our customer acquisition engines, coming off the brand evolution work already. So what does this mean? I'm excited to share more details because we expect calendar '26 our fiscal 2027, will be our most prolific year ever for new product introductions and other announcements. And in the bull's eye of our core positioning. The initiatives we're planning are meaningful to our customers, quick to market, and demand relatively few costs ahead of their launch. Here are just a few. We plan to unlock the Snug sofa, our newest platform, through platform extensions that directly address early consumer requests. In short, the Snug can do more literally and figuratively and it will this coming year. We'll also optimize our channel experience leaning into outsized early success of the snug in our digital and Costco channels. We plan to unlock Sactionals as the workhorse for Lovesac through a full redesign of core inserts that will enable domestic manufacturing add features, benefits our customers will love. And give us the opportunity to refresh our portfolio of patent and IP protections around Sactionals. Even better Sactionals manufactured using new materials that work seamlessly with all our previous versions. This is a really big deal, and it represents significant work by our talented in-house and some external partners. This has been underway for a while now, but was accelerated given all the tariff noise this year. To be clear, we are well along this path already working with existing and some new vendors and believe we can begin domestic manufacturing for our core SKUs this summer at a gross margin neutral basis. And potentially even margin favorable basis. This is possible because of a unique Lovesac competitive advantage. High volumes of limited SKUs, This unlocks automation, and it serves as the basis for our new product development approach in all rounds. Made in The USA Sactionals, Better and hopefully cheaper is the goal. Just a few months away. With an expanded snug platform designed to lower the entry point into our brand, we are excited to announce a new high-end sectional sofa platform that we expect to launch midyear coming up. This is distinct from Snug or Sactionals. It will have a different aesthetic and even larger footprint. And different use case than Sactionals or Snubs to target the higher-end consumer where we are seeing the healthiest demand right now. We also believe it can help anchor from above the value proposition for Sactionals, leading to increased consumer appreciation for our Workhorse product that's priced right down the middle now. Next, we plan to reduce friction for our customers by removing the single biggest reason for not purchasing Lovesac according to their feedback. Lack of tiered delivery and setup options. We just launched scheduled room of choice delivery in November which has been very well received. Next, we plan to beta test for white glove delivery and assembly by Q1. With a formal launch as soon as possible thereafter. Driven by measurable customer demand and providing new revenue opportunities for Lovesac. We have even more introductions to drive secular growth plans for this coming year that we aren't quite ready to share yet. Leveraging both of our superpowers, designed for life products and our tailored customer acquisition engines. You'll hear more from us in the coming quarters. As part of this strategic direction, we've decided to shift the launch of our next new room a few months into early calendar 2027. This gives us the opportunity to prioritize a set of exciting near-term initiatives that we believe will drive more efficient growth and profitability through this challenging macro environment. It also gives us the time needed to prepare for a major category-defining launch of this new room one we intend to bring to market with a significant splash. Please note that as part of this clear focus on winning the living room, and igniting the core, we are temporarily slowing the expansion of physical stores in the coming year. This will allow us to set the optimal omnichannel strategy for a multiroom brand with the Lovesac store of the future as an essential element of our customer acquisition engine superpower over the years to come. Regarding our outlook, Beginning with the macro, the slight improvement in category trends has continued. With low to mid-single-digit declines of late as compared to mid-single-digit declines months ago. That said, the weakness has become more pronounced for us in the lower dollar volume transactions. Say, below $6,000, which led to the slight shortfall in the third quarter, We've already adjusted our marketing and promotional strategies as a result. The all-important Black Friday and Cyber Monday holiday weeks have been very encouraging. Achieving strong growth already versus last year. However, as mentioned before, the trends have more peaks and troughs in them than in prior years. And we also have tougher comparisons coming over the New Year's and January holidays where we escalated our conversion efforts last year. We are heartened by recent performance for sure. But still choose to maintain an abundance of caution. Keith will provide our updated guidance ranges in a few minutes, but in short, we estimate this year fiscal 2026, to be a year of modest market share gains for Lovesac, with absolute growth despite a down category. And with encouraging green shoots showing now from all of our strategic adjustments being implemented in Q4 and on into the New Year. Shifting gears to leadership and governance, we are thrilled to welcome a new member to our top leadership team this quarter, Jacob Pat has joined us as Lovesac's new Chief Technology Officer. Jacob brings valuable experience that will support the acceleration of our digital transformation initiatives. In addition, Lovesac continues to broaden and deepen the relevant skills and experience at our board of director level. Following the addition of a seasoned global technology leader in Allen Bone this August, H and M, Coca Cola, and others on his CV. We are excited to have Juan Ling Martello join our board of directors quite recently. Wan Ling's exceptional track record of driving transformational growth where she serves on the board of Alibaba, and previously on the board of Uber, along with her own deep experience as a top c suite executive at some of the world's largest and most respected consumer and retail companies. She is an invaluable addition to our board, and we are proud to have her as an adviser. Her proven expertise in data-driven resource allocation and digital transformation that drives consumer engagement aligns perfectly with our mission as a technology-driven furniture company. Lovesac is more than the sum of its parts. Lovesac is a brand, a brand that we believe will be the most loved home brand in America in pretty short order. And one day, the most loved brand in America full stop. That's our ambition. We are inventing and investing steadily even through these tough times. For this category while balancing cash flow generation and profitability. Our tall ambitions begin with reaching our goal of 3,000,000 Lovesac households by 2030, households that will have ever more designed for life products across ever more rooms in the house We are totally focused and committed to this midterm goal that will produce meaningful growth over these next few years regardless of what happens in the macro. While our ambitions are grand, we are patient. We recognize the need to evolve our strategies adapting to the economic landscape and competitive realities of this time. Harvesting the brand we have built to win the living room and the categories we already have so much brand equity in is the right strategy for right now. Profitable growth and market share gains driven by focused execution sets the perfect stage to bet big on the launch of that new room in early calendar 2027 when the consumer and category are hopefully in a stronger fundamental position to boot. With that, I'll hand it over to Mary. Mary Fox: Thank you, Shawn, and good morning, everyone. Building on Shawn's overview of our Design for Life platforms, I'll now focus on our second superpower, our customer acquisition engine, as well as our growth enablers that are fueling our momentum. As a reminder, what makes our customer acquisition engine so powerful a superpower and effect, is our ability to leverage different mixes of brand and performance marketing, digital configuration through lovesac.com, incredible showroom experiences, and efficient partnerships to optimal effect by product platform. Done wisely, we can efficiently generate customer awareness convert that awareness into customers, and ultimately build long-term relationships and brand love. So let's start with brand and performance marketing. Quarter three was only the beginning of an evolution in our marketing and media strategy. The first step was to modernize our go-to-market approach and media mix to drive more personalized messaging that better meets consumers where they are meaningfully consuming content. We were pleased with the initial impact, and some highlights worth mentioning include culturally relevant campaigns with celebrities like Britney Snow and Bethany Frankel. Seasonal campaigns like Sack to School, exciting campaigns like our NFL season kickoff featuring New York Giants superstars Jackson Dart and Cam Scatterbook. The tale was long with activations with CBS, NCIS, and nostalgic collab with the Twilight movie saga and more. That said, as Shawn mentioned, in quarter three, we saw more pressure in our smaller and mid-range setups. Following recent price increases taken to offset the tariff impact. These configuration types tend to track more closely with the middle-income consumer. And what we saw was consistent with broader category behaviors of less trading up and some trading down. This is good timing in that we were able to implement the second step of our marketing evolution in time to address this dynamic for the all-important fourth quarter. We needed to change approach, focusing more on attracting and converting the customers close to purchasing. This included further shifts out of traditional media formats. Such as linear TV and towards heavier paid influencer programmatic digital channels, and other engaging digital content to highlight the unique aspects of Lovesac and our value proposition. We are also expanding into AI search and content creation, which can be a material upside for us. Of course, we reinforce this with compelling discount offers, particularly around smaller dollar transactions opening price point options. The good news is that the combined Black Friday, Cyber Monday holiday period achieved strong growth to last year. Now there's still quite a bit of the quarter to go, including New Year in January, but an encouraging start. Second is our digital configurations and how we bring Lovesac to life online. This is an important topic one with significant momentum as we entered the fourth quarter. The website is our single biggest and most accessible store. And we have been aggressively updating and adapting our approach following the reorganization of the marketing and ecommerce teams in September and the rebuilding of our marketing playbook. In short, we built a more cohesive and responsive digital ecosystem, We set up more powerful destinations across the site including the homepage, seasonal guides, bundles that resonate, and more. These destinations create more relevant entry points as customers began actively exploring options for their homes, and provide clearer pathways for discovery of upgrade options and more products. This is supported by a strengthened media and advertising strategy. We expanded our digital presence and broadened our tactic mix with new MBA placements through fan connect and Reddit product ads. We introduced Roku, Showcase, and Pause format, reinforced YouTube content and keyword alignment, expanded programmatic reach, activated AI-powered search optimization, and delivered refreshed holiday CRM creative. As an example of effect and within the small and midrange configurations, we saw encouraging signs as the quarter progressed. What began as mid-quarter softness narrowed in the final weeks of quarter three. And turned to growth as we entered the fourth quarter. Momentum strengthened further through Cyber five where we saw the strongest Cyber Monday in our history. Well ahead of both last year and the year before that. And this is a testament to the impact. Lastly, Snug remained a standout performer online, delivering meaningful sequential growth and reinforcing the strong customer response to the platform online. Third is our showroom experience, the physical brand amplifiers of our design life products. In quarter three, we launched our new customer demonstration architecture, the BrandTor, a standardized repeatable walk-through designed to guide customers through the value, versatility, and performance of our various products, including Snug, which has been fully deployed in time for the holiday selling season. Early indicators show that the brand tour is helping associates create more impactful demonstrations and deepen customer understanding while amplifying our Design for Life story across all stores. As a result, customer satisfaction in-store has steadily improved this year and remains significantly higher among customers who experienced a demo. Indicating that the tour is contributing positively to the overall experience. And then finally, complementing our showrooms as our partnership model. We enhanced our Costco partnership extensively in quarter three. Our bundled offers now include the Snug sofa and accent chair, Sactionals reclining seat, and five new fabric offerings. We deployed upgraded roadshow fixtures enabling live demonstrations of stealth tech capabilities, which is an important differentiator that sets us apart from other seating at Costco. We improved the digital shopping experience at costco.com, leading to accelerating trends there. And last week, expanded Lovesac's reach into Hawaii and Alaska, which positions us for additional market share gains. When combined, these four elements of our customer acquisition engines create an unmatched customer experience that drives brand love, and enables long-term relationships and we are reinforcing this further with our customer-facing services. Since quarter two, our resell program, Loved by Lovesac, has now expanded to a total of 27 states. This expansion enhances customer lifetime value and creates new revenue opportunities. All while continuing to support our mission of delivering products that are built to last and adaptable to our customers' lives. In parallel, we've also made significant progress towards bringing a formal trade-in program to market. We're on track to introduce an internal pilot for associates during quarter one next year and hope to roll out the trade-in program to customers starting in quarter two. Perhaps even more importantly, we are very happy to share that we have launched the first wave of enhanced delivery and assembly services in November. Customers can now schedule the delivery with placement into their room of choice for a reasonable fee. Furthermore, we are now also testing the second wave which will be white glove services inclusive of assembly in their home. We're hopeful that these services make it easier for anyone and all customers to buy Lovesac products and love them for years to come. Key to sustaining our long-term profitable growth are our growth enablers, with our supply chain playing a pivotal role. As I shared before, our supply chain is a competitive advantage. A true strength. Today, I'd like to focus on our path to manufacture the bulk of our products in The United States in the medium term. First, we're on track to begin domestic production of fractional insert pieces next summer. Based on progress to date, we believe that we can do this with gross margins that are neutral potentially favorable to current levels. How are you delivering this, do you ask? Over the past year, we have completely redesigned the Sactional chassis. Using a mix of new materials to make it even more durable and highly automatable. There simply aren't direct competitors with limited SKU assortments and strategies that enable this approach. Which is what creates this opportunity for Lovesac. The redesign enabled a series of enhancements that improve comfort functionality, and ease of assembly. All of which are of real value to our customers. These redesigns also afford us the opportunity to generate new defensible patents and IP to help ward off competition. And, of course, the new factionals will be reverse with existing products and future compatible with inventions we're currently cooking. We have three excellent manufacturing partners that hope to cover different geographies of The United States order to provide efficiency and distribution. The better we get at making products, closer to our customers and therefore shipping them over shorter distances, should reduce required weeks of stock on hand and transportation costs. We are very grateful to our team that have worked so hard on this initiative Domestic automated efficient manufacturing has long been a goal at Lovesac. And seeing it close to reality is so exciting. Doing it in an economically advantageous way is even better. And with that, I will hand over to Keith to share more on our financial performance and outlook. Keith? Keith Siegner: Thanks, Mary. Let's jump right into a quick review of third quarter followed by our outlook for the rest of fiscal 2026. As we begin with performance metrics, please note that all references the third quarter refer to fiscal 2026 unless otherwise noted. Net sales increased $300,000 or 0.2% to $150.2 million in the third quarter compared to the prior year period. Showroom net sales increased $11.7 million or 12.8% to $102.7 million in the third quarter compared to the prior year period. Driven by the net addition of 17 new showrooms partially offset by a decrease of 1.2% in omnichannel comparable net sales. Internet net sales decreased $7.6 million or 16.9% to $37.3 million in the third quarter compared to the prior year period. Other net sales, which include pop-up shop sales, shop-in-shop sales, open box inventory transactions, the Love by Lovesac program, decreased $3.8 million or 27.3% to $10.2 million in the third quarter compared to the prior year period. The decrease was primarily attributable to the company's decision not to engage in any barter transactions during the current period and the closure of the company's Best Buy shop-in-shop locations as a result of the discontinuation of our partnership with Best Buy. By product category in the third quarter our Sactional net sales decreased 1% SACS net sales decreased by 9% and our other net sales which includes our new snug platform, decorative pillows, blankets, accessories, increased 126.3% over the prior year. Gross margin decreased two forty basis points to 56.1% of net sales in the 2026 versus 58.5% in the prior year period. Primarily driven by increases of 320 basis points in inbound transportation and tariff costs, 20 basis points in outbound transportation and warehousing costs, partially offset by an increase of 100 basis points in product margin driven by price increases, cost reduction initiatives, and concessions from our vendors in response to changes in the tariff environment. SG and A expense as a percent of net sales was 49.9% in the 2026, versus 47.9% in the prior year period. The increased percentage is primarily related to higher payroll costs license and registration fees, rent, and other overhead costs. The increase in selling, general, and administrative expense dollars was primarily related to increases of $4.1 million in payroll, including an out of period $1.6 million expense pertaining to employee benefits in prior periods. $1 million in licenses and registration, $700,000 in rent, and $800,000 in other overhead costs. The increases were partially offset by decreases of $3 million in legal and professional fees, and $400,000 in equity-based compensation. Rent increased by $700,000 related to a $800,000 increase in rent expense from our net addition of 17 showrooms. Partially offset by a $100,000 reduction in percentage rent. We estimate non-recurring incremental fees associated with the restatement of prior period financials were approximately $1.2 million in the third quarter. Advertising and marketing expenses increased $1.1 million or 57% to $21.1 million for the third quarter compared to the prior year period. Advertising and marketing expenses were 14% of net sales in the third quarter, as compared to 13.3% of net sales in the prior year period. Operating loss for the quarter was $15.8 million compared to $7.7 million in the third quarter of last year, driven by the factors we just discussed. Before we turn our attention to net loss, net loss per common share and adjusted EBITDA, please refer to the terminology and reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurement in our earnings release issued earlier this morning. Net loss for the quarter was $10.6 million or negative $0.72 per common share compared to a net loss of $4.9 million or 32¢ per common share in the prior year period. During the third quarter, we recorded an income tax benefit of $5 million as compared to $2.1 million in the prior year period. Adjusted EBITDA loss for the quarter was $6 million as compared to adjusted EBITDA of $2.7 million in the prior year period. Turning to our balance sheet, we ended the third quarter with a healthy balance sheet that provides substantial flexibility for Lovesac to invest in growth to enhance long-term value creation for shareholders. We reported $23.7 million in cash and cash equivalents while retaining $36 million in committed availability and no borrowing on our recently amended credit facility. First, we feel very good about both the quality and quantity of our inventory and our ability to maintain industry-leading in-stock positions and delivery times and believe we can end fiscal twenty-six with meaningfully lower dollars inventory than that at the end of fiscal twenty-five. Second, nothing has changed in our strategy to allocate excess capital opportunistically with a focus on long-term value creation and enhancing returns on capital. Given significant uncertainty and macro backdrop, owing to tariffs and consumer spending over the near term, we did not repurchase any shares of our common stock during the third quarter. Year to date, we've repurchased $6 million of our common stock outstanding and we have approximately $14.1 million remaining under our existing share repurchase authorization. Please refer to our earnings press release for other details on our third-quarter financial performance. So now our outlook. As Shawn mentioned, we experienced very modest improvement in category trends in the fiscal third quarter. And our current outlook for the fourth quarter looks more like a negative low to mid-single-digit category decline. While we're very encouraged by the demand growth we achieved through the important holiday period, we're cognizant of our more difficult compares over New Year's in January and also the lack of any sustained trend in consumer spending week to week recent months. What remains clear is the consumer is price sensitive and deal focused. And we've raised our discount plans to increase competitiveness particularly for the below $6,000 transaction. Combined with our caution on sales for the remainder of the quarter, this places some incremental pressure on gross margin versus what we originally anticipated for the fourth quarter. Specifically for the full year, we estimate net sales of $685 million to $705 million. We expect adjusted EBITDA between $37 million and $43 million. This includes gross margins of 56% to 57% advertising and marketing of approximately 12.5%, as a percent of net sales and SG and A of approximately 40% to 41% as a percent of net sales. We estimate net income to be between $2 million and $8 million. We estimate diluted income per common share in the range of $0.15 to $0.49 and approximately 16.2 million estimated diluted weighted average shares outstanding. For the fourth quarter, we estimate net sales of $230 million to $256 million representing low single-digit revenue growth at the midpoint and fully representative of all our near-term plans for tariff mitigation. We expect adjusted EBITDA between $51 million and $56 million. This includes gross margins of 57.5% to 58.5%. Advertising and marketing of 10% as a percent of net sales and SG and A of 27.5% to 28.5% as a percent of net sales. We estimate net income to be $30 to $36 million. We estimate diluted income per common share to be $1.88 to $2.22 with 16.2 million diluted weighted average shares outstanding. We aren't providing full-year fiscal twenty-seven guidance today. However, to expand on a comment Shawn made earlier, it's part of our strategy to win the living room by igniting the core over the next several quarters, we plan to slow net showroom expansion to approximately 10 net openings in fiscal twenty-seven. In summary, we're balancing prudence and efficiency with our belief that it's essential to stay focused on the big picture. That's the massive long-term opportunity for tremendous value creation for all Lovesac stakeholders. We're building the Lovesac brand and investing in new product innovation that spans style, function, new categories that supports a powerful multiyear secular growth outlook with macro upside exposure, as I think I'm the case. With that, over to you, operator. Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment while we poll for questions. Our first question is from Thomas Forte with Maxim Group. Please proceed. Thomas Forte: Great. Thanks. So one question, one follow-up for me. And best of luck in navigating a challenging environment. On the Love by Lovesac ecommerce efforts, can you talk about what is the discount to the consumer? So how much are they able to save versus buying the product brand new? And then what's the gross margin to Lovesac on the ecommerce sale? Mary Fox: Tom, good morning. Thank you for the question. So yes, so the Love by Lovesac, the way we price positioning, it's around about a 20 to 25% discount level to what you'd typically be able to see achieve if you were buying at full price, or at a discount level. We have two grades for Loved by Lovesac, so it is basically practically new. And then good in terms of the condition. So there are two different tiers in terms of the pricing. And I think, you know, for us, as we've kind of rolling it out, we're now in 27 states and we're really starting to see the interest build of obviously know that our product lasts for a lifetime. I think the second piece that we're excited about is obviously rolling out this part in terms of being able to do resale was really just building the processes so that we can unlock trade-ins. Next year We believe that will be incredibly powerful as people want to change covers. Buy into some of the new innovations such as recliner and so forth. So look forward sharing more, of that from next year. Keith Siegner: Just to add one thing. This year has largely been about building the infrastructure and capabilities to get the program to a broad base of folks and to test all of the elements of it for proper functionality. Now that we're in 27 states with a few more still to come, but, you know, the lessons, we'll be able to really lean into this effort and expand it. We've got some other things we're considering to drive this piece of our business even further and put ourselves into great position. To move meaningful volumes through this, especially, right ahead of us launching the trade-in program to the Operator: Our next question is from Michael Baker with D. A. Davidson. Please proceed. Michael Baker: Thanks. And I think Tom didn't get to ask his follow-up. But anyway, I will let me ask for I know you're not giving guidance for next year, but a lot of changes for fiscal twenty twenty-seven versus what we were previously thinking. You're pushing out the lawn to the new room. You're cutting back on showrooms. But you're launching a new sofa. It sounds like you're gonna be a little bit more promotional. Can you just help us with some of the p and l impacts we should expect next year in terms of how that all impacts sales, comps, margins, etcetera? More domestic manufacturing. Again, a lot of changes for next year. Give us some help. Please. Keith Siegner: So I'll I'll I'll kick this off, and then I'll pass it over to Shawn to talk a little more qualitative. Look. Mike, very fair questions. We're we're really in the midst of landing the fourth quarter and ending up this fiscal year and in the process of our formal AOP planning for fiscal twenty-seven at this point. Give us a couple months, and we'll give you a lot more details. Like Shawn and Mary both mentioned earlier, we're very pleased with the initial progress that what we've seen from these adjustments that we've seen in the fourth quarter. But we need a little bit more time know, Shawn will get into some of the the the qualitative stuff, but the the the key principle, I think, to this is we believe that during a protracted period of uncertainty in the macro by the on harvesting the brand, we can make more money off of the existing infrastructure and products that we have and launching new products that are quick to market and less costly to launch given their proximity to our existing estate. That that seems to be the more prudent way for us. And, like Shawn said, it gives us even more time to transition into a big splash for the new room launching in early. You know, calendar twenty-seven, in in a material way, so that drives awareness and appreciation right off the bat for that. But, Shawn, what what else do you have to add? Shawn Nelson: Yes. Thank you. Given given some of the success we've been seeing with Snug and the refresh. As our marketing team is really getting their feet beneath them. With a lot of the change that's been we've been living over the past few months and and really seeing green shoots from we see a path to, just build a more robust financial situation and cash position leading up to the launch of that new room, which is to get which is the kind of position we wanna be in when we're really going to, you know, swing about hard and and and, launch with great gusto. So it's it's really just a shift of a few months in in practicality, and this new sectional sofa platform that we are so excited to reveal Maybe the next time we speak is something that will fill a hole a different hole in our offering than SNUG has already begun to fill with its introduction, and there's more to come on the SNUG platform as well. So just as Keith said, a way to build more profitability and strength in our biz in our core business as we prepare for that new launch and you know, we're we're actually really grateful to see the results from Snug and and also the marketing engine that's been performing quite well over the last little bit. With some new tactics that gives us a lot of confidence that this is the right strategy for the business in the near to medium term. Michael Baker: Fair enough. If I could ask a follow-up I understand the desire to be prudent for the fourth quarter outlook, but the industry seems like it's better than it was. You're seeing a lot of momentum. Strong Black Friday, etcetera. I get that there's more difficult comparisons. But you knew that. So, why why the lower fourth quarter outlook today than what was implied in your guidance that you gave three months ago. Again, if the industry seems to be getting better, you have some momentum, is it that the industry improvement isn't as it's better but not quite what you thought it would be? Just just trying to square that circle. Shawn Nelson: Yeah. So the industry has lots of different nodes, and certainly some would say it's getting a little bit better. But at the high end, which is really where we compete, it's worse than the industry on balance. And so you know, it's it's choppy. It's messy. But and look. We did have a very strong Black Friday. Through Cyber Monday record Cyber Monday for us. It's an abundance of caution. We have tough compares. Coming over the New Year. You know, back to the industry, you know, for November, it was down 3%. But the high end was down 11% just to make that real for you. Right? So that's the backdrop we're operating in. And out of an abundance of caution, knowing that there's some tough compares, particularly through New Year, just wanna be prudent. We certainly you know, we recognize, like, very slight miss on the quarter. And that's beyond frustrating. You know, for a team that prides themselves on performing and meeting expectations. So that's what it's about for us right now. Michael Baker: Fair enough. Thank you. Operator: Our next question is from Eric DeLonier with Craig Hallum Capital Group. Please proceed. Eric DeLonier: Great. Thanks for taking my questions. First, I was wondering if you could just provide a bit more color on where the revenue weakness in the quarter is coming from. You mentioned weakness in items under $6,000 Just wondering if you add a bit more color to that. Is that mostly sacks or smaller components of the Sactionals? And should this have sort of naturally a greater impact on Internet sales versus showroom? Can you just provide a bit more color on sort of where the revenue weakness is coming from? That'd be helpful. Thanks. Mary Fox: Yes. Hey, good morning, Eric. Thank you for the question. Yes. So we've seen definitely, I think, Shawn referenced earlier the adjustments we made coming out of Q3 into Q4. So seeing a big step up of improvement in the lower end transaction sizes which is primarily the small setup factional. So big step up from obviously the decline and the challenge that we faced in quarter three. I think the second piece is we are continuing to see at the high end, just as premiumization, that really is driving, you know, a higher AOV. So they're buying more recliners. More add ons in terms of storage, and even more premium in terms of fabrics as well. And then I think the last piece, and I think I touched on it earlier, Heidi has been leading a lot of transformation in the marketing team, putting new leaders in place and in two areas. One is around on the website, and they've been doing a huge amount of work really overhauling, the configuration experience to really be able to drive much better excitement around the holiday gift guide, and the web is performing at a much higher growth rate to the total company in quarter four. So you're seeing a lot of that benefit that's that's coming through. And then I think, you know, Shawn talked about of the new innovations, whether it be Pillow Sac Jr, accent chair and the the swept arm and various other things. That four helping to bring some more energy to our growth. So, you know, we're gonna continue to be able to drive our platforms with the innovation and the excitement. You know, we've brought in some great new covers, for example, and the colors that are new are on fire. So, you know, as we continue to drive that excitement and then obviously get the website really to be able to acquire customers at a faster rate because it is our most efficient store. That's really what we've seen the strength through, you know, December. For this quarter. Eric DeLonier: Alright. That's helpful. I appreciate that color. And then just a follow on for me. When when you look at the marketing overhaul here, could you just kinda give us a sense of you know, how long you sort of expect this to to take? How long you expect to sort of wait to see the the impacts of this? Presumably, you're already seeing some impacts on digital, but just wondering what other time lines you're thinking about and we should be thinking about as it relates to this marketing shift and and the ultimate success there? Thanks. Mary Fox: Yeah. I think yes. Thank you, Eric. I think it's thinking two parts. I think first is real time and near time. It's happening right now. So as we talked in terms of shifting out of traditional media formats, even more aggressively than ever before, such as linear TV, moving a lot more to heavier paid influencers. We did a lot of that towards the end of quarter three and quarter four, a lot more around pragmatic digital channels. That's all real time. That's happening right now, and and we contribute the quarter four performance to, obviously, you know, a lot of those shifts. So that's really been happening real time. Then in in addition, you know, as I touched on the website before, performance, that that really was turning in a matter of hours and days as the team kind of pivoted and made some of those adjustments. So that is all kind of in Q4. I think the second horizon as Shawn has talked about the brand evolution, and really how do we bring the brand to life, in in terms of the storytelling about the value, the versatility of the brand, and then how do you drop down into the platform. You're gonna continue to see more from Heidi and the team as we get into quarter one and quarter two next year. As we really bolster up that storytelling and really claim the territory that is uniquely love backed that no one else has. You're just going to continue to see us driving all of those opportunities. And then I think, Shawn, you know, maybe you wanna touch about, you know, our focus on winning in the living room, and particularly Snug's performance in on ecommerce, which has been super strong. Shawn Nelson: Yeah. No doubt. As as as we've referenced, we think of ourselves as having these two superpowers designed for life products paired with tailored customer acquisition engines, And you know, on the design for life product side, the snug is becoming a really important part of our portfolio. Think they're they're while it is still ramping, we believe that it will as the platform evolves even over this coming year, help us fill in some of that weakness that we're seeing at the the low $6,000 transaction realm. You know? So even though, you know, we're we're we're calling out this weakness at the low end, Simultaneous snug is ramping. But like any new product, it just takes time. And so, we're really pleased with with the results we're seeing. It tells us that, the Lovesac customer wants products from Lovesac. It's not just the specific attributes of Sactionals, and that's led us to, yet another innovation in the SOFA sectional realm that we think again, will help us fill in the assortment and compete more fully against those incumbents who many of them have dozens and dozens of self sectional lines. So we while we have no intention of going that broadly, we are starting to really understand the opportunities we have in that realm. On the on the marketing side, as Mary said, we're seeing just some really exciting performance in on new tactics that we have not exploited before. We had a marketing playbook on these, you know, speaking of these customer acquisition engines, that got us to where we are. And it's certainly and we're certainly grateful to have experienced all the growth that we've experienced over this last decade. But, needless to say, the world has evolved a ton Our new CMO is, more than capable And you know, so those those are the two realms that we're focused on. Those two superpowers will continue to drive the business but it's a time of great innovation at Lovesac, both on the product side and on the marketing side. And, thankfully, we're seeing those green shoots in the business And I think it was evidenced by our performance over Black Friday and Cyber Monday. So, you know, it's a it's a mixed bag at this very moment given the macro, but we'll continue to look forward to a really exciting year at Lovesac. Next year, we'll be by far, the most prolific year of innovation launches ever. And, we're excited about it. Eric DeLonier: Appreciate the color. Thank you. Operator: Our next question is from Matt Koranda with ROTH Capital Partners. Please proceed. Matt Koranda: Hey, guys. Good morning. Just wanted to make sure I understood the cadence of demand during the quarter and then in the fourth quarter here. So just at what point in the third quarter did demand get worse? It sounded like the middle point of the quarter. There any regions where you saw concentrated weakness? And then drivers of improvement into the fourth quarter, it sounds like promotions and sharper on marketing, but maybe just correct me if I'm wrong there. And then our comps actually positive quarter to date. Just wanna make sure that, I mean, I'm getting the sense that I guess, Black Friday and Cyber Monday were strong. But is the the full quarter to date comp positive, quarter to date here? Mary Fox: Matt, thank you for the question. Let me start with the second one, and then I'll come to kind of the cadence in Q3. So yes, the comps are positive for this quarter, and we actually had a strong start for quarter that has continued all the way through to today. So I feel very good as, we've all shared in terms of the adjustments that were made in driving the performance, quarter four. To your question, kind of going back to quarter three, we had to we'd shared with you Labor Day was good. And then coming out of Labor Day, we've really started to see that pressure. You know, we'd obviously taken a second price increase. And that really impacted the smaller sized orders at under $6,000. At the same time, customers are facing uncertainty more broadly, and we really saw that shift down with that impact. I think then, you know, as we saw that drop down, we then made some adjustments. So it's our cadence started to improve. Towards the '3, but obviously not enough to be able to make up that loss in the middle part of the quarter. To your question, did we see any impact regionally? We see a little bit more a challenge in performance in a few states such as Florida and Texas. But honestly, it really is more broadly lashly as we look across the whole, you know, pet place. Think. So then as we moved into Porta 4, you know, the adjustments we made both in terms of promo cadence, you know, we simplified, we were bolder, but clearer, but instead of having some of the more discreet personalized offers, we just went, you know, full throttle with a winning promotion. And, you know, there were many other companies that were promoting up to 80% off. So we knew we needed to be strong. We wanted to win, and we did win. Based on the November results that just came out yesterday from Bank of America. And then the second point, your you know, what else shifted was just the optimization of the media strategy, trying to really focus also on that middle income consumer to be able to get them to convert. Again, just pleased to see the step up of that 6,000 and under order performance really moved back up, from where we were in quarter three. Matt Koranda: Okay. Very clear. Thanks, Mary. And then on the gross margin outlook, I guess, what's driving the softer outlook in the fourth quarter that's implied here? Is that incremental pressure from promotions that you're needing to run to induce conversion? What's the tariff pressure also that that's factored into the end of the year here? Keith Siegner: Yeah, Matt. It's, it's actually quite straightforward versus our prior expectations. It's the incremental need for a step up in promotions to remain competitive. Particularly as we target that below $6,000 transaction as well as you know, you know, some deleverage against fixed costs like warehousing and things like that given a lower absolute level of sales that that really is the difference between our prior expectations. Hopefully, that's that's helpful. Matt Koranda: Yep. Pull it up there, guys. Thanks. Operator: Our next question is from Brian Nagel with Oppenheimer and Company. Please proceed. Brian Nagel: Hey, good morning. First question I want to ask, is with with regard to the reshoring comments. Know, I know and and, Shawn, we've we've talked about this for a while now. Plans for Lovesac to bring more menu back to United States. And we think the conversation suggested, you know, it's it's happening, happening aggressively. So I the question I wanna ask is, Steve, we're thinking about the model for Lovesac. And the common say suggested, you know, it should be kinda neutral ish. Know, to, I I guess, gross margins or gross profits. How should what would be the, you know, longer term benefits to the to the LuvSec model of bringing manufacturing back to The U. S? Shawn Nelson: Yes. Great question. Thank you. To be honest, this is the initiative that perhaps we're we're most excited about. We've believed for a long time that the unique nature of our products and the demand that we've created. You know, we're doing better than $600 million a year in seats and sides. Those should be manufactured, more automatedly closer to consumer, shipped over shorter distances, both for efficiency, and for you know, to drive sustainability, which we're passionate about. We're making that real this summer. And, it's been a long project, a difficult project. It's required heavy engineering, reengineering of a product from a materials standpoint. So the long term benefits are myriad. Yes. When we say neutral, we're targeting Sactionals cost. We're targeting we're trying to beat at least meat, but even beat Sactionals cost on an apples to apples basis pre tariff. Is our goal. Now we won't promise that at this moment, but that is our internal mandate. And, think we're gonna get there. So the long term benefit is more stable pricing better product, again, more efficient supply chain, shipping over shorter distances, more reliable, not subject to everything from pirates to hurricanes, to, you know, shipping container space, what have you. Particularly in the over this past decade. Since the tariffs began to throw everything up in the air in 2018. Know, which is the better part of his decade now. It's been an extremely volatile international landscape. And rather than wait to be kicked out of the nest again, you know, we're completely out of China. At this point pretty much, and, we took that note pretty early compared to some. Rather than play this hopscotch game around the around the globe, this is the path that we've taken, and, thankfully, it's working out. Like, we have line of sight to this being successful. Finally, you know, so from a gross margin standpoint, this will have ideally a positive impact on our p and l. But then there's the warehousing and and inventory carry as well. You can only imagine. You know, we know right at at this moment, there are probably 400 containers of sactionals or what have you, six and maybe five. So it's it's it's a ridiculous amount of product between you know, work in progress on the water and then, of course, in our warehouse. That can be mitigated tremendously. By manufacturing onshore, again, using these new materials. Then finally, satchels themselves are gonna improve. Like, this is not hyperbole. Will be a better product made in a more robust way that will have some new features that they will be completely groundbreaking. In the world of self sectionals. One of one. And they are fundamental improvements that no one in this industry has ever solved or even conceived of solving. And our platform is gonna make that possible. And I can't reveal what that is yet, but we think it's a big deal. We think it'll make us way more competitive. Let alone have these positive impacts on our p and l, our operations, and the earth. So we're just super proud of of the whole team that made this happen. And we're we're we're and and and intellectual property. You know, we've got some some some new patent work coming off of it as well. So we're we're this is the most exciting thing happening at Lovesac in my opinion. Operator: Our final question is a follow-up from Thomas Forte with Maxim Group. Please proceed. Thomas Forte: Great. Thanks for taking my follow-up real quick. Can you talk about your gross margin strategy on entering new rooms? Meaning, the new product should be comparable to products to date from a gross margin standpoint. Or there may be a situation where you promote heavily initially or any other reason why the initial gross margin would be lower than ramp over time? Mary Fox: Yeah. I think, Tom, thank you for the question. So, you know, our targets, everything that we've been working internally is that we do want to maintain the gross margins that we've been proud to achieve. As we enter into the new room. The team have been very hard at work We've been looking at a lot of product and reviewing and challenging both in terms of the customer attributes, but also the manufacturing efficiencies. Leaning in in terms of also production in The US. Which also will obviously give us some benefits. So you know, for us, we see this as being able to maintain at the the gross margin levels that, we've seen and and actually Shawn talked about the excitement as we think about reimagining the inserts there is gonna be so much benefit in the new room in terms of just having that domestic product, being manufactured, getting it to customers even quicker. And managing our inventory, let alone just the awesome product that we're getting to see with the teams. Shawn, I don't know. Anything else you want to add on The New Room? Shawn Nelson: No. Look. Our goal is to continue to target these high fifties gross margins. You've seen us fluctuate. Over the past number of years, that you've been tracking us, you know, between all all really always between fifty five and sixty. So that's the place we think this business should be at. It puts us definitely at the high end in our industry. Of course, we we speaking really candidly, we don't believe that going much higher than that is prudent for this category. It leaves us further open to competition, copycats, who knows, leaving too much meat on that bone. Right? So it's a delicate balance, but our point of view has not changed, and and the new room doesn't change it for us. And look, we expect to compete at the higher end of things with very practical product. That can do all the things that you have have grown to, expect that consumers have grown to expect from ac and perform the same way from a quality standpoint. You know, features and adaptability standpoint, everything designed for life represents. But great question. And of course, we're we're we're super excited to get there. But we just have so much opportunity in this in this coming year to lean into the core and the strength that this brand already has and really harvest some of that value. Look. We're the most prolific advertiser of couches on the planet. Delivering the best, most versatile couches on the planet. That's what we're known for. And so this is a really, we think, safe approach to the coming year in this choppy environment while you know, giving us opportunities to drive revenue, drive growth, and and protect that gross margin. And so that's the that's the foundation we wanna be on when we launch that new room. That's what all of this is about. Excellent. Thomas Forte: Thanks, Shawn. Thanks, Mary. Thanks, Keith. This will end our question and answer session. I would like to turn the floor back over to Shawn for closing remarks. Shawn Nelson: Yes. Thank you so much to all of those shareholders, stakeholders who supported Lovesac and of course to our tireless Lovesac team. Who continues to fight to this crazy macro environment to deliver great results We're looking forward to the coming year. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, and welcome to Dollarama's Third Quarter Fiscal 2026 Results Conference Call. On today's call are Neil Rossy, President and CEO; and Patrick Bui, CFO. They will begin with brief remarks followed by Q&A with financial analysts. Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current and future plans, expectations, intentions, results or any other future events or developments. Forward-looking statements are based on information currently available to management and on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events or developments to differ materially from those expressed or implied. You are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements represent management's expectations as at December 11, 2025, except as may be required by law. Dollarama has no intention and undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You are invited to consult the cautionary statement on forward-looking statements in Dollarama's management's discussion and analysis dated December 11, 2025. All forward-looking statements on today's call are expressly qualified by this cautionary statement. In addition, Dollarama may refer to certain non-GAAP and other financial measures during the call. Please consult the non-GAAP and other financial measures section of Dollarama's MD&A dated December 11. For definitions, reconciliation with appropriate GAAP measures and other information. The quarterly disclosure documents related to this call are available in the Investor Relations section of dollarama.com and on SEDAR+. I will now turn the call over to Neil Rossy. Neil Rossy: Thank you, operator, and good morning, everyone. For the third quarter, we delivered a strong top line performance and double-digit earnings growth, including a nearly 20% increase in EPS. In an economic environment that has remained unpredictable, our business model has continued to prove its enduring relevance and resilience. Starting in Canada. We generated 6% same-store sales growth with sustained demand for consumables and higher seasonal product sales, thanks to the full Halloween shopping period falling within the quarter. We saw strong store traffic trends and contributions from our full product mix, demonstrating once again that Dollarama is a reliable and sought-after destination across product categories. Amid economic uncertainty, the certainty of our low prices and year-round value keeps bringing consumers back. We are always working hard to hold on pricing for our customers and to be a price follower. In Q3, we continued to leverage our agility and expertise as buyers to limit price increases across our product offering. Retail increases on domestic brand names were unavoidable this quarter due to higher domestic supplier costs, but they did not impact our relative value. On the real estate front, we opened 19 net new stores in Q3, bringing our total number of stores in Canada to 1,684 locations. With 68 net new store openings in the first 9 months of fiscal 2026, we have already opened more stores than typically do in a year. We are on track to achieve our exceptionally higher target of between 70 to 80 net new stores for the full fiscal year. The development of our future Western Logistics Hub north of Calgary also continues to progress. Construction is underway since the fall, and the project remains on budget and on time. Turning now to Latin America, where we continue to demonstrate the portability of our business model. Dollarcity delivered strong financial results for its third quarter and opened another 25 net new locations. This brought the total dollar store count to 683 at the end of September. Since then, we have been busy opening several more stores, including our 700th location in Latin America last month. With 5 countries of operation and a strong presence in 4 of those countries, the Dollarcity team deserves recognition for reaching this latest milestone and for their outstanding execution. Dollarcity's 700th store was also our fifth location in Mexico with just a handful of stores concentrated in the Guadalajara area, it is still early days. However, we are pleased with how our market entry is progressing and look forward to opening many more stores by year-end. We continue to see meaningful long-term potential in this new market by applying the disciplined playbook that has worked across our 4 current LatAm countries of operation. In Australia, we have begun laying the groundwork for the Reject Shop's multiyear transformation. On the merchandising front, updating the product offering is a deliberately thorough undertaking, which requires planning on the procurement, logistics and inbound shipping side. The process of reviewing all SKUs takes time because of the volume and related complexities as well as the initial legwork involved on the compliance side. It's also the most important aspect of this transformation in terms of delivering our value proposition to the Australian consumer. We continue to be on plan to have select Dollarama SKUs starting to hit shelves next year with penetration gradually increasing throughout fiscal 2027 and fiscal 2028. One stores better reflect the Dollarama value proposition, we will start putting our name on the outside of the store. On the store format front, we have begun introducing the Dollarama layout through the store renovations and new store openings. Renovating an existing store entails rehauling the floor plan, new fixtures, racking, lighting, et cetera. We have renovated 4 stores since the beginning of the year, and we expect to ramp up in fiscal 2027 as we fine-tune the process and to renovate all existing stores over a 4-year period. Going forward, new stores will have the Dollarama fixtures and layout, which enables more SKU density among other improvements. This will be very impactful once we are further along with the Dollarama merchandise rollout. As we work through these more customer-facing aspects of the transformation, we are also actively working on optimizing our IT infrastructure, store processes and logistics operations. While we are only at the beginning of this journey, I am motivated by the strong alignment with across the business and by the local team's drive to get things rolling. To summarize, in Canada, we remain cautiously optimistic as we head into Q4 and mindful of the continued economic uncertainty that has been impacting consumer behavior. In Latin America, we look forward to tapping into more growth and gradually ramping up expansion in Mexico. And in Australia, it's all hands on deck to transform the business ahead of deploying our value proposition over the coming years. Across our complementary growth platforms from leadership to the shop floor, everyone is focused on execution. With that, I'll pass it over to Patrick. Patrick Bui: Thank you, Neil, and good morning, everyone. In Q3, total sales increased more than 22% to over $1.9 billion. The year-over-year increase was driven by sales from our Australian segment as well as an increase in Canadian same-store sales and store network growth. 6% SSS in Canada consisted of a 4.1% increase in transactions and a 1.9% increase in basket size. SSS was boosted by all Halloween sales days falling in the quarter. This is due to the retail calendar shift as we lap a 53-week year with 4 of those days falling in the fourth quarter last year. Heading into the second half of the year, our outlook on SSS in Canada was cautious due to consumer fragility and fluctuations in discretionary spending through the first half. However, given our year-to-date performance, including stronger-than-expected Q3 results, we are increasing our full year SSS guidance from between 3% and 4% to between 4.2% and 4.7%. This upward revision factors in our expectations for Q4 with the negative impact of the calendar shift and assuming a positive response to our holiday offering from a still pressured consumer. Gross margin increased to 45.8% for the Canadian segment in Q3 compared to 44.7% last year, thanks to a more favorable sales mix with higher sales of seasonal products and lower logistics costs. As a result, we are increasing our fiscal 2026 guidance range for this segment's gross margin from between 44.2% and 45.2% of sales, to between 45% and 45.5%. Factoring in Australia's lower margin, consolidated gross margin came in at 44.8% of sales for Q3. SG&A for the Canadian segment came in at 14.2% compared to 14.3% last year. The increase reflects the positive impact of scaling. Full year guidance on this metric remains unchanged of between 14.2% and 14.7% of sales. Consolidated SG&A was 15.4% of sales in Q3, an increase primarily driven by additional SG&A from the Australian segment. Turning to Dollarcity, our 60.1% share of their net earnings amounted to $42.4 million in Q3, representing a 56.5% increase over last year. The increase is driven by higher sales both from SSS and store network growth and margin expansion, partially offset by higher SG&A related to Mexico. During the quarter, we made a second capital contribution of USD 18 million towards Mexico expansion plans. Again, a portion of our share of the latest Dollarcity dividend was used as a funding source. Next year, we expect to maintain the pace of 2 dividends a year, each followed by a Mexico capital contribution. Based on the strong performance of our Canadian segment, including Dollarcity's equity contribution, EBITDA increased by 20.1% to $612 million. Net earnings increased by 16.6% to $321.7 million, and diluted EPS grew 19.4% to $1.17. The Australian segment had a negative $0.03 impact on EPS. Regarding Australia, Q3 is usually a soft quarter due to seasonality, while Q4 is historically the strongest with summer and Christmas occurring at the same time. This should balance out their results through the second half of the year. While immaterial, we expect TRS to have a neutral to slightly negative impact on earnings in fiscal 2026. The Australian business represents a long-term investment and it will be built over the next 4 years. In this context, it is important to keep in mind that the Australian segment's results will not reflect the performance of our business model in this market, not until our value proposition is meaningfully deployed which will only occur once we have made significant progress on key aspects of the transformation. Near-term results will instead reflect the investments required to deploy our value proposition in Australia. As we work on implementing the major changes Neil spoke to, we expect fiscal 2027 to be a heavy investment and transition year for the business. As a result, we do not expect the Australian segment to have a positive impact on our overall profitability in the near term, including fiscal 2027. Turning to capital allocation. We were active on the share buyback in Q3 with the repurchase of over 2.6 million shares for cancellation for a total cash consideration of $884.6 million. We also announced today that the Board approved a quarterly cash dividend of $0.1058 per share. You will also note that we lowered our CapEx guidance for fiscal 2026 to a range of between $240 million and $285 million. This simply reflects a shift in timing of certain expenses related to the Western Logistics Hub into next year. Clearly, the everyday value and convenience Dollarama offers continues to resonate. In a challenging economic environment and at a time of softer consumer confidence, Canadians from coast to coast are consistently seeking out our value proposition. We also continue to see similar trends in Latin America. These results only strengthen our results and commitment to our growth plans and to delivering reliable value in what remains an uncertain context. Across the business, we will continue to deploy capital with discipline and always with the aim of creating long-term value for all stakeholders. With that, I'll now turn the call back to the operator for the Q&A. Operator: [Operator Instructions] Our first question is from Irene Nattel of RBC Capital Markets. Irene Nattel: Listening to the commentary, it sounds as though you're seeing a better consumer shop across the store. I didn't hear as much around sort of weakness in seasonal as we have in certain other quarters. So can you talk about what you're seeing and whether -- how we're trending quarter 4 to date? Patrick Bui: Yes. I mean in terms of context, I think it's really the same as last quarter, really more of the same. We continue to serve a fragile consumer and what seems to be an uncertain macro backdrop. And in that context, consumers focus on essentials and on value. What that means on our side is consumable assortment continues to perform. But you're also right in pointing out that one change this quarter is that our seasonal assortment improved and was positive this quarter. So as of now, we expect that will hopefully continue into Q4. But like all things, we're not immune of trends shifting either. Operator: Our next question comes from the line of Brian Morrison with TD Cowen. Brian Morrison: Patrick, it looks like you have a second capital call already for Mexico. Store openings are starting to accelerate. I think you said you already have more capital plan to allocate there for next year. Can you maybe just tell us how you're allocating capital? Is it new stores only? Does it include any warehousing? And how has the initial performance been trending ahead of these expectations with the first few stores, realizing it's early days? Patrick Bui: Yes. So just to comment on the second part of the question. It's -- we agree, it's still very early days. Our first store only opened at the end of June. We have 9 stores now as of today. And as Neil commented, we're encouraged by the initial customer response. As for the first part, and apologies, I think the line wasn't very clear, but the business is still in a ramp-up phase and requires capital for new store openings and really setting up the business. And as we think about next year, we're still in that ramp-up phase. I mean, the business is not at scale to absorb fixed costs that we're committing in the country. And that would lead to more of the same as this year, meaning losses. We're not expecting the business to be breakeven next year and further capital investments. Operator: Our next question comes from the line of Chris Li with Desjardins. Christopher Li: Maybe a question on Dollarcity and LatAm. As you mentioned, continues to be very strong. I know you've already provided some colors on the drivers. But I was wondering if you can provide just a bit more details on some of those drivers. And then when do you think you'll be in a position to update us on what the long-term store potential target is for LatAm? Patrick Bui: Thank you, Chris. Look, I mean when we think about the LatAm business, you see the top line performance, right? It's a -- when you contrast that to Canada, it's a business that continues to grow very quickly with respect to units. It's opening at a higher pace compared to a smaller base. So you have that increase on the top line. And SSS, just like in Canada, it's the same trends. It's the same consumer trends and SSS remains healthy. But the thing to keep in mind is, given the size of the business, it still benefits from substantial scaling. So when you look at your fixed costs that are included in your gross margins, your fixed costs and your SG&A, those costs are amortized on bigger and greater sales numbers. So that's how you go from a high sales business on the top line to a business that is capable of scaling the net income. Operator: Our next question comes from the line of Etienne Ricard with BMO Capital Markets. Etienne Ricard: So to circle back on Mexico, you've been opening more stores recently. If we look at your prior experience in other Latin American markets, at what store count level do you gain the confidence that your business model is working and that the brand is resonating with consumers? And as a follow-up, when could we expect Dollarcity to expand in other Mexican states? Patrick Bui: Look, I mean, it's not a -- it's hard to pinpoint an exact number, right? We've opened already 9 stores. And as we increase the store count, I mean, you would suspect that the level of confidence will increase in time. And like we commented, I think at this point, what we're seeing today is quite encouraging, and we see the initial reception of the Mexican consumer. And hopefully, that will continue in time. Operator: Our next question comes from the line of Vishal Shreedhar with National Bank. Vishal Shreedhar: With respect to traffic, continued strong numbers. I was hoping to get your perspective on the traffic growth that you're posting in the context of the ongoing real estate growth and slowing population growth in Canada. Is it something that you're doing? Is it competitors? Is it the backdrop of consumers? Perspective there would be useful. Patrick Bui: Yes. You're correct in pointing out that what we hear and understand from a macro perspective, slower population growth is, in theory, a headwind. But if we look at the patterns at our business, I mean, traffic remains healthy. And in the context, as we commented on, of budgets being stretched and people seeking value in essentials. We're clearly hitting the mark and people seem to appreciate that value and continuing coming to our stores. So I would say despite this headwind, I think we're doing pretty well in the retail space. Operator: Our next question comes from the line of John Zamparo with Scotiabank. John Zamparo: My question is on gross margin. And I think, Neil, you had mentioned higher domestic costs on a procurement basis. I wonder what you're seeing on cost of goods based out of China because we continue to see negative PPI from that country. So I'm hoping you could add some color on cost increases that you're seeing in your general merchandise and seasonal categories. Neil Rossy: So China has been relatively soft for the last, I would say, 6 months or so and favorable for importers. That's leveled off, we feel. And right now, it's pretty much stable. No decreases, not really many increases. But we do continue to see aggressive -- I wouldn't go so far as to say overly aggressive, but certainly, domestic producers are being very, very comfortable asking for price increases when we're not seeing the input costs going up on a lot of the products that those prices and increases are being asked for. So I think domestic corporate North America is definitely pushing on costs, and that's something that is a retailer, when we don't see a proportionate increase in the input cost, it's very hard to keep up with why they're doing this other than wanting to make more profits. So what our job is to make sure that our relative value on those domestic products remains ultra-competitive. For the imports, it's much clearer because it's all based on input costs and nothing more than that, not a strategy to make more money per se. And so it's much easier to control and much easier to forecast months out. And so for now, it's fairly stable on the import side. Operator: Our next question comes from the line of Mark Carden with UBS. Mark Carden: Another one on the gross margin. Just with respect to logistics tailwinds, they still seem to be a positive even with the tougher compares. How should we think about how that could play out over the course of the next few quarters? Are you finding incremental room for improvement on that this front? Just what are you seeing there? Patrick Bui: Yes. And just to clarify what we meant by lower logistics costs. I mean we're seeing strong productivity gains in our logistics network. We're seeing good stability in the logistics chain, whether shipping port, rail, truck, and that essentially negates friction costs. So that's what we're seeing. And certainly, higher SSS is also very helpful in scaling gross margins. Now you're asking about the future. We hope we'll be able to continue in that direction. But especially as we approach or enter really or we're in the middle of winter, sometimes there's unforeseen events. And that's just the normal course of our business, and there's friction costs that happened in that context. So I think what we've achieved in terms of gross margin this quarter is a really, really high bar, and we're very pleased with the results. But something to note is as we think about Q4 and if you look sequentially versus last year, last year, we also benefited from that 53rd week. So that was helpful in scaling gross margins, and that's not something that we will have as a positive in this Q4. Operator: Our next question comes from the line of Ed Kelly with Wells Fargo. Edward Kelly: I wanted to ask you because you talked about pricing. Could you give a little bit of commentary on terms of what's been happening with your average unit price and the benefit you're seeing there? And then on $4.55 and higher price point, I'm curious because your traffic has been remarkably strong. Do you think that moving into that higher price point is helping traffic, meaning you're able to add items that maybe you couldn't sell previously? And then it's been a few years since you've launched that price point. I'm kind of curious as to where you are in maximizing that at this point. Patrick Bui: That's a multilayered question, if I remember all the bits and pieces. Look, I mean, as we commented in the past, moving up price points could be incrementally helpful in certain categories and being deeper in those categories. And we think there's a lot of room still to grow within the $5 price point. And there's no need at the current time and no reason for us to change that strategy as we speak. Now to the first part of your question, on the back of strong inflation from suppliers and pushing costs or attempting to push costs, that certainly puts added pressure on the unit costs. But overall, when you look at our results and you look at the relative value we deliver in the stores, I think we are able to fare fine in that context. Operator: Our next question comes from the line of Martin Landry with Stifel. Martin Landry: I want to touch on your guidance for comparable same-store sales. Year-to-date, I believe you've done -- you've grown your comparable sales at the pace of 5.3%. You're guiding for full year of 4.2% to 4.7%. So you do expect a little bit of a deceleration in Q4. You have pointed out and called out that there's a calendar shift. And I was wondering what's the -- if you can quantify the headwind from the calendar shift that you expect? Patrick Bui: Yes. Thanks for the question. And I think it's important to clarify. So we are expecting a material deceleration in SSS in Q4. But if this was evident yet, it has nothing to do with our views on the consumer environment or the macro context that is changing or we hope that it continues staying the same. The material deceleration is really just mechanical from a calendar perspective. It's really just that. So these 52 over 53 happens once in a while. And the last time it happened, it was in fiscal 2020 over fiscal 2019. And if you have a look at what was discussed back then, we were talking about a deceleration just on the mechanics of the calendar of about 180 basis points. So there's the impact of Halloween, but there's also the impact of replacing those Halloween days with days at the end of January, which are typically low sales days. So there's that double impact. So that 180 that we encountered 5 years ago or so is something to be expected this year as well. Operator: Our next question comes from the line of Luke Hannan with Canaccord Genuity. Luke Hannan: I wanted to follow up on the Australia build-out. I think it was referenced that you don't expect the segment to have a positive impact to profitability for fiscal '27. But just a clarification on that. Does that mean also you'd expect it to be, I guess, neutral or maybe slightly negative to EPS in fiscal '27? Or how should we think about that? Patrick Bui: Yes. Thanks for the question. I think it's a little too early to comment on that. I think we are in the middle of our planning work as expected, and we're doing everything very, very diligently. And once we have -- we feel more comfortable with the plan, we'll be happy to provide more color around that. Operator: Our next question comes from the line of Corey Tarlowe with Jefferies. Corey Tarlowe: I have 2 questions. The first one is on consumer behavior. So you had transaction growth was up 4%, basket was up about 2%. I'm just wondering, are you seeing any shifts in purchasing patterns, whether it's trade down or increased frequency that caused you to think differently or influence your merchandising strategy? And if so, what are those changes? And then secondarily, just on the gross margin, performance and the outlook, can you talk about if there are any changes in the merchandising strategy or mix shifts that are unlocking perhaps the upward revision to the guide despite persistent supply chain pressures, it would just be good to get some color there. Patrick Bui: Yes. Thanks, Corey. I mean I think the one word you need to keep in mind is consistency, right? And it means consistency of what we're seeing with respect to our merchandising strategy. So if you look over time, it has been the same recipe. And gladly, that is well received on the consumer side. Now when you look at the pattern,of our SSS broken down by traffic and basket, it's -- I'd say it's more of the same, and we're pleased with the traffic numbers, but traffic has been fairly robust, if you look at the past few quarters. So we just think that it's a continuation of that and a clear indicator of good receptivity of consumers to our consistent and relative value merchandising strategy. Operator: Our next question comes from the line of Zhihan Ma with Bernstein Institutional Services, LLC. Zhihan Ma: Just a follow-up on the Australian side of things. I'm wondering if you can shed some color on the early results based on any sales lift, the pace of conversion versus your expectations? And a quick clarification on the gross margin point. I think you were saying that Q4 is going to be higher than Q3. Is it fair for us to use their historical second half of the year, take what they have done in Q3 and derive what Q4 is going to be? Patrick Bui: Yes. On the second part of your question, I think one might suspect that gross margins will be better in Q4 because just like in Canada, you're having more seasonal sales. So there is an improvement. But that being said, gross margins from year-to-year fluctuate depending on the context. So last year is not necessarily a perfect guide. But directionally, it will give you the sense that Q4 could be because of the seasonality, could be stronger than Q3. In terms of the store renovations, look, I mean it's very, very early days. There was 4 conversions. And to clarify why we do these renovations is really having the fixtures and the layout as per Dollarama, and that gives us the opportunity to having greater SKU density in the stores, which should lead to higher sales even if you continue selling the same merchandise. So just having more density could lead to more sales. So again, early days, but we're hopeful that, that strategy will play out in the Australia market as well. Operator: Thank you. As there are no further questions at this time, this will conclude today's call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Empire Second Quarter 2026 Conference Call. [Operator Instructions]. This call is being recorded on Thursday, December 11, 2025. I would now like to turn the conference over to Katie Brine, Vice President, Investor Relations. Please go ahead. Katie Brine: Thank you, Ludy. Good morning, and thank you all for joining us for our second quarter conference call. Today, we will provide summary comments on our results and then open the call for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca. There is a short summary document outlining the points of our quarter available on our website as well. Joining me on the call this morning are Pierre St-Laurent, our new President and Chief Executive Officer; and Constantine Pefanis, Chief Financial Officer. Today's discussion includes forward-looking statements. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release and MD&A for more information on these assumptions and factors. I will now turn the call over to Pierre St-Laurent. Pierre St-Laurent: Thanks, Katie. Good morning, everyone. I'm pleased to be speaking with you today for my first quarterly earnings call as CEO. I've spent my career at Empire in multiple roles, most recently as COO, working closely with our stores and teammates to serve customers. As a company, we have been on an incredible journey that has included the transformation period of Project Sunrise and Horizon, managing through the COVID-19 pandemic, tariff, and continuing to grow our business and deliver strong results through ongoing market volatility over the last few years. Over the last month, the executive leadership team and I have had the pleasure to travel the country and visit teammates coast to coast. We are very proud of what we saw. Empire is in excellent shape today and operating very well. Teammates have a strong collaborative dynamic, and we have significant opportunities ahead of us to capture. Before I get into the details of the quarter, I'd like to take this opportunity to thank Michael on behalf of the entire Empire team for his energy and leadership over the last 9 years. He led us through a significant transformation and helped us navigate the unprecedented headwinds of the global pandemic and the worst inflation in 4 decades. And personally, he continually gave me the opportunity to take on more responsibility and see more of the company so that I'm now very well prepared to step into the CEO role. Turning into our Q2 results. This was a solid quarter for Empire. Excluding other income and share of earnings from equity investments, our core business improved by 12.5% over last year. Same-store sales picked up momentum in line with our expectations, and we continue to deliver sustained gross margin growth. Our core operations delivered strong operating income. I'll focus on 3 topics today: our Q2 results and market trends, the current environment, and our strategic priorities. This update will focus on the core business performance, removing the noise from the timing of other income, which Consta can speak to in more detail shortly. First, our results and market trends. Food sales grew 3.4% this quarter, with same-store sales growth of 2.5%. Our full-service stores continue to grow supported by our commitment to provide value across all of our formats. In fact, our full-service same-store sales grew by more than 2% this quarter. I hesitate to give that level of detail. But for this quarter only, I wanted to set the record straight when it comes to our full-service performance. It is a healthy business with a lot of room to grow. Our discount business also continued to perform well, gaining market share in its respective channel in Q2, supported by strong top-line growth and very strong operating income. This quarter, we saw volatility in the market with some positive signs as well as ongoing uncertainty. We are encouraged to see increasing customer traffic and basket size in stores as well as a relatively typical and manageable promotion penetration trend. Overall, the Canadian customers continued to be very resilient but value-focused. And for us, offering value to customers across all formats has become a normal course of business for our team. Gross margin continued to improve this quarter, driven by operational efficiencies and disciplined execution in our stores, such as enhanced inventory control initiatives. Although strong margin improvement in our retail operation was partially offset by the mix impact of higher wholesale distribution sales, we are pleased with the combined margin improvement of 14 basis points, excluding fuel. Excluding this wholesale mix impact, gross margin improvement would have been more than 20 basis points in Q2. Overall, Empire delivered an EPS of $0.69 during the second quarter. This result is stronger than it appears when we unpack the details. Last year, Crombie had higher equity earnings driven by remeasurement gains on property as well as some noise in our second quarter results due to the necessary lockout in one of our distribution centers in Alberta and the timing of Genstar's earnings. As you know, Genstar is a residential real estate development company we hold interest in. Consta will speak more to this shortly. When we exclude these items, you see the underlying performance of our core business continued to be very strong. The reported CPI for food purchased from stores was 3.7% this quarter. Internally, we were well below the CPI number. Comparing CPI to our internal inflation is not an apples-to-apples comparison. Our internal inflation is based on all item sales across the entire period, which would be more than 30,000 weighted items per quarter, while stack can focus on approximately 200 items checked at a point of time only. We also use third-party inflation reports to understand the overall trend in the food industry, and this source confirms that our internal inflation is in line with the industry, and both measures are below CPI food inflation. We are also seeing more cost increase requests from suppliers, consistent with our peers, but it remains well under control. Lastly, a brief update on our strategic priorities. As you get to know me, you will learn that I'm always looking for where we can improve in both my personal and professional life and driven by performance. That sense of accomplishment you feel when you achieve an objective that was previously deemed unattainable. While we have good momentum across the business today, there are many areas where we can drive greater results. We have made a number of critical investments over the last several years in stores, technology, and strategic projects. And there is a lot of opportunity ahead of us to realize the full potential of these investments. We are halfway through the last year of our 3-year strategic plan, and that means a lot of the efforts we've put in are just starting to deliver results. Over the next few quarters and beyond, our focus will be squeezing every drop of juice and realizing the full value of these investments. We are also developing a refreshed strategic plan that will guide our priority longer term. And I won't be sharing all of the details today, but I can say that we are obsessed by 4 key areas: customers, stores, growth, and cost control. This focus will drive our business forward supported by great teammates. Wishing everyone a safe and happy holiday season. And with that, I'll turn it over to Consta. Constantine Pefanis: Thank you, Pierre. And congratulations again on your very well-deserved appointment. I look forward to working with you for many years to come. Good morning, everyone. We'll first look at our financial performance during the quarter. I'll provide a few comments on other income expectations and capital allocation expectations, and then we'll open it up to your questions. In Q2, adjusted EPS was $0.69, $0.04 lower than last year. But if you look behind this headline number, we delivered solid operational performance. Last quarter, we provided our expected quarterly cadence for other income and share of equity earnings. The implication was that in Q2 fiscal 2026, we would be up against very strong real estate-related earnings. As you saw in our results today, real estate-related contribution was $31 million lower compared to last year. When excluding these earnings streams in both years, our core operations delivered year-over-year adjusted EPS growth of 12.5%. This is a testament to our strong in-store execution across our retail network. Turning to the top line. We delivered Q2 food same-store sales of 2.5%, a bounce back from Q1. And as Pierre noted earlier, this was achieved through relatively stronger results in our full-service banners. In addition and more importantly, we delivered total food sales growth of 3.4%, which was above and beyond our same-store sales. This additional sales growth largely reflected new wholesale contracts with a portion also coming from increasing contribution from our new store expansion program. We anticipate contribution from both wholesale and new stores to continue growing in the quarters ahead. In Q2, our gross margin rate, excluding fuel, increased by 14 basis points versus last year. This was a result of disciplined execution and targeted efficiencies in our stores including initiatives aimed at inventory control and reducing shrink as well as better promotional mix. Serving as partial offsets this quarter where the mix impact of higher wholesale distribution sales and the margin impacts from the Rocky View lockout, which was about $0.01 split across gross margin and SG&A. As we've discussed in the past, we strive to deliver stable gross margin expansion of 10 to 20 basis points per year. When you look at it from a quarter-to-quarter basis, there may be variability that stems from quarterly specific items that may push us above or below this medium-term target. And this also impacts year-over-year comparisons in subsequent periods. Overall, I'm very happy with the consistency that we're delivering with our margin expansion initiatives. In Q2, SG&A, excluding depreciation and amortization, grew by 4.6% and the SG&A rate, excluding depreciation and amortization, increased by 34 basis points. I want to call out a few puts and takes here. We had some benefits from our LTIP, given the share price declining through the quarter. However, this was more than offset by a few notable items that have continued for a few quarters. SG&A growth stemmed from our business investments, including investments in stores, technology, and projects as well as business expansion. In addition, SG&A was also impacted by higher retail and supply chain labor costs. Lastly, we also had some one-time impacts from the lockout at Rocky View distribution center and retirement arrangement expenses. Overall, I'm happy with our sequential improvement in SG&A dollars. The company continues to focus on extracting the full benefit from our investments and exploring cost reduction strategies to improve operating leverage. And before you ask, this does include our continuous review of our e-commerce strategy. When Mohit Grover took on leadership of our e-commerce business in July 2023, he was tasked with improving overall profitability. Since then, we've ended our mutual exclusivity with Ocado, which allowed us to partner with Instacart and Uber Eats. We paused CFC4 to focus on driving volume and performance in our 3 active CFCs, and we've seen good results from these actions, but we continue to look for ways to improve profitability as the size and growth of the Canadian grocery e-commerce market remains smaller than we had originally anticipated. Other income and share of earnings from equity investments was about $31 million lower on a year-over-year basis and was slightly below our guidance provided on the Q1 quarterly call. This was mostly due to the timing of certain transactions within our share of earnings from equity investments. This shortfall will be made up in the second half of fiscal 2026. As such, we are maintaining guidance for this real estate-related income at the lower end of our range of $120 million to $140 million. We expect the quarterly cadence in the second half to be as follows: 23% in Q3, and 35% in Q4. As usual, if there are shifts in the timing of certain transactions, we will provide an update next quarter. Our effective tax rate for Q2 was 26.4% versus 26.1% last year. This year's tax rate was slightly higher due to the revaluation of tax estimates, not all of which are reoccurring while last year's tax rate was slightly lower due to benefits from non-taxable capital items. For fiscal '26 excluding the effects of any unusual transactions or differential tax rates on property sales, we continue to estimate that our effective income tax rate will be between 25% and 27%. Now on to capital allocation. Our Q2 CapEx totaled $205 million mainly due to renovations and constructions of new stores, investments in advanced analytics technology, and other technology systems. We remain on pace to spend $850 million on CapEx in fiscal 2026 with approximately 50% of this investment being allocated to store renovations and new store expansion. Our share buyback program is on track, and we expect to complete our $400 million plan for fiscal 2026. As of this week, we have repurchased 3.7 million shares for a total consideration of about $195 million. In this quarter, we reentered the debt capital markets with a $300 million 3-year note bearing interest at a fixed rate of 3.1%. This is the first time we've come to market since 2014, and we were very pleased with the response to this offering. To sum it up, we delivered strong adjusted EPS growth in the core business, which benefited from solid top-line growth, continued margin expansion, sequential SG&A improvement, and execution of our NCIB. We remain focused on achieving our long-term adjusted EPS growth target as set out in our financial framework. And with that, I'd like to wish everyone a wonderful holiday season filled with meaningful time with loved ones. I'd like to pass the call back to Katie for your questions. Katie Brine: Thank you, Consta. Ludy, you may open the line for questions at this time. Operator: [Operator Instructions] And your first question comes from Vishal Shreedhar with National Bank Financial. Vishal Shreedhar: I just want to get context from you Pierre on if we should anticipate any changes in the business now that you're taking it over? I know you're reviewing your strategic plan, but is there anything in the interim that we should expect to increase focus or decrease focus on? Pierre St-Laurent: That's a good question. Like I said in my introduction, focusing on delivering the full value of the investment we've made over the last couple of years is my focus short term. As I said also, longer term, we will focus on where I believe it matters the most. I mean focusing on being relevant for customers, first and foremost, very, very important, helping stores to better serve customers, make their lives simpler. I'm passionate about growth, but profitable growth. And I think we have to continue to be very disciplined on cost. So if we're disciplined on costs, we're growing. We're relevant for customers, and we make stores' life easier. I think the best they are yet to come for us and customers. Vishal Shreedhar: Okay. And I appreciate the comments that you gave in your opening remarks regarding your CFCs and Voilà. So Pierre, I just want to get your perspective on that, just given the shifts in the industry that from Kroger, how you see this business evolving? Is it something that you see with the CFC as an integral part for Empire going forward? Or do you think store-based delivery is the way for now? Any perspective would be appreciated. Pierre St-Laurent: I'll ask Consta to answer your question, and I will complete if it's necessary. Constantine Pefanis: Thanks, Vishal. I think where I'd like to start is that when we made the decision to partner with Ocado, we knew that it would be a long-term plan. It's a marathon more than a sprint. And given that our grocery e-commerce penetration hasn't grown at the rate that we had expected, we've been constantly looking at ways to improve our profitability and our overall e-commerce business. We ended the mutual exclusivity of Ocado. We passed CFC4. We've entered the marketplace with partnerships with third parties. All of these things are for us to address where we can see cost savings within the Voilà business but also to look at the e-commerce business more broadly. So I would say that at this point in time, as we continue to work on this moving forward, we will provide more updates as necessary. But our focus has been consistently in those areas I've mentioned, and we consistently look to perform going forward. Pierre St-Laurent: And to complete what Consta just said, Voilà is a very good platform to serve customers. When you look at KPIs, it's very good, fulfillment NPS. It's a great technology. The thing we learned is e-commerce is multichannel. At the beginning, we were all in with Voilà. Right now, we decided to end the exclusivity to be part of the third-party business, and we're very pleased that there's no cannibalization. It's different, I would say, different purpose for customers, immediacy versus planned trip. So the way we look at the e-commerce business right now is we're looking at it multichannel more than ever. And we want to make sure that we are leveraging every single channel to improve sales, improve our market share at a very profitable level. So this is our focus, and we have a lot of room ahead of us. We're focusing on it, and we're confident that we will end in a good place for customers and for shareholders. Operator: And the next question comes from Chris Li with Desjardins. Christopher Li: Just maybe a quick follow-up to the Voilà question. I just want to see if you're able to confirm just in terms of the profitability or the losses of Voilà, is that continuing to improve year-over-year right now for that business? Constantine Pefanis: Yes. So Chris, thanks for the question. We're focused on ensuring that the benefits that we're getting from all these initiatives continue to improve our overall business. When Pierre mentions the way that we're looking at this business, it's a holistic approach. We haven't paused any of our initiatives. We continue to drive efficiencies in our business. We're focused on the highest impact cost-saving opportunities. And that means we're trying to optimize across the entire network. So we're continuously looking to identify areas that give us the levers that are necessary in order to drive business with our customers more effectively. So there hasn't been a change to that strategy. We continue to push forward and I believe that with the team that we currently have in place and the aspects of how we're looking at driving these cost initiatives going forward, we're in the right spot. Pierre St-Laurent: And the answer, Chris, is yes. On a comparable basis, we're making improvement in the bottom line for the Voilà business. So we're more efficient. We are working more together more synergies with the rest of the business. We're seeing progress. But again, a lot of room to improve, and we're focusing on it. Christopher Li: No, that's helpful. And are you able to share with us just roughly what is the e-commerce penetration for Empire? Pierre St-Laurent: I don't think we have this number, and we're used to sharing this number, but I don't think so, we're sharing this for competitive reasons. Christopher Li: Okay. No, that's fair. And then, Pierre, maybe another line of question I wanted to explore with you. Obviously, competition is top of mind right now. I want to get your thoughts on in terms of what you're seeing in the marketplace right now. What are your expectations? Are you seeing any notable differences in terms of intensity between regions and banners? Pierre St-Laurent: Overall, quarter-to-quarter, I don't see major changes. So value focus for customers is a big trend. And as I said in my introduction, it's normal course of business for us to provide more value to customers in all of our formats, and we're doing well. We just have to see our same-store sales number in all formats. We're very pleased with how relevant we are with customers, and there's always room for improvement. As I said, we are seeing higher basket size, higher transaction account, which is a good sign. On promotional, the penetration is relatively stable. And in fact, there's an improvement year-over-year in this quarter. But again, from quarter-to-quarter, we can see variances, but it's into a range that it's highly manageable. I don't see more promotional penetration right now. And in fact, as I said, year-over-year, it's an improvement. But again, there's a lot of real estate activity. We're very pleased with what we're doing right now. We have our own strategy. We're very disciplined. We see a lot of opportunity to grow with all of the formats we have. As you can see, we have higher top-line growth than same-store sales. Our plan over the next year is opening more new stores when it makes sense. With all of our formats, we strongly believe that our portfolio of brands, it's a great asset for us because we are going to open a discount because we have a lot of white spaces in discount, of course, based on our penetration in discount right now, but we have also opportunity to grow our full-service business, our Farm Boy business, our Longo's business, our Foodland business because, again, it's a strength to have multiple formats to be relevant in every single market. So we remain disciplined. We remain confident and we feel that we have a lot of room to grow. We're focusing on the right format for the right market. Christopher Li: Great. Thanks very much, and happy holidays, everyone. Operator: And the next question comes from Irene Nattel with RBC Capital Markets. Irene Nattel: Thanks, and good morning, everyone. Thank you for all the commentary, very helpful. and sort of a few questions coming out of that. First of all, you said, Pierre, that you're passionate about profitable growth and one of the 4 areas with which you are obsessed is cost. Can you outline for us where you might see the biggest opportunity to improve your run rate on certain types of costs? Pierre St-Laurent: Good question. Thank you for asking it. So as I said, we made a lot of investment in the past so one-time investment in many different areas of the business, in stores, in technology, in different strategic programs. So we took the cost, but now it's time to deliver the benefit. And we strongly believe that there we're focusing on delivering benefits on the investment we've made, we will grow sales and we want to have to spend more money than the one we did before. So the focus on delivering the expected outcomes we're looking for when we made investment, is what we have to focus on. So this is an example. But again, there's many different small places in the organization we can be more nimble. And again, if it's not to better to give more value to customer, if it's not to help store to better support customers and interaction in customer service. If it's not to grow, we have to question ourselves on every single dollar we spend, if it's not for those 3 things. Discipline is the key word. And as you will know me in the future, I'm a disciplined person in my personal life and my professional life. And I'm a big fan of less is more, focused, disciplined and deliver on our commitment. Irene Nattel: And just if you had to give yourself sort of a score on 1 to 10 on where the organization is today versus where you would like to see it? Would you be able to. Pierre St-Laurent: That's a good question. I do not anticipate. I'm tough with myself. And I think if I give you a number, people won't like me. So I will -- I won't share this number with you. Irene Nattel: That's fair enough, Pierre. Fair enough. And just a different question, but again, following on some of your commentary. So this year -- this quarter, we saw 2.5% same-store sales, 3.4% total growth in part because of the new wholesale partnership. Is this an area that you would like to pursue to a greater degree would you like to be doing more partnerships? Do you think that -- how much incremental capacity do you think that you could handle in your supply chain? Pierre St-Laurent: We have a lot of capacity. We have 3 fully automated RFCs. Again, the thing is we did sign a wholesale contract. So that means we have capacity so I'm not worried about capacity in our supply chain network. I don't think we need major investment to grow in the next couple of years. However, optimizing our supply chain is very, very important because it's a big component of our SG&A. So we have to make sure our supply chain will remain very, very efficient. And we're always looking at improving the network. We made recent investments in Alberta in automation, we're looking at improving our network in Atlantic Canada right now. So we have multiple projects ahead of us to continue to improve the supply chain. But to your question related to the capacity right now, we have the capacity to grow, no doubt. Irene Nattel: That's great. And wishing you best of luck and looking forward to seeing that discipline or seeing that score move up. Operator: And the next question comes from Etienne Ricard with BMO Capital Markets. Etienne Ricard: Pierre, given you're now in the CEO seat, how do you think Empire's footprint could be different a few years from now, both in terms of banners but also from a geography perspective. Pierre St-Laurent: I [ hate averages ]. So I been involved in real estate many years in my career. I'm a big fan of looking at growth market by market. And again, because we have multiple banners that is helping us to, I would say, size all the opportunities in the -- in every single market. So we are going to grow more, I think, in terms of square footage because we believe we have room to grow. As I said before, we are underdeveloped in discount. So we will grow discount. We had a lot of white space in discount. But we won't just focus on discount because there's other markets where it's not a discount market, and there's more opportunity to grow our Farm Boy, our Longo's, our Foodland. We're going to open a new Foodland in a few weeks from now. We did open new IGAs recently, and we're going to open, we just opened Longo's. We did a conversion to Farm Boy recently with a lot of success. So we will have square footage, but we'll be very disciplined. We're not growing square footage to grow square footage. We're growing square footage to gain market share in a profitable way. This is our responsibility as -- for shareholders. And I think you will see more square footage growth than in the past. And our capital investment, I think on the capital investment we're making at store level, you will see a shift on new stores. We'll be more efficient in our renovation. We believe that we can renovate more stores, less costly, and we will reshuffle that investment on new stores in a profitable way. So it's all little tweaks but make a huge difference in our business. I'm a big fan to say that retail is details and it's in very many small details will make a huge difference. And this is an example in real estate. Tweaking we're trying to do right now will be very profitable over time for us. Etienne Ricard: Interesting. And in what markets do you think you could have a greater presence? Pierre St-Laurent: Everywhere. We see a lot of opportunity right now in Quebec. We are seeing a lot of opportunity in Ontario. Our market share can improve in Ontario. We have very good market share in Atlantic. We are investing money in Atlantic to stay relevant in this market and to a very nice store for our customers. Western Canada, we will continue to expand our FreshCo business there. We're around 50-ish store in Western Canada. We said that we want to go up to 65, and we're on track for that. And I think over the next couple of years, we will find other opportunity to continue to grow. But it's across the country. It's not just 1 region. But again, it's nice to see we don't have the same market share region-by-region. We don't have the same penetration banner by banner. This gave us the opportunity to grow more than if we have only 1 banner, and we are in only 1 market. There's a lot of room to grow. And I like real estate, I like growing. Right now, there's a lot of opportunity for consolidation in the market, and we're looking to continue to grow. Operator: And the next question comes from John Zamparo with Scotiabank. John Zamparo: Congratulations to you, Pierre. I want to start on SG&A. It seems like there are a lot of areas to invest in. You called out several of those this quarter, but it also seems like there's many initiatives underway to get costs down at the same time. So I wonder how this shakes out on a net basis over the next year, particularly in light of the stock-based compensation levels over the past year. So presumably, you're targeting SG&A growth below the pace of food sales growth. And I wonder when you anticipate you might get there. Constantine Pefanis: John, it's Consta here. Thanks for the question. It's a very good question because internally, it's a very high priority for us. Pierre's answer to the previous question around growth will be very meaningful for us if we can drive our leverage around fixed costs. We have many areas of our business, we highlighted supply chain, we're highlighting the areas of technology where we've made lots of investments. Am I going to give you a specific number and a specific time line today? The answer is no. Am I going to give you color around what we're trying to achieve over the next few quarters, yes. And that's to continue to drive absolute dollars down because as we grow across the various parts of our business, we're going to naturally see leverage. As we grow wholesale, we'll see leverage. That's not enough for us. We want to reset where we think our run rate should be on our core business. And that's where we're going to continue to put pressure on ourselves from the tone at the top and put pressure on the various leaders in the business to have that accountability that we've constantly had but with a renewed focus across the board as we go into our budgeting season and as we go into our strategic planning sessions. John Zamparo: Okay. And sticking with the cost subject, but moving up to gross margin. I think in the prepared remarks, you referenced an enhanced inventory control initiatives or initiatives. I wonder if you can unpack that a bit. It seems like an ongoing area of emphasis or focus for Empire. So can you share what is incremental about this program versus prior initiatives? And just what this plan entails? Pierre St-Laurent: It was an example we gave. Like we gave different examples in the past on promo optimization, on shrink management, on promo mix management so in this quarter, the impact of improvement came from inventory control. Again, it's not a straight line of improvement. It's a daily management focused on gross margin. It's multiple little things, private label penetration if we are delivering more penny profit with private. It's another area that we're looking at to improve gross margin. So there's many small initiatives that when we look at everything, we will -- we're confident that we'll continue to grow our margin in the range of 10 to 20 bps, but it's multiple little things. Again, retail is detail and in gross margin, there's no better example than managing gross margin with all small things and disciplined execution and good control. And now we have good tools. We did invest a lot of money in algorithms to help us to optimize the space to optimize promotion. So it's investment we've made in the past that we will continue to deliver benefit from. So in the next quarter, maybe the big improvement will come from promo optimization. And the next one will be maybe the bigger thing will be probably private label penetration. So anyway, so it's a lot of little things. So in the last quarter, we're pleased with the progress we've made in inventory control. It was another area that we believe we can do better. And we will continue to focus on a lot of small initiatives, continue to improve and to deliver on our commitment to grow margin by 10 to 20 bps over time. John Zamparo: Understood. And then 1 last one. I wanted to come back to the store mix at Empire, and I appreciate the commentary on different formats and channels and opportunities for growth. When you think about the prior strategic plan, conversions to discount were an important part of that plan? And particularly given what looks like, call it, mid-single-digit same-store sales growth in discount this quarter, I wonder how you think about the potential for a meaningful number of conversions to discount as part of your next strategic plan? Pierre St-Laurent: Most of that conversion has been done in discount. So the unprofitable full-service store have been converted as today in discount. So most of the growth in discount will come from new stores. So this is the big change compared to the last 3 years. And this is a good news because we will expand square footage. We will grow market share faster with this approach than the one we had before, it was the right one to have it before. I think it was the right decision to make. We made the right decision. We're pleased with the progress we're making in our same-store sales in Western Canada. We introduced a new brand, and we're very pleased with the response we have over there. And this is why we will continue to open new stores in Western Canada and in Ontario. So this is the big change compared to the last 3 years. Operator: And the next question comes from Michael Van Aelst with TD Cowen. Michael Van Aelst: Welcome Pierre. So a few questions to follow up on. First of all, when you -- the new wholesale contracts that you're taking on, are any of those being executed through the Voilà CFCs? Or are they all through your normal DCs? Pierre St-Laurent: Good question. We asked that question to ourselves at the beginning. It's the type of product and I think we have many wholesale contracts. We had many in the past. So this is not a new business for us. It's a business that we're running for many years. We have long-term customers on wholesale, it's just a matter of this year, we have the opportunity to sign new contracts, and we're pleased with the new contract we did sign. We are looking at other opportunities to continue to grow. We like it because it's not big gross margin, but there's no cost, almost no cost except the supply chain costs. We have no SG&A to handle. So we are using our existing assets that -- and we have capacity right now. So it's a good complementary business for us. It's good relationship also because sometimes when we do a wholesale contract, we have to look at the assortment, and sometimes, we're seeing opportunity to consolidate our volume together. So there's margin expansion possible when we have good partnership, not just distributing but building strong collaboration partnership with wholesale customers is sometimes very interesting. This is what we expect to do going forward. And this year, we have tailwinds on the wholesale business. Michael Van Aelst: I'm not sure if I missed it, but is any of it going through Voilà or is it all going through... Pierre St-Laurent: No. No, it's not -- it's very different. We're serving stores. We're not serving customers. We're serving wholesale brands that we're not owning so this is not that because Voilà is to -- it's a customer fulfillment center. It's not a distribution center. So Voilà is built to deliver customers' orders more than stores orders. We have this automated facility to deliver store orders, and it's very efficient. We're in this business for many years. We have been the first to invest in automation, and we're very pleased with the results. We have 3 big facilities in the country, and we're leveraging that a lot. So yes, automated facilities are used to serve those wholesale customers. Michael Van Aelst: Okay. And then your gross margin expansion so 14 basis points is still very good, but it has fallen from like roughly 30 to 70 basis points, excluding few of the last 7 quarters, I believe. So what are you cycling off of? Is it the shrink improvements that are starting to normalize now? Or is there something else? Pierre St-Laurent: There's no 1 little -- there's no 1 thing. Again, it's good. The biggest thing is the discipline in the promo mix management, promo penetration. This is the most important thing, my opinion. But promo optimization tools we have in place, shrink management, being more sharp inventory control. It's very important. It's multiple little things. And to your comments, and as I said, the wholesale contract, we have lower margin. So this is -- we said that in the introduction. It's 14 bps, but when you remove the wholesale business, it's around 20 bps so there's -- the mix of sales is impacting that gross margin rate. It's like when we have higher fresh sales than grocery sales. This is good for the margin rate. And the other thing is, as a reminder, we grew margin over the last 28 quarters. So I think we did a pretty good job on margin. So the best -- so we did improve in some quarter, we were, what, 50, 60, 80 bps improved. The best -- I don't expect this is what we said that before. We are expecting 10 to 20 bps improvement over time because of that because we are at a level now, we're not anticipating 100 bps improvement, but 10 to 20 with the initiatives we have in place and the efficiencies of promo mix management and the competency of our team in merchandising and in store, we believe that the 10, 20 is highly achievable. Michael Van Aelst: Okay. Great. And then just final question. You talked earlier about being halfway to your 3-year strategic plan and that your benefits are starting to come through now and you're focusing on this in the short term. You highlighted the cost control initiatives, and you talked a little bit about the store and new store opportunities, what else would fall into a big bucket in those areas where you think you can reap some real benefits from those that 3-year plan? Constantine Pefanis: Michael, it's Consta here. And I think when we talk about those 4 areas, that's framing it not only for the external audience, but it's also framing it within our company across the board. So growth to us. A lot of that's going to come down to improving sales productivity in various locations, using our banners to drive incrementality. We opened up a Farm Boy location down the street from an existing one, and we saw immediate increases to sales. I mean those are the opportunities that we're constantly looking at. But I think from my perspective, it also comes down to capital allocation and the ability to identify areas of the business where we can grow potentially through joint ventures, acquisitions, things that are going to give us a lever for the future. Operator: And the next question comes from Mark Petrie with CIBC. Mark Petrie: Most of my topics have been covered. But I wanted to just ask, wholesale, obviously, is an example of leveraging your assets. Curious to hear about other opportunities you might see today to do that. Thinking about things like retail media or potentially other opportunities in your supply chain. I know these aren't necessarily new to you, but where do you stand on these today? And is that an area that you expect to put more attention to? Constantine Pefanis: Definitely. Mark, it's a great question because as we look at evolving again, going back to the growth, we want to have areas of our business that we can put more investment into if it makes sense, right? This isn't just growth for the sake of growing. It's being able to leverage our existing asset base. We are in the retail media business. We have put investment into people, right? It's very important that we have the right people driving this business forward. We continuously are looking for better ways to do that business. And technology is a big part of that, right? Leveraging our various investments and our existing technology is going to be a very big catalyst for us. Having the ability to drive further utilization of our assets on our supply chain. These are the kinds of discussions that are going to be very important for us to be able to reduce our net expense. Pierre St-Laurent: That's a good point on retail media. It's an area where we see a lot of opportunity to grow. We're new in this business, but it's a lot of growth ahead of us for us. So this is very interesting. Like Consta said, supply chain is doing a good job on using transport as a service, but there's room to grow also there. And the team is focusing on it. So we're new in those businesses, not new, but we are underdeveloped, I would say that, that way. And this is interesting because this will help the overall financial equation. It's additional growth. The investment is made, and we just have to capture the benefit and focus on it. But this is why I like to say that we did a lot of good investment in the past. And we just have to focus on those investments and squeezing the juice and in many different small places that will make a huge difference when we combine everything together. Mark Petrie: Yes. Understood. Okay. And I guess just to bring it back to the quarter very specifically, food retail EBITDA was down slightly. Obviously, cost control is a major area of focus, is that the lever that you need to pull in order to get that back to positive territory? Or how should we sort of think about that results with the quarter and sort of the run rate going forward? Constantine Pefanis: Absolutely, Mark. I think that's the key part to this. Even though we were very happy with the way that our core business performed in the quarter, that's going to be the key for us to be able to continuously improve. Closing that gap and being able to drive that food EBITDA margin is what drives the engine. Pierre St-Laurent: The good news is the toughest thing are delivering sales growth on a profitable way, having good control on our margin because we rely on customer behaviors and things like that. On those 2 fronts, we're very pleased on what we achieved, the cost is a self-inflicted thing. So we can focus on it and we can have results very quickly if we're focusing on it. But the element that is tougher to do, we're doing well there. This is why we're optimistic. This is why when we travel the country and we spoke to our teammates, the teammates are very energized. They took the Board decision to not because me because the decision the Board made to do the succession internally. It's a big act of confidence from the Board that we're doing well. We're in the right direction, and we expect that will continue in this direction. And that gives a lot of energy to our teammates, and this is why we're optimistic for the future. The collaboration across the country is just amazing. I was there, I would say, 7 to 8 years ago when we were 4 different regions, we were working by ourselves in our region. Now, it's unbelievable. All best practices are shared across the country with all our banners, with all our formats, this is how retail should work, and I am a big fan of collaboration between functions. But now we're ahead of it. We're collaborating by regionally, nationally and by function and by format. So this is very nice to see the energy. That gives me a lot of energy. I can -- I think you can feel it. And now we have to focus and deliver on it. Mark Petrie: Yes. Excellent. Okay. Thanks for all the comments. Congrats, Pierre, on the appointment and happy holidays. Operator: And we have no further questions at this time. I would like to turn it back to Katie Brine for closing remarks. Katie Brine: Thank you, Ludy. We appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by e-mail. We look forward to having you join us for our third quarter fiscal 2026 conference call on March 12. Happy holidays. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Empire Second Quarter 2026 Conference Call. [Operator Instructions] This call is being recorded on Thursday, December 11, 2025. I would now like to turn the conference over to Katie Brine, Vice President, Investor Relations. Please go ahead. Katie Brine: Thank you, Ludy. Good morning, and thank you all for joining us for our second quarter conference call. Today, we will provide summary comments on our results and then open the call for questions. This call is being recorded, and the audio recording will be available on the company's website at empireco.ca. There is a short summary document outlining the points of our quarter available on our website as well. Joining me on the call this morning are Pierre St. Laurent, our new President and Chief Executive Officer; and Consta Pefanis, Chief Financial Officer. Today's discussion includes forward-looking statements. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release and MD&A for more information on these assumptions and factors. I will now turn the call over to Pierre St. Laurent. Pierre St-Laurent: Thanks, Katie. Good morning, everyone. I'm pleased to be speaking with you today for my first quarterly earnings call as CEO. I've spent my career at Empire in multiple roles, most recently as COO, working closely with our stores and teammates to serve customers. As a company, we have been on an incredible journey that has included the transformation period of Project Sunrise and Horizon, managing through COVID-19 pandemic, tariff and continuing to grow our business and deliver strong results through ongoing market volatility over the last few years. Over the last month, the executive leadership team and I have had the pleasure to travel the country and visit teammates coast to coast. We are very proud of what we saw. Empire is in excellent shape today and operating very well. Teammates have a strong collaborative dynamic, and we have significant opportunities ahead of us to capture. Before I get into the details of the quarter, I'd like to take this opportunity to thank Michael on behalf of the entire Empire team for his energy and leadership over the last 9 years. He led us through a significant transformation and help us navigate the unprecedented headwinds of global pandemic and the worst inflation in 4 decades. And personally, he continually gave me opportunity to take on more responsibility and see more of the company so that I'm now very well prepared to step into the CEO role. Pierre St-Laurent: Turning into our Q2 results. This was a solid quarter for Empire. Excluding other income and share of earnings from equity investments, our core business improved by 12.5% over last year. Same-store sales picked up momentum in line with our expectations, and we continue to deliver sustained gross margin growth. Our core operations delivered strong operating income. I'll focus on 3 topics today. Our Q2 results and market trends, the current environment and our strategic priorities. This update will focus on the core business performance, removing the noise from timing of other income, which Consta can speak to in more detail shortly. Pierre St-Laurent: First, our results and market trends. Food sales grew 3.4% this quarter, with same-store sales growth of 2.5%. Our full-service stores continue to grow supported by our commitment to provide value across all of our formats. In fact, our full-service same-store sales grew by more than 2% this quarter. I hesitate to give that level of detail. But for this quarter only, I wanted to set up the record straight when it comes to our full service performance. It is a healthy business with a lot of room to grow. Our discount business also continued to perform well, gaining market share in its respective channel in Q2, supported by strong top line growth and a very strong operating income. This quarter, we saw volatility in the market with some positive signs as well as ongoing uncertainty. We are encouraged to see increasing customer traffic and basket size in stores as well as a relatively typical and manageable promotion penetration trend. Overall, the Canadian customers continued to be very resilient but value focused. And for us, offering value to customers across all formats has become a normal course of business for our team. Gross margin continued to improve this quarter, driven by operational efficiencies and disciplined execution in our stores, such as an enhanced inventory control initiatives. Although strong margin improvement in our retail operation was partially offset by the mix impact of higher wholesale distribution sales, we are pleased with the combined margin improvement of 14 basis points, excluding fuel. Excluding this wholesale mix impact, gross margin improvement would have been more than 20 basis points in Q2. Overall, Empire delivered an EPS of $0.69 during the second quarter. This result is stronger than it appears when we unpack the details. Last year, Crombie had an higher equity earnings driven by remeasurement gains on property as well as some noise in our second quarter results due to the necessary lockout in one of our distribution center in Alberta and timing of Genstar's earnings. As you know, Genstar is a residential real estate development company we hold interest in. Consta will speak more to this shortly. When we expect -- when we exclude these items, you see the underlying performance of our core business continued to be very strong. The reported CPI for food purchased from stores was 3.7% this quarter. Internally, we were well below the CPI number. Comparing CPI to our internal inflation is not an apples-to-apples comparison. Our internal inflation is based on all item sales across the entire period, which would be more than 30,000 weighted items per quarter, while stack can focused on approximately 200 items checked at point of time only. We also use third-party inflation report to understand the overall trend in the food industry, and this source confirms that our internal inflation is in line with the industry, and both measures are below CPI food inflation. We are also seeing more cost increases requests from suppliers, consistent with our peers, but it remains well under control. Lastly, a brief update on our strategic priorities. As you get to know me, you will learn that I'm always looking for where we can improve in both my personal and professional life and driven by performance. That sense of accomplishment you feel when you achieve an objective that was previously deemed unattainable. While we have good momentum across the business today, there are many areas where we can drive greater results. We have made a number of critical investments over the last several years in stores, technology and strategic projects. And there is a lot of opportunity ahead of us to realize the full potential of these investments. We are halfway through the last year of our 3-year strategic plan, and that means a lot of the efforts we've put in are just starting to deliver results. Over the next few quarters and beyond, our focus will be squeezing every drop of juice and realizing the full value of these investments. We are also developing a refreshed strategic plan that will guide our priority longer term. And I won't be sharing all of the details today, but I can say that we are obsessed by 4 key areas: customers, stores, growth and cost control. This focus will drive our business forward supported by great teammates. Wishing everyone a safe and happy holiday season. And with that, I'll turn it over to Consta. Constantine Pefanis: Thank you, Pierre. And congratulations again on your very well-deserved appointment. I look forward to working with you for many years to come. Good morning, everyone. We'll first look at our financial performance during the quarter. I'll provide a few comments on other income expectations and capital allocation expectations, and then we'll open it up to your questions. In Q2, adjusted EPS was $0.69, $0.04 lower than last year. But if you look behind this headline number, we delivered solid operational performance. Last quarter, we provided our expected quarterly cadence for other income and share of equity earnings. Implication was that in Q2 fiscal 2026, we would be up against very strong real estate related earnings. As you saw in our results today, real estate-related contribution was $31 million lower compared to last year. When excluding these earnings streams in both years, our core operations delivered year-over-year adjusted EPS growth of 12.5%. This is a testament of our strong in-store execution across our retail network. Constantine Pefanis: Turning to the top line. We delivered Q2 food same-store sales of 2.5%, a bounce back from Q1. And as Pierre noted earlier, this was achieved through relatively stronger results in our full-service banners. In addition and more importantly, we delivered total food sales growth of 3.4%, which was above and beyond our same-store sales. This additional sales growth largely reflected new wholesale contracts with a portion also coming from increasing contribution from our new store expansion program. We anticipate contribution from both wholesale and new stores to continue growing in the quarters ahead. Constantine Pefanis: In Q2, our gross margin rate, excluding fuel, increased by 14 basis points versus last year. This was a result of disciplined execution and targeted efficiencies in our stores including initiatives aimed at inventory control and reducing shrink as well as better promotional mix. Serving as partial offsets this quarter where the mix impact of higher wholesale distribution sales and the margin impacts from the Rocky View lockout, which was about $0.01 split across gross margin and SG&A. As we've discussed in the past, we strive to deliver stable gross margin expansion of 10 to 20 basis points per year. When you look at it from a quarter-to-quarter basis, there may be variability that stems from quarterly specific items that may push us above or below this medium-term target. And this also impacts year-over-year comparisons in subsequent periods. Overall, I'm very happy with the consistency that we're delivering with our margin expansion initiatives. Constantine Pefanis: In Q2, SG&A, excluding depreciation and amortization, grew by 4.6% and the SG&A rate, excluding depreciation and amortization, increased by 34 basis points. I want to call out a few puts and takes here. We had some benefits from our LTIP, given the share price declining through the quarter. However, this was more than offset by a few notable items that have continued for a few quarters. SG&A growth stemmed from our business investments, including investments in stores, technology and projects as well as business expansion. In addition, SG&A was also impacted by higher retail and supply chain labor costs. Lastly, we also had some onetime impacts from the lockout at Rocky View distribution center and retirement arrangement expenses. Overall, I'm happy with our sequential improvement in SG&A dollars. The company continues to focus on extracting the full benefit from our investments and exploring cost reduction strategies to improve operating leverage. And before you ask, this does include our continuous review of our e-commerce strategy. When Mohit Grover took on leadership of our e-commerce business in July 2023, he was tasked with improving overall profitability. Since then, we've ended our mutual exclusivity with Ocado, which allowed us to partner with Instacart and Uber Eats. We paused CFC4 to focus on driving volume and performance in our 3 active CFCs, and we've seen good results from these actions, but we continue to look for ways to improve profitability as the size and growth of the Canadian grocery e-commerce market remains smaller than we had originally anticipated. Constantine Pefanis: Other income and share of earnings from equity investments was about $31 million lower on a year-over-year basis and was slightly below our guidance provided on the Q1 quarterly call. This was mostly due to timing of certain transactions within our share of earnings from equity investments. This shortfall will be made up in the second half of fiscal 2026. As such, we are maintaining guidance for this real estate related income at the lower end of our range of $120 million to $140 million. We expect the quarterly cadence in the second half to be as follows: 23% in Q3, and 35% in Q4. As usual, if there are shifts in timing of certain transactions, we will provide an update next quarter. Constantine Pefanis: Our effective tax rate for Q2 was 26.4% versus 26.1% last year. This year's tax rate was slightly higher due to the revaluation of tax estimates, not all of which are reoccurring while last year's tax rate was slightly lower due to benefits from nontaxable capital items. For fiscal '26 excluding the effects of any unusual transactions or differential tax rates on property sales, we continue to estimate that our effective income tax rate will be between 25% and 27%. Constantine Pefanis: Now on to capital allocation. Our Q2 CapEx totaled $205 million mainly due to renovations and constructions of new stores, investments in advanced analytics technology and other technology systems. We remain on pace to spend $850 million on CapEx in fiscal 2026 with approximately 50% of this investment being allocated to store renovations and new store expansion. Our share buyback program is on track, and we expect to complete our $400 million plan for fiscal 2026. As of this week, we have repurchased 3.7 million shares for a total consideration of about $195 million. In this quarter, we reentered the debt capital markets with a $300 million 3-year note bearing interest at a fixed rate of 3.1%. This is the first time we've come to market since 2014, and we were very pleased with the response to this offering. To sum it up, we delivered strong adjusted EPS growth in the core business, which benefited from solid top line growth, continued margin expansion, sequential SG&A improvement and execution of our NCIB. We remain focused on achieving our long-term adjusted EPS growth target as set out in our financial framework. And with that, I'd like to wish everyone a wonderful holiday season filled with meaningful time with loved ones. I'd like to pass the call back to Katie for your questions. Katie Brine: Thank you, Consta. Ludy, you may open the line for questions at this time. Operator: [Operator Instructions] And your first question comes from Vishal Shreedhar with National Bank Financial. Vishal Shreedhar: I just want to get context from you Pierre on if we should anticipate any changes in the business now that you're taking it over? I know you're reviewing your strategic plan, but is there anything in the interim that we should expect to increase focus or decrease focus on? Pierre St-Laurent: That's a good question. Like I said in my introduction, focusing on delivering the full value of the investment we've made over the last couple of years is my focus short term. As I said also, longer term, we will focus on where I believe it matters the most. I mean focusing on being relevant for customers, first and foremost, very, very important, helping stores to better serve customers, make their lives simpler. I'm passionate by growth, but profitable growth. And I think we have to continue to be very disciplined on cost. So if we're disciplined on costs, we're growing. We're relevant for customers, and we make stores life easier. I think the best they are yet to come for us and customers. Vishal Shreedhar: Okay. And I appreciate the comments that you gave in the -- in your opening remarks regarding your CFCs and Voilà. So Pierre, I just want to get your perspective on that, just given the shifts in the industry that from Kroger, how you see this business evolving? Is it something that you see with the CFC as an integral part for Empire going forward? Or do you think store-based delivery is the wait for now? Any perspective would be appreciated. Pierre St-Laurent: I'll ask Consta to answer your question, and I will complete if it's necessary. Constantine Pefanis: Thanks, Vishal. I think where I'd like to start is that when we made the decision to partner with Ocado, we knew that it would be a long-term plan. It's a marathon more than a sprint. And given that our grocery e-commerce penetration hasn't grown at the rate that we had expected, we've been constantly looking at ways to improve our profitability and our overall e-commerce business. We ended the mutual exclusivity of Ocado. We passed CFC4. We've entered the marketplace with partnerships with third parties. All of these things are for us to address where we can see cost savings within the Voilà business but also to look at the e-commerce business more broadly. So I would say that at this point in time, as we continue to work on this moving forward, we will provide more updates as necessary. But our focus has been consistently in those areas I've mentioned, and we consistently look to perform going forward. Pierre St-Laurent: And to complete what Consta just said, Voilà is a very good platform to serve customer. When you look at KPIs, it's very good, fulfillment NPS. It's a great technology. The thing we learned is e-commerce is multichannel. At the beginning, we were all in with Voilà. Right now, we decided to end the exclusivity to be part of the third-party business, and we're very pleased that there's no cannibalization. It's different, I would say, different purpose for customers, immediacy versus planned trip. So the way we look at the e-commerce business right now is we're looking at it multichannel more than ever. And we want to make sure that we are leveraging every single channel to improve sales, improve our market share at a very profitable level. So this is our focus, and we have a lot of room ahead of us. We're focusing on it, and we're confident that we will end in a good place for customers and for shareholders. Operator: And the next question comes from Chris Li with Desjardins. Christopher Li: Just maybe a quick follow-up to the Voilà question. I just want to see if you're able to confirm just in terms of the profitability or the losses of Voilà, is that continuing to improve year-over-year right now for that business? Constantine Pefanis: Yes. So Chris, thanks for the question. We're focused on ensuring that the benefits that we're getting from all these initiatives continue to improve our overall business. When Pierre mentions the way that we're looking at this business, it's a holistic approach. We haven't paused any of our initiatives. We continue to drive efficiencies in our business. We're focused on the highest impact cost saving opportunities. And that means we're trying to optimize across the entire network. So we're continuously looking to identify areas that give us the levers that are necessary in order to drive business with our customers more effectively. So there hasn't been a change to that strategy. We continue to push forward and I believe that with the team that we currently have in place and the aspects of how we're looking at driving these cost initiatives going forward, we're in the right spot. Pierre St-Laurent: And the answer, Chris, is yes. On a comparable basis, we're making improvement in the bottom line for the Voilà business. So we're more efficient. We are working more together more synergies with the rest of the business. We're seeing progress. But again, a lot of room to improve, and we're focusing on it. Christopher Li: No, that's helpful. And are you able to share with us just roughly what is the e-commerce penetration for Empire. Pierre St-Laurent: I don't think we have this number, and we're used to share this number, but I don't think so, we're sharing this for competitive reason. Christopher Li: Okay. No, that's fair. And then, Pierre, maybe another line of question I wanted to explore with you. Obviously, competition is top of mind right now. I want to get your thoughts on in terms of what you're seeing in the marketplace right now. What are your expectations? Are you seeing any notable differences in terms of intensity between regions and banners? Pierre St-Laurent: Overall, quarter-to-quarter, I don't see major changes. So value focus for customers is a big trend. And as I said in my introduction, it's normal course of business for us to provide more value to customers in all of our formats, and we're doing well. We just have to see our same-store sales number in all formats. We're very pleased with how relevant we are with customers, and there's always room for improvement. As I said, we are seeing higher basket size, higher transaction account, which is a good sign. On promotional, the penetration is relatively stable. And in fact, there's an improvement year-over-year. in this quarter. But again, from quarter-to-quarter, we can see variances, but it's into a range that it's highly manageable. I don't see more promotional penetration right now. And in fact, as I said, year-over-year, it's an improvement. But again, there's a lot of real estate activity. We're very pleased with what we're doing right now. We have our own strategy. We're very disciplined. We see a lot of opportunity to grow with all of the format we have. As you can see, we have higher top line growth than same-store sales. Our plan over the next year is opening more new stores when it makes sense. With all of our formats, we strongly believe that our portfolio of brands, it's a great asset for us because we are going to open a discount because we have a lot of white spaces in discount, of course, based on our penetration in discount right now, but we have also opportunity to grow our full-service business our Farm Boy business our Longo's business our Foodland business because, again, it's a strength to have multiple formats to be relevant in every single market. So we remain disciplined. We remain confident and we feel that we have a lot of room to grow. We're focusing on the right format for the right market. Christopher Li: Great. Thanks very much, and happy holidays, everyone. Operator: And the next question comes from Irene Nattel with RBC Capital Markets. Irene Nattel: Thanks, and good morning, everyone. Thank you for all the commentary, very helpful. and sort of a few questions coming out of that. First of all, you said, Pierre, that you're passionate about profitable growth and one of the 4 areas with which you are obsessed is cost. Can you outline for us where you might see the biggest opportunity to improve your run rate on certain types of costs? Pierre St-Laurent: Good question. Thank you for asking it. So as I said, we made a lot of investment in the past so onetime investment in many different areas of the business, in stores, in technology, in different strategic program. So we took the cost, but now it's time to deliver the benefit. And we strongly believe that there we're focusing on delivering benefits on the investment we've made, we will grow sales and we want to have to spend more money than the one we did before. So the focus on delivering the expected outcomes we're looking for when we made investment, is what we have to focus on. So this is an example. But again, there's many different small places in the organization we can be more nimble. And again, if it's not to better to give more value to customer, if it's not to help store to better support customers and interaction in customer service. If it's not to grow, we have to question ourselves on every single dollar we spend, if it's not for those 3 things. Discipline is the key word. And as you will know me in the future, I'm a disciplined person in my personal life and my professional life. And I'm a big fan of less is more, focused, disciplined and deliver on our commitment. Irene Nattel: And just if you had to give yourself sort of a score on 1 to 10 on where the organization is today versus where you would like to see it? Would you be able to. Pierre St-Laurent: That's a good question. I do not anticipate. I'm tough with myself. And I think if I give you a number, people won't like me. So I will -- I won't share this number with you. Irene Nattel: That's fair enough, Pierre. Fair enough. And just a different question, but again, following on some of your commentary. So this year -- this quarter, we saw 2.5% same-store sales, 3.4% total growth in part because of the new wholesale partnership. Is this an area that you would like to pursue to a greater degree would you like to be doing more partnerships? Do you think that -- how much incremental capacity do you think that you could handle in your supply chain? Pierre St-Laurent: We have a lot of capacity. We have 3 fully automated RFCs. Again, the thing is we did sign a wholesale contract. So that means we have capacity so I'm not worried about capacity in our supply chain network. I don't think we need major investment to grow in the next couple of years. However, optimizing our supply chain is very, very important because it's a big component of our SG&A. So we have to make sure our supply chain will remain very, very efficient. And we're always looking at improving the network. We made recent investments in Alberta in automation, we're looking at improving our network in Atlantic Canada right now. So we have multiple projects ahead of us to continue to improve the supply chain. But to your question related to the capacity right now, we have the capacity to grow, no doubt. Irene Nattel: That's great. And wishing you best of luck and looking forward to seeing that discipline or seeing that score move up. Operator: And the next question comes from Etienne Ricard with BMO Capital Markets. Etienne Ricard: Pierre, given you're now in the CEO seat, how do you think Empire's footprint could be different a few years from now, both in terms of banners but also from a geography perspective. Pierre St-Laurent: I [ hate averages ]. So I been involved in real estate many years in my career. I'm a big fan of looking at growth market by market. And again, because we have multiple banners that is helping us to, I would say, size all the opportunities in the -- in every single market. So we are going to grow more, I think, in terms of square footage because we believe we have room to grow. As I said before, we are underdeveloped in discount. So we will grow discount. We had a lot of white space in discount. But we won't just focus on discount because there's other markets where it's not a discount market, and there's more opportunity to grow our Farm Boy, our Longo's, our Foodland. We're going to open a new Foodland in a few weeks from now. We did open new IGAs recently, and we're going to open, we just opened Longo's. We did a conversion to Farm Boy recently with a lot of success. So we will have square footage, but we'll be very disciplined. We're not growing square footage to grow square footage. We're growing square footage to gain market share in a profitable way. This is our responsibility as -- for shareholders. And I think you will see more square footage growth than in the past. And our capital investment, I think on the capital investment we're making at store level, you will see a shift on new stores. We'll be more efficient in our renovation. We believe that we can renovate more stores, less costly, and we will reshuffle that investment on new stores in a profitable way. So it's all little tweaks but make a huge difference in our business. I'm a big fan to say that retail is details and it's in very many small details will make a huge difference. And this is an example in real estate. Tweaking we're trying to do right now will be very profitable over time for us. Etienne Ricard: Interesting. And in what markets do you think you could have a greater presence? Pierre St-Laurent: Everywhere. We see a lot of opportunity right now in Quebec. We are seeing a lot of opportunity in Ontario. Our market share can improve in Ontario. We have very good market share in Atlantic. We are investing money in Atlantic to stay relevant in this market and to a very nice store for our customers. Western Canada, we will continue to expand our FreshCo business there. We're around 50-ish store in Western Canada. We said that we want to go up to 65, and we're on track for that. And I think over the next couple of years, we will find other opportunity to continue to grow. But it's across the country. It's not just 1 region. But again, it's nice to see we don't have the same market share region-by-region. We don't have the same penetration banner by banner. This gave us the opportunity to grow more than if we have only 1 banner, and we are in only 1 market. There's a lot of room to grow. And I like real estate, I like growing. Right now, there's a lot of opportunity for consolidation in the market, and we're looking to continue to grow. Operator: And the next question comes from John Zamparo with Scotiabank. John Zamparo: Congratulations to you, Pierre. I want to start on SG&A. It seems like there are a lot of areas to invest in. You called out several of those this quarter, but it also seems like there's many initiatives underway to get costs down at the same time. So I wonder how this shakes out on a net basis over the next year, particularly in light of the stock-based compensation levels over the past year. So presumably, you're targeting SG&A growth below the pace of food sales growth. And I wonder when you anticipate you might get there. Constantine Pefanis: John, it's Consta here. Thanks for the question. It's a very good question because internally, it's a very high priority for us. Pierre's answer to the previous question around growth will be very meaningful for us if we can drive our leverage around fixed costs. We have many areas of our business, we highlighted supply chain, we're highlighting the areas of technology where we've made lots of investments. Am I going to give you a specific number and a specific time line today? The answer is no. Am I going to give you color around what we're trying to achieve over the next few quarters, yes. And that's to continue to drive absolute dollars down because as we grow across the various parts of our business, we're going to naturally see leverage. As we grow wholesale, we'll see leverage. That's not enough for us. We want to reset where we think our run rate should be on our core business. And that's where we're going to continue to put pressure on ourselves from the tone at the top and put pressure on the various leaders in the business to have that accountability that we've constantly had but with a renewed focus across the board as we go into our budgeting season and as we go into our strategic planning sessions. John Zamparo: Okay. And sticking with the cost subject, but moving up to gross margin. I think in the prepared remarks, you referenced an enhanced inventory control initiatives or initiatives. I wonder if you can unpack that a bit. It seems like an ongoing area of emphasis or focus for Empire. So can you share what is incremental about this program versus prior initiatives? And just what this plan entails? Pierre St-Laurent: It was an example we gave. Like we gave different examples in the past on promo optimization, on shrink management, on promo mix management so in this quarter, the impact of improvement came from inventory control. Again, it's not a straight line of improvement. It's a daily management focused on gross margin. It's multiple little things, private label penetration if we are delivering more penny profit with private. It's another area that we're looking at to improve gross margin. So there's many small initiatives that when we look at everything, we will -- we're confident that we'll continue to grow our margin in the range of 10 to 20 bps, but it's multiple little things. Again, retail is detail and in gross margin, there's no better example than managing gross margin with all small things and disciplined execution and good control. And now we have good tools. We did invest a lot of money in algorithms to help us to optimize the space to optimize promotion. So it's investment we've made in the past that we will continue to deliver benefit from. So in the last quarter, we're pleased with the progress we've made in inventory control. It was another area that we believe we can do better. And we will continue to focus on a lot of small initiatives, continue to improve and to deliver on our commitment to grow margin by 10 to 20 bps over time. John Zamparo: Understood. And then 1 last one. I wanted to come back to the store mix at Empire, and I appreciate the commentary on different formats and channels and opportunities for growth. When you think about the prior strategic plan, conversions to discount were an important part of that plan? And particularly given what looks like, call it, mid-single-digit same-store sales growth in discount this quarter, I wonder how you think about the potential for a meaningful number of conversions to discount as part of your next strategic plan? Pierre St-Laurent: Most of that conversion has been done in discount. So the unprofitable full-service store have been converted as today in discount. So most of the growth in discount will come from new stores. So this is the big change compared to the last 3 years. And this is a good news because we will expand square footage. We will grow market share faster with this approach than the one we had before, it was the right one to have it before. I think it was the right decision to make. We made the right decision. We're pleased with the progress we're making in our same-store sales in Western Canada. We introduced a new brand, and we're very pleased with the response we have over there. And this is why we will continue to open new stores in Western Canada and in Ontario. So this is the big change compared to the last 3 years. Operator: And the next question comes from Michael Van Aelst with TD Cowen. Michael Van Aelst: Welcome Pierre. So a few questions to follow up on. First of all, when you -- the new wholesale contracts that you're taking on, are any of those being executed through the Voilà CFCs? Or are they all through your normal DCs? Pierre St-Laurent: Good question. We asked that question to ourselves at the beginning. It's the type of product and I think we have many wholesale contract. We had many in the past. So this is not a new business for us. It's a business that we're running for many years. We have long-term customers on wholesale, it's just a matter of this year, we have the opportunity to sign new contracts, and we're pleased with the new contract we did sign. We are looking at other opportunities to continue to grow. We like it because it's not big gross margin, but there's no cost, almost no cost except the supply chain costs. We have no SG&A to handle. So we are using our existing assets that -- and we have capacity right now. So it's a good complementary business for us. It's good relationship also because sometimes when we do an wholesale contract, we have to look at the assortment, and sometimes, we're seeing opportunity to consolidate our volume together. So there's margin expansion possible when we have good partnership, not just distributing but building strong collaboration partnership with wholesale customers is sometimes very interesting. This is what we expect to do going forward. And this year, we have tailwinds on the wholesale business. Michael Van Aelst: I'm not sure if I missed it, but is any of it going through Voilà or is it all going through... Pierre St-Laurent: No. No, it's not -- it's very different. We're serving stores. We're not serving customer. We're serving wholesale brand that we're not owning so this is not that because Voilà is to -- it's a customer fulfillment center. It's not a distribution center. So Voilà is built to deliver customers' orders more than stores orders. We have this automated facility to deliver store orders, and it's very efficient. We're in this business since many years. We have been the first to invest in automation, and we're very pleased with the results. We have 3 big facility in the country, and we're leveraging that a lot. So yes, automated facility are used to serve those wholesale customers. Michael Van Aelst: Okay. And then your gross margin expansion so 14 basis points is still very good, but it has fallen from like roughly 30 to 70 basis points, excluding few of the last 7 quarters, I believe. So what are you cycling off of? Is it the shrink improvements that are starting to normalize now? Or is there something else? Pierre St-Laurent: There's no 1 little -- there's no 1 thing. Again, it's good. The biggest thing is the discipline in the promo mix management, promo penetration. This is the most important thing, my opinion. But promo optimization tools we have in place, shrink management, being more sharp inventory control. It's very important. It's multiple little things. And to your comments, and as I said, the wholesale contract, we have lower margin. So this is -- we said that in the introduction. It's 14 bps, but when you remove the wholesale business, it's around 20 bps so there's -- the mix of sales is impacting that gross margin rate. It's like when we have higher fresh sales than grocery sales. This is good for the margin rate. And the other thing is, as a reminder, we grew margin over the last 28 quarters. So I think we did a pretty good job on margin. So the best -- so we did improve in some quarter, we were, what, 50, 60, 80 bps improved. The best -- I don't expect this is what we said that before. We are expecting 10 to 20 bps improvement over time because of that because we are at a level now, we're not anticipating 100 bps improvement, but 10 to 20 with the initiatives we have in place and the efficiencies of promo mix management and the competency of our team in merchandising and in store, we believe that the 10, 20 is highly achievable. Michael Van Aelst: Okay. Great. And then just final question. You talked earlier about being halfway to your 3-year strategic plan and that your benefits are starting to come through now and you're focusing on this in the short term. You highlighted the cost control initiatives, and you talked a little bit about the store and new store opportunities, what else would fall into a big bucket in those areas where you think you can reap some real benefits from those that 3-year plan? Constantine Pefanis: Michael, it's Consta here. And I think when we talk about those 4 areas, that's framing it not only for the external audience, but it's also framing it within our company across the board. So growth to us. A lot of that's going to come down to improving sales productivity in various locations, using our banners to drive incrementality. We opened up a Farm Boy location down the street from an existing one, and we saw immediate increases to sales. I mean those are the opportunities that we're constantly looking at. But I think from my perspective, it also comes down to capital allocation and the ability to identify areas of the business where we can grow potentially through joint ventures, acquisitions, things that are going to give us a lever for the future. Operator: And the next question comes from Mark Petrie with CIBC. Mark Petrie: Most of my topics have been covered. But I wanted to just ask, wholesale, obviously, is an example of leveraging your assets. Curious to hear about other opportunities you might see today to do that. Thinking about things like retail media or potentially other opportunities in your supply chain. I know these aren't necessarily new to you, but where do you stand on these today? And is that an area that you expect to put more attention to? Constantine Pefanis: Definitely. Mark, it's a great question because as we look at evolving again, going back to the growth, we want to have areas of our business that we can put more investment into if it makes sense, right? This isn't just growth for the sake of growing. It's being able to leverage our existing asset base. We are in the retail media business. We have put investment into people, right? It's very important that we have the right people driving this business forward. We continuously are looking for better ways to do that business. And technology is a big part of that, right? Leveraging our various investments and our existing technology is going to be a very big catalyst for us. Having the ability to drive further utilization of our assets on our supply chain. These are the kinds of discussions that are going to be very important for us to be able to reduce our net expense. Pierre St-Laurent: That's a good point on retail media. It's an area where we see a lot of opportunity to grow. We're new in this business, but it's a lot of growth ahead of us for us. So this is very interesting. Like Consta said, supply chain is doing a good job on using transport as a service, but there's room to grow also there. And the team is focusing on it. So we're new in those businesses, not new, but we are underdeveloped, I would say that, that way. And this is interesting because this will help the overall financial equation. It's additional growth. The investment is made, and we just have to capture the benefit and focus on it. But this is why I like to say that we did a lot of good investment in the past. And we just have to focus on those investments and squeezing the juice and in many different small places that will make a huge difference when we combine everything together. Mark Petrie: Yes. Understood. Okay. And I guess just to bring it back to the quarter very specifically, food retail EBITDA was down slightly. Obviously, cost control is a major area of focus, is that the lever that you need to pull in order to get that back to positive territory? Or how should we sort of think about that results with the quarter and sort of the run rate going forward? Constantine Pefanis: Absolutely, Mark. I think that's the key part to this. Even though we were very happy with the way that our core business performed in the quarter, that's going to be the key for us to be able to continuously improve. Closing that gap and being able to drive that food EBITDA margin is what drives the engine. Pierre St-Laurent: The good news is the toughest thing are delivering sales growth on a profitable way, having good control on our margin because we rely on customer behaviors and things like that. On those 2 fronts, we're very pleased on what we achieved, the cost is a self-inflicted thing. So we can focus on it and we can have results very quickly if we're focusing on it. But the element that is tougher to do, we're doing well there. This is why we're optimistic. This is why when we travel the country and we spoke to our teammates, the teammates are very energized. They took the Board decision to not because me because the decision the Board made to do the succession internally. It's a big act of confidence from the Board that we're doing well. We're in the right direction, and we expect that will continue in this direction. And that gives a lot of energy to our teammates, and this is why we're optimistic for the future. The collaboration across the country is just amazing. I was there, I would say, 7 to 8 years ago when we were 4 different regions, we were working by ourselves in our region. Now, it's unbelievable. All best practices are shared across the country with all our banners, with all our formats, this is how retail should work, and I am a big fan of collaboration between functions. But now we're ahead of it. We're collaborating by regionally, nationally and by function and by format. So this is very nice to see the energy. That gives me a lot of energy. I can -- I think you can feel it. And now we have to focus and deliver on it. Mark Petrie: Yes. Excellent. Okay. Thanks for all the comments. Congrats, Pierre, on the appointment and happy holidays. Operator: And we have no further questions at this time. I would like to turn it back to Katie Brine for closing remarks. Katie Brine: Thank you, Ludy. We appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by e-mail. We look forward to having you join us for our third quarter fiscal 2026 conference call on March 12. Happy holidays. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.