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Operator: Good afternoon, ladies and gentlemen, and welcome to the KinderCare Learning Companies, Inc. third quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, November 12, 2025. I would now like to turn the call over to Miss Olivia Kirrer. Please go ahead. Olivia Kirrer: Thank you, and good evening, everyone. Welcome to KinderCare Learning Companies, Inc.'s third quarter earnings call. Joining me from the company are Chief Executive Officer, Paul Thompson, and Chief Financial Officer, Tony Amandi. Following Paul and Tony's comments today, we will have a question and answer session. During this call, we will be discussing non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release, which is posted on our Investor Relations website at investors.kindercare.com under the Financials tab. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company and involve a number of uncertainties and risks, which are explained in detail in the Risk Factors section of our most recent annual report on Form 10-Ks and other filings with the SEC. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. The actual results of operations and financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. All forward-looking statements are made as of today, except as required by law, KinderCare Learning Companies, Inc. undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future developments, or otherwise. I would also like to mention for interested parties, our executive team will be participating in an upcoming fireside chat over the next few weeks, which will be publicly accessible on our Investor Relations website under the News and Events tab. And with that, I'd like to turn the call over to Chief Executive Officer, Paul Thompson. Paul Thompson: Thank you, Olivia, and welcome to everyone on the call with us today. In the third quarter, we saw success across our B2B and portfolio growth levers. Revenue was $677 million, up nearly 1% from last year, with same center revenue of $617 million. The softness we anticipated in organic growth continued, resulting in same center occupancy of 67%, at the lower end of our expected range. Remember, Q3 is typically our lowest quarter due to summer seasonality. When thinking about our current occupancy, it is important to note that our top three quintiles, which are roughly 960 early childhood education centers, continue to operate around 80% occupancy on average, and our employer on-site centers average over 70% occupancy. While the balance of our network provides clear growth opportunities, I'll share in a moment some of the operational initiatives we focused on during the third quarter, which we believe over time will help ease the recent moderation in occupancy and position us to drive future growth. The back-to-school season unfolded amidst a more cautious consumer backdrop, which we believe influenced family decision-making. While demand at the center level was adequate to support our enrollment objectives, our average weekly enrollments fell short of last year's mark. Additionally, we saw headwinds in our subsidy business in a handful of states, with near-term softening of tuition reimbursement rates and fewer new student authorizations. We believe the enrollment challenges reflect the current economic environment and are not permanent, and we expect to see a return to the historical performance we have experienced in subsidy enrollments in the future. It's worth noting here that our belief is rooted in the historical bipartisan support for child care funding we have seen both at the federal and state level, and we remain confident in the long-term outlook for child care subsidy funding. Turning to our other growth levers, we continue to make great progress in the quarter. Specifically, we signed a number of new clients at our Champion School Age program and expanded our employer relationships, as employers look to offer dedicated on-site or access to our network of community centers for their employees. We also grew our center count through new center openings and tuck-in acquisitions, with the latter continuing to outperform on the year. Stepping back from the quarter's results, I'll spend a moment on what we're seeing in the broader economic landscape. Inflation remains elevated, and families are showing more caution in their decision-making, as reflected in recent economic data showing an overall decline in consumer confidence. We recognize how these influences are causing hesitation for some as they make their child care decisions. We believe these dynamics are likely to persist into 2026. In this environment, we're managing with a focus on disciplined execution, operational efficiency, effective cash management, and a continued commitment to meet families in their local market where they need us the most. We believe KinderCare Learning Companies, Inc.'s national scale, strong subsidy partnerships, and ability to serve families across diverse circumstances position us to navigate these conditions with resilience. Our commitment to high-quality early education and the distinctive experiences offered through our centers strengthen our brand and reinforce the trust families place in us. These advantages give us confidence in KinderCare Learning Companies, Inc.'s ability to perform through varying and uncertain economic conditions. The number of families seeking subsidy assistance remains elevated across the country, and our government funding team continually seeks to engage state and local agencies in productive ways to expand care to as many of those families as possible. However, to maintain balanced budgets, some states have implemented measures such as waitlists and reducing reimbursement rates. In certain cases, these actions have had a significant impact. For example, in Indiana, roughly 13,000 fewer children are receiving subsidy assistance since the start of the year, and our full-time subsidy enrollments have declined proportionately in the state by nearly 1,000 children over that same period. At the same time, many providers in this state have been further pressured from reduced reimbursement rates. Other states are taking steps in the opposite direction, by expanding support for child care with measures like reducing costs for families by lowering co-pays, increasing reimbursement rates, or in the case of New Mexico, pursuing a public-private solution to make child care universally accessible. Regardless of each state's approach to appropriating their budget, we remain committed to partnering with state and federal leaders to expand access to affordable, high-quality childcare for families across the country. As these efforts unfold across the broader child care landscape, we remain focused on strengthening our own operational foundation. As I mentioned, occupancy was at the lower end of our expected range due to a complex of near-term dynamics. Over time, we are confident that our ability to convert demand we see in our centers together with ongoing positive and constructive engagement with state and federal leaders on child care funding will be important drivers toward achieving our occupancy goals. Progress here may take some time, however, we believe we are taking the right strategic steps to build sustained improvement upon solid fundamentals. In order to accelerate our pace of results, we intensified our focus on the operational levers within our control, evolving our leadership talent, applying lessons learned from our opportunity region more broadly, and expanding the use of our digital and diagnostic tools. We concentrated on center-level improvements, particularly enhancing both the speed and personalization of family interactions. Our digital tools continue to make it easier for families to move through the enrollment process and for center directors to more effectively match available spots with family needs. The digital tools are also helping to drive overall improvement within our opportunity region, and in some cases, creating significant impact at the center level. As a reminder, our opportunity region is a collection of around 150 centers that we've determined to have high performance potential which can be unlocked with focused attention and resources. One of our opportunity region centers located in Michigan and led by a veteran center director used our center diagnostic tool to pinpoint opportunities for improving enrollment and work with our district leader to develop a remediation plan. Within eight months, she lifted occupancy from 48% to 95%. That kind of turnaround shows what's possible when we pair well-trained leaders with our tools to execute. I share this example to illustrate that despite the challenging environment, we are finding ways to make progress. Overall, we continue to see encouraging progress within the opportunity region, and we're applying the lessons learned from our successes there more broadly across our network. To be clear, we don't expect to achieve results of the same magnitude in all of our almost 1,600 ECE centers. We believe, however, that the easiest path for broad-based improvement and overall enrollment is generally going to be among centers that currently have lower occupancy, most of which are grouped in quintiles four or five. Beyond attracting new families, we're equally focused on the engagement of our current families. In fact, we recently completed our annual engagement survey with over 130,000 responses from our families, which is near last year's record response total. This represents our thirteenth year of partnering with Gallup, and as a reminder, we measure both employee and family engagement. Consistently, we hear from families that they celebrate the positive impact that safe, high-quality childcare can have on their child's development and that the families are deeply connected to our center staff. In addition to receiving feedback, high levels of engagement help us maintain strong family retention. Our ability to create consistent, nurturing environments is a hallmark of the KinderCare Learning Companies, Inc. experience and another reason so many families stay with us year after year. Our focus on operational excellence extends into the management ranks as well. In order to better align our strategic operational goals with our growth initiatives, we recently announced the promotion of Lindsay Sarhondo to Chief Operating Officer. Lindsay has been an incredible executive leader for us during her twelve years with the company, most recently as our Chief Innovation Officer. She has been a decisive business partner with a strong track record of execution and driving results. We're excited for Lindsay to apply her tremendous skill set to accelerating operational excellence throughout the organization. This structural alignment represents an important step forward in our broader strategy to sharpen brand-level focus and connect our strongest operators directly to driving same center occupancy growth across our centers. Closer to the center level, we also took purposeful actions within our field leadership to strengthen performance. During the quarter, we refined our district leader structure to sharpen operational focus, increase accountability, and improve agility while ensuring we have retained our most effective leaders. These critical members of our organization are responsible for oversight and development of our center directors and are expected to step in and personally support them where help is needed. Turning to tuition, growth came in at 2% for the third quarter, which Tony will discuss in more detail shortly. With back-to-school finished, we are now finalizing our plans for 2026 tuition rates. As a reminder, we maintained a 50 to 100 basis point spread overall between wages and tuition, and we will continue with that strategy while setting tuition to reflect local market dynamics and needs. This financial discipline gives us flexibility to continue investing in our other growth levers. B2B, NCOs, and tuck-in acquisitions all of which performed to expectations this quarter. Our Champions before and after school business continued to perform well, with double-digit revenue growth year over year, including meaningful growth in average enrollments in established sites. Year to date, we expanded the program with over 200 new site wins. The solid performance from the Champions team this past quarter and, frankly, all year provides momentum for Q4 and the rest of the school year. KinderCare Learning Companies, Inc. for Employers, which consists of our on-site employer-focused centers, also continued to perform well for us. During the quarter, we opened three new centers and employer locations and continued to develop our pipeline of opportunity. It's also important to note that occupancy at our on-site averages over 70%, which speaks to the great partnerships we have fostered with employers to let their employees know about this benefit available for their children. Employers are also expanding child care for their employees through our tuition benefit offerings. During Q3, we signed 20 contracts with employers, including Parkview Health System, Discovery Life Sciences, The Aspen Group, and MassMutual Life Insurance. Our new contracts were spread across 17 states covering 317,000 employees who will now have access to KinderCare Learning Companies, Inc.'s nationwide network of centers at a discounted tuition rate. We continued executing on our other growth levers during the quarter, by welcoming families to two new early childhood education centers in Illinois and Colorado. This brings our year-to-date total to eight new center openings within communities. We're also very active with tuck-in acquisitions the past quarter, by acquiring six centers across six different states. Taken together, we have clear visibility into these two levers and expect 2026 to be another active year. Looking at the remainder of this year, we'll continue to focus on improving same center occupancy and tuition, by driving engagement and consistency through our leaders and center-level teams. We expect our other levers will perform to our 2025 expectations, reinforcing the diversification of our model. With that, I'll hand it over to Tony to walk through the financial results and outlook. Tony Amandi: Thanks, Paul. Our third quarter results were mixed as revenue came in slightly below our expectations, largely reflecting a slower pace of enrollments through the back-to-school season. While this pressured margins for the quarter, cost discipline and positive cash generation remained consistent as Champions and KinderCare Learning Companies, Inc. for Employers, NCOs, and tuck-in acquisitions all continue to perform well. Let me walk through the quarter in more detail. Total revenue was $677 million, up 80 basis points from last year, with growth driven by Champions. Despite positive effects from tuition increases, early childhood education revenue softened due to slower enrollment activity during the quarter, which also resulted in lower occupancy for the quarter. Same center revenue was flat to last year, at $617 million, supported by generally robust retention levels during the third quarter, and continued contribution of prior new center openings and acquisitions being included in the same center pool. Total average weekly full-time enrollments decreased by 190 basis points to just over 140,000 students in the quarter, reflecting lower overall enrollment compared to last year and a softer starting point at the beginning of Q3. The new student enrollment dynamics during back-to-school compressed our same center occupancy to the low end of the range we expected for the quarter, finishing at an average of 67%, down 160 basis points from a year ago. As we look forward, remember that back-to-school is our highest new student enrollment period, and sets the start of the climb for the next seven to eight months, during which we historically have sequential growth each week until summer. Tuition was a 2% contributor to revenue growth versus last year, which was lower than we anticipated entering Q3, reflecting a higher subsidy mix, smaller subsidy rate increases than expected for 2025, further affected by subsidy rate reductions in a few states. Most importantly, we continue to maintain a healthy spread between tuition and wages, which ensures our ability to consistently drive margin within our centers as we deliver the high-quality care KinderCare Learning Companies, Inc. is known for, and ensure our teachers can receive a competitive pay and benefits package. Champions and KinderCare Learning Companies, Inc. for Employers continue to demonstrate solid growth. Champions revenue grew 11% in the third quarter versus last year, to $50 million, with 120 net new sites added to the portfolio over the past twelve months. Employer on-site centers continue to perform well during the quarter with average occupancy over 70% and consistent revenue growth. As employees continue to navigate flexible work arrangements, our team is deepening partnerships with employers to expand on-site child care options, including the opening of three new centers this quarter, while also growing participation in our tuition benefit programs that support families using our community-based care. As Paul mentioned, we opened two NCOs during the third quarter and acquired six tuck-ins, bringing us to 20 tuck-ins so far this year. On a year-to-date basis, cash consideration for the tuck-ins is just under $18 million and was funded completely out of the $138 million in free cash flow generated this year. Our ability to fund new centers and tuck-ins while maintaining our leverage is a testament to the strength of our operating and growth models. The revenue contribution from new and acquired centers year-to-date was $21 million as of the third quarter, relatively consistent with the first three quarters of last year. Our development timeline for new centers provides excellent visibility into the timing of future openings, and we are firmly on track to accelerate our pace of NCOs into the mid-twenties per year in 2026 and beyond, consistent with our long-term growth objectives. While we aren't seeing a flood of independently owned center closures this year, after the expiration of COVID funding, we are certainly seeing many more opportunities for tuck-ins. We expect to sustain this momentum beyond the current year as part of our broader long-term growth strategy. Net income for the quarter was $4.6 million, bringing the year-to-date total to $64 million, a 58% increase over the same year-to-date time period last year, benefiting from operational improvements and lower interest expense, following our deleveraging actions. Adjusted EBITDA for Q3 came in at $66 million, down 7% from last year as lower occupancy led to leverage pressure in the quarter. Our adjusted EBITDA margin for the quarter came in just under 10%, reflecting fewer enrollments in Q3 seasonality. Quarterly SG&A expense to revenue was up 109 basis points year over year. Embedded in there are one-time fees incurred from favorable credit facility repricing we completed in July and increased public company costs versus Q3 last year. We'll begin to lap the incremental public company costs incurred since the IPO in Q4 this year, and as we move forward, we will remain focused on disciplined cost management and operational efficiency. Income from operations was $26 million for the third quarter, compared to $54 million from the prior year. Interest expense was $24 million, sharply down from the $39 million last year, reflecting the positive impact of our post-IPO debt repayment and repricing actions since, including the repricing we completed on July 1. Adjusted net income for Q3 was $15 million, up from $4 million last year, and adjusted EPS was $0.13, increasing from $0.05 a year ago. Our ratio of net debt to adjusted EBITDA at the end of Q3 was 2.5 times, which remains comfortably at the bottom of our targeted range. Moving on to our outlook for the rest of the year. As we analyze trends coming out of back-to-school, it's clear the recovery in enrollment and occupancy is going to take longer than we expected. In addition, while we haven't experienced a direct material impact from the government shutdown, the tangential and downstream unknowns due to its severity added another layer of complexity into our expectations for the year. As a result of these factors, we are updating our forecast for 2025. For the full year 2025, we're expecting revenue to finish the year between $2.72 billion and $2.74 billion. Adjusted EBITDA is expected to land between $290 million to $295 million, and adjusted EPS to be between $0.64 and $0.67. Looking at our growth lever assumptions for the year, we expect revenue growth from tuition to increase by approximately 2% from 2024, a reduction from our prior guide, due to the combination of higher subsidy revenue proportion and a small amount of states reducing their reimbursement rate. We are currently finalizing our 2026 tuition planning, and as always, we align our pricing approach with community-level dynamics, ensuring we balance profitability with the different pressures families are managing for access to care. Turning to same center occupancy, we expect to continue seeing week-to-week growth in full-time enrollments for the remainder of this year. Given where we ended Q3 and the subsequent data so far in Q4, we now see full-year occupancy coming in about 200 basis points lower than 2024. We expect Champions to continue performing well in Q4, and carry that momentum into 2026. At the same time, we continue to see solid progress in KinderCare Learning Companies, Inc. for Employers as contractual recurring revenue streams. Putting these two together, our B2B business is expected to contribute about 1% to growth this year. New center openings are expected to be shy of 1% growth contribution this year, as previously expected. We will continue our thoughtful and measured strategy with opening new centers, given our clear visibility into new centers coming online, which should improve this contribution percentage in 2026 and beyond. Tuck-in acquisitions have been robust all year and continue to be favorable for us. We have been able to advance our growth priorities in this space, with a discerning eye on quality and capital efficiency. We believe the number of opportunities we evaluate will continue at a high level for the foreseeable future. This key lever for portfolio expansion and diversification is expected to contribute about 1% to growth this year and at least the same in 2026. The pipeline visibility for acquisitions remains strong. We expect free cash flow to be between $88 million to $94 million for the year, and CapEx will likely land in the range of $131 million to $133 million for the year, with most of that aimed towards growth initiatives. For modeling purposes, our effective tax rate should be around 27% for 2025. While we are not providing official guidance for 2026, we're giving some directional insights into growth levers as we see them today. We expect tuition increases will be a larger contributor to growth than in 2025. We also believe the momentum we have in B2B, our pipeline visibility for NCOs, and tuck-in acquisitions should keep each of these three levers on a solid trajectory with each around 1% for 2026. With that, operator, let's open up the line for some questions. Operator: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift a handset before pressing any key. One moment, please, for your first question. And your first question comes from Toni Michele Kaplan from Morgan Stanley. Please go ahead. Yehuda Solderman: Hi. This is Yehuda Solderman on for Toni Michele Kaplan. Just had a quick question about enrollment. So we know it's been a bit weaker all year, weaker in this quarter. Just wondering heading into 2026, what your expectations were surrounding it, at least directionally? I know you mentioned that there's been some hesitation. Do you expect it to be in 2026 at current levels, worse, or better? Just want some color on that. Thanks. Paul Thompson: I appreciate the question. And as Tony said in his comments, that's what we're watching for in the remainder of 2025. So that we can clearly see any continuation of impact from the government shutdown. What I would tell you is we still feel very good about the level of inquiries we're seeing at the local level of each one of our centers. We continue to see improved performance from our center directors and district leaders on how they work those inquiries into enrollment. And then as we continue to see confidence return for our consumer who are in that space, we believe over the long term, we will return to the growth algorithm we've talked about historically for growth for KinderCare Learning Companies, Inc. And our scale and diversification allow us to do that. Yehuda Solderman: Great. And just a quick follow-up. So you mentioned in the guide that there was no direct impact from the government shutdown. But the uncertainty added more issues heading into the end of the year. Is there anything factored into the guide itself? And if so, to which growth algorithm assumptions is this tied to? Tony Amandi: Yeah. So what we did not see, right, very, very, very few families that were impacted by it. We extended a couple of courtesies to a few families here and there that were impacted to help them make it through. And that would be great for them and for us in the end. Just some of the uncertainty continues to come from some of the things we talked about. That we think it's putting pressure on the states as they think about what they're doing in the future as far as their spend. We are in constant talks with all those states. Know that there's a lot of thought process going on and what the impacts to their budgets might be by something like this in the future too. And so that's just kinda where some of the uncertainty currently sits. Yehuda Solderman: Got it. Thanks. Operator: Thank you. And your next question comes from Andrew Steinerman from JPMorgan. Please go ahead. Andrew Steinerman: Hi. I was wondering what timing you think you could get back to the long-term algo. And I think you said for 2026, expect pricing increases to be higher than 25%. Could you just comment on that? Tony Amandi: Yes. No, that's right, Andrew. We believe they'll be higher, right, as we're ending this year on 2%. So we're still finalizing what our private pay rates will be for next year that'll go in place January 1. We're not quite there on the private pay side. And then a little bit, like I just mentioned, still some of that uncertainty we wanna see what happens here with the states as we conclude our fiscal year and head into next year and have some better expectations for what's gonna happen on the subsidy side. We still have direct confirmation with some states what they're doing. There's a number. There's still we're not sure yet. So that's why we're not going out with a guide, but at this point, feel good that it'll be above next year. I mean, this year. Sorry. Next year will be above this year. Andrew Steinerman: Right. And my first question was when do you think you'll get back to Algo? Tony Amandi: As far as pricing, Andrew? Andrew Steinerman: No. No. Overall, your medium-term algorithm when do you think what do you think you'll get back to? What type of timing do you think you'll get back to the medium-term algorithm overall? Paul Thompson: Overall, we will get back to the algorithm in 2027. And then what we're watching for is clearly on B2B and NCOs and acquisitions, we continue to be in 2026, as Tony articulated, on track for that. Feel good about tuition. And then for us to continue to make progress on occupancy specifically. Andrew Steinerman: Understood. Thank you very much. Operator: Thank you. And your next question comes from Ronan Kennedy from Barclays. Please go ahead. Ronan Kennedy: Hi. This is Ronan Kennedy on for Manav. Thank you for taking my questions. Tony, may I ask if you could please expand or just remind us on the softer starting point you referenced for the back-to-school enrollment period. And then could you confirm the extent to which the lower enrollment was driven by macro factors, the softening of reimbursement rates, fewer student authorizations, or internal opportunities for improvement, of conversion? Tony Amandi: Yeah. So look, the reference to the softer start was already that we were bringing in a lower number coming into back-to-school, right, than we would have liked to really start the year. So it's part of my talking points there was that, you know, Q2, as we headed out of the summer, was at a lower point than we would have liked to be heading in. So that kinda gives us a softer starting point for back-to-school in general. To do it. As far as kinda I don't think we I we don't have a quantitative number for you in each one of those, Ronan. They're obviously all impacting it. And we're well aware that the consumer confidence environment and people thinking about their next dollar spent is clearly impacting our whole economy. Once you get down to a local level though, then that's on us to show the value you get out of spending those dollars to come to KinderCare Learning Companies, Inc. and having your child ready to be ready for kindergarten as they get through with us. And so that gets down to the local level. Where it's on us to utilize those tools and tell those stories and show that value. And so that those those kinda Gantt charts start to overlap quite quickly. And then the subsidy one, Paul alluded to Indiana. Indiana's the biggest state for us. It's definitely impacting us. With being down a thousand students from the start of the year. Based on some of the decisions they've made to balance their budget what they've done to waitlist and some freezes. We have a couple other states that aren't up to that level but have also been a really drag to us here at back-to-school as well. So hopefully that helps. Ronan Kennedy: Thank you for that. And then you provide any insights on your occupancy trends by quintile through the quarter and exiting into 4Q? Paul Thompson: It's consistent with what we talked last time about that slight decline in the top three quintiles and then an improvement in that fifth quintile. That continues to give us the confidence what we're talking about returning to our long-term growth algorithm is the improvement we're seeing in our opportunity region. We've talked about the larger opportunity that exists in our lower occupied centers. So the diagnostic tools and the digital tools are working well to enable that growth, and we believe that will continue. Ronan Kennedy: Thank you. Appreciate it. Operator: And your next question comes from Jeff Meuler from Baird. Please go ahead. Jeff Meuler: Yes. Thank you. Just on your optimism for getting back to Elgo in 2027 and characterizing this as short-term factors, can you just address I guess, the structural concern that industry supply has been built over time and you're now combining that with a lower birth rate and the industry had taken a lot of above CPI pricing that's compounded over time that's pricing families out of the market. Just what gives you confidence that it is just short-term factors and not a greater, supply-demand imbalance that's built in the industry over time. Paul Thompson: Yeah. You know, great question. And there are many factors that we're watching. Beyond birth rates, you're also looking at women in the workforce. You're looking at children ages zero to five. And all those things accumulate to what we track as inquiries per center. So that we know that we're getting the sufficient flow of inquiries at the top of the pipeline to fill our centers. And that is the most important thing to us, which continues to be very, very good for us. In addition to that, the bipartisan support for child care so that we can have a thriving economy across the US so working parents can go back to work and know that their children are in a safe environment where they're being ready for a successful kindergarten transition as they go into that. So those things about seeing bipartisan support for our lower-income families, the continuation of good inquiries, even through the last number of months as we came into this back-to-school, and then knowing there's a lot of controllable factors for us, one of which we just mentioned is our center directors slowing down with those parents who are looking at making an investment in their child for early childhood education. Is us helping them recognize their child, the longer they are in our care, the more successful they're going to be in kindergarten and beyond. And that's a really compelling argument as we talk to or justification is probably a better word as we talk to parents. So all those things as we continue to improve the talent across our organization at that district leader as I talked is what gives us confidence as we move into 2026. Jeff Meuler: And then beyond, I guess, disciplined cost management and operational efficiency initiatives, at what point do you more proactively take cost out of the business? I ask because we're now in a position of revenue declines on a per-week basis. And it looks like the EBITDA deleveraging on the revenue adjustment and guidance is pretty significant. So at what point would you be more proactive about taking expense out of the business? Paul Thompson: It's something we're looking at all the time on evaluating the efficiencies of different investments we're making to become stronger on the digital side or other investments across our teams. And so there's things that we're already doing to ensure we're delivering the best flow through of profit from the revenue that we do have. Labor continues to be a big part of our P&L, as you well know. So continuing to think about how we up-level our sophistication around labor is another piece that we'll continue to lean into. So there's a number of ways that we can ensure that whether it's G&A or labor or other things that we have from a cost control, we are watching that all the time and talking about any more aggressive measures that we should be doing all at the same time that we're delivering long-term revenue growth is very important. Jeff Meuler: Thank you. Operator: Thank you. And your next question comes from Jeffrey Marc Silber from BMO Capital Markets. Jeffrey Marc Silber: Thanks so much. I just wanted to continue on Jeff's question. Are you thinking at all about more aggressively closing some centers? You didn't really mention that when you talked about some of your cost control. Tony Amandi: Yeah. I wouldn't necessarily say more aggressively, Jeff. We are constantly looking at the right centers for us to maintain and go forward with them. Right? So that starts with the demographic look and a little bit, that's what Paul was talking to. Like, where are our current inquiry levels? Where are competition levels? On an outside of our walls one. And then basing that then against inside our walls. Where are engagement levels? Are we performing to those right levels? And then where is our profitability based on rent and labor and things like that. So we're constantly looking at those. We are up for closing centers, and I think that's been clear in the past. We don't have a cap for how many centers we need to do. If it's the right time to close centers, we'll do that. Obviously, you're looking at lease timing on those. And making sure that the ROI on a closure does make sense. But you won't see us hesitate to close centers that should be closed. But we'll continue to keep the ones open that we think can and should be profitable, not only in the long term, but in the short or medium term too that we believe we can get there. The right methods. Jeffrey Marc Silber: Alright. Fair enough. And let me just continue this questioning. You continue to make acquisitions I know it's a small piece of the capital allocation, but would that be something that you might consider putting on hold and maybe shifting more towards a little bit more aggressive deleveraging? Thanks. Tony Amandi: Yeah. So as we sit today, our board is pushing us to continue to make sure we do have that medium to longer-term look on the use of our capital. And so as we sit today, we are going to continue to fund that NCO engine which, you know, is a couple of years out from when we say yes on the center. And also continue on the tuck-in ones. We're still getting nice value on those. In the very low single-digit EBITDA multiples. And think that that's both helpful for short-term and long-term. Jeffrey Marc Silber: Alright. Thank you. Operator: Thank you. And your next question comes from George Tong from Goldman Sachs. Please go ahead. George Tong: Hi. Thanks. Good afternoon. I wanted to go back to enrollment trends. Can you estimate how much of the enrollment headwinds you're seeing are due purely to economic factors like confidence versus more idiosyncratic factors at the local level? Paul Thompson: You know, it's difficult, George, to draw a line of direct correlation to those factors. To the enrollment. What we would tell you is but for those handful of centers or, excuse me, states, where we saw a slowdown of subsidy we would be in a much stronger position closer to flattish enrollment. And so that in of itself is something that we know is more short-term in nature. Then there are other things where we see as we've talked to you before, the decisions from parents and the longer cycle around that that they are considering consumer and thinking about the overall macro conditions, but nothing that we can provide to you on a direct correlation, just recognizing that it does these factors have an impact. George Tong: Got it. That's helpful. And along the same lines as you look at the center diagnostic tools and the various findings at the various centers, especially in the opportunity regions, what have been the latest, local factors that have come up most frequently as preventing enrollment growth? And have those factors changed from the prior quarter? Paul Thompson: So from you know, the way I would answer it with what we're seeing with our opportunity reach, and them using and the change management and adoption that goes with those diagnostic tools and digital tools, we actually are seeing stronger enrollment in those centers. So it is working, and again, they are at lower occupancy. So the range of age groups and parents that you can activate across that pipeline, are more significant. And so what I would answer to your question is continuing to take those learnings from opportunity to region, continuing to be more proactive with our parents in our higher occupied centers. Those things will continue to minimize the reasons why a parent isn't enrolling as quickly as they might have been over the last few months in our higher quintile centers. George Tong: Got it. Thank you very much. Operator: And your next question comes from Joshua Chan from UBS. Please go ahead. Joshua Chan: Hi. Good afternoon. Thanks for taking my questions. I guess a question on the Q4 enrollment that is baked into the guidance. Like, how low does guidance? Is it around the four percent decline mark? I guess that's important because it sort of sets the stage, like you said, for the remainder of the school year, I guess. Tony Amandi: Josh, will you ask it one more time? So I heard you reference a 2%, and then we lost you for about six or seven seconds, and you said four. Can you restate it one more time for me? Joshua Chan: Yeah. Yeah. I apologize. I'm wondering what type of enrollment decline is baked into the Q4 because that forms the run rate into next year. Tony Amandi: Yep. So we obviously gave you kind of a guide for the full year. Right? We're seeing Q4 so far be slightly slightly below, where we were at Q3. So it's not nearly as dramatic as you know, your numbers are suggesting. But, we are seeing a slight flip that, like you said, take us into the holidays, holidays being an important inflection point. It's kind of a number three behind summer and back-to-school. And how we come out of that. And then that really sets range outcomes, through May. Joshua Chan: Okay. That's helpful. And then on the margins that's embedded into the Q4 guide, could you just talk through what is happening to cause the relatively steep change in terms of the EBITDA expectations relative to the revenue expectation change? Tony Amandi: Yeah. Of course. Yeah. So, look, the revenue is being caused by two different things, right, that we talked about. And so I'll take those two and talk about the impact. Occupancy dropping a little bit more than we thought is having some impact. Occupancy declines obviously don't have as big of an impact on EBITDA. As do pricing, but it does. Less students, obviously, is bringing in less revenue, which brings in less EBITDA. Then obviously an occupancy decline impacts our ability to leverage, especially our gross margin and even our G&A a little bit. So we're seeing definitely some impacts from that. And then the other one is the pricing. Alright? So as we're seeing a few of these states, Indiana, again, being one of the big ones, drop some of their reimbursement rates, those dollars flow pretty much straight through to the bottom line. And so that dropping to 2% is really the probably more powerful thing here in the fourth quarter that dropped our EBITDA guide. Joshua Chan: That makes a lot of sense. Yeah. Thanks for the color there. Tony Amandi: Thanks, Josh. Operator: Thank you. And your last question comes from Faiza Alwy from Deutsche Bank. Please go ahead. Faiza Alwy: Yes. Hi. Thank you. I want to just make sure that I'm understanding the mechanics around the subsidies, especially after listening to the last answer from you, Tony. So just maybe could you take a step back and just explain to us, you know, maybe how much of an impact that had on the quarter or you're expecting to have, you know, on the year? And kind of what the when do you expect resolution and, like, what should we be following to get a better sense of you know, where we land here, whether things are getting you know, better or worse in the specific states. And know, any sort of timeline or decision when other states might make certain decisions around you know, these reimbursement. Paul Thompson: Yes. Most of the states have already worked through that. And what is the origination from it is everything not related to child care specifically. So all of that was fully funded but these are the discretionary dollars this year as other impacts flowed into states. They needed to think about how they budgeted for the new fiscal year. And so it is the expectation that every state has already gone through the awareness for what their funds need to be or what their balanced budget needs to be going into 2026. Where we saw the most significant change, as I mentioned, was in a handful of states. Even in two of those states, Texas and Arizona, they after that time, have come out that they're adding both of them are in the $50 million to $100 million over the next two years. Some of that will come in a rate improvement. Some of that will come in additional chairs for children. So I believe that we're through it with most states. We've already seen those two states take a different weighing back in. And then for the remaining states, there's a continuation of that going into 2026. Faiza Alwy: Okay. Understood. And then just on the pricing comment, that pricing is gonna be higher in 2026. Like, I'm curious what you're seeing from a wage inflation perspective and I know the question has been asked before around you know, whether or not the end consumer is sort of ready for that pricing given the level of inflation that we have seen generally. So just give us a bit more color around why you think pricing will be higher and what's driving the decision behind higher pricing in '26? Tony Amandi: Yeah. So I'll take your wage one first, which I think you were leading me to the second one, Faiza, because you remember how we really do that as kind of a starting point. So we're working on wage right now and where we believe that will end. And are pretty much there on that one. We utilize that one to test ourselves, but we're always trying to make sure we can get 50 to 100 basis points differential, and at this point, believe we can again next year. From there, kind of in parallel, we're working at a center level to look at a number of factors. The ones internal to us are engagement levels and our occupancy are the two biggest ones. How those families feel with us and how many we have, obviously, are two big factors there. And then externally, we're looking at number of competitors. We're looking at competitor pricing. We're looking at general other demographic factors for that local center. So as we're seeing the early roll-ups of where we think we're going to land, and believe what we can do at that center by center level are the things that give me the confidence to make that statement. Faiza Alwy: Sorry. If I can just clarify. So do you think that 50 to 100 basis points differential can actually be higher in '26, or is it really the higher wage growth that's leading to higher pricing? Tony Amandi: Yeah. So I wouldn't say they tie directly, but we will still be at 50 to 100 basis points next year as well. So I don't want you to walk away thinking wage growth leading to higher pricing. We believe we know where we'll land wage. And with the tools we have, we can be pretty precise for that. For the year. And we are also confident we can create 50 to 100 basis points of price based on our individual center dynamic. Faiza Alwy: Got it. Thank you. Operator: Thank you. And there are no further questions at this time. I will now turn the call over to Mr. Paul Thompson. Please continue. Paul Thompson: Thank you, Kelsey. Just last month, we passed the one-year anniversary of becoming a publicly traded company. As we move forward from this milestone, we are focused on the SEC discipline in driving continuous improvement in all facets of our organization. Our long-term strategy remains sound, and we are confident in our ability to deliver against it as broader economic conditions improve. Thank you all for joining us today, and we look forward to speaking with you again soon. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day.
Operator: Hello and welcome to the Usio Third Quarter Fiscal 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. Now I would like to turn the conference over to your host, Paul Manley. Please go ahead, sir. Paul Manley: Thank you, operator. Good afternoon, and thank you for joining Usio's third quarter fiscal 2025 conference call. The earnings release, which we issued today after the market closed, is available on our website at usio.com under the Investor Relations tab. On this call with me today are Louis Hoch, our Chairman and CEO, and Gregory Mark Carter, Executive Vice President Payment Acceptance and our Chief Revenue Officer. Michael White, our Chief Accounting Officer, Jerry Uffner, Head of Card Issuing, and Houston Frost, our Chief Product Officer, will be available during the question and answer session later. Please let me remind our listeners that certain statements made during the call today constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities and Litigation Act of 1995 as amended, as more fully discussed in our press release and in our filings with the SEC. I'd like to start off today's call with some highlights from this afternoon's release. Q3 was a solid quarter and in line with our commitment to deliver a stronger second half of the year. These results were achieved on the strength of strong across-the-board processing volumes with seven quarterly processing volume records set in the period, including a record quarterly overall transaction volume of 16,200,000, up 8% year over year. This resulted in a $1,200,000 sequential increase in revenues, impressively led by ACH, which was up strongly from the second quarter and for the third consecutive quarter up 30% from the year-ago quarter. While total revenues were relatively unchanged from the year-ago quarter, our strong sequential momentum positions Usio for a return to top-line growth in the fourth quarter and for the full year 2025. As discussed last quarter, our total revenues this period were again adversely impacted primarily by continued weakness in card issuing along with a decline in interest income. We expect this to mark the final quarter of difficult card issuing comparisons with performance improving going forward. One of the key themes this quarter is most of our new and total revenue are recurring in nature. This is an important milestone and one you'll hear reflected throughout our discussion today. Margins in the quarter improved year over year driven by strong growth of our high-margin ACH business as well as further efficiency and productivity enhancements. While salary adjustments and other costs led to an increase in SG&A, we do expect overhead to remain stable for the balance of the year. Our third quarter was another quarter of positive profits and cash flow. Adjusted EBITDA in the quarter was $368,000, down just incrementally on a sequential basis from $500,000 in the second quarter and also down from a year ago. Operating cash flow for the quarter was $1,400,000 reflecting the continued strength of our business. Our cash was up over $200,000 over the past three months to over $7,800,000 at quarter end. We anticipate continued cash growth through the remainder of fiscal 2025 positioning us to invest both in organic expansion and potentially into opportunistic strategic acquisitions. In the quarter, we used approximately $60,000 for share repurchases bringing our total year-to-date repurchases to $750,000 or just over 500,000 shares. The third quarter represented an important inflection point for Usio, with record processing and transaction volumes, solid sequential recurring revenue growth, and sustained profitability and cash flow. In addition, we completed or made significant progress on a number of our larger new implementations while continuing to build a growing pipeline of attractive opportunities. From an organizational standpoint, technology upgrades, new product launches, and ongoing productivity gains. At this time, I'd like to turn the call over to Gregory Mark Carter. Gregory Mark Carter: Thank you, Paul, and good afternoon, everyone. September was a record quarter for Card as we reported an all-time quarterly record of transactions processed and the second highest volume of card dollars processed in any quarter. Led by our continued focus on the PayFac business, our credit card segment continues to grow with dollars processed up 12% and transactions processed up 75% from a year ago. While card revenues were correspondingly up both sequentially and on a year-over-year basis, Key PayFac revenues were up 32%, continuing their double-digit year-over-year growth as a result of net new client implementations. There are currently 16 new ISVs in various stages of implementation. And from last quarter's implementations, I'm pleased to report that the largest of these new enterprise merchants has now been implemented and has been processing with us over the past few months. That's really the theme of the third quarter. This virtuous cycle of a strong pipeline leading to implementations that then lead to volume and ultimately recurring revenue. We are starting to see the fruits of that now and into the fourth quarter setting up for a really solid 2026. We've also been seeing existing customers adding new business. For example, have a long-time ISV that just added a new innovative prepaid program. The current customer base continues to evolve and grow through new programs and new merchant acquisitions. All along, referenceability has always been a key. Our capability and our unique products have attracted several referral entities that are sending larger opportunities our way as they've been impressed with our performance in the market. So in addition to our sales team, we are cultivating referral agents that can send us meaningful opportunities. This is paying dividends for us as, for instance, the large account recently implemented was from a referral entity. I should also mention that this account is not an ISV using our PayFac. So our traditional processing capabilities remain another growth channel. Another unique application where we've been able to win business is because of our willingness to provide customization that many of our competitors won't. One of these programs is our new filtered spend client. There are over 1,000 merchants that have already gone through underwriting and are on the program. So when it goes live, it could be meaningful. This is a new concept in the market we are helping to pioneer with the expectation that we could become a market leader. You may have seen Houston Frost on LinkedIn recently demonstrating one of our new wearables. This is just one of the many wearables we are exploring and developing whether that be wristbands, tap to pay, or similar products. It's another area on which to keep an eye. Finally, let me provide a quick update on our UCL1 initiative. Recall that UCL1 is being implemented as a main capture a greater share of our customers' electronic payment and printing volume. As of today, UCO is essentially integrated into one unified entity. We've rolled out a platform for boarding all of our customers on a centralized site. In addition, most of our sales team has been trained up and has a strong functional knowledge and understanding of all of our products. An example of how this is working is a salesperson that was originally selling legacy card processing recently sold a large print and mail program. I expect the productivity of UC01 to accelerate throughout 2026. Now I'd like to turn the call over to Louis Hoch. Louis Hoch: And welcome everyone. Let me begin by saying that I'm thrilled with the results of our operating metrics for the third quarter. We set seven quarterly processing records including most transactions processed through all of our payment channels, record electronic check transactions, check dollars, and return checks processed as well. Including penless debit transactions and dollars processed and credit card transactions. This momentum continued in the month of October. Where we set an all-time monthly processing record for ACH for both transactions processed and return checks processed. I'm very excited about what I'm seeing with our ACH business which also happens to be our highest margin business unit. What is different today is that the volume is primarily from recurring businesses. But when you look at our numbers, today's primarily recurring revenue is being compared to a year-ago quarter that included a number of one-time non-recurring items. UCO story. That's distorting our underlying progress and the real stripping away the influence of those one-time items provides a better picture of the fundamental growth and the strength of our core operations. And those seven processing records provide a great measure of our progress. I would also note that revenues were up on a sequential basis in all of our business lines. Putting us on pace to meet our commitment to shareholders to deliver a better second half compared to the first half of this year. This is a great start to the second half. Which we will expect to lead Usio to growing once again this year. The message is clear as a processor our job is to grow volumes to take advantage of the operating leverage that we have created. We want more transactions. And we want more volume. And we're doing it while maintaining our pricing discipline. And most importantly, as processing statistics illustrate, it is increasingly recurring in nature. Looking more closely at our businesses, ACH was a standout once again. Revenues were up 30% for the third quarter led by the previously mentioned record volume. In particular, this was the eighth consecutive quarter of year-over-year growth in electronic check transaction volume and dollars processed. ACH benefited from both new deals and the growth of our existing customers. At the same time, our penless debit offering also set all-time records for both transactions and dollars processed with growth over the same period in 2024 of 96% for transactions processed and 87% for dollars processed. Both metrics were primarily driven by the growth in the mortgage servicing industry and the FinTech industry. Penless Debit is a great solution for applications where credit card cannot be accepted. So mortgage servicers absolutely love it. And we are one of the few processors that offers this market of a pinless solution. Turning to card issuing, we generated sequential volume growth in the third quarter with total dollars loaded exceeding $75,000,000. Revenue was also up slightly on a sequential basis and card issuing profitability continues to improve. As we mentioned last quarter, this year, we are comping against a very strong year-ago quarter that had significant revenues from a very large account as some from residual New York City revenues. Going forward, the comps should begin to normalize as the large account revenues were concentrated primarily in 2024. So that once again, we will be able to clearly see the fundamental growth of its core business in the card issuing revenues. Because of card issuing's outstanding reputation, in its various governmental and charitable organizational markets, we're receiving calls from various card program opportunities for financial aid and assistance that is related to the government shutdown. We're hopeful that we will benefit from these financial assistance programs in the fourth quarter of this year. The card issuing continues to penetrate the healthcare market where early next year we expect one of our signature accounts to double their volume. And another new healthcare customer is also planning to launch their pilot with us this month. From a product standpoint, we are proving our consumer choice user interface and we've implemented and are in a beta rollout with our initial payroll card customers while our merchant-funded offers look like it will launch early next year. Card issuing also has an impressive price volume of numerous large and small new opportunities. While it'd be premature to forecast any of these opportunities into our future results, especially the larger opportunities. Based upon the ongoing dialogue and the activity levels which we are engaged, we are hopeful we should be able to land some of this business in 2026. Consequently, we believe that sequential growth generated into the third quarter is the beginning of a rebound that we expect to continue and to accelerate over the coming year. Output Solutions had a solid quarter looking beyond the year-ago one-time items. Output also generated sequential revenue growth. For instance, electronic-only documents delivered were up to 20,000,000 pieces in the quarter. Up about 500,000 from a year ago. Indicative of the fundamental core growth. In light card issuing, outputs profitability metrics continue to improve aided by the shift to more electronic document fulfillment. While on a per-unit basis, we charge less to process an electronic document than a paper document, processing electronic documents is more profitable. So the transition to electronic documents may reduce revenues while improving earnings. Output also had a solid quarter of closing new business. With 12 new agreements signed including municipalities, utilities, tax offices, and others. A majority of which are electronic document processing. That promising recurring revenue. They're also set to print and mail several million voter registration cards in the fourth quarter of this year. Output is also replacing some of their older equipment with some brand new state-of-the-art printing technology. Not only this will expand our capacity, but will enable a more competitive offering for large high-growth markets like healthcare and taxation. So we're building momentum across the organization focused on recurring revenue. In the near term, we will remain profitable with another quarter of both positive adjusted EBITDA and cash flow. The balance sheet is strong. And we continue to use this strength to build shareholder value. Having now used over $750,000 to repurchase shares so far this year. And with our positive cash flow, we can fund our growth and share repurchases while maintaining sufficient dry powder to capitalize on the favorable acquisition market should an appropriate opportunity arise. Behind the curtain, we continue to invest in the organization. Not only to strengthen our current infrastructure, but also to develop innovative new solutions that will leverage our technology in large and growing markets. I'm extremely encouraged by the conversations I'm having with all of our teams. Everyone is working hard. And we are seeing the results in growing volumes. This is very motivating. There is a great sense that we're on the verge of a potential inflection point that should follow the momentum that we've been building. We appreciate your support as we continue to build value for our shareholders. And with that, I'd like to turn the call back to the operator and conduct our question and answer session. Operator: Thank you. We will now begin the question and answer session. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Scott Buck of H. C. Wainwright. Please go ahead. Scott Buck: Hi, good afternoon guys. Thank you for taking my questions. Louis, I'm curious, you guys described a pretty sounds like a pretty strong pipeline of future opportunities. Are you seeing any change in sales cycles or anything along those lines that could potentially move some of those opportunities forward or maybe push them further out versus what you've seen historically? Well, pipeline strong. Greg wants to add anything to my comments, he's welcome to. But the sales process is very exciting for us. But we actually are focusing more on implementations. And trying to get these customers that we've already sold implemented. Which represent quite a bit of volume. So that's our focus is getting the merchants to implement faster. But sales pipeline for every division is rich. Craig, you want to add anything? Gregory Mark Carter: No. Just to echo that comment. Excuse me. Scott Buck: Okay. It's helpful. And it's a bit of a follow-up. Do you guys have levers in place where you can kind of push the pace of adoption? Or is that really outside of your control? Gregory Mark Carter: The implementations are out of our control. Yeah. If we could figure that out. That would be the secret sauce to accelerating us very fast. Okay. Each business is each business unit is nuanced and that the implementation of the adoption is slightly different. So there's really no one size fits all, but the UCL1 initiative is doing a lot better as far as standardizing kind of the input of information within UCO. But then it's all dependent on those customers to integrate at their will. Scott Buck: I see. Okay. That's helpful. And Louis, hopefully I didn't miss it I have a couple of calls going on at once here. But the federal government shutdown during the fourth quarter, has that the impact of that leak down into any of the state or local governments that you work with or would that potentially have any impact on the business during the fourth quarter? Louis Hoch: Well, when SNAP payments got suspended, we received numerous calls from cities and counties looking to bridge those payments on their own. And it was very heartening to hear that some of these new cities that we've never talked before and counties knew about us and reached out to us. Some of those programs they're going to go forward but they're not going to go forward on the basis that it could have been because it looks like we're going to be out of the government shutdown. So Yeah. Some were pushed out. We I think they're on hold pending the movement of the federal government and opening the government back up. Okay. But nice to know that you're the first call they make. Great. And then last thing, in terms of cash levels, you mentioned M&A. Could you just kind of run through what kind of criteria you would be looking for in a potential transaction? Louis Hoch: Yeah. I would go through this. I had this question quite a bit. You know, we're very strict. On what we acquire. And our criteria is threefold. One, it's got to provide some type of synergy. The synergy could come through people, industry, or technologies. We need to be able to buy it right. And the third thing is we need to whatever we're buying shouldn't have any issues you know, a problem that we think we can fix because we don't want to take our focus off of growing the company our organic growth that we have in sight. Scott Buck: Got it. Okay. And then I guess if I could squeeze just one last thing in. More of a housekeeping question. What's remaining on the current repurchase authorization? Michael White: Yes, sir. This is Michael. We renewed that at the beginning of the year. So there's still another, you know, just over $3,000,000 remaining on that current plan. Scott Buck: Okay. Perfect. Well, I appreciate the time, guys. Congrats on the progress and looking forward to seeing what you do the rest of the second half. Operator: Our next question comes from Jon Robert Hickman of Ladenburg. Please go ahead. Pardon me. Just one moment. Jon, your line is live. Jon Robert Hickman: Okay. Hey, Louis. Can you hear me? Yes. Hello? I can hear you. Okay. I'd like to circle back on your comments on the recurring revenue, particularly in the ACH business. What's changed that it's largely recurring now? Louis Hoch: All of our business has been marginally recurring. It's just when we compare to last year, had quite a few one-time events. Jon Robert Hickman: Could you That we earn revenue. Such as? Louis Hoch: Yeah. What was we've created a large bankruptcy distribution with a large card order. Plastic, which we usually don't mark up much at all. Jon Robert Hickman: Okay. Okay. So going forward, don't think gonna get like, I guess you can't ever count out the future but you if you don't get those one-time events, then rest of the revenues largely coming from the same customers and that should continue. Is that is that what I'm supposed to get out of that? Louis Hoch: No. You're what you're supposed to get out of it is our comp last year had one-time events. We may have one-time events in the future. In fact, we've already become public. You know, at the end of this year, we're gonna print the voter registration cards. You know, a large portion of them for Texas. While that's a recurring account, it only occurs every two years. So that will be another example that will occur in the fourth quarter of this year. We'll continue to get card orders but probably not at the scale that we got in Q3 of last year. So it's just a comp issue, but you can count on the revenue that we had this quarter was almost completely recurring. They're from existing customers that will continue to be customers. We'll continue to bring on new customers that have recurring business as well. To add to them. Jon Robert Hickman: Okay. And then I have a question for Houston. So I think you said credit card processing volumes were up 75% year over year? That accurate? Gregory Mark Carter: I think I think you will. It's for Greg. Yeah. I think it's Jon. Right? Jon Robert Hickman: Okay. Sorry. Yes. So The transactions process. Yes. Transactions process. So can you I guess for it's confusing that transaction volumes were up that much and revenues were up like 5%. Louis Hoch: Jon, we explained this to you when we met with you in California. The transactions for credit cards that when we report the operating metrics include penless debit. The revenue associated with penless debit goes into ACH and complementary services because Penless is an alternative to ACH. And at some point, we believe that it will diminish our ACH traffic just like that now in the clearinghouse when they get their act together and allow us to do debits. So the metrics operating metrics were up transaction-wise and also remember on credit cards, transactions don't really mean anything to us. It's the dollars process. That's how we earn revenue. Jon Robert Hickman: Okay. Thank you. Appreciate the reminder. Operator: This concludes our question and answer session as well as today's conference call. You may now disconnect your lines. Thank you for participating and have a great day.
Operator: Greetings, and welcome to the CuriosityStream Third Quarter 2025 Financial Results Conference Call [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tia Cudahy, CuriosityStream's Chief Operating Officer. Please go ahead. Tia Cudahy: Thank you, and welcome to CuriosityStream's discussion of its third quarter 2025 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer; and Brady Hayden, CuriosityStream's Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect management's current views only, and the company undertakes no obligation to revise or update these statements nor to make additional forward-looking statements in the future. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website as well as the risks and other important factors discussed in today's press release. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2025, when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com. Unless otherwise stated, all comparisons will be against our results for the comparable 2024 period. Now I'll turn the call over to Clint. Clint Stinchcomb: Thank you, Tia. We delivered strong Q3 results. Revenue grew 46% year-over-year to $18.4 million, exceeding guidance. Adjusted free cash flow rose 88% to $4.8 million, and adjusted EBITDA improved by $3.4 million year-over-year. Our 3 complementary growth pillars, subscriptions, licensing and advertising are driving momentum and strengthening CuriosityStream's position at the intersection of knowledge, media and AI. I'll briefly recap the underpinnings of Q3 and then look ahead to 2026 and beyond. Licensing revenue increased over 40% year-over-year, reflecting the strength of our team, demand for our corpus and the trusted relationships we built with traditional media partners and hyperscalers. We engaged with 9 key partners across video, audio, script and code and delivered over 1.5 million distinct assets. To achieve dominance as a provider of AI training data, we've assembled nearly 2-million hour library of video and audio across multiple genres, content largely cannot be scraped from the open web. We've also expanded our large-scale data structuring and metadata capabilities so we can meet partners' volume requirements and bespoke specifications for high integrity and rich data sets. In parallel, we broadened traditional content partnerships with leading global broadcasters, streamers and pay TV networks, including AMC, Netflix, Foxtel and a range of licensees across Asia. Overall subscription revenue, retail and wholesale combined was down year-over-year but increased sequentially every quarter in 2025. Importantly, our sequential growth in subscription revenue has been driven by daily operating focus, not simply by implementing price increases like many subscription services. In Q3, all 3 of our subscription services launched with partners in key English-speaking markets, the U.S., Australia and New Zealand as well as in our non-English market, Germany. Extensions with partners like Amazon and new multifaceted agreements with partners like TMTG further support this growth trajectory. While not yet a separate revenue pillar at scale, we continue to build on the solid foundation of our advertising business. Our U.S. Hispanic and flagship FAST channels recently launched on Amazon, Roku, LG and Truth+. We also launched a 2-hour branded block on Australia TV's free-to-air broadcast channel, an initiative we plan to replicate with additional partners. Given the quality and volume of content we control, we see meaningful advertising and sponsorship opportunities across FAST, AVOD, social, pay-TV and free-to-air. To thoughtfully capture this opportunity, we plan to install a proven leader to run the business in early 2026. We are particularly proud that adjusted free cash flow increased 88% to $4.8 million this quarter. This reflects a focus growth strategy and a sustained commitment to rationalizing our cost base, especially hard, largely nondiscretionary costs. Cost discipline is a strategic advantage, one that supports pricing power, resilience and durable growth. Despite higher storage and delivery expenses from managing a large content library, we more than offset those increases through disciplined expense management. Looking ahead, while we are not yet providing guidance for 2026, we expect overall subscription revenue, retail and wholesale to grow faster in 2026 than in 2025, supported by a strong launch pipeline and new pricing and packaging across our own services, including our premium tier. We anticipate high-growth licensing to continue and believe licensing will exceed subscription revenue in 2027, possibly earlier. We expect significant year-over-year growth with existing partners and believe our roster of AI licensing partners could double or even triple in 2026. Beyond training, we see additional monetizable grants of rights becoming part of our agreements. Given the quality and scale of our corpus, which we expect to more than double in 2026, and our ability to structure and deliver data at scale, we believe we will solidify our position as the leader or among the top 2 or 3 video licensers for AI development. In summary, we believe that we will continue double-digit growth in both revenue and cash flow, driven by our 3 complementary pillars: subscriptions, licensing and advertising, while continuing to improve efficiency. We intend to pay 2026 dividends from cash generated by operations as we did in 2024. Our balance sheet remains strong with over $29 million in liquidity and no debt, giving us substantial flexibility. At today's share price, we're a growth company that also offers a dividend yield of well over 8%. It's an exciting time to be in the media business. Opportunities abound, and we intend to swarm them with discipline. Over to you, Brady. Phillip Hayden: Thanks, Clint, and good afternoon, everyone. Our full financial results will be in the 10-Q that we'll file in the next day or 2, but let me hit some of our third quarter highlights. As Clint said, in the third quarter, we reported revenue of $18.4 million, exceeding our guidance and a 46% increase compared to $12.6 million a year ago. Likewise, we reported another quarter of positive adjusted EBITDA, which came in at $3 million. This was an improvement of $3.4 million from a year ago and essentially flat from last quarter, which was a record quarter for us. This was also our third sequential quarter of positive adjusted EBITDA. Adjusted free cash flow came in at $4.8 million, an increase of $2.3 million compared to last year. This also represented our seventh quarter in a row of positive adjusted free cash flow. Third quarter revenue was led by our subscription business, which came in at $9.3 million, a sequential increase. Content licensing came in at $8.7 million in the quarter, an increase of over $7 million or 425% from last year, driven by continued growth in AI training fulfillments. Looking at our year-to-date numbers, licensing generated $23.4 million through September, which in perspective is already over half of what our subscription business generated for all of 2024. Third quarter gross margin was 59%, improving from 54% last year. We continue to see reductions in noncash content amortization, although our distribution and storage costs have increased slightly due to licensing and acquisition of content through revenue share arrangements. Combined costs for advertising and marketing plus G&A were higher by 52% compared to last year. This increase was the result of a noncash charge for stock-based compensation of $7 million or about $0.12 on a per share basis. G&A also included a number of onetime expenses associated with our August secondary stock offering. Were it not for the noncash SBC and the common stock sale, G&A would have declined in the quarter. We reported a third quarter net loss of $3.7 million or $0.06 a share. This compares to a $3.1 million net loss in the third quarter of 2024. While our revenue was up materially from last year, the net loss was driven by the onetime charges and noncash SBC. Were it not for these specific nonrecurring or noncash charges, we would have posted our third quarterly net income this year. And as we said earlier, adjusted EBITDA was $3 million in the third quarter compared to a loss of $0.4 million a year ago. Adjusted free cash flow was $4.8 million in the quarter compared with $2.6 million a year ago. And through the first 9 months of 2025, adjusted free cash flow was $9.6 million, which is more than the company generated for all of last year. In September, we paid our regular $4.6 million dividend, and we ended the quarter with total cash and securities of $29.3 million and no outstanding debt. We believe our balance sheet remains in great shape. Based on yesterday's share price, CuriosityStream is generating an adjusted free cash flow yield of over 7% and a current dividend yield of over 8%. Also just after quarter end, on October 14, 6.7 million of our warrants expired unexercised. While these warrants have been trading well out of the money for some time, this expiration of all of the company's outstanding warrants reduces potential dilution and should eliminate any lingering share overhang associated with these instruments. Looking ahead, for the fourth quarter, we expect revenue in the range of $18 million to $20 million, which would imply full year 2025 revenue in the range of $70 million to $72 million or a 38% to 42% revenue increase from 2024. We expect fourth quarter adjusted free cash flow of $2.5 million to $3.5 million, which would imply full year 2025 adjusted free cash flow of $12 million to $13 million or a 27% to 37% free cash flow increase from 2024. We're not yet providing guidance for 2026, but we believe that our top line and bottom line growth will continue into next year. And although we're obviously using some of our cash and investment reserves to pay our dividends in 2025, we intend to fully cover our 2026 dividends from operating cash as we did in 2024. With that, we can hand it back to the operator and open the call to questions. Operator: [Operator Instructions] And our first question will come from Laura Martin with Needham & Company. Laura Martin: So Clint, a strategy one for you first, and that is -- so I know you've been a media CEO for a long time, but the returns on capital in this new revenue stream of licensees are like 10x higher. So what I don't understand is why are we taking these fabulous revenue and investing and hiring a guy to do media in Australia, which is offshore, lower margin, lower returns on capital. Why don't we just stick with -- stick with focusing on becoming sort of the go-to de facto AI guys that are independent and put all -- say no to media stuff, which is our path. Why are we adding stuff that's lower return on capital just because that's where we came from. Let's start with that one. Clint Stinchcomb: I appreciate the question, Laura. You cut out a little bit. The Australia reference was -- I just -- I didn't hear what you're referring to in Australia. I think I got the base... Laura Martin: You're hiring, right? What's the new guy going to do when you hire in? Clint Stinchcomb: We haven't hired anybody new. We just -- we announced a promotion of one of our guys who has been focused on helping to craft our AI relationships. We announced that last week, if that's what you're referring to. Laura Martin: No, I thought you said on the call that you were going to... Clint Stinchcomb: Okay. Yes, I did say on the call that we're going to hire a sales leader, yes. And let me take the -- and I think your question is a good one as it -- and so I think we've done a great job certainly on the cost side here, and we've done a really good job across the company, getting this business rolling. But we do need some additional sales leaders, even some who are really seasoned. And so there's an opportunity for us to do that. And sometimes, if you get a chance to bring somebody into the mix, it's a little bit like the NFL draft. We're not necessarily drafting for pure position, but if you can bring on an A+ player with real talent, you take the opportunity to do that. And so I didn't mean to imply that he would be -- or she would be working in only one area, but really helping on the revenue generation side. That is a -- key for us is we do need some help there. And we've done, as I said, I feel like we've done a nice job on the cost side, and we've laid some good groundwork so that if we bring in a couple of really strong players, it can have an accelerating impact on what we're doing. Let me do dodge, hopefully, I addressed that. If I didn't, Laura, ask me to clarify. Laura Martin: Well, I just want to be sure we're staying in the AI business is not... Clint Stinchcomb: Yes. 100% Yes, yes. Absolutely, Laura. Absolutely. And yes, and I know that you've expressed some concern in the past about smoothing out the revenue. And I'd love to address that if that's still a question on... Laura Martin: That was my second question, which is... Clint Stinchcomb: Okay. You're not the only one asking. So look, there will always be some lumpiness in licensing, but we're going to smooth it out over time. And we're going to accomplish this, and we are accomplishing this by both operational and contractual means. So operationally, as we increase our roster of partners, we reduce lumpiness. We believe that we'll double or triple our number of partners in the AI licensing area by the end of 2026. And in 2027, possibly earlier, as more open source models become accessible, there will potentially be hundreds and even thousands of companies who will need video to fine-tune specific models for consumer and enterprise purposes. Some refer to this as the open source and tune evolution. Contractually, structurally, SaaS, something you're familiar with, of course, Software as a Service. We know that's beloved by the software industry. We know that is beloved by investors. So with the type of volume we control, we've had discussions around structuring certain agreements as CaaS or C-a-a-S or Content as a Service, where we grant access over a term, so as a subscription with access to clouds of content with lots and lots of hours. Now in these deals, we need to make sure we have proper minimums in place and a few other safeguards, but this is a proven model that I think a lot of people love and that will enable smoother quarters and tighter predictability over time. Operator: And our next question comes from Jason Kreyer with Craig-Hallum. Jason Kreyer: Great job, guys. So maybe kind of building on just the library and the AI opportunity. Clint, just curious if you could talk about how AI licensing has evolved over the last year. You had mentioned 9 partners this quarter. Just maybe talk about how broad is the demand for your corpus and how frequently are those platforms coming back to get more and more of your content? Clint Stinchcomb: Yes. So we've done about 18 fulfillments to date, and we've done that across 9 partners. And so without naming names, based on the math, I think we can represent that we've done 2 or 3 more renewals with some key existing partners. And as we look out into 2026, we see -- we suspect really the revenue from our existing partners, they'll probably comprise 60% to 80% of the AI licensing revenue and 20% to 40% will come from new partners. So we do see the roster increasing significantly. And we also see real opportunity for licensing beyond simply a training right, additional grants of rights like display rights or transformative rights or adaptation rights or even certain derivative rights or possibly even some that are as of yet unnamed. I mean we're building long-term relationships, and we're committed to making sure that as we enter into all of these agreements, it's not one and done. And so I think from an -- and then to answer your question about the evolution and the changes, I think if you look at the first deals that we did, it was just get people finish content, let them use that for training the models. Today, obviously, people are still looking for finished content, looking for raw video. But there's a real advantage to being able to structure the data in a way that many of your competitors can't. And what I mean by that is just the ability to clip content to index content to annotate and to then deliver it in 7- to 20-second clips with really detailed enriched metadata. So one thing I didn't mention on the call is in Q3, we entered into some of the highest cost per hour or cost per minute agreements by far that we had heretofore not entered into. So that's a function of being able to create things that are a little bit more bespoke and a much enhanced ability on our end to structure a data. Jason Kreyer: And Clint, when you talk about having nearly 2 million hours in the library, how does that split between what's available for AI licensing, what's available for streaming by consumers? Or is that the same number for both? Clint Stinchcomb: Yes. No, it's not the same number. It's a good question. The overwhelming majority of that is for AI licensing. So we have a lot of content partners, probably over 150 different content partners for our subscription services and for our ad-supported services. And obviously, as we're building our AI library, so those are some of the first people that we went to. But the overwhelming majority of that is for AI licensing. We are increasing our volume of rights in our traditional platforms, but the overwhelming majority is for AI licensing. Jason Kreyer: You've nearly doubled that in like the last quarter or 2 or doubled the library. I'm going to assume that's a proxy for effectively doubling the AI library over the last quarter or 2. Curious, is that an indication of, hey, you guys are getting better at figuring out what these AI platforms need and you're going out and sourcing a lot more of that? Or is there a different reason that we're not thinking about it and why you're adding so much more content to the library? Clint Stinchcomb: Well, you're 100% right on the first part. We are sourcing specific content. So that's part of it. At the same time, we feel like one of our advantages is the fact that we have existing relationships with so many production companies, so many distribution companies, so many creators, so many people who own and control large libraries of content that wherever it makes sense, we want to put our foot on the gas. And we're not going to be the #1 subscription service in the world. I mean Netflix and Amazon, they've got escape velocity. They have that covered. However, we believe that we can be, if not #1, one of the top 2 or 3 licensors of video for AI training and other purposes. And part of the way that you do that is you try to generate some escape velocity on your own. So as we build out the volume of our library, it makes us more appealing even more so as a one-stop shop for any of our partners. Operator: And moving on to David Marsh with Singular Research. David Marsh: Congrats on the quarter. I wanted to start, Brady, if I could. Could you give us a little bit more explanation of the stock-based comp here in the quarter? It's -- I know you had some comments about it in your prepared remarks, but I'm still a little bit confused by it. So I was just hoping you could maybe just give us a little bit more color. Phillip Hayden: Yes, sure. So -- and the 10-Q will be out either tomorrow or the next day, possibly Friday, but a lot of the details from that will be -- for the stock-based comp will be in that document. But a number of employees received a market-based SBC warrants and awards during the quarter, during -- actually in July. You'll see some of those in the Form 4s that the executives filed and a number of other employees received those as well. The market-based components of those were something new this quarter. And because of that, we had to take a much higher grant date fair value than we would have if the awards had just been purely time-based or purely internal performance-based. Because the stock -- because of the stock market component of those awards, the market-based component, we have to value those differently. So I think the total value -- and this will be in the Q, but it's well -- it's into the 8 figures, the total value of all of those awards, and that has to be expensed over an aggressive period of time, more aggressive than if they were purely time-based over 4 years. So that's why we are -- that's why we had the unusually high SBC in this quarter. And you'll see we have another -- we disclosed an amount that will need to be expensed over the next several quarters. So hopefully, that will be easier for you guys to factor into your models. Is that helpful, Dave? David Marsh: Yes. That's really helpful. I appreciate it. Yes, it looks like almost $7 million a quarter. A couple of follow-up questions on that. How is that reflected in the current diluted share count, if it is at all? And how will it impact the share count going forward? And then just again, around SG&A, I mean, would you expect it to retreat pretty substantially in Q4? Is this an annual like accrual type thing? Or is this recurring quarterly? Phillip Hayden: Yes. So if you do the math and you look at all of our public filings, we -- I'd say it was a majority of what we will do in a year were granted in the quarter. I wouldn't expect there to be anything to that level in the next several quarters. I don't know exactly what our SBC will be for Q4, but I think the majority of what we will do for this year's grants we had to expense in Q3. David Marsh: Okay. That's really helpful. Turning kind of more strategically, Clint, thanks for the color around the licenses. It's helpful. Could you talk about content or subscriptions a bit though? You guys have launched a number of new -- kind of new markets over the last several quarters. And can you just give us an update on reception and what kind of momentum you're seeing in some of those new markets and new platforms, please? Clint Stinchcomb: I appreciate that question. And if I may, if I could just add a little color to what Brady shared. I want everybody to know that all of our employee equity grants at this point, including or especially mine, are linked to financial performance of the company, all quantitative goals. So as a company, we're very tightly aligned around business and performance compensation. It's a key pillar of culture, and it's a key pillar of our compensation structure. We are not a bloated media company where people claim to fat-based salaries and guaranteed bonuses really strive to be the farthest thing from that as a performance-based company. So equity is a critical component of this pursuit, and it's also a way to help maintain a competitively advantageous operating budget. But getting back to your question around subscriptions. We have had a number of new launches with partners like Amazon in Australia, in New Zealand. And as they roll out subscription-based services around the world, we want to roll out with them. It's a -- building a subscription business is something where there are huge barriers to entry. And so for us, like beyond just the reliable recurring revenue of our subscription services, it's a moat and it's a competitive advantage in our licensing acquisition efforts. And as a result of these deals, David, and as a result of our sort of pipeline visibility, we're supremely confident that our overall subscription revenue, retail and wholesale will grow at a higher rate in '26 than in '25. And again, we're confident because we have visibility in the third-party pipeline, meaning new and meaningful wholesale distribution agreements, which will kick in as well as channel store launches inside and outside the U.S. for our SVOD services and also because we're diligently planning and taking the requisite steps to execute new pricing and packaging in 2026. I mean if you look at a lot of public and private companies in the subscription space, the way that they've grown is through simply or I might add often just lazily raising price. That's something we have the capacity to do, but we're trying to get to the core of what we really need to do based on our marketing spend to grow subscribers. Phillip Hayden: And -- let me jump back in. I think I forgot to answer your question on dilution. A portion of the RSUs for Q3 already vested in those were those did factor into our share count for dilution purposes. Obviously, we reported a net loss for the quarter. So it was overall anti-dilutive. But going forward, assuming we're -- for net positive quarters, we'll certainly have to include those -- all of those are fully diluted. Operator: And Patrick Sholl with Barrington Research has our next question. Patrick Sholl: Just first one on the guidance in the quarter. Could you maybe just talk about the free cash flow guidance? It seems like relative to the increase in revenue, there's kind of limited free cash flow growth in the quarter. Is that mostly just a timing issue? Or is there anything to keep in mind there? Clint Stinchcomb: Timing issue. Patrick Sholl: Okay. And then on the content library for AI licensing. Can you just maybe talk about like the different markets between the content that you have that is from maybe your partners that also work with you on the streaming side versus other partners? And just maybe the different dynamics on margins and use cases and partners for licensing there. Clint Stinchcomb: Yes. It's a good question, Pat, and thank you. So when we were first building our library for AI licensing, we went to people with whom we had great existing relationships. And most of those companies are in the factual space, nonfiction entertainment, science, technology, history, travel, lifestyle, et cetera. In an effort to try to generate, again, escape velocity or dominate in the space, we then, at the same time, or shortly thereafter, start reaching out to people that we knew distributors who controlled content in other genres, general entertainment, sports as an example. And so with that type of corpus and with the way that we're able to structure some of that data, that's made a real difference as it relates to our overall proposition. I mean people love our content and love working with us because we have diversity of content, we have high quality, and we're able to just enrich the data in a way that's unique. But we do have some content whereas a lot of the content that we have in our AI corpus, we could put on our services, there is some content that goes well beyond the factual content that you would see on any of our subscription services or our ad-supported services. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, ladies and gentlemen. And welcome to the GRAIL Third Quarter 2025 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that this conference call is being recorded. GRAIL Investor Relations, please begin. Robert P. Ragusa: Thanks, operator, and thanks, everyone, for joining us today. On the call are Robert Ragusa, our Chief Executive Officer; Aaron Freidin, Chief Financial Officer; Joshua J. Ofman, President; Harpal S. Kumar, Chief Scientific Officer and President International; and Andrew John Partridge, Chief Commercial Officer. We will be making forward-looking statements on this call based on current expectations. It is our intent that all statements other than statements of historical fact, including statements regarding our anticipated financial results and commercial activity, will be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 as amended and Section 21 of the Securities Exchange Act of 1934 as amended. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon currently available information, and GRAIL assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that GRAIL files with the SEC, including the risk factor section of GRAIL's most recent quarterly report on Form 10-Q. This call will also include a discussion of GAAP results and certain non-GAAP financial measures, including adjusted gross profit or loss, which are adjusted to exclude certain specified items. Our non-GAAP financial measures are intended to supplement your understanding of GRAIL's financials. Reconciliations of the non-GAAP measures to the most directly comparable GAAP financial measures are available in the press release issued today, which is posted to our website. And with that, we can turn to Robert Ragusa. Good afternoon, everyone, and thank you for joining us. Robert P. Ragusa: On today's call, we will review third-quarter results and discuss recent updates. These include PATHFINDER II results shared at ESMO, updated SIMPLIFY data shared at EDCC, and recent strategic and financing activities. We remain very pleased with our commercial progress. Growth in Gallery volumes and revenue in 2025 were 39% and 29%, respectively, as uptake continues to grow. From the launch of Gallery through September 30, approximately 420,000 Gallery commercial tests have been sold by more than 16,000 healthcare providers. We are continuing to progress our activities beyond the United States as well, recently announcing a strategic collaboration with Samsung to bring the Gallery test to key Asian markets. Subject to execution of definitive agreements, we and Samsung will work as exclusive partners to commercialize Gallery in South Korea and potentially other Asian markets, including Japan and Singapore. In addition, we plan to explore other strategic and operational collaborations. Samsung has also agreed to make an equity investment of $110 million in GRAIL, subject to closing conditions. In October, we also introduced Gallery commercially in Canada, in partnership with MedCan, a global leader in proactive health and wellness services. Eligible adults in Canada may now access the Gallery test at MedCan. In addition to these operational updates, we recently completed a $325 million private placement. This transaction strengthens our balance sheet as we progress through additional milestones. Gallery is the only MSAT available which has demonstrated performance in people being screened in the intended use population. This includes data from our registrational PATHFINDER II study, where a pre-specified analysis was presented at ESMO last month. I will ask Joshua J. Ofman, then Harpal S. Kumar, to discuss recent results from Gallery's clinical program. Joshua J. Ofman: Thank you, Robert Ragusa, and hi, everybody. We were really pleased last month to share very positive performance and safety results from the pre-specified analysis of the first 25,000 participants in our registrational PATHFINDER II study. This study started in 2021, and PATHFINDER II is a large prospective trial in a very broad and diverse enrolled group representative of Gallery's screening-eligible intended use population. Releasing the first results of this study at ESMO was so exciting and a big milestone for our company, and all of our partners and investigators. It was a meaningful contribution to the evidence base for the effectiveness of multi-cancer early detection. As you will recall, we found that adding Gallery to recommended screening for breast, cervical, colorectal, and lung cancer yielded a more than sevenfold increase in the overall cancer detection rate. Approximately three-quarters of the cancers detected by Gallery have no recommended screening options. More than half of the new cancers detected by Gallery were in stage one or two, and more than two-thirds detected at stages one, two, or three. One of the most important clinical metrics, the positive predictive value or PPV, which is the likelihood of receiving a cancer diagnosis following a positive test result, Gallery's PPV was 61.6%. Specificity was 99.6%, translating to a false positive rate of 0.4%, a critical safety metric. Gallery's ability to accurately identify where in the body cancer is located also helped guide an efficient and effective diagnostic evaluation. Importantly, there were no serious study-related adverse events reported thus far. Diagnostic resolution, an important economic and patient-centered outcome measure, took a median of 46 days. Only 0.6% of all participants had an invasive procedure, and again, no serious study-related adverse events were reported. Invasive procedures were two times more common in participants ultimately diagnosed with cancer than in those who were ultimately not diagnosed with cancer. PATHFINDER II and NHS Gallery make up our registrational clinical program for Gallery. Our PMA submission will include these data from the first 25,000 enrolled in PATHFINDER II, to complete twelve months of follow-up, plus findings from the prevalent round of screening from the NHS Gallery randomized clinical trial, as well as the results of a bridging study between the version of Gallery used in the two registrational trials to the updated version that we plan to submit to the FDA for premarket approval. As a reminder, we announced positive top-line results from the prevalent round of screening in the NHS Gallery trial in May. Namely, the data from the prevalent screening round showed a substantially higher positive predictive value than that was observed in the first PATHFINDER study. Now to review important new findings from our SIMPLIFY study, I will hand it off to Harpal S. Kumar. Thanks, Joshua J. Ofman, and good afternoon, everyone. Harpal S. Kumar: Working with the University of Oxford, we recently shared positive long-term results from an extended follow-up of the SIMPLIFY study at the Early Detection of Cancer Conference or EDCC in October. As a reminder, we conducted the observational SIMPLIFY study in symptomatic participants in the UK to understand whether our technology could play a role in helping clinicians guide investigation and accelerate time to diagnosis when patients present with concerning but nonspecific symptoms. Examples of these symptoms could include unexplained weight loss, fatigue, persistent abdominal pain, and others. The previous primary analysis from SIMPLIFY published in The Lancet Oncology in 2023 followed participants until diagnostic resolution or up to nine months and demonstrated Gallery's PPV in this population was approximately 75%. Patients determined to have a false positive Gallery result were followed for an additional fifteen months in the National Cancer Registry England and Wales. The updated analysis presented at EDCC includes the subsequent registry follow-up period for all seventy-nine of the patients who were originally classified as false positives. The data contained a number of important learnings. First, approximately one-third of the participants initially believed to be false positives were diagnosed with cancer during the full follow-up period. Second, of that group, a cancer signal of origin or CSO prediction from the Gallery test was correct in all but one patient. Finally, with a reduction in false positives in SIMPLIFY from 79 to 51, the updated PPV for Gallery in this symptomatic population increased to 84.2%. These findings reinforce the importance of proactive follow-up after a positive MSAT test result and the value of the Gallery test's accurate CSO capability. Now to Aaron Freidin for a review of our financials. Aaron Freidin: Thanks, Harpal S. Kumar, and good afternoon, everyone. I am pleased to present our results for the third quarter. Revenue for the quarter was $36.2 million, up $7.5 million or 26% as compared to 2024. Total revenue for the quarter is composed of $32.8 million of screening revenue and $3.4 million of development service revenue. Development services revenue includes services we provide to biopharmaceutical and clinical customers, including support of our clinical studies, pilot testing, research, and therapy development. We continue to see demand for our Gallery test and sold more than 45,000 tests in the third quarter. We have historically observed seasonal fluctuations over the course of the year, in particular, relatively high volume in the second and fourth quarters and lower in the first and third. We would expect these seasonal trends to continue. Screening revenue of $32.8 million in the third quarter was up 29% as compared with 2024. U.S. Gallery revenue was $32.6 million, up 28% compared to the third quarter last year. At the beginning of the year, we guided full-year 2025 U.S. Gallery revenue growth between 20% to 30%. We are refining this growth guidance today to the middle of that range. Cost of screening revenue, exclusive of amortization of intangible assets, as a percent of screening revenue decreased mainly due to lower variable costs of Gallery testing performed on our automated platform, partially offset by a decrease in ASP and higher sample reprocessing costs. Net loss for the quarter was $89 million, an improvement of 29% as compared to 2024. Gross loss for the third quarter of 2025 and 2024 were $13.7 million and $22.2 million, respectively. Non-GAAP adjusted gross profit for 2025 was $20 million, an increase of $8.2 million or 60% as compared with 2024. In Q3, we achieved a non-GAAP adjusted gross margin of 55% compared to 41% in 2024. This change was largely driven by improvements in variable cost on our updated Gallery platform that launched last year and by an increase in sample volume for the quarter. As we ran a one-time batch of research and development samples for clinical validation, resulting in reduced fixed cost per sample related to higher lab efficiency at higher volumes. We do not expect similar clinical validation sample volume in future quarters, but the higher number of samples processed demonstrates the benefits we expect to see in lab efficiency as the sample volume grows. We ended the quarter with a cash and investment position of $547.1 million. Including net proceeds from the $325 million private placement in October, we have approximately $850 million of cash and investments. This does not include the recently agreed-upon investment in GRAIL by Samsung, which is subject to closing conditions. In August, we drew down our cash burn guidance for the full year 2025 to be no more than $310 million from no more than $320 million. Today, we are updating our cash burn guidance further to no more than $290 million for the full year of 2025, net of $13 million in placement fees from our recently completed financing. Expected full-year burn represents a significant decrease of approximately 50% compared to 2024 as we remain focused on cost management. We believe our cash runway extends into 2030, enabling us to achieve major planned clinical and regulatory milestones. I will hand it back to Robert Ragusa for concluding remarks. Robert P. Ragusa: Thanks, Aaron Freidin. Our strategic priorities are seeking FDA approval of Gallery and pursuing broad reimbursement. We are advancing Gallery in the near and midterm towards key clinical and regulatory catalysts to achieve broad access while maintaining our disciplined cost management. As we move into 2026, our key milestones are the completion of our modular PMA submission to the FDA and full clinical utility results from our 140,000 participant NHS Gallery study, which we expect to read out midyear. This longitudinal data set will be reviewed by the NHS to determine Gallery's potential deployment within the UK population. Lastly, we look forward to welcoming many of you on-site tomorrow at our centralized labs in Research Triangle Park, North Carolina. A live webcast of our analyst day will begin at 11 AM Eastern Time and will also be available at the Investor Relations section of our website. Let's now go to Q&A. Operator, please go ahead. Operator: Thank you. Operator: At this time, if you would like to ask a question, please click on the raise hand button, which can be found in the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will hear your name called and receive a prompt to unmute. As a reminder, we are allowing analysts one question and one related follow-up today. We will wait one moment to allow the queue to form. Our first question will come from Subhalaxmi T. Nambi with Guggenheim. Please go ahead. Hey, guys. Thank you for taking my question. Subhalaxmi T. Nambi: The FDA timeline is moved to Q1 instead of 2026. What changed? Robert P. Ragusa: Yes. Subhalaxmi T. Nambi, thanks for the question. I think, you know, the main thing is just as we move forward in time, you know, we have gotten more certainty in the range of when we would be able to deliver that. You know, so we have been saying first half for a fair amount of time, and it looks like, you know, things are on track well enough where we are more confident to be able to put out for the first quarter. So it is really just kind of tightening the confidence intervals around the time frame. Subhalaxmi T. Nambi: Perfect. And you are currently running a promotion on your website, offering $150 off of Gallery for getting tested from October to year-end. What incentivized you to offer this promotion? How has the demand elasticity in response to this promotion been? And are you piloting a reduction to $800 moving forward? Could this impact ASPs moving forward? Thank you for that. Robert P. Ragusa: Yeah. Maybe a couple of comments, and I will turn it over to Andrew John Partridge, our CCO. Yes. We have done, you know, a fair amount of work, you know, looking at the price elasticity on the test. And, you know, this is kind of a reflection of some of that work. We do know that there is, you know, significant price elasticity and going into the end of the year is a good time to exercise some of that. But maybe to answer some of the other pieces, Andrew John Partridge, do you want to take that? Andrew John Partridge: Yeah. Thanks, Robert Ragusa. As you saw, we have reduced the price on the website. The growth that we have seen in Q3 year over year has been predominantly driven by the provider channel. We have seen improvements in both breadth of prescribing, bringing new prescribers onto using Gallery, and also depth of prescribing. So, yeah, discounting has been a component of increasing that depth and breadth of prescribing. Also, the integrations we have done with companies like Quest and Athena have also driven a lot of that breadth and depth. And then finally, repeat testing, which price is also a component of that, has also driven that depth of prescribing as well. So we are very pleased with what we have seen in the market. Operator: Next question will come from Kyle Mikson with Canaccord. Kyle Mikson: Hey guys, thanks for the congrats on the progress. So you have obviously bolstered the balance sheet nicely. You should have over an additional $400 million by early 2026 with the Samsung investment. I was just curious how you plan to use the additional capital, and specifically, how does the commercial strategy change, especially in light of recent or upcoming competition? And I appreciate to hear Andrew John Partridge's thoughts on that as well. Thanks. Robert P. Ragusa: Yeah. So I think you hit some of it. You know, obviously, it gives us a lot more flexibility on the balance sheet. With competition emerging, it does give us more flexibility in how we think about flexing our commercial investments. So we are looking at those things as well as any of the other areas that we need to really fortify as we continue to scale and expand our test footprint on the marketplace. But, you know, I guess, Andrew John Partridge, do you want to also comment on that? Andrew John Partridge: Yeah. I think Robert Ragusa really covered it. Yeah. I think that I would emphasize is we feel like we have got a lot of momentum right now with customers for all of the reasons that I described. And definitely coming now off the back of the PATHFINDER II data that we presented at ESMO, there is a palpable momentum that we have in our business. Kyle Mikson: Got it. That is helpful, guys. Thanks. And also, Hims and Hers made an investment in the company recently. Consequently, there has been some speculation that means GRAIL is going to take a direct-to-consumer approach to Gallery at some point. So if you could just comment on those plans or the potential to take that route over time in light of the increasing focus on longevity among consumers. Robert P. Ragusa: Yeah. No. It is a good question. You know, we are, as we just reiterated our timeline for our PMA, we are very committed to the PMA pathway. And so there is no change in that. In fact, you saw a slight acceleration in the actual time frame. But beyond that, you know, we do also recognize that the digital health channel is an important channel out there, more broadly. In this sector as well as many others. And so we want to make sure that we are able to utilize all the channels that are available to bring, you know, we have talked from the very beginning about how do we get broad access for Gallery, and that would be one other element to enable broad access. But that also would not diminish our, again, our push towards a PMA and broad access through that. Operator: Your next question will come from Doug Schenkel with Wolfe Research. Doug Schenkel: Hi, good afternoon, and thank you for taking my questions. So I want to actually talk about NHS England a little bit more, and then I have a COGS-specific question. So starting on NHS England, you know, looking back to May 2024 when the statement was issued saying that early results were not compelling enough to justify a large-scale pilot. Were they referring to any clinical utility data from year one or to test level performance metrics such as PPV sensitivity and or specificity? Can you share a little bit more on what prompted that decision? And then on the same topic, has anyone besides GRAIL and the NHS evaluation team seen the year one NHS Gallery data? I am just curious if anyone else has seen it, and then if not, at what menu do you anticipate releasing that data more broadly? You know, keeping in mind that you have said the FDA module submission is expected to be, I think, completed in Q1. So it would seem like that data would need to be released soon. Robert P. Ragusa: Yeah. Harpal S. Kumar, do you want to take that one on? Harpal S. Kumar: Sure. Thank you, Doug Schenkel. So on NHS England's decision last year, it is important to reiterate that what they would have wanted to see in order to initiate a pilot at that stage was very exceptional data. They looked at a few specific metrics of which PPV was definitely one. To remind everyone, it is not possible to look at the sort of broad utility measure of stage three and four reduction with only one year of data. That has to come with three years of data. But PPV was certainly one, and you will have seen our announcement earlier this year that the PPV in that first round was substantially greater than we saw in our first PATHFINDER study. Which, to remind everyone, was 43%. So it gives you a sense of some of the information that was seen at the time. But, again, to reiterate, what the NHS would have wanted to see was truly exceptional data in order to accelerate. And the point is they were looking about an acceleration of an implementation rather than waiting until the final study results. What they said at the time was, it was not exceptional enough to accelerate that implementation and so that they wanted to wait for the final study results. In answer to your second question, no. Only the NHS evaluation team has seen that data so far. To the third question, yes, the data from the prevalent round only from the intervention arm will be part of our FDA PMA submission package in Q1 next year. But that does not mean it will be in the public domain at that point. There will not be any data in the public domain from NHS Gallery until we have the final study results. Robert P. Ragusa: Yeah. And we are expecting that full readout in 2026. Your next question is your final question and will come from Bradley Bowers with Mizuho. Bradley Bowers: Hey, thanks for getting me in here. One on volumes and then maybe one a little high level. But just on volumes, you know, pretty, you know, acceleration here outgrew some seasonality. Just wanted to hear, you know, kind of driving volumes here, what cohorts, and then, you know, how that how we should think about that into next year and, you know, if international will have a tangible contribution next year? Robert P. Ragusa: Yeah. Aaron Freidin, you maybe want to pick the volume question, and maybe dish off to Andrew John Partridge as well. Aaron Freidin: Yeah. I mean, again, I can tag team that. So, yeah, you are right. Like, volumes are up 39% for the quarter year over year. Andrew John Partridge has kind of touched on already we are seeing, you know, more provider pull through and so on for the reasons that he has stated. As far as international goes, there are very minimal international volumes today. You know, it is an area that we are focusing on. And as you see through the Samsung engagement and so on, that we are being opportunistic there, and we are excited about what could be. Today, it is probably a little too early right now to say what volumes will be next year. But, you know, we are getting, as Andrew John Partridge said earlier, momentum internationally and lost momentum domestically. So anything you want to add? Nothing else to add. I think we covered it. Bradley Bowers: Thanks. And then if I could just double click on the SIMPLIFY study, you know, I think that is an interesting data point, you know, that going back and following up patients who were previously identified as false positives. I mean, does this were these patients, I guess, that went under, you know, typical protocols? You know, why were these, you know, cancers, I guess, kind of missed in follow-up? And then also, you know, there are, I guess, some serious implications about, you know, the possibility to detect, you know, cancers even earlier than, you know, the current paradigm or, you know, what follow-up testing would be. So just wondering to hear your thoughts on that. Robert P. Ragusa: Yeah. Harpal S. Kumar, why do not you go through that? Harpal S. Kumar: Yeah. I mean, look. First of all, it is, as you say, a really interesting set of data, and it is relatively recent. So we are still examining some of the detailed information. I think one of the most significant points is that many of these patients are presenting with very nonspecific symptoms, and these are the types of symptoms that could be indicative of cancer, and often they are. But they could also be indicative of many other conditions. And so primary care physicians, when they see patients like this, and they suspect cancer, will typically refer them to where they think that cancer is likely to be in the body. But given these nonspecific symptoms, many of them could be several different sites. And so then what happens is a patient gets referred to a particular type of clinic, they get worked up in that clinic for that type of cancer. But if nothing is found at that point, they may not be worked up any further. And because this was an observational study, we did not provide the CSO prediction to the clinician at the time. But what we have subsequently determined from this further follow-up is had we done so, it would have provided a directional investigation in all but one of the patients, which we think is a really encouraging development in terms of that CSO prediction capability. Andrew John Partridge: Yeah. And I would just add to Harpal S. Kumar's point the value of the CSO. What we have also seen in centers that have adopted Gallery in the US is physician confidence growing in the value of that CSO. We have seen real-world publications from both Mayo and Dana Farber where their PPVs have been in excess of 70%. So that physician confidence in the value of the CSO really means they really work that diagnostic workup to a final resolution. And what we have seen there, therefore, there is more cancers being diagnosed due to that guided diagnostic follow-up from the CSO. Operator: We have time for one more question, so we will return to Doug Schenkel with Wolfe Research. You may unmute. Doug Schenkel: Okay. Thank you guys for taking me back in the queue. So I think it is an Aaron Freidin question. Cost of screening revenue, I think in dollar terms, it was down $3 million relative to Q2. That is kind of a mid-teens per decline. So sequentially on a per test basis. I think it was down 28% on a per test basis year over year. So just want to make sure at least I am in the right ballpark in doing the math. And, you know, if so, that is pretty impressive and remarkable. Can you just share how you are getting there and the durability and the trajectory from here? Thank you. Aaron Freidin: Good, Doug Schenkel, happy to hear. Oh, sorry. Jump up. Robert P. Ragusa: Yeah. And I was just saying, you know, Aaron Freidin talked a little bit about that in the prepared remarks. But, yeah, Aaron Freidin, why do not you go into a little more detail on that? Aaron Freidin: Yeah. I could really an example of what we have been saying for a year now about the platform that we have built for high throughput, the capacity that we have to run a million samples a year. And just what higher volumes will show from a fixed cost leverage perspective. Comparing year over year, you have also got the variable cost impact that we have been talking about. We have kind of talked about that as a four to five times more samples per flow cell compared to the older version. So it is really a demonstration of what more volume will do to our cost leverage and why we are really focused on driving more volume, getting more access out there because we have got the infrastructure to handle it, and the margins are there for the day. Operator: And there are no further questions at this time. I will now turn the call back to GRAIL for closing remarks. Robert P. Ragusa: Thank you, everyone, for joining today's call. Operator: Ladies and gentlemen, this concludes the call, and you may now disconnect.
Operator: Greetings, and welcome to Ibotta, Inc. third Quarter 2025 Financial Results. As a reminder, this event is being recorded. I would now like to pass the call over to the management team. Please go ahead. Bryan Leach: Good afternoon, and welcome to Ibotta, Inc.'s Q3 2025 Earnings Conference Call. With us today are Bryan Leach, Founder and CEO, and Matt Puckett, CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q4 2025, our ability to grow our revenue, factors contributing to our potential revenue growth, and the capabilities of our offerings and technology. All of which are subject to inherent risks, uncertainties, and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures. And should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release and our 10-Q, which are available on our Investor Relations website at investors.ibotta.com. Also, during the call today, we will be referring to the slide deck posted on our website. Unless otherwise noted, revenue and adjusted EBITDA comparisons to prior periods are provided on a year-over-year basis. With that, I'll turn it over to Bryan. Bryan Leach: Good afternoon, everyone. Thank you for joining our discussion of third quarter results. We are pleased to report revenue in the upper half of the guidance range we provided on our second quarter earnings call, while delivering adjusted EBITDA well above the top end of the range. We are also guiding to fourth quarter results that are broadly consistent with our prior expectations. In fact, when combining our third quarter results with our fourth quarter outlook, our total second half performance is right in the range we would have expected mid-year, both for revenue and adjusted EBITDA. So the business is unfolding about as we anticipated. We have continued to make progress transforming our company into a full-service performance marketing platform for the CPG industry. Our product and engineering teams have been working hard to enhance our capabilities in preparation for greater automation and scale in 2026. At the same time, our recently reorganized and upgraded sales team has improved our infrastructure systems and processes, in order to support a stronger and more consistent go-to-market organization. We expect this will result in better service and greater continuity for our clients, which we believe will be rewarded over time. Within the last six weeks, we have made two major announcements that demonstrate our thought leadership within the industry. First, on September 30, we announced a major strategic partnership with Surcana, a leading provider of media measurement services. This will allow our clients to receive independent lift studies from a trusted third party just as they can for other forms of digital media. Second, on November 3, we announced the launch of LiveLift, our latest groundbreaking innovation designed to help brands drive incremental sales at scale in a cost-effective way. LiveLift represents an improvement over our previous approach to measuring sales lift during a campaign. Initial client feedback on both the Surcana and LiveLift announcements has been overwhelmingly positive, and this has increased our confidence that we are prioritizing the right investments and pursuing the right long-term strategy. To ensure that we are all on the same page, allow me to say a word about our nomenclature. Throughout much of this year, we have spoken about incremental sales, which are sales that would not have occurred otherwise, and CPID, which refers to the cost per incremental dollar that a campaign achieves. Both of these are metrics we use to help an advertiser understand the performance of their campaign. Clients will now be able to receive these metrics using LiveLift, which is what we are calling our latest solution for ongoing measurement and optimization. Going forward, we will no longer be using the word CPID as a shorthand for that solution. The current macro environment continues to present challenges for CPG companies. Many of our larger clients are facing a sustained period of depressed organic sales growth. The University of Michigan Index of Consumer Sentiment is near an all-time low, which may indicate increased consumer pessimism and pullbacks in consumer spending, particularly in lower to middle-income consumers. This, combined with the recent disruption to the SNAP program and ongoing uncertainty related to tariffs, has translated into some large clients taking a wait-and-see approach, which can include pausing spending in what they perceive to be discretionary areas like promotions. Expectations for rigorous measurement have gone up, as CPGs demand evidence of demonstrable ROI across their marketing spend. All of this has further validated the importance of our strategic transformation because it underscores the need for us to move toward the outcomes-based world of performance media where demonstrated returns can lead to increased investment, regardless of the external climate. Ibotta, Inc. is working to position itself as an invaluable strategic partner that can deliver profitable revenue growth at scale. Diving into third-party measurement in a little more depth, our partnership with Surcana will enable CPG brands to compare the purchase behavior of consumers who are exposed to an Ibotta, Inc. offer versus those who are not, allowing advertisers to measure the full impact of their promotional campaigns, including the lift in incremental sales that extend beyond the initial promotional period. Brands will be able to access third-party lift studies and benchmark their Ibotta, Inc. campaigns against other media spend that Surcana already measures using the same methodology. Because Surcana is a trusted name in the measurement space, we believe our announcement helps address the concern that we are grading our own homework. In just a matter of weeks, we have already seen significant interest from clients who want to learn more about this new offering. It has also had an immediate impact in at least one instance. Our first pilot partner decided to launch a new campaign on the IPN after receiving a Surcana lift study. For them, the lack of independent verification of household lift had been a critical gating factor. Once it existed, they felt comfortable reengaging. Our other early pilot partner has also recently relaunched campaigns despite a lack of previously allocated budget. While this end-of-year campaign is relatively small, we have had several senior leadership meetings to start Q4, and we believe we are well-positioned to become a more meaningful part of this client's 2026 plans. Beginning next year, we are not planning to comment on specific clients or campaigns, but rather expect to describe the overall transition of our business to our LiveLift solution. In the second half of this year, we have made it easier for our enterprise clients to pilot LiveLift. For those that do not have incremental dollars to allocate, we are allowing them to use existing budget dollars to make it as easy as possible to try out our latest capabilities. We expect that more and more of our clients will launch pilots over the next few quarters. Not every campaign can benefit from these new capabilities because some clients do not run campaigns that are live long enough for us to measure with statistical confidence. But the vast majority of campaign dollars are eligible. As expected, we have seen an uptick in new pilots since our last call, in part because LiveLift is now being pitched by a larger percentage of our sales team. We anticipate our entire team selling the product beginning in Q1. Several of our clients have now used LiveLift long enough to have clearly seen a positive impact on their business. Just a week ago, I was at Brand Week and did a fireside chat with Benoit Vater, the Chief Media Officer of Liquid Death. In case you have not seen it, you can access a recording on our investor relations site. Benoit spoke to the importance of marrying top-of-funnel advertising with effective bottom-of-funnel tactics. He explained that with LiveLift, Liquid Death was able to drive sales in a much more precise and profitable way. Not only were they able to get their offers in front of customers who were new to the brand, but they also managed to reduce the sales cycle and increase the buy rate for existing customers. Another enterprise client said the following after evaluating the results of their pilot: "LiveLift is not just a tool. It is a powerful commitment from Ibotta, Inc. to deliver data from in-flight campaigns that drive smarter decisions. For the first time, we can analyze our customer segments with the depth needed to see exactly how each group reacts to our promotions. This gives us unprecedented, precise, and powerful ways to grow." It is still very early days, and the number of clients who have piloted LiveLift is small relative to our total client base. Nonetheless, we think these initial testimonials speak to both the unique capabilities we are building and the enthusiasm for clients who have experienced LiveLift so far. Turning to organizational updates, as discussed last quarter, we reorganized and restructured our sales organization in early Q3, which resulted in some additional turnover and account handoffs to start the quarter. With these changes now behind us, we expect greater continuity and improved execution with our clients. I am pleased to report that we have filled all open VP-level sales roles as of the '4. Chris and I are happy with the leadership, talent, and energy coming out of the new organization. Improving our B2B marketing has been a clear focus, and that has resulted in greater emphasis on thought leadership. To cite just one example, Chris Reedy hosted a successful fireside chat at Grocery Shop with Mike Elgass, Surcana's EVP of Global Media, CPG, and Retail, and they talked about the future of measurement and digital promotions. Our sales enablement and training efforts have improved dramatically, which has allowed us to reach out to most of our enterprise clients with the LiveLift offering just within the last few weeks. We have already begun to see improvement in several of our input metrics, such as average meetings per sales rep, average opportunities generated, and the number of accounts with in-person engagement. Before I turn it over to Matt, let me wrap up by providing a few thoughts on where we are leading the industry in 2026 and beyond. We believe that CPG marketing is entering what we call the outcomes era. In the past, brand marketers have typically relied on market research to develop a specific hypothesis about how to grow their market share. Once they have that working hypothesis, they pitch it internally hoping to secure funding for their program in the annual operating budget. Assuming it gets greenlighted, they execute their plan several months later, often with the help of a media agency. Finally, they measure a campaign's performance using mixed media models, but they have to wait several months to get a readout. Most of the time, these programs are declared a success even if overall sales did not grow as desired. In the outcomes era, CPG brands will start by clearly defining the specific business outcomes they want to achieve and allow AI-enabled systems to help them find the most efficient path to reaching those goals. For example, they might target a certain number of dollars of incremental sales or a certain percentage increase in market share within a given quarter. From there, they will provide any constraints, such as the acceptable cost per incremental dollar for the program or the duration of the program. Once these parameters are defined, machines will begin testing multiple different hypotheses, all at the same time and at much lower cost. By optimizing program parameters along the way, the best tactics will be emphasized while the underperforming ones will be weeded out. This is how AI-enabled systems will ensure that the goal is achieved at the lowest possible cost. This is not a novel idea. It just has not been made available to the CPG industry at scale because until now, ongoing measurement of incremental sales has not been possible for products that are sold in an in-store environment. Without that reliable signal, optimization has been nearly impossible. We believe Ibotta, Inc.'s capabilities, including most recently LiveLift, are changing all of that, helping to usher in a new golden age for promotions, and demonstrating the power of optimization at scale. This will not happen overnight. In 2026, we expect to bring LiveLift to market in a more scaled and automated fashion to our broader client base. This will require patience as clients need time to go through the testing phase, evaluate their results, commission third-party studies, and then ultimately go through budget cycles to allocate more dollars to Ibotta, Inc. Each year, our company decides on a central theme that will organize our work. In 2026, that theme will be "make it easy." We plan to make it easier for our clients to set up and execute LiveLift campaigns, evaluate their results, and optimize their campaigns. We still have work to do to continue enhancing the core features of a best-in-class performance marketing solution both for clients and internal stakeholders. This includes streamlining the process of setting up offers, projecting results, and optimizing campaigns. This is an ongoing iterative process. I am confident that we are on the right track strategically and organizationally, and I am looking forward to bringing more of our CPG clients on this journey with us. As I said last quarter, transformation on this scale is never easy. But I am proud of our leadership and our whole team for confronting the challenges head-on and putting in the work to bring the proven principles of performance marketing to the world of promotions. It is long overdue. With that, let me turn it over to Matt. Matt Puckett: Thank you, Bryan, and good afternoon, everyone. I am happy to be with you today for my first Ibotta, Inc. quarterly earnings call. I was excited to join Ibotta, Inc. at such a transformative moment in the company, with the opportunity to impact the direction and trajectory of the business alongside Bryan and the leadership team, and the chance to work with great people. I have found all of that, and I could not be more enthused to be here. Now let's jump into the results. In summary, we delivered revenue and adjusted EBITDA that were respectively 244% above the midpoint of the guidance range we provided on our second quarter earnings call. Looking further into our revenue results in the quarter, revenue was $83.3 million, a decline of 16% year over year. Within that, redemption revenue was $72.1 million, down 15% year over year, a reflection of the difficult comparisons after a very strong third quarter last year, the previously mentioned lagged impact of some execution challenges, and the continued noisy macro, particularly in the CPG space. Third-party publisher redemption revenue was $49.3 million, down 4% year over year, while direct-to-consumer redemption revenue was $22.8 million, down 31% year over year, as we have continued to see more redemption activity shift to our third-party publishers. Add another revenues, which now represent 13% of our revenue, $11.2 million, down 21% year over year due to continued pressure on direct-to-consumer redeemers. Turning to the key performance metrics supporting revenue, total redeemers were $18.2 million in the quarter, up 19% year over year. We saw healthy growth in third-party redeemers across the IPN versus last year, highlighting the continued strength of the demand side of our network. Growth was driven by the launch of Instacart during 2024 and the launch of offers to a majority of DoorDash customers in the second quarter of this year. Redemptions per redeemer were 4.6, down 28% year over year, driven by the quantity and quality of offers available to each redeemer, as well as the growth in third-party redeemers, which have a lower redemption frequency as compared to our direct-to-consumer redeemers. Redemption revenue per redemption was 87¢, flat year over year. Now shifting to the cost side of our business, as anticipated, non-GAAP cost of revenue was up $4.8 million versus a year ago, driven by an increase in publisher-related costs. This resulted in a Q3 non-GAAP gross margin of 80%, down nearly 800 basis points year over year but up 30 basis points sequentially. Non-GAAP operating expenses were down 1% versus last year and slightly below our expectations due to the timing of spend between the third and fourth quarters and modestly lower labor costs in the quarter. This resulted in non-GAAP operating expenses being 61% of revenue, an increase of approximately 870 basis points year over year due to the lower revenue, and flat sequentially versus Q2. Within that, non-GAAP sales and marketing expenses decreased by 6%, non-GAAP research and development expenses decreased by 16%, primarily a result of higher capitalization of software development costs and more of the R&D costs being categorized in cost of revenue in the period as compared to last year. Lastly, non-GAAP general and administrative expenses increased by 19%, reflecting higher professional fees and temporarily higher facilities costs. It's important to note that while overall non-GAAP operating expenses were slightly down year over year, our investments in areas related to our transformation, inclusive of both the P&L and what is being capitalized to the balance sheet, were actually up approximately 11%, headlined by higher labor costs in sales and technology. We delivered Q3 adjusted EBITDA of $16.6 million, representing an adjusted EBITDA margin of 20%. Adjusted net income of $16.3 million and adjusted diluted net income per share of $0.56. Our adjusted net income excludes $12.6 million in stock-based compensation and $400,000 in restructuring charges, and includes a $1.8 million adjustment for income taxes. We ended the quarter with $223.3 million of cash and cash equivalents. In Q3, we spent approximately $38.7 million repurchasing approximately 1.4 million shares of our stock at an average price of $26.73. We had 28.3 million fully diluted shares outstanding at the end of the quarter, and as of the end of the quarter, we had $89.9 million remaining under our current share repurchase authorization. Turning to Q4 guidance, we currently expect revenue in the range of $80 million to $85 million, representing a 16% revenue decline at the midpoint. And we expect Q4 adjusted EBITDA in the range of $9 million to $12 million, representing about a 13% adjusted EBITDA margin at the midpoint. With that, let me provide you a little more color on the fourth quarter outlook. While we are encouraged by the larger number of clients piloting LiveLift, we expect that it will take some time before this starts to meaningfully impact our top-line results. And while we have outperformed on the cost side year to date, it's important to recognize we have several million dollars of seasonal marketing expense which will be incremental in the fourth quarter relative to the third quarter, and we will now be more fully staffed for the entirety of the fourth quarter across the sales organization. Finally, I'll share some early thoughts on 2026. We did not see our typical seasonality throughout 2025, but we would expect 2026 to more closely resemble the seasonal patterns of prior years, with both the benefit of improved sales execution and the ongoing success of our business transformation beginning to more clearly show up in the results, particularly as we move into the 2025 to Q1 2026, followed by sequential increases in revenue each quarter thereafter. From a cost perspective, we expect to continue to invest in areas critical to our transformation, but at the same time, we remain disciplined and continue to optimize our cost structure. One area I'd highlight where we will lean into growth investments is in third-party measurement. We expect to purchase for our clients a significant number of third-party lift studies from our measurement partners, subject to certain financial thresholds and program requirements, to independently validate the incremental lift of our platform. We view this as an upfront and transitory investment that is necessary in the early days of any kind of new ad platform. We do not yet know how many of these studies we will purchase on behalf of our clients, but we are estimating several million dollars worth. And frankly, we'd be happy if that number is on the higher end of our estimates. We expect to exit 2025 with a healthy balance sheet, and that coupled with continued free cash flow generation gives us flexibility to both invest in the organic growth and transformation of our business and return cash to shareholders. And both will continue. It's an exciting time at Ibotta, Inc., and as Bryan said, we are confident that we are on the right track and making good progress on our transformation journey. I look forward to sharing more about our expectations for 2026 when we speak again in February. I'll hand it back over to Bryan to sign off. Bryan Leach: Thanks to everyone for joining us on this call. A special thank you to our investors who believe in the new paradigm we are introducing and whose patience we are working hard to reward. With that, operator, let's please open up the call for Q&A. Operator: For today's Q&A session, we will be utilizing the raise hand feature. If you would like to ask a question, click on the raise hand button at the bottom of the screen. Once prompted, please unmute yourself and begin with your question. We ask that you please limit to one question and one follow-up. We will now pause a moment to assemble the queue. Thank you. Our first question comes from Ron Josey with Citi. Ron, your line is open. Feel free to unmute and ask your question. Ronald Victor Josey: Perfect. Thanks for taking the question. Bryan, I wanted to understand LiveLift a little bit more. Very helpful to see all of the insights and early results, but talk to us about the timeline. I think I heard the sales team that's now fully staffed will start to fully sell it in the first quarter. And then, yeah, I think you also talked about some time that goes from trial or setting up to trial to when budgets are all results and then budgets allocated. So would love your thoughts on just how you think the year progresses here. Would the timeline, what could cause the timeline to be accelerated, I guess, is question one. And then just a quick follow-up on macro. Matt, you mentioned some of the CPG sort of headwinds here. Love your thoughts on what you're seeing currently. Thank you. Bryan Leach: Thanks, Ron. Appreciate the question. So I'll take your first question regarding LiveLift progress timeline. Kind of puts and takes on what to expect in the coming year. So we are very pleased with the progress that we have seen so far. As you know, we said in the last call we would be hoping to be on track to have about 20 LiveLift pilots take place before the end of the year, and we are on track to do that. To put that in perspective, we have more LiveLift pilots happening right now than in the first, second, and third quarter combined. We've also seen that of the subset of those that have finished the program, gone through the evaluative process, 83% have already re-upped with campaign investments after the pilot, and the remaining program, we just haven't heard yet. So very encouraged both by the velocity of these pilots and also by the quality as evidenced by the hard data. As far as part of the drivers of the timeline, for one, we've expanded the aperture of people that are able to are trained to sell this in. So what was a much more controlled process with a select few clients, we've now gone out to the great majority of our enterprise-level clients. And that's happened just in the last few weeks, as I mentioned. That's going to mean that we can have many more simultaneous conversations about the solution than we've had in the past. In terms of what the timeline is, you're talking about outreach, then you're pitching them on the benefits of this new solution, then you're setting up the parameters of the pilot, running the pilot. That generally takes, you know, a couple of months at a minimum. And then you have a time period of evaluation. There might be a third-party lift study. There might not. And then there's this conclusion that they want to invest further in the solution. And, you know, then there are considerations relating to their budget cycle and whether or not we can do that out of cycle. It depends on their fiscal year, etcetera. That's sort of the arc of what we've seen over this first year. And I've mentioned that that can take up to twelve months because all those steps I just mentioned. You know, things that could accelerate that, obviously, the performance of the campaigns being good is, all else equal, a really encouraging thing that causes people to say, how do I get more of this? We've seen that happen already. People saying, wow. This is something I can do with much shorter lead times. And they realize this can be used to close gaps. That can cause them to say, give me a proposal right away. And I think just the more we put out news about things like LiveLift and about Surcana, the more we're going to get people talking about it, inbound interest, we started to see that. So I think that could be a tailwind perhaps in 2026. Matt Puckett: Yeah. And, Ron, relative to your question about the macro and the comments that I made there, I don't think we're breaking any news here. I mean, it's been noisy. And in fact, maybe it's even more noisy right now here in Q4 when you consider tariffs or continue to impact particularly for us at the ad revenue space, but generally speaking, tariffs are impacting. You know, consumer sentiment is quite low, I guess, maybe even historically low. Now we're dealing with the disruption of SNAP benefits. You know, so just generally a lot of macroeconomic uncertainty. And clients, our clients are taking, generally a wait-and-see approach and that filters to us as well. That's really the point we're making. Ronald Victor Josey: Thank you, Bryan. Thank you, Matt. Operator: Our next question comes from Nitin Bansal at Bank of America. Your line is open. Please unmute and ask your question. Nitin Bansal: Thank you for taking my question. So AI is increasingly becoming a core driver of performance outcomes. Can you elaborate on how you are integrating AI within the platform? What tangible improvements have you seen so far? And looking forward to 2026, where should we expect, like, the highest AI benefit for your platform? Thank you. Matt Puckett: Thanks, Nitin. Bryan Leach: Yeah. So I think, you know, there are a couple of different places and ways in which we're incorporating AI, particularly machine learning when I say AI. You know? So one of the most important is in how we use AI to model the pre-campaign as well as the in-flight projections of how many incremental sales and what the cost per incremental dollar will be for a given campaign. That's powerful. That gives us the ability to crunch a large amount of data and kind of come up with a set of recommended parameters for that offer that we think are more likely to achieve the goal that our clients tell us that they have. From the outset. That's something that we will continue to refine and iterate on over time, and that will, you know, AI will be an important part, not just of projections, but ultimately of optimization, recommendation, etcetera. That's kind of in the core product itself. As you think about the processes we use internally to configure and launch offers, we use AI across a variety of solutions to make that more efficient. So to use one example, we recently launched our first agentic solution in-house which is reducing the time we spend on setting up campaigns by finding the appropriate UPCs, uniform product codes, that need to be included in each campaign, and that's reduced that setup time by approximately 50%. So those are some examples of how our processes and our product itself are going to benefit from AI going forward. Nitin Bansal: Thank you. Operator: Our last question comes from Andrew Boone. Andrew, your line is open. Please unmute and ask your question. Andrew Boone: Thanks for taking the question. Bryan, I wanted to go back to one of the themes you talked about on the call in terms of just making things easier. You just speak to the roadmap and what that entails, and what gets you most excited about just reducing friction across the platform? Bryan Leach: Thanks, Andrew. Yeah. Look. We've talked about some of the execution opportunities that we've had over the last calls. In going out and talking to our clients and our partners, we've heard consistent feedback. It is not as easy as it needs to be to work with you. That might be a matter of we haven't had continuity in the sales rep. Somebody who understands our business and is working hard, you know, to anticipate opportunities. To use your solutions to benefit our business. It might be something as mundane as, you know, we have a difficult time with the billing or the invoicing aspect of working with you. You need to clean that up. You need to make that easier. But it's also just a matter of creating a set of tools and solutions that are really easy to kind of speak their language. Right? So instead of speaking to them about metrics that ultimately aren't what they're accountable for, like, for instance, clips, or even the pacing of their campaign, to be able to speak directly in terms of incremental sales, directly in terms of market share gain that we think we can deliver, and, you know, compare our costs directly to their profit margin. That makes it much easier for them to go to their internal teams, their finance teams, and get approval. Then there's also just the process of selling. So for our sellers to be able to execute before, during, and after the campaign, means we have to be able to automatically and accurately generate these campaign projections very quickly. So if you have a really exciting sales meeting, it's easy to come back to people and say, Here's what we're proposing. Here's what we think it will deliver. These are the ranges we think we'll be in. We're doing that today, but that process needs to become more automated, less manual. And that'll help our sellers. Same thing during the campaign. Being able to provide that readout, be able to provide it ever more frequently over time. More accurately. The more data we have to feed these models, the more accurate they'll become. And then turning around standardized reporting after the campaign in a way that's very turnkey and doesn't require us to pull in a number of different client analytics resources. Those are all things that I think sellers here at Ibotta, Inc. are incredibly excited to see. These are all investments that we think are going to delight our clients and improve our overall go-to-market motion. Andrew Boone: Thanks. And then, Matt, I wanted to ask about 2026. As we think about some of the new merchants that you guys have added and lapping those ads in 2026, how should we be thinking about third-party redeemer count in a go-forward basis in terms of next year? Thank you. Matt Puckett: Yeah. I think, you know, we certainly are not going to get real specific about 2026 from a guide standpoint. But, you know, I think we have we aren't factoring in any increases in publishers from a networking standpoint. So I think you could assume that that's going to be relatively stable across time. The things I think is really important to remember, though, that we're really driving the business through a significant transformation. And at the same time, we're recovering from big execution challenges that's plagued us over the last few quarters. And a large-scale sales reorganization. So while we're not guiding for 2026 today, really across the P&L or certainly not any of the inputs to that, we did think it was important to provide some shaping. So that's what we did in the prepared remarks around expecting more normalized seasonality, leading from Q1 through the balance of the year, but really importantly understanding that from Q4 to Q1, Q4 2025 to Q1 2026, we'd expect to see as much as a low double-digit decline in revenue. Bryan Leach: Yeah. I'll just add that, you know, redeemer growth is ultimately a function of improving the offer content on our network. And so we're working very hard to do that so that we can both increase the overall number of redeemers and the redemption per redeemer. On third-party publishers to your question, and on D2C. I think both of those factors are very important, and we're starting to see the LiveLift solution increasing investment, and increasing the breadth and quality of the brands that are on the network, you know, even as some of these are still small dollar numbers. So for example, recently, one of our partners, just as recently as last week, said on their earnings call that they were piloting Ibotta, Inc., that they were using performance marketing and incentives, that they had seen promising early results in driving new users and incremental sales across key snack brands and soon formula. That's just one client that's gone public in the last week. You know, we're continuing to see clients contemplate putting in more mainstream brands versus just innovation brands. And so we think that's ultimately going to hit a higher percentage of the basket and increase overall redeemers, to your question. Andrew Boone: Thank you. Operator: Our next question comes from Stefanos Chris at Needham and Company. Your line is open. Please unmute and ask your question. Stefanos Chris: Hi. This is Steph calling in for Bernie McTernan. Thanks for taking our questions. Kind of maybe a different way to phrase the last question, but could you just talk about the contribution from Instacart and DoorDash in the quarter and maybe how to think about that going into next year? And then you said the majority of DoorDash customers are using Ibotta, Inc. How does that get to all DoorDash customers? Thank you. Bryan Leach: Yeah. Thanks, Steph. Appreciate it. Say hi to Bernie McTernan for me. We are pleased with the momentum of our partnerships with both Instacart and DoorDash. You know, we've made progress there this year in terms of improving the functionality at DoorDash. They were taking a cautious approach growing, to make sure that there's no impact on their core, you know, user experience. And I think, you know, they've satisfied themselves to a great extent that this point, you know, to the extent it's not truly 100%. It's a very small holdout at this point. Not worried about functionality, but and that's just to keep an eye on any long-term unintended consequences of having this content. But we are pleased with how those performed. We've also added beer, wine, and spirits in the jurisdictions where that has been possible, the 13 or so states where that has been possible. In those environments. And so, you know, we continue to grow both those channels. You heard that we've grown redeemers year over year. You know, substantially, and those have been a big part of how we've achieved that. Stefanos Chris: Got it. Makes sense. Thank you. Operator: As a reminder, if you would like to ask a question, click on the raise hand button at the bottom of the screen. Thank you. That concludes the Q&A section of the call. I would now like to turn the call back to management for closing remarks. Bryan Leach: Thanks very much to all of you for your questions. We are excited about where the business is heading in 2026, and we look forward to giving you a further report early next year. Operator: Thank you for joining today's session. The call has concluded. You may now disconnect.
Unknown Executive: [Audio Gap] Huya's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. With that, I'm pleased to turn the call over to our Co-CEO and SVP, Mr. Huang. Please go ahead. Junhong Huang: Okay. Hello, everyone. Thank you for joining our earnings conference today. I'm pleased to report a solid third quarter. Total net revenues reached approximately RMB 1.7 billion, the highest level yet in the past 9 quarters with year-over-year growth accelerating to around 10%. Non-GAAP operating profit was approximately RMB 6.3 million, representing a meaningful improvement over the same period last year. This encouraging performance was mainly driven by strong growth in game-related services, advertising and other revenues, while our live streaming revenues remained stable. Revenues from game-related service, advertising and others have now surpassed 30% of total net revenues of the first time this quarter. Our platform ecosystem and user base remained resilient in the third quarter, with total MAUs stable at around 162 million. The influence of our [ streamer ] ecosystem continues to expand as more top streamers are returning to Huya. And many of our streamers are also gaining recognition across other platforms, including WeChat channels, Douyin and [ Beiyang ]. Across all major competitive titles, including Honor of Kings, League of Legends, Delta Force and Peacekeeper Elite, our top-tier streamers consistently rank among the leading creators in their respective categories, in addition to our own products and app. We estimate through our top creators, we are able to reach over 100 million users across other platforms, expanding our audience influence and monetization opportunities across the wider gaming and streaming landscape. This impact is reflected in our third quarter performance, where our game-related service, advertising and other segment grew 30% year-over-year, reaching RMB 532 million in revenue. Within this segment, in-game item sales have become a significant growth driver as we deepen our collaboration with game developers, expand our SKU offerings and leverage the increasing synergy between our live streaming and gaming ecosystems. In-game item sales revenue grew by more than 200% year-over-year in the third quarter. Partnerships with flagship titles in both China and abroad, including Peacekeeper Elite, League of Legends, Arena Breakout and PUBG Mobile delivered short-lived results. Looking ahead, we are confident that in-game item sales will maintain robust growth momentum as we continue to broaden partnerships and enhance operations. In terms of game publishing, we are thrilled to announce the upcoming launch of our first title, Goose Goose Duck Mobile, a social deduction game centered on teamwork and strategic game play. The game has gone through its second round of testing throughout October with preregistration quickly surpassing 10 million during that period, leveraging our powerful streamer influence and stronger content-driven marketing capabilities. In October, we created a live streaming variety show, [ A SIKA ZIYE ], which brought together top streamers from -- for a group gaming session. The show attracted strong player engagement and brought market attention. We view Goose Goose Duck Mobile as a key step in our strategy to diversify into game publishing, an important milestone that will not only validate our publishing capabilities, but also position us for sustainable growth in this space. As we continue to step up for our efforts in key areas, including in-game item sales, game publishing, advertising, we believe this segment will remain a sustainable driver of our revenue growth. Let's move on to live streaming, where revenues increased by about 3% year-over-year, making our first quarter of positive year-over-year growth since the third quarter of 2021. Our content mix has become more balanced and vibrant with the outdoor live streaming category delivering solid gains in both viewing hours and monetization this quarter. At the same time, we continue to enhance both our mobile and PC platform to ensure users enjoy a truly best-in-class live streaming and e-sports experience. Our latest update introduced a new short-form video hub and interactive 3D game map tool of Delta Force and other cool features. The short-form video hub enables users to conveniently discover short clips from live streams directly within the Huya Live app, enhancing our content ecosystem and driving a notable increase in short video daily active users and time spent. Meanwhile, the Delta Force map tool provide rich immersive 3D environment for Delta Force players to quickly get familiar and better navigate the game, attracting more hard-core players to our platform. E-sport live streaming remains a crucial part of our content offering. We streamed nearly 100 licensed tournament and hosted around 40 self-produced events in the third quarter of 2025 during the recently concluded League of Legends World Championship, one of the most watched licensed e-sports events in China. We have remained the top live streaming platform in terms of average concurrent users. Building on our fan base, we hosted the 2025 League of Legends Asia Invitational, the first ever LOL international professional tournament produced by a live streaming platform. This event was an important milestone for us, attracting massive viewership outside of China and significantly enhancing our international brand recognition. We are also excited to announce that we will be hosting the Demacia Cup for League of Legends later this year. Again, we are privileged to be the first live streaming platform ever to be hosting this flagship official event for this game. Additionally, we have a strong lineup of other highly anticipated e-sports tournament that we will be hosting, including the Delta Force Diamond Champions autumn season following the success we had in the summer. On the international expansion front, our user base continued to grow steadily during the quarter through our overseas platforms. We are deepening our presence in key geographic market by focusing on user experience and the content ecosystem to enhance engagement and retention. We have also built closer partnership with popular game partners and diversified monetization strategy, driving sustainable growth and improving profitability. To sum up, we made solid progress expanding our content ecosystem, unlocked new monetization opportunities and advanced our emerging business models in a disciplined and sustainable manner. Looking ahead, we will remain focused on long-term development, deepening collaboration with partners, improving monetization efficiency and product experience, strengthening our content and technology capabilities and steadily expanding internationally to deliver sustainable, high-quality growth. With that, I will now turn the call over to our Acting Co-CEO and CFO, Raymond Lei. He will share more details on our results. Raymond, please go ahead. Lei Peng: Thank you, Vincent, and hello, everyone. I'll start with an overview of our financial performance. Our total net revenues for the third quarter reached approximately RMB 1.69 billion, increasing 10% year-over-year. Of this, live streaming revenues has resumed growth at 3% year-over-year to RMB 1.16 billion and game-related services, advertising and other revenues grew around 30% year-over-year to RMB 532 million, accounting for 31.5% of total net revenues. We also achieved a non-GAAP operating income of RMB 6.3 million, another quarter of solid improvement since we first broke even at operating level last quarter. Furthermore, we still achieved a positive net income for the quarter with non-GAAP net income of RMB 36 million despite a substantial decrease in interest income compared with previous periods, primarily due to special dividends paid out. Let's move on to more details of our Q3 financial results. Live streaming revenues were RMB 1.16 billion for Q3, up 3% from the same period last year, primarily due to the improvement of average spending per paying user for live streaming services. The number of the domestic paying users remained stable at 4.4 million in the third quarter. This figure excludes users who made in-game purchases through our game distribution business but didn't pay via our platform or related services as well as overseas paying users. Game-related services, advertising and other revenues were RMB 532 million for Q3, up 30% from the same period last year. The increase was primarily due to higher revenues from game-related services and advertising, which were mainly attributable to our deepened cooperation with game companies in China and abroad. Cost of revenues increased by 10% to RMB 1.46 billion for Q3, primarily due to increased revenue sharing fees and content costs as well as cost of in-game items. Within this, revenue sharing fees and content costs rose by 8% year-over-year to RMB 1.26 billion, reflecting growth in our top line. Gross profit was RMB 227 million for Q3, up 11% from the same period last year. Gross margin was 13.4% for Q3, also an improvement from 13.2% from the same period last year. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 228 million and the non-GAAP gross margin was 30.5% for Q3. Research and development expenses decreased by 3% year-over-year to RMB 122 million for Q3, primarily due to decreased staff costs as a result of enhanced efficiency. Sales and marketing expenses decreased by 4% year-over-year to RMB 70 million for Q3, primarily due to decreased channel promotion fees. General and administrative expenses increased by 15% year-over-year to RMB 58 million for Q3, primarily due to increased professional service fees and staff costs. Other income was RMB 9 million for Q3 compared with RMB 13 million for the same period last year, primarily due to lower government subsidies. As a result, operating loss narrowed significantly to RMB 14 million for Q3 compared with a loss of RMB 32 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets from business acquisitions, non-GAAP operating income reached RMB 6 million for Q3, a meaningful improvement from non-GAAP operating loss of RMB 13 million in the same period last year. Interest income was RMB 35 million for Q3, reduced from RMB 97 million for the same period last year, primarily due to a lower time deposit balance as a result of the special cash dividends paid. Net income attributable to HUYA Inc. was RMB 10 million for Q3 compared with RMB 24 million for the same period last year. Excluding share-based compensation expenses, gain arising from disposal of an equity investment, net of income taxes, impairment loss of investments and amortization of intangible assets from business acquisitions, net of income taxes, non-GAAP net income attributable to HUYA Inc. was RMB 36 million for Q3 compared with RMB 78 million for the same period last year. The decrease was mainly due to the lower interest income as explained earlier. Diluted net income per ADS was approximately RMB 0.04 for Q3. Non-GAAP diluted net income per ADS was RMB 0.60 for Q3. As of September 30, 2025, the company had cash and cash equivalents, short-term deposits and long-term deposits of RMB 3.83 billion compared with RMB 3.77 billion as of June 30, 2025. With that, I'd like to open the call to your questions. Unknown Executive: [Operator Instructions] Today's first question comes from Rebecca Xu from Morgan Stanley. Rebecca Xu: [Foreign Language] My question is regarding the in-game item sales business. Could you please share some color on the updates from the past quarter as well as the future outlook for this segment? Junhong Huang: [Interpreted] This quarter, in-game item sales continued to scale rapidly, supported by our strong live streaming ecosystem and deeper partnerships with flagship titles, including Honor of Kings, Peacekeeper Elite, League of Legends, Arena Breakout and PUBG Mobile. With broader SKU offerings and more engaging in-game events, in-game item sales revenue grew over 200% year-over-year in the third quarter, giving our users a much wider and more compelling selection on our platform. So looking ahead, our focus is threefold. Number one is to further enrich item categories in existing titles. And secondly, to expand into additional game partnerships to diversify our portfolio. And third one is to improve our storefront and merchandising systems, enhancing overall purchase experience, making it easier for our users to discover and buy our items. As collaboration expands and our operating model continues to mature, we expect in-game item sales to deliver sustainable, healthy and high-quality growth. Unknown Executive: And our next questions come from Maggie Ye from CLSA. Yifan Ye: This is regarding company's overall revenue growth. Firstly, live stream revenue has resumed positive year-over-year growth this quarter. So could you share your views on the segment growth going forward? And secondly, for the non-live stream business, which now accounting for over 30% of total revenue, what is your expectation on this segment future growth going forward? And what will be the primary growth driver? Lei Peng: [Interpreted] So we saw promising performance from both our live streaming business and our game-related services. Live streaming revenue has returned to growth for the first time since Q3 2021. Our game-related services, advertising and other revenues, on the other hand, grew 30% year-over-year to RMB 530 million, now accounting for over 31.5% of the total net revenues. The growth was driven in large part by very strong in-game item sales this quarter. So we expect live streaming revenues to remain stable into the fourth quarter, while non-live streaming businesses should continue growing at a very strong pace, potentially accelerating further due to in-game item sales expansion and other deeper game collaborations. Looking ahead to 2026, we expect overall revenue growth to accelerate versus 2025. Live streaming should remain stable, while game-related services, advertising and others continue to drive the majority of our growth. Unknown Executive: And our next questions comes from Ritchie Sun from HSBC. Ritchie Sun: [Foreign Language] So I would like to ask about the publishing of Goose Goose Duck and overall the game publishing business. So what is our strategy as well as outlook going forward? Junhong Huang: [Interpreted] So maybe I'll start by giving you an overview of our publishing strategy. Over the years, we have built a very robust content creator e-sports ecosystem with roughly 162 million MAUs on the platform in the third quarter. On top of that, in addition to our own apps and products, we estimate through our top creators outside of our platforms we are able to reach another 100 million-plus users across other platforms and this gives us a natural advantage in game publishing. The mobile version of Goose Goose Duck is our very first full-fledged publishing effort. The game has gone through a second round of testing throughout October with preregistrations quickly surpassing 10 million during that period. We expect the game to be ready for launch pretty soon. Now for this game specifically, we created a dedicated live streaming variety show, A SIKA ZIYE, which brought together top streamers for group gaming session, helping boost social buzz and community engagement. This project serves as an important milestone in validating our publishing playbook and execution, laying the foundation for titles to come. Going forward, we will continue to follow a content-driven publishing strategy. We rely on our stream of network, short-form media reach and e-sports presence to focus on titles that work well in live streaming and interactive settings. This allow us to bring more high-quality games to players and drive sustainable growth in this business. Unknown Executive: We will take next question from Nelson Cheung from Citi. Fuk Lung Cheung: [Foreign Language] With the solid momentum of Delta Force launch this year, we also observed a lot of like collaboration between Huya and this title. Maybe have management to elaborate more on their ongoing partnership. Junhong Huang: [Interpreted] Our focus on Delta Force is about building a vibrant community engagement and a sophisticated e-sports tournament ecosystem for that game. As part of community engagement effort, we launched Delta Force Map tool recently, which provides rich immersive 3D environments for players to quickly get -- to get familiar and better navigate the game, attracting more hard-core players to our platform. Over time, it will serve as a new entry point for value-added services, helping us to build a more complete ecosystem around that game. On e-sports side, we host the first [ EDC ] Diamond Championship in July for Delta Force, which was a great success. Building on that, we'll be hosting the second season in the coming months, gradually building a consistent structured e-sports presence around that game. Unknown Executive: So now we will take our last question from [ Wei ] from CICC. Unknown Analyst: [Foreign Language] My question is on the new business. Can you break down their financial impact in our profitability? And how should we think about the trend for our profit of this going forward? Lei Peng: [Interpreted] Our gross margin remained stable this quarter as we further scale and expand our game-related services and optimization of cost structures, we expect to see gradual margin improvement over time. This quarter, our gross profit actually grew over RMB 23 million, which is 11% year-over-year, which led to further improvement at operating level. Unknown Executive: Thank you. Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations through the contact information provided on our website or Piacente Financial Communications. This concludes today's call, and we look forward to speaking to you again next quarter. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Florian Martens: Good morning, media representatives, esteemed guests, colleagues and coworkers. I would like to welcome you to the annual press conference of Infineon Technologies AG. Thank you so much for having found the time to attend today so early. All of the members of the Board and management are participating. Our CEO, Jochen Hanebeck; our Chief Financial Officer, Dr. Sven Schneider; Elke Reichart, CDSO; Andreas Urschitz, Chief Marketing Officer; Alexander Gorski, Chief Operating Officer. Mr. Hanebeck will start to give you an overview of the current fiscal year and forecast for the fiscal year that has just begun. The entire Board, of course, will be here to field any questions you may have. For all journalists, who are following us via the live stream, you're welcome to submit written questions. The question tool will be shown on your display on the screen. [Operator Instructions] So having said that, I'd like to hand the floor to Jochen Hanebeck. Please go ahead. Jochen Hanebeck: Thank you. Esteemed members of the press, esteemed viewers. Welcome to Infineon's annual press conference here on our site in our video studio and on our live stream. We are glad you could join us. Infineon met expectations in the 2025 fiscal year despite challenging macroeconomic and geopolitical conditions. The year was characterized by prolonged weakness in the majority of our target markets and customers and distribution partners have significantly reduced their inventory levels. In view of geopolitical instability and the ongoing turbulency of tariffs, our customers are cautious about the future development of demand. This has led to last-minute ordering behavior for semiconductors. In addition, unfavorable currency effects have slowed our revenue growth for several quarters now. Given the ongoing geopolitical and tariff-related uncertainties, it is difficult to predict how strong and how broad the upturn in the semiconductor markets will be in the 2026 fiscal year. Therefore, we are adopting a prudent outlook. Our priorities at Infineon remain unchanged. Firstly, we are leveraging existing opportunities for profitable growth and are expanding our production capacities in a very targeted manner to this end. Secondly, we are making focused and forward-looking investments in future technologies and in our expertise. Thirdly, we are keeping our expenditures under control. We remain confident on our medium- to long-term development. We are making good progress on improving our cost competitiveness. At the same time, we are accelerating innovations with clear customer benefits and strengthening our position in growth markets such as software-defined vehicles and AI data centers. I'll come back to this. Infineon is well positioned for a coming market upswing. Before we look ahead, let us first take a brief look at our business development in the past fiscal year. In the fourth quarter, group revenue increased to EUR 3.943 billion. This is an increase of 6% compared to the previous quarter despite a stronger headwind due to the weaker U.S. dollar. The exchange rate rose from USD 1.14 to USD 1.17 per euro. As expected, the fourth quarter was the strongest in the 2025 fiscal year in terms of revenue. We were able to increase the segment results to EUR 717 million. This segment result margin reached 18.2% compared to 18.0% in the previous quarter. This slight improvement is mainly due to higher sales volume. This enabled us to compensate for the unfavorable currency development. For the 2025 fiscal year, revenue amounts to EUR 14.662 billion. This is a decrease of 2% compared to the 2024 fiscal year. The weaker U.S. dollar was an important factor in this development. At constant currencies, our revenue would have remained almost stable compared to the previous year. This is a respectable result for a fiscal year that was characterized by substantial inventory corrections on the part of customers and by unprecedented trade conflicts. The segment result margin reached 17.5% after 20.8% in the 2024 fiscal year. Hence, the margin was in the forecasted high teens percent range. We were able to partially offset price declines, negative currency effects and rising idle costs with positive margin effects from our structural improvement program step up. The free cash flow was minus EUR 1.051 billion. The adjusted free cash flow, which excludes investments in large front-end buildings and major acquisitions such as Marvell's Automotive Ethernet business amounted to plus EUR 1.803 billion. This corresponds to approximately 12% -- 12.3% of revenue. All 3 figures, revenue, margin and free cash flow were in the lower range of our target operating model applicable during cyclical downturns. In a world full of uncertainty, Infineon remains on course. This is primarily due to the commitment of our teams worldwide. On behalf of the entire Management Board team, I would like to thank all our employees for their strong performance. Their commitment, passion and collaboration are key to Infineon's success even and especially during challenging times. Together, we have achieved much. And together, we are also tackling the current fiscal year, creating new things and shaping the future of our company. Esteemed viewers, our dividend policy is aimed at paying out an unchanged dividend even in the event of stagnating or declining earnings. We will propose a stable dividend of EUR 0.35 per share to Infineon's shareholders at the upcoming Annual General Meeting. We want our shareholders to participate appropriately in Infineon's success. And at the same time, we want to maintain the financial leeway necessary to further develop our company for the future. By doing so, we are focused on promising growth areas, especially in the field of artificial intelligence. AI will continue to drive the structural need for semiconductors and the demand for our solutions in the coming years. AI functionalities are indeed evolving at an incredible pace. They are changing industries and penetrating all areas of life. Generative AI, which can generate images, text, code and more, is increasingly being complemented by agentic AI, artificial intelligence that can perceive, reason, plan and act. And the next big development step is already in sight. Physical AI. It enables autonomous systems, for example, cars or humanoid robots to perceive and understand the physical world and carry out complex actions. The use of AI requires enormous computing power that far exceeds the capacities of existing data centers. These requirements are increasing rapidly. Even before 2030, capacities of 1 megawatt and more per IT rack will be required. To put this into perspective, 1 megawatt is equivalent to the power of around 500 clothes irons. The large U.S. tech companies, in particular, are driving the construction of specialized AI data centers worldwide. These data centers are reaching power levels in the gigawatt range. So we're talking about the power of 500,000 irons and upwards. 1 gigawatt is roughly equivalent to the full load of a nuclear power plant reactor unit. Meta, Amazon, Alphabet and Microsoft plan to invest over USD 300 billion in AI technologies and infrastructure this year. The announced projects alone represent an estimated output of up to 10 gigawatts. More will follow suit. Power is the backbone of every AI data center. There is no AI without efficient power electronics. We supply fitting and scalable power solutions for the entire energy conversion chain from the power grid to the AI processor in the data center. Infineon is a clear leader in this field. We are also rapidly developing our range of efficient and scalable solutions at fast pace. In doing so, we are working closely with leading companies in the industry. An excellent example is our collaboration with NVIDIA in the development of a centralized 800-volt power supply architecture for future AI data centers. The new system architecture significantly improves energy-efficient power distribution in the data center and enables an even more efficient power conversion directly at the AI chip. As a technology leader, we want to shape the rapidly growing market in the coming years. The fact that our solutions address an urgent and growing demand is also reflected in our business performance. We were able to almost triple our revenues from power supply solutions for AI data centers in the 2025 fiscal year, reaching over EUR 700 million. This is around EUR 100 million more than we had forecast despite negative currency effects. We are also raising our revenue forecast for the 2026 fiscal year from EUR 1 billion to around EUR 1.5 billion, which would mean more than doubling the revenues of the previous fiscal year. We also expect dynamic medium-term growth in this area. We expect the addressable market for Infineon to reach EUR 8 billion to EUR 12 billion by the end of the decade. In addition, AI is increasingly developing beyond centralized cloud systems. Edge AI, the intelligent processing and analysis of data directly in the device or in its immediate vicinity is becoming an important driver for our business. Infineon supports developers of edge AI applications with a complete system based on our specialized microcontroller, PSoC Edge, which combines machine learning, advanced human machine interaction, low energy consumption and integrated security. Added to this are our complementary sensor portfolio and our own edge AI development platform, DEEPCRAFT. By doing so, we offer a comprehensive set of hardware and software solutions for easy implementation of AI functionalities in IoT devices. Our customers can either develop their own AI models from scratch or integrate ready-made models and solutions into their products, thereby reducing time to market. As already mentioned, we are on the verge of the next big technological step in AI evolution, physical AI. Take cars as an example. With the trend towards software-defined vehicles, the automotive industry is paving the way to a new era of mobility. Software supported by AI is at the heart of the vehicle. This enables new automated driving functions and enhanced safety features. Issues can be resolved without the need for a visit to the car repair shop simply via software updates over the air. Software-defined vehicles lead to a new level of flexibility and efficiency. However, the necessary change of vehicle architecture is complex. Conventional electric and electronic vehicle architectures with a large number of distributed control units in the vehicle will not be enough. The automotive industry is, therefore, moving towards a more centralized approach. Infineon is playing a key role in this development. We are working together closely with many customers and partners to drive the development of software-defined vehicles around the world. In addition to our system expertise, we benefit from our global market leadership in automotive semiconductors. We have consistently expanded our position in recent years. Our rapidly growing business of microcontrollers for automotive applications has contributed significantly to this development. These products are becoming increasingly important for controlling various critical vehicle functions in software-defined vehicles. We want to expand our leading position in microcontrollers for the automotive industry. The acquisition of the automotive ethernet business of the U.S. company, Marvell Technology, which we successfully completed last summer was strategically important to this end. Ethernet is a key technology in software-defined vehicles. The technology is a perfect addition to our existing product portfolio. In combination with our AURIX microcontroller, it lets us offer a comprehensive product range that includes both communication solutions and real-time control. In addition to the car, ethernet technology is also essential to promising applications in the Internet of Things, especially for humanoid robots. Esteemed viewers, Infineon is shaping the future with solutions that deliver added value to the economy and society. One technology with great potential for value creation is quantum computing, likely the next disruptive technology to follow artificial intelligence. Quantum computers use the laws of quantum mechanics to solve certain particularly complex tasks much more than -- much more efficiently and quickly than conventional computers can. This opens up completely new possibilities in various application areas from materials research to developing new drugs and optimizing supply chains. At Infineon, we have key competencies for quantum computing. Our strategic partners include Quantinuum, a company in which NVIDIA also holds a stake and IonQ, the quantum company with the highest market value at present. Together, we are now taking the technology from the lab into application, pushing the boundaries of quantum computing. I'd like to offer deeper insight by sharing voices from our partners in academia and industry. Please take a look for yourself. [Presentation] Jochen Hanebeck: You heard it. Quantum computing is no longer a distant vision. It is becoming a reality. Quantum computing and artificial intelligence are 2 of the most exciting and forward-looking technologies of our time. Above all, their interaction promises enormous progress in areas where conventional computers are reaching their limits. These 2 key technologies reinforce each other. Firstly, artificial intelligence accelerates quantum computers by improving error correction, calibration and control of quantum hardware. This removes major hurdles to the scaling of quantum computing. At the same time, quantum computers accelerate AI by generating precise output data that serves as the basis for AI, for example, in developing new molecules for drugs, batteries and catalysts. Other potential applications range from optimization problems in logistics to cybersecurity and financial analysis. Quantum computing, therefore, does not replace AI, but rather expands its possibilities, thus opening new perspectives for data-driven innovations. And here, you can see one of our wafers with trapped ion quantum processors, which we are already developing and delivering to our lead customers. Three things are crucial for industrial-grade quantum computers, the quality of the qubits, replicability and scalability. Our quantum platform and our semiconductor production bring precisely these characteristics to the quantum ecosystem. For our customers, this means a clear path from research to application. A complete picture of quantum computing also includes a look at cybersecurity. Powerful quantum computers will be able to break established encryption methods within a few years, an enormous security risk for ID documents and payment cards for software-based devices and applications, for example, in industry, vehicles and aerospace. In particular, durable products with long development cycles are at risk. That's why we are already supporting our customers today with solutions for post-quantum cryptography based on the principle of protecting data today that must remain confidential tomorrow, so in the quantum age. And we back this up with certified security. Infineon is the first manufacturer worldwide to receive the Common Criteria certification for the implementation of a post-quantum cryptography algorithm on a security controller. Common Criteria is an internationally recognized standard that independent experts use to systematically test and certify the security of IT products. Thus, we are sending a strong signal of trust and security at the highest level. Esteemed viewers. Before moving on to our outlook for the 2026 fiscal year, a note for our guests on site. Following this press conference, we cordially invite you to visit our exhibition in the Cubis foyer. You will have the opportunity to discuss the topic of quantum computing in greater depth with our experts. Richard Kuncic, Head of our Power Switches business line; and Clemens Rössler from our Ion Trap Systems team will be happy to assist you. Many thanks to both colleagues. Now to our expectations for 2026. We continue to operate in an environment in which short-term or last-minute ordering behavior limits the transparency of demand trends. This makes predicting business development for an entire fiscal year, a challenging task. Inventories in the supply chains have largely normalized. It is end customer demand that will determine the extent and pace of the recovery in the semiconductor markets. We anticipate that the volume growth will return over the course of the fiscal year and that we will see a gradual upturn. In the current first quarter, we expect revenues of around EUR 3.6 billion. This forecast is based on an exchange rate of USD 1.15 to the euro. The segment result margin will be in the mid- to high-teen percentage range. This would correspond to a revenue decline of around 9% compared to the previous quarter, above our typical seasonality. We see a short-term risk that some automotive suppliers and manufacturers will reduce their inventories to no longer viable levels by the end of the calendar year. We also expect our industrial customers to reduce their inventories very significantly towards the end of December. However, market transparency is low. Therefore, we must consider a certain range of possible outcomes for the 2026 fiscal year. In our base case, we anticipate moderate revenue growth. The negative effects of the expected usual price declines and unfavorable currency developments are likely to slow down revenue growth. We expect a U.S. dollar to euro exchange rate of 1.15. This is a weaker dollar compared to the average exchange rate of 1.11 in the 2025 fiscal year. According to our rule of thumb, this effect will reduce our revenues by around EUR 400 million. The market environment remains mixed. We are cautious regarding the automotive semiconductor market in the view of various factors. We expect trade and tariff conflicts to have a negative impact on vehicle prices and customer demand. Growth in the electric vehicle market in China is likely to slow now that the share of electric vehicles in new car sales has exceeded 50% and government subsidies are being reduced. Momentum in Europe is likely to increase, while in the U.S., it will probably slow considerably due to the expiration of tax incentives. As a result, some Western manufacturers are postponing the launch of several new electric vehicle platforms in favor of combustion models. However, the outlook for software-defined vehicles is more favorable. We expect market momentum to accelerate from the second half of the fiscal year as increasingly more software-defined models come on to the market. This development means that more and more semiconductors are being installed in vehicles. We see a mixed picture for industrial applications. Macroeconomic uncertainty is delaying the recovery in demand for industrial drives. Similarly, there are still no signs of an upturn in air conditioning systems or household applications. In renewable energies, record levels of solar and wind energy installations are forecast for 2025, particularly in China. However, growth in this market is likely to slow down in the future. We do not expect other world regions to fully compensate for this development. Nevertheless, we see the structural semiconductor demand for the expansion of energy infrastructure is increasing. A higher share of renewable energy in the overall energy mix and investments in AI data centers in various parts of the world would necessitate a significant expansion and strengthening of the power grid. As already mentioned, we expect to more than double our revenues with our power supply solutions for AI data centers to around EUR 1.5 billion in the current fiscal year. Growth momentum in consumer-related applications is still subdued. Overall economic risks are dampening both consumer confidence and corporate spending. Thus, demand for IoT and security solutions also remains weak. Now to our profitability outlook. The segment result margin in the 2026 fiscal year is expected to come in at a high-teen percentage range. The positive effect of volume growth will be offset by unfavorable currency developments and the usual price declines. We expect further positive effects from our step-up program as an increasing number of our measures take effect. At the same time, the high level of cyclical idle costs in our production facilities is likely to proceed only very slowly. We are planning investments of around EUR 2.2 billion for the 2026 fiscal year. A focus area will be finalizing the construction of our smart power fab in Dresden and equipping it in time to meet strongly growing customer demand for AI, our AI power solutions. We are making good progress with the construction of the smart power fab. In October, we reached the ready for equipment milestone. We are ahead of our schedule and expect to be able to officially open the factory in summer 2026. Free cash flow adjusted for investments in front-end builders is expected to be around EUR 1.6 billion, and the reported free cash flow is expected to be around EUR 1.1 billion. Esteemed viewers, let me summarize. Firstly, Infineon has met expectations in the 2025 fiscal year despite challenging macroeconomic and geopolitical conditions. In the current fiscal year, we expect a gradual market recovery and moderate revenue growth. Secondly, artificial intelligence is driving semiconductor demand. Our revenue from power solutions for AI data centers is growing rapidly. We continue to develop our portfolio of efficient and scalable solutions at high speed. Thirdly, quantum computing is becoming the next potentially disruptive technology. We are shaping the quantum age with semiconductor solutions for industrial-grade quantum computing and post-quantum cryptography. Thank you for listening. Together with the Management Board team, I will now be happy to answer any questions you may have. Florian Martens: [Operator Instructions] So let's get started. I see that we have Joachim Hofer from Handelsblatt. Joachim Hofer: That's fine already. Your question has already been answered. I would like to know about the Nexperia case, what are the ramifications for you, for your business, either positive or negative? And I'd also like to know whether you have an opinion on whether fundamentally, this means anything for you and for the world, mainly the fact that China is expanding and perhaps what other conclusions you could draw from that. Unknown Executive: Well, the case that has been covered in the last couple of weeks by the media and has made headlines demonstrates, first of all, once again, the realization that semiconductors are not just in time products, this applies to standard semiconductors as well as the entire other portfolio components such as power switches and the power semiconductors. In the supply chain, you need inventories in order to make sure that these 2 value creator chains of the automotive industry on the one hand and the semiconductor industry on the other hand are decoupled from each other because when such situations occur, you see what could happen. And you can also have natural catastrophes and other disasters that you have to be resistant to. So that's very important. Now what does that mean for Infineon? Well, on the one hand, production lines actually did grind to a halt, it would affect us as well because sales would therefore tank. But at the same time, you can take a different view. This could be a wake-up call to industry to take a very close look at inventories. As a matter of principle, we at Infineon are extremely resilient in our setup, thanks to our manufacturing landscape. As a result, at some areas we were able to help. However, the overlap in products between Infineon and Nexperia is rather limited. The second question, the geopolitical ramifications. Well, geopolitical environment remains the big unknown in our business. There is no blueprint that we can draw on from the past. We simply have to follow developments day in, day out. Basically speaking, however, here again, Infineon is set up quite resiliently, thanks to its manufacturing footprint, especially in Europe and Southeast Asia. We also have manufacturing partners in the United States and in China. However, having said that, this is a topic that Timon again, leads to new or can lead to new disruptions. And on a daily basis can be quite eventful. Florian Martens: We have a question that is quite similar that comes from Mrs. [indiscernible] from Bloomberg that has come through the live stream. It also relates to Nexperia, Jochen. You have received to replace Nexperia chips? How far will you be able to do so -- have done so? How long these processes are? Please, could you answer in German? Jochen Hanebeck: Yes, as I just said, the overlap in our portfolio between Nexperia and Infineon for the affected semiconductors. We must not forget that not all semiconductors of Nexperia were affected. It's quite limited. And therefore, here and there, we were able to help out a little bit. But basically, we also welcome the fact that apparently, the situation has eased and auto manufacturing has taken up again. Florian Martens: I think that also answers the second question from Mr. [indiscernible] that was asked through the stream and we can, therefore, come back to the room. This is Verner from Spiegel. Unknown Attendee: Yes, I have a follow-up question on that. In your speech, you said that you expect some automotive suppliers to reduce their inventories to a level that is no longer sustainable. And that doesn't really tie in very well. Now haven't they learned their lessons since the Nexperia crisis? Jochen Hanebeck: Well, this is the difficulty that we face, isn't it? Some companies in the automotive supply chain are in difficult economic conditions. We also have to look at how their capital tied up due to their inventories. That is always an issue for them, and they always have to take a very close look at that. I can only call on everyone -- in difficult economic times not to let your inventories fall below critical levels because should there then be a reinvigoration of the market, and that doesn't just have to come from the automotive industry, it could come from other sectors as well, then potentially, you can run into problems, the type of which we witnessed a couple of years ago. Florian Martens: Thank you very much, Mr. Hao. I see you raised your hand. You are from [indiscernible]. Please go ahead. Unknown Attendee: Yes, I wanted to ask you that very question, but I have another question. You said that the auto suppliers are -- have quite tight wallet. But you say that -- of course, they have to supply the automotive manufacturers and make sure that their inventories are good. Do you see any critical situations given this situation and now the capacity underutilization of your factories, what level is it at right now? And how high were the idle costs in the past fiscal year? Jochen Hanebeck: I will handle the first part of the question. Basically, it would be the most sensible thing if everyone involved in the value chain kept their inventories at such a level that they had a certain buffer. We do that. We have an inventory reach that is about 30 days higher than necessary, at 150 days. Normally, we would have a reach of 120 days. We're talking about EUR 1 billion in capital that is tied up in this manner. Of course, it would make a lot of sense if the Tier 1 and the OEMs were dedicated in the same manner so that such buffers could be established, which, by the way, in Japan are absolutely customary. With respect to capacity underutilization and idle costs, I'd like to hand the floor to my colleagues. Unknown Executive: Just briefly on utilization. Right now, we are at about 80% capacity utilization. The forward-looking trend is improving, especially in the 300-millimeter sector within the scope of the gradual improvement in the market. Yes, and perhaps I can say something about the idle costs. Indeed, this is a very negative contribution to our profitability. In the past fiscal year. We're talking about just under EUR 1 billion in terms of idle costs corresponding to roughly 600 basis points, so 6% point margin headwind. We now assume that we're going to go back to about EUR 800 million, which is still quite a lot higher than the level that we normally have in terms of cyclical idle costs. This fiscal year, we're talking about 400 basis point headwind that are factored into the margin. Florian Martens: Thank you. We would now like to switch topics. Mrs. Maier, we will get to you in a minute, but Mr. [indiscernible] has a follow-up question with respect to AI data centers, an issue that we are all concerned with and the growing market, and the EUR 8 billion to EUR 12 billion, how much is supposed to be assigned to Infineon. Unknown Executive: Well, the starting point right now is that Infineon is already in a leading position in this market for AI data centers. Roughly speaking, we're talking about, if you look at -- along the entire power supply chain, 30% to 40% market share. Looking forward, we will do everything we can in order to stay in this range. So I think that you can do the math in terms of the potential for Infineon depending on whether we're at EUR 8 billion or EUR 12 billion. That remains to be seen. Florian Martens: Thank you very much. Mrs. Maier, you had a question as well. We'll continue here in the studio. Unknown Attendee: Yes, I would like to -- I'm Angela Mya, The Market NZZ. I would like to ask you about the idle costs as well. This is being stretched out over years now. Did you do your math wrong. When is the upswing going to set in, the upswing that you planned with that is? In other words, when are we going to see a margin above 20% again? Other competitors have a margin clearly above 20%, but you are still below that. And that's what you're planning for this next fiscal year indicates as well. Maybe you can give us some insight into that. Unknown Executive: Yes, thank you for that question. Let me begin with the fundamental categorization. It is important to look at the structural growth drivers and to believe in them which we do and Mr. Hanebeck was well eloquent in his speech on addressing this. The factories are being completed right on time. We have a very good track record back then when we constructed villa 300 millimeters, we were right on track. If you look at the smart power fab in Dresden, once again, we're doing the right thing at the right time. Of course, we can't always manage to do that. But you're right, we were more optimistic 2 years ago and 3 years ago with respect to our growth prospects. But the topics surrounding the geopolitical situation and tariffs weren't known back then. What it may also be relevant in this respect is the following. We are growing this year. We are experiencing volume growth, but the growth is strongly driven by AI, we're adding capacities here. We're basically sold out in this year. We don't have any idle costs that are allocable to AI power supply. And the same applies to AI defined microcontrollers. These tasks are outsourced and that doesn't help us, and that's the reason why our idle costs aren't reducing as fast as we would like them to. With respect to the margins, I already demonstrated in the impact that, that was just the effect of the idle costs. On top of that, there's a positive effect from the fall through, revenue generates some positive results. And of course, that would put us easily above the 20% that you mentioned. Unknown Attendee: And when is this going to happen? Unknown Executive: Well, the markets -- when the markets play to our strengths. We depend to a certain degree on that. So final demand and inventory management are going in an opposite direction. So that's a little difficult right now. Florian Martens: The next question also deals with a growth trend that we described, the software-defined vehicle. Matthias [indiscernible] from Blick from Switzerland asks when will the Marvell Ethernet segment contribute to revenue? And what influence will it have on the segment result margin in the future? Sven? Sven Schneider: Yes. Well, with respect to Marvell in the middle of August, we acquired the company. So that was in 2025. There were no notable ramifications there. In 2026, we expect EUR 200 million in terms of revenue from this business, and this is a positive business in terms of profitability. So it would make a positive contribution to the group margin. And strategically, speaking, if I may add, this is extremely important because our expertise in automotive microcontrollers will be married with the technology for communication in the future. We expect wonderful synergies in terms of architecture, but also, of course, in terms of positioning our products with the customers. At a global level, I must add Marvell already has a wonderful design win pipeline that is built up over the years in the run-up to the acquisition, and we can build on that. Florian Martens: Thank you very much. We're going to come back to the room. Christoph Dernbach from DPA. Christoph Dernbach: Yes. I hope I didn't miss anything, but I can't remember what you might have said about the U.S. tariffs, how much they might have cost you in the past quarter and fiscal year? Unknown Executive: Well, the direct tariffs that relate to semiconductors are not really that material. The tariffs that are really effective are the ones that are imposed by China for imports into the U.S.A., but they hardly affect us at all. And the investigation according to Section 232, the outcome of this investigation is entirely open. However, there are some indirect impacts, which you can see reflected in the sales volume figures in the United States also experienced by European players. And this does have a tangible impact on us. Florian Martens: Okay. We'll stay in the room. Mrs. Verner has another question. Please go ahead, madam. Unknown Attendee: I have a follow-up question with respect to the data centers that we touched on already. There are a number of wonderful announcements in Germany, for instance, Google appears to be set to make a big investment. But is that sufficient from your point of view, if you compare the EUR 300 billion that are being invested in the United States and China? Doesn't it seem to be a drop of water in the bucket. What do you believe is actually necessary in Europe to have a chance in this place? Unknown Executive: Well, the sums announced in Europe can only be a first step. Of course, you can break things down into AI infrastructure for learning. And the inference. Of course here, the necessary infrastructure costs are lower. The question is, however, shouldn't Europe become involved in the foundational models, and I'm sorry for using English terms all the time. From where I stand, there is clearly a vector. That means we're going to run into dependencies in Europe. Florian Martens: Okay. Maybe, Mr. Hofer, you have a follow-up question on that. Joachim Hofer: Yes. No, not really. It doesn't really tie into that, not quite. That's okay. Your fitness program. I would like to have some more information about that. What effect has it had, if you look at headcount, it remained essentially flat. Maybe headcount increased through Marvell. Give us some insight into that, perhaps. And now in the United States, do you think you're at a disadvantage relative to domestic competitors because we do have a very strong wave of patriotism in that country. What is the situation in the United States? Unknown Executive: Okay. With respect to the last question, we don't feel anything from this at all. To the contrary, in California, if you look at the major AI infrastructure drivers, we are a supplier that is held in high esteem, an extremely high esteem, I must say. What we are feeling is that in the geopolitical arena, the American value creation chains and the Chinese value chains are slowly separating from each other. But I believe that our esteem in AI and autos and in the future, increasingly grid infrastructure is very good. Unknown Executive: Hope, let me answer the question that you asked about the fitness program step up. Step up to us is a program which ensures improvements in the competitiveness. From a structural point of view, we are well on track. We're actually ahead of plan. We are shooting for a sum in the high triple-digit-million-euro range, which is going to be broken down into a number of different areas, the contribution that we achieved in the [ last ] fiscal year was 50% of this figure. We believe that 2/3 of this figure will be achieved in this fiscal year and then that will be at 100% in 2027. 1/3 of the measures relate to personnel 3/4 are efficiencies, productivity improvements, digitization issues. And you asked us about headcount. You're correct. On the one hand, we have reduced headcount, but new people have joined the Infineon family through the acquisition of Marvell and some of the HR topics will be remanaged. We will move from high-wage countries to best-cost countries, but we have to build up the business in those countries first. So we will have some trickle-down effects in the next quarter. Florian Martens: I think that the question asked by Mr. [indiscernible] in the stream has been answered as well. He is asking about further plans to reduce headcount after [indiscernible]. Unknown Executive: No, we don't have any further plans. But if we look at the market, we have to keep on monitoring the dynamics to determine what our portfolio, our product portfolio or our fab portfolio is still fitting with our goals and where we want to be in the market, but we don't have any further plans right now. Florian Martens: Mrs. Maier, you raised your hand. Unknown Attendee: Yes. I haven't heard anything about China today. Perhaps you could tell us once again what the revenue share was in the past fiscal year and what it's going to be like in this coming fiscal year. I think it is probably going to drop in the auto market. Will this affect Infineon in China? And perhaps you can tell us something about the momentum of competition there. The Chinese chip manufacturers are on a strong upward trend. And Infineon, nevertheless, has always managed to command a very good position on the market. Do you think you can defend it? Unknown Executive: Mr. Urschitz will start and then maybe Sven. Andreas Urschitz: Okay, with respect to the share of revenue generated in China, I'll start with Greater China, including Mainland China and Taiwan. In the past fiscal year, we were at a 38% share of revenue. 29% -- 29 percentage points were achieved in Mainland China. So relative to 2024, in China, we have grown in terms of revenue share. This is in part due to the Chinese leading role in decarbonization and digitization trends, very exciting markets when it comes to automotive electronics and maybe I can make a forward-looking statement here and what we plan for the future in this respect? Well, on a large scale, the share of revenue is going to be maintained in this range in 2026 as well. Sven Schneider: Yes. And perhaps there are 2 more points that we should raise here, the 29%. About 1/3 of it goes back into exports as a car or a smartphone, for example. So here, we believe that the value chains will continue to shift. If you would ask me today about a longer-term -- or for a longer-term outlook beyond 2026, well, then I would say that this share may drop somewhat in China. Of course, there are Chinese competitors. There are applications that have existed in the past as well, which achieve price points that make no sense for us whatsoever. That's why it's all the more important for us to look at topics like AI and regions such as the United States, Korea and Japan and to build up our business there. In the past, we've been very successful at doing this. However, it is quite clear that our corporate strategy in this respect now is to have the broadest possible footprint on a global basis. A good example of this is our automotive business, which has equal shares of the markets in Europe, Japan, China. It's a little bigger in Korea, and it's a little smaller in the U.S.A. So our goal is to have a good equilibrium over all the regions that we are active in. Florian Martens: Thank you very much to the management team for the answers. Thank you, dear colleagues and coworkers for all of the questions that you've asked. I don't see any more questions in the pipeline in the stream, and I don't see any people raising their hands here in the room. So all I can say now is thank you for attending the annual press conference. We hope that you have a wonderful strong final dash towards the end of the year. The holiday season is around the corner. We're very happy to have hosted you here. Thank you for showing interest, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to the AB Dynamics plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to the management team. Sarah, Ed, good morning. Sarah Matthews-DeMers: Good morning. Welcome to the AB Dynamics 2025 Full Year Results Presentation. Thanks for joining us. I'm Sarah Matthews-DeMers, currently CFO, and from 1st of December, CEO. And I'm joined by Ed Haycock, our Director of Financial Reporting. I'll take you through the highlights before Ed takes you through the financial performance. I'll then provide an update on progress against our medium-term growth strategy and the outlook for next year. And then Ed and I will be happy to take questions afterwards. During the year, we made a strong start to delivering our medium-term growth plan, delivering operating profit and earnings per share growth of 15%, slightly ahead of upgraded expectations despite macroeconomic challenges in the second half of the year. Revenue increased by 3% with double-digit revenue growth in half 1, followed by a more challenging half 2 as timing of order intake was impacted by macroeconomic disruption. Encouragingly, customer activity improved towards the end of the year, and the group carries forward GBP 32 million of orders into FY '26, providing good trading momentum into the first half of the year. New product development continues at pace and in line with the technology road map for Testing Products in simulation markets. We received an order just prior to the year-end for the recently launched S3 Spin simulator, which has advanced capability for the growing road car market. Operating profit grew by 15%. Operating margin grew by 210 basis points to 20.3%, achieved through operational improvements and a richer mix of revenue, largely resulting from the timing of order intake and delivery. The operational improvements implemented in recent years have contributed to building a strong platform to support further growth. The benefit of the revenue mix is not expected to be repeated in FY '26. However, in the medium term, the Board is confident of achieving its sustainable margin target of greater than 20%. The group acquired Bolab, a niche supplier of electronics testing equipment in half 1. The integration is progressing as planned and performance is in line with expectations. Net cash at year-end was GBP 41.4 million after GBP 8.1 million of investment in acquisitions and other capital projects. Our strong operating cash generation and cash conversion of 106% supports further organic and inorganic investments. I'll now hand you over to Ed to take you through our financial performance. Ed Haycock: Thanks, Sarah. It's great to be able to present another set of strong financial results. I'll start by taking you through the group's performance, followed by a dive down into each of our three segments, and I'll finish by covering our key financial enablers for future growth. In FY '25, we are pleased to report strong financial performance, where we've continued our track record of delivering consistent revenue and profit growth, backed up by cash conversion. We have delivered significant operating margin expansion, resulting in 15% increase in operating profit to GBP 23.3 million, which represents a three-year compound annual growth rate of 19%. The effective tax rate reduced slightly to 18% due to a change in the geographic mix of profits. We expect this to trend back upwards in future years, in line with our medium-term guidance. EPS has increased by 15% to 80.3p, and we have proposed a 20% increase in the dividend, reflecting the Board's confidence in our financial position and prospects. Cash conversion of 106% and our three-year average cash conversion of 112% demonstrates that we are consistently able to turn these growing profits into cash. The order book at the year-end was GBP 32 million. This, combined with post year-end order intake and additional sources of recurring revenue, such as renewal of licenses, gives good visibility into FY '26. The 15% increase in operating profit was achieved through a combination of volume, sales, sales mix and operational improvements. The GBP 3.4 million increase in revenue dropped through to GBP 2 million increase in operating profit. Sales mix, which is impacted by the timing of order intake and delivery across our portfolio of products and services was favorable in FY '25, generating GBP 1.2 million increase to profit year-on-year. The net benefit of the operational improvements that we have continued to implement across the business has contributed to GBP 1.1 million increase in profit. The overheads increase of GBP 1.3 million includes the impact of the Bolab acquisition, inflation and increases to employers' national insurance contributions in half 2. Although the benefit of the revenue mix is not expected to be repeated in FY '26, the operational improvements have been embedded in the business and are expected to contribute to achieving our sustainable medium-term target margin of greater than 20%. Our cash conversion of 106% demonstrates a continuation of our track record of turning profits into cash despite the somewhat lumpy cash profile of our large simulator and SPMM contracts. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business with GBP 4.2 million invested in capital projects, including on new product development in line with our technology road map. The acquisition of Bolab for an initial GBP 3.9 million was funded through in-year cash generation. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 41.4 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products, the group's largest segment. This includes driving robots and ADAS platforms, the large SPMM machines as well as Bolab's test equipment for electronic subsystems. Revenue increased by 7% with growth in robots and the contribution of Bolab offset by lower SPMM sales. The market drivers for Testing Products continue to support increased track testing activity levels with additional regulation and increased complexity of testing. The increase in margin was delivered through operational efficiencies in supplier quality and production layout together with the effect of revenue mix. In this segment, the timing benefit of revenue mix, which was driven by a higher proportion of high-margin robots and lower SPMM revenue is not expected to be repeated in FY '26. Testing Services includes our proving ground in California, on-road testing in China as well as powertrain and environmental testing in Michigan. Revenue increased by 8%, driven by strong growth in the U.S., where activity levels benefited from new regulatory requirements from the U.S. regulator, NHTSA. After a two-month delay for review by the incoming administration, these have now been confirmed with an implementation date of 2029. Strong customer relationships facilitated cross-selling of VTS' services to a major OEM to whom they were previously not able to gain access as well as initial sales being made to a number of new market entrants. A long-term Testing Services contract in China was renewed for delivery in FY '26 and beyond. Our Simulation segment includes our simulation software, rFpro, and driving simulators designed and manufactured by Ansible Motion. The decrease in revenue was driven by the timing of simulator order intake in the final quarter of the year, with macroeconomic disruption contributing to delays in customer order placement. Our range of driving simulators was expanded during the year with the launch of the S3 Spin, and we were pleased to receive the first order for this new product towards the end of FY '25. High-value simulator sales are individually material and revenue recognition continues to be impacted by the timing of order intake and delivery as does margin. The key enablers for the delivery of our growth plan include our great people with over 200 qualified engineers and technicians supported by an experienced team of professionals across sales, operations and finance. Having been with the group for just over a year now, I can personally attest to the breadth of industry knowledge and technical expertise among my colleagues. Our retention rate, which is circa 90%, is above industry averages, is testament to the investment that has been made in our people. Our cash conversion record, which we aim to continue at 100% through the cycle; our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million RCF facility. While we prefer to remain debt-free, our debt capacity at 2x EBITDA is now over GBP 50 million, which for the right acquisition, we could use for a short period and pay down from cash generation. And we will deploy this balance sheet in line with our capital allocation policy, which I'll cover on the next slide. Our capital allocation policy is unchanged, and we are pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and CapEx, then M&A and finally, dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology road map for Testing Products is designed to address the opportunities of NCAP testing over the next five years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our road map covers both hardware improvements such as the speed and reliability of our ADAS platforms as well as software enhancements. Where appropriate, we will invest CapEx to increase production capacity, and we will complete our global ERP system rollout, having now embedded this in our core Testing Products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses. Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest when we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit dividend increases over the last 5 years. We will only consider returning capital to shareholders if we are holding surplus cash and acquisition multiples ever became unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last 4 years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 20.2% in FY '25. I'll now hand over to Sarah to give an update on our growth strategy. Sarah Matthews-DeMers: Thanks, Ed. Having presented our medium-term growth ambition last November, I'm pleased to say we are on track to deliver in line with the plan. The graph demonstrates the compounding effects of delivering 10% organic revenue growth each year, expanding operating margins to 20% plus and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. This will deliver our medium-term aspiration of doubling revenue and tripling operating profit. I'm pleased to confirm that despite the change in CEO, you won't be surprised to hear there is no change to this ambition. I am fully committed to delivering the plan. In half 1 '25, we delivered an 11% increase in revenue, expanded our operating margin to 18.6% and completed the acquisition of Bolab. Half 2 was tougher following the macroeconomic uncertainty, which followed U.S.-led tariff changes and revenue growth slowed. However, through delivery of our continuing program of driving operational efficiency and cost control, aided by a positive mix impact, we delivered improvement in operating margin and operating profit slightly ahead of expectations. I'll give further detail on each of these elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in four main areas: new vehicle models, new powertrains, consumer ratings and regulation. The first two relate to the wider automotive market and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions. and the increasing regulation and certification requirements in this area. During FY '25, our sales growth has been driven by industry advances in technology, the drive for efficiency by OEMs and increased complexity of testing. There are a number of well-publicized factors creating uncertainty in the automotive market. The impact of tariffs is causing disruption, but OEMs remain committed to R&D in order to remain competitive. In half 2, we saw the impact of many customers pausing to take stock and delaying procurement decisions while they determine how best to respond to tariff changes. The challenge to traditional automotive OEMs posed by the rise of new entrants is resulting in the need to innovate and develop faster, more cost-efficient methods of developing new models, giving rise to further opportunities for our simulation capabilities, which enable manufacturers to accelerate the efficiency and speed of development by allowing customers to test in a virtual environment. As the transition to EVs is occurring more slowly than originally forecast, there is renewed growth in hybrid platform development, and ICE vehicles are expected to be around for longer, supporting significant levels of activity in new platform development. The new U.S. regulation, FMVSS 127, mandating new requirements for automatic emergency braking that comes into force for cars sold into the U.S. from 2029 remains in place despite lobbying from the U.S. car industry and is beginning to drive development activity in the U.S. market. Combined with the extension of Euro NCAP testing to other vehicle categories, increases in the complexity of testing, safety regulation and the growth in active safety and autonomy provide tailwinds for growth. Our business is resilient against short-term market disruption, and our market drivers support double-digit revenue growth in the medium term and beyond. We are OEM agnostic in the sense that we supply to all major automotive OEMs with over 150 different customers, therefore, providing protection from downside risk from the current competitive environment between conventional manufacturers and Chinese EV makers. Our global diversified customer base and high-quality long-term customer relationships provide resilience. Our global footprint allows us to remain close to our customers and gives us flexibility in dynamic market conditions. We are powertrain agnostic. All new models need to be tested and certified, whether EV, hybrid or ICE, leaving us well placed whatever the mix between differing powertrains. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to a faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry. and long term are moving in the right direction to support sustainable double-digit revenue growth across our business. Operating margin expansion will be achieved through delivering operational gearing as we scale the business. The investment we have put in means we have the capacity to deliver the next phase of growth without a corresponding step change in overheads. Simplifying the business, we are focusing on improving our supply chain, rationalizing the number and quality of suppliers to obtain discounts and improve quality and efficiency as well as rationalizing the number of product variations and combinations in the market. And standardizing our processes and procedures. We have already made many improvements in this area, but there is significant opportunity to streamline our manufacturing, improve design for manufacture and drive the benefits from our ERP system. In our main manufacturing facility in the U.K., we have delivered a net improvement of GBP 1.1 million through the implementation of a supplier quality management system and increasing quality testing at the subassembly level, leading to reduced rework and wastage. We have reduced direct labor input times through planning and layout improvements. And we have also rationalized the number of product configuration options. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small- to medium-sized businesses, which are filtered down into targeted approaches. These are usually off-market opportunities with vendors with whom we've built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. We are looking for cash-generative businesses with high gross margins at reasonable multiples, which are EPS accretive and capable of achieving strong return on investment. Typically, targets will offer new products or service capabilities that can be sold through our existing international sales channels. In terms of geography, we're most likely to pursue opportunities in Europe and the U.S. while being mindful that given the current disruption, we will need to be comfortable that any business is resilient to changes in market conditions. During the year, we completed the acquisition of Bolab, which has been integrated into our testing products sector, opening opportunities for Bolab to access new sales channels. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a further transaction in the year. We are continuing to build relationships with a number of other targets. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. The group has made a strong start to delivering the medium-term growth plan, which we articulated in November 2024. Trading in the first half of FY '25 was strong with double-digit revenue and profit growth. Despite challenges in the second half caused by macroeconomic and political disruption, the group delivered full year profit growth of 15% and improved margin to 20.3% from a combination of operational improvements and revenue mix. Diluted EPS grew by 15%, and we have proposed a 20% increase in the dividend, reflecting the Board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 106% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY '26, the group is OEM agnostic, powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group is also geographically diversified and supplies market-leading products, which are critical to our customers' future success. Encouragingly, underlying demand drivers remain strong and customer activity increased towards the end of FY '25. As a result, the group carries forward GBP 32 million of orders into FY '26, providing good trading momentum into the first half of the year. Whilst mindful that short-term macroeconomic disruption may continue into the first half of FY '26, the Board remains confident that the group will make further financial and strategic progress this year and expects to deliver FY '26 adjusted operating profit in line with current expectations with an expected bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications, underpinning our medium-term financial objectives. To summarize our growth strategy and value creation plan, our ambition is to double revenue and triple operating profit over the medium term from our FY '24 baseline of GBP 20 million of profit through the compounding effect of 10% organic revenue growth, improving margins to 20% and beyond, converting these profits into cash with 100% cash conversion through the cycle and a self-funded acquisition spend of GBP 30 million to GBP 50 million per year. That concludes the presentation. We'll now go to questions. Operator: [Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end? Ed Haycock: Sure. So first question was a pre-submitted question. So no name with this one. The question is, the share price has been reducing daily for the last few months despite the financial results being in line with expectations. What actions are underway to boost investor confidence and reverse the recent trend? Do you want to take this one, Sarah? Sarah Matthews-DeMers: I'll take that one. So thanks. As you can see, we've been delivering our results. We've also set out the medium-term growth plan to demonstrate the opportunity for what the business can achieve. Unfortunately, redemptions do remain the biggest issue in mid-cap markets, which drives prices down. So we are setting out the opportunity to allow shareholders to be able to assess the opportunity for the business themselves. Ed Haycock: Next question is from [ Ivan ]. His question is, what was the operating margin, excluding the benefit of revenue mix? So in one of the slides, we showed the impact and we quantified that the benefit was GBP 1.2 million of operating profit. Broadly, that's around 100 basis points on the operating margin. The next question is from [ Paul ]. With cash rising and continued strong cash generation, how are you looking to balance reinvestment and product development, acquisitions and shareholder returns in your allocation strategy? Did you want to take that one, Sarah? Sarah Matthews-DeMers: Yes. So as we set out in our capital allocation policy, the first priority is always to invest in organic R&D because that is what gives us the best returns. And then following that, the next allocation that we look at is acquisitions. Again, that drives returns. We pay a relatively small dividend. So it's not stopping us investing in anything in the business that is driving returns. But I do think it is a good discipline to have that dividend payment and the fact that we're growing it each year helps to signal the Board's confidence in the returns going forward. Ed Haycock: We've had a question from [ Gerard ], which is, can you give some examples of how ERP investment improve performance. So yes, various examples of that, I guess. One area where we've seen a marked improvement is in procurement. So we've now got data to analyze on exactly how much we're spending across our supply chain, which we can use to then inform our commercial negotiations and negotiate discounts with our core suppliers. Equally, we're using it in planning and knowing exactly how much we need to order and when, which is driving out working capital efficiencies and ensuring we're sort of maintaining appropriate inventory levels. Sarah Matthews-DeMers: Great. Thank you for those questions. We'll pass back to Vini. Operator: Sarah, Ed, thank you for answering all those questions you've got from investors. And of course, the company can review all questions submitted today and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Sarah, can I please just ask you for a few closing comments? Sarah Matthews-DeMers: Yes. I'd like to thank you all for joining us today. Operator: Sarah, Ed, thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of AB Dynamics plc, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Hello, and welcome to the Andean Precious Metals Third Quarter Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Amanda Mallough, Director of Investor Relations. You may begin. Amanda Mallough: Thank you, operator, and good morning, everyone. Thank you for joining Andean Precious Metals for the conference call to discuss our financial and operating results for the 3 and 9 months ended September 30, 2025. Our press release, MD&A and financial statements are available on both SEDAR+ and our corporate website at andeanpm.com. Before we get started, I would like to point out that during today's call, we may make forward-looking statements as defined under the Canadian securities laws. Please refer to our cautionary statements and forward-looking information and risk factors contained in our MD&A and other filings. With us on today's call are Alberto Morales, Executive Chairman and CEO; Yohann Bouchard, President; Juan Carlos Sandoval, Chief Financial Officer; and Dom Kizek, Vice President, Finance and Corporate Controller. Following management's prepared remarks, we'll open the line for questions. And with that, I'll turn the call over to Alberto. Alberto Morales: Thank you, Amanda, and good morning, everyone. The third quarter was a strong period for Andean, marked by record revenue, record earnings, record liquid assets and record earnings per share. We delivered revenue of $90.4 million, adjusted EBITDA of $36.8 million, net income of $43.7 million or $0.29 earnings per share, the highest in the company's history. These results reflect the combination of strong metal prices, disciplined cost management and higher consolidated production versus the previous quarter. Importantly, we generated $11.2 million of free cash flow and increased liquid assets to $121 million, up from $82 million a year ago. Operationally, San Bartolome delivered another excellent quarter, benefited from higher silver production, higher silver prices and continued efficiency. Golden Queen faced a short-term production impact related to the leach cycle timing and the team moved quickly to recondition the sale and optimize the process. Looking ahead to year-end, we expect San Bartolome silver production to be within the high end of its guidance, offsetting the lower production at Golden Queen, which was impacted by the leach cycle timing, although showing improvements into the initial part of Q4. On a consolidated basis, production is expected to finish near the lower end of the guidance with a solid cost and margins performance at both assets, maintaining a robust financial performance despite production variances. Our focus on cost and capital discipline continued to pay off. Total CapEx was just $0.6 million in the quarter, and we expect our year-end CapEx to be in line with our guidance. In November, we also filed a base shelf prospectus, qualifying up to $200 million of securities over 25 months, giving us the flexibility to access capital markets efficiently when needed. This is a strategic step that strengthened our long-term optionality. Overall, this was a very strong financial quarter despite production variances, highlighting the resilience of our portfolio, our financial discipline and the capability of our people across both jurisdictions. With that, I will hand it over to Yohann to review operational and explorational performance. Yohann Bouchard: Well, thank you, Alberto, and good morning, everyone. So let's start with production. Andean delivered just under 25,700 gold equivalent ounces in Q3, bringing year-to-date production to about 71,400 gold equivalent ounces. That's a 6% increase over the previous quarter, thanks to a strong contribution from San Bartolome. At San Bartolome, the operation continued to perform extremely well. Mill throughput averaged roughly 4,100 tonnes per day with 85% silver recovery. Production totaled 1.4 million silver ounces or about 15,600 gold equivalent ounces. Cost performance was strong. Cash gross operating margin came in at $16.13 per silver equivalent ounces and our gross margin ratio was 43.8%, both near the upper end of guidance. Increasing our purchase volumes and consistent processing supported these healthy margins. At Golden Queen, production was slightly below 10,100 gold equivalent ounces. This reflects the impact of leaching cycle timing, which temporarily slowed recovery in one of our leach sales. The team acted quickly, reconditioning the sale, optimized our blending and lowered the solution application rate to mitigate fine vertical migration. Despite lower ounces produced, our cash costs were $1,623 per ounce and all-in sustaining cost was $1,807 per ounce, both well within our guidance range. As we move into Q4, we expect consolidated production to finish near the lower end of our full year guidance with all financial metrics trending within our guidance range. We also made strong progress in our exploration program at both operations. At Golden Queen, the Phase 3 program has been extended to 8,100 meters after encouraging drilling results at the Hilltop and Starlight Vein areas. Recent assays include intersection of up to 1.67 gram per tonne gold and 20 grams per tonne silver over 5.9 meters, confirming continuity and potential extension along strike. This program is focused on extending mine life by extending Main Pit 2 and defining new near-mine resources. At San Bartolome, we advanced our partnership with COMIBOL securing exploration permits and social licenses across multiple oxide targets. The shallow core drilling program of 5,500 meters started earlier in Q4. The goal is to test roughly 800,000 tonnes, creating 150 to 250 grams per tonne silver. Ultimately, this will help extend mine life and fully utilize the planned 5,000 tonnes per day capacity without major capital investments. Operationally and strategically, we're in a strong position with exploration adding meaningful future potential. With that, I will pass it over to J.C. for financial review. Juan Sandoval: Thank you, Yohann and good morning, everyone. From a financial standpoint, Q3 2025 was the strongest quarter in Andean's history. Revenue reached $90.4 million, driven by higher silver production and strong realized prices of $3,448 per ounce of gold and $40.09 per ounce of silver. Gross operating income increased to $36.8 million and income from operation was $30.7 million. We generated EBITDA of $58 million and adjusted EBITDA of $36 million, net income of $43.7 million and earnings per share of $0.29 fully diluted, each a record for the company. Free cash flow was $11.2 million, supported by strong operating performance and lower capital spending. CapEx totaled $1.1 million in the quarter. Our balance sheet significantly strengthened this quarter. Total assets grew to $370.8 million, while total liabilities fell to $145.2 million, reflecting debt repayment and higher working capital. Liquid assets rose to a new record high of $121 million, up from $82 million at the same time last year and $81.6 million at year-end 2024. Our financial position remains strong. We continue to have a negative net debt position and significant cash reserves. Combined with the recently filed base shelf prospectus, Andean has the flexibility to pursue further growth opportunities. With that, I'll turn it back to Alberto for closing remarks. Alberto Morales: Thank you, J.C. To close, I want to highlight that Q3 reinforced everything that we have been building on, a resilient cash-generating business, a clean balance sheet and a clear path to pursue transformative initiatives. As this slide shows, we are well positioned for continued growth with robust financial, maintaining financial flexibility, evaluating selective opportunities to build further growth and value creation through advancing exploration programs across both of our assets. We delivered record financial results and meaningful exploration progress. San Bartolome continues to perform consistently. Golden Queen is returning to normal production parameters, and both assets are well positioned for a stronger fourth quarter. We look ahead, we remain focused on executing safely, maintaining cost discipline and advancing our organic growth pipeline. With our financial flexibility, exploration upside and a disciplined team, Andean is well positioned for continued success into 2026 and beyond. Thank you all for your continued support. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Omeet Singh with SCP Resource Finance. Omeet Singh: Congrats on the quarter. I had a question on CapEx. You were mentioning that CapEx will be hitting roughly guidance for the year. I know in Q3 was a lot lower than the prior 2 quarters. Could you speak to what types of CapEx spending you envision for the fourth quarter? Because I think at this run rate, correct me if I'm wrong here, but it will come in significantly below guidance. Juan Sandoval: Omeet, it's J.C. Thanks for your question. So this quarter, it was just in relation to our CapEx spending plan. But as we've said, our plan is to -- we will be within the guidance, within the average of our guidance by the end of the year. Omeet Singh: Okay. Appreciate that. And if I may, I'd like to ask another question. The second one would be in relation to inventory, which increased significantly, obviously, quarter-on-quarter. I'm assuming that's related to the percolation issue this quarter? And should we expect that to come off in Q4 or early next year? Is that the right way to be thinking about it? Yohann Bouchard: Yes, Yohann here. Thanks for the question. Yes, you're absolutely correct. I mean, with the -- I would say, the issue that we had with -- in our Cell 11, I mean, the inventory is still there. And we really use a prudent approach to resume leaching. So I mean, the main contributor to that is we leach using really a slower rate applying solution. And for sure, I mean -- and we see and saw it that our production is coming back slowly but sustainably, and we're expecting it to -- I mean, we pretty much came back at this moment to the production rate that we have in Q1 and Q2, and we're setting the tone to increase further in the beginning of next year. And as you know, I mean, those ounces cannot be recovered over a single quarter, but they're going to be recovered over a longer period of time. So you're absolutely correct on your assumptions. Operator: The next question comes from Allison Carson with Desjardins. Allison Carson: My first one is a bit of a follow-up with the CapEx. I think there was a negative growth capital expense this quarter. Could you just give more color on what that was? Dom Kizek: Allison, Dom here. We adjusted our CapEx metric this quarter to be on a cash flow basis, so that was just a catch-up. And then just to further J.C.'s comment, we are expecting to be within the guidance range at the end of Q4. And some of those projects are going to be including a new heap leach pad that we're starting to build up. Allison Carson: Okay. Great. And then it sounds like everything is working well back at Golden Queen and the leach cycling is improving. If this issue arises again, do you think you'll be able to resolve the issue with less of an impact to production? Yohann Bouchard: I'm not so sure to understand the question, sorry. Allison Carson: Sorry, it sounds like everything at leach cycle is improving following the issues that you had in Q3. If you have more issues with the mine particles in clay again, based on going through this time, do you think that you should be able to resolve the issue quicker with less of an impact to production? Or could this still have another big impact to production in the future? Yohann Bouchard: Thank you for that. I mean I think that we took a lot of action to make sure that it will not happen again. But I would say that, that was more related to an operational problem. And for sure, I mean, we question the way that we blend and everything that we did upstream of leaching. But all the extra measure that we took and also, I mean, we're considering that we're going to also commission a new agglomeration drum in December and looking at also a fine bypass next year to mitigate that project further before the clay hit the HPGR, I believe that we're going to be in really good shape to mitigate such a problem going forward. So absolutely. But again, we took many actions, and we still have other action to take, not only like improving our processes, but also improving the equipment and also doing proper investments to mitigate such of issues. Allison Carson: That's great. And then my last question is just I was wondering if you could talk a little bit about the election results in Bolivia and how you expect that to impact San Bartolome, if at all? Alberto Morales: Yes, Allison. The elections in Bolivia, as probably you have read on some of the editorials, the new President is more center-driven than the previous governments. We believe that there will be -- or at least the rhetoric that they've been using is that they are basically changing the tone of the philosophy that it's been ruling the government from being more of a stream left towards the center and welcoming further investments. Under that tone, if that was to materialize, certainly, I think that the international markets will view very favorably if they were to be opening themselves up for further investments. And most importantly, that may also or at least in order to pursue further initiatives to promote that. It may include some initiatives on legal reforms, tax reforms, but it's too early to tell but we're cautiously optimistic, but I will still keep the word cautious. Allison Carson: So congratulations on a great quarter. Operator: The next question comes from Ben Pirie with Atrium Research. Ben Pirie: Alberto, Yohann, J.C. congrats on another good quarter. Just a couple of quick questions. Most of mine have been answered. But Yohann, I guess, given the improvements you've been making and are continuing to make to the leaching system and the grinding circuit, can you talk about potential increases in recovery? Is there any opportunity there and that goes with the new leach pad as well? Yohann Bouchard: I would say -- I mean, the recovery is mostly is directly related to the way that -- I mean, we apply solution and making sure that the solution reached all of the little corner, I would say, of the leach pad. So -- and again, I mean, it took some time, I think, to recover from, I would say, the shortfall that we had because of the prudent approach and sustainable approach that we have undertook to apply the solution again. And we see it like week after week, production is increasing and it's still increasing at this moment in time. So -- and don't forget that the last 2 or 3 quarters, we put really high grade on the leach pad. And I mean, we start to see some benefits out of it. And basically, the other thing that I have to add to that, we're also contemplating the project to increase our capacity to the Merrill-Crowe. With very little investment, we can increase from treatment of 3,000 to 4,000 gallons per minute, and we're looking into it. So we would like maybe instead of deviating some of the solution to the low-grade pond, we would like to leverage that and send that to Merrill-Crowe that would also increase production. And that can be done within months basically. But overall, I mean, be certain that it's increasing. Production is increasing, recovery is increasing as well. And by the nature of the leach pad that recovery is like -- it's not like you're losing gold. It's just like postponing, I would say, the recovery of some gold in the following quarters. But for sure, our goal is to catch that water within a certain amount of time. and we'll get to that for sure. Ben Pirie: Right. Understood. And I guess in terms of drilling at Golden Queen, is everything progressing as planned? And are you guys still on track to report the updated resource in H1 '26? Yohann Bouchard: No, it's progressing really well, actually. I mean, as you know, I mean, we decided to invest further more. I mean we increased to 8,100 meters total drilling for this year. We add -- I mean, you saw the drill. We add that drill. That team is performing really, really well. We're looking to have a third drill before and at this moment. And we're going to keep drilling. I mean, nonstop until, I mean, we see some significant results. But everything at this moment still aligned to deliver like a technical report and reserve upgrade by the end of next -- of this year. So everything is going according to plan on that aspect. Ben Pirie: Perfect. And I guess just my last question, just given the higher gold prices over the last couple of quarters, is there any changes? Are you seeing any issues with the ore sourcing at San Bart? Yohann Bouchard: I think on that aspect it's interesting. We're doing a lot of progress with the 7 million tonnes agreement, and we start to do some drilling in one of those places like a few weeks ago, which is quite encouraging. We secure a lot of, I would say, agreement with the local community. And so it's going really well. And on top of that and outside of that 7 million tonne agreement, we are also negotiating with our community and it's really encouraging to see the momentum that's been created. But we're not publishing everything, all the new agreement that we're having up there. But I mean, I feel really good with the continuity of San Bart based on the, I would say, the expertise that we get at sourcing ore from third party. So it's -- and we have a solid reputation there. So it's going really well for us. I'm very pleased. Operator: This concludes the question-and-answer session. I'll turn the call to Alberto for closing remarks. Alberto Morales: Well, thank you, everyone, for joining, and we certainly look forward for Q4 and end of the year. And my thanks to all of you for your continued support. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Daniel Thorsson: Okay. Good morning all, and good evening, Jessica. It's Daniel Thorsson here from ABG, who will host this morning's conference call with BTS and the CEO, Jessica Skon. So very much welcome for all joining. Analysts have joined through a separate link, so you should be able to ask questions verbally in the Q&A session. I will open up for that in the end. But just saying welcome to Jessica, and feel free to go ahead and present the Q3 report. Thank you very much. Jessica Parisi: Super. Thank you very much, Daniel. Hello, BTS investors. Welcome to the Q3 report from BTS. We're not happy with the quarter. It was a tough quarter. At the group level, we grew 3%, but we had a profit decline of negative 16% if you adjust for foreign currency exchanges and negative 25% if you include the currency effect. So let's walk you through and kind of demystify what's behind the profit drop in the third quarter. There's really 2 big reasons. Number one is something I'm going to tell you about in North America and number two is negative currency effect. So North America, you can see the decline of SEK 10.3 million in the third quarter. One big reason for this, 65% behind North America's drop has to do with one particular customer engagement sold through our APG channel of a more traditional BTS product. And the reason why this was particularly painful is because it's kind of a pure license play, which means the value drops, the vast majority drops to the bottom line compared to our other services. And when you compare this license revenue through the APG channel in this quarter compared to a year ago, it had a significant impact on the profit. If you look at the impact of the weak dollar, it's about 28% behind North America's profit drop. If we look at BTS Other markets, it's really 2 things. One is we decided to increase our marketing investments. So we had a lot of client events and dinners and roundtables in the third quarter compared to a year ago. And then, of course, it's also the adverse currency impacts, which makes up 50% of the decline in BTS Other markets profit. And BTS Europe had a plus. They performed well. They increased their profit in the third quarter. They continue to do well. Still a tough market in Europe, but they've been performing quite strongly, and we do see some slowed growth happening or happening right now in the fourth quarter. So bottom line is the poor results and profit in the third quarter despite a 3% growth is because of the negative effect in currency and also the one client deal through the APG channel, but because it's a high license deal compared to a year ago, had a disproportionate impact on the profit. If we go to North America, our biggest market, which to remind you, we are in turnaround mode. We're 1 quarter in. We've changed the leadership team and put a lot of efforts into turning this market around. We see the turnaround still as on track. And on track for us means we shared with you last time that we expected to get back to growth in the first half of 2026. A couple of highlights to talk about BTS North America, that Phase 1 of our AI efficiency has been moved into full effect. The benefits of this in the third quarter is the underlying cost for BTS North America have been reduced by 2% and our revenue employee is up by 10% in the core business. We have also added more sellers into the third quarter. We have much higher win rates. I'm very proud of this. Just to give you a sense, at the lowest point in North America this year towards the end of the first quarter, our win rates were mid- to high 20%, which is pretty unacceptable. We are back up to our sweet spot of 61% win rates across all deals in the third quarter and 71% win rates across deals over SEK 500,000. We've also won some really new great strategic clients, both some of the new tech hypergrowth companies as well as in other industries. If you look at the profit performance of what I'd call [NAMS] organic profit outside of the APG channel and the profit that's sold through the channel, the profit was stable in the third quarter, even though the revenue was soft. So we're feeling good about that. Our Executive Coaching business continues to grow. It's very successful. That was from the Boda acquisition a couple of years ago. And then Sounding Board, the scaled coaching acquisition from the first quarter turned to profit in the third quarter as well. They're performing on plan. The integration is going well, and we continue to win very big end-to-end global coaching deals, which was the whole idea behind the acquisition. So yes, I mean, bottom line in BTS North America, we're still in the turnaround. No quick hit win 1 quarter in. Historically, when we have to turn around parts of the business, it typically takes 3 quarters. And right now, we feel like everything we're seeing in terms of top of the funnel activities and win rates and presence in the market, we believe that we'll be back to growth in the first half of 2026. BTS Europe continued to grow in the third quarter after a super strong start to the year, and they have a healthy margin. The demand is gradually slowing down to more kind of typical rates that you would see from a BTS business. And in the fourth quarter, we do think that the revenue is actually going to soften a bit. That said, they have a really strong pipeline. Their win rates are super competitive and high. Their activities were, I think, up 60% in the third quarter compared to Q3 a year ago. And so we feel pretty strong about Europe's 2026 start to the year. APG, which is the channel in BTS North America, which is getting a lot of attention in this quarter report. They continue to decline, slow market for them, reduced project scopes and the cancellation of licenses across some of their client base. As I mentioned to you, when BTS can sell our standard products through that channel, and typically, that's like a standard simulation that the clients will facilitate themselves, that's pure profit for BTS North America's business. And one of the things we've done, just given APG's decline over the last quarters plus the pain that we felt in the third quarter, we took some fast action. I shifted the APG's reporting structure to me since I'm in the North America market, and I can drive faster synergies and energy there again. And then we've bolstered the plan and how we're going to support APG through 2 of our major practice areas. If we look at BTS Other markets, we had I would say, more kind of macroeconomic impacts, specifically in Southeast Asia and specifically in Thailand, which contributed to slower growth than we were expecting in the third quarter, and we continue to see it being soft in the fourth quarter as well. Balancing to that though, however, in the third quarter and in the fourth quarter is strength in the Middle East business. We also expect the fourth quarter to be strong in our Spain business, Latin America and so forth. And as we mentioned, BTS Other markets did a lot of client events and dinners. They were very successful, very well received. They generated a lot of leads, and those will start to pay off in the first quarter. From an AI perspective, I'm really proud of this. Our AI services are continuing to grow at kind of hyper speed. Our bookings of AI-related adoption services have now reached 10.3 million year-to-date, which is up [482%] from the same period last year. Our Verity platform, which is part of the Wonderway acquisition a couple of years ago, bookings has now reached $4 million, which is 15x bigger than the same period last year and 33% growth from the second quarter. We are having a lot of fun right now in terms of meeting with clients and partnering with them, specifically on what we call bottoms-up kind of Grassroots AI innovation. So what we're seeing is a lot of companies are placing their kind of typical ways of looking at digital transformation, top-down AI bets, but we believe there's a lot of value to be unlocked bottoms up, and that value proposition is resonating very well in the third quarter. Specifically, we've also had some -- we had a really big breakthrough in the third quarter, which is going to have implications on our talent and organizational model moving forward. I mentioned to you in the last couple of quarters that our global simulation team had been experimenting with different AI tools. And we started to go live with our clients in the third quarter. That continued to rapidly expand around the world. And just actually in the last couple of weeks, we kind of hit the -- I don't know if it's the final breakthrough, but it's a big breakthrough across our most complex simulation platform. So we have officially completely redesigned or retrofitted how we build simulations across our practices. And this has strategic implications for how many people we have in our operations teams, how many people we're going to put on the client project teams, the economics for our clients. I announced this breakthrough to 90 of our existing [Technical Difficulty]in BTS North America, and they were absolutely thrilled to hear about the values for them. And so we're now moving from, I would call it, breakthrough AI value experimentation and innovation to scaling this new way of working globally. And we will start to see material P&L gains already in the first quarter. From an automation update, part of the reason why we made the Sounding Board acquisition in the first quarter was they have great tech platform, which would allow us to scale. So our movement of existing workloads over to their platform is on track. And we are continuing to do that through the first quarter. So additional savings in OpEx will be coming beginning in the second quarter of 2026. So for those of you who have been with us for a long time, you're very used to seeing the slide that we are used to average growth of 12% CAGR since 2001 and an average profit growth of 15% per year. It has been a tough year, specifically for one reason, that's BTS North America's core business, which is why we did the leadership change in early June, and that turnaround is on plan and progressing well. It's going to get a little tougher before we get back to the growth, but the plan is in the first half of the year, it's looking good. So given although we see clear signs of the operational improvements, and we have strong markets in Europe and most of the world, we do foresee revenue decline in BTS North America in the fourth quarter. So that fourth quarter dip, combined with continued currency headwinds is the 2 major reasons behind why we are lowering our outlook to be significantly worse than what we said previously. And with that, I'm sure there's clarifying questions and comments. So I'm all yours. Daniel Thorsson: Excellent. Wonderful, Jessica. I have a couple of questions in the beginning here, but I also tell the other analysts who have joined, just raise your hand, and I'll let you ask questions to Jessica as well, of course. First, a question on Europe here, somewhat softer demand into Q4 despite the strong year so far. Is there any particular market or sector behind the slowing trend in the fall or more the customer pipeline you are sitting on? Jessica Parisi: There's not a particular sector behind it, and it's not a particular office. Our London team's pipeline is a little bit softer than the others. But no, it's more that they had a really strong first half. And when we look at their full year performance, it's still going to be really good with great margins and growth and all of that. And to also kind of balance the softening in the fourth quarter, we do not believe that, that's going to carry over into 2026. The pipeline and the deals and the work that we have line of sight on already in the first quarter shows strong growth. So it's more like a softer end to a really big year for Europe. Daniel Thorsson: Okay. That's clear. And then on the U.S. market, some positive words on the U.S. tech sector here in the report. We can all follow the huge AI investments, of course. Is this what partly drives demand for you as well that the tech sector in general is more willing to do investments? Or are there any other drivers behind this comment? Jessica Parisi: No, it's a mixed [bag] with tech. We can already start to see kind of the new hyperscalers compared to the older tech who are still trying to compete for the growth rates that they've been used to. So in some cases, for example, we have one of our larger software clients who has just gone through a major reorg. And with that, we expect their spend with us in the fourth quarter to be down quite a lot. At the same time, we've just brought in new software tech clients that are more on the hyperscale side, and we expect that to ramp really quickly. So it's a mixed bag. Daniel Thorsson: I see. I see. In general, in the market, do you see any noticeable price pressure or price competition in some markets for like general management consulting services today? Jessica Parisi: Not really. I mean not so significantly. There is less interest in paying for content license which for us has never been a very big part of our business, but it's something that is affecting the training industry as a whole and any competitors who mainly have a content-first play. Our pricing compared to traditional consulting firms, especially on the AI implementation side is very affordable. So we are not seeing any pricing pressure there. We are not seeing pricing pressure on our new AI platforms and technology. One of the breakthroughs with all of the simulation redesign work we've been doing is we'll be able to build simulations faster. And so I do think we're going to see a shift in our client revenue perhaps less upfront because we can do it more quickly, but faster to deploy, right? And with the faster deploy, we will see the license and usage fees hitting quicker than normal. Daniel Thorsson: Yes, I see. That's clear. And then a clarifying question here on the guidance for 2025. You also include that revenue will decline as well as EBITDA. Is it also significantly worse on revenue? Or how should we think about that addition? Jessica Parisi: So no, we made a mistake and then we've already fixed it, and we'll be sending it. We were only relating to the earnings. It was a miss type. So top line for the full year, we still expect actually growth at the group level, just low single-digits growth. And yes, that was our mistake. So I'm sorry about that. Daniel Thorsson: No problem. That's very clear. Let's see if any of the other analysts would like to ask a question, we'll see how the format works here if they can raise their hand or just unmute. Let's see if Oscar or Johan, for example. Otherwise, we have a few from the chat. I'll take one for the chat, just try to shout out any of the other analysts. They seem to be joined correctly here at least. But we have a couple of questions from the chat Jessica. And then the first one on license sales. Can you elaborate on the dynamics within license sales? Is it related to smaller deal size or fewer deals in total as well? Do you think that you are losing some deals to competitors and why? And you also say that the lower license sales in Q3 was only temporary. Can you elaborate on that? Jessica Parisi: Yes. The particular license deal that was extra painful to us that was sold through the channel, that was really just to one customer, and it was for one of our standard training simulations [Audio Gap] before is still relevant in terms of clients not wanting to pay content license. So if we have any old content license deals out there, we don't have much, but those would be at risk. Now the growth of the Verity platform, the BTS simulation usage, some of our other AI platform offerings, that growth, that subscription growth will outweigh any decline in content license or product license revenue. But in Q3, it was just that one simple product through one customer. Daniel Thorsson: I see. That's clear. On one-offs, are there any one-offs in this quarter in Q3? And yes, what was the underlying EBITDA in that case? I think that you had like SEK 5 million in Q1 and SEK 14 million in Q2, if I remind correctly here, anything in Q3? Jessica Parisi: Probably just a tiny little bit of extra severance, but not much. Daniel Thorsson: No, exactly. You don't state anything in the report. And on the cost savings program, what's the status of this cost savings program? How much of the cost savings were realized in Q3? Jessica Parisi: Nearly all of them. Yes. So we'll get 100% live on them in Q4, but the majority were realized in North America in the third quarter. What's interesting is what we're going to do for this next phase now that we've had the final breakthrough in using new technology across all of our simulations. And we are very busy right now working through those implications. So -- but it really -- we just hit the next level of breakthrough just a week ago, and the teams are moving fast. But this will have implications across consultant teams, our digital enablement teams, operations, project managers. So I can't -- I don't have enough clarity right now to share with all of you what to expect, but we are working on it very quickly. Daniel Thorsson: I see. A linked question to that, in terms of number of employees going into 2026, do you expect this number to grow in '26? Or should we see top line growth coming from increased sales per employee rather? Jessica Parisi: Yes. We will bring in a few people here or there, probably revenue generators, but the total number of BTS employees will shrink in 2026. So we will have revenue per employee improvement, not just from what we've already done this year, but from a second wave as well. Daniel Thorsson: Okay. That's clear. And then also a question here. In Q4 '24, you mentioned that 2 large clients canceled their annual events, which affected revenues by negatively $2 million. Are those clients back with their annual events in Q4 '25 now? Jessica Parisi: No. They're not back. And one of them is also most likely going to be behind another major drop in the fourth quarter. So we're working on it right now. But yes, yes, that's -- one of them is why North America is going to have a tough time in the fourth quarter. That said, I can give a little more context. That's one of the tech companies that's gone through a major reorg, and have really changed their budgeting approaches, and they're not doing another big event in the first quarter this year. The number of large company sales kickoffs and events that we are doing, however, is up across North America, but the average revenue spend is down. So the team is really busy. The deal sizes are slightly smaller than they were last year. And that's -- I think that's just a reflection of clients want to do something still, but they're spending less. Daniel Thorsson: I see. A couple of written questions here from Johan Sunden. When during Q3 did the important licensing deal in North America fell away? And what is the risk that more important clients do the same going forward? Jessica Parisi: Yes. The third quarter, we found out about it in the last few weeks of the third quarter. We don't have that many other product license deals like that in the system. We have -- we don't have risk of that happening again in the fourth quarter. So I mean, yes, it's not something that's so frequent across our revenue base. And it's also the delta from Q3 last year with APG that made it particularly painful. Yes. So I don't see it as a particularly acute problem compared to the other things we're trying to do to get back to growth. Daniel Thorsson: I see. I see. And then a second question from Johan here. How was sales and marketing costs in Q3 isolated to the other markets business? I guess the question is how large share of sales and marketing are related to other markets roughly? Jessica Parisi: From a total sales and marketing spend? Daniel Thorsson: I guess so. Johan Sundén: Maybe I can clarify. More like how isolated the step-up in sales and marketing cost is for Q3 and if there will be a similar kind of step-up in Q4 and... Jessica Parisi: Yes, yes. No, isolated to Q3. Johan Sundén: Perfect. But you said that there was some [dealers] now in Q4 as well, right? Jessica Parisi: The Q3 is where most of the world did their increase in marketing events. I've been busy in North America in Q4 doing the dinners, but the expenses in most of the world that we're referring to was in the third quarter. Johan Sundén: Yes. Perfect. Yes, my final question is more like the AI breakthrough that you highlighted just during the presentation. Just curious to hear your some initial thoughts on kind of impact on unit economics. How has kind of feedback been from clients? Any worries that there will be fee pressures? And just curious to understand how the value created will be distributed. Jessica Parisi: I'll share with you exactly as I can see it at this moment. And it's wild how fast things are changing. And you all know this and you hear it probably from all your clients. But I just to give you a sense, like, I've been waiting for the team to figure out if we can do this across our biggest [SIMs]. And I got a phone call last week saying that Microsoft just released some new feature. And that feature is kind of the final missing piece, but no one could have dreamed that, that feature would have come out a week ago, right? It's just kind of the world we're living in right now. Client feedback is coming in 3 different ways. One is we're able to demo in our sales meetings a real [SIM], what we mean, a simulation of their business. And that demo is blowing their minds. Like they cannot believe that we're able to kind of visualize what they're expressing in their strategy in such a quick way. So it is helping us move deals forward faster and have really high win rates. So that's a good sign. Fee pressure has not hit us yet, and we are working through our -- updating our pricing guidelines around use cases because what I shared with 90 of our customers and many of them who have known us well, we're nodding the whole time. Yes, we can build these a lot faster and still have high fidelity. But for some instances, they'll choose not to do it faster because sometimes we get paid just to have the working sessions with their executive teams and align everybody through the process of modeling and simulating. Other times, the whole point is to get a simulation on as fast as possible. So when speed is of the essence, yes, the upfront build will be reduced. if it's a small simulation, just -- I mean, it might be reduced from SEK 100,000 to SEK 50,000 or something like that to build it. But the benefit for us is that we'll go straight into licensing. And usually, what clients have always wanted to do is get more usage out of it as opposed to have some of their budget going towards the upfront build. So we will reduce some of the upfront fees, but I don't -- it hasn't happened yet, and we'll see kind of deal-by-deal, but how we shift that. On the other hand, getting the subscription and the usage and prioritizing that over the customization, I think, is better economics for the firm and allows us to deliver more value faster. Look, from an internal perspective, there's 2 major changes. Before this, when we would build the simulations, we would basically first model it in excel with some other software, and then we would move it back and forth between the Mumbai team and they would build a different version of it or an updated skin or something would go back and forth. That whole step is gone. So now the team is just coding or vibe coding and do stuff right in front of the client together with the client. There is no need to go back and forth with other teams. We'll go from 7-person team to 2-person teams in terms of the design. So it's a pretty big implication. Daniel Thorsson: Good. We have a few written questions from Oscar Ronnkvist, SEB as well. First one, did any of the pushed out revenues in Q2 become realized in Q3 in North America? Jessica Parisi: It's interesting, yes. And the win rates are growing, and we're celebrating all of those as well. So it hasn't been a -- Q3 in North America did not feel like, oh, thank goodness, all that stuff materialized from Q2. It's been a balanced feeling of the work that got pushed plus the new client and logos that have been coming in. So I don't have the exact percentage of revenue in the third quarter that was from the push. I can get back to you if you'd like. Daniel Thorsson: Fair enough. The other question, I think it's related to Johan's question first on increased investments in other markets in the quarter and how temporary they are. But Oscar's question here is, can we assume an increased margin ahead in other markets because of lower investments? Jessica Parisi: Yes. Yes. Yes, you should in the fourth quarter, both better margins and revenue growth. Daniel Thorsson: Yes. Okay. Fair. And then we have another question from the chat as well. License sales were down last year in Q4, 33% year-over-year. So you should meet quite low comps this year in Q4. Do you think license sales will be lower year-over-year again here in Q4? Or could they recover a bit? Jessica Parisi: There's one deal that we've been doing every year in the fourth quarter that I do not think we are going to do again. And that deal is about $3 million in revenue. And it's not that we're losing the client. It's just that they cannot make the economics work right now given the cost pressures that they're under. So we're going to evolve from that way of working with them to scoping each individual project now for time and materials and subscription and all of that individually. So yes, if you think about that, even though that's a different partnering model, if you think of that as license, you're going to see one more drop in the fourth quarter from that particular client. Daniel Thorsson: Okay. That's very clear. I'm trying to scroll through the chat here. I don't think there are any further questions actually, and we got questions from all analysts, I could see join the call and some of the audience. So thank you very much, Jessica, for the presentation, and have a good night sleep, and we will talk later today, Swedish time and tomorrow for you. Jessica Parisi: Super. Thank you. Daniel Thorsson: Thank you very much all for joining. Jessica Parisi: Bye-bye.
Iris Eveleigh: Hello, everyone, and welcome to our 9 months 2025 results call. Thank you for taking the time to join us today. I am here with our CFO, Nadia Jakobi, who will give you an update on our financials. As with every occasion, we will leave enough room at the end for your questions. With that, over to you, Nadia. Nadia Jakobi: Thank you, Iris, and a warm welcome to all of you from my side as well. Before I turn to our financials, I would like first to touch upon the latest regulatory developments in Germany. The German regulator has announced the start of the final consultation process concerning the framework concept with a committee of representatives from regional regulatory authorities. Compared to its draft proposals published in the summer, the regulator has introduced amendments to certain items, most of which affect smaller network operators. The main aspect for us is that the regulator intends to maintain the 7-year average approach for determining the cost of debt on the existing asset base without annual adjustments. This fails to consider that maturing debt must be refinanced at current market rates. The proposed higher weighting of years with higher investment is a step in the right direction, but it does not solve the problem as the average would still be below current market rates. Consequently, the current draft of the framework does not fairly reflect grid operators' financing cost. Allowing for an annual adjustment would have ensured a more appropriate reflection of actual market developments for both customers and grid operators. The proposals are still in draft format, and so far, we have only seen a brief BNetzA release. However, the regulator has indicated that the current version is close to final and plans to keep its year-end target for finalizing the framework and the methodology on capital returns and efficiency benchmarking. However, the final values for return on capital will only be determined much later in the process between 2026 and 2028 as was the case for former regulatory periods. Given the status and recent announcement of the regulator, specifically for the cost of debt treatment, the uncertainties regarding RP5 are greater than we had expected by now. We would have expected to be able to narrow down the ranges for capital remuneration further. As we have always said, ultimately, the RP5 proposals as a whole must be sufficiently attractive to promote investments. In his latest announcement, the regulator stated that the new Nest proposals will increase the revenue cap by 1.4% or EUR 1.3 billion for power DSOs during the next regulatory period. The regulator must now move from words to actions as we do not see the necessary increase of the regulators' returns so far in the publications. In view of the enormous investment needed for a successful energy transition, we, however, remain confident that the final result will deliver the outcome needed. But we would have expected to have more clarity already at this first stage of the process to invest further investments in detail. We will continue to advocate for an internationally competitive market-based regulatory framework that supports a successful energy transition in Germany. At the same time, we remain committed to our value creation promise and will only invest provided regulatory returns create value for our shareholders. I'm sure we will continue this topic in our Q&A, but let me now turn to our financial results for the first 9 months. There are 3 key messages I want to highlight. First, in the first 9 months of the year, we achieved an adjusted EBITDA of EUR 7.4 billion and an adjusted net income of EUR 2.3 billion. This represents a year-over-year increase of 10% and 4%, respectively. Based on our full year guidance, that means that we have achieved roughly 76% of our adjusted EBITDA and 78% of adjusted net income at group level. Second, our investment-driven earnings growth and strong operational execution remain the key driver of our sustainable growth. Our planned investments have developed well with a year-over-year increase of 8% at group level. The main share comes from our Energy Networks business. This shows that our long-term procurement strategy, including our highly skilled workforce, enables us to successfully execute our networks investment plan. And third, based on our 9 months economic net debt outturn, we expect our debt factor to come in at around 4.5x economic net debt to adjusted EBITDA for the full year 2025. Our balance sheet continues to provide a strong foundation for our investment plans. Let us now move on to the details of our 9 months year-over-year adjusted EBITDA development. The increase in EBITDA was largely driven by our Energy Networks business, reflecting accelerated investments in our regulated asset base across our regions. We continue to see a substantial contribution to our earnings growth coming from value-neutral timing effects. In Germany, the positive timing effects were driven by increased volumes and lower redispatch expenses, primarily during the first half of this year. In Southeastern Europe, we continue to see additional network loss recoveries and volume effects. We don't expect significant impacts from value-neutral timing effect in Q4 2025. Turning now to our Energy Infrastructure Solutions business. EBITDA growth was driven by higher volumes due to normalized operations and weather compared to last year. On top, we saw business growth from new projects coming online and increased smart metering installations in the U.K. Our Energy Retail business delivered in line with our expectations. The usual operational year-over-year development in Germany is masked by phasing effects from true-ups for volume and price assumptions and by restructuring provisions in connection with our efficiency programs. However, the decline is partially balanced by temporary price effects from earlier this year. As already communicated in our H1 call, the earnings development in the U.K. continued as anticipated and is already fully reflected in our guidance. In our U.K. B2C customer segment, we continue to see customers switching from SVT tariffs to fixed-term tariffs. In our U.K. B2B business, contracts from previous years continued to roll off. Our 9 months 2025 adjusted net income came in at around EUR 2.3 billion. The conversion of the operational growth into the bottom line came in as expected. We observed slightly higher depreciation costs, driven by increased digital investments with shorter useful lives. Interest costs rose due to the higher coupons compared to maturing debt as well as higher debt levels relative to prior years. In addition, the positive value-neutral timing effects mainly came from our Southeastern Europe network business, which has a higher minority interest. Let us now move on to our economic net debt development. The execution of our investment program remains strong. In our Energy Networks business, we saw a 15% increase in year-over-year investments. Our group CapEx fill rate now stands at around 60%, which is in line with our typical 9 months level. Our economic net debt improved by roughly EUR 2 billion in the third quarter. The main driver was a strong seasonal operational cash flow. In addition, there was a positive structural effect of around EUR 700 million coming from the deconsolidation of one of our regional utilities participation in Germany NEW AG at the end of September 2025. In the third quarter, we also benefited from a tailwind in pension obligations, which decreased by a mid-triple-digit million euro amount, mainly due to the rising interest rates between the end of Q2 and Q3. We have also continued to streamline our portfolio as part of our discretionary EUR 2 billion disposal program. Most recently, we announced that we have signed an agreement to divest our Gas Networks business in Czechia. This step enables us to continue pursuing our ambitious growth and investment goals. In summary, our robust E&D trajectory continues to support our confidence in maintaining strong balance sheet flexibility to finance our ongoing investment program. At year-end, we expect our debt factor to come in at around 4.5x economic net debt to adjusted EBITDA based on the current interest rate environment. Finally, I would like to conclude today's presentation with my key takeaways and outlook. First, we have delivered strong 9 months group results and are well on track with our investment ramp-up. Our strong balance sheet provides a solid foundation for continued organic growth. Second, on our outlook. Our 9-month performance supports our 2025 earnings expectations. In our Energy Networks segment, we continue to expect to reach the upper end of the guidance range, driven by value-neutral timing effects. This also positions us at the upper end of our group EBITDA guidance range for the full year 2025. For our adjusted net income, we still expect to land comfortably within our guidance range. With that, we fully confirm our full year 2025 guidance and 2028 outlook, including our dividend policy. With that, back to you, Iris, for the Q&A. Iris Eveleigh: Thank you, Nadia. And with that, we will start our Q&A session. [Operator Instructions] And we will start today's call with a question from Harry Wyburd from Exane. Harry Wyburd: So I'll keep my regulation too. So firstly, can I just dig into some of the comments you made on regulation. So noted on the point on cost of debt allowances and your disappointment with that, but you also mentioned that you're confident you will achieve in the end, an agreement that works for you. And you also mentioned you are confident that you are -- or more confident that you'll get the consultation documents by the end of this year. Can you just tell us what a good outcome would look like in those documents you're expecting by the end of the year? It sounds like you're less optimistic about cost of debt allowances. What else could offset that potentially? And what is your latest thinking on where you think operating cost allowances will come out because a few of your criticisms of the regulation were centered on cost allowances. And then the second one is on consensus for next year. Given that next year, you will no longer be reporting timing effects in your headline earnings. Are you comfortable with the current consensus for next year, which I think stands at around EUR 1.08. If you could give us a flavor of how you're feeling on that, that would be very useful. Nadia Jakobi: Harry, thanks for the questions. I think on the question on outlook 2026, we give the outlook for 2026 at our full year results for 2025. And I will now not give any glimpse into our 2026 numbers. But just, of course, we are, of course, following the consensus always very carefully. So coming to the first question. So first of all, the regulator has announced that he sees the draft as largely final, and he keeps the year-end time line for the framework for cost of capital and efficiency. Compared to the summer draft, the regulator added amendments and improvements, but those were mainly affecting the smaller DSOs. You might have seen that the simplified that -- also the DSO and the simplified procedure can now get the OpEx factor. For us, as you highlighted, the key negative point that we have seen so far that the 7-year average without dynamic adjustment is still kept. And honestly, also the weighted average that has now been introduced is not helping that much because we have been also ramping up our investments faster than the industry because we got our ducks in the row on supply chain at a faster pace to enable the energy transition. And as you know, we are sort of connecting 80% of all onshore wind, for example. That's why we have been ramping up far faster than some of the smaller competitors. So the latest statement on this cost of debt rather confirms a bit of unease that we have highlighted in our H1 call. But we, of course, continue to advocate for competitive and market-based regulatory framework. So I don't see that there will be now massive changes compared on this cost of debt discussion until the end of the year. But of course, the overall regulatory package must be attractive enough to encourage further investments. So if you ask me, the problem is, at this point in time, we only have seen the press statements of the regulator. In the press statements, the regulator has clearly articulated that he sees that the revenues will structurally increase by 1.4%. But however, we haven't seen that now in the publications. And also, we don't have the final draft in our hands. That's why it's now very difficult for me to sort of point you to the 1, 2, 3 positives in the publications, which might come until the end of the year because I currently don't have more information than is publicly available. On operating cost allowance, maybe just one word. Of course, operating cost allowances, that was always clear that everything that is -- in regard to efficiency benchmarking and operating cost allowances, that was always clear that this will only come at a later point in time in the regulatory period. Iris Eveleigh: We move then on to the next question. The next question comes from Deepa from Bernstein. Deepa Venkateswaran: So I think my question is actually continuing on the theme of regulation, but maybe a bit more specific, Nadia, based on your best understanding from your regulatory team. So the new period starts in 2029. So are we talking about like a weighted average cost of debt from -- averaging period from '21 to '28. That number is calculated. It's then fixed and just applied for all the -- I think it's going to be only one RAB, right? So for the opening RAB, new investments, et cetera? Or is there at least going to be some level of dynamism for the new CapEx that's added on from 2029 onwards? So that's my first question. Second question is a bit related. Obviously, when you will be presenting your full year results in '26, you're going to give us guidance for '26, but there's also an expectation that maybe you will roll your plan forward and give us some updates on CapEx. So my question really is, do you think you and the Board will have enough certainty about the investment conditions by Feb '26 that will allow you to make a decision on whether to keep the CapEx numbers as they are or use some of that headroom in your balance sheet? Yes. So those are the two questions. Nadia Jakobi: So Deepa, you're touching upon some very relevant points. So we -- so first of all, to clarify the second part of your first question, it is very clear from the current proposals that for the new investments that start from 2027, there will be this dynamic adjustment in the cost of debt that we already have in this fourth regulatory period. So that's something which is continued and it's also then working that we get our actual financing cost reimbursed. Then when it comes to the currently existing asset base, like you highlighted, it is a 7-year average, and this is then fixed and not dynamically annually adjusted for the maturing debt. And what we don't know at this point in time is what years are part of the time series. And that is, of course, very relevant because, as you know, at the beginning of the '20s, we still had this very low interest rate years, and it is very fundamental, which years are being part of this 7-year average. And that is something we don't know, and it is also not clear if we know at the end of the year. And this also applies, for example, for the risk-free rate that is for the new investments as part of the cost of equity determination. We also don't know which years will be included in that calculation and some of the other elements that are part of the cost of equity for sort of the new investments. So that then also leads me to the second part of your question. As we highlighted, we would have expected to have more clarity around the methodology at this point in time to be able to narrow down the corridor of potential outcomes. I think that is what I've been also saying the last couple of quarters that the methodology and that methodology, of course, includes also what kind of years are included, et cetera, would help us to narrow down the corridor of potential outcomes. And what I know right now, that has become less likely at this point in time. So when it now comes to what we will do in our full year, the regulator has clearly articulated and signaled that we will have higher revenues, but we haven't seen it yet. So that's why we will first now wait for the proposals to come. Currently, that's a closed shop exercise within the regulatory authorities and the regional authorities. And once we have now then assessed the final proposals, we will then make up our base case, and we will update you accordingly. But for now, it's too early to comment on our full year communication. Iris Eveleigh: With that, we get to the next question, which comes from Peter Bisztyga from BofA. Peter Bisztyga: So sorry to kind of labor the point on regulation. But what I'm sort of hearing is that the cost of debt aspect isn't adequate and it's probably not going to change very much. You've been sort of clear that you want 8% plus ROE. And if you look at the methodology to date, I don't think there's a chance that you're going to get anywhere near that. Dispatch costs are still included in the efficiency benchmarking. So there's a whole list of stuff that you've been quite explicit about the fact that you don't like. And the revenue increase, the sort of 1%, whatever it is, just isn't very much in the grand scheme of things. So how can this get anywhere near to being a sort of sufficient overall package based on what you have said are your kind of minimum requirements? So that's my main question. And then maybe just one -- just on a slightly different topic. Your customer numbers in Germany and the U.K. In Germany, you sort of lost quite a few in the first half, but it seems to have now stabilized. And in the U.K., you're sort of losing a few -- 100,000 or so customers this quarter despite, I think, sort of quite aggressive pricing. So I just wondered if you could comment on what dynamics you're seeing in those 2 retail markets, please? Nadia Jakobi: Yes. So let me start with the first part of the question. So maybe starting with the last comment. The revenue increase of 1.4% is only the structural elements, which would lead to this 1.4%. All the market-related elements, i.e., sort of higher interest rates, both affecting sort of cost of debt and cost of equity and of course, all the increase about sort of more investments, that is not included in this 1.4%. But it is just sort of structurally making it more attractive that is included in that. Second part, the determination of the new regulatory period, which starts in 2029 has always had like 4 years. So '25, '26, '27, '28. So what we are now saying in this first part, what we see up in 2025 and what we would have hoped for to get clarity in this first year and the one-off of the next regulatory period, this is disappointing from what we have known right now. But of course, we will have 3 more years with all the individual determinations to come. And with all the investment needs actually building up, we are still confident that the regulator will see the need for investment and will also then improve on that. To highlight one topic you have now set around cost of debt, we discussed that. As a positive, which is currently not clarified at all is the OpEx factor. This has been just laid out without making it any more concrete, which should clearly be a positive. You mentioned the redispatch cost. We haven't so far seen anything and also no communication on how the efficiency framework and the benchmarking is going to work. And there, we also still see clearly the potential for improvements. However, so far, we haven't seen it in any of the publications. And so -- as I said in my speech, the regulator now just after he had his words that there will be structural improvements, we will also now see that is actually the actions are also coming. And customer numbers. So customer numbers, yes. So I think we covered the drop in customer numbers in the first half of the year. And we highlighted in the last call that we are targeting around 47 million customers for our overall customer base, and that is absolutely unchanged. We are pursuing value over volume strategy. So clearly, it's not only the customer numbers, but also the value per customer is what is relevant for us. So we are absolutely sort of keeping to our guidance for the energy retail business for 2025 with a target range of EUR 1.6 billion to EUR 1.8 billion, and that is fully confirmed. And we have been also saying, I think if you remember, as part of our Q1 call that some of the customer acquisition campaigns will be rather tilted to the back end of the year and some of that, you are also now seeing in the market. Iris Eveleigh: With that, we go on to Piotr from Citi. Piotr Dzieciolowski: I have two questions, please. So the first one on this EUR 5 billion to EUR 10 billion extra CapEx headroom that you previously discussed. So assuming the German regulator doesn't provide you the required package, is it possible that you redirect this potentially into other markets? Essentially, what I'm trying to get is, shall we think about this EUR 5 billion to EUR 10 billion that is more likely or not that it will come and be spent somewhere within your structure into different regions? So that's question number one. And the second question I have on the supply margins outlook into the next year. What is the procurement prices of a commodity component doing on your books? Is it -- should the customers expect declining prices or flat prices? And what that -- does it have any implication on the supply margin you can generate? Nadia Jakobi: Yes. So on this EUR 5 billion to EUR 10 billion headroom that we have. And I think if you remember, Leo, I think, gave some highlights about where we're investing in our international networks business in the H1 call. And there is very clearly also a need to grow in other regions because particularly also in some of the other regions we are operating in, we see a higher economic growth than we actually see in Germany. And there's quite a lot of connection requests also for industrial customers. I would just point you to some of the examples that Leo has given as part of his speech in H1. So there is clearly the need for growth also in our international and European businesses. Second point, in Germany, there is this clear investment need. We're also already -- at this moment, our demands and needs for investment by far exceed what we can actually include in our plan. And that's why we are saying, as I already highlighted to the question of Peter, that we say because the investment needs are there that eventually we will get a good framework in Germany. So I guess, as you indicated, this EUR 5 billion to EUR 10 billion in headroom clearly earmarked for organic growth in our business. Second question was regarding the supply margins. Yes, procurement strategy is, of course, more commercially sensitive topic that I will not now share with the whole investor community. I guess, what you know that some of the prices in the U.K., the procurement strategy can be very easily followed by the price cap regulation. So I would point you to that. And in Germany, except from the commodity element, you, of course, know that we have seen quite some reductions in network grid fees with the subsidization of the German government of the TSO grid fees by EUR 6.5 billion, which will now also feed through into the tariffs and the same applies to the cancellation of some gas levy. But I guess that would be what I can sort of share with you on this point. So clearly, some elements where affordability concerns -- where we will see that some of the affordability concern will be dampened, particularly in our biggest market, largest market, Germany. Iris Eveleigh: And then we have another question from Louis Boujard from ODDO. Louis Boujard: Maybe two on my side. Maybe the first one would be regarding the timing actually for the new investment plan that you expected. We understand that indeed, the debt factor is not at the level that you wanted, that there is some uncertainty still in the OpEx and in the framework that is currently under discussion. What does that mean if you're not able by February to update and to increase your CapEx plan? Does that mean that it's going to be over? Or does it mean that eventually there is other milestones that you could foresee in the future in the next quarters after February on which we could rely on in order to have a better visibility and better grip regarding the potential upside into the CapEx plan? And also as a side comment on this question, do you, at the same time, see potential for additional investments in digitalization, smart meters, et cetera, that would enable you eventually to grab additional returns on the networks without relying too much into the regulatory framework? That would be -- sorry, the first question, a bit long. Second one would be much shorter. On the Retail segment, our EBITDA declined by 18% on the 9 months. Well, we know that there is some normalization effect, but could you eventually elaborate on a geographical standpoint, what would be and if any corrective measures might be needed in certain geographies on which eventually the drop is a bit larger than what you could have anticipated previously? Nadia Jakobi: Okay. So let me come first to your first question. So additional smart meter investments is always a good idea. So particularly, we are investing in smart meters in the U.K. and Germany. And I think we have been the ones who've been always fulfilling their targets. In Germany, we have reached a 20% increase. But of course, smart meter investments is something which we can do, but is not, of course, in any size equivalent to the RAB investments that we do. When it comes to the timing, I would need to say that we don't want to speculate now. We have so far only got sort of what was uploaded onto the website of BNetzA and one interview of Handelsblatt of Mr. Muller. We have this clear announcement that we will see increases or improvements to the regulatory on top of the market-driven improvements. And that's why I don't want to speculate now what we will do. We will first make up our mind what we will do for the full year 2025 announcements. So when it comes to the Q2, so the retail business, yes, you're right. As I've been highlighting, we are sort of EUR 300 million below last year in 9 months. We achieved EUR 1.4 billion, and we are sort of following the normal seasonal pattern and are on track for our full year guidance. Q3 stand-alone EBITDA was EUR 120 million. That was down from last year. That was mainly due to phasing. We actually put in some cost provisions for restructuring and some normalization effects across the markets. So we have been really seeing only now some shifts between Q3 and Q4. Overall, the H2 results are very much in line with what we have been also seeing in former H2s because you need to bear in mind that H1 usually is the stronger of the 2 halves of the year for us. Yes. I think particularly Germany is a bit hard to interpret because last year, we had the positive true-ups from the reconciliation between actual and planned consumption in Q3. Now we will rather see some true-ups in Q4. And we are really managing also the overall -- we are managing the results in the retail business on a full year basis and not so much on a quarter-by-quarter basis. Iris Eveleigh: And with that, we come already to our last question for today, which comes from Ahmed from Jefferies. Ahmed Farman: Nadia, it sounds like from your comments that there is still quite a bit of a gap on key parameters, regulatory parameters between E.ON's position and whatever visibility that you get from the regulator. But then you've also referenced that you think in the end, you sort of feel that there will be the 2 sites will sort of come together. Could you just talk a little bit about the process? So if we get the consultation documents by year-end, and there is still a substantial gap between E.ON's position and what it sees as a regulatory proposal, what recourse measures do you have? Are you able to challenge it? Is there a way to sort of take it to an appeal? And how long could that process be? So I just want to understand a little bit more how do we -- what could be the process from there onwards? That's my number one question. And sorry, my second question is, could you give us some sense of how significant the changes could be to the cost outperformance methodology? Because my understanding is that is quite an important element in terms of when we think about sort of the German regulation. Nadia Jakobi: So Ahmed, as I highlighted earlier, at this point in time, we have only sort of the announcements from the regulator about the draft proposals that has been sent to the final consultation of the committee of regional regulators. And we don't have that yet. So for us, sort of the first step would be that we assess these publications once we have made them available. And then once we have fully analyzed that, we will assess our options. And as always, we also assess potential legal options that we have. But we will, of course, only do that once we have the information in place. And as the regulator has highlighted, they deem that these drafts are largely final and that they will keep the year-end time line for the framework. So we are pretty sure that we will have them in the next couple of weeks. The final decisions on the cost of debt and cost of equity are expected between 2026 and 2028, as I highlighted, and the efficiency values for RP5 power will be defined in 2028. So you're right. To summarize it again, you're right regarding the gap to our position versus the regulator. But keep in mind, it's now the framework and determination will only happen over the next 2 to 3 years. Yes. Ahmed Farman: Very clear. Nadia Jakobi: And then the second question, when it comes to outperformance, it is an incentive regulation that we have and it's a potential for outperformance. I highlighted it earlier, and there's now a new element that is also coming in. So we have got the benchmarking and sort of the efficiency values that we get is also very clearly determining what kind of outperformance that we have. That is something which we will all know at a very later point in the process. Then the OpEx adjustment factor, we cannot really tell. I guess, on the OpEx adjustment factor, I would hope that we get some more clarification in 2026. There was a bit more push down the line. Sort of even -- currently, we don't even know what the methodology about that is. But okay, what the OpEx factor will actually mean for us, we would also only know at the back end before we actually get into the regulatory period. I guess that's all I can say on the outperformance right now. Of course, there's always a link between outperformance, OpEx factor and all the other return elements. And as we say, for us, the overall package regarding all elements is actually what counts. In this regulatory period that we are currently in, we managed to achieve a value creation spread of 150 to 200 basis points over all our Energy Networks businesses. And also our German business is living up to this value creation spread. And that's, of course, our ambition that -- and our goal to also achieve this value creation spread in the future. Iris Eveleigh: And with that, we come to the end of our 9 months results call. Thank you very much, everyone. And if there are any follow-up questions or you would like to go into more details on the one or the other point, the IR team is happy to take your questions later. Thank you very much for dialing in and speak soon. Bye-bye, everyone. Nadia Jakobi: Bye-bye. Thank you.
Operator: Greetings, and welcome to the Mastech Digital, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jenna Lacey, Manager of Legal Affairs for Mastech Digital. Thank you. You may begin. Jennifer Lacey: Thank you, operator, and welcome to Mastech Digital's Third Quarter 2025 Conference Call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastechdigital.com. With me on the call today are Nirav Patel, Mastech Digital's Chief Executive Officer; and Kannan Sugantharaman, our Chief Financial and Operations Officer. I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements. These forward-looking statements include our financial growth and liquidity projections as well as statements about our plans, strategies, intentions and beliefs concerning the business, cash flows, costs and the markets in which we operate. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from those forward-looking statements, including those listed in the company's 2024 annual report on Form 10-K filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis. Specifically, we will provide non-GAAP net income and non-GAAP diluted earnings per share data, which we believe will provide greater transparency with respect to the key metrics used by management in operating the business. Reconciliations of these non-GAAP financial measures to their comparable GAAP measures are included in our earnings announcement, which can be obtained from our website at www.mastechdigital.com. As a reminder, we will not be providing guidance during this call nor will we provide guidance in any subsequent one-on-one meetings or calls. I will now turn the call over to Nirav for his comments. Nirav Patel: Thanks, Jenna. Good morning, everyone. We appreciate you joining us for our third quarter earnings call. Let me begin by reaffirming the priorities I have set as I began my tenure as CEO of Mastech Digital earlier this year. Our focus remains clear, delivering long-term sustainable growth, unlocking substantial value from our operating model and investing in building truly differentiated capabilities to win in the future. A few quarters ago, we initiated a comprehensive review of our long-term strategy. That process is now well underway, and we believe it will help us sharpen our priorities while aligning our structure and investments to accelerate our transformation agenda. Our aim is unchanged from my first remarks as CEO, to be the trusted partner that helps enterprises reimagine themselves and transition into AI-first organizations. The business environment continues to evolve as ongoing macroeconomic and geopolitical uncertainties drive a cautious demand environment. Even as interest in modernization and AI adoption continues to grow, we find customers continue to look for a more supportive market environment before accelerating their spend decisions. Amid ongoing market challenges, we remain focused on controlling what we can and positioning the company for long-term growth. To that end, I'm very pleased to announce the launch of our EDGE program, which stands for Efficiencies Driving Growth and Expansion, a structured transformation initiative aimed at optimizing our organization and operating model. EDGE focuses on driving higher revenue quality, process simplification and automation and disciplined spend management to unlock capacity for reinvestment in strategic growth areas. We have seen these actions already yield improved operational efficiency and sharper resource alignment. By channeling these gains into capability building and market expansion, we believe EDGE will strengthen our competitive position and fuel sustainable value creation as we become an AI-first organization ourselves. Kannan will discuss the EDGE program in greater detail in his remarks, but I'm excited by our early progress, and I'm confident that we have the right strategy in place to build upon our already strong foundation while unlocking new opportunities and maintaining Mastech Digital's position as a leading partner to Global 2000 enterprise customers that are transitioning into AI-first organizations. We look forward to providing further updates in the days ahead. We are also particularly proud of the progress we are making in attracting top leadership talent with established track records. These leaders bring distinguished expertise in their fields, and we are seeing that they are the right catalyst for our growth agenda. Just as important, we believe we are building the leadership foundation that company needs to scale to lead with sharper operating rigor, deeper domain and AI capabilities and a culture of accountability and customer impact. While the quarter's performance reflects a measured demand environment, a view of where the market has been, our focus remains firmly on the future. We believe the steps we are taking now will strengthen our base, make us more competitive and set us up for sustainable growth in the years ahead. Turning now to our segment results. In our IT Staffing Services segment, revenues during the quarter declined 4.4% year-over-year. Our continued focus on disciplined pricing and emphasis on higher-value engagements delivered Mastech's record gross margins of 24.8% and all-time high average bill rates for Mastech at $86.60, despite billable consultant headcount reducing by 11.6% year-over-year. While overall client activity continues to trend below prior year levels, this is consistent with broader market conditions. We believe our margin performance and improved bill rates underscore the effectiveness of our execution strategy and operational rigor in a measured demand environment. Our Data and Analytics Services segment revenues for the third quarter declined 15.8% year-over-year, reflecting a challenging comparison against strong results in the second half of 2024. New bookings activity during the quarter remained subdued at $6.1 million, which was a factor of P&L pressures at some of our key accounts and delayed decision-making. We continue to focus on leveraging our basket of offerings across our portfolio of customers. While near-term visibility remains limited, we continue to believe that long-term demand drivers underpinning this segment remain firmly intact. We are focused on aligning our delivery capabilities and go-to-market approach to capture growth opportunities as client spending patterns normalize. As I noted when I assumed this role, growth is only meaningful when it is sustainable and profitable. We aim to continue to drive efficiency, operate with accountability and ensure every investment and position we take creates lasting value for our customers, employees and shareholders. With that, I will hand it over to Kannan for a deeper dive into our financial performance during the third quarter. Kannan Sugantharaman: Thanks, Nirav. Good morning, everyone. I will now discuss our third quarter financial results. We delivered third quarter consolidated revenue of $48.5 million, a year-over-year decrease of 6.4% as compared to the prior year period. Our IT Staffing Services segment delivered revenue of $40.6 million during the third quarter or a 4.4% lower than the prior year period. As Nirav noted, our focus on revenue quality resulted in an all-time high bill rate for Mastech and Mastech record gross margins in this segment, though our billable consultant base declined by 124 consultants since the third quarter of 2024, 11.6% decline. Our Data and Analytics Services segment reported a revenue of $7.9 million during the third quarter, a decrease of 15.8% as compared to the prior year period. In addition, third quarter bookings totaled $6.1 million as compared to bookings of $11.1 million in the prior year period. Third quarter gross profit of $13.5 million was a decrease of 8.9% as compared to the prior year period. Gross margins declined by 70 basis points over the third quarter of 2024, largely driven by decreases in revenue in our Data and Analytics Services segment. As Nirav mentioned, during the third quarter, we launched the EDGE program, which stands for Efficiencies Driving Growth and Expansion, a structured transformation initiative aimed at optimizing our organization and operating model. Key components of this program include cost diagnostics, process simplification, operational excellence initiatives, vendor and contract rationalization, zero-based budgeting and performance-linked spend governance. Our Q1 initiative to transition the company's Finance & Accounting functions to India is part of this program as well. Together, these measures are intended to drive higher revenue quality, process simplification and automation and disciplined spend management to unlock capacity for investment in strategic growth areas. Early progress under EDGE has resulted and already resulted in greater operational efficiency and improved resource alignment across the organization. This is reflected in SG&A as a percentage of revenue of 26.1% during the third quarter of 2025, a 280 basis point decrease as compared to 28.9% during the fourth quarter of 2024 and non-GAAP operating margin of 8.7% during the third quarter of 2025, a 190 basis point increase as compared to 6.8% during the fourth quarter of 2024. Importantly, the efficiencies generated through EDGE are being redeployed to strengthen our leadership and talent base, expanded competencies and accelerate market growth initiatives. While we expect to realize short-term benefits from these efforts, our near-term objective is to reinvest these gains to strengthen our competitive position, getting ahead of emerging opportunities and driving sustainable value creation for our shareholders. Third quarter GAAP net income was $0.9 million or $0.08 per diluted share compared to a net income of $1.9 million, $0.16 per diluted share in the prior year period. As we had previously discussed, we expected to incur transition costs that would impact near-term reported financials. We incurred $2 million in severance and Finance & Accounting transition costs during the third quarter of 2025 with no comparable costs during the third quarter of 2024, which are reflected in the year-over-year decline in GAAP net income. Non-GAAP net income was $3.5 million or $0.29 per diluted share compared to $2.8 million or $0.23 per diluted share in the prior year period. SG&A expense items not included in non-GAAP financial measures net of tax benefits are detailed in our third quarter 2025 earnings release for all periods presented, which are available on our website. During the third quarter of 2025, our liquidity and overall financial position remained solid. On September 30, 2025, we had $32.7 million cash balances on hand, no bank debt outstanding and cash available of $20.8 million under our revolving credit facility. Our Days Sales Outstanding measurement on September 30, 2025, totaled 55 days, which is well within our target range and in line with our DSO measurement a year ago. Finally, during the third quarter, we repurchased approximately 192,000 shares of Mastech Digital common stock at an average price of $7.68 for a total investment of approximately $1.5 million. Of the shares repurchased in the third quarter, 138,500 shares were purchased in a block buy from a long-term investor and approximately 52,000 shares were repurchased under company's Rule 10b5-1 plan. At the end of third quarter, we had approximately 214,000 shares available from our Board authorized program for repurchases. We plan to remain opportunistic with our share repurchase program to return capital and drive value for our shareholders. Operator, this concludes our prepared remarks. We will now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Lisa Thompson with Zacks Investment Research. Lisa Thompson: I have a few questions on things you said. First off, on the buyback since we were just talking about it, are you going to increase that because you're almost done with it? Kannan Sugantharaman: Lisa, this is Kannan here. Mastech Digital will continue its buyback efforts in Q4, including giving consideration to entering into another Rule 10b5-1 plan. We continue to look into opportunities, and we do plan to take appropriate action as need be. We still have 214,000 that is approved by the Board. So while the plan is active, we will do that, which is appropriate depending on what we feel at that point in time. But we largely believe that it is a program that will -- is worth continuing though Lisa. Lisa Thompson: Okay. Talking about consultants, you're getting more money per consultant. Is that a plan of yours to just kind of get high-paid people? Are the consultant numbers going to go up or down going forward? Do you have an idea? Kannan Sugantharaman: Let me address that in 2 ways. Of course, it is pretty indicative of the 2 things that drove record margins, right? One was, of course, the bill rate, the mix and the discipline. Our average bill rates did go up. It was 83.6% and today, it stands at 86.6%, about 4% more. The focus is towards driving higher-value accounts and work while our account mix continues to shift towards complex higher-skilled roles and our operational rigor remains in place. So the intention is to be at this point, doing higher-skilled roles and shift towards more complex work, especially in the data and the AI space. Lisa Thompson: So do you think the consultant number will be up at the end of this quarter? Kannan Sugantharaman: Yes. It was -- we closed at 947 billable consultants in the IT Staffing Services, which was down from 980 as of June 2025. Lisa Thompson: Right. And in Q4, is that going to go up? Kannan Sugantharaman: As of October, we are at 933 and that's the count that we are tracking to at this point in time, Lisa. Lisa Thompson: Okay. Great. And I was -- could you explain EDGE a little bit more? I mean I think we can all understand moving Accounting & Finance to India as a tangible activity. Can you talk about what other things you are doing? And then how much more savings can you squeeze out of the SG&A line? Kannan Sugantharaman: Let me explain the context of EDGE, Lisa, right? And our EDGE program, which is Efficiencies Driving Growth and Expansion is focused on, one, driving higher quality of revenue. We just spoke about that, process simplification and automation, and disciplined spend management where we unlock capacity to reinvest in our strategic growth areas. It has 2 tracks, right? One is the efficiency track to free up capacity and the other one is the growth track to reinvest. Our efficiency, we are focused on bottoms-up cost diagnostics, process simplification, operational excellence initiatives, vendor and contract rationalization, zero-based budgeting, spend governance that is linking itself to performance. And on growth, it is towards enhancing talent, competency build and market expansion. So we are seeing multiple layers playing a part in the transformation journey. And we are really hoping that all of these changes fill in seamlessly as we look to reinvest and reorient ourselves for growth, Lisa. Lisa Thompson: Okay. And how much more cost savings do you think you can get? Like what's your goal? Kannan Sugantharaman: Yes. So if you really look at our SG&A at this point in time, we do believe while we are at a space where it is much lower than what we had historically incurred, you will also see a fair bit of uptick in the investments that we are bringing to bear to reorient ourselves from a growth standpoint. So the idea of EDGE is largely acting ahead and making sure we have the dollars for that reinvestment and reorientation to happen. We believe that, that investment clip will start coming in from the first quarter of 2026, Lisa. Lisa Thompson: Great. Looks like you've made a lot of progress. Kannan Sugantharaman: Thank you, Lisa. Operator: Our next question comes from the line of Marc Riddick with Sidoti. Marc Riddick: So I wanted to sort of touch on with EDGE. Can you talk a little bit about maybe the timing as to the beginning of the plan maybe from the strategic process of putting it together and then the beginning of the implementation. Is that something that has -- that was taking place throughout the entire quarter? Or how should we think about the timing of how that layered in? Kannan Sugantharaman: You are referring to the EDGE program then? Marc Riddick: Yes. Kannan Sugantharaman: Yes. So yes, it was programmatic, right? And if you remember back in second quarter when Nirav did speak about the fact that we want to focus and develop our strategic intent and initiatives, we pretty much started thinking. And of course, the thinking on EDGE started in Q1 when we wanted to move Finance & Accounting into India, but that was one part of the overall program. But in Q2, we got a lot more focused on making sure that we do 2 things. While on one end, we are looking to reorient ourselves to growth and making sure we make higher investments that is required from meeting our strategy. The other end was to obviously optimize and use that as our source to reinvest back into our business. So yes. So that was the thinking. So it all started in Q2. The idea was to make sure that we keep this long-term. EDGE is not a short-term program. It is an ongoing program where we continue to be very mindful in the way we spend, bringing in the appropriate spend governance and operational rigor and making sure that we do our appropriate benchmarks as we start rationalizing on an ongoing basis. That was the thinking, Marc. Marc Riddick: Okay. Okay. Excellent. And then maybe you could talk a little bit about the -- with the Finance & Accounting transition expense and severance that was in 3Q. I know you don't guide, but I was sort of curious as to how we should think about what level we're looking at or additional levels of expense that would flow into the fourth quarter? Or is there sort of a timing mechanism we should be thinking about additional expenses there? Kannan Sugantharaman: Marc, we are sticking to the original timing that we had planned for and the cost will be in about the similar range as well. So we do not expect it to go beyond what has already been communicated and it's part of our 10-Q as well. And from a timing standpoint, we should largely be done by Q4. Marc Riddick: Okay. Okay. Great. And then maybe shifting gears over to the bill rate growth drivers. I was wondering, could you talk a little bit about the pricing dynamic that you're seeing? Certainly it is understandable as far as client demand levels from a macroeconomic standpoint. But maybe you could talk a little bit about sort of what you're seeing as far as year-over-year pricing trends and to what extent revenue mix shift is playing into the benefit of the bill rate? Kannan Sugantharaman: Right. And as I had stated, the average bill rate same time last year was 83.6%, Marc. And today, it stands at 86.6%, which is about 4% of an uplift. The focus over the last 2 quarters has been towards focusing on Data & Analytics, specifically high-value accounts and high-value work for that matter. And given that focus of ours, our account mix continues to shift towards more complex work, higher-skilled roles and pretty much putting that rigor in place. So that is going to be our focus going forward. Our focus is going to be largely on the quality of revenue that we want to drive and improve our margins. As you would see on the gross margin level, there is a fab uptick on the -- from an IT Staffing standpoint, and that will continue to be our rigor going forward, Marc. Marc Riddick: Okay. And then I guess last one for me. Can you talk a little bit about the -- you touched on some of the AI-driven efforts. And maybe you could talk a little bit about some of the drivers that are maybe gaining greater traction here in the near term vis-a-vis some of the other opportunities that you see in '26 and beyond? Just maybe sort of -- are there any particular puts and takes or maybe even differentiation in client vertical behavior that we should be aware of? Nirav Patel: Yes, sure. Marc, this is Nirav here, right? Let me answer that question. So first of all, look, I think directionally, it's very clear. The modernization efforts across many of our organizations are continuing to accelerate and push as much as they can given the softer market environment. I think -- but the client continues to be -- our client -- our existing customers continue to really have an exciting outlook in terms of where they want to really think about their modernization. From our standpoint, we think about our Data & Analytics Services business, right? It focuses on 3 priority areas where we think are very fundamental, which will demand a significant amount of our, what I call our capability building. One is data modernization. The clients continue to like think about getting their data ready for AI and how they can really lay what I call a strong data foundation for them to scale in the world of AI. So that's number one that priorities are very good. The second is their acceleration on data consolidation. I think that's another area that's happening because as enterprises work on bringing various ecosystems and platforms across various corporate environments together, I think that data consolidation efforts are continuing to also be a second priority where I think that area is building up very nicely. And the final thing I'm going to say is in AI transformation and innovations, where we have really started seeing early success with a few engagements in some of our health sciences clients. We want to continue to expand that from our historical base of MDM by making sure that we are shifting left to more and more of data engineering work and at the same time, trying to shift right to the data science work with our existing customers. So think about it that way that, that whole area of AI and where that continues to create a new dynamic and a new business model at our client locations is an effect that we will have to play into. And I think we feel pretty strong about how we have positioned ourselves between both of our talent business and our Data & Analytics Services business. And that partly is reflected in the fact that the talent environment also will see continued ongoing demand pickups from a high-value talent standpoint, which is the kind of work that is required for our clients as they think about transforming their organizations to AI-first organizations. Operator: Mr. Patel, it appears we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. Nirav Patel: Thank you, operator. If there are no further questions, I would like to thank you all for joining our call today, and we look forward to sharing our fourth quarter 2025 results with you in February. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..
Operator: Hello, and welcome to the Andean Precious Metals Third Quarter Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Amanda Mallough, Director of Investor Relations. You may begin. Amanda Mallough: Thank you, operator, and good morning, everyone. Thank you for joining Andean Precious Metals for the conference call to discuss our financial and operating results for the 3 and 9 months ended September 30, 2025. Our press release, MD&A and financial statements are available on both SEDAR+ and our corporate website at andeanpm.com. Before we get started, I would like to point out that during today's call, we may make forward-looking statements as defined under the Canadian securities laws. Please refer to our cautionary statements and forward-looking information and risk factors contained in our MD&A and other filings. With us on today's call are Alberto Morales, Executive Chairman and CEO; Yohann Bouchard, President; Juan Carlos Sandoval, Chief Financial Officer; and Dom Kizek, Vice President, Finance and Corporate Controller. Following management's prepared remarks, we'll open the line for questions. And with that, I'll turn the call over to Alberto. Alberto Morales: Thank you, Amanda, and good morning, everyone. The third quarter was a strong period for Andean, marked by record revenue, record earnings, record liquid assets and record earnings per share. We delivered revenue of $90.4 million, adjusted EBITDA of $36.8 million, net income of $43.7 million or $0.29 earnings per share, the highest in the company's history. These results reflect the combination of strong metal prices, disciplined cost management and higher consolidated production versus the previous quarter. Importantly, we generated $11.2 million of free cash flow and increased liquid assets to $121 million, up from $82 million a year ago. Operationally, San Bartolome delivered another excellent quarter, benefited from higher silver production, higher silver prices and continued efficiency. Golden Queen faced a short-term production impact related to the leach cycle timing and the team moved quickly to recondition the sale and optimize the process. Looking ahead to year-end, we expect San Bartolome silver production to be within the high end of its guidance, offsetting the lower production at Golden Queen, which was impacted by the leach cycle timing, although showing improvements into the initial part of Q4. On a consolidated basis, production is expected to finish near the lower end of the guidance with a solid cost and margins performance at both assets, maintaining a robust financial performance despite production variances. Our focus on cost and capital discipline continued to pay off. Total CapEx was just $0.6 million in the quarter, and we expect our year-end CapEx to be in line with our guidance. In November, we also filed a base shelf prospectus, qualifying up to $200 million of securities over 25 months, giving us the flexibility to access capital markets efficiently when needed. This is a strategic step that strengthened our long-term optionality. Overall, this was a very strong financial quarter despite production variances, highlighting the resilience of our portfolio, our financial discipline and the capability of our people across both jurisdictions. With that, I will hand it over to Yohann to review operational and explorational performance. Yohann Bouchard: Well, thank you, Alberto, and good morning, everyone. So let's start with production. Andean delivered just under 25,700 gold equivalent ounces in Q3, bringing year-to-date production to about 71,400 gold equivalent ounces. That's a 6% increase over the previous quarter, thanks to a strong contribution from San Bartolome. At San Bartolome, the operation continued to perform extremely well. Mill throughput averaged roughly 4,100 tonnes per day with 85% silver recovery. Production totaled 1.4 million silver ounces or about 15,600 gold equivalent ounces. Cost performance was strong. Cash gross operating margin came in at $16.13 per silver equivalent ounces and our gross margin ratio was 43.8%, both near the upper end of guidance. Increasing our purchase volumes and consistent processing supported these healthy margins. At Golden Queen, production was slightly below 10,100 gold equivalent ounces. This reflects the impact of leaching cycle timing, which temporarily slowed recovery in one of our leach sales. The team acted quickly, reconditioning the sale, optimized our blending and lowered the solution application rate to mitigate fine vertical migration. Despite lower ounces produced, our cash costs were $1,623 per ounce and all-in sustaining cost was $1,807 per ounce, both well within our guidance range. As we move into Q4, we expect consolidated production to finish near the lower end of our full year guidance with all financial metrics trending within our guidance range. We also made strong progress in our exploration program at both operations. At Golden Queen, the Phase 3 program has been extended to 8,100 meters after encouraging drilling results at the Hilltop and Starlight Vein areas. Recent assays include intersection of up to 1.67 gram per tonne gold and 20 grams per tonne silver over 5.9 meters, confirming continuity and potential extension along strike. This program is focused on extending mine life by extending Main Pit 2 and defining new near-mine resources. At San Bartolome, we advanced our partnership with COMIBOL securing exploration permits and social licenses across multiple oxide targets. The shallow core drilling program of 5,500 meters started earlier in Q4. The goal is to test roughly 800,000 tonnes, creating 150 to 250 grams per tonne silver. Ultimately, this will help extend mine life and fully utilize the planned 5,000 tonnes per day capacity without major capital investments. Operationally and strategically, we're in a strong position with exploration adding meaningful future potential. With that, I will pass it over to J.C. for financial review. Juan Sandoval: Thank you, Yohann and good morning, everyone. From a financial standpoint, Q3 2025 was the strongest quarter in Andean's history. Revenue reached $90.4 million, driven by higher silver production and strong realized prices of $3,448 per ounce of gold and $40.09 per ounce of silver. Gross operating income increased to $36.8 million and income from operation was $30.7 million. We generated EBITDA of $58 million and adjusted EBITDA of $36 million, net income of $43.7 million and earnings per share of $0.29 fully diluted, each a record for the company. Free cash flow was $11.2 million, supported by strong operating performance and lower capital spending. CapEx totaled $1.1 million in the quarter. Our balance sheet significantly strengthened this quarter. Total assets grew to $370.8 million, while total liabilities fell to $145.2 million, reflecting debt repayment and higher working capital. Liquid assets rose to a new record high of $121 million, up from $82 million at the same time last year and $81.6 million at year-end 2024. Our financial position remains strong. We continue to have a negative net debt position and significant cash reserves. Combined with the recently filed base shelf prospectus, Andean has the flexibility to pursue further growth opportunities. With that, I'll turn it back to Alberto for closing remarks. Alberto Morales: Thank you, J.C. To close, I want to highlight that Q3 reinforced everything that we have been building on, a resilient cash-generating business, a clean balance sheet and a clear path to pursue transformative initiatives. As this slide shows, we are well positioned for continued growth with robust financial, maintaining financial flexibility, evaluating selective opportunities to build further growth and value creation through advancing exploration programs across both of our assets. We delivered record financial results and meaningful exploration progress. San Bartolome continues to perform consistently. Golden Queen is returning to normal production parameters, and both assets are well positioned for a stronger fourth quarter. We look ahead, we remain focused on executing safely, maintaining cost discipline and advancing our organic growth pipeline. With our financial flexibility, exploration upside and a disciplined team, Andean is well positioned for continued success into 2026 and beyond. Thank you all for your continued support. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Omeet Singh with SCP Resource Finance. Omeet Singh: Congrats on the quarter. I had a question on CapEx. You were mentioning that CapEx will be hitting roughly guidance for the year. I know in Q3 was a lot lower than the prior 2 quarters. Could you speak to what types of CapEx spending you envision for the fourth quarter? Because I think at this run rate, correct me if I'm wrong here, but it will come in significantly below guidance. Juan Sandoval: Omeet, it's J.C. Thanks for your question. So this quarter, it was just in relation to our CapEx spending plan. But as we've said, our plan is to -- we will be within the guidance, within the average of our guidance by the end of the year. Omeet Singh: Okay. Appreciate that. And if I may, I'd like to ask another question. The second one would be in relation to inventory, which increased significantly, obviously, quarter-on-quarter. I'm assuming that's related to the percolation issue this quarter? And should we expect that to come off in Q4 or early next year? Is that the right way to be thinking about it? Yohann Bouchard: Yes, Yohann here. Thanks for the question. Yes, you're absolutely correct. I mean, with the -- I would say, the issue that we had with -- in our Cell 11, I mean, the inventory is still there. And we really use a prudent approach to resume leaching. So I mean, the main contributor to that is we leach using really a slower rate applying solution. And for sure, I mean -- and we see and saw it that our production is coming back slowly but sustainably, and we're expecting it to -- I mean, we pretty much came back at this moment to the production rate that we have in Q1 and Q2, and we're setting the tone to increase further in the beginning of next year. And as you know, I mean, those ounces cannot be recovered over a single quarter, but they're going to be recovered over a longer period of time. So you're absolutely correct on your assumptions. Operator: The next question comes from Allison Carson with Desjardins. Allison Carson: My first one is a bit of a follow-up with the CapEx. I think there was a negative growth capital expense this quarter. Could you just give more color on what that was? Dom Kizek: Allison, Dom here. We adjusted our CapEx metric this quarter to be on a cash flow basis, so that was just a catch-up. And then just to further J.C.'s comment, we are expecting to be within the guidance range at the end of Q4. And some of those projects are going to be including a new heap leach pad that we're starting to build up. Allison Carson: Okay. Great. And then it sounds like everything is working well back at Golden Queen and the leach cycling is improving. If this issue arises again, do you think you'll be able to resolve the issue with less of an impact to production? Yohann Bouchard: I'm not so sure to understand the question, sorry. Allison Carson: Sorry, it sounds like everything at leach cycle is improving following the issues that you had in Q3. If you have more issues with the mine particles in clay again, based on going through this time, do you think that you should be able to resolve the issue quicker with less of an impact to production? Or could this still have another big impact to production in the future? Yohann Bouchard: Thank you for that. I mean I think that we took a lot of action to make sure that it will not happen again. But I would say that, that was more related to an operational problem. And for sure, I mean, we question the way that we blend and everything that we did upstream of leaching. But all the extra measure that we took and also, I mean, we're considering that we're going to also commission a new agglomeration drum in December and looking at also a fine bypass next year to mitigate that project further before the clay hit the HPGR, I believe that we're going to be in really good shape to mitigate such a problem going forward. So absolutely. But again, we took many actions, and we still have other action to take, not only like improving our processes, but also improving the equipment and also doing proper investments to mitigate such of issues. Allison Carson: That's great. And then my last question is just I was wondering if you could talk a little bit about the election results in Bolivia and how you expect that to impact San Bartolome, if at all? Alberto Morales: Yes, Allison. The elections in Bolivia, as probably you have read on some of the editorials, the new President is more center-driven than the previous governments. We believe that there will be -- or at least the rhetoric that they've been using is that they are basically changing the tone of the philosophy that it's been ruling the government from being more of a stream left towards the center and welcoming further investments. Under that tone, if that was to materialize, certainly, I think that the international markets will view very favorably if they were to be opening themselves up for further investments. And most importantly, that may also or at least in order to pursue further initiatives to promote that. It may include some initiatives on legal reforms, tax reforms, but it's too early to tell but we're cautiously optimistic, but I will still keep the word cautious. Allison Carson: So congratulations on a great quarter. Operator: The next question comes from Ben Pirie with Atrium Research. Ben Pirie: Alberto, Yohann, J.C. congrats on another good quarter. Just a couple of quick questions. Most of mine have been answered. But Yohann, I guess, given the improvements you've been making and are continuing to make to the leaching system and the grinding circuit, can you talk about potential increases in recovery? Is there any opportunity there and that goes with the new leach pad as well? Yohann Bouchard: I would say -- I mean, the recovery is mostly is directly related to the way that -- I mean, we apply solution and making sure that the solution reached all of the little corner, I would say, of the leach pad. So -- and again, I mean, it took some time, I think, to recover from, I would say, the shortfall that we had because of the prudent approach and sustainable approach that we have undertook to apply the solution again. And we see it like week after week, production is increasing and it's still increasing at this moment in time. So -- and don't forget that the last 2 or 3 quarters, we put really high grade on the leach pad. And I mean, we start to see some benefits out of it. And basically, the other thing that I have to add to that, we're also contemplating the project to increase our capacity to the Merrill-Crowe. With very little investment, we can increase from treatment of 3,000 to 4,000 gallons per minute, and we're looking into it. So we would like maybe instead of deviating some of the solution to the low-grade pond, we would like to leverage that and send that to Merrill-Crowe that would also increase production. And that can be done within months basically. But overall, I mean, be certain that it's increasing. Production is increasing, recovery is increasing as well. And by the nature of the leach pad that recovery is like -- it's not like you're losing gold. It's just like postponing, I would say, the recovery of some gold in the following quarters. But for sure, our goal is to catch that water within a certain amount of time. and we'll get to that for sure. Ben Pirie: Right. Understood. And I guess in terms of drilling at Golden Queen, is everything progressing as planned? And are you guys still on track to report the updated resource in H1 '26? Yohann Bouchard: No, it's progressing really well, actually. I mean, as you know, I mean, we decided to invest further more. I mean we increased to 8,100 meters total drilling for this year. We add -- I mean, you saw the drill. We add that drill. That team is performing really, really well. We're looking to have a third drill before and at this moment. And we're going to keep drilling. I mean, nonstop until, I mean, we see some significant results. But everything at this moment still aligned to deliver like a technical report and reserve upgrade by the end of next -- of this year. So everything is going according to plan on that aspect. Ben Pirie: Perfect. And I guess just my last question, just given the higher gold prices over the last couple of quarters, is there any changes? Are you seeing any issues with the ore sourcing at San Bart? Yohann Bouchard: I think on that aspect it's interesting. We're doing a lot of progress with the 7 million tonnes agreement, and we start to do some drilling in one of those places like a few weeks ago, which is quite encouraging. We secure a lot of, I would say, agreement with the local community. And so it's going really well. And on top of that and outside of that 7 million tonne agreement, we are also negotiating with our community and it's really encouraging to see the momentum that's been created. But we're not publishing everything, all the new agreement that we're having up there. But I mean, I feel really good with the continuity of San Bart based on the, I would say, the expertise that we get at sourcing ore from third party. So it's -- and we have a solid reputation there. So it's going really well for us. I'm very pleased. Operator: This concludes the question-and-answer session. I'll turn the call to Alberto for closing remarks. Alberto Morales: Well, thank you, everyone, for joining, and we certainly look forward for Q4 and end of the year. And my thanks to all of you for your continued support. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the ElringKlinger AG Q3 2025 Earnings Conference Call. I am Maira, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Jessulat, CEO. Please go ahead. Thomas Jessulat: Ladies and gentlemen, welcome to our earnings call for the third quarter of 2025. Also on behalf of my colleague on the Board here, our CFO, Ms. Isabelle Damen. Today, I will start with some highlights also from a strategic perspective, and my colleague, Isabelle, will walk you through the key results for Q3. With this publication, we reaffirm our guidance for 2025 as well as our medium-term outlook originally communicated in the annual report in March. As always, we will conclude the presentation under the Q&A session, and we look forward to addressing your questions. We advanced the implementation of our SHAPE30 transformation strategy as a top priority. Since its launch last year, we have made significant process in reshaping the ElringKlinger Group and further measures are in process. Another measure is the STREAMLINE program, which aims to reduce personnel costs. Initial savings are expected to take effect in 2026 with full savings realized by 2027. In addition, our organic sales performance during the first 9 months of 2025 grew by 2.2% compared to the previous year, outperforming the European market, which recorded a decline of 1.7% over the same period. We're making significant process in the field of e-mobility. Operations have started at our e-mobility hub Americas in Easley, South Carolina, which is in preparation for production ramp-up. At the same time, we are gearing up for production chart also in China. After a phase of substantial investments, our CapEx level is expected to normalize to a more moderate level going forward. SHAPE30 represents our road map for transforming the group given the profound changes in our industry. Our transformation strategy is designed to improve profitability and cash flow. We have already taken significant steps along this path, including the sale of 2 companies in the U.S. and Switzerland, the discontinuation of the electric drive systems and with a reinforced focus on profitable components. In this context, measures to strengthen the balance sheet have also been implemented. These actions are now complemented by a strict cost reduction plan. One of its elements is the STREAMLINE program, which targets at least EUR 30 million in global staff cost savings. Shaping the profile of the group summarizes one dimension of the SHAPE30 activities. The other dimension encompasses the preparation for future growth based on the received nominations of the past quarters. And in this context, we have successfully initiated the ramp-up of major e-mobility projects. Currently, we're completing the final steps for the start of production, focusing on cell contacting systems and battery components. As part of the product transformation at ElringKlinger, we have made initial investments in production and space and equipment. At present, we're getting closer to the end of the investment cycle. Along this, we'll return to a more disciplined CapEx level according to our mid-term target of 2% to 4% of group sales. With having said this, now I hand over to my CFO colleague on the Board, Ms. Isabelle Damen. Isabelle Damen: Thank you, Thomas. I will now provide you with some more details on our financial performance in the third quarter of '25. At the first glance, the order intake appears to have declined by around 3%. However, we reported slight growth in organic terms compared to the prior year period. This is primarily due to the fact that last year's figures still included contributions amounting to EUR 21.1 million from the divested entities, which have not been part of the group since December 31, 2024. Despite the challenging market environment, we see a positive development in the underlying business. Organically, which means adjusted for the M&A effects and exchange rate development, order intake increased by EUR 16.6 million or 3.6% to EUR 477 million. The order backlog representing customers' cumulative short-term call-offs not yet realized, stood at EUR 1.1 billion at the end of the third quarter of '25. For comparison, the previous year's reporting period showed EUR 1.3 billion, a figure that still included the backdrop on the 2 group entities divested, which amounts to EUR 136 million. Starting with the sales and an organic change on Slide #5. In a challenging market environment, ElringKlinger generated revenue of EUR 396 million in the third quarter of 2025, representing a year-on-year decline of 10% according to reported figures. But figures have been affected by M&A as well as FX for this quarter. The 2 entities in Switzerland and the United States had contributed revenue of EUR 34.1 million in the third quarter of '24. This means the relevant basis for a year-on-year comparison will be EUR 407 million. Additionally, revenue was diluted by currency effects equivalent to EUR 8.1 million. All in all, when excluding currency and M&A effects, revenue declined organically by 0.6% in the third quarter of 2025, remaining at a relative stable level compared to the previous year. While global automotive production in the third quarter was 4.4% higher than the prior year level, Europe, ElringKlinger's core market, posted only a modest increase of 1.2% in the third quarter and Germany declined by 3.6%. When considering year-to-date sales figures, prior year's numbers included EUR 123 million from the divested entities. With this in mind, sales in the first 3 quarters of '24 amounted to EUR 1.228 billion, in line with the first 9 months of this year. When taking into account FX effects, organic sales even increased by 2.2% year-to-date. The global production market grew by 3.8% over the first 9 months, mainly driven by China. ElringKlinger's core market, Europe even contracted by 1.7% in the first 9 months. This disparity underscores the challenging conditions in ElringKlinger's primary market where limited momentum contrasts with stronger global trends. The sales mix presented on Slide 7 provides a more detailed breakdown of the factors behind organic sales. Within the segment breakdown, the Original Equipment segment remains the largest contributor, accounting for 66% of total group revenue, which corresponds to EUR 262 million in sales. Compared to the same quarter last year, revenue in this segment declined, mainly due to the divestment of the 2 entities in the U.S.A. and Switzerland as well as ongoing challenging market conditions. Within the OE segment, E-Mobility generated sales of EUR 26.3 million in the third quarter of '25. This business unit is currently in a ramp-up phase for upcoming large-scale serial orders, underlying its strategic importance for the group's transformation. The divestment of the 2 entities has also been reflected in the decline in the Metal Forming & Assembly Technology business unit. The Aftermarket segment continues its strong performance, increasing sales from EUR 32.8 million in Q3 '24 to EUR 37.4 million in the third quarter of '25. Growth was achieved in the Asia-Pacific region, South America and the rest of the world, while revenues in Europe and North America declined year-on-year. In addition to currency headwinds and a general weak market environment, the primary factor behind this trend was the divestment of the 2 entities in the U.S. and Switzerland. Adjusted EBITDA of the group declined to EUR 41.1 million compared to EUR 51.4 million in the last year's third quarter. In Q3, adjusted EBIT reached EUR 21.2 million, corresponding to a margin of 5.4%, which is even above the full year target of around 5%. Adjustments totaling EUR 16.7 million almost exclusively relate to exceptional items from the STREAMLINE program to structurally reduce personnel costs in the context of SHAPE30 transformation strategy. Reported EBIT amounted to EUR 4.5 million, corresponding to a margin of 1.1%. This is a noticeable improvement to the same quarter last year when EBIT reported stood at minus EUR 35.2 million. Thanks to the strategic measures implemented as part of the company's transformation strategy, the group is well positioned to maintain a solid adjusted EBIT margin at a comparable high level. These actions refer to an EBIT improvement of EUR 4 million and created a more resilient foundation for sustainable performance, although have been more than compensated in the third quarter by effects like tariffs totaling EUR 2 million or others amounting to EUR 2.7 million, such as ramp-up costs for the large-scale orders in South Carolina and China. In addition, the release of provisions of EUR 1.1 million in Q3 '24 has to be considered. In the third quarter, the R&D ratio rose to 5.9%, while absolute R&D spending edged down year-on-year slightly from EUR 24 million to EUR 23.5 million. This keeps the company comfortable within its target range of 5% to 6% of group revenue. In the third quarter of '25, ElringKlinger reported net working capital of EUR 389 million. The corresponding ratio stood 23.2%, bringing the group to its short- and medium-term goal of maintaining the figure below 25%. This development highlights ongoing initiatives to improve capital efficiency and enhance operational flexibility in parallel to sales activities relating to the ramp-up. Following elevated expenditures around the turn of the year in Q4 '24 and Q1 '25, CapEx has been lowered in the second quarter. As anticipated, this figure was quite stable in absolute numbers in Q3 with CapEx at EUR 27.8 million and a CapEx ratio of 7%. It is expected to lower this level starting next year and realize a CapEx ratio level of around 2% to 4% in the mid-term as well. Regarding the cash flow in the third quarter in '25, the group maintained a positive level of performance as in Q2 and achieved an operating free cash flow of EUR 18 million. This underscores the continued benefit of disciplined financial management and the sustained impact of working capital measures even in a challenging market environment. And it is the basis for reaching our target range of 1% to 2% of sales with a strong fourth quarter as we had last year. This is what we are currently working hard on. Net financial debt slightly increased to EUR 389 million, corresponding to a net debt EBITDA ratio of 2.2. And last but not least, group equity totaled EUR 653 million by the end of the third quarter of '25, slightly below the EUR 659 million recorded at the close of Q2 '25. Coming to the segment performance on Slide 11. In the third quarter of 2025, the OE segment generated sales of EUR 262 million. When comparing this to the prior year figure, it's important to account for a sales contribution of EUR 34.1 million from divested entities. The adjusted segment EBIT margin stood at minus 0.8%. The aftermarket segment is successfully advancing its growth strategy, delivering yet again a quarterly increase in revenue. In the third quarter of 2025, sales reached EUR 96.1 million, which implies a growth of 13.2% compared to a previous year's quarter. With an adjusted EBIT margin of 18%, the segment once again delivered a strong level of profitability. The Engineered Plastics segment delivered a strong performance in the third quarter of '25, supported by its broad and diversified industry mix. The segment recorded sales of EUR 37.4 million, marking an increase of EUR 4.6 million compared to the same quarter last year. With an improved adjusted EBIT margin of 13.4%, the segment demonstrated its resilience in a challenging market environment. Now I'll hand back to Thomas Jessulat for concluding words on the market and the outlook. Thomas Jessulat: Thank you, Isabelle. Let us now turn our attention to the market expectations and the group's outlook. Let me quickly show you our agenda for Q4 in the upcoming quarters. We anticipate a weaker fourth quarter with regard to the market, while the outlook for fiscal year 2026 suggests largely sideways movement on a global scale. Against this backdrop, we'll continue to prepare for entering the sales cycle, strengthen profitable business areas and continue to refine the group's profile to ensure sustainable performance. Our focus remains on our SHAPE30 targets, which is increasing the group's profitability, particularly, of course, in the OE segment and sustainably generating cash flow. This is crucial to enhance the group's resilience and competitiveness. We are continuing the ramp-up of additional large-scale e-mobility projects, building on the progress achieved in previous quarters. Following a CapEx-intensive phase, capital expenditure will normalize from next year onwards and reach a disciplined level of 2% to 4% in the medium-term. And at the same time, we maintain an elevated level of e-mobility sales supported by strong demand. Cash flow is projected to improve significantly in the fourth quarter, recovering from the weaker start in Q1. Market dynamics remain uneven and are expected to persist into 2025. While global light vehicle production shows a positive trajectory overall, the regional picture is mixed. China continues to gain momentum with strong growth for the full year, whereas Europe and especially North America, ElringKlinger's main markets are still struggling to recover. This contrast reflects the year-on-year development from 2024 to the forecast for 2025. Robust expansion in China is helping to cushion the impact of weaker demand in Europe and North America and therefore, ensuring that global production maintains a stable growth path. We now turn our attention to the forecast for the fourth quarter of 2025. Current projections indicate a decline in light vehicle production across all regions during Q4, including Asia-Pacific, which has been the strongest region so far with China as the main growth driver. This anticipated slowdown highlights the high volatility that characterizes the automotive industry. Overall, the automotive market is showing a growth of 2% in 2025, while Europe is expected to face a decline of 1.8% over the same period. I will close my comments with a remark on the outlook. Despite this short-term moderation of markets, we remain committed to our strategic targets and are preparing for the next growth cycle driven by serious production orders, particularly in the E-Mobility segment. Against the volatile backdrop, we confirm the outlook published in the fiscal year 2024 annual report, including organic sales at prior year levels and adjusted EBIT margin of around 5% and operating free cash flow between approximately 1% and 3% of revenue. Based on our strategic measures, we aim for a mid-term adjusted EBIT margin range of approximately 7% to 8%. With having said this, Isabelle Damen and I are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Marc-Rene Tonn from Warburg Research. Marc-Rene Tonn: Basically 3, if I may. The first one would be on the e-mobility sales outlook for the fourth quarter as you are now ramping up for the new orders, which are, let's say, coming into production at your customer. Can you give us some indication when we should expect the top line contribution to be more pronounced on your side? Will it already be Q4? Is it more beginning of next year? That would be the first question. The second one would be on special items, whether we should expect any additional restructuring expenses for the fourth quarter between adjusted EBIT and the EBIT line? And lastly, on EKPO. When I look at your -- let's say, on the minorities line, I think it's minus EUR 2.5 million, if I'm not mistaken, for the third quarter, minus EUR 5.5 million for the first 9 months, basically representing about, let's say, 40% of the net profit or net loss in this case of that business. So obviously, a large drain on your operating performance when we're looking at EBIT. Do you expect any improvement on that side going forward? Or what could be potential measures to, let's say, stabilize or improve the situation on that side? Isabelle Damen: Thank you for your questions, Marc. Sorry, I lost my voice a bit. I'll answer the second question for you. If we expect some special items in Q4, as we are still in transition, we might still expect some -- and we're not [ completely true ] with our plan. So we might still expect some impact in the fourth quarter of our restructuring measures. Thomas Jessulat: Okay. On the e-mobility sales for the fourth quarter will step-by-step will be ramping up. On the same time, it's not so sure if it is showing significantly. It will show, I'm sure, but it will not -- in Q4, it will not be showing significantly as a contribution. And certainly, starting from next year on, expectation is that we'll see top line growing in regard to e-mobility sales. Okay. Third question from your side on EKPO, there is a lot of activity that we have right now in regard to cost reduction as part of our global, of course, cost reduction measures. And we would expect that we have some good progress here between Q4 and Q1 next year. So in fact, it is still in a start-up loss-making situation here, EKPO, but also here, we are working on reductions in order to minimize the impact here to the EK Group. Is that answering your question? Marc-Rene Tonn: It does. Just one quick follow-up, if I may. Could you remind -- and not related to that, could you remind us on the incremental increase of net indebtedness from the IFRS 16 accounting for the -- what we have to expect for the fourth quarter from the U.S. facility? Thomas Jessulat: Yes. When we look at IFRS 16 specifically, then we are at roughly EUR 90 million right now, which compares to EUR 47 million to previous year's quarter and expectation for Q4 this year will be roughly EUR 30 million addition. Yes, this is an estimation. So it's a mid-double-digit million euro figure, maybe a little bit less than EUR 40 million. This is the expectation that we have right now. Operator: The next question is from Michael Punzet from DZ Bank. Michael Punzet: I have only one left with regard to your OE business. You're still in the red figures for Q3 on an adjusted basis. Can you have any kind of time when we could expect a positive run rate on a quarterly base? Is that a thing we could expect for 2026? Or is it -- or [ happily ] wait until 2027 when all the positive impacts from your cost reduction program came in? Thomas Jessulat: Yes. When we look at the year, right now, we are in an expected frame in regard to the current results. We are on the way with the STREAMLINE program. We are making progress here. So that is having already some positive impact here, but not yet a full impact in terms of our activities here in 2025. Expectation is that we'll see if there's no negative impact from the market of some significant sort that we'll see some impact here first half of next year also on the OE segment. Operator: [Operator Instructions] The next question comes from Tobias Willems from LBBW. Tobias Willems: Tobias Willems, LBBW. I have one question left regarding on your company strategy and your reshaping programs. Will we see further divestments in the years ahead, let's say, in 2026 and 2027, especially in the automotive segment? Thomas Jessulat: Yes. Thank you for your question. What to expect going forward? One, it is a continuation of the transformation path into 2026. We'll have also like Isabelle has said, we'll have the expectation of some more adjustments, but adjustments are going to be getting smaller going forward compared to what we have seen in the past. We'll see -- in 2026, we'll see the following. We'll see a reduction of the balance sheet size because we have quite a figure. It's a high double-digit figure right now on our balance sheet of items, tooling equipment that will be sold off to customers. So we'll see a reduction of balance sheet size in 2026, going into 2026. And we'll also see an improvement of financial KPIs based on the impact of all the activities done in 2025. So that I would say is a very general comment that we have laid a lot of groundwork here for improvements that we expect to kick in, in 2026. And we also have to say that some items are still in process where it is, to some extent, uncertain if they have an impact in 2025 or beginning of 2026. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Thomas Jessulat for any closing remarks. Thomas Jessulat: Thank you very much for joining our Q3 conference call today. We truly appreciate your continued interest and support, and we look forward to meeting you either next week at our Capital Markets Day or during our next update when we present the full year figures. Until then, we wish you all the best for the weeks ahead.
Operator: Good day, and welcome to the CorMedix Third Quarter 2025 Earnings and Corporate Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Daniel Ferry of LifeSci Advisors. Please go ahead. Daniel Ferry: Thank you, operator. Good morning, and welcome to the CorMedix Third Quarter 2025 Earnings and Corporate Update Conference Call. Leading the call today is Joe Todisco, Chief Executive Officer of CorMedix; and he is joined by Liz Hurlburt, EVP and Chief Operating Officer; and Susan Blum, EVP and Chief Financial Officer. In addition, Beth Zelnick Kaufman, EVP and Chief Legal and Compliance Officer; and Dr. Matt David, EVP and Chief Business Officer, are on the line and will be available during the Q&A session. Before we begin, I would like to remind everyone that during the call, management may make what are known as forward-looking statements within the meaning set forth in the Private Securities Litigation Reform Act of 1995. These statements are statements other than statements of historical fact regarding management's expectations, beliefs, goals and plans about the company's prospects and future financial position. Actual results may differ materially from the estimates and projections on which these statements are based due to a variety of important factors, including the risks and uncertainties described in greater detail in CorMedix filings with the SEC, which are available free of charge at the SEC's website or upon request from CorMedix. CorMedix may not actually achieve the goals or plans described in these forward-looking statements, and investors should not place undue reliance on these statements. CorMedix does not intend to update these forward-looking statements except as required by law. During this call, the company will discuss certain non-GAAP measures of its performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in CorMedix earnings release and the current report on Form 8-K filed with the SEC. This information is available on the Investor Relations section of CorMedix website. At this time, it's now my pleasure to turn the call over to Joe Todisco, Chief Executive Officer of CorMedix. Joe, please go ahead. Joseph Todisco: Thank you, Dan. Good morning, everyone, and thank you for joining us on this call. This has been an exciting quarter in the evolution of CorMedix as we announced and closed the acquisition of Melinta Therapeutics in a combination of cash and stock transaction. This deal is transformational for CorMedix creating a diversified specialty pharmaceutical company with a broad portfolio of commercial and late-stage pipeline products. Integration of the legacy CorMedix and Melinta operations has progressed faster than originally expected. As we announced in October, we expect to capture approximately $30 million of the projected $35 million to $45 million of total synergies on a run rate basis before the end of 2025. I'm excited to announce today that as part of our integration, CorMedix, Inc. will be rebranding as CorMedix Therapeutics, and all employees will unify under this company name. We're also adopting a new logo to signify the go-forward organizational commitment to develop and commercialize novel therapies for the prevention and treatment of life-threatening conditions. This past quarter marks the most successful quarter from a financial perspective in company history, registering record levels for revenue of $104.3 million, net income of $108.6 million and adjusted EBITDA of $71.8 million. Our revenue performance was largely driven by faster-than-expected adoption by our DefenCath LDO customer, utilization growth from our existing customer base as well as partial quarter contribution from the Melinta portfolio assets. Based on the recent momentum, today, we are raising our pro forma combined full year revenue guidance from a minimum of $375 million to a range of $390 million to $410 million. In addition, we are increasing our previous guidance for pro forma fully synergized adjusted EBITDA for 2025 from a range of $165 million to $185 million to a new range of $220 million to $240 million. On the business development front, we also successfully closed our strategic minority investment in Talphera Inc. This small strategic investment gives us a foothold in a late-stage critical care product that is highly complementary to CorMedix' acute care portfolio. As part of the transaction, CorMedix has granted a right-of-first negotiation to acquire Talphera following the announcement of Phase III results, which we anticipate to be available in the first half of 2026. We will continue to evaluate Talphera in the coming months as their clinical trial progresses toward completion. With respect to DefenCath, we are very pleased overall with the utilization of DefenCath in the outpatient hemodialysis segment during our initial phase of TDAPA and we have now begun planning with customers for the post-TDAPA add-on periods, which we expect will begin in July of 2026. In line with our strategy to increase patient utilization of DefenCath during our post-TDAPA add-on periods, we'll be working over the coming months to finalize supply pricing with customers under existing contracts based upon the final post-TDAPA add-on framework as well as engaging in conversations with Medicare Advantage payers following the publication of our real-world evidence data later this year. Lastly, as CorMedix evolves, I think it's important for investors to begin focusing on important near- and medium-term catalysts and value drivers for the company beyond the hemodialysis sector. First and most importantly, the second quarter of 2026 is expected to bring top line data for the use of Rezzayo as prophylaxis of invasive fungal infections. We believe the total addressable market for immune compromised patients that are currently undergoing antifungal prophylaxis is more than $2 billion. The Phase III ReSPECT study is running head-to-head against the current standard of care, which is a combination of posaconazole, an antifungal, and Bactrim, an antibiotic, that also has antifungal activity. Posaconazole demonstrates severe drug-to-drug interactions with many medications the target patient population is currently taking, including immunosuppressive drugs like tacrolimas and cyclosporin as well as numerous therapeutics used in treating hematological malignancies such as leukemia, multiple myeloma or non-Hodgkin's lymphoma, all patient populations that may undergo bone and marrow transplantation as part of their therapy. For these patients, Rezzayo used as prophylaxis against these invasive fungal infections could represent a new standard of care that may allow patients to experience less drug-to-drug interactions, less frequent dosing and more flexibility in their setting of care for treatment. Our second near-term catalyst outside of hemodialysis is the expected expansion of DefenCath into the prevention of CLABSI for adult patients receiving total parenteral nutrition or TPN. Our most recent market research continues to highlight the critical unmet medical need and pervasively high bloodstream infection rates in this patient population. Prophylactic intervention is urgently needed for these vulnerable patients. We have previously guided to a total addressable market in this indication of up to $750 million and anticipate Phase III completion as early as the end of 2026 or beginning of 2027. I believe that CorMedix has done an exceptional job of maximizing the value of the initial TDAPA period afforded to DefenCath as a long-term strategy in hemodialysis for post-TDAPA periods and has redeployed cash flow into a pipeline that can position the company for long-term sustainable growth. I am excited about the future. I would now like to turn the call over to our Chief Operating Officer, Liz Hurlburt, to provide an update on clinical activities, operations and integration. Liz, please go ahead. Elizabeth Masson-Hurlburt: Thank you, Joe, and good morning. The combined clinical development and operation teams, along with field medical affairs have been working diligently on numerous clinical activities. As we shared in late September, enrollment for the global Phase III ReSPECT study evaluating Rezzayo for the prophylaxis of fungal infections in allogeneic bone marrow transplant patients has completed. This pivotal trial is being conducted by our global partner, Mundipharma, and the team has begun to progress the program in anticipation of study closeout. The team continues to work closely with investigators and clinical experts in the field to deepen our understanding of the evolving clinical practices and needs of these patients. We expect to announce top line results from the ReSPECT study in the second quarter of 2026. Turning to DefenCath. I'm pleased to share that the Phase III Nutri-Guard clinical study, which evaluates the reduction in central-line associated bloodstream infections or CLABSI for adult patients receiving total parental nutrition via a central venous catheter has garnered international interest. In the coming months, we will expand clinical study sites into Turkey to broaden the diversity of patients and potentially expedite enrollment time lines. At this time, we are still anticipating study completion by the end of 2026 or early 2027. Lastly, our real-world evidence study in collaboration with U.S. Renal Care has entered the second year of data collection. The team is currently conducting an analysis of the first year of data, and we anticipate sharing those interim results by the end of this year. This study is designed to demonstrate the real-world effects of the broad use of DefenCath in a real-world setting and examines not only the reduction in catheter-related bloodstream infections or CRBSI, but also reduction in costly infection-related hospitalizations. Secondary data points of missed treatment sessions, antibiotic utilization and TPA utilization are also being reviewed. Now turning to integration progress. I am heartened by the significant efforts of the teams to both integrate and optimize operations as a unified organization. We have made meaningful strides in merging the teams, identifying synergies and creatively preserving key elements of both legacy organizations. In addition to our new corporate branding as CorMedix Therapeutics, we have refined our mission, vision and values as a new organization and are excited to see our integrated teams work together to create a new culture and execute together on key objectives. Currently, all functional areas have fully integrated from a personnel standpoint, which includes clinical, medical affairs, technical operations, supply chain, finance, legal, quality, human resources and commercial. Systems integration is still underway and expected to complete in 2026 in line with our original estimates. The legacy contracted hospital sales team for DefenCath will conclude its service by the end of this year, and DefenCath promotion in the hospital setting will transition in January to the post-integration internal field organization. Beginning in early Q1 2026, our unified sales organization covering acute care clinics and hospitals will seamlessly support all promoted portfolio products, including both DefenCath and Rezzayo and will offer enhanced capabilities and customer support. The collective expertise of our team positions us to deliver comprehensive solutions to many challenges in the acute care space and ultimately with the goal of driving better patient outcomes. We are incredibly proud of the team and their hard work in moving this integration forward while continuing to focus on sales and patient access. I would now like to turn the call over to Susan to discuss the company's third quarter financial results and financial position. Susan? Susan Blum: Thanks, Liz, and good morning, everyone. We are pleased to report our third quarter financial results, reflecting continued commercial momentum and a path towards sustained profitability. Our results demonstrate solid growth across the business, including strong performance from DefenCath and growth in the legacy Melinta product portfolio. We closed the Melinta acquisition on August 29, 2025, and therefore, 1 month of its operations are included in our consolidated financial results for the third quarter. The company has filed its quarterly report on Form 10-Q for the quarter ended September 30, 2025. I encourage you to read the information contained in the report for a more complete discussion of our financial results. As Joe mentioned, for the third quarter, net revenue was $104.3 million, including the DefenCath sales of $88.8 million, representing a total net revenue increase of $77.5 million year-over-year. The remainder of revenue totaling approximately $15.5 million reflects the contribution from Melinta for the month of September, $12.8 million of which was driven by Melinta portfolio sales. Operating expenses for the third quarter were $42.6 million compared to $14.1 million for CorMedix on a stand-alone basis in the same quarter last year. The increase of $28.5 million over the prior period includes nonrecurring costs of $12.7 million associated with the transaction and integration as well as severance costs associated with the Melinta acquisition. Other increases in costs were driven by stock-based compensation, OpEx contribution from Melinta's business and increased investment in R&D associated with expanded indications for DefenCath, including the Phase III clinical study for prevention of CLABSI and TPN patients. While costs have increased in these areas this past quarter, they are aligned with our previously communicated expectations and support our strategic priority, which is to position the company for long-term sustainable growth. In addition, as Joe mentioned, we are working to quickly capture synergies associated with the Melinta acquisition with approximately $30 million of synergies on a run rate basis expected to be captured from actions taken prior to the end of the year. We expect to realize these synergies in the P&L beginning in the fourth quarter of 2025. Overall, for the third quarter of 2025, we achieved net income of $108.6 million or $1.26 per diluted share marking meaningful progress compared to the third quarter of 2024. During which period, we recognized a loss of $2.8 million and a net loss per diluted share of $0.05. A large driver of net income for the quarter was a substantial tax benefit of $59.7 million due primarily to the realization of deferred tax assets, equating to 100% of the CorMedix' historical net operating losses or NOLs. The recognition of this sizable tax benefit underscores our confidence in sustained future profitability, which will drive the utilization of our NOL carryforwards against taxable income, which equates to cash tax savings and tangible value for the company and for shareholders. Turning to non-GAAP measures. Adjusted EBITDA for the third quarter of 2025 was $71.8 million up from a loss of $2 million in the third quarter of 2024, reflecting the momentum of our operations over the past year. This non-GAAP measure provides additional insight into our core operating performance and profitability trends, highlights the underlying strength of our operations and excludes onetime acquisition-related costs, stock-based compensation and the tax benefit we realized this quarter. Please refer to our press release that we issued this morning for a reconciliation of this non-GAAP measure to GAAP net income. On the cash front, we raised gross proceeds of $150 million in a convertible debt offering and those proceeds together with cash on hand and $40 million in common stock issued to the seller were used to fund the acquisition of Melinta in August 2025. This financing strategy supported the transaction while maintaining what we believe to be a healthy liquidity position and flexibility for future growth investments. As a result, our cash flow during the third quarter reflects the timing of these financing and acquisition activities, and we ended the quarter with cash, cash equivalents and short-term investments of $55.7 million. Looking ahead, we expect significant cash generation in the fourth quarter, driven by strong operational performance. We anticipate ending the year with approximately $100 million of cash and cash equivalents, supported by ongoing positive operating cash flow and working capital optimization. To drive this balance, we are guiding to fourth quarter net revenue in the range of $115 million to $135 million, reflecting continued momentum from DefenCath and a full quarter contribution from Melinta. And now I will turn the call back to Joe for closing remarks. Joe? Joseph Todisco: Thank you, Susan. The third quarter of 2025 marked a period of meaningful progress and disciplined execution. We advanced our strategic objectives, strengthened our financial foundation and delivered solid results while completing a transformative acquisition. The company now has a diversified product portfolio, multiple late-stage pipeline opportunities, financial flexibility and a diversified capital structure to support future growth. We remain confident in the outlook for the remainder of this year and the path to sustained growth and profitability. I'd now like the operator open up for questions. Operator: [Operator Instructions] Our first question comes from Les Sulewski with Truist. Leszek Sulewski: Congrats on the progress. First, on DefenCath, do you have a sense of inventory stocking versus utilization in 3Q and we understand you're not providing guidance for next year at this time. But how should we think about potential seasonality throughout the year? Or how ordering rates could impact quarterly revenue cadence? And then outside of additional cohort expansion, is 4Q implied guidance, I guess, a good representation of a normalized utilization patterns? And I have a follow-up. Joseph Todisco: Thanks, Les. I'll try and make sure I get all these right. So in terms of third quarter stocking, I think our smaller customers from what we've seen are holding on average about 2 to 3 weeks on hand. The LDO is somewhere between 3 to 4 weeks, and I think that's what we saw normalized. I'd say there was probably a couple of million dollars shipped at the cutover if you're trying to kind of back into third quarter versus fourth quarter DefenCath revenue and kind of where we're trending. So there was a couple of million dollars right on that cutoff that probably that ended up getting captured in Q3 that a day later is going to be in Q4. But for the most part, I wouldn't say there's a significant amount of stocking in Q3, just normal stocking that they hold on hand. The second question, I believe, was about quarter-to-quarter guidance and seasonality. The business, certainly we'll separate the DefenCath business from the Melinta business, doesn't have a historic seasonality in terms of times of the year where patients receive hemodialysis more than others. As we've been progressing over the last 2 years and we've added new customers, we've added new cohorts, we've continued to see, right, an increase in utilization and growth in overall revenue. Obviously, I think there's a lot of eyes focused on next year. I don't know at what point we're going to be ready to provide financial guidance for 2026. I think everyone is aware, just by the nature of TDAPA and the change that comes in July, there should be a little bit of front-endedness, right to the overall revenue, not necessarily utilization for the overall year, and we're still trying to figure out what the full year is going to look like. Now in the Melinta portfolio, again, they're not -- though a large number of them are anti-infectives, they're not cough/cold type products. So you wouldn't see that type of winter seasonality. I think the -- there's always a small amount of December stocking into January of all products. I don't know that it's going to be overly material to the business case, but we don't -- wouldn't expect to see significant seasonality there as well. In terms of cohort expansion, I do believe that there's still opportunities with all of the customers that -- I think that was -- that question is specific to DefenCath, that there's still an opportunity to grow with our existing customer base. And that's something that we are continuing to focus on over the coming months and even in the post-TDAPA period. A big part of our post-TDAPA strategy is the engagement with Medicare Advantage. We currently believe the overwhelming majority of the patients in which DefenCath is being used in the outpatient setting are Medicare fee-for-service patients. Medicare Advantage is now the largest cohort of patients and a big part of the opportunity for our future expansion post-TDAPA. And you had a follow-up, Les? Leszek Sulewski: I do. It is on TDAPA actually. So is the real-world evidence that mutually inclusive with agreements on final pricing around the post-TDAPA period. Can you provide maybe some sort of a sense of your inklings into the price negotiation period into -- heading into July on the TDAPA side? Joseph Todisco: Well, look, you have to separate, the real-world evidence in our view is going to be most applicable and useful with Medicare Advantage, right? Medicare Advantage is not bound by the post-TDAPA add-on. They have the flexibility to contract separately, right? That's the strategy we want to employ. We have very little market share right now of Medicare Advantage patients, and we think it's a compelling value proposition for the MA plan. Ultimately, they are the payer of those downstream costs, those hospitalizations that drive so much cost in the health care system. So we want to, obviously, with data, make the argument that investing in prevention, right, is going to save them a significant amount of value. On the traditional Medicare side, there's not much of an opportunity for negotiation, Les. It's really based on when the ESRD final rule publishes, what they ultimately determine is going to be the fee-for-service adjustment, and we'll work around that once it's published. Operator: And the next question comes from Jason Butler with Citizens. Jason Butler: Congrats on the quarter. Two for me, Joe. First one, you mentioned that the ordering from the LDO has been faster than you'd expected. How has the use been in terms of the number of patients and the type of patients that the LDO has been using the product in? And then secondly, when we think about the real-world data coming at the end of the year, can you just give us some color about what to expect in terms of the number of patients, the endpoints and how we assess the benefit here relative, for example, to the Phase III results, if that is at all relevant? Joseph Todisco: All right. Thanks, Jason. So -- yes. So the LDO, it wasn't just a matter of ordering, right, faster, right? The data we're getting from inventory on hand demonstrates that the utilization is also faster than what we expected in the ramp. And I know that we had guided previously that the expectation was to target an initial rollout of 6,000 patients. We don't have today an exact number of where we are. We believe we are significantly higher than 6,000 patients. And we're -- so we're pleased with the rollout, but we don't have the ability to give a patient number at this time. In terms of kind of the stratification, I don't know if you were asking about high risk or type of insurance. We don't have great visibility into that data. I think our expectation is that it's mostly fee-for-service patients at this time and that there's an opportunity with Medicare Advantage. On the real-world evidence question, I'm going to ask Liz to address. Elizabeth Masson-Hurlburt: Sure. Jason, so we are expecting the year 1 results to come out later this year. It's approximately 2,000 patients. So we're double what we had in our Phase III LOCK-IT study. And we expect that we're going to read out data on the reduction in actual CRBSI, reduction in hospitalizations due to CRBSI. There are some secondary endpoints we're looking at as well, missed treatment sessions, utilization of TPA and antibiotic utilization. And those are all being compared to the historic infection rates. So we should have that out sometime in the next 6 to 7 weeks. Operator: And the next question comes from Roanna Ruiz with Leerink Partners. Roanna Clarissa Ruiz: So a couple from me. First one is, given some of the trends you're seeing in DefenCath utilization so far, how should we think about the second half '26 revenues and pricing dynamics post TDAPA? And what are some of the pushes and pulls that could drive DefenCath revenues either higher or lower after this TDAPA period? Joseph Todisco: Thanks, Roanna. As I think I said to Les, we're not in a position to give a lot of clarity right now on that back part of '26. Obviously, we do know there's going to be price compression, right, because it's going to shift from the ASP method into the post-TDAPA add-on absent the passing of legislation that is currently pending before the Senate. But the pushes and pulls would be related to how CMS does the calculation for utilization. The method that they had proposed in the proposed rule, which we commented on would have created or will create a dynamic where the adjustment for Q3 and 4 of '26 is lower than the adjustment for '27. And if that's the framework, I think we're prepared to work around that. We're just waiting for a final determination in the final rule, which was expected a couple of weeks ago. I know the government shutdown has delayed quite a few things. We're expecting it to come any day now. And once we have that, we'll be able to finalize things with customers and just continue moving forward. Roanna Clarissa Ruiz: Got it. That's helpful. And another quick follow-up for me. I was curious, with your discussions with customers into the post-TDAPA period, what are some of the goals of these discussions? And what data are you bringing forward right now to help those discussions as well? Joseph Todisco: Well, look, I think the real-world evidence data is going to be critical, right? And that should be -- it's interim midpoint data available by the end of the year. And I think the ability to demonstrate the impact on the health care system is an important one. We've gotten anecdotal feedback from multiple customers that they've seen a noticeable difference, right, in their infection rates. I know that's not data, right? But it's -- if they are feeling it and visually seeing it, certainly that's a positive and something that we will want to build on. Operator: And the next question comes from Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on all the progress. Two from me maybe, just firstly, any color on how you're viewing the DefenCath inpatient opportunity? How is that progressing? And how do you expect that to progress in '26, just given the scale and relationships that Melinta brings in that setting? And then maybe secondly, just changing gears to Niyad. How are you thinking about that investment well in Talphera, but sort of Niyad as a product? It seems like a product you can sort of simply drop into your commercial infrastructure and drive pretty strong EBITDA accretion on day 1. Is that how you think about the product? Or do you think there's material investment required behind that opportunity should you execute on your option? Joseph Todisco: Thank you, Brandon. So look, on the inpatient side, I think we're continuing to -- over the course of this year, we've seen good progress. I'd say it's a drop in the bucket compared to the magnitude of what we've seen outpatient, but it has been good steady growth over the course of the year. As Liz mentioned in the script, starting next year, as we are migrating from the legacy contracted field team that was inpatient for CorMedix into the new combined field team post-Melinta integration, we'll be training that team in December on DefenCath. And in January, they'll begin promoting in the inpatient segment. So I do expect to continue to see lift there as a good opportunity for growth. As we talked a lot about over the last 2 years, while the inpatient volume might be lower, right? The pricing there is a little bit better and the revenue per patient higher, right? So it's a good profit opportunity, right, for DefenCath in the inpatient setting. On Niyad, obviously, we did the strategic investment because we like the product. We like the fit with us from a commercial infrastructure standpoint. We're going to continue to watch the clinical results and evaluate the opportunity. I don't know that I'm prepared to comment that no investment, right, would be required, Brandon, if we were to acquire the business. Obviously, there's an investment if we were to acquire Talphera. I imagine there's some amount of marketing expense related. But I think from a sales deployment standpoint, our current expectation is it fits very well with our existing call points. Operator: And the next question comes from Serge Belanger with Needham & Company. Serge Belanger: A couple for us, Joe. The first one, can you just give us an update on the pricing of DefenCath over the third quarter? And then on TDAPA, it sounds like the ESRD rule is going to determine the calculation for post period starting in July. Are you going to be able to provide guidance once the ESRD rule is published? And then secondly, are you aware of any legislation bills in Congress that could modify the TDAPA reimbursement? Joseph Todisco: All right. Thanks, Serge. In terms of specific pricing on DefenCath, obviously, we don't give that. We have guided historically that quarter-over-quarter, there is a slight erosion based on the structure of the agreements. We track -- typically, our ASP is a discount off -- our selling price is a discount off government ASP, which has kind of tracked down quarter-over-quarter, but volume has obviously grown significantly to more than offset the changes in price. So I think the TDAPA rule and the methodology will inform. We set agreements in place with all of our customers, right? And there were formulas laid out for how pricing needs to be determined. I think one of the things we're waiting to see is that dynamic whether or not CMS uses a methodology where the Q3 and Q4 of '26 will be lower than '27. And if that's the case, we may try to negotiate a blended price over a period of time. But that's really the only nuance that we're looking at. I don't -- again, I don't know that I would want to give any customer-specific pricing, but we should be able to talk a little bit more directionally in the early part of next year about what we're going to see for the back part of the year. And then lastly, in terms of the legislation, there is a bill that was proposed by Senator Booker, Marsha Blackburn, bipartisan bill that would make significant changes to TDAPA in terms of incentivizing innovation. I think most importantly, it would expand the ASP-based pricing period from 2 years to 3 years. It would make the post-TDAPA add-on permanent, but also have that add-on track drug utilization in terms of that we follow drug utilization. Right now, the methodology CMS uses, they bundleize based on market share of total dialysis, irrespective of whether drug is dispensed. The proposed methodology in the legislation would allocate that market share based on percentage of drug claims submitted over time. And I think that's certainly a better measure and hopeful that, that legislation can make its way into law in the early part of next year. I know the government shutdown has stalled quite a few things. But hopefully, the new Congress in early '26 can advance that forward. Operator: I'll now pass it to Dan Ferry for written questions from the audience. Daniel Ferry: Thank you, operator. Joe, we had quite a few here, but it looks like a lot of them were covered during the live Q&A. I do have one additional one, though that you might help us out with here. What do you think is misunderstood regarding the Melinta transaction? And why are investors not crediting the value of Melinta? Joseph Todisco: I mean, thanks, Dan. I just chuckled a little bit because as I was going through all of the analyst questions, it struck me we didn't get a single question on Rezzayo, on the potential impact, on how we're viewing Melinta, right? And I think there's obviously a lot of historic focus on DefenCath and for good reason, right? It's the largest revenue driver in the business currently. But when I look at what -- why we did the acquisition of Melinta, what it brings to the table, I certainly do think there's a lot of things that are not currently being appreciated, one of which is the stabilizing factor of the base business that was acquired from a risk mitigation standpoint, right? We got quite a few questions around what's going to happen in the back part of the year next year with DefenCath. And the Melinta base business gives us a good stable base of revenue from which we're able to take operating synergies and really entrench the business. Second, I think Rezzayo prophylaxis as a pipeline opportunity is certainly not being valued appropriately. This has the potential to be a larger peak sales product than even DefenCath, right? You've got a total addressable market over $2 billion. You've got a market segment that is already getting prophylactic antifungal therapy, right? These patients that are immune compromised. So it's not as if we have to change patterns. Similar to the launch of DefenCath, where nothing was being done prophylactically, we really had to change mindsets. This is a different situation where prophylactic action is already being taken and the standard of care has some deficiencies with it, right? The severe drug-drug interactions, I don't think should be discounted. The ability to shift to weekly dosing to perhaps increase convenience for the patients as well as a large amount of the dosing or administration would be in an outpatient hematology/oncology clinic setting, which is buy-and-bill reimbursement, right? So I think there's a lot of favorabilities and opportunity around Rezzayo prophylaxis as a future growth driver of the business as well as TPN, right? I think we're excited about the opportunity for TPN. We've just done some updated internal market research, right, that has confirmed how high the infection rates are in that patient population, how much the doctors are looking for an intervention. So I think we're excited about the future growth prospects for the business outside of hemodialysis. And I think that's -- those are important catalysts that I think investors need to start focusing on. Daniel Ferry: Excellent. Okay. Thank you, Joe. Operator, you may now close the call. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to BiomX Third Quarter 2025 Financial Results and Program Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Marina Wolfson, Chief Financial Officer of BiomX. Please proceed. Marina Wolfson: Thank you, and welcome to the BiomX conference call to review the company's third quarter 2025 financial results and provide an update on our business and programs. Later today, we will file the quarterly report on Form 10-Q with the Securities and Exchange Commission. In addition, the press release became available at 7:30 a.m. Eastern Time today and can be found on our website on biomx.com. A replay of this call will also be available on the Investors section of our website. As we begin, I'd like to review the safe harbor provision. All statements on this call that are not factual historic statements may be deemed forward-looking statements. For instance, we're using forward-looking statements when we discuss on the conference call, the sufficiency of the company's cash, our pipeline, momentum and milestones, the design, recruitment aim, expected timing and interim and final results of our clinical trials, the timing of lifting of the FDA clinical hold, if at all, the magnitude of the FDA basis to impose a clinical hold and resumption of the BX004 clinical trial, expected feedback from the FDA and additional regulatory agencies and results thereof, the potential benefits of our product candidates, including the potential that they would become an off-the-shelf formulation intended for broad outpatient use in diabetic foot infection, the potential safety or efficacy of our product candidate, BX004, BX011 and BX211 and the potential market and partnering opportunities for our product candidates. In addition, past and current clinical results as well as compassionate use are not indicative and do not guarantee future success of our clinical trials. Except as required by law, we do not undertake to update forward-looking statements. The full safe harbor provision, including risks that could cause actual results to differ from these forward-looking statements are outlined in today's press release, which as noted earlier, is on our website. Joining me on the call this morning is BiomX's Chief Executive Officer, Jonathan Solomon, to whom I will now turn over the call. Jonathan Solomon: Thank you, Marina, and thank you all for joining BiomX Third Quarter 2025 update today. The third quarter of 2025 has been an important period for BiomX as we continue to advance our clinical programs and engage with regulatory authorities on the pathway forward for our phage therapy clinical pipeline. Starting with our lead program, BX004 for the treatment of cystic fibrosis patients with Pseudomonas aeruginosa infections. Throughout the quarter, the program made important progress while navigating some regulatory challenges. We began the quarter strongly with first patient dosing in our Phase IIb trial, a significant milestone in the development of this innovative phage therapy. As the trial progressed, we received notification in August that the FDA has placed a clinical hold on our U.S. trial sites. This hold relates solely to third-party nebulizer device used to deliver BX004, not to a drug candidate itself. Importantly, the FDA raised no concern about BX004 in their notification. So we see this as a technical challenge, but not a fundamental concern when it comes to our approach to our trial. We promptly submitted the requested nebulizer data and responded promptly to additional clarification requests and expect FDA feedback imminently. While this temporary pause affects our U.S. sites, we're optimistic about resuming enrollment soon. Since all components of the nebulizer are CE marked in Europe, our European trial continues uninterrupted and in full compliance with protocol requirements. Our European enrollment continues to progress according to plan. As reported just a few weeks ago, in October, we received written feedback from the FDA detailing the agency's understanding of the substantial unmet need for treatments targeting chronic Pseudomonas aeruginosa infection in CF patients even with existing CFTR, cystic fibrosis transmembrane conductance regulator modulators. As part of that feedback, the FDA outlined several potential development pathway for BX004, including specific approaches for our Phase III inclusion criteria to demonstrate therapeutic benefits. This constructive feedback was encouraging for us as it provided both valuable guidance on how the FDA sees development for our program while recognizing its relevance to an important medical need, which we see as a vote of confidence. Following our BX004 Phase IIb readout, we plan to incorporate the FDA's recommendation into our development strategy and look forward to further discussion at our end of Phase II meeting. As of today, we are still on track to report the data in Q1 2026, notwithstanding the halt, which we expect to hear feedback from the FDA imminently, as I noted. Let us now turn to an exciting development in our second program. In early November, we reported positive FDA feedback on our plan to target Staphylococcus aureus infection in diabetic and foot infections or DFI. This feedback supports our strategy to develop BX011, our next-generation fixed-phage cocktail designed specifically for this difficult-to-treat condition. BX011 represents a natural extension of our Phase II clinical success with BX211 in diabetic foot osteomyelitis, targeting the same Staphylococcus aureus pathogen, but in an earlier stage of disease where infection remains localized to the ulcer. The program advances toward an off-the-shelf formulation intended for broad outpatient use in diabetic foot infections while also offering dual-use potential as a rapidly deployable solution for treating combat-related wound infection as an approach well aligned with the priorities of the U.S. Defense Health Agency, or DHA, for future conflict environments. I want to take a minute to explain why we're targeting DFI initially. The DFI indication addresses a critical unmet medical need. Approximately 160,000 lower limb amputations occur in diabetic patients in the U.S. annually with 85% stemming from diabetic foot infection or osteomyelitis. Despite this urgent need, no new drugs have been approved for DFI in the U.S. in over 2 decades. Additionally, DFI patients represent a large addressable patient population with significant commercial opportunity with a regulatory pathway that's clearly supported by established FDA guidance. These factors make DFI a strategically compelling indication for our program to focus on while leveraging the strong clinical data we already have. The FDA provided detailed constructive guidance for BX011, outlining the clear potential pathway toward a BLA, Biologics License Application. Notably, no additional nonclinical studies were requested and their CMC comments are aligned with our established manufacturing approach. This feedback confirms our development plan harmonizes with current FDA guidance for DFI product development. BX011 will be applied topically and includes proprietary phage previously evaluated in our successful BX211 study. We plan to advance BX011 in coordination with ongoing discussion with the DHA and subject to securing necessary financial resources. Looking more broadly at the landscape, we're seeing strong momentum across the phage therapy field alongside rising global attention to antimicrobial resistance. We think this underscores the growing validation of phage-based approaches such as ours. This broader progress across the industry validates BiomX's precision phage therapy and strengthen our confidence as we look ahead for the upcoming BX004 Phase IIb readout. I'd like to now pass you to Marina to review our third quarter 2025 financial results. Marina Wolfson: Thank you, Jonathan. As a reminder, the financial information for the company's third quarter 2025 is available in the press release that we issued earlier today as well as in more detail in our Form 10-Q, which we will file later today. I will now proceed with the highlights of our third quarter financial results. Our cash balance and restricted cash as of September 30, 2025, were $8.1 million compared to $18 million as of December 31, 2024. The decrease was primarily due to net cash used in operating activities. BiomX estimates its cash, cash equivalents and restricted cash are sufficient to fund its operations into the first quarter of 2026. Research and development expenses net were $6.1 million for the third quarter of 2025 compared to $7.3 million for the third quarter of 2024. The decrease was primarily driven by reduced salary expenses due to workforce reduction, lower rent expenses following a right-of-use asset impairment in 2024 and decreased expenses related to the CF product candidate, primarily due to the significantly higher manufacturing costs that were incurred in 2024. Such decrease was partially offset by an increase in depreciation expenses attributable to an accelerated depreciation of leasehold improvements resulting from the modification of our office lease agreement in Israel as well as by decreased grant funding from the Medical Technology Enterprise Consortium under the DHA and the Israeli Innovation Authority. General and administrative expenses were $2.4 million for the third quarter of 2025 compared to $3.2 million for the third quarter of 2024. The decrease was primarily driven by reduced salary and share-based compensation expenses and lower legal and other professional service fees. The decrease was partially offset by an increase in depreciation expenses attributable to the accelerated depreciation of leasehold improvements resulting from the modification of our office lease agreement in Israel. Net loss was $9.2 million for the third quarter of 2025 compared to net income of $9.6 million for the third quarter of 2024. The decrease was mainly due to the change in the fair value of warrants issued as part of the company's March 2024 financing. Net cash used in operating activities for the 9 months ended September 30, 2025, was $22 million compared to $30.7 million for the same period in 2024. I'll now return the call to Jonathan for his closing remarks. Jonathan Solomon: Thanks, Marina. To summarize, our focus remains strongly on clinical and regulatory execution, advancing both BX004 and BX011 through key upcoming milestones. We anticipate feedback imminently on the BX004 clinical hold in the U.S., which could enable the resumption of enrollment in the near term. In parallel, encouraging FDA guidance has outlined a clear Phase III development pathways for BX004 and strengthened the regulatory and commercial opportunity for BX011, which will focus on diabetic for infection patients, large and commercially significant population. With increasing validation across the phage therapy space, BiomX looks forward to the upcoming BX004 trial readout in the coming months and the continued progress toward bringing precision phage therapies to patients in need. Thank you all for joining today's earnings call. And with that, we'd like to open up for questions. Operator: [Operator Instructions] Our first question comes from Joe Pantginis with H.C. Wainwright. Joseph Pantginis: So a few questions right now. You've got a lot of working parts, and it's really nice to see all the regulatory progress. So maybe I'll start with DFI. It's good we have the clarity on the potential path forward. So I have 2 questions there. With regard to the defense potential, is this something that you might look to do in parallel with your clinical program? Or is this has the potential to be independent development through defense? Jonathan Solomon: Quite chilly in New York this morning. So it's actually -- I think that's one of the really interesting aspects of the DHA, right? So they understand, unlike other agencies, that the best way to get a product approved is to support it first in a commercial indication. So they kind of say, look, if the fastest path to get the drug approved is diabetic foot infections, we'll actually support that, get the drug approved and then we can always kind of expand the indication later, right? So I think that's a very refreshing approach and very practical. So we had this conversation with them and kind of said, look, we're debating, we have data in diabetic foot osteo. We have data -- the endpoints, as we've discussed, are all about soft tissue. So there are diabetic foot infection endpoints. We're really excited about diabetic foot infection. Does it make sense for you guys? And they're like, yes, it's actually closer to combat wounds. But again, they kind of reiterate, we'll support whatever you think is the fastest path to get to approval, right? So that's their view. They will hopefully continue -- right, they supported with $40 million to date. Hopefully, they'll continue to support in a meaningful amount in the future. And that would be an approach which is diabetic foot infection. It's not like combat wounds. That would be something that we'll look to do together probably later. And it also, I think, bodes well for the discussion that we did have about the products because we said the existing work on BX211 was a personalized approach. We have a lot of experience with Staph aureus. We know how to do a broad cocktail and an off-the-shelf product, and that's what we think we'll move to BX011 using the phage that we used in the trial. They're like, yes, because we view that it's more likely that an off-the-shelf product makes sense for combat settings, right? But still, they want to see us pursue diabetic foot first, get the drug approved and then sort of expand it later. So I hope that helps clarify. Joseph Pantginis: No, it certainly does. And then my second question before I switch to my one for 004. So on DFI, are there any outstanding questions? It seems like you have pretty good clarity right now or very good clarity. But are there any outstanding questions that still need to be addressed with regard to potential design or inclusion criteria? Jonathan Solomon: There's some fine-tuning, but generally, right, as you kind of note, right, first, there was a guideline, which is very clear on DFI, right? So the guideline kind of states the endpoints. You can always tweak some of the composite endpoints, but there's pretty good understanding. The FDA was very clear. So we do know how the clinical study is going to look like. Of course, we're on consult with the DHA and make sure we're aligned. And that -- so I think that's kind of the next step. But in terms of regulatory feedback, we got all the feedback we want consistent with CMC aspects, which we know and feel very comfortable. And of course, the reassurance that there's no need to do animal safeties or some of the skin penetration, it's pretty straightforward. So we feel that it's aligned. I think the feedback was consistent. And I think now we look forward to kind of working together with the DHA to lay out the next study. Joseph Pantginis: Great. And then my question on 004. It's pretty intriguing to us regarding the FDA feedback right now. So I'm hoping you might be able to provide a little more color even though it's a bit early for this on next steps with regard to how you might enrich the population or optimize it as you put it. Jonathan Solomon: Sure. So I do think we're super appreciative of the feedback that came to the FDA, right? I think it's thoughtful. You could see as the number of participants just in the document that was provided by the FDA. And again, they understand it's a huge unmet need, right? We're seeing it in the clinical study, right? Patients want to go on the study. They know that getting one of these nasty Pseudomonas is a really bad outcome, right? And they're willing to do whatever they can to get rid of those Pseudomonas. And the FDA understands it, appreciates it. They understand the difficulties in the age of CFTR modulators. And I think that's where they're open, right, to say, hey, you could potentially enrich the patient population with -- I mean, we've talked about bronchiectasis being a really interesting indication. You could look at patients which are not taking CFTR modulators, patients who are exacerbating more and try to get the clinical signal there where it's easier and hopefully get a broader approval. So that's kind of the thinking around enrichment. And I think that's why we're so appreciative of the FDA kind of taking a step forward and understanding it is an unmet need, show us a clinical signal in an enriched population and potentially, right, we could think about a broader label. Operator: Our next question comes from Yale Jen with Laidlaw. Yale Jen: I'm just going to follow up what Joe has asked a little bit in more detail. The first one is for the 011 in DFI. Does the FDA felt that the current mix of phage was good? Or would you guys are thinking maybe tweaking that a little bit given that the setup was built up a little bit earlier? And then I have a follow-up. Jonathan Solomon: Sure. So I think specifically with Staph aureus, we feel very comfortable. It's one of these bacteria that very few numbers of phage get broad coverage, right? So I don't think we need a very extensive phage cocktail based on our experience. And we can use just a few phage that we used in the previous study, put together a product that moves forward. Generally, I will say the FDA has been very supportive in terms of phage cocktails, right? So we've seen -- we've experienced and other experienced that actually an update of the phage cocktails through clinical development without a problem, without needing to go back, without needing to do any safety studies. So we've shown -- we've had that experience of expanding BX004. As I said, other phage companies had the same experience that was reported publicly. So no, we don't anticipate any challenges there. I think we feel very comfortable both with the support from the regulatory agencies as well as our experience, specifically in Staph aureus and in cocktails in general. Yale Jen: Okay. Great. That's very helpful in terms of clarify that. Maybe one question on 004, actually, 2 of them. So the first one is the initial clinical hold, I understand that just for the nebulizer. And would you speculate why FDA feel they need to put at least temporarily put something in there? Was there any -- do you know what their mindset was? And then a follow up on the -- I have another follow-up. Jonathan Solomon: Sure. So obviously, it's a challenging situation, especially as this is like a very commonly used nebulizer that is CE marked in Europe. And we see that with the trial kind of proceeding well in Europe and recruitment kind of speeding up beyond our expectation and kind of catching up with our time line. Again, I don't know for sure. Our speculation is there has been some new set of requirements that were asked a few months ago, and that sort of just required additional data. So I think the concern just because there were some additional data required from the nebulizer of test that we provided and seem to be very technical and what we've seen and provided is all within scope. So we view it as very technical. Again, only about the nebulizer, no questions whatsoever about phage or BX004 specifically. So I think it's technical, right? We don't know for sure. And that's why we expect that imminently, hopefully, right, imminently, the hold will be lifted. Yale Jen: Okay. Great. And I think that's just a little bit -- I assume nuisance happened along the way. And then maybe the last question here is that given that you have a discussion with the FDA about the potential Phase III study. I know there's probably still a lot of moving parts there yet. But nevertheless, was there any sort of general idea in terms of the size of the study, duration of the treatment or any other color you can reveal? Jonathan Solomon: Sure. So I think we can't go too much into details as we're thinking, but we have a rough understanding of how does the Phase III -- of course, everything depends on the outcome of the Phase IIb. But it's an orphan indication. We know phage is safe. We've got all of the understanding. So hopefully, it's a shorter development path, right? It's an orphan indication, as I mentioned. So there are all the regulatory sort of path to try to get this thing moving. Again, I think here, we're benefiting so much from the help of the CF Foundation, is actively discussing with the agency as well as with us and supporting us in many ways. So I think it's a relatively well-defined and straightforward path, of course, pending good data. And you know what we're also seeing, and I'm sure you're feeling it as well, right, there's a lot of increased pharma interest in respiratory. We've seen some of the interesting transaction that happened in respiratory, and we're seeing that interest, right? So there is robust pharma interest in that indication, right? We talked about CF and NCFB with some of the recent success and approvals in that field. And also, I think as we're seeing, there's increased phage interest, right? There's success by us and others which is helping. So I think it's kind of converging to a lot of interest pending positive data in Phase IIb that there's a really interesting path forward. It could be in CF, it could be in NCFB, and it all depends on the setup, the financing and potential partnerships. Yale Jen: Okay. Great. That's very helpful. Again, congrats on all the progress and the best luck for you guys. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Jonathan Solomon for closing remarks. Jonathan Solomon: So I wanted to thank you all for joining us this morning. Wishing everyone happy holidays, and we look forward to reporting on our next developments. Thank you so much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to 2020 Bulkers Q3 2025 Financial Presentation. Today's call is being recorded. [Operator Instructions] I would now like to introduce CEO, Lars-Christian Svensen. Please begin. Lars-Christian Svensen: Thank you, operator. Welcome to the Q3 2025 conference call for 2020 Bulkers. My name is Lars-Christian Svensen, and I'm joined here today by our CFO, Vidar Hasund. Before we begin the presentation, I would like to remind you that we will be discussing matters that are forward-looking. These statements reflect the company's current views regarding future events and are subject to risks and uncertainties. Actual results may materially differ from those anticipated. I will now proceed with the highlights of the quarter. We reported a net profit of $9.8 million and an EBITDA of $14.2 million. The gross TCE earnings for the quarter were approximately $35,100 per day. We declared a total dividend of $0.54 per share for the months of July, August and September, and the company used FFA to hedge 2 vessels at $33,700 per day from the 1st of August until 31st December. The company also signed agreements to sell vessels Bulk Sandefjord, Bulk Santiago and Bulk Shenzhen for a total consideration of $209 million with an agreed delivery to the new owners in Q1 2026. In subsequent events, we signed an agreement to sell the vessel Bulk Sao Paulo for a total consideration of $72.75 million with Q1 2026 delivery for this unit as well. For October, we achieved a time charter equivalent of about $36,000 per day and a dividend payout of $0.19 per share for the month. And with that, I will now pass the floor to Vidar. Vidar Hasund: Thank you, Lars-Christian. 2020 Bulkers reports a net profit of $9.8 million and earnings per share of $0.43 for the third quarter of 2025. Operating profit was $11.7 million, and EBITDA was $14.2 million for the quarter. Operating revenues and other income were $19.3 million for the third quarter. The average time charter equivalent rate was approximately $35,100 per day gross. Vessel operating expenses were $3.7 million and the average operating expenses per ship per day were approximately $6,600 in the third quarter. G&A for the third quarter was $1.2 million. 2020 Bulkers recognized approximately $0.5 million in management fee as other operating income in the financial statements. Interest expense were $1.9 million for the quarter. Shareholders' equity was $148 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the third quarter and is nonamortizing until maturity in April 2029. Cash flow from operations was $12.2 million for the quarter. Cash and cash equivalents were $15.2 million at the end of the quarter. The company declared total dividends to shareholders of $0.54 per share for the months of July, August and September 2025. That completes the financial section. And now back to you, Lars-Christian. Lars-Christian Svensen: Thank you, Vidar. 2020 bulkers still have 6 scrubber-fitted Newcastlemaxes with an average age of about 5 years. All vessels are time chartered out on index-linked period contracts to solid counterparts. At each given time, we have the option to convert the vessels from index-linked to fixed rates using the forward FFA curve as a price metric, if we see value in the forward curve. This structure has been an integral part of the company's commercial strategy, which has led us to net profit every quarter since inception in 2019. Not only have we been positive, but we also paid out dividends to the shareholders in 65 consecutive months, which equals 163% of the total paid in capital. The company has an industry low cash breakeven of $11,500 per day for the entire fleet. Due to our vessels superior intake and speed design compared to a standard Capesize vessel, we only need the Baltic Capesize Index to be above $7,500 per day to make money. As you can see from the historical market graph, with the current company structure, 2020 Bulkers will generate a profit and healthy dividend capacity in almost any market. We take pride in our low cash breakeven, but even more pride with our structure linking it with a healthy dividend capacity. If the Baltic Capesize Index is $20,000 per day, we will yield 12%. If the index is $30,000 per day, we'll yield about 20%. And when the Baltic Capesize Index hits $40,000 per day, 2020 Bulkers will yield about 30%. Now let's move over to the market section. The Baltic Capesize Index is currently higher than the average from 2015 to 2024 and also higher than in 2023 and '24, respectively. The largest drivers have been increased bauxite exports from West Africa to China, but also strong iron ore exports from Brazil to China. Both legs are long-haul routes, which has provided a healthy market level and increased ton miles. The ton-mile story continues to move in the right direction after a significant drop at the end of Q4 '24. Ton-mile for Q3 for Capesize was up 2% year-over-year, driven by long-haul trades from the Atlantic to Asia. Bauxite from Guinea has surpassed positive expectations every month and is up 28% year-over-year and 15% in Q3 alone. Iron ore exports are continuing its positive trajectory with increased exports from both Brazil and Australia and coal remains subdued and is currently down 15% in Q3 year-over-year. In Q4 2024, we saw a decline in coal transported on Capesize and Newcastlemax, which led to weaker freight rates. We're still not close to transport the pre-Q4 '24 coal volumes on the larger sizes, but we are seeing more coal back on the Capes and Newcastlemaxes in the last 2 quarters. This is due to more activity on the grain trade for the Panamaxes, which has left more coal for our segments. We also see in 2025 that for the first time in history, more bauxite is transported on the larger sizes than coal, which marks an important shift in trade dynamics. Bauxite is now responsible for 16% of the total Capesize and Newcastlemax volumes. China's appetite for high-grade iron ore has exceeded even last year's record import numbers with a 4% increase year-over-year. As you can see from the left graph, the domestic Chinese iron ore production is trending down. Domestic iron ore production was down 3% year-over-year in '24 and down 1% to date in 2025. This may be another signal that Chinese domestic iron ore production is becoming less economical due to its low Fe content estimated around 20%. On the right graph, you can see that import volumes are on the rise with high-grade iron ore from the Atlantic being the main driver. The Chinese iron ore inventories down approximately 10% year-over-year, this indicates a healthy iron ore demand scenario, as we're soon wrapping up 2025. The first volumes from the Simandou mine in Guinea are currently being loaded according to our sources. This milestone represents another strong front leg from the Atlantic, which will continue to boost the ton-mile story. Over a 24-month ramp-up phase, the mine is targeting 120 million tonnes of high-grade iron ore per annum for the market. With the additional Vale capacity increase by 2026, we expect a total of 170 million tonnes of high-grade iron ore from the Atlantic, most of which will be exported to China. As shown on the right graph, comparing these volumes to the record low order book, the supply story strengthens further. The bauxite volumes have exceeded forecasted volumes by a land slide this year, a 28% increase in ton mile year-over-year and the world seaborne bauxite has had a 15% increase in Q3 2025. As the rain season is coming to an end in Guinea, we're positive to the bauxite story as we're entering the high season for this commodity in the coming quarter. Before we end today's presentation, we continue to highlight the historically low order book. We are at a 25-year record low, standing at 9.3% of the total existing Capesize fleet. Active shipyards are down 60% from the peak in 2008, making it challenging to build any meaningful capacity that could disrupt the favorable supply dynamics for the next few years. The visibility of additional capacity remains, and we continue to thank other shipping segments for their continued newbuilding additions. I will now pass the word back to the operator and welcome any questions you might have. Operator: [Operator Instructions] The first question is from the line of [ Patrick Talger ] from ABG. Unknown Analyst: A quick question in sort of the prospect after the 4 ships now is delivered to its new owners in Q1. Two ships left, what could you say about what is the right way employment, if any, for those 2? And in the event of the 4 being sold and the 2 remaining, what is your current plans for deploying those dollars coming from the ship sales, buying new ships, everything else in dividends or anything else? Lars-Christian Svensen: Thank you for the question. We are, though, 4 to 5 months away from the transaction being closed and money into -- in the account. So it's a bit too early to announce what we're going to do going forward when we have 4, 5 months of business as usual here. We're trying to optimize as much as we can, make as much money as we can in the meantime. And we take quite a lot of pride in being transparent and being shareholder-friendly, and we will naturally strive to continue that going forward as well. I do understand the question, but as always, we will notify the market if and when we buy or sell new ships. Unknown Analyst: Understood. Looking further into 2026, do you -- I remember if you sort of go back to, I think, it was in Q4 2023, you said that the first quarter in '24 would be not as weak as the market seems to expect. And at the time, that was a very accurate prediction. In terms of Q1 2026, do you think the bauxite volumes in combination with the Simandou volumes will counteract the normal very weak seasonality and particularly into February? Or will we see more or less the same as we saw in Q1 this year? Lars-Christian Svensen: Whoever had a crystal ball, but I'll try. I think Q1 is more interesting now than it's been for many, many years because the bauxite volumes are up high season, as you know, out of Guinea. We'll expect a lot of volumes going from there into China. And in the Simandou mine as well, we will experience more volumes in that particular window than we have done in the past. What's also quite alluring is that there is fairly dry in West Africa at that time of year. So we expect the volumes to keep on flowing. You obviously have the X factor from Brazil. Is it going to be a wet season? Is it going to be dry? But all in all, I think the historical Q1 doldrums will not have as much impact going forward and see a little bit more stable market across the quarters. I'm quite confident that Q1 will remain stronger in the years to come than what they've been in the past because of these new volumes and the ton-mile intensity of it all. Operator: [Operator Instructions] It does not look like we have any further questions from the telephone call. So I'll hand it back to the speakers. Lars-Christian Svensen: Thank you very much for listening in, and we look forward to speak to you next quarter as well. Thank you very much. Vidar Hasund: Thank you.
Operator: Good day, and welcome to our second quarter fiscal 2026 earnings conference call. Today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Tomas Grigera, Vice President, Corporate Treasurer. Tomas Grigera: Thank you, operator. Joining me today are Pieter Sikkel, our President and CEO; and Dustin Styons, our CFO. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are described in detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion of non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA and adjusted EBITDA. and adjusted free cash flow metrics, which are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. Reconciliations of these disclosures regarding these non-GAAP financial measures are included in the appendix accompanying this presentation, which is available on our website at www.pyxus.com. Commencing this quarter, we are also showing free cash flow adjusted for changes in working capital for relevant periods. We have included reconciliations of that non-GAAP measure in the appendix. Any replay, rebroadcast, transcript or other reproduction of this conference call other than the replay as provided by Pyxus International, has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I'll hand the call over to Pieter. J. Sikkel: Thanks, Tomas, and thank you, everyone, for joining. We are pleased to report solid second quarter results, continuing the company's track record of consistent execution and financial achievement and providing the momentum necessary to achieve another high-performing year. Our year-to-date performance, combined with improved near-term visibility enables us to increase our sales guidance to $2.4 billion to $2.6 billion and raise the lower end of our adjusted EBITDA guidance by $10 million to a new range of $215 million to $235 million. During the quarter, we delivered healthy sales results, strong gross profit per kilo and a higher gross margin percentage. And throughout the first half, we achieved earlier buying and processing in key markets. This acceleration supported our increased inventory position, consistent with larger crops and balanced customer demand, ensuring we are well prepared to fulfill customer orders during the second half of the fiscal year. Balanced demand is expected to persist in the near term. However, with another large crop projected next season, there is the potential for the market to shift towards oversupply. We are confident in our ability to excel in an evolving market environment with the scale and diversity of our global footprint and customer base serving as key differentiators. This enables us to maximize the value of larger crop volumes and deliver continued performance regardless of market dynamics. The first half of fiscal 2026 was a strong indicator of this ability. We successfully executed in the large crop environment by capturing mix-related opportunities that supported higher margins and returns, expanded third-party processing for our customers and improved fixed cost absorption across our operations. For the second half of fiscal 2026, we expect strong sales and cash generation as we ship inventory to meet demand. We will remain focused on optimizing our operating cycle times and accelerating the repayment of our seasonal credit lines to deliver credit profile improvement by our fiscal year-end. We also look forward to providing an update in the coming weeks on our refreshed global sustainability strategy. This update follows our achievement of various sustainability goals, such as our water and waste targets and reflects the results of a recent materiality assessment, which evaluates how our business affects people and the environment and how sustainability issues may influence our company's financial performance. We believe this strategic enhancement will drive further business integration, innovation, operational efficiency and alignment with key stakeholders as we work together to grow a better world. With that, I'll hand the call over to Dustin to discuss the quarter in more detail. Dustin Styons: I'll start by reiterating Pieter's comments. We achieved solid second quarter results, which contributed to our strong first half performance and positions the business to confidently deliver the balance of fiscal year 2026, in line with our raised guidance. Second quarter sales were $570.2 million, up $3.9 million versus last year, reflecting higher volumes at lower average sales prices. Gross margin improved to 15.4%, up from 13.3% in quarter 2 of fiscal year 2025, driven by improved returns on the current crop and increased third-party processing volumes. Year-to-date sales were $1.1 billion, down $122.2 million versus last year as accelerating shipments on the larger current crop have not yet fully offset lower carry-over sales from the prior year. Year-to-date, gross margins are 14.2% versus last year's 13.3%. This gain reflects improved product mix and is positively weighted by current crop sales in the second quarter. Second quarter operating income was up 41.5% or $13.7 million to $46.7 million versus the prior year. Adjusted EBITDA increased 23.6% or $10.5 million to $54.8 million versus last year. Year-over-year increases for the quarter were driven by higher volumes, stronger gross margin and relatively flat SG&A. Our year-to-date operating income was down $5.8 million to $67.7 million, and adjusted EBITDA was down $15.1 million to $84.2 million, primarily driven by the first quarter's lower carry-over sales from the prior year. Consistent with larger crops in South America and Africa, our working capital investment peaked in quarter 2. Inventory was up $160.6 million versus prior year to $1.14 billion, which positions us to execute shipments in the second half. Our seasonal lines were up $163.3 million versus last year to $908 million, which is consistent with our inventory position through quarter 2. Our operating cycle improved by 12 days, decreasing to 167 days compared to last year. Our liquidity remains strong with no outstanding borrowings on our $150 million ABL at the end of the quarter. Both our leverage of 6.54 turns and interest coverage of 1.48 turns are as expected and reflect the seasonal profile of the working capital investment needed for this year's larger crop. We expect second half sales and the release of working capital to support an accelerated paydown of seasonal lines, generating significant improvement in leverage. Our quarter 2 and year-to-date cash flows reflect concentrated and incremental first half purchasing. A rolling 12-month view best represents the timing of inventory seasonality and highlights our continued year-over-year improvements in free cash flow adjusted for changes in working capital, driven by our commercial strategy. We remain on track to deliver higher shipment volumes in the second half. Our third-party processing initiatives are capturing performance opportunities, and we continue to progress in price negotiations with key customers, improving visibility for the remainder of the year. This increased visibility supports our decision to raise full year sales guidance to $2.4 billion to $2.6 billion, up from the initial range of $2.3 billion to $2.5 billion. We are also tightening the bottom end of our adjusted EBITDA guidance to $215 million to $235 million, up from $205 million to $235 million, representing continued improvement versus prior year adjusted EBITDA of $208 million. I'll now hand the call back to Pieter. J. Sikkel: Thanks, Dustin. Our second quarter performance reflects disciplined delivery against our plan and positions us with the inventory necessary for a strong second half. With support from our experienced teams, robust global infrastructure and disciplined execution, we are confident in our ability to reach our improved sales and adjusted EBITDA guidance. This positions us for one of our strongest years on record, marking another year of growth. Looking ahead, we will remain focused on capturing opportunities for growth while maintaining an efficient operating cycle, strengthening liquidity and improving our credit profile. We expect a balanced market through the remainder of the fiscal year and the potential shift to oversupply next year as another large crop is anticipated. We see this shift as an opportunity to leverage our global farmer base and procurement and processing footprint to drive cost efficiency for the business and deliver value to our customers. These actions underscore our position as an industry leader and enable sustainable profitable growth well into the future. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Oren Shaked with BTIG. Oren Shaked: So Pieter, you mentioned the potential shift to an oversupply position in the market. You talked about that a couple of times. It's obviously been a while since we've seen that. So how should we think about the business and the competitive environment? Should that come to pass in a few quarters from now? J. Sikkel: Oren, thanks very much for the question. And in short, we see that as an opportunity. If you look at -- historically at our business in years of oversupply, we've tended to perform at our best. And really, that's a reflection of the opportunity at that time to really improve cost. When you look on the demand side, it's very stable. But when you're looking in the oversupply situation, your base cost of raw material from farmers is appropriate for the quality of the tobacco that you're purchasing. The opportunity for additional third-party processing volumes exists, and you can see that reflected in the quarter 2 results of this year. And the cost structure through our very large-scale facilities around the globe comes down. So we've got better fixed cost absorption. So all in all, you end up with increased volumes, improved margins and lower -- through lower costs. So we prefer that situation, frankly, to the shortage of supply that we've seen in the recent past. Oren Shaked: All right. That's super helpful. And then, Dustin, you referenced higher shipment volumes in the second half. It was obviously nice to see that inflect positive on a year-over-year basis in fiscal 2Q. Were you referencing higher volumes in the second half versus the first half? Or were you referencing higher volumes year-over-year? Dustin Styons: I think when we look at the second half shipments on a volume basis, as we've indicated with the higher crops, larger crops this year, we would expect to see higher volumes on the back half as well as for the full year. Oren Shaked: Got it. Okay. So you should expect to see volume increase for the year as well. Okay. So that's helpful. So obviously, a lot of inventory left to be monetized. And clearly, with the increased guidance, it feels like the confidence level in being able to do that seems very high. Dustin Styons: I think you're thinking about that correctly. Operator: [Operator Instructions] And it appears there are no questions at this time. I'll now hand the call back to Mr. Grigera for closing remarks. Tomas Grigera: Thank you again for joining our fiscal year 2026 second quarter call. We look forward to sharing future updates with you following the third quarter of fiscal year 2026.
Operator: Good day, ladies and gentlemen, and I warmly welcome you to today's earnings call of the q.beyond AG following the publication of the Q3 figures of 2025. We are delighted to welcome CEO, Thies Rixen; and CFO, Nora Wolters, who will guide us through the presentation and the results in a moment. [Operator Instructions] And with that, I would like to hand over to you, Mr. Rixen. Thies Rixen: Yes. Thank you very much. Good afternoon to all of you. I'm happy -- Nora and myself are happy to present the Q3 numbers. Headline has returned to profitability, what we aim for this year, so positive net income for the group. And Q3 is first milestone to reach it. And our -- all what we see is that it will be also the case in Q4. We will present you the numbers right now and give you a little bit of an outlook what will happen until end of the year and how do we start or how do we manage next year. Nora has most of the workload concerning the figures. So I hand over to her, and Nora will present the figures of Q3. Nora Wolters: Thank you, Thies. Welcome from my side. As you can hear, my voice is not so strong as it normally is. I apologize for that. And so let's start with Q3. 2025 is a very special year for q.beyond. We focused action in a stagnant environment. And in this situation, we returned to profitability as we announced. So let's use a quote of Ralph Waldo, "those who know the destination will find the way." And this is our clear message we deliver. If you look to the key figures, it shows a significant improvement. Again, the EBITDA increases. We have a positive consolidated net income and an increased free cash flow as well. So we deliver and we are on track. How do we consider the current development? You see 2 sides of a coin. The confirmation of our strategy is seen in the figures. We see the increase of efficiency and resilience. Additionally, we took advantage of a tax windfall resulting from the Plusnet transaction. On the other side of the coin, we suffer from economic underperformance, and we are affected, for example, by the situation of the German small- and medium-sized enterprises who delays and stop tenders. Additionally, we do not see the EUR 1 billion package from the German government in any tender. So the weak economy affects us as well. You cannot always write into the slip stream. So q.beyond has a clear focus on profitability, and that is seen in our numbers. First of all, I'd like to start with the revenue. We have a resilient business model that is stabilized in a challenging environment as well. Concerning the revenue, we waived off low-margin revenue in the end of last year. So it is not a surprise for us because we planned more profitable revenue instead of an increase. Additionally, our data center is not selling in the same speed as we hoped. So there's a reluctance to make decisions among small- and medium-sized enterprises as well. On the other side, we noticed an increase of our order entry. In Q3, we almost had twice as high as the last quarter of 2024. Concerning the year-to-date, we have an increase of 8% concerning our order entry book. So it's a great basis for the next year. On this slide, you see the former quarters and the view of 2025. As you see, we always have a very strong last quarter. And this is what we expect for 2025 as well. We focus on consultancy and development services, and we noticed a strong demand on AI solutions, picking up noticeably and implementation of tools. For example, our private enterprise AI is already sold and increases in development. On the medium term, there will be use of technology as well along the entire value chain. So if you look, for example, as SAP, there's a prioritization of companies in the S/4 migration for the next 3 years. So we expect a strong Q4, which is important if you look at the guidance later. We report 2 segments, Consulting and Managed Service. I would like to start at first with Consulting. In this quarter, we doubled our earnings. The margin grew up, and you see a remarkable improvement in our earnings. The measurable upskilling in the last year of the q.beyond Academy and the systematic performance management is very visible in our improvement. Additionally, we had a lot of contract extension and won new customers. Our second segment is Managed Services. It is relative stable of margin despite of reduced revenue. As I mentioned before, we focus on high-margin business. So additionally, we invested in our portfolio q. and AI cases. So you see a lower margin in this quarter. On the other hand, we have the same situation in Consulting, an increasing booking of contracts. So we are based very well for the next year. 2024 has a clear goal for us, a positive consolidated net income. On the slide, you see the P&L with the most important positions. What is important to know, we consistently invest in AI, especially our private AI -- private enterprise AI and develop our portfolio q. We are proud first customers take place in the private enterprise AI. And so we make significant progress in AI and improvement for our customers and their benefits. Another positive effect we had is the tax windfall, which you see in the other operating result as well. Furthermore, I'd like to point out that we make at the moment many digitalization projects. As you may know, we invest in a new ERP system and in 2 other digitalization projects. This is an amount of more than EUR 1 billion that we invest in processes and improvement for the next years. Our last financial figure is the free cash flow. Traditionally, Q3 is a very weak quarter. In the whole year-to-date, the free cash flow is about EUR 3.6 million, so it's increasing as well. It has to be regarded that we had higher expenses for investment in digitalization this year and reduced liabilities as well. Our net liquidity is among EUR 41.3 million this year. So that means a lot of possibilities for us for share buybacks, dividends or M&A. At the moment, there's no final decision. We want to take advantage of all this possibility and we'll inform you of the next steps. So sustainable success comes from sticking the course in difficult times. We are very proud to confirm our guidance today. My message is very clear. As you see on the slide, all of our financial figures will be reached at the end of the year. The revenue will be at the lower end of the guidance and the EBITDA and the consolidated net income as expected. So it's a great message for you. We are on track, we deliver. And well, we are looking very positively for Q4. And with this message, I leave it to Thies. Thies Rixen: Yes. Thank you, Nora. So what's the plan for this year and also for next year? So we will -- point number one is profit over growth. This is the case, will be the case also for the future. Near and offshoring, we are now at 20% or will be at 20%. In the national delivery capacity, let's say, 30% is the near-term goal. On top of it, we will start -- we hired sales people for the Baltic market as for the Spanish market. So we expect the first revenues to come maybe this year, for sure next year. And we expect, let's say, an impact -- the first impact in Q3, Q4 concerning the top line next year. So automation is driven by AI. Nora mentioned it. So we invested this year in the foundation of it. So we're in a data hub, a new ERP system so that we can use AI because now we are -- end of the year, we will be fully digitalized. There, we invested on top of the EUR 1 million we invested in the foundation, we invested again in AI for us and also for customer -- for the customer platform and in competencies so that we have a share of the AI revenue next year. This is 3 and 4 -- number three and four. And number five is we also start to invest heavily in our portfolio upgrade, mainly for Managed Service, which we call internally q., so this means AI in every service. So tool chain -- AI tool chain in every service and on top of this, all what is security needed and all what is needed from the regulation for banks, insurance companies or others like this NIS or DORA -- in the DORA or NIS framework. So with that, we will be able to drive efficiency and also to win businesses. When we look at our order entry, we see 8% more than last year. Compared to last year, we are aiming for, let's say, EUR 180 million order entry this year, which will be for q. beyond a record figure. Our midterm goal remains unchanged. We will -- let's see where we end up this year, 7% to 8% EBITDA positive net income for the group and then we will aim for 10%. The new strategy 2028, we will release Q1 next year for the next 3 years over '26, '27, '28. And in this period, we try to reach 10%. With that, we'd like to close this conference call and happy to get your questions. Thank you very much. Operator: [Operator Instructions] And with that said, I can already see one question in our chat box. Let me read it out loud. Is the tax windfall profit of EUR 2.8 million in the EBITDA and the EBIT number included? If so, adjusted EBITDA and EBIT is much weaker, correct? Nora Wolters: Yes, it is. Thies Rixen: So what is included -- it's included. I'd like to take a broader picture. So we had several effects out of the Plusnet transaction in 2019. And you can't -- we all know that. It's in tax questions, it's not easy to say. So they are included. On the other hand, we have to cope with a weak economy and weak customer demand on plus we invested. We invested, as we said, in the AI foundation in AI cases and in the portfolio, which will help us in the future. So yes, there's a windfall. This is included in the numbers and it helps us in Q3, but all the investments we took will help us in Q4 and so on. So in Germany, we say, look, I can't translate it, but it's in business sometimes. It's on the right side of the corner, the impact. Operator: [Operator Instructions] We do have a risen hand as well. Mr. Nilsson. Fredrik Nilsson: I want to start with the future outlook here. I mean despite having perhaps a slightly softer quarter this time adjusted for that one-off, I mean, you sound quite optimistic about both next quarter and also looking into next year with the order book and so on. I mean do you think that is enough to show positive revenue growth despite the focus on profitability? Thies Rixen: Yes, we will show some growth. I mean we will -- I think the market -- there was a lot of reluctance in the last quarters. We all suffer from it. There are a lot of deals postponed. They cannot be postponed forever. So at some point in time, there will be investments and this will, let's say, drive our numbers. So -- and for next year, we will see growth. It will be not double digit, for sure, but there will be growth. And the market -- let's see where the market is heading. 3% to 5%, I think, is realistic. Let's see where we end up in the final numbers for next year. It's hard to say, to be honest. But we are not -- we have done this revenue cut this year where we cut it out, let's say, bad revenue. So this will not happen again. And on this foundation, this basis, we will grow the business next year. Fredrik Nilsson: Okay. Great. And also, I mean, taking off the one-off in this quarter, I mean, you need a quite substantial improvement in Q4 in order to reach your guidance, and you seem quite confident in reaching that. So could you perhaps elaborate a bit what underlying drivers that will take you there in addition to seasonality? Thies Rixen: Yes. It's -- every year the same structure. There will be several impacts. There are a lot of projects, which will be built where the work is already done, where we get the revenue and profit. This is one effect. Then there is a higher utilization overall, plus there are some license deal, especially in the SAP arena, where we -- if we close them, then we -- then this revenue equals profit. So this is, let's say, every year, this is the same rhythm. And this will help us as in last year or the year before to have much more better numbers than in the quarters before. Operator: [Operator Instructions] We have not received any further questions in the meantime. Are there any, please put them into our chat box or raise your hand. I think Mr. Rixen, Mrs. Wolters, everybody seems perfectly happy. There are no questions so far. And with that said, we just received a question. Was the investment of EUR 1 million done this quarter? Thies Rixen: Yes, there are 2 investments. There's one we did, which was included in the plan. This was the foundation. And then the other investments have been done in the quarter. And when we sum it up, it's another -- it's above EUR 1 million. So there's EUR 1 million over EUR 1 million. We never disclosed this. I think the whole is in the foundation, digitalization foundation and another has been done in the quarter. Operator: The same person has another question concerning that topic. Was this CapEx or OpEx? Thies Rixen: OpEx. Operator: Correct. Thies Rixen: And this is for the future. This is something where we will have the impacts -- the positive impacts in the future. It's mainly OpEx because we use our own consultants, our own technology specialists to build tool chains, processes. For example, the features for the AI platform, which we released was in Q2 April. So we optimized or we put some more features in it, and this will hopefully help us in the future. Operator: There are no further questions so far. [Operator Instructions] But I think there are no further questions. And I would say, therefore, we come to an end of today's earnings call. Thank you for your participation and your questions. If there are any further questions that arise at a later time, please do not hesitate to contact Investor Relations. A big thank you also to you, Mr. Rixen and Mrs. Wolters, for your presentation and for taking the time to answer the questions. We wish you all a good remaining week. Goodbye, and see you next time. Thies Rixen: Thank you. Goodbye. Nora Wolters: Bye.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allurion Third Quarter Earnings Call. [Operator Instructions] Thank you. Now I would like to turn the call over to Tara Brady. Please go ahead. Tara Brady: Good morning, and thank you for joining us. Earlier today, Allurion Technologies, Inc. issued a press release announcing financial results for the quarter ended September 30, 2025, and provided a business update. You can access a copy of the announcement on the company's website at investors.allurion.com. With me on the call today is Shantanu Gaur, Founder and Chief Executive Officer. Before we begin, I would like to inform you that comments mentioned on today's call contain forward-looking statements within the meaning of federal securities laws. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our annual report on our Form 10-K filed on March 27, 2025, as amended by amendment #1, thereto filed on August 19, 2025. Our SEC filings can be found through our company website at investors.allurion.com or the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements, and Allurion undertakes no obligation to publicly state or release any revisions on these forward-looking statements. In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis. Please refer to the press release issued today and the accompanying supplementary financial data tables for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the Investor Relations section of the company's website. Please note that this conference call is being recorded and will be available for audio replay on our website under the Events and Presentations section on our Investor Relations page shortly after the conclusion of this call. And with that, I will turn it over to Shantanu. Shantanu Gaur: Good morning. And as always, thank you for joining us today. Before discussing our third quarter results, I would like to begin by sharing what we believe are several exciting updates regarding the FDA approval process for the Allurion Smart Capsule. As you may recall, in June, we submitted the fourth and final module of our PMA submission to the FDA. Since June, we have passed several critical milestones on our way to a potential FDA approval. In July, FDA completed its acceptance and filing reviews, and we entered the substantive review phase. In August, we successfully passed our pre-approval inspection with 0 findings. The preapproval inspection is designed to assess the company's systems, methods and procedures to ensure that the quality management system is effectively established. The inspection covered compliance with regulatory requirements, process quality and documentation standards. There were no observations raised and no Form 483 issued. In October, the company underwent a Bioresearch Monitoring or BIMO inspection. The BIMO inspection is designed to assess the company's clinical trial systems, methods and procedures to ensure data integrity. Again, there were no observations raised and no Form 483 was issued. In October, we held our Day-100 meeting with FDA, and we were quite pleased with the outcome. After reviewing our PMA submission, FDA did not request any additional human clinical data. We believe this is a very positive sign that we are entering the final stages of the review process. We believe passing these inspections with no observations and completing the Day-100 meeting in this manner are major milestones for Allurion on our path toward FDA approval, are testaments to our commitment to upholding the highest quality standards and are indicative of our readiness to serve the U.S. market. In light of these developments, we have begun to advance our own launch preparations internally and intend to share further updates on upcoming calls. Shifting now to the third quarter. Revenue was $2.7 million, reflecting the restructuring we conducted in the third quarter to refocus our efforts on accounts and distributors who promote metabolically healthy weight loss as part of a comprehensive obesity management strategy that includes combination use of the Allurion program with low-dose GLP-1s. We were pleased with our performance in the third quarter despite the restructuring that we conducted in August and the seasonality we often observed due to the summer months. In my recent conversations with our customers, it is becoming clear that GLP-1 discontinuation can be a rich source of new patients for Allurion. Some customers have indicated that half of their Allurion patients have previously tried a GLP-1, validating our hypothesis that by focusing on accounts that offer multiple modalities of care, we can have access to a steady supply of patients. Even among clinics that offer exceptional follow-up to their patients who are taking GLP-1s, over half of these patients churn after 1 year. As a result, we continue to believe that the pivot we executed last quarter will lead to long-term growth and refinement of the strategy that we could utilize out of the gate in the U.S. market, especially if GLP-1 prices continue to drop in the future. Operating expenses were $10.9 million, a decrease in expense of 29% compared to the prior year. Operating loss was $9.6 million and narrowed by 22% compared to prior year. Adjusted operating expenses were $8.4 million, a decrease in expense of 42% compared to the prior year. Adjusted net operating loss was $6.9 million and narrowed by 39% compared to the prior year. These improvements reflect the improved efficiencies we have been able to gain from the restructurings we have conducted over the past year. We expect our new strategy to continue to bear fruit in the fourth quarter as we onboard new distributors who meet our criteria, and we have been encouraged by the results we have already seen in quarter so far. As we announced previously, we also plan to restructure our balance sheet and are on a path to being debt-free. We have entered into a transaction to exchange all outstanding debt for convertible preferred equity and concurrently announced a private placement financing that strengthens our financial position. As we pursue FDA approval and plan a U.S. launch of the Allurion Smart Capsule, we wanted to have a clear path to being debt-free, and this transaction provides that path. The private placement further strengthens our balance sheet, helping to position us to achieve future catalysts and we were very pleased to have participation from key existing stockholders and our strategic partner who has deep expertise in obesity. With this stronger balance sheet, I believe Allurion is better positioned to increase value for shareholders in the short and long term. I would like to now turn to the other 2 aspects of our strategy that we discussed on our last call, namely retooling our R&D pipeline and manufacturing capabilities in collaboration with our strategic partner and bolstering our clinical pipeline with additional data on combination therapy. We are pleased to report that we are exploring the development of a drug-eluting balloon in collaboration with our strategic partner. While this is a long-term project, the potential could be massive. First, eluting GLP-1 medications in a controlled release manner could be a game changer for obesity therapy. Delivering GLP-1s through an intragastric balloon directly addresses the adherence challenges of GLP-1 use, which we believe will become even more apparent with once-daily pills, while directly combining 2 independent mechanisms of action into a single therapy. Such an innovation could be the ideal therapy for the nearly 50% of patients who stopped using GLP-1s before achieving any clinical benefit. Second, and perhaps more importantly, the drug-eluting balloon could become a platform to deliver a wide array of medications, supplements and microbiome enhancers that are important for gut health and the treatment of chronic gastrointestinal diseases. We believe this project also dovetails nicely with our intention to create a longer-lasting device that remains in the stomach beyond 4 months. We have also now begun process validation of a new R&D and manufacturing line in collaboration with our strategic partner. This line has the potential to expand our current capacity, reduce cost and accelerate the implementation of design changes in the future. Regarding our clinical pipeline, we have completed submissions of the combination therapy protocol to the Institutional Review Boards or IRBs for approval, fielded questions from the IRBs and made the necessary changes to the protocol. We believe that the protocol we are testing in this study where patients will receive the Allurion Smart Capsule, start on 0.25 milligrams of semaglutide at the end of balloon therapy and scale up, if needed, to 1.0 milligrams of semaglutide over the subsequent 8 months directly addresses the issues related to high doses of GLP-1s and provides a compelling future clinical pathway for the U.S. market. I will now turn the call over to Tara Brady, our Interim Chief Financial Officer. Tara? Tara Brady: Thank you, Shantanu. Our revenue for the third quarter of 2025 was $2.7 million compared to $5.4 million for the same period in 2024. The year-over-year decrease in revenue was primarily due to the restructuring that took place in the third quarter. Gross profit for the third quarter was $1.3 million or 49% of revenue compared to $3.1 million or 58% of revenue for the same period in 2024 and included $0.1 million in restructuring costs. Gross profit for the third quarter was negatively impacted by the reduction in revenue in the period and lower production volumes, which resulted in less manufacturing labor and overhead being absorbed into inventory costs. Sales and marketing expenses for the third quarter were $3.1 million compared to $5.2 million for the same period in 2024 and included $1.1 million in restructuring costs. The reduction in expense was primarily driven by increased operating efficiency in the restructuring initiatives implemented previously. Research and development expenses for the third quarter were $2.0 million compared to $3.2 million for the same period in 2024 and included $0.5 million in restructuring costs. The reduction was primarily driven by reduced costs related to the AUDACITY trial and restructuring initiatives implemented previously. General and administrative expenses for the third quarter were $5.8 million and included $0.9 million in restructuring costs compared to $7.0 million for the same period in 2024. Adjusted general and administrative expenses for the third quarter of 2025 were $4.9 million compared to $6.1 million for the third quarter of 2024. The reduction year-over-year was primarily driven by previous restructuring initiatives. Loss from operations for the third quarter was $9.6 million compared to $12.3 million for the same period in 2024. Adjusted loss from operations for the third quarter of 2025 was $6.9 million, excluding onetime restructuring costs of $2.7 million. Adjusted loss from operations for the third quarter of 2024 was $11.4 million, excluding onetime financing costs of $0.9 million. The reduction was driven by restructuring initiatives implemented previously. As of September 30, 2025, cash and cash equivalents were $6.1 million, not including the private placement financing of $5 million. I will now turn the call back over to Shantanu. Shantanu Gaur: Thanks, Tara. We believe the Allurion program is the only solution for obesity management that has consistently demonstrated significant and immediate weight loss while maintaining or increasing muscle mass. In combination with low-dose GLP-1s, we believe the clinical benefit increases even more with higher levels of adherence to GLP-1s, and we are confident that by pivoting to this approach, we will capitalize on the success of GLP-1s and set Allurion up for long-term success. We are thrilled with the progress we have made in a short period of time with the FDA and remain bullish on the overall U.S. market opportunity. As we onboard new partners outside the U.S., we believe we can unlock synergies with GLP-1s. In my own travels and conversations with physicians on the front lines of obesity care, even those with outstanding wraparound support have rates of discontinuation of GLP-1s above 50%. We believe this population of patients represents a substantial opportunity Allurion. And finally, as we explore next-generation R&D and manufacturing initiatives with our new strategic partner, we have begun to view the Allurion Smart Capsule as more of a platform technology that could deliver drugs of all kinds, not just GLP-1s to address adherence issues that are inherent to pharmacotherapy. We believe that with this approach, we could build a new standard of care in not only obesity management but also across several other disease areas, and we are looking forward to proving this out in the future. With that, operator, please open up the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Joshua Jennings with TD Cowen. Joshua Jennings: Shantanu, congrats on the progress with the FDA process and just thinking about that progress. I wanted to start with just how you're taking the learnings from the international strategy to focus on accounts that offer comprehensive obesity care and how that's informing potential U.S. commercial strategy? And any update just on how Allurion plans to attack the U.S. market once approval is in hand. Shantanu Gaur: Thanks for the question, Josh. Certainly, we're learning a lot from what we are doing internationally, especially after we made this most recent pivot in our strategy. What we're seeing in our direct accounts is that as accounts embrace and utilize GLP-1s more and more, they are creating new patients as those GLP-1 patients discontinue and then look for alternative therapies. I was in Ireland a few weeks ago discussing this concept with one of the best GLP-1 clinics in the entire country of Ireland. And even with exceptional care, with multidisciplinary support across nutrition, physical activity, exercise, even psychological support, this particular clinic still had a churn rate over 50% at 1 year. So half of their patients were churning off of GLP-1s, regaining weight and then coming back, looking for another therapy. And we're seeing this across the board in all of the international markets that we operate in. So that's one learning that we're going to apply in the U.S. market, and we've already begun to map out which clinics in the United States fit the bill in terms of utilizing the GLP-1s and also being equipped to potentially deploy the Allurion Smart Capsule. In our international markets as well, we're seeing the same uptake in distributor markets where the distributors have access to accounts that are providing comprehensive obesity care. And we intend over the next couple of months to strike some new partnerships with distributors in certain regions that clearly have embraced GLP-1s in combination therapy and are seeing in their own businesses, how those patients filter through the funnel and get other therapies down the line. Joshua Jennings: And just thinking about the international push and the strategic pivot, the solid third quarter revenue results, can you help us just think about the progression from here just as we're thinking about modeling 4Q in 2026, just how international revenues could shape up over the next 12 to 24 months? Shantanu Gaur: Yes. Great question. What we're seeing right now in the fourth quarter is continued growth in the direct markets where we are seeing an embrace of combination therapy and GLP-1s. Similarly, in our distributor markets, where we have either launched a new distribution partner or refocused our existing distributors on our new strategy, we're seeing some nice momentum there as well. So I would expect in the fourth quarter sequentially to grow compared to Q3. And then moving into 2026, I do expect that sequentially we should be able to continue to grow the top line revenue for the business as more and more of these clinics start to embrace GLP-1s in combination therapy. The other thing that we're starting to see is that as new GLP-1 agents come to market or as prices drop, we see that there's more utilization of GLP-1s. And ironically, there is actually more discontinuation because many of these new agents or less expensive agents are being delivered without the appropriate care. So I actually expect that this trend that we are seeing now in 2025 should continue into 2026. And coming back to your point on the U.S. market as well, Josh, with some of the new initiatives from the Trump administration that are resulting in a reduction in price in GLP-1s in the U.S. that should drive more uptake in the U.S., which in turn should drive a higher churn rate and even more patients who are looking for alternative therapies after they stop their GLP-1 and regain the weight. So these are some of the tailwinds that I see now finally behind our backs as we head into 2026. Joshua Jennings: Appreciate that. And just lastly, you're talking about Allurion Smart Capsule and potentially transforming to a platform technology with drug delivery. Any other details to share just in terms of time lines of the development program? And then any other elements of the pipeline that you want to highlight in terms of development projects for the platform? Shantanu Gaur: Thank you. When we think about the Smart Capsule as more of a platform, there's actually a whole universe of molecules and even gut microbiome enhancers that could be alluded off of our balloon in a controlled release manner. And what we're finding, especially as GLP-1s proliferate and some of these other pharmaceuticals that are delivered through DTC services where the follow-up is pretty limited, adherence has become the #1 issue for pharmaceuticals. And with a capsule like ours that turns into a balloon that last inside the stomach for 4 months, we can solve that adherence issue for patients over a 4-month period. We're also reinitiating the work that we had started a year ago or so on a longer-term balloon that's intended to last in the stomach well beyond 4 months. And the vision there potentially as a platform could be you swallow -- a patient swallows a Smart Capsule of ours, it remains in the stomach for, say, 12 months. And over that 12-month period, drug therapeutic or gut microbiome enhancer is alluded over time. And in that scenario, you could imagine a patient being able to swallow a capsule once a year and really not have to worry about taking their medications or managing their obesity since they have an intragastric balloon inside their stomachs. So that is a longer-term project, and we are really thrilled to be initiating it right now. But when you combine that drug elution approach with a longer-term intragastric balloon, the opportunities actually become sort of endless in terms of how many different therapeutics or small molecules we could potentially elute in patients with various different chronic diseases. Operator: [Operator Instructions] There is no further questions at this time. And I will now turn the call back over to Shantanu Gaur for closing remarks. Shantanu? Shantanu Gaur: Thank you, operator. As we close our call today, I'd just like to extend my thanks to everyone who joined us today, particularly all of my fellow Allurions who are building this next generation of Allurion. And of course, our loyal shareholders. The collective belief that all of you have in our mission and commitment to our company has really been unwavering. And I believe through that commitment, we have set ourselves up for long-term success. We really look forward to updating all of you on our progress in the next quarter, and thank you all. Have a great day. Operator: That concludes today's call. You may now disconnect.