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Operator: Greetings. Welcome to PowerFleet's second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Carolyn Capaccio, of Alliance Advisors. You may begin. Carolyn Capaccio: Thanks, Holly. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities law. Forward-looking statements include statements with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions, and future performance and involve known and unknown risks, uncertainties, and other factors, may be beyond PowerFleet's control and which may cause its actual results, performance, or achievements to be materially different from future results, excuse me, performance, or achievements expressed or implied by such forward-looking statements. All statements other than the statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information, emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes, and expanding business with core customers. The risks and uncertainties referred to above are not limited to risks detailed from time to time in PowerFleet's filings with the Securities Exchange Commission, including PowerFleet's annual report on Form 10-K for the year ended December 31, 2025. These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of PowerFleet unless otherwise required by applicable law, PowerFleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether a result of new information, future events, or otherwise. Now I'll turn the call over to PowerFleet CEO, Steve Towe. Steve? Steve Towe: Good morning, everyone. It's great to be here this morning with key members of the leadership group to walk you through what's been a statement quarter for PowerFleet. This set of results marks a transition point for the company. It signals the end of an integration period following the two major acquisitions we completed and the start of a new chapter. One focused squarely on accelerating sustainable growth. Just six months into aligning into one global enterprise and to operating level, we're clicking into gear. Starting to deliver expanding revenue growth and healthy business momentum in our key operating metrics. In Q2, our top growth metric, annual services recurring revenue, reached the double-digit growth milestone originally targeted for year-end ahead of schedule. The true strength of growth is how you get there. For us, that means responsibly and efficiently. The extensive synergy programs we aggressively executed are already moving the dial meaningfully. And we're delighted to also post meaningful adjusted EBITDA expansion this quarter both sequentially and year over year. This quarter clearly demonstrates the shape of the future of PowerFleet. Integrated, efficient, and built for profitable growth. Next slide, please. When you step back and look at the quarter, you can see a clear pattern of balanced execution. Services and ARR are growing strongly. Margins are expanding both at the total gross margin level and particularly encouragingly within the services line. This consistent improvement speaks to the strength of our SaaS-led model and our operating discipline. What's also particularly pleasing for this quarter is the return to growth in product revenue inclusive of expanding margins. It underscores the durability of our business and the effectiveness of the actions we took to offset tariff pressures and broader macroeconomic challenges. Together, these results demonstrate a company that's accelerating profitable growth, scaling efficiently while maintaining quality and control. Next slide, please. We felt it was the right time in our evolution to add a high-quality executive as chief revenue officer. With a proven track record in driving SaaS growth at scale. Someone who's led multiple A-player teams and brings deep SaaS enterprise go-to-market experience. It's a crucial role with the major accelerated growth opportunity directly in front of us. It brings executive bandwidth and further high revenue expansion experience to the global team. I'm delighted to welcome Jeff Lautenbach. Jeff, over to you. Jeff Lautenbach: Thanks, Steve. Great to be here. Having spent time with the teams and customers, I've been able to see for myself momentum building across the business. One key element of our future success is North America, and it's been encouraging to walk into a double-digit year-over-year revenue performance in that region. A clear sign of traction and developing brand strength. One of the proof points of our scale strategy was that as PowerFleet grew, we'd see more invitations to large and greater visibility in the enterprise market. That's now happening with a 26% increase in new logo wins as more customers recognize us as a top-tier provider. Our core value proposition—safety, compliance, sustainability, and efficiency—continues to resonate strongly. We've seen a sharp rise in demand within our on-site and in-warehouse safety segment we're delivering real impact. To give you a sense of the traction, one of our largest new deals this quarter came from a major engagement with a global industrial manufacturer. A multibillion-dollar enterprise recognized as one of the world's leading producers of heavy machinery and power systems serving construction, mining, and energy markets worldwide. They're deploying Unity to modernize asset visibility, optimize equipment utilization, and reinforce compliance standards across their international operations. We also notably secured a major North American logistics and fleet management company, one of the world's largest providers of third-party logistics and supply chain services, operating thousands of vehicles in hundreds of distribution facilities across the region. They've selected Unity to enhance operator safety, strengthen compliance, and deliver deeper operational visibility across their nationwide logistics network. Both are multiyear strategic programs with significant expansion runway, indicators of the scale of opportunity ahead and the value our platform is delivering. Next slide. Looking forward, we're seeing strong progress in our strategic partner channels, another key pillar of our growth plan. Global channel bookings increased meaningfully in Q2 from Q1. Particularly with partners like AT&T and TELUS. Where momentum in the North America channel continues to grow at a 32% sequential increase in quarterly pipeline build. More generally, our global cross-sell pipeline activity grew substantially. Notably, we are seeing solid traction with AI video, upselling into our base and that's showing up with a healthy 23% expansion in the video pipeline this quarter. These are encouraging proof points, evidence that our commercial engine is working as designed and that we're building a flywheel capable of sustaining double-digit growth into FY '27. With that, I'll hand it over to David to walk through the financials. David Wilson: Thanks, Jeff. Before running through our regular financial reviews, I'll begin with the headline. Service revenue, excluding legacy Fleet Complete book of business, grew 12% organically year over year. Even as we've continued deliberately exiting noncore revenue streams in the quarters following our combination with MiX, in April 2024. High margin recurring SaaS revenue is the cornerstone of our future. And that progress is clearly visible in our sales mix. With service revenue now representing 80% of total revenue, up from 74% last year. Next slide. Now on to our regular financial review. Starting with a quick recap of the key pro forma adjustments as well as a change in our prior methodology for calculating adjusted EBITDA. One-time expenses. This quarter expenses include $2,100,000 in one-time charges for restructuring, integrations, transaction costs. Excluded from adjusted EBITDA and EPS for ongoing run rates. Amortization impact, Results include $5,800,000 in noncash amortization related to the MiX and Fleet Complete acquisitions, impacting services gross margins by over 5%. Change the calculation of adjusted EBITDA. Following consultation with the SEC, including a detailed review of question 100.04, of the compliance and disclosure interpretations on non-GAAP financial measures, we concluded our presentation of adjusted EBITDA will no longer include an EBITDA adjustment for recognition of pre 10/01/2024 contract assets fleet complete. These amounts reflect certain in-vehicle devices delivered by Fleet Complete prior to the acquisition but invoiced and collected thereafter. This treatment was applicable for a finite transition period and reflects cash received for hardware that will never be recognized as revenue by PowerFleet. The adjustment was intended to align reporting results more with operating cash flows and the change has no impact on underlying economics or cash generation. Now on to Q2. Which was a banner period delivering record top and bottom line performance. Total revenue increased 45% year over year, $111,700,000 including strong organic growth of 9% overall and 12% in strategically important services. Turning to adjusted EBITDA. Which rose more than 70% to $24,800,000. Alongside this strong performance, we also invoiced $1,300,000 in Fleet Complete IVD recoveries which historically were included in adjusted EBITDA, and will continue to flow through operating cash as collected. These results validate the strategic rationale for our M&A program, and highlight the powerful market opportunities emerging through our Unity product strategy. Next slide. Turning to margins. We continue to deliver strong year-over-year improvement. A stronger mix and 77% service gross margins drove a 400 basis point increase in EBITDA gross margins to 68%. Product margins also improved by 640 basis points sequentially, to 31.5%, supported by a rebound in higher margin on-site demand following Q1 tariff headwinds. On operating expenses, we are driving G&A efficiencies, investing in go-to-market and maintaining gross R&D at 8% of revenue. G&A declined to 25% of revenue, three points lower than last year. Reflecting synergy capture operating leverage. We expect G&A as a percent of revenue to continue stepping down by roughly one point per quarter in the second half. Sales and marketing represented 18% of revenue, as we continue to invest in enablement and capacity to support momentum. R&D remained steady at 8% of revenue, or 4% net of capitalized software, as we advance innovation in AI, safety, and compliance. Overall, we're very pleased with our continued P&L progression. Expanding margins, disciplined reinvestment, and strong execution across the organization. Next slide, please. Closing on leverage. Where previously reported leverage ratios have been amended to exclude the previously discussed fleet complete EBITDA add back. We exited Q2 with a net debt to EBITDA ratio of 2.9 times, an improvement of half a turn from 3.4 times at the end of FY 2025. Looking ahead, we now expect to close the year at approximately two and a quarter times compared to our prior guidance of below 2.25 times. Net debt at quarter end was $243,000,000 compared to adjusted net debt of $229,000,000 at the end of fiscal 2025. This represents a $14,000,000 increase or $6,000,000 better than initial guidance of a $20,000,000 increase in the first half. For the year, we are maintaining expectations to exit the year with net debt of approximately $220,000,000 representing a reduction of $20,000,000 in the second half. Finally, and as discussed in last week's 8-Ks, we extended the maturity date of our initial term loan A with RMB by one year to 03/31/2028. With that, I'll hand over to Melissa Ingram to walk through our adjusted EBITDA optimization progress. Melissa? Melissa Ingram: Thanks, David. I want to pause to recognize what we've achieved as a company. After eighteen months of complex work, the integration is complete, with more than $30,000,000 in annualized synergies realized, and that's a real milestone worth noting. To have maintained the level of top-line performance we have, while executing a multi-business integration is no small task. Now with integration behind us, we will move decisively into the next phase, optimization and efficiency. We'll evolve our organizational model to ensure we're structured for long-term efficiency with clear accountability across functions and regions. And we'll continue to optimize our resource mix ensuring the right capabilities are in the right places, balancing internal expertise with flexible external partnerships to stay agile. For embedding automation and AI more deeply, simplify how we work and enhance our customer experience. Across support, service, and operations, advancing further the tools that reduce manual effort, improve response time, and free our people to focus on higher value activities. We will refine how we serve subscale segments, to improve strategic fit and margin contribution, ensuring every part of the business is aligned to sustainable, profitable growth. In parallel, we'll centralize core operating functions further strengthening our organizational centers of gravity and embedding best practices globally. Another area of focus is vendor and partner consolidation. We've made real progress here. Capturing economies of scale and ensuring we're working with strategic partners who can grow with us. On the technology front, we'll complete our core systems rollout and streamline our technical architecture and hosting to enhance speed, reliability, and cost efficiency. All of these initiatives share one goal, to further expand adjusted EBITDA margins and create capacity for reinvestment in sustainable growth. Next slide, please. Looking ahead, I'm very excited about our upcoming AIoT innovation showcase later this week. It's a great opportunity to highlight why PowerFleet is being recognized as a leader in our space. We'll be exploring three lenses, One, the product and solution innovation behind Unity, Two, the customer outcomes we're enabling. The measurable impact on safety, performance, and transformation, and three, the people driving it all. Highly integrated front-foot team delivering at scale. It's a chance for investors and partners to see the strength and momentum of the PowerFleet platform up close. Back to you, Steve. Steve Towe: Finally, I'm also pleased to share that PowerFleet has received another covered industry recognition. We've been awarded the Frost and Sullivan's 2025 North America Product Leadership Award. For context, Frost and Sullivan is a highly respected global research and consulting firm, and this award is their highest recognition. Based on rigorous independent evaluation of innovation, market impact, and customer satisfaction. It's an objective endorsement of the differentiation we built through Unity and the consistency of our customer experience. We're honored to receive it and proud of the team whose work made it possible. Before we open for questions, I want to close by reflecting a little further on what this set of results signals to investors for the future. It marks a fundamental shift. The moment where the power of the combinations we have undertaken, the dramatic eighteen-month integration we undertook, and the operational discipline we've bravely driven into the organization is clearly visible in our results. This quarter gives clear evidence that our unique solution strategy and market thesis is resonating strongly, delivering growth that's sustainable, margins that are expanding, and execution that's consistent across the board. My thanks to all our employees, our customers, and our investors for their continued partnership and confidence. Operator, let's open the line for questions. Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands before pressing the star keys. One moment, while we poll for questions. Your first question for today is from Scott Searle with ROTH Capital. Scott Searle: Hey. Good morning. Thanks for taking the questions, and congrats on the quarter. Great job in seeing the organic SaaS growth break through that 10% barrier to 12%. Hey, maybe to dive in on that front, Steve and Dave, looking at the guidance for this year, I'm wondering if you could provide a little bit of color about how you're thinking about services and organic SaaS growth into the third and fourth quarter of this year. Also as part of that, it sounds like Fleet Complete has got some revenue recognition transition issues going on. So how you're thinking about that, particularly as we start to go '27? And I think Jeff indicated sustainable double-digit growth as we get into fiscal 2027. I'm wondering if you could give us early thoughts on that front. And then I had a follow-up. David Wilson: So, Scott, let me just start with the guidance. So we were pretty clear from the get-go that we expect to be growing sort of 10% organically for Q4. So no change in terms of expectations there. Obviously, we've done a nice job. Increasing the midpoint of the range over time. So you can see that coming through, but again, things have gone well. Things are going well. We're building up momentum. But, you know, this is not a steady state business. So the trajectory is very clear up into the right, but, you know, it's not as if it's just a smooth road all the way. But, we feel good about where we are. Obviously, it's very clear in the numbers in terms of what we're posting. And, again, you'll see that 10% organic growth in Q4 as expected. Scott Searle: Dave, maybe just a follow-up Yeah. Oh, sorry. My apologies. Yeah. David Wilson: No. Got you. Scott Searle: No. Just gonna say on the outlook then in terms of how you're thinking about Fleet Complete kind of being blended into that organic number, and early thoughts on '27, particularly given the build of the opportunity pipeline, it sounds like across the board, you know, both from a carrier partner standpoint, AI video standpoint, and warehouse seems like everything is on the upswing. Steve Towe: Yeah. No. It's it's yeah. But I'll take that one, David. So so look, Scott. I think, you know, we are ahead of schedule. Which is great. Momentum is building. If you look at our internal dashboard from our growth perspective, you know, we're we're ahead of where we wanted to be. And now it's about, you know, that consistency, that rhythm, and driving opportunity that's ahead of us. We've got absolute stellar momentum. We've brought Jeff in and team to help, you know, with that execution. And so, you know, the flywheel will continue to turn. So, you know, we're very optimistic about what we've put out in terms of 2027 previously. You'll hear at the end of the week some more granularity around that. But in general, you know, from a market perspective, from a solution set resonating perspective, from an ARPU expansion perspective, from a wallet share perspective, then, you know, we're in a very, very good spot. I think you can hear the pride that the team has in terms of the numbers. In terms of Fleet Complete, there's there's no kind of revenue recognition challenges. I'll ask David to kind of walk through his note on Fleet Complete again. But, you know, Fleet Complete has has brought those channels, with us. You know, the the the likes of AT&T and Telus. So, you know, we we then don't you know, as of we get into 2027, now don't think about, you know, Fleet Complete all of the parts of the business. It's it's all one, and and the message remains the same. So strong, durable, profitable, double-digit, both SaaS growth and and top line growth in gen. David Wilson: Yeah. Scott, in terms of the Fleet Complete, that's an EBITDA adjustment. So this is basically invoicing that happens, cash that's collected post the close of pre-complete transaction. It's not stuff we recognize historically as revenue. We will never recognize it as revenue. But it does generate significant cash. So the thought was to include that as part of the EBITDA adjustments, just to mirror operating cash flow. Obviously, it's it's a huge economic positive. But that was the EBITDA adjustment for Fleet Complete which based on consultation with the SEC, we will no longer be included. Scott Searle: Great. And as a quick follow-up, just I'm wondering if you could provide some more high-level thoughts in terms of North America. Obviously, it's a pretty dynamic environment from a supply chain perspective. I'm wondering how you're seeing sales cycles the ability to close deals. It certainly seems like the pipeline is building on that front. And Dave also just kind of in this current environment, how you guys are thinking about hedging policy for some of the international markets? Thanks. Steve Towe: So I'll take the first one. So look, I mean, as as Jeff alluded to, he's walked in to a a double-digit growth rate, for North America. We we believe, you know, everything everything being equal now that, you know, customers are buying again. So where we saw kind of some of that product softness with the the tariff decisions, you know, the the strong rebound both in the top line growth, but also in the margin as well. You know, it's testament to the work that we've done. And, you know, what we are seeing is a strong demand and need for efficiency. And for safety and compliance. So, you know, where where customers are needing more optimization. They're needing to be more efficient to what they do, and they need stronger visibility because of these changing times. Our solutions are really resonating. So, you know, I think the, you know, the couple of large wins that Jeff alluded to too are, you know, strategic wins that because of power of the combination, we are now winning that business. At larger enterprise scale. So we feel really good about, the future there. David Wilson: And from a hedging strategy, Scott, from a from an FX standpoint. We do have a portion of our debt in both, shekel. Which has been traditionally a powerful cash generator for us. So we have just south of $30,000,000 of shekel denominated debt. And then for South Africa, we have roundabout $20,000,000 of feds are denominated revolver debt. So we do have the balance sheet sort of hedging from an FX standpoint. Operator: Your next question for today is from Anthony Stoss with Craig Hallum. Anthony Stoss: Good morning, Steve and crew, and my congrats on strong execution. A couple of questions. The up 67% in your warehouse solutions Steve, do you attribute that to or what do you attribute that to? Is it mainly one big customer? Is it across the board? And then also perhaps an update on all your channel partners, AT&T, Telus, and the European giant where they stand training and and launch wise. Thanks. Steve Towe: Yeah. So it's across the board. So I think we are doing a better job in terms of sales execution, number one. I think, you know, the combination of solutions now where customers can get true visibility of what's going on on their sites or in their warehouse but also combine that with what's going on over the road, which is our unique proposition. That's a real game changer for our customers, and I think that's kind of resonating through. And then the evolution really of kind of, you know, more advanced, video technology to save lives in the warehouse. Again, I I would, encourage everyone to tune in on Friday, you'll hear from our customers talking about what those solutions are doing for them and how it's changing the world. So, you know, that's, that's really, I think, positive trend generally. And and that's that's you know, we've done a lot of that in The US, but we're now getting real traction in other markets as well and through those channel partners. So I think, you know, we talked about, you know, the pipeline growth in terms of the channel partners, you know, we talked about the bookings improvement globally. That's all from those partnerships that we've talked about. Whether that's AT&T, TELUS, MTN, And we're still gearing up with a couple of other partners that we talked about earlier in the year for 2027. So, you know, that that just brings real strength and diversity to our, opportunity base. And, you know, we've got some exciting future conversations going on with those channel partners about how we get more integrated into their solution set, how they can take the best of Unity and offer broader new solutions and more innovation to their customers as well. And, again, you'll hear some of that, if you tune in on Friday. Anthony Stoss: Very good. Congrats again, guys. Thanks. Operator: Your next question for today is from Gary Prestopino with Barrington Research. Gary Prestopino: Hi. Good morning, everyone. Hey, Steve. In terms of, you know, great new business awards and all that, but could you maybe tell us how this is starting to shake out in terms of are the majority of the new business awards coming from Unity, or is it products with services attached? Steve Towe: So everything that we sell is within the Unity ecosystem and platform. So there isn't something that that's kinda separate. I think the differentiators really are, you know, adding in the single pane of glass. So the ability for customers to look at, you know, more multiple different devices or sensors or data streams coming into the platform. Being integrate being able to integrate our data into their other third party Again, we've got some good visibility for investors and partners at the event, later this week, and you'll see some demos of that. But it's really, I think, about us expanding from being a point supplier to a mission critical partner. So know, people are looking for connected intelligence. You know? The days of telematics, and and and boxes and hardware, software is really moving now is to you can be a high grade partner in providing connected intelligence that allows us to make real time decisioning. You give us visibility. With your AI capabilities, you were you're able to shortcut where we need to go to make the changes that we need to. And that is done in a seamless integrated way. And I think all of that together is what is ultimately, you know, we're now being seen as a as a different level in terms of the opportunity we can provide to medium large customers. And I think know, that that's where we've seen this real shift, I think, in both who we talk to in the organization, what people are willing pay for our solutions because of the the level of benefit that we provide. And, ultimately, we're now seen as an integrated partner and because of the the increased scale that we've got, the credibility of our offerings you know, have have gone exponentially in terms of where we're now seeing with medium to large enterprises. So it's not one single thing, Gary. I think it's a it's a play out of the thesis and the strategy, which is resonating well. And what's really exciting is we're only scratching the surface at the moment. So if you think about the solutions coming together from the the three companies, know, we're we're only kind of six months into that, and you're already seeing the track and the the the strength of the results and the durability is is of those results coming through. So, again, you know, we've got a lot to do. There's a lot we can do better. We are still a work in progress. But, you know, ultimately, we're very, very confident about the future. Gary Prestopino: Yeah. I guess I guess what I was just trying to get at, Steve, is is you know, your your Unity is device agnostic. So I guess is the traction pretty good with entities that are not using your products? Steve Towe: It absolutely is. It absolutely is. So and and as we said before, you know, a lot of customers have multisource for this stuff. And it's also it's not just kind of the sensors that you would all we would traditionally think about with PowerFleet. These are other IoT sensors that they have in their state. There are the data streams that they have in their state. So people now say, look. You know? And and when we go and talk to CIOs and CTOs and they said, look. We've just got this data mess. Can you simplify this for me? Can you allow us to see the wood for the trees? And then once you're able to do that, you know, can you make sure that we it's usable, it's simple, we can action it? And that's where I think, you know, the power of Unity's unique capabilities really make swift business change. And you know, some sometimes, when we've deployed these solutions and and and our competitors deploy these solutions, it can take you a a decent amount of time to actually start to get the value back. Whereas I think, you know, we are now ahead of break even, you know, within the first twelve months of deployment. We're making meaningful change. We're seeing it customers who we expected to kind of, you know, do second phase rollouts over maybe a twelve, eighteen month period, of shortcutting that to a six to twelve period now because they've they've got the rhythm and because we've been able to simplify, the spaghetti, mess they had in their organization. Gary Prestopino: And then just one last quick question. I mean, in in feedback your customers, I think you had six modules for Unity. As you initially rolled out. Are you developing any further? And and and what what with any feedback from your clients, what what what do you feel like you're missing in that that Unity platform with the modules? If anything? Yeah. I see. Steve Towe: So it's more about enhancing the modules to the next level. So on it sounds like I'm plugging Friday. I'm not mean to. But, ultimately, you will see how the strength of our AI capabilities the data that we can pull, our real time interventions that we make with our customers, that you know, a a topic of safety is a very broad topic, and you'll see just how we're really kinda doubling down on the granularity of what we're able to achieve that So I wouldn't say it's we're expanding kinda horizontally into more different sets of modularity, but the strength of those modules and I come back to this, you know, from from the question we had earlier. To have true visibility of your safety environment across all your employees, whether that's on a site or whether it it's over the road. Is transformational for customers in a number of in a number of ways. So you know, really doubling down on that, you know, the advancement of the data analytics we can provide, the speed and accuracy of those is where we're spending the majority of our time at the moment. Gary Prestopino: Thank you very much. Operator: Your next question is from Dylan Becker with William Blair. Dylan Becker: Gentlemen, appreciate it. Really job here. Maybe, Steve, starting with you, the 12% organic services, obviously, ahead of plan, and it is quite impressive. I wonder if if given kind of the pipeline strength that you guys are seeing, that's it forwarding you the ability to kinda unlock some of that that held back spend around go to market, and maybe if that kinda shifts how you think about the model going forward given the the vast opportunity here. Kind of reinvesting maybe some of that incremental EBITDA growth? Or EBITDA upside that you would see traditionally back into go to market and product development initiatives to feel like, the the market's really kinda resonating relative to the the the solutions you're able to provide at this point. Steve Towe: Yeah. So we talked about we we held back on a $4,000,000 investment. As the tariff challenges here. We have pressed the button on that and that's that's in the sales channels and in kind of customer and account engagement, plus some more, resources into the channel opportunity. And over time, you know, we will we will be good stewards in terms of ensuring that we feel confident about the growth and we can we can stand behind any more investment. But we have the ability to flex the model, you know, dependent on that growth rate and on our confidence levels. And we will flex in the model through 2028 appropriately. Because as you say, you know, as this flywheel starts to turn, as we kind of open up more opportunities, and and, you know, we just get more, I think, exposure into the global markets that we're now, you know, we're now attacking. Then, you know, we will we will, maintain flexibility and optionality to to double down on on go to market investment. Dylan Becker: Perfect. Okay. Thank you. Very helpful. And maybe following up again with you here, Steve, or maybe this is this is for Jeff as well too. Encouraging to see some of the new logo momentum in the business. But if I look at it too, low single digit millions for a Fortune 500 entity, Feels like you're kinda just scratching the surface relative to that opportunity. So if you could kinda help reconcile, obviously, getting more, shots on goal, getting a foot in the door, but maybe also how that kind of breeds conviction in the opportunity to significantly expand within several of those accounts, maybe better line of sight, now that you have built and established that relationship, kind of the opportunity, from a cross selling perspective as well too? Thank you. Jeff Lautenbach: Okay. If I didn't take that one, and I'll follow-up. Yep. So there is great opportunity with with new logo moving forward. We as talked about, we made a pivot, right, from a selling perspective to on-site envision. And the sales organization that's resonating well with the opportunity. You heard about the pipeline increases. We can do so much better moving forward, and there's so much opportunity out there in these markets that are untapped for us. I feel like we're just getting our sea legs underneath us. Relative to the opportunity statement and enabling the field on the new value propositions as we move into these these different market segments, but leveraging the the installed base that we already have. So the customers are there for us to expand. And then from a new logo perspective, it's attacking the verticals too. And that opportunity is there as well. So I'm I'm really optimistic about the opportunity around new logo, especially as we continue to gain skills and progress skills in those areas. Steve Towe: Yeah. Thanks, Jeff. And just to respond around you know, we're scratching the surface on those accounts. You're absolutely right, Jen. There's a five, 10 x opportunity, in those accounts. Both nationally and internationally as well. So we're strengthening our global account model. And you will, hear again, hear from some of the customers that we alluded to earlier in the year about you know, some large scale deployments and and how they're feeling about expansion opportunities with us as well. So, you know, what's exciting is it it's multidimensional. It's you know, if you look around the modularity of the solution, to Gary's point, people can grow in the solution, whether that's you know, in terms of do more of the same with us on a global basis, expanding sites, expanding, you know, the the volume of vehicles that they have with us, or growing different divisions or or territories. So you know, we're we're really, I think, infused by the space we're creating for ourselves, particularly in that kind of large enterprise market. Dylan Becker: Very helpful. Thank you, guys. Operator: Your next question for today is from Alex Sklar with Raymond James. Alex Sklar: Great. Thank you. So Steve or David, I just wanted to follow-up on Dylan's question there on the enterprise momentum and just ask it a little bit differently. But if you go back one to two years in time, can you just help put some context behind how incremental these enterprise opportunities have become for PowerFleet in terms of pipeline mix today? And then with that and and kind of overall brand awareness, how much more room do you have to go on the brand awareness marketing side? Thanks. Steve Towe: Yeah. So I think it's night and day. You know, our exposure our win rates, our abilities to be successful in those large enterprise arenas. You know, heritage power fleet of you know, eighteen twenty four months ago. He's he's unrecognizable from the opportunity and the credibility and the trust, frankly, in terms of, you know, being a mission critical provider and partner to to those enterprise. Markets. I think, you know, we're building brand momentum, so we know, the innovation awards that we get, you know, we're getting, I think, recognized now as a very much a top tier provider, you know, one of the top three in the world. That's really leading in terms of, you know, its innovation and profitable So ensuring that we are, you know, being good stewards of of company's capital and making sure that we, you know, are doing things responsibly. I think is is a very good sign in these times is having a partner does that. And I think, you know, that's always been our mantra, and we continue to excel there. So, there's always more work to do. And, you know, there are market there are markets that we are attacking where, you know, we have less brand presence than than others in the marketplace. But that offers great opportunity for us. So, but overall, I think, know, we are we're in a different paradigm and in a different sphere to to where we were two years ago. And I think, you know, the the upside opportunity there remains fairly immense. Alex Sklar: Okay. Great. And then, David, maybe maybe one for you on the back to base motion. I know we're working through some final send system integration to get precise NRR, but can you help frame directionally what you're seeing from the installed base through maybe end of second quarter October? Where where across kind of retention upsell cross sell? Have you seen the biggest level of improvement? Where are you still kind of pushing hardest to get to kind of some of the aspirational goals? Thanks. David Wilson: So, clearly, if you look at just the acceleration in growth, you know, a huge part of that is NRR in terms of selling more to our existing customers. And to everyone's point, that we're we're early there in terms of the potential, both in terms of the customer demand as well as solutions we're bringing to market. So it is moving positively. If you look back in the last couple of quarters, obviously, we were in terms of our prepared remarks that for MiX, for example, this time last year, we were still actively shedding revenue. In terms of getting the right base and getting rid of distractions a product delivery standpoint and a market focus standpoint. And so that's working well. As you look at the sort of second half of this year, from a Fleet Complete standpoint, there was a similar exercise in terms of shedding some revenue as well. So what I would say is when you look at just the traditional PowerFleet business, excluding Fleet Complete, which is the 12% organic growth from an ARR standpoint, you know, a major part of that is positive net revenue retention. So everything you would expect to see happening in terms of firstly cleaning the book of business, Secondly, the complementary nature of our products. Thirdly, the sort of the pent up demand within customers. Is clearly coming through in terms of the growth that we're posting. What I would say is for the second half of this fiscal year, you can have a bit of a headwind in terms of the Fleet Complete because we did the same thing with Fleet Complete that happened with MiX. In terms of getting the right revenue base in place that's aligned with our future as opposed to holding things pulling on to things as sort of a distraction. And, create friction in terms of where we need to go. So very, very positive. And, things are playing out as expected. Alex Sklar: Okay. Great. Thank you both. Operator: Your next question for today is from Greg Gibas with Northland Securities. Greg Gibas: Great. Good morning, guys. Thanks for taking the questions, and congrats on results. Really nice to see that 23% increase in the cross-sell pipeline. Wondering if you could maybe provide some color on where you're seeing success or solid traction with your cross-sell efforts? Steve Towe: Yeah. So it's it's in warehouse to over the road and and vice versa. So this you know, with the there is a lot of traction in video. And that is, you know, multiple different, videos solutions that are based around safety and compliance. But really kind of, you know, expanding our reach in terms of the breadth of the organizations, whether that's know, from insurance perspective or that's, as I said, compliance whether it's getting true safety visibility or just operational efficiency for the end-to-end supply chain. So it's really that kind of, you know, where we've where we've had strength in one either the over the road or the in warehouse section. It's really kind of transferring those, either way. And, because we have that uniqueness, because we're talking to right people in the organization who care about, the objectives of both of those you know, different parts of the business, that's resonating super strong. Greg Gibas: Great to hear. And if I could, can you maybe characterize the greater demand environment and I guess demand trends as it relates to what you're hearing on pauses on purchasing? Like would you say that that headwind has fully subsided at this point? Steve Towe: I I think, you know, people are still cautious. Right? I mean, the, there's still, you know, dynamics in the macroeconomic conditions that cause people to be very, I think, thinking through just how much capital they're gonna spend and when they're gonna spend it. But, obviously, we you if you look at the rebound we've had from a product perspective, then we are still seeing people making those decisions. And so that really positive. And on top of that, you know, we've been able to, you know, improve price and, improve margin as we go. So I think, you know, there's always a there's always a watchtower on these things and, you know, we continue to be cautious in in in our approach towards things. But we've seen, you know, I think there's a real shift and a and a need for change in organizations, transformation, efficiency optimization. And visibility. And, you know, it's it's kind of where do we sit in the food chain of decisions, in terms being kind of mission critical to businesses. I think that's only improving. Greg Gibas: Great. And I guess one last one if I could. As it relates to the accounting adjustment, you mentioned the 4,000,000 impact on, '25. How much are you guys taking out of '26 that was baked in? David Wilson: Yeah. The number for this quarter was about $1,300,000. So it's probably a percentage point just over of EBITDA margin. That would be the way to think about it, Greg. Greg Gibas: Okay. Got it. Thanks very much. Operator: We have reached the end of the question and answer and I will now turn the call over to Steve Towe for closing remarks. Steve Towe: Thanks, everyone, for joining us today and your continued support. Look forward to updating you on our progress next quarter. Have a great day, and we look forward to our innovation event on Friday. Thank you. Bye bye. Operator: This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. Welcome to Kamada Ltd. third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press 0 from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Brian Ritchie with LifeSci Advisors. Thank you, Brian. You may now begin. Brian Ritchie: Thank you. This is Brian Ritchie with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer, and Chaime Orlev, Chief Financial Officer. Earlier today, Kamada announced its financial results for the three months and nine months ended September 30, 2025. If you have not received this news release, please go to the Investors page of the company's website at www.motto.com. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Kamada. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's forms 20-F and 6-Ks which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast Monday, November 10, 2025. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, it's my pleasure to turn the call over to Amir London, CEO. Amir? Amir London: Thank you, Brian. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. I'm pleased to report that our results for the third quarter of 2025 were strong, as we continue to generate significant profitable growth. Total revenues for the first nine months of the year were $135.8 million, representing an 11% year-over-year increase. Adjusted EBITDA was $34.2 million, up 35% year-over-year and representing a 25% margin of revenues. We expect to continue generating profitable growth for the remainder of 2025. Based on a positive outlook, we are reiterating our annual revenue guidance of $178 million to $182 million and adjusted EBITDA guidance of between $40 million and $44 million, representing double-digit growth over our 2024 results. We are excited for the growth prospects in our business over both the near and longer term, guided by our four-pillar growth strategy including organic commercial growth, business development and M&A transactions, our plasma collection operation, and the advancement of our pivotal Phase III inhaled AAT program. Our lead product continues to be our anti-rabies immunoglobulin KedRAB, which is being distributed in the US through our collaboration with Kedrion, from which we have a firm commitment to minimum orders for 2025 through 2027, and where the supply agreement with them further extends to 2031. In addition to a significant market share in the US, we continue to grow sales of the product in leading international markets, such as Canada, Latin American countries, and a few Asian markets. Revenue growth for the first nine months of the year compared with the first nine months of 2024 was primarily attributable to the increased sales of GALASIA, our AAT IV product in ex-US markets, mainly Latin America and the CIS region. In addition to our sales in those countries, the product continues to generate royalty income on sales by Takeda in the US and Canadian markets. Our ability to generate significant profitable growth is indicative of the diversity of our portfolio and our successful marketing activities across different territories and medical specialties. Moving on to our anti-CMV immunoglobulin Cytogam. As you may recall, earlier this year, we announced a comprehensive marketing research program for Cytogam, which we believe will help demonstrate the advantages of the product in the prevention and management of the CMV disease. Although CMV continues to be a significant risk factor for organ rejection and mortality in transplantation, for years, no new up-to-date clinical data regarding the benefit of Cytogam were published. To address this, we developed this in collaboration with leading key opinion leaders to explore the advancement of novel CMV disease management. In October, we announced enrollment of the first patient in an investigator-initiated trial included in this program. The trial is called Strategic Health with Immunoglobulin to Enhance Protection Against Late CMV Disease, or SHIELD, is a prospective randomized controlled multicenter investigation study in CMV high-risk kidney transplant recipients. The SHIELD study will investigate the benefits of Cytogam administered at the conclusion of the antiviral prophylaxis to reduce the risk of clinically significant late CMV in kidney transplant recipients who are CMV seronegative and have a CMV seropositive donor. Those patients are at the highest risk of developing late-onset CMV infection, which is associated with the worst transplant recipient health and outcomes. We are very pleased to be working with notable experts in this field, and we believe that the data generated by this study and others planned for this program will support increased product utilization for Cytogam, leading to organic growth. Also, as part of activities to advance growth, following our first biosimilar product launch in Israel last year, which is expected to generate approximately $2.5 million in revenues in 2025, we will be launching two additional biosimilars in the coming months and have several others in the pipeline to be launched in the coming years. We believe that this portfolio will become an increasingly important portion of our distribution business with annual sales of between $15 million to $20 million within the next five years. Moving to business development and M&A, we continue to conduct active due diligence over several potential commercial targets. During 2026, we expect compelling in-licensing collaboration and all M&A transactions will enrich our portfolio of marketed products and complement our existing commercial operation. We anticipate that such transactions will generate synergies with our current commercial portfolio and support our long-term profitable growth. In addition, we are ramping up plasma at our Houston and San Antonio plasma centers. Both facilities support 50 donor beds with a planned peak capacity of approximately 50,000 liters per year each, and are anticipated to be two of the largest collection centers for specialty plasma in the US. A few weeks ago, we announced that the Houston facility already received FDA approval, and we expect the San Antonio site to follow in early 2026. We intend to seek subsequent inspection approvals from the European Medicine Agency, the EMA, for both sites. We are currently engaged in discussions with potential customers to secure long-term sales agreements for normal source plasma. As previously stated, each of those two centers is expected to generate annual revenues of $8 million to $10 million in sales of normal source plasma at full capacity. Turning now to our ongoing pivotal Phase III INNOVATE clinical trial for inhaled alpha-1 antitrypsin therapy. We continue to advance this program with the revised enrollment goal of approximately 180 subjects, and we are on track to complete an interim futility analysis and announce its results by the end of this quarter. With that, I'll now turn the call over to Chaime Orlev for a detailed discussion of our financial results for the third quarter and nine months of 2025. Chaime, please go ahead. Chaime Orlev: Thank you, Amir. As Amir stated at the top of the call, we reported strong results for the quarter and nine months ended September 30, 2025. Total revenues were $47 million in Q3 2025, up 13% compared to $41.7 million in Q3 2024. Total revenues for the first nine months of 2025 were $135.8 million, an 11% increase from the $121.9 million generated in the first nine months of 2024. The increase in revenues was driven by the diversity of our product portfolio, primarily attributed to increased sales of Glacia in ex-US markets, increased sales driven by our Distribution segment, and Varzig sales in the US market. It is important to note that we continue to see double-digit growth even through the expected decline in Glacia royalty income as a result of the reduction in the royalty rate that went into effect during the third quarter. Gross profit and gross margins were $19.8 million and 42% in Q3 2025 compared to $17.2 million and 41% in Q3 2024. For the first nine months of 2025, gross profits were $59.4 million and 44%, compared to $52.9 million and 43% in the first nine months of 2024. The increase in both metrics is in line with the continued improvement of product sales mix and the overall increase in our commercial scale. Operating expenses, including R&D, sales and marketing, G&A, and other expenses, totaled $11.9 million in Q3 2025, similar to the level reported in Q3 2024. Operating expenses totaled $36.8 million in the first nine months of 2025 as compared to $38 million in the first nine months of 2024. The decrease is mainly related to a reduction in R&D expenses, which was related to development project timing changes. Net income was $5.3 million or $0.09 per diluted share in Q3 2025, up 37% as compared to Q3 2024. Net income for the first nine months of 2025 was $16.6 million or $0.29 per diluted share, up 56% compared to the first nine months of 2024. Adjusted EBITDA was $11.7 million in Q3 2025, up 34% over Q3 2024. For the first nine months of 2025, adjusted EBITDA was $34.2 million, a 35% increase compared to the first nine months of 2024. It should also be noted that the adjusted EBITDA for the first nine months of 2025 was equal to that reported for the full year of 2024. For the first nine months of 2025, cash provided by operations was approximately $17.9 million, contributing to the strong cash position of $72 million at the end of the quarter. That concludes our prepared remarks. Operator, we're ready to open the call for questions. Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, that's star 1. Thank you. And our first question comes from the line of Annabel Eva Samimy with Stifel. Please proceed with your question. Annabel Eva Samimy: Hi, all. Thanks for taking my question. And great progress on operations. I want to know a little bit about the Cytogam study and how this differs from the clinical data that you've been using for clinical education so far. You know, what this adds to the package. And I guess maybe you can sort of talk about the population that does have this late-onset CMV. Do you now have enough information to cover the totality of the population with the prior, I guess, studies that were conducted? Amir London: Hi, Annabel. Thank you for the question. The main difference between the current treatment population of Cytogam and this SHIELD study is that currently Cytogam is primarily used either prophylactically at the time of the transplantation, especially for high-risk patients, which are donor positive, recipients negative, or as part of treatment if there is actual active disease of patients, you know, a few days or weeks into the post-transplantation. While the SHIELD study is going to test using Cytogam as part of late CMV, after patients have been treated for a few months with antivirals. At that point, the physician starts trimming down the antiviral usage, and that's a risk for a flare of CMV disease for the patient. So this is basically kind of prophylactic usage at a late stage after transplantation, as part of trimming down the antiviral usage. What percentage? I don't remember off the top of my head. I'd like to say around 20%, but I will check this and get back to you. Annabel Eva Samimy: Okay. Great. That was helpful color. Then yeah, I guess I'm also curious about AATD, where you are with enrollment. Clearly, there's an increasing number of programs right now that are under development. Aside from gene therapy, there's some RNA editing options as well. So how is that impacting your enrollment, and are you still on target for the interim study or interim analysis? How's the enrollment completion timeline looking? And top-line data? Amir London: Okay. Good. So enrollment is continuing. As you say, it's an orphan disease. And because, you know, we are studying with the placebo arm, recruitment has been a challenge since the study started and continues to be a challenge. We are at around 60-65% enrollment currently, compared to the reduced sample size for the study. We do see some competition from other studies, but the sites where we are working with active sites are highly committed to the health study. As you said, you know, we will have the futility analysis results before the end of the year. We expect those results, if they are positive in terms of continuing the study, to give kind of strong backwind to the study and allow us to expedite recruitment. We expect to complete recruitment by early 2027, which means top-line results in H1 2029 because it's a two-year treatment. Annabel Eva Samimy: Okay. Alright. That's helpful. Alright. I'll get back into the queue. Thank you. Operator: As a reminder, if you'd like to ask a question at this time, you may press star 1. The next question is from the line of James Philip Sidoti of Sidoti and Company. Please proceed with your question. James Philip Sidoti: Your distribution business, the last two quarters, has really shot up. I think it was 80% growth in the second quarter, 60% growth this quarter. I assume that's because of the addition of some of the new products to that business. Are these stocking orders or are these actual usage? You know, are these the kind of numbers we should expect going forward? Amir London: This is actual usage. We have a kind of a richer portfolio. We've launched additional few products over the last twelve months into the Israeli market. So we have a very rich portfolio currently of distributed products. Biosimilars are just one of those products, as I mentioned on the call. It has a $2.5 million contribution this year, and we're going to launch two additional products over the next few weeks. So you should expect that this level of distribution business to continue and continue growing over the next few years. James Philip Sidoti: Alright. And with the plasma collection centers in Texas, I assume you're collecting some specialty plasma now. Can you just give us a sense of how much you're collecting relative to what you require? You know, are you collecting the bulk of what you need now for your proprietary products, and if not now, when do you think it will be? Selecting enough plasma in Texas to supply your proprietary products? Amir London: Good question. We are ramping up the specialty drug collection. The bulk of the collection now in Houston and San Antonio is still normal source plasma. Because when you open a new site, you first need to approve your normal source plasma collection before you can move into the specialty collection. The specialty comes primarily from the Beaumont site, which was our first site. And that's a site which is dedicated only to specialty plasma. So we are not yet at the point that the majority of our needs come from our own collection, but we're still working with external suppliers and partners that we've been working with for many years. Over time, we will gradually increase our own self-collection, which will allow us to become more and more vertically integrated and self-sufficient in terms of specialty plasma. In any case, we don't expect to be fully independent. We'd like to have also second and third suppliers for each one of the plasma types in order to have a backup plan if needed. Part of our risk management. So this is something which is going to grow over time and over the next few years. James Philip Sidoti: Okay. And then last question for me. I know you said you plan to release some interim data from the clinical trial for the AATD treatment sometime, I would assume, in December. How will you do that? Will it be a press release? Will we have a conference call? How are you going to let the street know how that trial is going? Amir London: Yeah. So just to maybe give a little bit more color around this futility analysis. So it will be conducted by the end of the year. Results will be publicly shared through a press release. The analysis is being performed by an unblinded external DSMB using data available to date. We're analyzing the probability of success of the study efficacy endpoints based on a predefined success threshold. This is going to be a go, no-go futility analysis. Results, as I mentioned, will be published through a PR before the end of this year. James Philip Sidoti: Alright. Thank you. Operator: Thank you. At this time, I'll turn the floor to Brian Ritchie for any questions that come in from the web. Brian Ritchie: Thank you. First question, so can you talk about the performance of Cytogam to date this year, Amir? And related to that, what are the significant growth drivers year to date in the business? Amir London: Yes. So as described in my presentation, we are generating significant profitable growth this year as a result of the diversity of the portfolio. So growth is generated through multiple products, Glacia sales in ex-US markets, mainly Latin America and the CIS countries where we focus on AATD disease awareness and diagnosis, and we are market leaders. As well as growing sales of the product in Switzerland and Israel. VariSync had a strong three quarters in the US market. Our medical and commercial teams are making significant successful efforts in increasing awareness of the importance of using Varizig during chickenpox outbreaks to treat immunocompromised populations who are at risk that were exposed to chickenpox. As I answered this previous question, the Israel distribution business is growing. This includes plasma-derived products, respiratory therapies, and the biosimilars. And this is in addition to the Kedrop KamRab solid, strong sales, Hepagam and Winrow, especially in the US market and the MENA region, Glacia royalties from Takeda, and Cytogam. Specifically regarding Cytogam, as I answered Annabel on the first question, to significantly expand the use of the product, there's a need for up-to-date medical and clinical information. And this was not available when we began marketing the product in late 2021. So we are working thoroughly to generate and later on to publish such medical data in collaboration with leading KOLs. And to this end, we've launched the extensive clinical program, including the SHIELD study, which I described earlier. The growth during this period during this clinical program will be gradual. Specifically, this year, Cytogam sales have been below our plan, partially due to inventory management in the channels, the time it takes to add the product to hospital formularies, as well as fewer transplants performed during H1 in some of the hospitals where the product is used. We are addressing, we have addressed, and we are addressing these issues and expect resumed growth during the next few months. Brian Ritchie: Thanks, Amir. With respect to Glacia royalties, now that those have declined to 6%, can you elaborate on where they'll go next year? Amir London: Yes. As soon as I think everyone knows, starting mid-August, meaning like one and a half months into the third quarter we just ended, the royalties agreement with Takeda reached its second phase, which includes 6% royalties on their net market sales in the US and Canada. This agreement is going to continue until 2040, meaning that we have a very long tail of an additional fifteen years of royalties. And we expect the royalties to be above $10 million in 2026 and continue to grow at a single-digit rate annually thereafter. Important to say that we are planning for this event. This is not a surprise for us. And as demonstrated in our Q3 results, and Chaime mentioned it, and our full-year 2025 guidance, we have alternative revenues and profitability sources. And that results from the diversity of the portfolio and this compensating for the reduction of the royalties moving into 2026 and beyond. Just as an example, one example, Glacia growth in international markets doubled between 2023 and 2024 and is expected to continue growing this year and beyond. And this is just one of the products in our portfolio, which allows us to compensate for the reduction of the royalties and to continue growing the business in a very profitable way. Brian Ritchie: Thanks, Amir. Final question. Maybe you can comment on your current BD activities and the seemingly lengthy timeline to execute a transaction. Amir London: Yes. Of course. So as I mentioned during the call, we continue to conduct active due diligence activities over several potential commercial targets. We expect to secure such a transaction at the early stage of 2026. The time of execution is a little bit longer than what we expected, but this is because we are basically doing thorough due diligence looking for the right transaction for Kamada, which will best fit our capabilities, commercial and operational synergies, and available resources. And I'm confident that similar to the transactions we've done in the past, we would also be successful in selecting and integrating the right assets for Kamada in the current phase of our BD activities. Brian Ritchie: Thanks, Amir. I'll let you give your closing remarks now. Amir London: Okay. Thanks, Brian. So in closing, we continue to invest in our four-pillar growth strategy with continued progress made in organic growth of our existing commercial portfolio, the business development and M&A transactions to support and expedite our growth, expansion of our plasma collection programs, and progression of our AAT therapy program. We look forward to continuing to support clinicians and patients with important life-saving products that we develop, manufacture, and commercialize. And we thank you all for your interest and support. We remain committed to creating long-term shareholder value. We hope you all stay safe and healthy. Thank you very much. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning. And welcome to ARS Pharmaceuticals conference call. At this time, all participants are in a listen-only mode. After the company's prepared remarks, we will open the line for questions. Please be advised that today's conference is being recorded. I'll now turn the call over to Justin Chakma, Chief Business Officer. Please go ahead. Justin Chakma: Good morning, and thank you for joining our Third Quarter 2025 Earnings Conference Call. With me on the call are Richard Lowenthal, our Co-Founder, President, and CEO, Eric Karas, our Chief Commercial Officer, and Kathleen Scott, our CFO. This morning, we issued a press release detailing our financial results and commercial highlights. That press release and the slide presentation which we'll refer to during today's call are available in the Investors and Media section of our website at ars-pharma.com. Before we begin, please note that today's remarks and slide presentation may contain forward-looking statements. Actual results may differ materially. Please refer to our press release and SEC filings for further risk disclosures. With that, I'll turn the call over to Richard Lowenthal. Richard Lowenthal: Thank you, Justin. Good morning, everybody, and thank you for joining us to discuss what has been a pivotal quarter for ARS Pharmaceuticals, driven by the continued momentum of Nephi in the U.S. and around the world. The third quarter marks a true inflection point for our business. As you can see on Slide three, U.S. net product revenue for Nephi grew again quarter over quarter, reaching $31.3 million in Q3, representing a 2.5-fold increase from the prior quarter and exceeding consensus expectations of $28.3 million. This change reflects strong growth in new patient starts and overall demand for Nephi. Surveys among Nephi users indicate that we can expect durable utilization and recurring refill behavior, trends that we expect will continue to build as both coverage and awareness expand. These results show that our multifaceted commercial strategy is delivering results. Later this month, our first analysis of real-world treatment outcomes from the Nephi program will be published in the Annals of Allergy, Asthma, and Immunology with a total of 554 patients treated. Findings show that about nine out of ten patients experiencing anaphylaxis were effectively treated with a single dose of Nephi, which is consistent with outcomes for epinephrine injections where either IM injection or EpiPen require a second dose approximately ten percent of the time to resolve the event. Updated results in 680 patients were highlighted in an oral presentation at ACAAI and reinforced that Nephi delivers equivalent outcomes to injection products in real-world use. On top of a series of case reports also presented at ACAAI by independent physicians, we expect additional peer-reviewed publications in 2026 that will further validate Nephi's clinical experience with injection products. Before Eric reviews our commercialization details, there are two important topics I want to touch on today. First, why Nephi's revenue trajectory isn't accurately reflected in IQVIA script data. And second, what we've learned from recent market dynamics, including back-to-school seasonality. Starting with IQVIA, as we've noted before, the weekly IQVIA rapid data, which are generally available on a paid subscription basis, provide a directional view of prescription activity but are not completely accurate and reliable measures of Nephi's true performance or market share. IQVIA data sets often exclude a number of channels that are central to our business, including certain retail, mail order, and specialty pharma volumes, as well as bulk purchases by institutions and clinics that buy directly through wholesalers. These additional sales are not accurately captured by IQVIA and are variable from week to week and thus cannot be predicted. Turning to market dynamics, during the back-to-school season, allergists and pediatricians experienced a huge surge in patient visits, including checkups and support physicals. That higher patient volume means that HCPs have significantly less time per appointment, typically just five to seven minutes per patient, leaving little to no opportunity to discuss new treatment options or changing prescriptions. That challenge is even greater for patients who still need prior authorizations. As a result, in Q3, we saw a temporary pause in market share growth. Importantly though, we view this as a one-time event. Looking ahead to Q4, market share growth has resumed. Although we anticipate Q4 sales will decrease from Q3 given the overall epinephrine market typically declines about one-third due to seasonality and the holidays. Then as we move into 2026, we expect to return to quarter-over-quarter growth as both market share and overall prescription volumes rise in parallel. To further drive adoption and accessibility, we recently launched our new Get Nephi On Us program at the getnephi.com website. This is an important initiative designed to help patients switch to Nephi year-round with a hassle-free virtual prescriber interaction at no cost to patients if covered by insurance. This program is anticipated to help accelerate sales growth year-round and circumvent the hectic back-to-school season. Eric will share more details. But this program removes much of the patient and physician burden in prescribing Nephi by shifting the prescription, prior authorizations if needed, and patient training to our virtual physician system. Once patients are on Nephi, physicians can more easily manage refills electronically or patients can return to getnephi.com to get additional renewal prescriptions. Together with our broader DTC campaign, this initiative makes it simpler than ever for patients to experience the benefits of Nephi and represents a key driver of long-term adoption. In fact, we already have proof of what hassle-free prescribing can do for Nephi sales. YERNEPI was launched in Germany in late June, where there is a more seamless prescribing experience without additional HCP paperwork. The slope of the market share capture just the first few months has been three times higher than what we've seen in the U.S., showing just how impactful growth can be when administrative burdens are not a barrier. This is also a strong signal for our global growth trajectory. Nephi received approval in Japan in September, with launch anticipated to start in 2025. We expect approvals in Canada by 2026, with launch expected in 2026, and we expect approval in China in 2026. We expect that as these launches begin, they will start to contribute to the total revenue and cash proceeds in the second half of next year as distribution scales across partner regions. On the clinical front, enrollment is ongoing in our Phase 2b urticaria trial, and we are on track for top-line data in 2026. This indication represents a major label expansion opportunity in a 2 million patient market in the United States. Early market research with allergists supports that our nasal spray product, if approved, could be prescribed to more than 60% of all of their CSU patients, irrespective of whether those patients are on antihistamine, biologics, or combination therapy. Finally, in September, we secured an up to $250 million term loan facility, from which we drew down $100 million initially. Strategically, we chose this structure in partnership with our largest shareholder over other capital vehicles to increase commercial investment and further strengthen our balance sheet without dilution. This reflects our confidence and that of our investors in Nephi's durable cash flow profile and long-term potential. Our planned investments are geared towards expanding the current market and improving adherence and refill rates, reengaging lapsed patients, and activating untreated patients, as well as converting the current $2 billion annual U.S. epinephrine market at Nephi's net price. With this financing, we ended Q3 with $288 million in cash, cash equivalents, and short-term investments, giving us even more flexibility to support our evolving commercial initiatives. In summary, we're building momentum across every dimension of our business, from revenue growth and market share growth to access, real-world evidence, and global expansion, all while maintaining a strong balance sheet. I'll now turn it over to Eric to provide more detail on our U.S. commercial performance. Eric Karas: Thanks, Rich. The fundamentals of our commercial execution continue to strengthen, and I'm pleased to share how our strategy is translating into tangible results. Starting with revenue drivers, our $31.3 million in U.S. net product revenue reflects not only traditional retail pharmacy prescriptions captured in IQVIA data but also institutional sales to universities and colleges, as well as retail orders from clinics and hospital networks. This quarter, we've observed modest improvements in gross-to-net retention, with cash prescriptions decreasing from about 20% to approximately 12% of total volume. By offering cash prescriptions through BlinkRx and other directly managed programs and optimizing our co-pay buy-down program at the point of sale, we've gained greater control, which led to favorable gross-to-net performance and improved profitability. Our DTC campaign is also delivering meaningful engagement, as seen on slide four. Consumer awareness has climbed from 20% pre-campaign to 56% as of September, and intent to get Nephi remains high. Approximately 80% of surveyed patients say they are very likely or extremely likely to ask their healthcare provider about Nephi after learning about it. The early lift from the campaign aligns with benchmarks for promotionally sensitive brands, and we believe it will continue to improve as awareness grows. To accelerate greater adoption, we're excited to introduce our Get Nephi On Us initiative, which is part of our direct-to-consumer campaign. As outlined in slide five, this program was designed to simplify access to Nephi. Patients can schedule a quick virtual visit with a prescriber to get started. Once prescribed, Nephi can be shipped directly to their home or picked up at the pharmacy of their choice, typically with a zero co-pay for most commercially insured patients. Importantly, patients are not required to wait for their current auto-injector prescription to expire. They can transition to Nephi immediately without the need for an additional appointment with their HCP. By minimizing hassle, assisting with coverage and the prior authorization, and enabling straightforward auto refills, this program makes it easier than ever for patients to choose Nephi and stay protected. We've incorporated the Get Nephi On Us program into all of our DTC materials, and early survey feedback shows that a majority of patients are open to using the virtual prescriber option. We believe this initiative will encourage consistent prescription switches throughout the year, extending beyond the usual back-to-school period and maintaining growth even during traditionally low-volume months. We are also seeing meaningful expansion in reach and adoption. Turning to slide six, to date, over 18,000 healthcare providers have prescribed Nephi, an 85% increase since August, with 81% of prescriptions coming from top decile seven through ten prescribers. Market share amongst new prescribers is at 10.3%, outpacing existing ones with the same call frequency, signaling faster uptake as new doctors benefit from refined messaging, an easier prescribing experience, and growing real-world evidence. These operational improvements are driving momentum and scaling our efforts. On the pediatric front, our 9,000 pediatricians, where our market share continues to grow. In addition, approximately 6,500 schools have opted into our Nephi Schools program, providing access to emergency doses at no cost. Perhaps most importantly, we're seeing early signs that Nephi is expanding the overall epinephrine market, not just taking share. We're reaching new patient segments, as seen on slide seven. Amongst patients prescribed Nephi, approximately 19% were lapsed patients who had stopped filling prescriptions, and 7% had never filled at all despite being diagnosed. These patients who stayed away primarily due to needle anxiety or device complexity. In total, about a quarter of patients prescribed Nephi are from these new segments. As summarized on slide eight, patient satisfaction is remarkably high. Eighty-seven percent of Nephi's patients report a positive impact on their daily and social lives. Ninety-five percent said they were likely to refill the prescription compared to actual refill rates of around 30% for needle injectors. The current epinephrine market is valued at $2 billion annually at Nephi's net price, growing at 6% to 8% organically prior to Nephi's entry and branded promotion. And this year, we've seen year-over-year growth at 9% and year-to-date growth at 8%. As both Nephi captures share and expands the market through improved refill rates, new patient adoption, and higher devices per patient, the opportunity is significant. In summary, our U.S. launch execution is progressing well, and we are gaining momentum. We are excited about the ongoing investment in direct-to-consumer initiatives, the launch of the Get Nephi On Us program, discussions with payers, and our efforts in the field to increase market share amongst targeted HCPs. We look forward to driving growth. Our commercial infrastructure is optimized to scale sales rapidly through 2026. I'll now turn it over to Kathleen Scott to discuss our financials. Kathleen Scott: Thank you, Eric. We continue to maintain a strong financial position while investing significantly in the commercial growth of Nephi. Looking at our third quarter 2025 financial results on Slide nine, starting with revenue. We recorded total revenue of $32.5 million. As we've discussed, it's important to look at U.S. net product revenue separately from collaboration and supply revenue. Our U.S. net product revenue for Nephi was $31.3 million, representing a near 2.5-fold increase from the prior quarter. We recognized $1.1 million in supply revenue from partners during the quarter. We also earned royalties of $100,000 from ALK related to the launch of YERNEPI in Germany. In accordance with GAAP, these royalties were recorded to the financing liability on the balance sheet rather than our P&L. Turning to our operating expenses, R&D expenses for the third quarter were $2.8 million, primarily related to our ongoing Phase 2b urticaria trial and continued development expenses for Nephi. SG&A expenses were $74.8 million, reflecting our ongoing investment in our national DTC campaign and sales and marketing efforts. While SG&A spend increased with DTC expansion, these are deliberate investments designed to drive durable share growth with spend efficiency improving quarter over quarter. We remain committed to making substantial investments in Nephi to ensure both short and long-term market share capture and brand awareness. Our gross-to-net retention in the third quarter was modestly higher than in the second quarter due to certain channel dynamics. Looking ahead, we expect gross-to-net retention to remain in the low to mid-fifty percent range even with the reduced $0 co-pay program. Net loss for 2025 was $51.2 million or $0.52 per share. Lastly, as of September 30, 2025, we had cash, cash equivalents, and short-term investments of $288.2 million. In September, we secured a senior secured term loan facility with RA Capital, our largest shareholder, and Obern's Life Sciences of up to $250 million, drawing an initial $100 million from this facility, which will be used primarily to accelerate Nephi's commercial growth. The funding will also support our marketing and medical affairs initiatives to generate and disseminate real-world evidence about Nephi's effectiveness. This financing provides several strategic advantages. First, it's an attractive cost of capital at SOFR plus 5.5% with interest-only payments through September 2030, zero dilution, and terms similar to recent commercial stage deals such as Verona Pharma. Second, it comes from high-quality investors who understand our business and are aligned as long-term partners. Third, it maximizes our flexibility for commercial initiatives, including DTC campaigns and real-world evidence generation. Our current cash position is expected to be sufficient to achieve cash flow breakeven without additional equity financing while maintaining the resources needed to fully capitalize on the U.S. commercial opportunity for Nephi and benefit from the continued U.S. growth and expanding international revenue. With that, I'll pass the call back to Richard Lowenthal. Richard Lowenthal: Thanks, Kathy. As we look ahead, we remain laser-focused on our key priorities. First, sustaining and accelerating Nephi U.S. market share growth through the fourth quarter and into 2026. Second, enabling Nephi global expansion through launches in multiple geographies across our partner network. And finally, advancing our clinical stage urticaria program towards a potential label expansion. Our momentum continues to build across every dimension of our business, and we are confident in our path towards long-term growth and profitability. Most importantly, executing our mission of transforming how severe allergic reactions are managed and fundamentally impacting the lives of patients, families, and caregivers. Thank you for your continued support. Operator, please open the line for questions. Operator: Thank you. We'll now begin the Q&A session. Lachlan Hanbury-Brown: Hey, guys. Thanks for the question, and congrats on the quarter. I guess, yeah, first question is maybe just I know there were obviously some high expectations in Q3, and would be curious to hear how these results sort of stack up to your internal expectations heading into the quarter. Hello? Operator: Rich and team, can you please come off mute? Please remain on the line. Lachlan Hanbury-Brown: Awesome. Hey. I saw the first question was just, yeah. I know there was my expectation heading into Q3 with the back-to-school season. I was curious to hear how this performance sort of stacked up to your own internal expectations. And yeah. Richard Lowenthal: Yeah, Lachlan. This is Richard Lowenthal. So I think the performance we've reported, obviously, was better than analysts' expectations, and we met our expectations. I mean, we've spoken a little bit about the difficulties over the summer and doctors' burden and why we are shifting a lot of our attention towards our Get Nephi On Us program, which physicians right now are giving us feedback that they're very, very positive about this approach. So we obviously would have liked to have seen a better performance over the summer. But I think it met our expectations. And I think we learned and adjusted very quickly to avoid the issue of the doctor burden problem that we experienced. And I would just add too, as we stated in the prepared remarks, I mean, the growth of new prescribers and prescribers overall has been strong in Q3 and throughout the summer. As I mentioned also, you know, what we're seeing with that group of doctors too is, I think, just really focused messaging. You know, the real-world data and then some of the programs that we put in place. Is a higher share, so that's very encouraging. And then, you know, the increase that the consumer awareness with our DTC campaign continue to grow through the summer months. Lachlan Hanbury-Brown: Yeah. So maybe on that point about the higher share in the newer prescribers, is that a higher share at a certain time after writing their first script or just an overall higher share among them than the original prescribers? And if so, maybe why are the initiatives that are getting higher share in the new prescribers not driving further share growth in the prior prescribers at the same rate? Eric Karas: Rich, I can take do you wanna take that one? Richard Lowenthal: No. No. You can take it. I don't I think as I mentioned, you know, the focus on kind of, you know, tighter messaging in terms of the unmet need, and not only the attributes of needle-free, but the totality of what Nephi offers. Continues to drive adoption and writing. I think as Rich said, you know, the volume of overall patients and kind of our core went up quite a bit in the summer. That's one of the reasons why, again, the Nephi program was designed to really help the offices and help the patients mean, if you look at our allergists, for example, our top top you know, 4,000, I mean, the share is higher than the average. I think we're seeing that kind of across the board where we have good focus, you know, reach and frequency, a tighter message, really focused market access messaging too. Our sales team is able to kinda see within a doctor's patient base the specifics around where Nephi is covered without a PA. And then really kinda sharing and educating those best practices has really kinda helped us with adoption that we see kind of, you know, with those physicians that I mentioned. Richard Lowenthal: And, Lachlan, let me just correct one thing, because I think your what you stated is not really, the correct perception. The doctors that are prescribing Nephi at the higher tiers continue to expand their use, their market share continues to go up. We also expand the number of prescribers, but new prescribers tend to be trialing. Right? So new prescribers tend to be coming in. They try out Nephi with some of their patients. And once they have positive experience and they're comfortable, they start then expanding. So while we're seeing a good growth of new prescribers, those prescribers are not adding a lot to our market share. But I don't want you to think that existing prescribers are decreasing. They're actually increasing. So when we look at our existing prescribers, they are increasing in market share. And the only reason that market share kinda took a dip over the summer is because the volumes get so large and a large percentage of that volume is renewal prescriptions, which are virtual. So they're not even going to see the doctor. So if we could look at just prescriptions that were at a doctor's office, I think we would have had a much higher market share of those prescriptions. But you have a lot of renewal virtual renewals going on before school starts. And that we will take the advantage of next year, but this year, obviously, we don't have renewals of Nephi yet on an annual basis. So starting next year, we'll start to see the benefit of that virtual prescribing. Lachlan Hanbury-Brown: Alright. Thanks. And maybe final one for me. The institutional sales the point you made was an interesting one. Can you just elaborate on maybe how much volume went through that channel, what the economics are like, how big that opportunity is, know, what you're doing to capture that beyond the traditional retail setting? Richard Lowenthal: Yeah. We're not gonna elaborate on that today because it's inconsistent, obviously. And we are just starting up formal marketing efforts in that area. So we are now shifting some of our attention to market directly to buyers and also to provide both discounts and other incentives to them to start boosting those sales going forward. So it's not consistent enough yet for us to give you any kind of guidance, Lachlan. So we'd rather not give too much detail on that at this point. Lachlan Hanbury-Brown: No. Makes sense. For the questions. Operator: Our next question comes from Josh Schimmer with Cantor. Josh Schimmer: Thanks for taking the questions. Apologies if I missed this in the prepared remarks. But what percent of covered lives now require some form of prior auth prior? What trends are you seeing there? And then for the online prescribing option, what is being done to raise awareness of patients if that is available to them? Thanks. Richard Lowenthal: Yeah. So I'll take the latter part and then let Eric answer the part about the prior authorization and percent of prior authorizations. I think we are advertising already, so we started to incorporate the new program into our DTC. You will also shortly see new TV commercials, which use the same theme, so same background, same theme, but different voice-over and banners. In order to make it very clear to customers that we now have this virtual prescriber option, that we're it's no cost to the patient or caregiver. And, again, with commercial insurance, it's zero co-pay. So I think that is rolling out. I mean, I think virtual ads are already updated. And then, also, we sent out, obviously, an email blast to all of our, everybody on our email list that has been on nephi.com. And, also, several of the large advocacy groups have put this out on their email list, that ARS Pharmaceuticals is now got the promotion going. Is paying for a virtual prescriber if they wanna skip the hassle of a physician visit and also that they can get a zero co-pay now and they can get multiple packs with zero cost. So it's more than just one box. It's multiple boxes. They can get whatever their insurer will tolerate. And just so you know, on that front, almost all insurers will tolerate two boxes in one prescription. Some will accept three. Two packs in one prescription. So we are defaulting to two two two packs in the virtual prescriber prescription. Eric, you wanna talk about PAs? Eric Karas: Yeah. Good morning, Josh. Thanks for the questions. Overall, when you look at the PA required, and this is through kinda commercial, Medicaid, and Medicare. It's about 50%. So that number has come down, as we've also shared too specifically within commercial. About 57% of prescriptions patients don't require a PA. Josh Schimmer: Okay. Thank you. Operator: Our next question comes from Roanna Ruiz with Leerink Partners. Roanna Ruiz: Great. Good morning, everyone. So couple for me. Could you talk about the inventory levels for Nephi in the quarter and how we should think about it exiting for Q4? And secondly, I also noticed you talked a bit about IQVIA being a bit off in tracking Nephi prescriptions. Could you give us a little more detail about what portion of the scripts are flowing through IQVIA versus BlinkRx and other channels? Richard Lowenthal: Yeah. Let me speak to that first, and then Eric can add on it. I think the inventory levels that the distributors are maintaining tend to be between fifteen and twenty days. It fluctuates, obviously, from week to week and period to period. They did they do build inventory for peak periods. And then, what would be normal is that they're gonna reduce down their inventory as the market drops in the fourth quarter. So as we said, that's part of the reason why we expect that the overall sales in the fourth quarter, although we believe we'll do very well, will come down from the third quarter. And part of that is driven by inventory adjustments as well. So that dynamic is pretty fairly normal. But, again, this is a product with some seasonality to it. The distributors are well aware of that. So they do adjust inventory according to that seasonality. But they try they seem to be trying to maintain their inventory between fifteen and twenty days on hand. And, Eric, do you wanna speak to the other part of that? Eric Karas: Yeah. I think, Roanna, good morning. Thanks for the questions. When you look at kind of the distribution of the prescriptions being filled, it's slightly higher kind of on the retail side. I think as we kinda transition more where, had higher, you know, coverage and so forth, doctors started sending patients directly to kind of a the local pharmacies, you know, because that was something easier for the patient to kinda pick it up. And get it right away. It's probably about 50, you know, 5% to 45%. But as Rich mentioned and we mentioned, you know, some of the inaccuracies of, you know, capture rates and some of the other channels that, you know, we're selling medication to is not necessarily tracked in the IQVIA data overall. Richard Lowenthal: Yeah. And it's very inconsistent, Roanna. So we can see that it from week to week or period to period, it's not very consistent what IQVIA is capturing. Roanna Ruiz: Makes sense. A lot. Operator: Our next question comes from Andreas Argyrides with Oppenheimer. Andreas Argyrides: Hey, good morning, guys. Thanks for taking our congrats on the solid quarter here. Couple from us. There was a previous question around prior authorizations. You know, maybe, you know, what are some of the gating factors in reaching unrestricted access? What are your timelines? To add, let's say, CVS Caremark, Aetna, and etcetera, bigger formularies in '26? And how do you anticipate those improvements contributing to growth next year? And then I got one or two follow-ups. Richard Lowenthal: Yep. So, Andreas, I'll start out with the answer on that. So, we continue to work, obviously, with Zinc and Caremark, CVS. We do have some new proposal in with them. So we're very optimistic. What the timing of that, we cannot be sure of right now. We believe that it will be in the first half of next year that they will put it on formulary with preferred status, but we're also working with them to possibly remove the PA requirement even as nonpreferred sooner than that. But we can't really promise because CVS is not consistent in their behavior. And we know that in the past when we had an agreement with Zinc, CVS did not follow through with that. So we are working with them. They seem to be working with us, and Zinc certainly is very, very positive. But we have to just wait until we get through that. But we do have a new proposal in with them, and we are talking fairly regularly with Zinc and CVS groups. On the other side, we also are working with Prime and other Blue Cross companies. That's the other piece that we're focused on. And we are making progress in that regard as well. And also with Anthem, which kind of follows Caremark but is independent of Caremark. Andreas Argyrides: What do you think I mean, so what do you think some of the considerations that these payers look at when they decide to make their decisions? What are some of the data points that you guys are bringing to their attention? Richard Lowenthal: Yeah. Well, they see the market growth. I think they understand the medical value. At least most companies understand the medical value of Nephi. And I think it's just a matter of and it's a little different for different companies. I think it's you know, with CVS, there's a little bit different focus on the revenue that they would generate. For the Blue Cross companies, I think it's just managing their premiums and managing their cost. So they tend to be delaying coverage for that reason even if they recognize the medical value. And then there's a handful of companies that are just not covering for other reasons. But it tends to be just managing their costs, and we need to work through that with them. Andreas Argyrides: Okay. Great. And I know you guys aren't necessarily giving guidance here, but just given the strong momentum in Q3, how are you thinking about Q4 sales and then growth into next year? Thanks. Richard Lowenthal: Yeah. As we said, I mean, you know, Q4 will probably be less than Q3. And I think that's anticipated to some extent even in the analyst estimates. We will continue to grow market share, and again, depending on how well the Get Nephi On Us program does, and how much business that drives, will probably dictate whether we are well above consensus or not. But I think that that program hopefully will solve some of the headwinds that we have been seeing, and then if we can make more progress on access, but that will probably be in the first or second quarter of next year. That will certainly also add to the momentum at that point. Andreas Argyrides: Okay. Great. Thanks for taking my questions. Congrats on the quarter again. Thanks. Richard Lowenthal: Alright. Great. Nice to talk to you. Operator: Our next question comes from Kevin Holder with ROTH Capital Partners. Kevin Holder: Good morning. Thanks for taking our questions. First one for me, I think I know you launched in the UK with ALK a few weeks ago. You know, just some commentary on the adoption there. And is it tracking more towards, you know, the growth trajectory in Germany or close to the growth trajectory in the U.S.? I know a little bit early stages there, but just some commentary would be helpful. Thank you. Richard Lowenthal: Yes. So, yeah, it's a little early to say. It's a little early to say, but what I can tell you is that I think the UK physicians and patients' caregivers are very excited about Nephi. I think we expect a very good performance. And, again, they have a more seamless reimbursement process than the U.S. So we know that they get fairly well covered, very quickly or they are already being well covered. So we do expect adoption. I would expect at least at this stage, again, too early to be sure, I would expect adoption to be more like Germany, more because of the very rapid access that they get in those countries. Kevin Holder: Thank you. That's very helpful. And then just one last one for me. I think in the slide deck, you show that you're targeting 9,000 pediatricians with the ALK U.S. Salesforce. Kind of what is your progress there thus far? And you know, penetrating that market? Eric Karas: Yes. Hey. Good morning. We're seeing a nice increase through the summer months when that team went into the field. Of share. So we track a couple things in terms of overall volume, new prescribers, and that is progressing nicely. Obviously, we wanna kinda see that continue growing at a pace here in Q4 as well. But we're pleased to get to overall about 20,000 physicians. So we're hitting all of those big allergists, the deciles eight through ten, but then we've been able to expand to about another 9,000 pediatricians that also see patients that need epinephrine. Kevin Holder: Great. Thank you very much, and congrats on the quarter. Operator: Our next question comes from Ryan Deschner with Raymond James. Anthony: Hi. This is Anthony on for Ryan. Thank you for taking our question and congrats on the quarter. So we wanted to know how are you thinking about the impact of the virtual program over the next several months? And what's patient demographics do you think will have the biggest impact from this program? Richard Lowenthal: Yeah. I'll start out, and Eric can add to what I say. We are very excited about this program. We've had a prescriber option on our website, but it wasn't very well utilized only because of the fee and because of, again, us not promoting it. Right? We were not advertising it. Feedback I got, I was just at the American College of Asthma Allergy Immunology, is that the doctors are actually looking at this as a really positive thing. Mean, doctors, allergists especially, are exceptionally busy. They're under a lot of pressure to see as many patients as they can. And the time it takes to counsel patients on a new drug and switch them takes up a lot of their time. So by introducing this program not only to the patients and caregivers but to the doctors, the doctors are coming back with a very positive attitude towards it that they can actually talk to their patient and then switch them over to getnephi.com and we would take care of the rest. We would take care of the description, a PA if necessary, training, everything for the patient so that that burden is removed from the doctor. On top of that, patients and caregivers will now have the opportunity to get Nephi without a waiting time. Typical waiting time to see an allergist is three to six months. They don't need to travel down to the doctor's office and sit in the doctor's office. And it's fairly quick, so there's also probably less dropout because you're gonna have a very quick interaction virtually, and then the prescription goes to the pharmacy or gets filled through the mail order system. And it's gonna go really, really quick. So less chance of a patient deciding that they changed their mind or don't wanna go to the doctor. Cancel the appointment for other various reasons, like, for reasons. So we expect it to have some meaningful impact. I mean, how much impact we can tell you. But I think the positive response of the doctors we're getting has been very reassuring because they see it as a way for them to switch their patients without having to take up too much of their time. But I think that's an important aspect in today's world when they're under pressure to see just one more patient each day. Eric, do you wanna add anything? Eric Karas: Yeah. I need a couple points to build on what Rich mentioned. As Rich said, we were just at the college conference, and even before the conference started, we did an advisory board with about 12 physicians. Things that we went through is this program, and the response was very positive. So we will see how obviously, we're watching really closely and we mentioned earlier too, making sure we're promoting this through our DTC efforts as well. Then we've also done market research specifically with caregivers, parents, and patients. And as Rich mentioned, they see this as time savings. Making the product really easy to get. You know, the ease of use, the cost aspect of not having to pay, you know, lower co-pay. And then just over the product overall, I mean, you start thinking about the unmet need and the patients kinda see this again needle-free, the temperature excursions, the simplicity, ease of use. The feedback that we're getting again from across patients and parents about this program has been positive. Anthony: Alright. Thank you very much. Operator: That concludes today's question and answer session. This will conclude today's conference call. Thank you for participating. You may now disconnect.
Elizabeth Shores: Welcome to Exodus Movement, Inc.'s third quarter 2025 earnings call. I'm your host, Elizabeth Shores. Joining us again are Exodus Movement, Inc.'s co-founder and CEO, J.P. Richardson, and CFO, James Gernetzke. During today's call, we may make forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may vary materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described in forward-looking statements at our earnings press release and our most recent Form 10-Q with the Securities and Exchange Commission, available on the Investor Relations portion of our website. We do not undertake any obligation to update forward-looking statements. Now you can feel free to visit our social media accounts on X or Reddit to submit any questions you may have about this quarter for our Investor Relations team after our call. And now our CEO will discuss our developments and our quarter. Take it away, J.P. J.P. Richardson: Thank you, Elizabeth. And thank you, everyone, for joining us this morning. I'm excited about the positive momentum in our business. We had a good quarter, and Exodus Movement, Inc. posted over $30 million in revenue this quarter. That's 51% year-over-year growth as consumers and industry partners continue to get value from Exodus Movement, Inc.'s products. We'll speak more to that value later in this call. Exodus Movement, Inc. is a company of builders. We've described many of the technologies we have built, such as passkeys, in previous calls. These products have laid the foundation for the next great wave of innovation in money. Exodus Movement, Inc. is building completely beyond the boundaries of a crypto wallet. We're building toward a future where people use Exodus Movement, Inc. as an app not just to invest and save their money, but to make payments and transfer money in the broader financial system. It's a future where with one tap, you can send $20 to your mom across the world. A future where you can easily use crypto wealth to buy groceries, all without any crypto complexity. Many of these experiences will be powered with stablecoins. Payments with stablecoins and purchases with cards using stablecoins. Now I'm excited to share with you our acquisition of Grateful that we announced this morning. The tools that Grateful ship will be helpful to us as we work to produce useful products to consumers and merchants across the payment space. Grateful has built a merchant checkout experience built on stablecoins. In addition, we've built the payments app on passkeys and stablecoins to pair with this merchant experience. The Grateful Payments app will go live next month in Argentina and Uruguay. Finally, Grateful is a company of builders themselves. The Grateful acquisition is bringing crypto builders and company founders into the fold at Exodus Movement, Inc. And that's a positive development that we intend to make into a habit. Now shifting gears. Our traditional crypto business and ExoSwap. We've gotten more traction with recent names signed, MetaMask. While some of the notable recent signings are still in the integration phase, we are expanding across the industry with 16 signed partnerships, 10 of which are already producing. We've been tracking these producing partners in our monthly treasury updates. In September, we served 37% of exchange provider volume to ExoSwap industry partners, up from 26% in the previous month. Also on this topic, since there were a lot of questions about MetaMask after the last call, this integration is not yet producing revenue. But MetaMask recently posted on X that they are expecting Bitcoin support soon. And as a result, we are optimistic about the prospects for our white label services with continued traction and success since launch. It's gratifying to see Exodus Movement, Inc. extend our services across the industry. Every new partnership validates our technology and drives benefits from scale. Now let's talk about tokenization. Tokenization is another area where we work consistently to be on the leading edge. Because I strongly believe that tokenization of assets, particularly stocks, is the future of financial markets. We announced that we are exploring a Bitcoin dividend. As those plans have progressed, our team has thought through a number of other crypto-like value-added activities that we could power for our shareholders utilizing our Exod token within our Exodus Movement, Inc. products. But first things first, we are working through the steps for a potential Bitcoin dividend, and James is going to have more on that later. Now we've partnered with Superstate to extend the Exodus Movement, Inc. common stock token to the Solana blockchain. So now Exod is on two blockchains, Solana and Algorand, with more to come. Enabling Solana is only the first step. All of you who know me well know how excited I am to be moving towards an on-chain stock trading. And it's a priority for Exodus Movement, Inc. to be in front when US companies start trading. So I'm excited to see the world of Solana and Exodus Movement, Inc.'s investment community come together. The time is now. Now let's talk about the industry and market briefly. And while the price of Bitcoin and Ethereum crypto assets supported our overall economic environment for the quarter, we see stablecoin and real-world asset tokenization adoption as key catalysts in the Exodus Movement, Inc. world future. I'd like to reiterate once again that Exodus Movement, Inc. is already a leader in key components of this future. Our multichain self-custodial wallet technology, our exchange aggregator that powers swaps across blockchains, and our groundbreaking common stock tokens all demonstrate our deep experience across many different rails. So it remains our long-term goal for Exodus Movement, Inc. to become the last and best app consumers will ever need for their finances. So I'd like to quickly say thank you to everyone that's joining us on this journey. James, over to you to discuss our finances. James Gernetzke: Great. Thanks, J.P. Let's jump in. Okay. So Q3 revenue came in at $30.3 million. That's a 51% increase from a year ago. And one of the items driving this growth is the higher digital asset prices, which we've seen over the last twelve months as we've had a very favorable backdrop for our industry. Three swap volume totaled $1.75 billion, that's an increase of 82% from the prior year quarter. And as B2B swaps contributed $496 million, that's 28% of our quarterly volume. Key drivers to the overall volume increase here included higher digital asset prices and the emergence of very meaningful volume from our ExoSwap partnerships. Non-exchange related revenue increased to over 10% of our revenue. That's the first time that we've seen that in quite some time. This primarily reflects improvements in staking, specifically in Solana staking. And we've also seen traction from our ExoPay product in the United States. From a user front, our monthly active users ended at 1.5 million. That's similar to the end of last quarter and went down 66% from the previous year. Quarterly funded users ended at 1.8 million, and that's up 6% from last quarter and up 20% from a year ago. So as a reminder, QFUs counts funded users. Those are users that have put their money on the Exodus Movement, Inc. platform and that demonstrates the real stickiness of the Exodus Movement, Inc. wallet and the loyalty shown by those users who've trusted us to put their money on our platform. And as we look at the Grateful acquisition, our payment strategy is spearheaded by this acquisition. Grateful is a talented outfit that helps us implement and refine access of our software for mass consumption. Additionally, the benefit of Grateful that gives us is a great deal of flexibility with our go-to-market strategy across jurisdictions, including targeted rollouts and future feature testing. And on to our balance sheet. It remains a source of strength for us. As of September 30, digital and liquid assets totaled $315 million, Exodus Movement, Inc. maintains a debt-free position. While we increased our Bitcoin to 2,123 Bitcoin. With regards to our strategy, the Grateful acquisition provides a beachhead into the traditional payment space that can be augmented through development and successive acquisitions as we broaden our capabilities. Meanwhile, the Grateful team's focus on simple, efficient, and multi-chain payment experience for merchants and customers gives us inroads to pursue new regions and new users in conjunction with our existing multi-chain software. On the dividend front, we filed an information statement on Friday. So as previously reported, we are currently exploring the possibility of issuing Bitcoin dividends to our stockholders. Now we believe that issuing the right to receive a Bitcoin right to receive a dividend in BTC will allow us to leverage a core asset to reward our public stockholders directly and to promote business objectives such as the adoption of Exodus Movement, Inc. products and services, and promoting the advantages of common stock tokens. As part of this process, we are seeking to amend our charter to allow Exodus Movement, Inc. to declare and pay dividends to only our publicly listed Class A common stock. And we believe that this charter amendment will allow flexibility in our capital allocation strategy, potentially maximize the value of any potential dividend through targeted distributions to our Class A stockholders. Given that our founders, sorry, J.P., hold over 96% of our Class B common stock. But any potential dividend remains subject to board approval, and the charter amendment is subject to completion. So for additional information on the charter amendment, please refer to the preliminary information statement filed with the SEC on November 7. Now let's go back to Elizabeth for questions and answers from our analysts. Elizabeth Shores: Alright. Thank you so much, James. As a reminder, if anyone would like to ask a question, you can just click the raise hand button at the bottom of your screen, and we can ask. Alright. We have Andrew James Harte from BTIG. Go ahead, Andrew. Andrew James Harte: Hi. Thanks for the question, congratulations on the Grateful acquisition. I'm hoping maybe you can just unpack a little more. How quickly do you think you can have Grateful integrated into the Exodus Movement, Inc. wallet and platform and any financial details you can share or expectations around Grateful as well would be really helpful. Thank you. J.P. Richardson: Thanks, Andrew. So the Grateful acquisition is super exciting for us. And so to answer your question, we are going to go live with Grateful next month. So going to start in Uruguay, and the reason for that is that down in South America, in during the it's, you know, summer there now or will be summer here shortly in down in South America. And so there's a lot of activity that happens down in Uruguay and Argentina. So Grateful is an Argentinian and Uruguayan team. And so we'll launch there next month. And in addition with the Grateful app. So you'll see merchant services, merchant checkout experiences, and the app itself will all be live next month. And, James, you probably have more on finances. James Gernetzke: Yep. Exactly. So, Andrew, thanks for the question. I would say that you know, we didn't release the amounts, but just so you get an understanding of the size, you know, they are a smaller team down there, and it's not a very large acquisition from a financial perspective. But I think what it really does show is just that as we have been very public about our M&A strategy, as we've talked about as our team has gone out and looked at acquisition targets, that, you know, we have all different types. And, you know, the fact that we saw you know, we really do appreciate and the technology that they've built. They just happen to be very rather early on their journey. They had essentially just gotten to their product launch stage when you know, we started, you know, getting, talking to them in earnest about the acquisition. So from a financial perspective, it's not that large, but from a technology perspective, we think it's going to be pretty impactful. Andrew James Harte: It's really helpful. And then, just as my other question. James, you talked about a larger percentage of revenues coming from non-aggregation sources. I think you called out staking and ExoPay in particular. As we think about the opportunity for that revenue line item to continue growing in these different sources, can you just break down some of the puts and takes in there, and how you see that line item evolving over time? Thanks. James Gernetzke: Yeah. So, you know, I think I've generally been fairly consistent. I think that we'll always see, you know, aggregation, exchange aggregation in particular, be a rather large part of our revenue stack, if you will, to mix technological and finance terms. I look at the aggregator kind of as the glue because, you know, whether you're talking a stablecoin going from, you know, Amazon stablecoin to Walmart stablecoin, that aggregator is kind of the glue going to, you know, power a lot of the different experiences we see in the future. But to your point, I mean, you know, the Grateful acquisition, you know, the stablecoins and the technology and, you know, dealing with merchants and things like that, that's not necessarily going to be swaps. So, I think as we acquire other companies, I think you'll see, you know, and develop, you know, new, more stablecoin and more, you know, payment rails type products, I think you could start to see, you know, there's a lot of other opportunities that aren't necessarily exchange related. But I, you know, but I generally believe that exchange will be a large part of the revenue. Andrew James Harte: Thank you. Appreciate it. Nice quarter, guys. Elizabeth Shores: Thanks for the question, Andrew. And up next, we have Owen Rickert from Northland. Go ahead, Owen. Owen Rickert: Hey, guys. Thank you for taking my question here. What does the monetization model look like for Grateful? Are you guys going to be earning fees on merchant payment volume or stablecoin yield spreads? I guess, you just provide some more color on that? J.P. Richardson: Yes. Absolutely. So short term, we don't care as much about the merchant payment experience in terms of monetizing it. It's more about the utility and getting merchants to realize that if you have a checkout experience with stablecoins, you're going to save a lot of money compared to spending fees on credit card exchanges. So while we'll experiment with some, I think, smaller takes anywhere up to 50 bps, in some cases. The aspect for us is not the merchant experience. The monetization piece that really becomes, I think, interesting is for consumers to actually start holding crypto assets to hold stablecoins to provide yield through stablecoins and to provide other value-added services. I mean, if you can imagine that if you have people all over Latin America and the United States, using a wallet, they're holding their money, they're holding their stablecoins, that opens up a whole suite of monetization capabilities. You could imagine things like mortgages. You can think any sort of loan capabilities. Things like that are really interesting to us to connect consumers with the money that they have with the utility that they will need. So that's how we think about it. And, of course, not to mention that in time in the Grateful app, you know, there's the possibility of even bringing in other experiences like swaps. So if you have stablecoins and you see all of a sudden that you want to buy some Bitcoin or Ethereum, that becomes another value-added service. But the key again is making sure that merchants really understand the utility and convenience and cost savings with stablecoins. That's the really important key here. Owen Rickert: Great. Thanks, J.P. Super helpful. And secondly, I guess, how big is the opportunity in Latin America and potentially other emerging markets for these stablecoin-based payments? J.P. Richardson: Well, it's huge. It's absolutely huge. I mean, everybody down in Latin America, especially in countries like Argentina. Right? We all know the stories of the high inflation of the Argentinian peso. And how many consumers around there want to use stablecoins. They want to use the dollar. And so for us, this presents such a huge opportunity. And I've been told that Tether is actually a household name down in places like Argentina. So given that Argentina is a country of over 100 million, Uruguay is a much smaller country of about 5 million. The opportunity is quite big to really present consumers all across Latin America with an easy and convenient way to hold and store and use dollars as a part of their daily lives. So I think the opportunity is ginormous. Owen Rickert: Great. Thanks, J.P. Elizabeth Shores: Alright. And thank you, Owen. And oh, hey there. We have Kevin Dede from HC Wainwright. Go ahead, Kevin. Kevin Dede: Good morning, guys. Thanks for having me on. J.P., I really appreciated your color sort of from the 20,000-foot perspective. I was wondering if you wouldn't mind maybe adding a little more to that and your thinking about integrating Grateful with stablecoins and that possibility into the wallet for customers in the Western world. Where inflation isn't such a big deal or at least it's not as bad as in Argentina. And then maybe you could talk a little bit about how you'd incentivize your users. Number one, they come to your platform, and number two, to actually use it when most people are pretty satisfied with their credit card. Understand the merchant perspective, but just would love to hear your thinking on how users might approach it. J.P. Richardson: Yeah. This is Kevin, that's a great question. So when you think about like, Gen Z consumers or even younger, Gen Alpha consumers. It's like I have an older son, and I remember when I had a conversation with him, and I said to him, like, yeah. We gotta sign you up for the bank account and, you know, have to direct deposit and, you know, with your job. And oh, and then you're gonna have to he had to write a check at one point in time. And I remember he asked me, said, what's a check? And I was like, wow. There's such a divide between, you know, older generations and younger generations. The Snapchat generation, the I want it now generation. These are the type that want to do all of their banking directly inside of an app, one app. And so that's the opportunity here. And we're not be very clear, we're going to integrate with credit cards and debit cards as well. Because the opportunity is that we want a person to be able to have dollars in their Exodus Movement, Inc. wallet and be able to use them anywhere in the world. That's the key important aspect here is to be able to use it anywhere in the world and not have any friction because what we found, if we go back to Exodus Movement, Inc. for a moment, right, Exodus Movement, Inc. was created to help people manage a portfolio of assets. That's where it started. Right? To manage a portfolio of Bitcoin, Ethereum, Dogecoin, and just any crypto assets. And we saw a future that someday that would involve stocks. And even though at the time, stablecoins were early, we knew that someday that would involve stablecoins. But at the end of the day, somebody just be able to buy Dogecoin at a dollar and then turn it around and sell it for $4 later. Like, while that's cool and it helps make money for us, people want to be able to bring that additional or get utility from that additional value. Right? Like, people buy crypto assets with the intention of being able to get value from them later. So again, for the consumer, that becomes really powerful where you have a one app that has all of your crypto in it. You have one app that has all of your stocks in it. You have one app that has all of your stablecoins, and it's presented in such a way that you're not really thinking about oh, is this stablecoin? Is it on Solana? Is it on Ethereum? I don't know. I don't care as a consumer. I care about the convenience. I care about being able to use my dollars anywhere. I care about being able to take my Bitcoin and sell it right away so that I can buy a new PlayStation or whatever you know, some Gen Z kid cares about. So that's how we think about it. And, again, just be very clear. Exodus Movement, Inc. and Grateful will integrate with debit cards so that you can use these assets at the point of sale. So I just want to be very, very clear on that. Kevin Dede: Yeah. Thanks, J.P. Appreciate it. James, quick one for you. The Grateful deal, was that cash or stock? And did it come with a banking relationship in Uruguay and Argentina? And is that important? James Gernetzke: It was a mix of cash and stock. And, you know, from the importance of the banking relationship, you know, that was not a driving factor. You know, obviously, there are relationships down there, but that was not a driving factor. And just to add some color to what J.P. had been earlier there, Kevin. You know, just as an anecdotal consumer, the other day, I went out, and I went all day and swiped my card, and I got charged 3% every time I did it. So I think that we're seeing a very rapidly changing environment, you know, on just payments in general. And so I think that one of the highlights that Grateful does is it allows us to really broaden our capabilities and address numerous different payment rails and methods where we can add some value. Kevin Dede: Yet so to your point, James, just lastly, you're swiping your credit card and absorbing the 3% fee that used to be charged to merchants. James Gernetzke: Exactly. Kevin Dede: Okay. Thank you for the color, gentlemen. Appreciate it. Elizabeth Shores: And thank you, Kevin, for the questions. If you want to ask a question, you can use the raise hand button at the bottom of your screen. I'll go over and check, and it looks like there are no more questions. So thank you so much again to J.P. and James and our analysts. If you want, you can visit our social channels on X or Reddit to submit your questions for management for the quarter, and our investor relations team is always standing by. Now thanks again for joining us today, and we will see you next quarter.
Operator: Hello, and welcome to Wave Life Sciences Ltd.'s third quarter 2025 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. I will now turn the call over to Kate Rausch, Vice President of Corporate Affairs and Relations. Kate Rausch: Thank you, Operator, and good morning to everyone on the call. Earlier this morning, we issued a press release outlining our third quarter 2025 earnings update. Joining me today with prepared remarks are Dr. Paul Bolno, President and Chief Executive Officer, and Kyle Moran, Chief Financial Officer. Dr. Chris Wright, Chief Medical Officer, Dr. Erik Ingelsson, Chief Scientific Officer, and Dr. Chandra Varghese, Chief Technology Officer, will be available for questions following the prepared remarks. The press release issued this morning is available on the investor section of our website, www.wavelifesciences.com. Before we begin, I would like to remind you that discussions during this conference call will include forward-looking statements. These statements are subject to several risks and uncertainties that could cause our actual results to differ materially from those described in these forward-looking statements. The factors that could cause our actual results to differ are discussed in the press release issued today and in our SEC filings. We undertake no obligation to update or revise any forward-looking statement for any reason. I'd now like to turn the call over to Paul. Paul Bolno: Thanks, Kate. Good morning to everyone joining us on today's call. I would like to first thank those of you who were able to join us for our 2025 Research Day on October 29, where we shared the first-ever demonstration of active and e reductions in a clinical trial. Notably, with a single dose of WVE-007, our inhibiting GalNAc siRNA, we were excited to show highly significant and durable human activity reductions that exceeded levels needed in preclinical models to drive meaningful weight loss and prevent rebound weight gain following cessation of a GLP-1. In addition, we provided an in-depth overview of our recent in RNAi and RNA editing and how we are building on the successful clinical translation of our WVE-007 and 006 programs to advance our pipeline, including our new RNA editing clinical candidate WVE-008 for the treatment of the up to 9 million homozygous individuals living with PNPLA3 I148M liver disease in the US and Europe. We also unveiled how we are harnessing the power of both siRNA and RNA editing to advance an innovative new bifunctional single oligonucleotide construct that is designed to silence one target while simultaneously editing or upregulating another distinct target. All of these clinical and preclinical advancements are made possible by our unique and proprietary chemistry and platform innovations. Just last week, we had the privilege of sharing data on 007 at Obesity Week, where we received significant attention from the patient community, key opinion leaders, and companies with a deep understanding of, and strategic interest in, the obesity space. There was a clear recognition for the need for non-incretin treatment approaches and overwhelmingly positive engagement on 007's potential to induce fat loss, preserve lean mass, and improve cardiometabolic health all without the negative GLP-1 class effects and with the convenience of once to twice a year dosing. There is particular excitement in 007's potential as a maintenance therapy, which would allow patients to transition off chronic incretin therapies while at the same time preventing rebound weight gain, preserving lean mass, and sustaining cardiometabolic health. Reflecting on the rapid progress we've made in advancing 007 in our Enlight clinical trial, we have now enrolled over 70 participants and are well-positioned to deliver data on over 100 participants from the clinical trial sites in Europe and the US in 2026. We began testing WVE-007 in Enlight at our lowest subtherapeutic dose cohort of 75 milligrams in each participant. Then for the subsequent cohorts, 240 milligrams, 400 milligrams, and 600 milligrams, which are in the potential therapeutic range, we have expanded to 32 participants. WVE-007 was generally safe and well-tolerated, and our independent data monitoring committee has approved further escalation to a next higher dose in cohort five. At Research Day, we shared highly significant dose-dependent and durable activin e reductions one month post-single dose of the 007 in the first three cohorts of Enlight, including a 56% reduction for the 75-milligram cohort, 75% reduction for the 240-milligram cohort, and an 85% reduction for the 400-milligram cohort compared to baseline. In addition, we had the opportunity to evaluate our lowest dose cohort out to six months, and throughout the six-month follow-up period, we continue to see sustained reduction, supporting 007's potential for once or twice yearly dosing. The durability and potency we've observed thus far is particularly encouraging, as we expect consistent and robust activity reduction over time is necessary to achieve meaningful weight loss. As we shared at Research Day, Wave's unique spina design and proprietary chemistry enabled the achievement of the potent and durable suppression needed for the inhibiting target. In our DIO mouse model, we demonstrated that weight loss in the same range as semaglutide occurred when Activin E was durably reduced by greater than 70% from baseline. The knockdown we've observed in the 240 and 400-milligram cohorts already exceed these levels. In our preclinical studies, we have shown extensive data supporting 007's unique mechanism of action to drive weight loss in monotherapy, as well as maintenance in combination settings. Specifically, we share data that support 007's ability to double weight loss when added to semaglutide and prevent rebound weight gain following cessation of GLP-1 in DIO mice. Furthermore, we've shown that inhibit e reduction led to adipocyte shrinkage, fewer pro-inflammatory macrophages, less fibrosis, and improved insulin sensitivity in adipose tissues, highlighting mechanisms that could explain the risk reduction for type 2 diabetes and coronary artery disease observed in human genetic data. With robust and durable target engagement in the clinic and comprehensive preclinical data that support both the mechanism of action and impact of our proprietary chemistry, we are incredibly excited to build on this positive momentum. We plan to deliver multiple near-term updates that assess blood-based biomarkers, metabolic health, body composition, and weight loss across multiple cohorts. Beginning this quarter, we'll have the first opportunity to assess the early impact of inhibit e reduction at three months in the 240-milligram cohort. And importantly, in 2026, we'll be able to assess six-month follow-up data from the 240-milligram cohort as well as three-month follow-up data from the 400 mg cohort. In RNA editing, we continue to lead the field with WVE-006, our GalNAc RNA editing oligonucleotide for AATD. 006 has the potential to be the first treatment for AATD that addresses the root cause of the disease with a convenient subcutaneously dosed therapeutic. 006 does not require IV-administered LMPs or complex delivery vehicles like other investigational treatments in development. This profile supports treating individuals living with AATD, including those living with lung or liver manifestations of the disease, or both. Since the approval of weekly IV augmentation therapies to help manage lung disease, the field has focused on keeping serum AAT levels above a minimum threshold of 11 micromolar, in part because ZZ individuals do not produce any M AAT and have limited ability to increase serum AAT levels during an acute phase response or exacerbation. However, with RNA editing, our goal is to restore the MZ phenotype by achieving three criteria: keeping basal protein levels at or above 11 micromolar, driving 50% or greater circulating MA with corresponding decreases in mutant z AAT protein, and most importantly, restoring the physiological response serum AAT protein to acute inflammatory events. In September, we delivered data from our RESTORATION 2 trial demonstrating that we have already achieved these goals with 006. We observed AAT levels of up almost 13 micromolar. We showed 64% of AAT was wild-type mAAT with a corresponding 60% decrease in mutant z AAT protein, and these effects were highly consistent and durable across individuals, supporting infrequent dosing of monthly or less. Most notably, we are able to restore a ZZ participant's ability to respond to an acute inflammatory event with total AAT levels of greater than 20 micromolar just two weeks after a single dose of 006. Encouragingly, the magnitude and four-week duration of this response were also proportional to the levels you'd anticipate in an MZ patient based on natural history. Following our September data, we've had multiple interactions with key opinion leaders in the field who expressed their excitement about these data. In particular, the ability of WVE-006 to restore physiologic AAT production represents a major paradigm shift from weekly IV augmentation therapies. As we look ahead to the remainder of our RESTORATION 2 trial, we are highly encouraged by our initial results, progressing rapidly, and excited to advance a potentially transformational new medicine to individuals living with AATD. Dosing is ongoing in the 400-milligram multidose cohort, and we remain on track to deliver data in 2026. We have also initiated the single-dose portion of our third and final 600-milligram cohort, and we look forward to delivering single and multidose data from the 600-milligram cohort in 2026. Building on our success with 006, we are advancing WVE-008, a GalNAc conjugated RNA editing program for PNPLA3 I148N liver disease as our next RNA editing clinical candidate. Like 006 and 007, PNPLA3 is a compelling target with strong human genetic evidence and a clear translational path to early clinical proof of concept. There are an estimated 9 million homozygous I148M carriers with liver disease across the US and Europe who are at a nine-fold higher risk of dying from their liver disease compared to non-carriers. The PNPLA3 I148M variant is a well-established driver of steatosis, inflammation, ballooning, and fibrosis, and yet there are no approved medicines that directly address this biology. Emerging preclinical and clinical data indicate that simply knocking down PNPLA3 is not the right solution, as loss of PNPLA3 function can worsen the very features we're trying to treat. By contrast, with 008, we aim to correct I148M using our leading RNA editing capability, which is expected to restore PNPLA3 activity and lipid mobilization, reverse steatosis, as well as improve inflammation, ballooning, and fibrosis. We've shared preclinical data that corroborate this approach. We've demonstrated that 008 restores functional PNPLA3 and decreases lipid accumulation. And importantly, we showed that we were able to achieve robust editing, no bystander edits or off-target signals, and achieve high blood-delivered tissue exposure to support infrequent dosing. Clinical planning is underway for our first-in-human study. We will leverage previously genotyped populations to efficiently identify homozygous I148M carriers, and we are on track for a CTA submission in 2026. Turning to DMD and 53 and DMD, which supported WBN-531 as a potentially best-in-class and important new therapeutic option for individuals with exon 53 amenable DMT. We observed a statistically significant and clinically meaningful improvement of 3.8 seconds in time to rise versus natural history, which is the largest effect observed relative to any approved dystrophin restoration therapy at 48 weeks. We also observed the first-ever demonstration of substantial improvements in muscle health exon skipping, including a statistically significant reduction in fibrosis and decreases in creatinine kinase circulating inflammatory biomarkers. Moreover, we saw additional clinical evidence of myogenic stem cell or satellite cell uptake in N531 earlier in our trial, which supports the improvements in muscle health and muscle fiber maturation we observed at 48 weeks. WVN-531 is also differentiated by supporting preclinical evidence, demonstrating even greater access to heart and diaphragm compared to skeletal muscle. We remain on track to submit an NDA in 2026 for accelerated approval of N531 with a monthly dosing regimen. In HD, we are continuing to prepare for a global potentially registrational phase 2/3 study of WVE-003 in adults with SNP3 and HD using caudate volume as a primary endpoint. And we are actively engaged in discussions with prospective strategic partners. Developed using our platform's specificity of stereochemical control and best-in-class chemistry, we designed 003 to be the first allele-selective approach in HD. By reducing mutant huntingtin at the mRNA and protein level, 003 addresses the underlying drivers of neurodegeneration. And by sparing wild-type huntingtin protein, which is critical to central nervous system health, 003 is uniquely positioned to address the full spectrum of HD, from early asymptomatic stage through the onset of symptoms and beyond. In SelectHD, we demonstrated potent and durable mutant huntingtin reductions of up to an industry-leading 46% and preservation of wild-type huntingtin with just three doses. Importantly, we observed a statistically significant correlation between allele-selective mutant huntingtin reductions and slowing of caudate atrophy, marking the first time this correlation has been observed in HD. As a reminder, our own internal analysis of natural history datasets, including TRACK and PREDICTHD, showed that an absolute reduction of just 1% in the rate of caudate atrophy is associated with a delay of onset of disability by more than seven and a half years. This is a staggering number with meaningful implications for health and economic outcomes and provides further evidence supporting the rate of caudate atrophy as a primary endpoint for an efficient clinical trial. These analyses, along with the complete clinical results from our SelectHD trial, were both part of our engagement with the FDA that led to supportive feedback. We remain on track to submit an IND application for this phase 2/3 study in the second half of this year. With that, I'd like to turn the call over to Kyle to provide an update on our financials. Kyle? Kyle Moran: Thanks, Paul. Our revenue for 2025 was $7.6 million, compared to negative $7.7 million in the prior year quarter. The year-over-year increase was attributable to the timing of revenue recognized under our collaboration agreement with GSK. Research and development expenses were $45.9 million in 2025 as compared to $41.2 million in the same period of 2024. This increase was primarily driven by our rapidly advancing inhibitory program and RNA editing programs, as well as compensation-related expenses, including share-based compensation. Our G&A expenses were $18.1 million for 2025 as compared to $15 million in the prior year quarter. The increase was primarily related to share-based compensation and other external expenses. As a result, our net loss was $53.9 million for 2025, compared to a net loss of $61.8 million in the prior year quarter. We ended 2025 with $196.2 million in cash and cash equivalents, compared to $302.1 million as of December 31, 2024. Subsequent to quarter-end, an additional $72.1 million in ATM proceeds and committed GSK milestones extended our expected cash runway into Q2 2027. By contrast, it is important to note that potential future milestones and other payments to us under our GSK collaboration are not included in our cash runway. I'll now turn the call back over to Paul for closing remarks. Paul Bolno: Thank you, Kyle. We are incredibly encouraged by the progress we've made across our pipeline. In the past two months alone, we've rapidly advanced Enlight and delivered robust and durable activin e reductions, and we have achieved the key treatment goals for 006 in RESTORATION 2. Looking ahead, we have a tremendous opportunity to build on our strong momentum as we continue to reimagine what's possible for patients. We look forward to keeping you updated on our progress. And with that, I'll turn it over to the operator for Q&A. Operator? Operator: Thank you. We will now move on to our Q&A session. For those of you who are joining us via Zoom, if you'd like to ask a question at this time, please raise your hand by clicking the raise hand button at the bottom of your Zoom window. Once called upon, please unmute your audio to ask your question. We'll take our first question from Julie with Truist Securities. Please unmute your line and ask your question. Julie: Great. Thanks for the updates and for taking our questions. And it's really great to see a nice dose response of active anemia, knockdown, and weight loss BIO model. Have you looked into what happens to all fat that's mobilized post-acute intervening knockdown? Specifically, have you checked the liver fat liver for fat deposits or, you know, looked at lipid panels for any LDL or triglyceride in these mice? And I have a quick follow-up on honey. Bees. Paul Bolno: Yeah. Thank you, June. And, yeah, one, it was wonderful to see dose responses, as you pointed out, the DIO mouse. It's even better when we got to see DIO. Responses in humans, which is obviously incredibly encouraging. To the point on that you're making on fat, I mean, I think we can comment on positively on, you know, multiple approaches. One, to your point, preclinically, we haven't observed any changes in lipids and deposits in the liver. That's both in the DIO studies we've done, but also in our preclinical toxicology studies. So nothing to suggest that that fat is finding its way to other tissues. I also point back to the clinical genetics, which show these patients actually have a decreased risk of NASH and liver disease. And then most importantly, as we look at the clinical study progressing, as we said on the last update, that we're up to 600 milligrams with an FDA review so that we could start in the US at 600. And they got to review all the safety data that preceded that. And so at that point, again, encouraging not just from a preclinical and mouse perspective, but also a human perspective. And while we get this question, I mean, I think what we have to think about is lipolysis. Breaks up these free fatty acids. And they're used as energy, energy and muscle, energy and heart. And so these are positive findings that have been seen in other heart failure activities. So nothing that we would suggest any concerns from our standpoint. Julie: Great to hear. And on Huntington's, have you had a pre-IND meeting with the FDA and any changes to their comments on the use of MRI as a reasonable surrogate for Huntington's, and any thoughts regarding recent, you know, backtracking by the FDA according to some of the companies that you in your peer group? Thank you. Paul Bolno: Yeah. No. And we appreciate the question. I know there's a lot of discussions about HD. And, yes, I mean, I think we have and we've shared this, have alignment with the FDA on the use of MRI as an imaging endpoint in connection with all of the other clinical data we're measuring. But it's important to note that we're running this as a placebo study as we're using that imaging endpoint as a primary endpoint. I think there is a lot of consternation over the agency's perceived changes of opinion and, you know, to date, we haven't observed that or found that. I think it is important when we think about CAUDA. And I reflect on this relative to some of the discussions that are ongoing, relating to the utility of natural history studies in clinical trials. I think it's important to note that, you know, when we use TRACK and PREDICTHD as the natural history studies for comparison and supporting use of MRI imaging data, those two studies include MRI as a prominent feature. And I do think the recognition is we just reminded people on the call today, and we've shared a number of times, that a 1% change in caudate atrophy can translate to a seven and a half year delay in clinical disability, really does set the stage that small meaningful changes in CAUTI can change clinical outcome measurements. And I think what's important there if we think about other studies that have been done that haven't looked at matching of product volume to patient sizes and natural history. You know, some natural history studies like enroll don't include MRI imaging. Actually, if you have a larger caudate at the beginning of that study, that could actually be attributable to a delay in clinical disability on CH CHDRS and other clinical outcome measurements. So I think it is important that while there's a lot of discussion about the agency, we feel very confident in both what's driving our decision on the utility of MRI imaging, CAUTI, also making sure we run a well-powered, well-designed clinical trial to determine that. Julie: Paul, just a quick follow-up. How variable is the caudate volume within the same Huntington's stage, like stage two and stage three, etcetera, within the same stage, are there variabilities in the coli volume? And how much? Paul Bolno: There can be. I think what we've seen is very steady changes in caudate. And, actually, with the shift in the staging criteria now, actually, caudate's becoming a core component of that staging criteria. And so, actually, you can assess stages and what patients have what change in caudate at each particular stage. I think that's why it's helpful as we think about other studies that are done and trying to benchmark their size of caudate volume relative to that. We could assess that in looking at, you know, those datasets externally. And I think if you had to bias a study towards larger call dates, let's say, that they would be accessible, that could be attributable to actually delaying and slowing clinical progression, not related to dental medicines. I mean, I think what's critical about the data we've generated to date is we've seen the most substantial reductions in mutant huntingtin think looking at target engagement, coupled with changes in anatomical findings, is important. You know, we actually I don't know if people remember, but, you know, the HSG meeting back in October, even the oral small molecule showed a lower reduction in. I mean, I think we looked at the data presented by Novartis on PTC, and then they had less than 20% target engagement and actually had ventricular enlargement and brain volume reduction. So I think looking at target engagement relative to outcomes is gonna be critical, and I think you know, we remain have high conviction on an allele-specific approach to mute Huntington lowering. And I think post all of this have been actively engaged with our potential partners in terms of accelerating the study. Operator: Thank you. We will take our next question from Chen Lee with Oppenheimer. Please unmute your line and ask your question. Chen Lee: Hey. Thanks for taking the question, and congrats on the progress. I have a question on the Obesity Week poster. It just seems like some gene expression changes actually happened pretty early, but some maybe happen later. So I'm just wondering by the time you report initial data in the fourth quarter, what kind of changes in those biomarkers, related to metabolism, inflammation, and fibrosis? You would like to see and maybe which biomarkers are more important. And I have a quick follow-up. Paul Bolno: Thank you. Yeah. I'll let Erik add his thoughts to this, but there is an induction over time. I think what we do see is the rapid engagement of both the target and suppression of protein happens fairly rapidly and is sustained. And as you point out, that change over time drives lipolysis, which we saw in the DIO models. And then along that way, we are going to be able to track various biomarkers of metabolic health that correspond with that. I don't know, Erik, if you want to add to that. Erik Ingelsson: I think that's a good summary. There is a trajectory. I think maybe worth just pointing out that on the Obesity Week poster, those are from liver biopsies. And you know, obviously, these are healthy individuals living with obesity and overweight, so there will not be any liver biopsies. But we, as we have reported, we are able to look at some circulating biomarkers, but we haven't shared exactly what we're gonna look at. Chen Lee: Okay. Got it. And just I'm wondering, based on your, like, preclinical study, when do you think the weight loss can plateau with 007? Paul Bolno: Thank you. Yeah. I think one of the encouraging findings is even out at that study where if everybody has that image in their head of the inhibiting fat loss, which is weight loss, but all driven off of fat. Similar to semaglutide's total body weight reduction. It doesn't appear at that point that we necessarily start to plat versus the GLP-1 as it relates to fat loss. So I think that's going to be while we talk about the early changes in kinetics, I think the opportunity is really to establish that floor. I think people often talk about basically greater than a year on the GLP-1s flat selling. But I think what's nice is we haven't seen that hit set point yet. So I think we'll have an opportunity to continue to see what that curve looks like for Hibany over time, and the study is designed to assess that. Operator: Thank you. We'll take our next question from Salim Syed from Mizuho Securities. Please unmute your line and ask your question. Salim Syed: Great. Congrats on the progress, Paul and team. Just a couple from us. One on alpha one, let's trypsin. Paul just curious to get your thoughts around some of the DNA editor, ATD programs that we've seen some recent preclinical data on. Some discussion there, obviously, being able to reduce 20 micromolar plus, MAAT and just how does that framework you're thinking at all do you need to be in that sort of range for an outside the acute phase response? And then the second question is just on DMD. I noticed in the press release, there's no more reference to the additional exon skipping program CTAs for 2026. Wondering if that was removed, if it's no longer the plan. Thank you. Paul Bolno: Yeah. Start with the first one. I mean, I think as we've learned in trying to benchmark preclinical to clinical data, recognizing a lot of that's driven in the serpent a one mouse model that high copy number. I think the absolute translations, if we were to compare those data, let's say, DNA editing to DNA editing at Beam, think we've seen the corresponding changes if there's so much opportunity to edit transcript. But for that, that don't necessarily think there's going to be substantially more editing than necessarily what we're seeing across potential other editors, on the DNA editing side. I think the opportunity is whether or not that changes the opt target potential, and we've seen that across a number of DNA editing both in AATV and not in AATV that off-target rates are consequential and can be detrimental. Think we've seen bias in our edits that create apparent proteins, and that's challenging. And so I think people are trying to work and address that. And with hepatic turnover, the potential to see that change. So I think all of that is to say, I think we need to see how those others not from, you know, what data they're posting preclinically to differentiate and distinguish the say, them from beam on the DNA editing side, but really how they ultimately translate into human clinical data. I mean, I think at the end of the day, the most important feature is really can you get to m c phenotype levels? And as we've seen, it's not about getting higher. I think the real misnomer in this space is applying the recombinant protein strategy, which is pour more protein into the body because it gets utilized as soon as there's an acute event. I think we have to all remember alpha one antitrypsin is a chronic disease of acute exacerbations. And I think if we think about it in that context, it always comes down to what is the requirement have enough protein so that you have this event. You don't deplete it. I mean, theoretically, you could argue that maybe 11 micromolar was a questionable threshold for replacement because by the time you have your acute event, there's no protein left. To actually protect your lung. And we've had a KOL recently remind us that his biggest fear is a patient who, between infusions, has an acute event, can't get infused, and is now left exposed to the insult in the lung. We have to reframe that whole narrative. As we think about the paradigm shift for RNA editing. Is about rising to meet the need of what's required during those periods of acute inflammation. And as we've shown, we can achieve over 20 micromolar protein during the acute exacerbation. So I don't think this is a competition of, like, us because we're in RNA editing being limited to how we respond. We respond extraordinarily well. We respond with infrequent sub q administration. Have no bystand edits. We have no off-target edit no indels. And so I think long term for treating a chronic disease, I think RNA editing and particularly our approach to RNA editing with our AIMER designs, think, really meet the therapeutic need of patients with these diseases. To your second question, I think, on other axon, don't think there's a fundamental change. We're ready to progress. I think what we wanna see is the progress that we're making on Exxon fifty three and where we're allocating capital. To make sure that we progress on fifty three. And then continue to move other programs forward behind that. So it's less about a formal change and more saying that as we reflect on guidance, I think the key is advancing ex '53, drive that forward. And be prudent on the acceleration of other axons. I think we look forward to '26, and we're gonna share a lot more on this during the year, we are highly encouraged about the progress we're making in space and with reflection that we're seeing from a number of parties. The work that we're doing on potential maintenance where we can wash patients off of GLP ones and support them on a once to twice a year. Sub q therapy that actually prevents rebound weight gain, drives metabolic health, and really becomes, I think, the standard for maintenance has us thinking about 2026 in a really positive way about studies that will continue to drive and support that. We just have to think about the totality of where we're allocating capital. Hence, why collaborations are important to us. So yeah, Operator: We'll take our next question from Steve Seedhouse with Cantor. Please unmute your line and ask your question. Steve Seedhouse: Yeah. Good morning. Thanks for taking the question, and congrats on all the recent progress. I wanted to ask in the AATV study, obviously, that is ongoing. You have that one really profound example of the acute phase response. Are you able to maybe gather more examples of that by protocolizing, you know, AAT assessment if people get sick this winter or if they get their flu shots. Curious if there's anything you can do in the study to supplement that finding. Paul Bolno: That's an interesting question, Steven. Thank you know, it's one of the things that you know, we obviously can identify. So I think corresponding as we saw their CRP levels with changes in AAT levels, give us a way to be able to not miss those opportunities for assessment. We're not changing the protocol design on a prospective basis, but, you know, it your point, as we come into the winter season, the opportunities that we have to be able to capture those events are there. I think what's highly encouraging is at a basal level, we recognize that we believe we are at an MZ phenotype editing capability. So these patients, to your point, should be responding as such and we'll be able to identify. Steve Seedhouse: K. And then just the in light, I was curious if you could clarify or just guide us what proportion of that study enrolled in The US versus ex US? And even if it's sort of relevant, would you expect any different in in the patient demographics or something that would affect the the results. Paul Bolno: Yeah. I'll let Chris join in. So, obviously, the study started ex US, and we provided the update during the last update, that we now had the FDA IND acceptance to begin and begin at the highest dose, so it's six hundred. So proportionately, obviously, in that early setting, it's proportionately x US with the opportunity to come here. I wouldn't expect any changes, but I don't know if Chris No. That's right. So as Paul said, we're just starting up in The US now, so, we're gonna be recruiting patients there, going forward. And know we haven't really changed our inclusion assessment criteria based on region. So you'd expect that, you know, all the subjects here would meet those criteria just like the ones in the ex US. I think it's important so that as we are able to in the future, start analyzing data, I mean, there's the ability to look at the dose cohorts, but also to substantially power it, the ability to look at activity reduction related to body composition change and other, which would allow us to work across cohorts as well as we get to the later data points. So to Chris's point, it is important that, you know, we have cohesiveness in amongst these patients so that we can do better analyses across the study. Operator: Our next question comes from Madison Alsadi with B Riley Securities. Please unmute your line and ask your question. Madison Alsadi: Hi. Good morning, everyone. Thanks for taking our question. A couple from us. On the single AATD patient that experienced the acute phase response, curious if there's any additional insights or observations from that patient that you could comment on? And then secondly, I actually wanted to ask about your bifunctional single nucleotide construct. If you've optimized this construct to avoid any type of intermolecular interference. And if you're seeing any off-target in Dells, basically where you're at in the optimization phase. Thank you. Paul Bolno: Yeah. I mean, I think to the first one, there's no new insights other than, obviously, patient recovered, and we saw, like, very good corresponding relationship between that CRP exacerbation and down. I'd it's important that, you know, to this point, that is the disease. You know, the disease of these infrequent but they happen. There are these acute exacerbations. And so that response rate is what you expect to see in an MZ patient who is protected. But I think they responded exactly as you would anticipate an MZ patient response to occur. I looked at Chandra just to confirm, but, I mean, we did the work. We've shared some of those recent updates, and I think, you know, that was the piece that had me most excited about the fact that, you know, these bifunctional approaches to SI and editing could provide really compelling ways to treat diseases. I mean, as we shared the opportunity to think about things like the combinations and actually watching, you know, PCSK9 reductions coupled with LDL upregulations is a fascinating approach long term to effectively treat cardiovascular disease and with the dystrophies. And so I think the opportunity is seeing each of those behave, and I think that was Chandra's compelling data on knockdown wasn't blocked by editing, and editing wasn't blocked by knockdown. Shows that there wasn't stirring hindrance across. And I don't we haven't seen any because the aimers are specific to the enzyme that they're working on. In Dells or bystander edits, but I'll let Chandra up for a moment. We haven't seen anything to that effect. Chandra Varghese: Yeah. So this is a the platform provides us an opportunity to be highly specific for both engines. So that's the design principles. Taking into consideration how our sphenas react with our Eagle two, you know, highly specific and and see specific knockdown And adding to that with the AIMER that is also highly specific in recruiting it or and we found using our platform, we found a way to combine these two properties to give us exactly what we observed with single entity but with one construct. Paul Bolno: So the best way to think about it is the uniqueness and specificity of each endogenous enzyme is able to exert its own unique endogenous function. So the enzymes are highly specific, for their approach. Operator: Our next question comes from Bill Mohan from Clear Street. Please go ahead and ask your question. Bill Mohan: Good morning, and thanks. I just was hoping you could comment on the recent data from Sarepta's exon skippers that failed to confirm benefit in the confirmatory studies. Obviously, this highlights the unmet need in the space, but at the same time, do you expect any difficulties in maybe, a changing FDA attitude towards dystrophin expression as a proper accelerated approval endpoint. Paul Bolno: Yeah. I think it's critical as we shared data very early on. I'm looking at consistent dystrophin expression across patients. If you remember, one of the key highlights post six month and the forty eight week data, that we shared was not just an amplitude of how much protein. Think there's been a lot of discussion about mean protein levels. I think the narrative that was important for us to make sure people start pushing is how well distributed was that across patients. Because if patients don't have an adequate amounts of protein level, then it shouldn't be unexpected if they don't continue to show benefit because they don't have adequate levels of protection. So the highly consistent distribution we were seeing was important. I think what was most important to us was the fact that we actually did see that translate to statistically significant clinical meaningful improvements in time to rise. We saw those corresponding changes in muscle fibrosis. And I think that is really what was important in driving for us, and we're gonna have the opportunity by the time we file in '26 to continue to follow those patients who are on the open label extension. Study, and the initial patient being treated monthly. To continue to see those clinical improvements. So I think while we haven't seen the any correspondence from the FDA changing on dystrophin. I think we do recognize the importance of seeing clinical meaningful responses. In being an important part of our decision tree. Bill Mohan: Thanks. And it might be a little early for this question. I know there's a lot of clinical derisking left in your inhibiting program, but do you have a view on the pricing dynamic in the obese market where there seems to be this sort of a sustained pricing pressure that we probably wouldn't expect to go away for a while. Paul Bolno: No. And I think that's the unique opportunity that we have with inhibit particularly the modality we're using to drive activity reduction. So we continue to see strong durability looking again beyond six months. So we're through that at the lowest subtherapeutic dose. So, again, highly supportive once to twice a year sub q dosing. And if we think about the global greater than one billion people living with obesity, many of whom don't have access to GLP ones. If we think about the markets, more broadly, the ability to expand where we don't have to manufacturing, let's say, is not as big a challenge as with, the protein therapies. The ability to really drive accessibility we think, is a unique feature. And I think if we imagine a world where patients are even currently being able to transition to a once a year maintenance therapy where they still get the benefits in cardiovascular outcomes as we've seen with human clinical genetics and sustained weight loss. I think there's a really unique opportunity to think about the true global landscape for obesity. And I think, actually, a Galnek siRNA approach with our chemistry that drives durability, is highly disruptive as we think about, the evolving obesity landscape, which is really dominated by similar increase. I mean, the shift from once a week to once a month still doesn't really radically change the environment and the landscape. And so what does is the ability to do this with a once or twice a year drug. I think the other piece that's becoming more and more apparent to us coming out of obesity week is the who's being treated. And as we think about the evolution of patients who and think about this with Medicare and other things picking up reimbursement, Patients who really can't have sustained loss of lean muscle mass, loss of bone, loss of muscle, as they continue to age and have to treat these diseases. The opportunity really to bring medicine that drives fat loss healthy outcomes, but retains lean muscle mass, I think, is both therapeutically relevant, but also as we think about the cost of transition. Operator: Our next question comes from Roger Song at Jefferies. Please unmute your line and ask your question. Roger Song: Great. For the update and taking our question. I'm to see you, at LBQ week as well. So, also a couple of question related to obesity, inhibit program. Just interesting in, in learning a little bit more about the of the weight loss. I know you have the the model. And then so any reason you have for to guide six months versus early on? Or longer, for the substantial weight loss similar to semaglutide. In maybe any insight from the human genetics can give us a little bit more color on that. And then also related to the dose response, yes, in the DIAO, you see the dose response for the weight loss. Just curious about your human dose. How should we think about your step up from two forty to four hundred and six hundred? What's the range of the dose to preclinical? And then is that possible you can dose even higher than six hundred? Is that necessary? Thank you. Paul Bolno: Yeah. Thank you. And I'll have Erik chime in on the other side because I think, you know, he'll have some valuable thoughts about kinetics too. But, you know, I think most importantly, you know, we do look to the modeling of our models. The DIO models translated well for GLP one, so it's been great to see that corresponding positive control as we look to not just weight loss. And I think it's important to think about it as fat loss, so healthy weight loss. So if we think about those kinetics, you know, we achieve in the DIO mouse, model, you know, up to similar levels of total body weight reduction of GLP ones, but it's all fat. And so there is a rate of kinetics on that curve that does appear. To take more time. So that's something in that early time points as we think about you know, these first these three months into the six months. We're gonna learn about the kinetics of inhibiting reduction together. We know we potently lower it, and we're gonna get to see what transpires during that window of time and whether or not the mouse model is reflective of that curve, or is it similar? But I think what we feel more confident about is you get to six months and longer, the ability to see that continue to transition. And I think the opportunity there has been whether or not that plateauing is what's seen, because it does look like you can continue to drive fat loss beyond that point of where you have GLP one weight loss. So I think the ability to kinda follow this over time much like you we all did with the GLP ones, is going to be critical as we understand what that journey looks like. Human clinical genetics gives us kind of a benchmark of what happens with a protective loss of function. From birth. So what happens when you have that? In a lot of ways, it both supports what we've seen in the DIO mouse model and the human study, but it's also really supportive of what we see with these revised maintenance therapies where you kinda have this weight loss and create a set point and then drive that forward. So think it's highly encouraging as we look at those genetics both on an initiation of weight loss, but also as we think about the potential future for maintenance therapy, which is incredibly exciting. I think that in totality, and, Erik, I'd love your opinion on that. As it relates to dose, Roger, you know, I think the ability that we do see this dose responsiveness and in the animal models, I think we're gonna get an opportunity to evolve that as we settle both Chris said on the past call at research day and as we reiterated on this call. You know, we are approved to go higher than six hundred. Whether or not we need to is a different story. But I think the ability to continue to drive a dose responsiveness of not just the totality of fat loss, whether or the kinetics happen faster in a dose responsive way something we'll be able to study in humans over the course of the study. But with that, Erik, I don't know if you wanna add on a couple of points. Erik Ingelsson: Yeah. I think you summarized it very nicely, but I just I guess to double click on a few things, So from the human genetics, then, obviously, we know that if you have a germline you know, loss of function variant from birth, then you have a substantially better cardiometabolic profile and lower type two diabetes and cardiovascular risk. So that's fifty percent. Right? And then we know from the from our in vivo models that if you can achieve more than seventy percent active in e reduction, we see that translate in the mouse models to weight loss and a better is all driven from fat and especially as Paul pointed out, you know, this unit this double effect from semaglutide, the you know, the the prevention of weight regain acid cessation of GLP-one, so all of those effects. And and we do observe that that kinetics looks a bit slower than some agglutide, so that's why we're anchoring on on the six month time point. But, again, this is a novel mechanism where we're work we're learning together on on on the on on the kinetics of this. But we're all just to remind everyone, we're already in that range now in the two forty and the 400. Mg cores. We're in in that range where we would expect this to translate. To better for the metabolic health than in weight loss and fat from fat loss. Operator: Thank you. Our next question comes from Joseph Schwartz with Leerink Partners. Please unmute your line and ask your question. Joseph Schwartz: Hi, guys. This is Ginny on for Joe. For obesity, assuming you have positive early data, how do you envision the next steps in development beyond the NYT study? What could these studies look like, and will you be able to do these on your own, or would you consider strategic partnerships for this program? And would the GSK collaboration affect your ability to pursue anything if there are opportunities? Paul Bolno: Thank you. I'll start with that last one because I think just an important one to get out of the way. Is there there's no inhibition for us to do anything related to inhibit any with GSK. So inhibiting is a wholly owned wave program. And we have full control over that. Not just clinically, but commercially. So it is a wave asset. So past that one. As we think about the opportunities ahead, I think one of the things coming out of obesity week and hence our meetings with a number of KOLs who are incredibly excited about the profile, both not just the driver, of fat loss without lean muscle mass loss and that profile as a monotherapy. Particularly for a substantial number of patients where that we're learning more and more there is concern about anhedonia over time, hair loss, lean muscle mass, loss, meaning muscle and bone. Ability to drive healthy weight loss with an infrequent injection and accessibility, I think, was highly encouraging. So I think that coupled with a huge amount of excitement for what maintenance could look like and a number of interested parties saying, how could we think about these things in conjunction? Give us a number of opportunities as we think forward around what the right strategy is for running these studies irrespective of partnering, we're committed to driving these studies forward. We think that there's a huge need for this and these therapies as we've seen with really the innovation coming in this space from more less frequent administration of incretins and other forms of accretins as opposed to really treating the underlying healthy fat loss. And preservation of lean mass. So with that, I think we're working on planning for running studies in obese patient populations and in and maintenance that we could drive, and we'll get more updates as we think about these studies in 2026. That don't necessarily have us waiting to the completion of enlightenment. I think Enlight is a study that we can envision ongoing that's providing ample safety coverage. We're seeing that now with durability. But we don't have to look at these things in succession that in light needs to complete before we accelerate studies in obese patients and potentially, as we said, in maintenance. So we're actively underway in that. We see that as a huge need. And we're working very quickly with a number of KOLs in the field. To accelerate their studies. Joseph Schwartz: Thanks. That's really helpful. Operator: Our next question comes from Yongshong with Wedbush Securities. Please unmute your line and ask your question. Yongshong: Great. Good morning. So first question on DMD program. I wanted to check if you have had any interactions with the FDA on your forty eight week data and any additional clarity that you are able to provide in terms of how much monthly dosing data you will need to or you will be able include in the package, please? I have a follow-up question, please. Paul Bolno: Yes. I mean, as we provided, we've had updates with the agency that we've discussed our plans on as we think about filing. One, and as you point out, he was generating data, not just OLE data on a monthly basis, but ensuring that we have de novo patients that are treated on a monthly regimen with which we can study. We have, as we said on prior calls, enough patients we believe, based on the existing approvals on both new patients as well as the existing patients to support that filing. And we'll continue to stay engaged with the agency as we advance those discussions towards that filing to avoid surprises. Yongshong: Okay. Then on the Huntington's disease program, very encouraging to see or hear the FDA is open to accelerate approval pathway But you commented on the capital allocation, so I just wanted to ask, would you be able or would you be open to moving them program independently even without a partner, or would you prefer to have a partner before taking the next step? Thank you very much. Paul Bolno: No. Thank you. And I think we've been consistent on this point. So within HD, I think why we have conviction and why we have aligned with the agency is we're running a well-powered placebo-controlled study, and that's the as the design's advancing. I think what we're also having in conversations with potential strategic partners for the discussion is assuring that we're aligned on what that trial needs to look like to make sure it does meet the criteria not just for the accelerated approval, but potentially in design, a full approval of that study. Continues to progress. We have to go back. And so as we get that alignment, that study, you know, we would prefer to progress alongside another collaborator. Operator: Our next question comes from Samantha Simenko with Citi. Please unmute your line and ask your question. Samantha Simenko: Hi. This is Ben on for Sam. Thanks taking the question. Going back to obesity, you shared in the R&D slides on the placebo-adjusted benchmark based on semaglutide was approximately minus 2.5%. Are you expecting you'll see that on the upcoming data this quarter for the two hundred forty milligram three-month data, or is it possible we'll need more time to reach that benchmark just given what you've kinda had described earlier about the kinetics? Paul Bolno: Yeah. And I think that's what we were if we if we go back to that slide on research day, it was really important that what we're anchoring on is the six-month data to that point. So there that curve continues, if you remember, about 4.4%. Out at the five-month time point with batted fat loss for semaglutide. And I think that was key for us is we have the benchmark of fat loss following the GLP ones over time. And I think what we're as we said before, we're gonna learn together is what happens on those rates of fat loss at the early time points. We now have benchmarks, as you said, of what we're benchmarking GLP ones. I think it's really important as it relates to kind of a set point and a you know, what is a target range of fat loss? To really bug it six months and further than the initial six months simply because as we said, anchoring on preclinical data, there does appear to be a rate of kinetics that looks apparently different. And I think it's important for us assess that in humans. So it's why we're not guiding to a specific target number of fat loss in this first three-month dataset. But rather looking at continued engagement and reductions of activity, durability of activity, which is gonna be critical, and other biomarkers of metabolic health as well as body composition. So gonna have a number of features. We're measuring body weight, so it'll be important and not miss. It really is important to look at that kinetics over time. Ben: Thank you. And if I may ask a follow-up question, what is under consideration for initiating the cohort five given the IDMC approved escalation? Paul Bolno: Yeah. I mean, only thing now is given how I mean, we're at 85% reduction in the four hundred milligram cohort and now have a hundred milligram cohort. So some of that is how much more utility we're gonna get from going higher, and we'll have some of that biomarker data to assess. From a safety perspective, we can continue to go up substantially higher. But at the end of the day, it's still about understanding, you know, not, again, leaving active and efficacy on the table, what's gonna drive durability. Also realizing what's gonna be frankly necessary. And, again, that's why we're highly encouraged and, you know, already on planning. What are the next subsequent phase two studies start to look like as it relates to studying this in obese patients as well as maintenance? So we have the coverage beyond what we think we need currently, and it's why we confident about these subsequent studies. Operator: Our next question comes from Luca Izzi with RBC Capital Markets. Please unmute your line and ask your question. Luca Izzi: Hi, team. Thanks so much for taking our question. This is Cassie on for Luca. Congrats on all the progress, and we have another one on inhibiting, and this is circling back on the ex US versus US. You have a single site now in Kishnav, Madova listed on clinicaltrial.gov. But you did mention that you have activated other sites, including The US, at six hundred milligram. So can we assume that the second 2026 update in the six hundred milligram cohort is when we'll start seeing data from The US patients or is that update still going to be data from the Beldoven patients? Thanks so much. Paul Bolno: Yeah. No. Look. We appreciate the question. One, it's on just to make sure, because at one point, you mentioned a like, just make sure that it's not confusion. This is obesity. This is zero zero seven. And it's beyond mobile. We have sites in UK, Moldova, Europe, and the update was moving beyond Europe to starting in the So there's a number of sites that will be generating patients. As we provided on the call, the real shift is from Europe to The US. And as we said, The US is coming online at the six hundred milligram cohort. That's what we shared at research. Hey. Because one, the agency didn't have us restart at a lower dose. We could start at subsequent cohort, which was six hundred. So I think it's obvious from that that would expect that you wouldn't have US patients not at six hundred. So The US contribution would come at 600 a time. Operator: Our last question comes from Leone Inise with Jones. Please go ahead and ask your question. Leone Inise: Hello. Thank you so much for taking our questions. Just looking at your preclinical DIO mouse data you showed at obesity week, do you think the reduction in macrophages is simply due to reduction in adipocyte size, or do you think there are other anti-inflammatory mechanisms involved? Paul Bolno: Yeah. I'll let Erik but it's not just reduction in mac it's shift of macrophage phenotype. So from an anti-inflammatory phenotype to anti-inflammatory But, Erik, I don't know if you wanna add anything. Erik Ingelsson: Yeah. I mean, in addition exactly. So it's a shift from less pro-inflammatory, to more larger proportion anti-inflammatory, as Paul said. He also does it with c with the RNA seq data. But we also see supportive of evidence of that as well. There is a less inflammatory inflammation in both the subcutaneous and visceral fat. So I think something is going on. It is probably partly driven by adipocyte size, but there could be additional mechanisms that are all related to the lipolysis. Leone Inise: Okay. Great. Thank you. And just a quick follow-up on DMD. Do you have any sense of the FDA's opinion on muscle content adjusted rophin versus unadjust unadjusted? Paul Bolno: I think all of the conversations to date across a number of programs have been really exciting. I do think as we look at the new programs that have come in, looking at actually the production of dystrophin in muscle is important realizing the high propensity for fat, making sure to look at that. So there's been nothing from our standpoint that seemed to change, agency's opinion on that. Operator: Thank you. There are no further questions at this time. I will now turn the call back over to Paul Bolno for closing remarks. Paul Bolno: Thank you for joining our call this morning, and we appreciate your continued support. Have a great day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the 908 Devices Inc. Third Quarter 2025 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you have dialed into today's call, please press 9 to raise your hand and 6 to unmute when it is your turn. To turn the call over to Barbara Russo, Investor Relations. Please go ahead. Thank you. This morning, 908 Devices Inc. released Barbara Russo: financial results for the third quarter ended 09/30/2025. If you have not received this news release, if you would like to be added to the company's distribution list, please send an email to ir908devices.com. Joining me today from 908 Devices Inc. is Kevin Knopp, Chief Executive Officer and Co-Founder, and Joseph H. Griffith, Chief Financial Officer. Before we begin, our commentary today will include the presentation of some non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release, which is available in the Investor Relations section of our website. Additionally, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release 908 Devices Inc. issued today. For a more complete list and description, please see the Risk Factors section of the company's annual report on Form 10-Ks for the year ended 12/31/2024, and in its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices Inc. disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast 11/10/2025. With that, I would like to turn the call over to Kevin. Thanks, Barbara. Kevin Knopp: Good morning and thank you for joining our third quarter 2025 earnings call. I am incredibly proud of the momentum we have built and the progress our team is driving. We are executing the plan, sharpening our focus, and setting the stage for a stronger, more profitable 908 Devices Inc. Revenue from continuing operations was $14 million, down 4% year over year and up 8% sequentially. Growth was driven this quarter by our FTIR devices, which accounted for 42% of revenue as we continue to see very strong demand for our Explorer gas identification device. Another revenue highlight was the U.S. Coast Guard's purchase of 23 MX908 devices for narcotics interdiction efforts and hazardous threat detection. In total, we placed 176 devices during the quarter, growing our installed base 27% year over year to over 3,500 devices. Considering our year-to-date progress, revenues from continuing operations for the first nine months totaled $38.8 million, representing an increase of 16% year over year. Recurring revenue represented 36% of total revenue. Moreover, revenue from our U.S. State and local channel for the first nine months represented 47% of total revenues. Growth in this channel and in our recurring revenues are key parts of our strategy to enhance predictability as this is more run-rate business versus large enterprise device deals, which can be lumpy. We also made excellent progress towards our adjusted EBITDA target for 2025. Our adjusted EBITDA loss was just $1.8 million for the third quarter, an improvement of more than $5 million year over year compared to our previously disclosed adjusted EBITDA for Q3 2024 prior to our transformation. And importantly, the adjusted EBITDA loss reduced by 53% quarter over quarter. I would like to thank our team for their tremendous effort over the past few months as we realize these savings. This is our lowest adjusted EBITDA loss in our public company's history, demonstrating that the structural changes are working and providing a solid foundation for achieving our goal of becoming adjusted EBITDA positive in Q4. Overall, I am pleased with our execution this quarter as we continue to build momentum towards our growth and profitability goals. While our transformed strategy is taking hold, and our Q4 pipeline remains healthy, we continue to gauge the effects from the protracted U.S. Government shutdown in three areas of our business: Joseph H. Griffith: First, Kevin Knopp: demand from state and local customers remained strong, supported by multiyear federal grant programs that remain active. Second, international engagement and order flow remained solid. However, U.S. export licensing requirements may extend delivery timing in some cases. Third, while smaller federal and defense orders have continued to move forward, larger awards have experienced delays due to constrained staffing and contracting authorities. We estimate that approximately $4 million of our Q4 revenue could be potentially impacted by delays in these areas. However, our base case remains that we are on track to achieve our full-year guidance and we view any near-term impact as a timing issue as our strategic alignment remains strong. We believe we are well-positioned as appropriations advance and contracting activities stabilize as we address mission-critical priorities, such as fentanyl interdiction, border security, and chemical threat preparedness. With that context, I would like to turn to our progress on the three strategic focus areas that are propelling us forward, bringing our 908 Devices Inc. 2.0 vision to life. Our first focus is to increase adoption of our devices to address global threats to public health and safety. We equip frontline responders with rapid, reliable chemical identification tools that require minimal training and perform when it matters most. Our aim is to define the benchmark for advanced chemical detection in the field. A clear example is our Explorer device, which is setting the benchmark for advanced chemical detection of over 5,000 gases and vapors. Q3 was another record-setting quarter for Explorer shipments, achieving a 30% quarter over quarter increase in placements. We see Explorer as a strong supporter of our 2026 growth goals as it fills a critical gap in the market for hazardous material response. Firefighters and hazmat response teams have long used a photoionization detector or PID to detect the presence of a subset of gases and vapors. Knowing a gas is present is helpful, but limited. Teams must then rely on their experience and educated guesswork to coordinate a response. With Explorer, changes the game. With Explorer, first responders can not only detect presence, but more importantly, identify and quantify thousands of unknown gases in seconds, informing decision-making and accelerating action. After encountering unknown gases in several recent incidents, the Contra Costa County hazmat team in California purchased four Explorer devices, helping to improve their on-scene response. Facing similar situations, the Kansas State Fire Marshal's office purchased three Explorer devices, and the U.S. Marine Corps CBRE and installation and protection program purchased 17 Explorer devices in the third quarter for potential hazmat incidents and military installations. While the majority of Explorer shipments in Q3 were in the U.S., the need is global. We are seeing early traction internationally in countries such as Italy, Finland, Poland, Taiwan, Korea, and Azerbaijan. We are excited to see the continued growth of this game-changing device as the hazmat teams around the world modernize their toolkit with advanced chemical detection and identification. Civilian hazmat response and military subverting defense missions are distinct but closely related. And our portfolio is purpose-built to serve both markets. As the future of incident response shifts towards autonomous ground robots and unmanned aerial system drones, we are extending our analytical platforms to operate on these emerging frontline technologies. To that end, we are collaborating with multiple partners to demonstrate capability, including most recently the Thales Group, a global leader in aerospace, defense, and security on a next-generation unmanned ground vehicle UGV integration to enhance mission safety and improve situational awareness for operators in the field. As we build momentum with emerging autonomous defense tech integrations, we continue to advance key initiatives with our established partners, including our collaboration with Smith Detection on DoD's AvCAD program. We completed low-rate initial production in late 2024, delivering over 100 component sets to support system builds and government testing in 2025. The program is now concluding a final field validation event, which if successful, is expected to trigger an RFP for a next phase. While timelines have become affected by program changes in the government shutdown, we continue to expect clarity on next steps by year-end. We stand ready to support Smith's detection in the next phase of this important national defense effort. Our second focus area is advancing our next-gen analytical tools portfolio. At our core, we are an innovation-driven analytical instrumentation company. We are committed to the relentless pursuit of higher performance, breakthrough capabilities, and greater simplicity. In July, we announced the launch of Viper, our handheld chemical analyzer, that uniquely combines FTR and Raman spectroscopy into a single seamless workflow powered by our smart spectral processing technology. During the quarter, we shipped one of our first Viper units to a government intelligence agency in Southeast Asia. They selected VIPER to modernize their counter-narcotic and counter-terrorism capabilities, upgrading from a competitor product. This initial unit serves as a pilot and has the potential to extend into a broader deployment across the country, establishing a new enterprise account. We also shipped several purchased Viper units during the quarter to our channel partners, feeding awareness and engagement in the field. Last month, I attended our EMEA Channels Partner Summit, where we had gathered more than 25 partners from across the region to review our latest innovations and compare notes on pipeline opportunities. The enthusiasm for Viper was unmistakable, fueled by a clear shift in NATO preparedness and increased spending among nations along the alliance's eastern flank. Joseph H. Griffith: We are encouraged that Viper Kevin Knopp: like Explorer, will become a ramping contributor through 2026 and a key beneficiary of recent funding improvements. One of Viper's differentiated capabilities garnering interest is its integration with our team leader software. Using Viper's built-in cellular connectivity or Wi-Fi, first responders can upload sample data on unknown solids and liquids in real-time. Using the team leader app, Infinite command, their leaders outside the hot zone can view this data to make rapid informed decisions on the response based on a clear understanding of the chemical threat. Team Leader is currently integrated with all of our FTR devices and is on the roadmap for our mass spec devices. We already have more than 700 users on the team leader platform and over the next year, we plan to add additional compelling functionality. And finally, our third focus area is strengthening our financial position and accelerating profitability. Under our 908 Devices Inc. 2.0 transformation, we set an ambitious target to achieve positive adjusted EBITDA by Q4 of this year, a goal we have been laser-focused on. As I covered at the outset, and as Joe will detail shortly, we are making meaningful progress toward that target. Our facility consolidation and operational scale-up in Danbury, Connecticut are delivering improved productivity and cost structure. For example, our gross margin increased quarter over quarter and reached 58% on an adjusted basis, reflecting the first benefits of those efforts. Over the long term, we expect further margin uplift as we insource precision machining following our acquisition of the assets of the KAF manufacturing. Importantly, our products continue to command premium pricing due to their innovation and market differentiation, a trend we expect to maintain. And as we build more value in our team leader offering, we intend for it to become an incremental contributor to recurring revenue. Further, we concluded the quarter with approximately $112 million in cash and marketable securities with no debt, providing a strong financial position and optionality as we scale. I will now hand it over to Joe to review our third quarter financial performance. Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, financials we are reporting today are for continuing operations only. All current and historical activity related to our desktops, including the gain on sale, are captured in a single discontinued operations line in our financial statements. Total revenue was $14 million for the third quarter 2025, down 4% from $14.5 million in the prior year period, primarily driven by a smaller number of multiunit MX908 device orders to U.S. Federal and defense customers, offset by continued momentum in our state and local end users. Handheld product and service revenue was $13.2 million for the third quarter 2025, down 5% from $13.9 million for the third quarter 2024. We shipped 176 devices in the third quarter compared to 178 devices shipped in 2024, bringing our installed base to 3,512. As a reminder, there were approximately 700 FTIR devices placed prior to our acquisition of RedWave. And including these units, our product installed base was greater than 4,200 exiting the third quarter. As expected, program product and service revenue was not material in either 2025 or in 2024. We are not assuming any meaningful revenue contribution from the app program in 2025. As we completed the initial low-rate production deliveries in Q3 2024 and are preparing for the next phase and potential ramp in 2026. OEM and funded partnership revenue was $800,000 for the third quarter 2025, compared to $500,000 in the prior year period. Revenue growth was led by pharma and industrial QAQC customers, with an additional lift from component sales tied to our new precision machining kit capabilities, from the KF asset acquisition. Recurring revenue, which consists of consumables, accessories, and service revenue, represented 35% of total revenues this quarter and was $4.8 million, a 10% increase over the prior year period. Looking ahead, we expect recurring revenue to be approximately one-third of total revenue for the full year. This factors in anticipated higher device placements in the fourth quarter, which naturally brings down our percent recurring but also a funding-related pause in service coverage by a U.S. Defense customer resulting in a quarterly headwind of approximately $500,000 beginning in the fourth quarter. Gross profit was $7.4 million for the 2025, compared to $7.8 million for the prior year period. Gross margin was 53% for the third quarter 2025, compared to 54% for the prior year period. The modest decrease was driven by a less favorable product mix, with material costs representing a higher percent of revenue, as well as unabsorbed costs from our new precision machining operation during the quarter. As production ramps, we do more in-house, we anticipate a benefit to gross margins in future periods. Adjusted gross profit was $8.1 million for the 2025, compared to $8.5 million for the prior year period. Adjusted gross margin was 58%, a decrease of approximately 60 basis points compared to the prior year period. The slight decrease in adjusted gross margin was driven by the product mix and unabsorbed costs as mentioned above. Total operating expenses for the 2025 were $23.7 million compared to $32.3 million in the prior year period. The decrease in operating expenses was driven by a $30.5 million goodwill impairment charge in 2024, offset in part by a $22.8 million increase in the fair value of the noncash contingent consideration. Excluding the impact of these two items, operating expenses for the third quarter decreased year over year by $900,000, which is a better proxy for trends in cash-based operating expenses. Net loss from continuing operations for the 2025 was $14.9 million compared to $23.6 million in the prior year period. This decrease was primarily driven by a $7.7 million decrease in non-cash items, additionally offset in part by $400,000 of income from our transition services agreement with Rocklagen. Adjusted EBITDA for the 2020 was a loss of $1.8 million compared to a loss of $2.7 million in the prior year period, representing a 32% year over year reduction and a 53% quarter over quarter reduction. The significant improvement was related to our aggressive cost initiatives resulting in reduced operating expenses across the board, including facilities, R&D costs, and professional fees. As we enter the fourth quarter, we will continue to leverage these structural changes to drive positive adjusted EBITDA with our scale and projected high teens revenue growth. We ended the third quarter 2025 with $112.1 million in cash, cash equivalents, and marketable securities with no debt outstanding. We consumed approximately $6.5 million of cash in the '25. The usage was primarily related to working capital and supporting our operations, but also included the $2 million used for our asset acquisition of KAF. As we noted last quarter, the combination of proceeds from the Desktop Portfolio sale, disciplined cost actions, and durable growth catalysts for 2025 and beyond reinforces our confidence in sustaining a healthy cash balance through our transition to profitability. Looking ahead in 2025, we continue to expect revenue from continuing operations to be in the range of $54 million to $56 million, representing growth of 13% to 17% over full-year 2024 revenue from continuing operations. Our guidance range includes the following assumptions: first, we expect handheld product and service revenue to grow 16% to 20% year over year, which equates to a range of $51.5 million to $53.5 million. The $500,000 decrease reflects the funding-related pause in service coverage for a U.S. Defense customer as previously mentioned. Second, we now expect OEM and funded partnerships, including contract revenue, to be approximately $2.5 million. The $500,000 increase is mainly based on third-quarter performance and the inclusion of revenues from the KF acquisition. And third, as stated all year, we are not assuming any meaningful revenue contribution from the U.S. Department of Defense AvCAD program in 2025, as we are preparing for a potential next phase and ramp in 2026. During the quarter, our commercial team had strong progress in advancing large enterprise opportunities across both U.S. and international accounts. We are also encouraged by the early momentum with 35 units for Q4 shipment to state, local, and international customers. Securing a few of the larger 20-plus enterprise opportunities in the pipeline is central to achieving our fourth-quarter revenue expectations. Our expectations assume that the government resumes normal contracting and operations this quarter. Our operations are nimble. We build to forecast. We have the inventory. We are able to fulfill most orders as received, right through the last days of the year. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid- to high 50s range for full-year 2025, with further opportunity to expand in 2026. With an adjusted gross margin of 56% for the nine months ended 09/30/2025, we remain confident in our ability to deliver on our expectations for the full year. And we continue to target adjusted EBITDA positivity in Q4 of this year, supported by our Q4 revenue projection, anticipated mix, and resulting gross margin, and lower operating costs following our portfolio divestiture and facility consolidation. At this point, I would like to turn the call back to Kevin. Thanks, Joe. To close, Q3 marked another important step forward in our 908 Devices Inc. 2.0 transformation. As planned, we are one broadening our customer mix and reducing customer concentration, two, expanding our handheld portfolio from one product to now five, and three, increasing the share of recurring revenue. Together, this strategy reduces our dependency on the timing of larger U.S. Federal and defense awards and creates a steadier cadence of orders across a more distributed customer base. Joseph H. Griffith: Further, Kevin Knopp: we delivered our best adjusted EBITDA results since our IPO, reflecting disciplined execution, cost control, and continued progress towards profitability. With a solid balance sheet, strong year-to-date revenue growth, and line of sight to achieving positive adjusted EBITDA in the fourth quarter, we are confident in our trajectory and the foundation we are building for sustained growth in 2026 and beyond. Thank you for your continued interest in 908 Devices Inc. We look forward to updating you on our progress next quarter. With that, let's open it up for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press 9 on your telephone keypad to raise your hand and 6 on your telephone keypad to unmute when it is your turn. Your first question comes from the line of Puneet Souda with Leerink. Please go ahead. Puneet Souda: Yeah. Hi, guys. Thanks for taking my questions. So first one, on the $4 million. You know, I just wanted to make sure you are accounting for that in the full year if you could confirm that. And then if that was to come in later than expected, then is this going to be the first, is it going to be a contribution to the first quarter 2026 revenue? And then if I could follow-up for the '26, are you expecting, expecting, 20% growth, or could this be more than 25% growth year over year in '26? Kevin Knopp: Sure. Absolutely, Puneet. So I guess let me Joseph H. Griffith: explain it this way. For our Q4 guidance, it includes the run-rate business, and the larger enterprise orders that totaled to about 60-ish units, maybe approximately $3 million. You know, we have the pipeline of those large enterprise opportunities for Q4. Spanning $3 million of high probability enterprise opportunities from those U.S. federal and defense customers that are held up waiting for the U.S. government to get back to business. Additionally, we also have about a million of international orders that require export licenses. Applications are moving, but slower than normal and require an expedite request with the shutdown. You know, to deliver on our guidance, we are assuming the government returns to normalized operations in the quarter. And we can land and ship these before year-end. You know, we build the forecast. We have the inventory, and we can ship right up through the end of the day, the last days of the year. We do have sizable additional sizable enterprise opportunities for international customers progressing towards closure. Some require export licenses and some do not. Further, we have seen our state and local channel overperform our expectations all year, and we are very pleased with the Viper traction to date. With now more than 35 units in hand for Q4 shipment. Representing about 15% of our Q4. $4 million revenue in our guidance, it could be impacted. If the government has not returned to normal by year-end, but we will be looking to leverage other opportunities in our pipeline to mitigate. And importantly, this is a timing thing. These opportunities do not, do not go away. Carry over whether in Q1 or early in 2026. Another way, I guess, to read this is that if the government was fully back to work and operating normally, you would probably be hearing increased confidence to the high end or even higher. In today's call. Puneet Souda: Got it. That's very helpful, Joe. And then on the AvCAD program and the Coast Guard, I mean, Coast Guard order, could you update us? How should we think about AvCAD in '26? Is this more first half versus second half? And then on the Coast Guard order of 23 MX908, and correct me if I'm wrong on that, when do you expect that to be in the revenue? Thank you. Joseph H. Griffith: Yeah. The Coast Guard was in our shipments for Q3, so it's exciting to get that key win. Kevin Knopp: Yeah. And on the AvCAD side, the program Joe Griffith: completed a final field validation event. So the government is currently working through those results, and we continue to expect clarity on the next steps before the end of the year. And as you know, we engage the government directly for our commercial products, but for AvCAD, we are partnered with Smiths. They are the prime or the sub, so they manage that program. But we are expecting some feedback in the coming months, and we will certainly keep all updated there. But yes, it has got to continue to move forward. Timing is harder to control, especially given the shutdown dynamics here. But we have been engaged with AvCAD over five years, and we do anticipate it to be a meaningful growth driver and to scale up and to have a nice runway for us over potentially a five to seven-year horizon. So, as we mentioned before on AvCAD, Smith is working through kind of a handful of small incremental improvements, and that was the goal to demonstrate in this field test. And we will be looking for that validation that it has occurred. The scientist in me, I remain very encouraged about where we are at. Because the detection side of it is really some impressive performance levels that had to be hit, and we are doing that. So, and with the new administration, you know, certainly, there are changes in the contracting. So could there be an acceleration? Could there be a delay? Probably equally are possible on that. But at the moment, I think we have got good momentum, and they are coming up to a decision point that we should get those next steps clarity. So from a 2026 I think AvCAD creates it's one of the levers or catalysts for growth. There's the Joseph H. Griffith: opportunity as we learn at the end of the year that can contribute to that 20% product growth. That we will continue to evaluate and talk to as we get into March. Puneet Souda: Got it. Okay. Helpful, guys. Thank you. Kevin Knopp: Welcome. Operator: Your next question comes from the line of Matt Larew with William Blair. Please go ahead. Matt, a reminder to please unmute yourself by clicking the unmute button in the bottom left corner. Matt Larew: Great. Can you hear me okay? Yes. We can hear you, Matt. Okay. Fair enough. Joseph H. Griffith: Joe, I just wanted to ask on Kevin Knopp: adjusted of the breakeven this quarter, obviously, given the government shutdown and AvCAD, you know, some moving parts that are big in size in terms of the top line. Just the sensitivities around hitting that number, and maybe more importantly, as you think about taking through the P&L performance into 2026, you think once you hit the adjusted breakeven that you will sort of remain, at or above that level or, you know, given some of the first half or second half spend and cash dynamics. Could you sort of have a, you know, two steps forward, one step back kind of, you know, path from here? Joseph H. Griffith: Got it. Yeah. From a sensitivity perspective, you know, the $4 million of potential risk, it would be impactful. You know, if we do not land the $3 million or so in high probability orders anticipated from those federal and defense customers, and maybe the million dollars that need to export licenses. Then unless we can partially offset and get to the low end of our revenue range, it will be a challenge. You know, it's hard to offset the gross margin loss, and we need to be at the low end really to from the range to achieve our target. But we will look for ways to minimize the revenue risk but we do need to scale to get to our Q4 adjusted EBITDA positivity goal. So, I mean, just reiterate a bit, you know, we are holding our revenue guidance steady in our base case, which the $54 million to $56 million for the year. A minimum will need to be at that low end. Easier if Q4 revenues are near the midpoint of that range or even the higher, but at least at the minimum, the adjusted gross margins in the mid to high fifties we have been talking about. And on the Q4 OpEx, excluding noncash stock comp and intangibles in, call it, $11 million not far off from where we were in Q3, really benefiting from the impact of the facility transition and other cost savings we have done. So revenues are the most critical and crucial. As you might expect, you know, of those factors driving positive adjusted EBITDA in Q4, as we think about '26 and adjusted EBITDA, you know, we will be working towards getting there on a full-year adjusted EBITDA. You know, there is seasonality. So from a revenue perspective, I would expect it to flip back to negative earlier in the year we are not at the same scale as Q4. And I think our history has shown that there is, you know, a ramp in the back half typically. On the adjusted EBITDA. Matt Larew: Okay. Great. And then Kevin, you know, one of the three growth catalysts for next year is NextGen. MX. And, you know, just as you now get closer to that replacement cycle getting going, just kind of curious updated thoughts on, that opportunity and to the extent you have shared any of the new features or form factor with, you know, feedback and how that's kind of leading to your excitement for the product launch. Kevin Knopp: Yeah. Sure thing. You are absolutely right. Innovation, new product, is one of our three growth catalysts, and our Explorer product is the second newest product, and Viper, I hope you are hearing on our call today. We are very pleased with that recent launch, and that's a new product for us that we think is going to be compelling. Contributor here going forward in 2026 and beyond. And you are right. Next Gen MX as well. Right? We have got over 3,000 of those out in the world of our first generation or the really greenfield placements and us being able to continue that, but also have an upgrade opportunity. We think it will be meaningful over time. Nothing really new to report today on that front. I would say that we remain on track. Teams working on that program aggressively and very encouraging, I would say, improvements there. But, you know, again, we have got a very disruptive product in terms of no direct competition or their current MX, so we will work through the timings of that launch, but we still expect it in 2026. And, again, Explorer and Viper have really been doing well, and was part of the thesis of the Red Wave acquisition, of course, and so we are super excited for those contributions as well. Matt Larew: Alright. Thank you. Operator: Your next question comes from the line of Brendan Smith with TD Cowen. Brendan, a reminder to press 6 on your telephone keypad in order to unmute. Brendan Smith: Great. Thanks for taking the questions, Can you hear me okay? Kevin Knopp: Yep. Hello. I can hear you. Okay. Brendan Smith: So yeah. So maybe just putting the shutdown aside just for the time being, I wanted to ask a little bit more about and I fully appreciate it's still early, but just where you are seeing and expecting to kind of the most interest in Viper so far. And maybe how we should think about the launch ramp of Viper relative to kind of your expected growth trajectory for the earlier gen devices. Maybe just if you would expect any potential cannibalization just of the earlier gen growth trajectory as Viper gets its legs or if you are really expecting some of the target customers could continue to persist for both independently? Yeah. No. Great question. I think, Viper, we are really, really pleased with that. Last quarter, we highlighted that we expected Viper to be a small contributor in Q4, and then a rising contributor in 2026. In the third quarter, we did ship that first Viper, good feedback Kevin Knopp: on that. Another handful or so that went out, for a demo unit to our partners that are working to then evangelize that product. Really excited about all of the all about what we are hearing there and that team leader connection. And as we reported today, there's a meaningful amount, 35 or so, that are on deck for Q4 shipment. So I think the takeaway is that the guide the engagement is showing great early signs and that we do see Viper playing a good role in supporting our growth goals for 2026. From a cannibalization, it really does not impact our MX. It's a complementary product. It's also complementary in use case with our other products on the FTIR side. So, you know, we think this is just great to have in the toolbox. And right now, it seems to be being validated that way. So we remain excited about it. Brendan Smith: Okay. Great. Thanks. Kevin Knopp: And then maybe on team leader that you mentioned, maybe just what are kind of the next steps there in development and thoughts on maybe a broader rollout as that gets integrated a little bit more. Just maybe help us understand a little bit more how you are thinking about potentially monetizing that aspect of the system moving forward and maybe when that could start to factor in? Kevin Knopp: Yeah. Absolutely. So Team Leader is an app application software that hits it connects to all of our FTR devices and then soon our mass spec device. And it allows people remotely to see what's going on with the unit, location information, and then we are starting to add more and more what we think is compelling features in the fleet management perspective so you can understand where each of the devices sits, software, training, things of that nature. And as we do that and that roadmap, we think of these features as pretty compelling, yes, the value of that and its contribution, expect to be incremental to our recurring revenue. So, you may know some large caps in the gas detection space and saw some more medium cap device, out there in the gas detection space companies, do see that working well for them in other segments of the gas detection market. So, you know, I think, it's early days here, but we see a growing contribution as we go over time with that product. Yep. Brendan Smith: Great. Thanks, guys. Operator: If you have dialed into today's call, please press 9 to raise your hand, and 6 to unmute. Our next question comes from the line of Dan Arias with Stifel. Please go ahead. Dan Arias: Hey. Good morning, guys. Thank you. Kevin or Joe, anything that you guys would Kevin Knopp: consider a risk when it comes to production capabilities or supply chain, etcetera, on full AvCAD fulfillment? The only reason I ask is because you have a bigger portfolio now. More balls in the air. So just sort of curious if there's anything that you think is worth calling out when it comes to scale-up capabilities that's unique or just, you know, sort of requires some particular attention. Kevin Knopp: Yeah. Great question. As you know, we have done a ton of work over the first half and in the third quarter in moving our production and having it up and running, for the third quarter completely. In Danbury, Connecticut. That includes our MX908, where those core components and subsystems are in common, with many of the elements of the AvCAD product. So we feel good about it that we got a nice base there. We feel good about it that we can handle some of the machining requirements from where we are set to build our pumps at scale. From both the KAF precision machining asset acquisition and importantly, the machining capabilities that we have here in the Boston area. So nothing of note there. I think we really stand ready. And these programs take time, so you do get visibility into revenue ramps or unit volume ramps. So I would expect that, as we get clarity, as we anticipate over the last few months here or a couple of months of the year, that will help us prepare for what their intended volumes and shipment and plan is. Yep. Okay. No. I do not expect any supply chain problems there on that. For rampability. Dan Arias: Yeah. Great to hear. Okay. Then, Joe, maybe just a follow-up on the shutdown dynamics. If we do move past the shutdown here, you get the confidence in 4Q revenue recognition that you mentioned, does it stand to reason that the 2026 revenues that might be dependent on business development activity that should be taking place now. Is that still sounding good? Or is there some residual timing risk when you just think about the first quarter or the second quarter of the calendar year? I mean I know we have time to lay out next year, just trying to make sure that we sort of fully round out the impact of the government stuff here. Joseph H. Griffith: Yeah. In many ways, with the shutdown, our sales team is kind of cranking along business as usual. Most of them are still around. It's a lot of the contracting folks. So continue to work the pipeline in short term and longer term, opportunities across the enterprise. Portfolio. So, I do see this as a timing issue. And a bit of a pause. But yeah. And I think I would just add to that. I mean, Dan, it is unprecedented times there. Certainly, we are encouraged by the news over the weekend of government progress on that. And we tried to paint it as a possibility here on the impact we are continuously gauging. But I would clarify that it's probably not a black and white situation. Kevin Knopp: As we called out, you kind of have greater than $3 million of these high probability enterprise orders in the US Fed defense customer bucket, that are held up, but each have a shade of gray. You know, some of these, can move efficiently in the continuing resolution. Some of these could move and are even when it's completely shut down. But there's other dynamics that we are always trying to get on top of. For instance, if some of our opportunities use owing them money, if the government is shut down, some of that can be redirected temporarily. To be used to keep the lights on in other areas. So all of these types of issues. But as we work through each, it's not a black and white situation. But, yeah, I certainly feel good about the pipeline, and they would likely manifest themselves if that were to happen, the ones that slip. Would be into 2026. But as Joe pointed out, I mean, really, the good news is that we build vanilla boxes. Right? We build COTS products. We build to forecast. We have the inventory of them based upon that, and we can deliver all the way up through the last days of the year. So really about the government, call it, returning to normal operations. As Joe said, we are actively engaged with customers. Many of our customers are still there, but maybe their contracting colleagues are missing or there's another priority during this more limited resource time. But, yeah, we remain encouraged about the future and how we are aligned to the appropriations that we anticipate here. Hopefully, in days and for some of the branches that we are hearing about. Dan Arias: Yep. Fingers crossed. Okay. Thank you very much. Operator: There are no further questions at this time. I will now turn the call back to Kevin Knopp for closing remarks. Kevin Knopp: Yes. Thank you very much. Thank you for joining our Q3 call, and we appreciate your interest in 908 Devices Inc. And thank you. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the ADC Therapeutics Q3 2025 Earnings Conference Call. At this time, 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 assistance, please press 0 for the operator. This call is being recorded on Monday, November 10, 2025. I will now turn the call over to Nicole Riley, Head of Investor Relations and Corporate Communications for ADC Therapeutics. Nicole, please go ahead. Nicole Riley: Thank you, Operator. Today, we issued a press release announcing our third quarter 2025 financial results and business updates. This release and the slides we will use in today's presentation are available on the Investors section of the ADC Therapeutics website. I'm joined on today's call by our Chief Executive Officer, Ameet Mallik, who will discuss our operational performance and recent business highlights. Our Chief Medical Officer, Mohamed Zaki, who will discuss our clinical programs and updates, followed by our Chief Financial Officer, Pepe Carmona, who will review our third quarter 2025 financial results. We will then open the call to questions. Before we begin, I would like to remind listeners that some of the statements made during this conference call will contain forward-looking statements within the meaning of the Safe Harbor provisions of The US Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, and actual results, performance, and achievements could differ materially. They are identified and described in the accompanying slide presentation and in the company's filings with the SEC, including Form 10-Ks, 10-Qs, and 8-Ks. ADC Therapeutics is providing this information as of today's date and does not undertake any obligation to update any forward-looking statements contained in this conference call as a result of new information, future events, or circumstances, except as required by law. The company cautions investors not to place undue reliance on these forward-looking statements. Today's presentation also includes non-GAAP financial reporting. These non-GAAP measures should be considered in addition to and not in isolation or as a substitute for the information prepared in accordance with GAAP. You should refer to the company's third quarter earnings release for information and reconciliation of historical non-GAAP measures to the corporate GAAP financial measures. I will now turn the call over to our CEO, Ameet Mallik. Ameet? Ameet Mallik: Thanks, Nicole, and hello, everyone. Thank you for joining us on today's call. In 2025, we continued to focus on execution and delivering on our commercial strategy. Maintaining ZENLATA as a differentiated treatment option for third-line plus DLBCL patients while advancing data across key trials. Net product revenues were $15.8 million in the third quarter, reflecting variability in customer ordering patterns and were broadly in line with the quarterly run rate over the past two years. We continue to progress against our key ZENLATA trials in second-line plus DLBCL and expect to share additional data in the coming months. We plan to provide an update on LOTUS seven, our Phase 1b trial evaluating ZENLATA, in combination with the bispecific antibody glafitamab before the end of the year. Then in 2026, we plan to announce top-line results from LOTUS V, our Phase III confirmatory trial of ZENLATA in combination with rituximab once the prespecified number of PFS events is reached, and data are available. Within indolent lymphomas, the lead investigator on the Phase II IIT of ZENLATA in combination with rituximab recently presented encouraging updated relapsed or refractory follicular lymphoma data at the 22nd International Workshop on Non-Hodgkin Lymphoma. The trial is on track to enroll 100 patients. In addition, the Phase II IIT of ZENLATA in relapsed or refractory marginal zone lymphoma continues to enroll to the target of 50 patients. Beyond ZENLATA, we continued with IND enabling activities for our PSMA targeting ADC, which are on track to be completed by the end of the year. Lastly, just after the quarter end, we secured a $60 million private placement led by TCGX, including participation from RedMob Group and other existing investors. This financing takes our expected cash runway at least to 2028. With our strengthened balance sheet, I am confident that we are well-positioned to further invest in ZENLATA as we anticipate advancing into earlier lines of therapy for DLBCL and into indolent lymphomas. As a single-agent therapy in third-line plus DLBCL, ZENLATA has a profile of rapid, deep, and durable efficacy as well as manageable safety with simple, and convenient administration. Beyond our current indication, we believe in the potential to reach significantly more patients by expanding use into earlier lines of therapy in DLBCL and into indolent lymphomas. The data we've seen across these settings so far has been consistently encouraging, with the potential to be highly differentiating. We continue to believe that through expansion into these settings, ZENLATA has the potential to reach peak annual revenues of $600 million to $1 billion in the U.S. Our current indication has, as I noted earlier, shown relative stability in net revenues over multiple quarters demonstrating ZENLATA has a clear place in the market as a monotherapy. We believe LOTUS V has the potential to lift peak annual revenue for ZENLATA to $200 million to $300 million as we expand into the second-line setting. Not only would this double the addressable patient population, but with an improved clinical profile versus our current indication as a monotherapy, we expect to gain share in the second-line plus setting and improve the duration of therapy. With LOTUS seven, we estimate we can expand the total opportunity for ZENLATA in DLBCL to $500 million to $800 million in peak annual revenue with both regulatory approval and compendia listing. If the data continue to be compelling, we believe ZENLATA plus glafitamab has the potential to transform the future lymphoma treatment paradigm by becoming the preferred bispecific combination in the second-line plus DLBCL setting. On top of this, we see additional potential for ZENLATA in relapsed or refractory marginal zone lymphoma and relapsed or refractory follicular lymphoma. If the encouraging initial data in the Phase II IITs are maintained in larger patient numbers, we believe these indolent lymphomas could provide additional peak annual revenue for ZENLATA of $100 million to $200 million with both regulatory approval and compendia listing, primarily driven by MZL. Let's drill down a little more into the specifics of the DLBCL treatment landscape to explain why we believe ZENLATA has the opportunity to play a significant role. In both the second and third-line plus settings, there are two main segments. The first segment includes complex therapies, which require unique infrastructure and expertise to handle logistical requirements and patient management. These are primarily confined to the academic centers and more sophisticated community centers and include therapies like CAR T, transplant, and bispecifics. The second segment comprises more broadly accessible therapies which all physicians can administer in the outpatient setting and includes ADCs, monoclonal antibodies, and chemotherapy. The launch of bispecifics as monotherapy in the third-line plus setting has resulted in an evolution of the treatment landscape where we estimate there is currently a 60/40 split between complex and broadly accessible segments. In the second-line setting where bispecifics have not yet been approved, but were recently added to NCCN guidelines for use in combination, we expect that they will continue to gain share and grow the use of complex therapies. Through LOTUS V and LOTUS VII, we believe ZENLATA combinations have the potential to raise the bar on efficacy in second-line plus DLBCL in their respective treatment segments offering complementary approaches to addressing unmet needs. In LOTUS V, our Phase III confirmatory study, we are combining ZENLATA with the most widely used agent, rituximab, in patients with second-line plus DLBCL. As a reminder, initial data from the safety lead-in portion showed an overall response rate of 80% and a complete response rate of 50% with no new safety signals demonstrating that this combination has the potential to provide competitive second-line plus efficacy with a favorable safety profile allowing broad accessibility. In LOTUS VII, our Phase Ib trial, we are combining ZENLATA with a highly effective bispecific glafitamab in second-line plus patients. Data presented in June at ICML based on the April 2025 cutoff showed the combination was generally well tolerated with a manageable safety profile. Furthermore, we believe it demonstrated clinically meaningful benefit with an overall response rate of 93.3% and a complete response rate of 86.7% across 30 efficacy evaluable patients. We are encouraged by the promising early data which we believe demonstrates the potential for ZENLATA plus glafitamab to be a best-in-class combination in a highly competitive market. When you look at the CR rates among both currently available and emerging therapies in these two treatment segments, we believe the emerging clinical profile of ZENLATA plus glafitamab in the LOTUS VII trial positions us well among complex therapies. At the same time, the clinical profile of ZENLATA plus rituximab in the LOTUS V trial has the potential to differentiate us among broadly accessible therapies. Together, we believe these combinations have the potential to double the addressable patient population as we move into the second line and increase the duration of therapy moving on average from three cycles to five to six cycles. Now I will turn the call over to our Chief Medical Officer, Mohamed Zaki, who will share the latest on the Phase II follicular lymphoma IIT data. Mohamed? Mohamed Zaki: Thank you, Ameet. I am pleased to share updated data from the Phase II investigator trial of ZENLATA in combination with rituximab in relapsed/refractory follicular lymphoma. The data were presented in September at the 22nd International Workshop on Non-Hodgkin's Lymphoma by the lead investigator, Dr. Juan Pablo Adrushio from the Sylvester Cancer Center, part of the University of Miami Miller School of Medicine. Data presented from the 55 efficacy evaluable patients to date in this trial continues to demonstrate encouraging results with an overall response rate of 98.2% and a complete response rate of 83.6%. After a median follow-up of 28 months, median PFS was not reached. And the 12-month PFS was 93.9%. In this trial, no new safety signals were observed, and safety was consistent with the known profile of ZENLATA. The University of Miami is actively enrolling towards the target of 100 high-risk relapsed/refractory follicular lymphoma patients and is opening the study at additional US cancer research centers. As soon as sufficient data are available, we plan to assess regulatory and update the compendia pathways. Now I will turn the call over to Pepe Carmona, our CFO, who will discuss financial results for the third quarter. Pepe? Pepe Carmona: Thank you, Mohamed. On the financial front, the long-term net product revenues in 2025 were $15.8 million as compared to $18 million in the same quarter in 2024. Total operating expenses for the quarter were $45 million on a non-GAAP basis, representing a 12.1% net decrease over the prior year. The reduction was primarily driven by lower R&D expenses, with sales and marketing expenses stable year over year. We continue to be disciplined in our capital allocation towards potential value creation while driving efficiencies across the portfolio. On a GAAP basis, we reported a net loss of $41 million for 2025 or 30¢ per basic and diluted share, as compared to a net loss of $44 million or 42¢ per basic and diluted share for the same period in 2024. The decrease in net loss for the quarter is primarily attributable to lower R&D and G&A expenses. You can find the reconciliation of GAAP to non-GAAP measures for the third quarter and year to date in the companion financial tables of the press release issued earlier today and in the appendix of this presentation. At the end of the quarter, we had cash and cash equivalents of $234.7 million, which compared to $250.9 million as of December 31, 2024. In October, we entered into a $60 million PIPE financing, which on a pro forma basis expanded our cash and cash equivalents to approximately $292.3 million as of that date. The strengthening of our balance sheet allows us to execute our strategy with an expected cash runway extending at least to 2028. Across LOTUS V, LOTUS VII, and MZL ZENLATA programs, we expect to have data catalysts in the remainder of 2025 and 2026. For LOTUS V, we expect to provide top-line data in 2026 once a prespecified number of PFS events is reached and data are available. Assuming positive results, a supplemental biologic license application submission to regulatory authorities will follow, with potential confirmatory approvals in second-line plus DLBCL as well as publication and compendia inclusion in 2027. With LOTUS VII, following the presentation of the data at EHA and ICML in June, we observed an acceleration in enrollment in the study at the selected 150 microgram per kilogram dose level. We plan to provide a clinical update on all efficacy evaluable patients with a minimum of six months of follow-up through a corporate announcement before the end of the year. Once sufficient data with longer follow-up are available, we plan to engage with the FDA. In addition, assuming positive results, we plan to pursue publication and compendia inclusion in 2027. We expect additional data to be shared at medical conferences by the lead investigators, and we plan to assess regulatory and compendia strategies once sufficient data are available. Beyond ZENLATA, we continue to advance our exatecan-based PSMA targeting ADC with completion of IND enabling activities anticipated toward the end of this year. I will now turn the call back over to Ameet. Ameet Mallik: Thank you, Pepe. Let me close by saying that I am pleased with how we are executing against our strategy and continue to be excited by the consistently encouraging ZENLATA data we are generating across our ongoing trials. We have a clear vision to unlock the true potential of the company with multiple potential value-creating milestones ahead and a balance sheet that enables us to deliver on our strategy. We can now open the line for questions. Operator? Operator: Thank you. Ladies and gentlemen, we will 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 star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Eric Schmidt with Cantor. Your line is now open. Eric Schmidt: Maybe I'm intrigued by Pepe's comments that we're seeing accelerated enrollment post the June data release. Not surprising, of course, but can you frame how many patients we might get later this quarter? And then in terms of your target enrollment, out of 100 or so patients, are you adjusting that target? And is it possible that that target could be reached sooner rather than later? Thank you. Ameet Mallik: Thanks for the question, Eric. Yeah, no. We've been pleased that since the EHA and ICML update, we've had even greater interest in the trial, and enrollment has definitely accelerated. We're still targeting the roughly 100 patients that we've been targeting to enroll. It will occur quicker than when we originally anticipated. We're not giving an exact timeline, but we're still confirming the first half of next year to have that completed. And then in terms of the upcoming data release, are you still targeting 40 or forty plus? Well, we'll give you know, as you recall, we had enrolled originally twenty patients in each dose, then we continue to expand at the 150 dose, right? So it'll clearly be more than the original twenty and twenty. But it won't be fully all 100. And, also, I want to make sure you heard what Pepe said is that we're going to be sharing updates on all efficacy evaluable patients with a minimum six months follow-up. This is because it provides more stable, meaningful updates, both in terms of the depth of the response but also the durability of response. That was, as you can recall, some of the questions we received in the early updates is we had very limited follow-up. So now we're focused on where the data is more stable, and that's really when patients with a minimum six-month follow-up. Okay. Thank you very much. Operator: Your next question comes from Clara Dong with Jefferies. Your line is now open. Jenna Li: Hi, good morning. Thanks for taking our questions. This is Jenna Li on the line. Could you talk about in the context of the upcoming LOTUS V and LOTUS VII data and the submission timelines, when should we expect to see an inflection point for ZENLATA sales? And could you also give some qualitative comments on the pace of revenue ramp-up once you have those potentially positive data or approval in hand? Thank you so much. Ameet Mallik: Yes. I think you're asking about the milestones and then also the revenue inflection. So first, I would say, for LOTUS VII, we expect to share an interim update on data later this year. And, obviously, we expect to have full data sometime by the end of next year or into 2027. As you can see, what we guided to is publication and or compendia inclusion sometime between the end of next year and 2027. With LOTUS V, we expect to share top-line results in 2026, and then have approval sometime in 2027. So if you didn't get the revenue ramp-up for those two following compendia inclusion and approvals, which we expect for both, the first half of 2027, we expect revenues to ramp up subsequent to that. Jenna Li: So sorry. Just a quick follow-up. Did you also have any comments on the pace of ramp-up following each first half of 2027? Ameet Mallik: Yeah. I mean, I don't want to guide to the exact ramp-up. What I will say is if you look at other launches, whether it's the bispecifics or Polivy in frontline or others. I would say the majority of the ramp-up happens during the first two years post-launch or approval or compendia listing of a new indication. It's typically the majority that's going to happen in the first two years. Jenna Li: That's super helpful. Thank you so much. Operator: Your next question comes from Michael Schmidt with Guggenheim Securities. Your line is now open. Sarah: Hey. This is Sarah on for Michael. Thanks so much for taking my question. So I just wanted to get your thoughts on with these newer agents moving into frontline DLBCL, is that something that you are or would consider pursuing for ZENLATA? Thanks so much. Ameet Mallik: Yeah. No. I think the frontline will be because if you look at the frontline setting, for decades, really, R-CHOP was the standard of care. Then only a couple of years ago, saw 0.1 of the biggest things being studied right now are bispecifics. I think there's some excitement about if those could have potential still to be determined, I think, still a little bit of ways away from seeing those readouts. And in terms of our future development, we'll consider how that goes for this combination post the readout of 100 patients and any support would depend on a partner too. I don't see us likely funding a phase three study with this in the frontline or the second-line setting with this combination purely on our own. Sarah: Thanks so much. Ameet Mallik: Yeah. We're watching the space closely. Operator: Your next question comes from Leonid Timashev with RBC Capital Markets. Your line is now open. Leonid Timashev: Hey, thanks for taking my question. I just want to ask on sort of the split of community and academic. I know you've talked about LOTUS V potentially being more positioned in the broadly applicable therapies and LOTUS VII more for the academic. But I guess I'm curious how neat you think those breakdowns actually are going to be and sort of how you're going to balance ultimately where patients are found and how you want to focus your sales force across academic and community to sort of pursue the opportunity where it is. Thanks. Ameet Mallik: Yeah. So I would I wouldn't do the breakdown in terms of academic community. What I'd say is for the more complex therapies, whether it's CAR T or bispecifics, so let's just talk about bispecifics because that's more applicable to LOTUS VII. They're not only used across all the academic subjects. They are used in more sophisticated community centers, and that may grow over time. So I wouldn't say the distinction is purely community versus academic. It's more of all of the academic can administer those products. And a portion of the community can administer those products. In that universe of institutions that can administer the product, obviously LOTUS VII is going to have a place. Then there's other therapies, like chemotherapy, ADCs, antibodies, which are more broadly accessible, and those can be administered across all settings. But they are still administered in the academic centers, and they're administered in all the community settings. So I wouldn't differentiate to say LOTUS VII is going to be purely academic and LOTUS V is going to be purely community. The reality is LOTUS VII, when a patient is suitable for it, and if the facility can administer the therapy, you're going to go with the highest efficacy product and combination that you can go with. We think LOTUS VII is really well positioned, and that will be used, again, in all the academic centers and a portion of the community. Exactly how much, we'll see over time how bispecifics are adopted by the community. With LOTUS V, either because of accessibility of the therapy or because of suitability for the patient, remember, there's some patients that have comorbidities or other conditions which may prevent them from getting an immune-based therapy. It may be a post-CAR T patient that's at risk of infection. It may be a patient with autoimmune disease. There may be other reasons why you're not going to want to give a bispecific-based therapy. And for other centers in the community, they're not going to have access to them. So for all those reasons, we think LOTUS V still plays a big role. We still see our base chemo regimens having a large share in the relapsed refractory market. So we think we have a good place, and that's really our strategy, to hopefully have leading efficacy in both of these segments, both the complex therapies and the more broadly accessible therapies. Operator: Ladies and gentlemen, as a reminder, should you have a question, please. Your next question comes from Sudan Loganathan with Stephens. Your line is now open. Sudan Loganathan: Hey, good morning Ameet, Mohamed, and Pepe. I know you've spoken about the opportunity in the second line, third line plus for relapsed refractory DLBCL with LOTUS VII, LOTUS V outcomes respectively. But can you give us more details on how you view each percentage increase in penetration in either the second or third line setting would add to the ZENLATA revenues to achieve your peak guidance ranges that you've noted? And then secondly, regarding the ZENLATA plus rituximab, for relapsed/refractory FL, data thus far at 84% CR rate seems to slide in nicely right after the T cell therapeutics. And then in line are slightly better than the bispecific. If this holds true, does this mostly take market share away from bispecifics or any opportunity to take from the T cell therapeutic options in FL? Glad to get your details on those things. Thanks. Ameet Mallik: Yeah. So I would say, you know, to answer your first about what's SharePoint worth, so think about in the second line setting, there's about twelve thousand patients in the U.S. And in the third line plus setting, there's six thousand patients. So depending on where you're getting the share, is it second line setting or third line plus every share point, obviously, multiplied by the number of patients. With monotherapy, we're typically seeing three cycles. Now remember, the first two doses of our product are 150 micrograms per kilogram, then it drops to 75. So it's weight-based, but oftentimes it could be two vials for the first two cycles and drop to one vial. What we're seeing with LOTUS V and LOTUS VII is somewhere between five to six cycles. So you can just do the subsequent calculation on vials. And then you know what our net price and our gross price is in the upper twenties, thousands. Net price is in the lower 20,000. So if you do the kind of calculation depending on what if you're talking about a SharePoint, the second line, a third line plus setting, that kind of gives you a rough estimate. Just by way of example, like in the LOTUS V, for example, if we were able to maintain our roughly 10% share that we have in the third line plus setting and translate that in the second line setting. But with increased duration of therapy in our net pricing, that would take our product, which is on a roughly $70 million run rate, what it's kind of been the last couple of years. To just over $200 million. Obviously, we were hoping with efficacy improvements, you actually gain share, and that's what leads to the guidance of $200 to $300 million. You can do similar calculations for LOTUS VII. Now turning to the indolent lymphomas. I think we're excited both about the data that Mohamed spoke about with the last refractory follicular lymphoma. And relapsed/refractory marginal zone lymphoma data that was presented at EHA and ICML. I think both right now are showing outstanding results. I would say in terms of the opportunity for potential adoption, right now we're basically funded to try to get into compendia for both. So obviously, we won't promote either of these indications. But what I could say is the unmet need and the level of competition is probably higher. Unmet need is higher in MZL, and the level of competition is lower in MZL versus follicular lymphoma. That's why we've emphasized that one a bit more. When you look at the different agents that are approved during compendia, the FCR rates are 29%, roughly 30%. Even if you look at subsequent data that's come out, maybe a bit higher than that, what we've been showing is closer to 70% CR rate in that MZL setting. In follicular, although the data is outstanding, and we hope to have a place there, it's a lot more competitive. There's literally more than 10 agents that have phase three trials including the bispecifics, and many other agents, who have large phase three studies with overall survival. And it's just a more competitive space. That's why we think the potential for uptake is just smaller, not because the data isn't excellent, but just because it's a much more competitive space. Operator: No further questions at this time. I will now turn the call over to Ameet Mallik for closing remarks. Ameet Mallik: Well, I want to thank you all for joining our call today. We really appreciate the questions, and we appreciate your continued support. We look forward to keeping you updated on our progress. Operator, you may now end the call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Two. Good morning, ladies and gentlemen. Welcome to Village Farms International third quarter 2025 Financial Results Conference Call. This morning, Village Farms International issued a news release reporting its financial results for the third quarter ended September 2025. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors heading. Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. Details of how to access the replays are available in today's news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain materials assumptions were applied in providing these statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MDNA for the year ended 12/31/2024 and 10-Q for the quarter ended 09/30/2025, which will be available on Edgar and Cedar Plus. These forward-looking statements are made of today's date, and except as required by applicable securities laws, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio. Michael DeGiglio: Thank you, Sherry. Good morning, everyone, and thank you for joining us today. With me on the call are Stephen Ruffini, our Chief Financial Officer, and Ann Gillin Lefever, our Chief Operating Officer, Patty Smith, our Corporate Controller, and Sam Gibbons, Senior Vice President of Corporate Affairs. I'll begin with a review of highlights from the third quarter, then Stephen will review the financials in more detail before I provide some last closing comments. As we discussed in this morning's earnings release, our third quarter was another one of many records for Village Farms International. Our last quarter's call, we talked about our confidence in the sustainability of the positive trends we were seeing across the business as we continue executing and scaling a profitable global enterprise. Today's results, only three months later, validate the expectations we discussed, and we remain confident that our competitive strengths combined with the incremental growth catalyst we see on the horizon position us for a very strong future. Consolidated net sales increased 21% year over year in Q3, and net income from continuing operations was $10.8 million or $0.09 a share, an increase of almost 10% sequentially compared to the record we set last quarter. For the second consecutive quarter, we also achieved new records for adjusted EBITDA and adjusted EBITDA margin from continuing operations of $20.7 million and 31% of sales. And we continue to see excellent cash conversion with consolidated cash flow from operations of $24.4 million, another record for Village Farms International. Our Canadian cannabis business delivered 29% year-over-year growth in net sales, reaching a new high of $64.1 million in Q3, driven by strong performance in our targeted channels, improving sales mix, which has led to higher average pricing, and continued momentum in the international medical export division, which we were up more than 750% year over year. What is enabling us to deliver these levels of performance? Well, we believe it comes from three critical factors. First, is our capabilities as a premier provider of quality and consistent cannabis flower at scale and at the lowest cost. Second is our commitment to manufacturing excellence and our EU GMP capabilities. And finally, it's a tremendous execution of our global team. Our execution on all fronts has been paramount to our success, and all the Village Farms International team members are worthy of considerable praise. Canadian cannabis retail sales were in line with our expectations with stronger contribution margin from retail branded sales in Q3 driven by our recent success in aligning our product portfolio towards higher margin SKUs. As a reminder, we first began discussing our plan to realign our product offerings towards the end of last year. As our analysis and consumer feedback suggested, the quality of our flower should command a higher price point. Since that time, we've observed significant improvements in profitability and because of our deliberate move away from some value-oriented tiers of the market, and our core Pure Sunfarms brand has experienced steady growth in market share since last December. We're pleased to be seeing relative stability in overall share performance as we begin to anniversary the implementation of these changes. And we're looking forward to benefiting from expanded production capacity next year, which will enable us to continue supporting growth in the Canadian market. Our non-branded wholesale channel in Canada continued to show consistent top-line performance as we've observed the past seven quarters. And as mentioned previously, our international medical business continued to expand rapidly during the third quarter with over 750% sales growth year over year. Germany continues to be a driver of increasing international demand, and we believe we've expanded market share sequentially in this market during each of the past four quarters. Based on local government data and internal estimates, we believe Village Farms International is now the largest exporter of medical cannabis to Europe and that we are well-positioned long-term to continue expanding into new markets as additional countries around the world embrace the many benefits of regulated cannabis. I also want to make clear that international business did not experience any disruptions to delivery or order flow during the third quarter. And in fact, the German government recently increased its import limit of medical cannabis by an additional 70 metric tons. As a reminder, our Delta British Columbia facility has been EU GMP certified since 2022. This certification was recently renewed, which underscores our rigorous commitment to our operational excellence and enables us to ship directly to partners across the world who are seeking GMP flower. We have never shipped through Portugal, having identified this as a compliance and supply chain risk some time ago. Our consistent product quality, potency, and reliability of on-time delivery of our products continue to differentiate Village Farms International from our competitors on the global stage. And we expect to expand to multiple new international jurisdictions during the first half of next year. As a reminder to investors who may be new to our story, we are only using approximately 35% of our nearly 5 million square feet of advanced greenhouses in Canada for cannabis production today. We have proven our playbook in scaling our Delta, BC production campus partly thanks to our nearly 40-year track record in highly intensive agriculture. And we have a strong labor force that knows how to execute and operate these facilities efficiently. To support continued growth in Canada and abroad, the 40 metric ton capacity expansion project we announced last quarter is now underway. And we anticipate it will increase our annual production capacity in Canada by approximately 33%. The incremental capacity is expected to begin coming online in Q2 of next year and be fully ramped in early 2027. At that time, 45% of our greenhouse capacity in Canada will be in full cannabis production, leaving our largest 60-acre Delta One greenhouse facility available for future phase conversion to cannabis beginning as early as 2027 if we deem necessary. As many of you know, increasing global demand for cannabis has currently resulted in a relatively supply-constrained environment in the domestic Canadian market for much of the past year. These dynamics have supported an improved pricing environment in Canada. And along with improvements in our operating efficiency, helped us achieve record gross margin with improved profitability in all our various sales channels during the third quarter. Excuse me. Canadian cannabis gross margin of 56% was above the high end of our targeted range due to a variety of factors, which Stephen will discuss momentarily. Our Q3 sales growth, improved gross margin performance, and continued cost discipline resulted in a 309% increase in adjusted EBITDA in Canadian cannabis to $19.3 million or 41% of sales. We believe this sets an all-time quarterly record in profitability from continuing operations of any public Canadian cannabis company. In The Netherlands, our first facility in Drafton reached full production capacity during Q3 and sales increased 44% sequentially with healthy profitability and cash generation. We also expanded our market penetration in coffee shops sequentially with our products now in 91% of participating coffee shops, and we are continuing to introduce new products, including several hash offerings and pre-rolls that we anticipate will enjoy popularity in one of the world's most famed cannabis markets. Construction of our second and large Dutch facility, which will increase our total production capacity in The Netherlands fivefold, is progressing on schedule and remains on track to begin operating in late Q1 of next year. We have been increasing headcount in The Netherlands during the fall to prepare for the expansion. And we anticipate incremental operating expenses at Lely Holland over the course of the next few quarters to support this growth. However, as the Phase two facility comes online, through the first half of next year, we expect our Netherlands business to be a strong driver of revenue growth for us in 2026, and to help us maintain relative strength in our overall margin performance as compared to a majority of our public cannabis company peers. In our produce business, sales were roughly flat after accounting for sales commissions paid to Vanguard Foods LP. Our ongoing produce segment is now comprised almost entirely of our Delta One greenhouse operations, which historically has generated positive net income and cash flow. And can still be converted to a cannabis facility in the future. Our second and third quarters will always be our seasonally strongest quarters for produce. Net income improved more than fourfold in Q3 to $1.3 million and adjusted EBITDA improved nearly 50% to $2.5 million from $1.7 million. Our U.S. Cannabis and Clean Energy segments also performed in line with our expectations during the quarter. We are pleased with the incremental net income that Clean Energy contributes to the company. And we continue to believe that these segments, despite being small portions of our business today, there is meaningful potential for both of these businesses to provide investors with additional upside, which we further believe differentiates Village Farms International as an attractive investment opportunity. As a reminder, for anyone new to our story, we still have certain greenhouse assets in West Texas that we believe offer us a clear opportunity to replicate our success in Canada if and when U.S. regulations allow. Finally, as noted on this morning's earnings call, we closed the quarter with $88 million in cash on our balance sheet, reflecting an increase of nearly $23 million since the end of Q2 following another quarter of strong free cash flow generation. Finally, our significantly improved cash flow generation profile and balance sheet strength gave our Board of Directors confidence to implement a share repurchase program in September as part of our balanced approach to capital allocation to drive shareholder returns. We believe we are in an excellent position to continue growing and investing behind our business. And we see significant opportunities for us to continue profitably scaling our global cannabis enterprise in 2026 and beyond. I'll turn the call over to Stephen to review the financials now. Stephen? Stephen Ruffini: Thanks, Mike. As a reminder, as of May 30, some of our produce assets were privatized and are now classified as discontinued operations. Reported financial results for comparative prior periods have been adjusted accordingly. I'll start with a review of our consolidated results. Consolidated net sales increased 21% to $66.7 million driven by growth in our Canadian cannabis segment as well as the second full quarter of contribution from our recreational cannabis sales in The Netherlands. Net income from continuing operations improved to $10.8 million or $0.09 per share, compared to a net loss of $800,000 or $0.01 per share in Q3 of last year. Consolidated adjusted EBITDA from continuing operations was $20.7 million compared with $4.7 million in Q3 of last year, resulting in an adjusted EBITDA margin of 31% in the quarter compared to 8.5% in Q3 of last year. Our cash flow from operations improved to $24.4 million compared with $6.1 million in Q3 of last year. Turning now to our segmented results. We will start with Canadian cannabis, which I will discuss in Canadian dollars for comparative purposes. Total net sales were $64.1 million for a 29% increase versus Q3 last year. The year-on-year improvement was driven by strong performance in our targeted channels, improved pricing, and continued momentum in our international medical exports, which increased 758% from Q3 last year to $16.3 million. Canadian retail branded sales were $37 million, in line with our expectations following the realignment of our product portfolio to higher margin SKUs. Canadian cannabis gross margin was 56%, up from 26% in Q3 last year and well above the high end of our target range of 30% to 40%. As Mike mentioned earlier, our improved gross margin was helped by favorable pricing as compared to the prior year. And we also benefited from increased international export sales, lower packaging inputs, improved productivity, and higher crop yields during the past summer growing season. SG&A expenses as a percentage of sales were 20%, an improvement of 22% last year as we continue to drive efficiencies throughout our Canadian cannabis operations. Q3 adjusted EBITDA for Canadian cannabis improved 309% year over year to our strongest performance ever at $26.6 million, resulting in an adjusted EBITDA margin of 41%, which was more than triple the 13% of last year. Cash flow from operations increased 339% to $26.8 million, our strongest quarter of operating cash flow since we expanded into Canadian cannabis in 2017. Finally, as we do each quarter, I will point out that in Q3, we paid Canadian excise taxes on our retail branded sales of $21.6 million, nearly 40% of retail branded sales and almost double our SG&A costs. Turning now to our recreational cannabis business in The Netherlands. Q3 saw our second full quarter of sales from our Lely Holland operations. Sales were $3.6 million with adjusted EBITDA of $1.3 million, both meaningful increases quarter over quarter and firmly in line with our expectations. With our Phase I facility now operating at full capacity, we expect our Netherlands sales performance in Q4 to be similar to Q3, although with increased operating expenses which Mike mentioned, will be rising into Q1 as we get ahead of our larger Phase two facility. Turning now to our U.S. Cannabis business. Q3 sales of $3.3 million continue to reflect the impact of various state actions dealing with the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year over year at 60%, resulting in a small negative adjusted EBITDA for the quarter. Having stabilized this business amidst strong regulatory headwinds, we are working on a number of initiatives to invigorate sales of our responsible GMP-produced natural hemp products. In our continuing produce operation, sales decreased 10% year over year to $12.8 million, although this is a result of incurring a sales commission in 2025 to our privatized produce business. In previous years, we were the exclusive sales agent for our produce as well as for others. However, our net income from continuing operations was up $1 million to $1.3 million with our adjusted EBITDA margin improving to $2.5 million. I will remind investors that our produce operations in Q3 and through the remainder of this year reflect contributions from our Delta One greenhouse and half of our Delta Two greenhouse. The Delta Two tomato crop is being pulled this week for us to commence the conversion to cannabis production, which will bring our total operational square footage of cannabis production in Delta to 2.2 million square feet. Turning to consolidated cash flows and the balance sheet. Total cash flow from operations was $46.7 million through the first nine months of the year. We ended Q3 with cash of nearly $88 million, which includes restricted cash of $5 million with a net cash position of $53 million. Our total debt at the end of Q3 was $35 million. As noted in our 10-Q this morning, in August we paid down $3 million of U.S. term debt as part of the produce privatization transaction. We had a blended borrowing rate of approximately 6.5% at the end of the quarter with additional debt capacity as we evaluate the most efficient ways to fund our growth. Our healthy cash flow and strengthening balance sheet will enable us to continue supporting future expansion projects. And as Mike mentioned, we'll also support the $10 million share repurchase program that our Board approved in September. The program provides for the purchase of up to just under 5.7 million common shares or 5% of our issued and outstanding shares as of the date of the announcement. Our management team and Board believe this reflects a prudent and balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments. Michael DeGiglio: Well, thank you, Stephen. And thanks and congratulations to all the Village Farms International team members around the world whose hard work, tenacity, and integrity are continuing to raise the bar for ourselves and our industry. In addition to delivering record profitability in the Canadian cannabis industry, our performance this quarter also surpasses the profitability of any U.S. operators who have reported thus far in this current earnings season. Village Farms International is now one of the most profitable cannabis businesses on planet Earth, and we remain highly motivated to exceed our own expectations. We are growing our business organically, funding our growth with our own cash generated from operations, and we believe we still have a considerable amount of future organic growth catalysts on our horizon. We are confident in our ability to continue driving growth in revenue and EBITDA supported by our proven operational and manufacturing expertise, our culture of cost discipline, and continuous improvement. And of course, through the continued excellence and leadership of our people. I'm incredibly proud of all the progress our teams have made together this year and know that we are all looking forward to another strong year of growth in 2026. Operator, that concludes our prepared remarks. We'll take questions now. Operator: Thank you. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. Please standby while we compile the Q&A roster. And our first question will come from the line of Aaron Grey with Alliance Global Partners. Your line is open. Aaron Grey: Hi, good morning. Thank you for the questions and congrats on the strong quarter here. First question for me, I want to talk a bit about cannabis gross margin, 56%. You talked about some of the year-over-year improvement, but I want to talk even sequentially. Right? Some very strong improvement. So some of the drivers you saw there, you know, when we think about international mix, you know, it's pretty similar quarter over quarter, but still saw, you know, some pretty meaningful expansion there. So is there some improvements in pricing and mix within international? Some of the more meaningful operating efficiencies? So just some of the specific drivers in terms of some of the sequential trends there. And then how best to think about that gross margin going forward and how sustainable gross margins more close to these levels are? Thank you. Michael DeGiglio: Thanks, Aaron. So overall, we had improved efficiency. One of our DNA KPIs is continuous improvement on cost and efficiency. So that improved efficiency and productivity. We had higher crop yields. We normally do in the summer than the winter. Favorable pricing, as I mentioned, compared to the prior year tied to mostly a function of SKU mix, which I mentioned on the call. Lower packaging inputs and improved margins and of course, international export which has solid margins. Those were key drivers to those results. Ann, you want to add some color? I think you covered it. Okay. Thank you. As far as gross margin, you know, we as we said, our sweet spot is always 30 to 40% because you have to look long term. There's always different ebb and flows in the market. But we are always trying to exceed that, but we're not really changing that guidance between thirty and forty was a strong quarter for us and we certainly take it. And we're going to always strive to exceed. But we're we're gonna stick to those, that sweet spot we mentioned consistently over the last few years. Aaron Grey: Okay. Great. Appreciate that. And then on the international front, more thinking about the top line. You know, can you mention in terms of the competitive environment, maybe some of you mentioned that you haven't had as many issues, but have some of the supply challenges from some of your peers you're hearing about or or some of the quality issues, has that provided you you know, more of an opportunity to take meaningful, you know, share gains within the past two quarters? And, you know, how's it seems like you think that's pretty sustainable over the near to medium term, you know, with Delta second half of Delta two coming online and even some emphasis to potential for Delta one coming online, in 2027. So just maybe talking about some of the dynamics you're seeing internationally and what's making you so constructive at least in the near to medium term for some continued opportunities there? Thanks. Michael DeGiglio: Yeah. Well, I think, you know, it's still an asset industry. I mean, when I look at the cannabis business ten or fifteen years from now, it's gonna be interesting to see how it segments from commercial side, innovation side. To cultivation. But at this stage, cultivation rules, I mean, at the end of the day, you have to be able to consistently perform super high quality every single day and we always strive to do that at the lowest possible cost. Our original business model was based on that, and the team is executing. So without having consistent solid, good quality nothing else really matters. That coupled with EU GMP, the team has executed brilliantly. We had a renewal after our first three years with Flying Colors and we're actually expanding that whole EU GMP processing side for the future. And then you know, first and then coupled with it's not so much of as I said in my comments, one, two, three. You have to have all three. It's sort of like a three-legged stool. If one of those legs fall off, you topple over. And the final one is the execution of the team. Both on the commercial international side and on cultivation manufacturing side. And I think that's what we've communicated from day one we got into cannabis, and, it's a matter of how well you can execute. Aaron Grey: Okay. Great. Appreciate the call. I'll go ahead and jump back in the queue. Operator: One moment for our next question. That will come from the line of Frederico Gomes with ATB Capital Markets. Your line is open. Frederico Gomes: Hi, good morning. Congrats on the outstanding quarter here. Thanks for taking the questions. First question on The Netherlands, very strong performance. And I adjusted EBITDA there. So I guess just two questions there. One is, gross margin declined a bit sequentially. So could you talk about what drove that decline if related to mix or investments or something else? And then second question on The Netherlands as well. Know, I know that you have a 30 to 40% gross margin target for Canadian cannabis, but I'm curious about if you have the same sort of target for The Netherlands long term. Thanks. Michael DeGiglio: Hi, Frederico. Yeah. We absolutely have the same goals on the gross margin long term for The Netherlands. You know, it's a start-up. We just started producing in the end of the first, second quarter. So when you really look at some of the competitors and taking years, if not decades, to ramp up their business, I think we've done pretty well within the first year. It hasn't even been a year of cultivation. So you'll definitely see some lumpiness as we get stable going forward. So I think that shouldn't reflect that we're coming off on gross in any given quarter over the long term. Thank you. And then second question on Germany. Frederico Gomes: You mentioned you gained market share sequentially there in each of the past four quarters. So could you provide maybe a number in terms of where you think your market share is right now and whether you think that market share momentum is gonna continue in terms of gaining share sequentially over the next few quarters? Michael DeGiglio: Well, you know, I'm never gonna first of all, we're not putting out what we think the market share is, but I wouldn't be surprised if we're number one in whatever that market share number is. And the reason I don't want to comment is because there really are no clear statistics as of yet. So I would be just surmising it at this point. But I believe we're by far the number one market share in Germany, and I think for the reasons I mentioned earlier and in my remarks, to answer Aaron's question as well. I think that we took an approach, you know, in let's control what we can control. And that's where we believe we differentiate ourselves. We didn't look at Portugal. We thought Portugal was a risk and a liability both in supply chain, regulatory side. So we just built our business, for Europe based on our own production, our own people direct to our customers. And I think, you know, that seems to be a winning formula at this point in time. And I believe the German market is going to continue to grow as well going forward. Frederico Gomes: Thank you very much. Operator: One moment for our next question. And that will come from the line of Pablo Zuanic with Zuanic and Associates. Your line is now open. Pablo Zuanic: Thank you, and good morning, everyone. Look. My question is really a three-part question on Texas. I mean, obviously, in my interpretation, the regulatory changes in the medical program there are quite favorable. Especially for the three incumbents. There. Right? There may be 15 more licenses issued, there will be a bit of a lag, a time lag. Those new licenses, not even clear when they will be issued. So I just want to have a sense of how aggressive is Village Farms International willing to be in Texas in terms of M&A activity? And what could that mean for your Nasdaq listing? How would you think about that? Because when we look at, you know, Canopy Growth or SNDL, it seems that other companies have not been willing to give up their Nasdaq listing. But, I mean, what can you say publicly on this topic? Thank you. Michael DeGiglio: Well, good morning, Pablo. I'm gonna first let Stephen answer a couple of the first points on Texas. And then we could kinda come back to some others. So regarding the Republic Of Texas, Stephen, comments? Stephen Ruffini: Yeah. We're certainly anticipating, and excited and understand that the Department of Public Safety is still online to issue its licenses on December 1. So we should hopefully know something. But that would be twelve additional. Not this. Yeah. Twelve additional. So we'll see if they keep on their timeline. We've heard nothing to the contrary of that. Texas has improved its medicinal definition and expanded the illnesses that can access the system. That being said, it's not quite as open as something like Florida, but we are certainly excited about the opportunity. Michael DeGiglio: Yeah. And I think regarding Nasdaq, we feel very that we can find a suitable structure going forward. We've been working on that for a couple of years. So, when and if we'd probably move forward, but we're not gonna jeopardize at any time on that Nasdaq listing problem. Pablo Zuanic: Okay. No. That's good. Thank you. Understood. And then the second question, just regarding Quebec, the province of Quebec, I think you've said in the past, it's about 40% of your revenues. I don't know if it's 40% of your Canadian domestic earnings on the cannabis side. But, you know, there's been some regulatory changes there. Vape is allowed now. I think there were other regulatory changes on caps. Maybe more stores. You know, what's your outlook for Quebec province? And how are you positioned to benefit? If you can correct me if I'm wrong in terms of the relevance of Quebec to your business on the recreational side. Thank you. Ann Gillin Lefever: Pablo, good morning. It's Ann. Quebec is very important, but your number is on the high side. It's not 40% of total cannabis. We've traditionally been a little bit higher than the spread of revenue across provinces, just to give you some sense of that. There are some changes coming. Vape is one of the big changes. I think the SQDC has done a great job of assessing where they're not able to grab the listed or the legacy market share, and this is going to be a big form factor to move into the private market or to, sorry, the legal market. And we are participating in that as we go forward. Pablo Zuanic: Right. Thank you. Look. I'm gonna ask I'll start one. I know it's only two, but let me break the rule this one time. On the Dutch side, I know that there's 10 licensees on the production side, but it seems that not all of them are up and running. Some of them have had problems. It seems that you are one of the few that's expanding capacity. In this case, was five times. So like you're in a very good position. Right? And there are other people that maybe started first are in a weaker position now. Do you want to comment on the competitive landscape on the production side in Holland right now? Michael DeGiglio: Sure. Well, I think eight are in production. Two more will be coming on in the next quarter or so. I think of the ten, one will probably be more of a light asset model. There are issues with others, quite a few that I've heard of. But that can always be an opportunity for us. But we're very focused on getting, as I said, this next facility will increase our capacity fivefold. So our focus is getting it up and running. Crawl, walk, run. And then we'll see what opportunities lie ahead. We're very excited about those opportunities in the future in The Netherlands for us. As well, Pablo. Pablo Zuanic: Okay. Alright. Thank you. Thank you. Operator: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. DeGiglio for any closing remarks. Michael DeGiglio: Thank you. Okay. Thank you again for joining us today, and we hope you have a wonderful holiday season. We look forward to our next update for year-end in March. And wishing everybody a happy New Year as well. Thank you, operator. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day. And welcome to the CEVA, Inc. Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I'd now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence and Investor Relations. Please go ahead, sir. Richard Kingston: Thank you, Rocco. Good morning, everyone. And welcome to CEVA's third quarter 2025 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties as well as assumptions that materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include regarding our market position and industry trends, including with respect to embedding of AI across customer product lines and customer licensing of NPUs for AI interfacing. Statements regarding demand for and benefits of our technologies, expectations regarding revenues including higher royalty potential for AI agreements, and our financial goals and guidance regarding future performance. CEVA assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. We will also be discussing certain non-GAAP financial measures which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our Investor Relations website at investors.cevaip.com. With that said, I'd like to turn the call over to Amir who will review our business performance for the quarter and provide some insight into our ongoing business. Amir? Amir Panush: Thank you, Richard, and good morning, everyone. We are pleased to report that the third quarter exceeded our expectations on both revenue and non-GAAP EPS. With revenue of $28.4 million and non-GAAP EPS of $0.11. In licensing, we secured several strategic agreements that reinforce our market-leading position in wireless connectivity and accelerate our expansion in AI. This quarter was marked by strong execution across our core pillars: Connect, Sense, and Infer. And highlights the breadth and strength of our IP solution portfolio. The most significant win this quarter was in AI, where Microchip, one of the world's leading microcontroller and connectivity providers, and whose products power billions of devices across industrial, consumer, automotive, and other end markets, adapted our full NPO NPU portfolio for its future roadmap. This win is a strong proof point of the broader industry trend. Major MCUs and semiconductor vendors are embedding AI capabilities across their product lines, bringing more on-device intelligence for performance, user experience, privacy, and cost. Selecting CEVA gives Microchip a complete portfolio of edge AI inference solutions, from ultra-low power inference for MCUs to high-performance AI in advanced systems, all under a unified software stack. This flexibility allows them to standardize AI deployments across industrial, automotive, consumer, communications, and compute markets without compromising on power or costs. Let me take a moment to talk about the role of NPUs in the broader AI ecosystem. NPUs, at the end of the day, are optimized compute engines for AI inference. Just as CPUs orchestrate system control and GPUs accelerate graphics, companies rarely reinvent CPUs or GPUs. They license proven processor IP and focus on system integration and software differentiation. We believe NPUs will follow the same path. Licensing a proven and scalable NPU architecture delivers the performance and scalability customers need while freeing resources to focus on software-optimized models and application-specific experiences. CEVA is uniquely positioned to lead this transition. We have a full range NPO portfolio, a unified software framework, and tools, and a strong partner ecosystem. This enables customers to focus on differentiated models and experiences while we provide the scalable, proven technology foundation. Our recent new point engagement with a leading MCU vendor is a powerful validation of this approach. Beyond the new portfolio win, we signed three AI DSP agreements that broaden our reach across consumer electronics and automotive. First, a leading global electronics brand is integrating our AI DSP into its next-generation edge SoC family for home appliances, enabling vision, voice, and contextual awareness in connected devices. Second, a high-profile automotive customer expanded its use of Silva AI DSPs and accelerators for centralized compute platforms now entering production. And a new engagement with an innovative ADAS chiplet architecture company is strengthening our position in automotive. AI processor licensing is now a very meaningful and growing part of our business, contributing roughly one-third of the licensing revenue in both the second and third quarters. The first time AI has had such a significant impact on our licensing mix. In addition, these AI agreements typically carry a higher royalty potential than our traditional licensing business, further enhancing long-term value. Moving now on to wireless connectivity, which represents a core pillar of our growth strategy and a powerful cross-sell engine into AI. We had another impactful quarter. We delivered wins in both established standards, like Wi-Fi 6 and Bluetooth 5, and next-generation standards. This quarter, a long-term customer licensed our latest Wi-Fi 7 and Bluetooth high data throughput IP for upcoming roadmaps. These standards offer higher throughput, lower latency, and improved power efficiency, which are essential for advanced audio wearables, robotics, and broader physical AI use cases. These transitions are not one-off wins. They cement multiyear royalty ramps, as customers build on power generation and continue forward with CEVA Technologies as core enablers of connectivity and AI. By consistently delivering end-to-end, multi-standard connectivity solutions, together with advanced sensing and AI IP, we provide a unified foundation for intelligent, connected devices. This positions us as the de facto partner for next-generation connectivity and strengthens our leadership as AI and sensing adoption expands across markets. Now turning into royalties. We delivered solid growth across most of our markets, with royalties up 6% year over year and 16% sequentially. Consumer IoT was a key driver, posting 9% year-over-year growth supported by record shipments in cellular IoT and Wi-Fi. Our 5G SWAN infrastructure customers also had a strong quarter, with revenues up 91% compared to last year. In automotive, two large semiconductor customers continued to ramp up volume shipments for ADAS solutions based on our AI DSP, contributing to overall royalty growth in the quarter and beyond. Mobile royalties grew 4% year over year and 7% sequentially, driven by recovering low-end smartphone segments. At the high end, our U.S. OEM customers launched a second smartphone model featuring its in-house 5G modem with CEVA technology. And as this model expands into more markets in the fourth quarter, we expect further royalty growth. In summary, this quarter's AI-led licensing momentum and continued progress in wireless connectivity highlight the breadth and scalability of our IP across Sense, Connect, and Infer. These wins strengthen our pipeline, increase visibility into future revenue streams, and reinforce CEVA's role as a foundational technology provider for intelligent, connected, and increasingly physical AI devices. Now I will hand the call over to Yaniv for the financials. Yaniv Arieli: Good morning. Thank you, Amir. I'll now start by reviewing the results of our operations for 2025. Revenue for the third quarter was $28.4 million, up 4% compared to $27.2 million for the same quarter last year, and up 11% sequentially. The revenue breakdown is as follows: licensing and related revenue totaled $16 million, representing 56% of our total revenue for the quarter. This reflects a 3% year-over-year increase and a 7% sequential increase. Licensing revenue for 2025 reached $46.1 million, a 4% increase compared to $44.3 million for the same period of 2024. As Amir noted, this growth primarily represents strong traction in AI, following multiple significant design wins for NPUs and AI DSPs. AI processor licensing contributed roughly a third of the licensing revenue in both the second and third quarters, demonstrating solid momentum and strategic progress. These were our core, the importance of our Neuprol MPU portfolio and AI DSP offerings as key growth drivers going forward. Royalty revenue for the third quarter was $12.4 million, reflecting 44% of total revenue, a 16% sequential increase, and a 6% increase year over year. Consumer IoT is a key driver. It posted 9% year-over-year growth, supported by record shipments in cellular IoT and Wi-Fi. Gross margin came slightly better than our guidance, at 88% on a GAAP basis and 89% on a non-GAAP basis, compared to 85% and 87% respectively a year ago. Total operating expenses for the third quarter were $27.1 million, at the higher end of our guidance. Our total non-GAAP operating expenses for the third quarter, excluding equity-based compensation expenses, amortization of intangibles, and related acquisition costs, were $22.1 million, at the higher end of our guidance as well, mainly due to higher employee benefit provisions associated with better financial results. Non-GAAP operating margins and net income improved significantly over 2025, reaching 11% of revenue, and $3.1 million, also higher than any percent and $2.1 million recorded in the third quarter of last year. GAAP operating loss for the third quarter was $2.1 million, as compared to a GAAP operating loss of $2.6 million for the same period in 2024. GAAP and non-GAAP taxes were $1.7 million, just below our guidance. GAAP net loss for 2025 was $2.5 million. The EBIT loss per share was $0.10, as compared to a net loss of $1.3 million and a net loss per share of $0.06 for the same period last year. Our net GAAP income, non-GAAP net income, and diluted income per share for 2025 was $2.7 million and 11%, respectively, representing $0.01 over Street estimates. In the same period last year, net income was $3.4 million and diluted income per share was $0.14. With respect to other related data, shipped units by CEVA licensees during 2025 were 559 million units, up 19% sequentially and 11% up year over year. Of these, 69 million units, or 12%, were mobile handset builders. A record 510 million units were for IoT, up 13% year over year, with consumer IoT reaching 500 million units and industrial IoT totaling 10 million units. Bluetooth shipments were 303 million units in the quarter, down 1% from 306 million in 2024. Cellular IoT shipments were an all-time record high at 69 million units, up 41% year over year. Wi-Fi shipments also reached an all-time high of 82 million units, up 73% from 47 million units a year ago. Wi-Fi 6 shipments also set a new record, up 194% year over year, as customers continue to ramp up the cloud. Our wireless IP portfolio, which includes Bluetooth, Wi-Fi, UWB, and cellular IoT, achieved its strongest royalty revenue quarter on record. These shipments and royalty trends reinforce the adoption of next-generation connectivity standards, which serve as the foundation for AI-embedded devices and position CEVA for multiyear growth. As for the balance sheet items, as of September 30, 2025, CEVA's cash, cash equivalent balances, marketable securities, and bank deposits were approximately $152 million. In the third quarter, we repurchased about 40,000 shares for approximately $1 million. In all of 2025, we purchased approximately 340,000 shares for approximately $7.2 million. As of today, around 684,000 shares are available for repurchase under the repurchase program, which was extended in November. Our DSOs for the third quarter of this year were 47 days, a bit higher than the last quarter, but in line with our norms in prior quarters. During the third quarter, we used $5.9 million of cash from operating activities. Ongoing depreciation and amortization was $1.2 million, and the purchase of fixed assets was $400,000. At the end of the third quarter, our headcount was 434 people, of whom 353 are engineers. Now for the guidance. Our licensing business remains strong, supported by a robust pipeline and deal flow across our three core pillars: Connect, Sense, and Infer. We delivered six consecutive quarters with licensing revenue above $15 million, underscoring consistent execution. Royalty revenue typically strengthens in any given second half, and the third quarter reflects this trend with 16% sequential growth and 6% year-over-year growth. Looking ahead, we expect continued seasonal momentum in the fourth quarter, driven by share gains at a U.S. OEM smartphone customer using our technology in its in-house 5G modem and by strong ramps in Wi-Fi and cellular IoT. We are maintaining our full-year revenue guidance as previously discussed and aligned with Street estimates for the year. As for the fourth quarter, total revenue is expected to be in the range of $29 million to $33 million. Gross margin is expected to remain high and with the same level of Q3, approximately 88% on a GAAP basis and 89% on a non-GAAP basis, excluding a grade of $200,000 for equity-based compensation expenses, and $100,000 of amortization of acquired intangibles. GAAP OpEx is expected to be higher than the third quarter, in the range of $27 million to $28 million, and our anticipated total operating expenses for the third quarter, $4.7 million, is expected to be attributable to equity-based compensation expenses, $200,000 for amortization of acquired intangibles, and $100,000 for expenses related to a business acquisition. Non-GAAP OpEx is also expected to be higher than the third quarter, in the range of $22 million to $23 million. Net interest income is expected to be approximately $1.5 million. Taxes for the third quarter are expected to be approximately $1.8 million, and the share count in the third quarter is expected to be approximately 25.8 million shares. Rocco, we can now open the Q&A session, please. Operator: Yes, sir. Please press star then 1 on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from the queue, please press star then 2. Once again, that's star then 1 if you have a question. First question comes from Chris Reimer with Barclays. Please go ahead. Chris Reimer: Congratulations on the strong quarter. Looking at shipments, you mentioned the strong momentum with the smartphone customer that was driving the royalties. I was wondering if you could describe any of the other segments and how they're doing, if there might be any other ramp-ups coming to market in the near term. Amir Panush: Yes, Chris. This is Amir. Thanks for the question. Definitely, we see growth momentum in terms of our royalty, both in terms of seasonality and overall. Coming from basically multiple different opportunities. One, of course, is the mobile that we mentioned, with the large U.S. OEM. The other things from a seasonality point of view in mobile, the low-tier customers that we have in mobile, we expect them to continue basically the sequential growth as we go through the year. And the other things that we mentioned, and now we see more and more that happening, is basically the Wi-Fi shipment volume growth and the transition from Wi-Fi 4, 5 to the more latest standard Wi-Fi 6, which on its own also basically goes with higher ASP per unit. And with that, will drive higher royalty overall. In addition to that, we see the cellular IoT keeps going very nicely. And we had another record high this quarter, like the Wi-Fi shipments. And the last piece that we mentioned is things related to automotive ADAS systems. We have now two customers that started to ramp in volume production, and we expect that to continue to grow in Q4 and through the next few years as well. And additionally, in V2X, we had a customer that got acquired by Qualcomm, and this is also going and ramping right now. And we expect that to continue to drive additional royalty growth. So all in all, from significant Wi-Fi growth, server IoT, getting more market share in mobile, and doing better in automotive, all these will drive royalty growth as we move forward. Chris Reimer: Thanks. Yes, that's great color. Just touching on the Microchip partnership and in addition, with the other NPU deals that you're making, is there any change in the timeline to development and getting products into the market, and is there any change in the types of products? Just wondering about any color there. Amir Panush: Sure. Thanks, Chris. So first, we are super excited about this opportunity, where Microchip decided to license our complete portfolio of NPUs all the way from the lower power performance type of MCU needs all the way to more high-end type of inference needs in infrastructure and data centers. So this is a really great opportunity to collaborate with a great company like Microchip. And in terms of the time to market, it's similar to most other technology that we see, which is typically between eight and twenty-four months from the time that we start the design until we basically go to production and start the ramp-up. So overall, I would say this is not different that much from many of the other design wins that we have had. Chris Reimer: Got it. Got it. Thanks for that. That's it for me. I'll jump back. Thank you, Chris. Operator: Thank you. Our next question comes from Madison DePaulo with Rosenblatt Securities. Please go ahead. Madison DePaulo: Hi. This is Madison calling on behalf of Kevin Cassidy. I was just wondering when can we expect to see the Microchip MPU shipments hit CEVA's royalty revenue? And what is the time frame of the license? Yaniv Arieli: Yeah. You know, a typical license agreement is a few years, and then usually a customer comes and licenses the next generation or different enhancements and new features that we come up and develop over the years. That's our normal life cycle of the licensing deal. And one thing I think Amir mentioned is that we don't see the NPU or AI business line having any significant differences versus the other IoT and connected devices. Usually, the design cycle of the chip runs anywhere between one to two years. And then productization and ramp-up, so anywhere between two years to three years, you usually find and see the royalty stream, especially for a big and successful company, that's the norm that we have seen in recent years. So we don't think AI is any different than the other IP that we license. Maybe one more comment I will add. This is Amir. First, in terms of the deal itself, this is a multiyear deal. So this is really to provide direct access to our technology, to Microchip, to eliminate the cost on the product line. And we are very excited about that. But also, definitely, AI is a market where technology in terms of new innovation and new needs is coming very quickly. So we do expect, especially in the AI domain, that the cycle of innovation and speed towards innovation will drive renewal of those deals with additional capabilities to come on a good regular basis of every year or two. So definitely, there is more opportunity to keep upselling the technology as we drive more development. Madison DePaulo: Okay. Thank you. Operator: Sure. Thank you. Our next question comes from Martin Yang at Oppenheimer. Please go ahead. Martin Yang: Hi, thank you for taking my question. Can you maybe go into more details on which Microchip product family or verticals will be prioritized initially? Is it industrial, automotive, any other data centers? And how do you think about the attractiveness of those end markets respectively based on when or which goes to market first? Amir Panush: Yes. So Martin, thanks. Great question. Again, just to clarify, in terms of the deal itself, this is to provide full access for all the different ranges of needs of MPUs to all the different markets that Microchip has business in. In terms of which will come first, we can't really go into the business of what our customer is planning to do. But it will definitely be on the so-called full spectrum of that range. So we do expect to have multiple programs where some of them are more, I would call it, the embedded MCU product line. And some of them are more towards the infrastructure and the data center type of solution. Martin Yang: Thank you, Amir. One more question. How do you think about the prospect of getting Neural Pro integrated with your connectivity IPs? Is there a strong interest by customers for both of those? And if so, how far along with productization and mass production? Amir Panush: Yes. That's a great question. First, with this specific customer, for example, yes, we have in the past licensed connectivity and are very likely to continue licensing additional connectivity technology as we move forward. So we definitely see a good synergy of the ability to license both connectivity technology and NPU technology. And definitely, as we go towards more embedded systems, that's where the integration of the two technologies makes lots of sense and provides additional time-to-market advantage, cost, and power efficiency of the solution. And those are the things that we typically really master very well and can enable our customers to compete very successfully in the marketplace. And so that combination will play to our strengths as we keep moving forward. In the previous quarter, we talked about several deals of NPU coming together with connectivity. And that trend will continue. So we are very, very encouraged with what we have seen so far, really building on the wireless connectivity leadership. And then on top of that, we are now driving very good success in terms of design wins and accessing the markets with our AI solution. Operator: Thanks, Martin. And our next question comes from David O'Connor at BNP Paribas. Please go ahead. David O'Connor: Great, good morning, thanks so much for letting me ask a question. Maybe, Amir, just firstly on again, to go back to the Microchip deal. But if you could give us just a bit more color around what the competitive landscape looks like for you to kind of secure that win? Was it mainly internal IP that you were competing against? Is there a lot of kind of anything you can share around what led to that and why exactly now? I mean, you proved sales you guys have been developing for some time. Why exactly now this Microchip licensed new probe? And also maybe as a follow-on, can you talk as well around the sustainability of that kind of AI looking forward? So when you look in the pipeline, how does that look? Is there other potential microchips? Any kind of color you can share on that should be helpful. Thank you. Amir Panush: Yes. Thanks a lot, David. So really like three different questions. I'll try to address each of them. So first, from a competitive landscape, this is also what I mentioned in the prepared remarks. Related specifically to NPU. NPU, we believe, like other processors, whether it's a CPU or a DSP or GPU, we believe that the majority of the companies out there are not going to build on their own or make on their own. And they will go and license this technology. So we believe there is a great opening and opportunity ahead of us to license NPU technology. And the same, again, they apply to the customer, which we competed with other potential IP vendors rather than the mix versus pie. And we believe, again, that's a great opportunity for us. And the reason that we have won in account and how why now we are seeing the momentum, which is honestly, it's not just now. It's for the last two quarters in bigger numbers, for the last four quarters, we're really starting gaining the momentum. It's because we are delivering three major ingredients that each of them is quite unique to us, and all of them is extremely unique of what we can offer. One is now a complete portfolio of NPUs starting again from the low end to the higher end of the spectrum for inference use cases. So again, portfolio play. Second is a combined software stack that can support all the different hardware configurations underneath and one that can quite easily get integrated by our customers into their own software stack. So again, very advanced software stack. It supports all our combined portfolio. And the last piece is that within each of those different configurations, we believe that we have one of the best, if not the best, optimization in terms of the architecture and technologies we can offer, of the trade-off between power, cost, size, and performance. So again, extremely competitive offering on each ingredient on its own, on top of the portfolio and then the software stack that comes on top of it. And we believe all those three ingredients coming together provide us a very good competitive advantage in the marketplace. The last piece about sustainability of the business. At the end of the day, when we look at the pipeline ahead of us, it aligns quite nicely with the momentum that we have generated the last two quarters. So a significant portion of the pipeline comes from our NPU product line, that, as you mentioned, we have invested in that for the last few years, and now we've really seen that's materializing nicely. So I cannot say that on a quarterly basis, that's exactly going to be the revenue recognition. And things can vary on a quarterly basis. But as a long-term trajectory, our pipeline definitely supports this level of revenue. And potentially even above it. David O'Connor: Very helpful. That's great color. And maybe just following on from that one for Yaniv on the OpEx side of things. Given the kind of interest and acceleration you're seeing on the new Pro AI side of things, can you just speak to the OpEx? That in the base? Or can we expect maybe a step up in OpEx required there to support that growth that you're seeing? Anything around the OpEx related to new products? Yaniv Arieli: Yes. Sure, David. Two things on that. One, definitely, as you have seen for the last few years, we definitely manage very carefully expenses. And we would like to drive continued momentum on the bottom line. Having said that, definitely we see an opportunity ahead of us both actually on keep expanding our wireless connectivity leadership as well as on the AI that now we really have the proof points and the success in the marketplace. So when I take these two points into consideration, definitely, we look at how we can invest and add the capabilities to drive revenue growth. All while at the end of the day stay quite disciplined. So how we invest our money. So for Q4, we gave the specific guidance. We wouldn't see big changes in the OpEx and in R&D investments. Going forward, we need to do our planning and discussions probably we'll do it later or early next year. About 2026 investments and how we see the opportunities and the potential ROI in this specific very, very exciting market. And it seems that we have managed to penetrate into and in some sense, there are signs of some very, very interesting and lucrative deals. Amir Panush: Yes. And overall, David, I would just conclude, we're really excited about the momentum that we are seeing right now. And the competitiveness of our technology. Again, both on AI and overall the wireless connectivity leadership with the volume keeps going up. Quarter over quarter. David O'Connor: Great color. Thanks so much, guys. Operator: Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to Amir Panush for any closing remarks. Amir Panush: Hello? Hello? Amir? I'd like to turn the call over to Amir Panush. Please go ahead. Richard Kingston: That's fine. I'll take it here. Thanks very much, Rocco. On behalf of the CEVA team, thank you for joining us today. With AI now contributing over one-third of licensing revenue, and connectivity shipments hitting record highs, we are well-positioned for sustainable growth and expanding our role as a foundational technology provider for intelligent connected devices. We look forward to meeting many of you during the third quarter at investor conferences. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8-Ks and accessible through the Investors section of our website. With regard to upcoming conferences, we will be participating in the following conferences: the 14th Annual ROTH Technology Conference on November 19, in New York, the UBS Global Technology and AI Conference on December 2 in Scottsdale, Arizona, and the Northland Growth Conference on December 16 being held virtually. Further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Selena Chong: Good morning, everyone, and welcome to our First Half FY '26 Results Briefing. Today, we are pleased to have with us our Group CEO, Mark Chong; CFO, Isaac Mah; and COO, Neo Su Yin. So this session will be webcast live and recorded. So without further ado, let me hand over to Mark Chong. Chin Chong: Yes. Thanks, Selena. Actually, before we jump in, could we -- could I know who is online? Selena Chong: It is audience, participants of the webcast. [Operator Instructions] Chin Chong: So thank you, everyone for coming to our results announcement for H1 of FY '26. My name is Mark Chong. I'm 10 days old on the job, I think there may be a fair bit of interest on how we are going to take the company forward, our strategy. I really would like to share those with you when we are ready. But being only 10 days on the job, I'm afraid there's not much I can talk about on the future plans. Today, we are really talking about the results announcement. So that's going to be the focus of this section. And you know that SingPost has divested some assets overseas. We have folded the international division into the domestic ops. We are now a single entity. We have dropped the group -- the word group from our titles. We are just as we are. So the immediate order of business for us right now is to ensure that our business, our core business run well. Our customers are well served. So we are looking at for the immediate-term operational efficiency, widening our network to serve our customers and keep the core business running well. Through our recent divestments, we, of course, received the proceeds. We have paid out a special dividend. We have paid down debt, a chunk of debt, and we'll keep the rest for our working capital, et cetera. So we will continue to maintain a disciplined capital management approach [Technical Difficulty] and therefore [Technical Difficulty]. So those are the immediate priorities. For the results, I will now hand over to Isaac to take us through. Thank you. Isaac Mah: Thank you, Mark, and good morning. As Mark conveyed, our focus is on a stable and sustainable future, underpinned by a strong financial position. And this first half really has been defined by actions that reflect that commitment. We completed a major organizational realignment following the sale of the Australian business. This was an important step to ensure that our corporate structure is rightsized, optimized for the remaining side of the business. This included removing overlapping corporate support functions, integrating the cross-border operations into the Postal and Logistics business in Singapore and further streamlining activities. Along with that, we have concluded several transactions. This includes the unwinding of the cross-holdings with Alibaba, leading to the divestment of 4PX and the cessation of the joint venture Quantium Solutions. Various Quantium Solutions subsidiaries have also since been divested, and we have also completed the sale of the freight forwarding business, Famous Holdings. The combined result of these actions is a stronger balance sheet, providing the financial flexibility and foundation for future growth. Next slide, please. Now our operational developments over the first half are centered on 2 areas that enhance our capacity, efficiency and reach. First, on the capacity front, the SGD 30 million investment to expand parcel sorting capacity at the e-commerce logistics hub in Tampines is on track and expected to be fully operational by mid-2026. E-commerce remains a growth driver for the logistics business. As such, we are tripling our capacity to address demand, efficiency and service quality, which in turn will enable us to scale up this business segment efficiently. On the network front, we expanded our reach across the island through strategic collaborations and partnerships to offer customers maximum convenience and choice. This includes partnerships with Pick Lockers, Cheers and FairPrice Xpress outlets. We have also been deploying 24/7 POPDrop kiosks that provide a one-stop service to customers. Our post office also serves as partnership touch points with DHL and FedEx. We have also started a trial for the posting and return of mail directly at the Letterbox nests of several HDB housing blocks. If successful, this may be rolled out island-wide, which will enhance customer convenience. These investments in capacity and network are key, not just to make the business more efficient, but also to solidify our competitive position and serve customers even more effectively. Now on to the financials. As we move from the second half of the last financial year into a review period, cost discipline was key. This has enabled the company to reverse from a SGD 0.5 million loss in the preceding 6 months to an underlying net profit of SGD 5.5 million this half. The operational discipline, costs have come down, reflecting 2 key drivers: one, organizational streamlining and cost management efforts; and two, the reduction in expenses in tender with lower volumes and revenue. The recent divestments have led to exceptional gains on disposal of about SGD 9 million. There is also a fair value gain on SingPost Center of SGD 5.5 million in exceptional items. As a result, profit from continuing operations was higher at SGD 20.6 million. In comparison, discontinued operations incurred a SGD 2.2 million loss this half compared to a SGD 21 million profit in the prior period when the divested Australian business was still included. Put together, net profit was 17% lower year-on-year. Excluding these exceptional gains, the underlying net profit or UNP was SGD 5.5 million, lower year-on-year, but as mentioned, better than the loss in the second half of last year. The lower UNP year-on-year is attributable to 2 main factors: the loss of profit contributions from the Australian business, which previously bolstered our results, the softer performance in the cross-border business, which I'll cover next in the segments. Now with the change in SingPost profile, we have revised the business segments to Logistics and Letters, Post Office Network and Property Assets. This change was from Australia, International and Singapore. Logistics and Letters, which now cover the delivery business, both domestically and internationally as well as other services is our largest segment by revenues. Post Office Network comprises agency services, product sales and rental of space and the post office. Property Assets refer to rental and related contributions from properties, the largest contributor being SingPost Center. Now moving into a segment-by-segment review. Logistics and Letters faced a challenging operating environment, which resulted in lower revenues of SGD 153.5 million and an operating loss of SGD 4.4 million. Letter mail volume continued its structural decline, a trend that we have been managing for some time. Volume of domestic e-commerce deliveries softened about 3% over the period. In contrast, cross-border e-commerce volume fell by 63% year-on-year, a reflection of the difficult market conditions in that space. This was part of a much larger global trend, which has seen significant volatility, particularly with the U.S. tariff situation. We have taken actions to streamline the cross-border operations and also implement cost management measures to align with the reduced business activity. Along with the drop in volume-related expenses, the segment operating costs have fallen about 27% year-on-year. Now moving on to the Post Office Network. In the Post Office Network, the decline in revenues was mainly due to lower agency services revenue. This was partly cushioned by higher rental income from leasing within the Post Office Network properties. Our efforts to control costs and optimize the network yielded results. Costs were reduced by 13%, which lowered the operating loss from SGD 6.7 million to SGD 5.8 million. Property Assets. Property Assets comprises property rental and related activities and mainly at SingPost Center. The segment continues to provide consistent revenue streams. With a focus on maintaining high tenancy levels, we saw improved revenue performance driven by rental growth at SingPost Center. Overall occupancy rate was 99.2%. Operating profit was lower, primarily due to higher expenses like property management service costs and property tax. Now on to the balance sheet. There are a couple of points I would like to highlight. One, the balance sheet movements are largely the effect of the consolidation of subsidiaries that were divested. Two, with the divestments this year, including the Australian business, our financial position has been strengthened by proceeds from disposals. The company's cash position is SGD 594.1 million. This provides us with financial flexibility, enabling the funding of operation investments as well as future requirements. To complete the financial picture, let me highlight some points on cash flow. Cash flows generated before working capital was lower compared to the prior period. This was expected primarily due to the absence of contributions from divested subsidiaries. The negative operating cash flow after working capital changes was driven mainly by higher settlement of payables. Investing cash flows was largely due to proceeds from disposals, reflecting the realization of value from these noncore assets. Financing cash flows was primarily -- financing cash outflows was primarily due to the special dividend payout to shareholders in August with respect to the sale of the Australian business. Now lastly, I'm glad to share that the Board has declared an interim dividend of SGD 0.08 per share, which represents 30% of the UNP for the first half. That concludes my presentation. Our disciplined approach has positioned us well for the road ahead. With that, I will hand over to Selena to move on to the Q&A session. Thank you. Selena Chong: So, Mark, Isaac [Technical Difficulty]. Chin Chong: Yes. Why don't we start. Selena Chong: If anyone has any questions to [Technical Difficulty], can identify yourself for the benefit of audience of the webcast. Unknown Analyst: [Technical Difficulty] Just 2 questions from us. First is how should we think about [Technical Difficulty]. Second question is could you give more color about segment of [Technical Difficulty] for cross-border customers and also what is your outlook for the segment and [Technical Difficulty]. Isaac Mah: So first off, we don't typically comment on [Technical Difficulty]. I think what you've seen in our presentation is that we have actually executed very well on several cost control initiatives. We will continue to see the efforts of this in our numbers. Going forward, we believe that there continues to be good opportunities in the Letters and Logistics space, and we'll continue to build on our network as well as our service levels, which would then ensure the right for us to play in this region. Su Yin, anything you want to add to that? Su Yin Neo: Yes. I think as you know, with the geopolitical situation as well as [Technical Difficulty] structurally being a lot inner in order for us to then take the strategic review [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So the structural decline of the Post Office Network also the volumes, how do you actually stop that because this is a structural problem. So is there any plan for any [Technical Difficulty] what are the key plans to stop this structural decline because this has been happening over the last 10 years, actually it is still in decline. So how do you encourage people to use more [Technical Difficulty] structural decline. I think you have seen that this is not possible [Technical Difficulty]. Chin Chong: I think the decline of postal post structurally that cannot be [Technical Difficulty]. So we will follow its course and all that. But I think what was good that [Technical Difficulty] was the arrival of e-commerce, the growth of e-commerce. So parcels came along, and I think SingPost played quite hard on the post side. And what we have to do going forward is to make ourselves competitive. So I think what we have as advantages are, of course, we still have the postman who cover all the blocks and all the letterbox nest. So we will leverage on that better quality of service in terms of touch points, et cetera. And I think you note our investments in SGD 30 million in the sorting new, the Tampines hub also to lower our cost to serve, right, and provide higher CapEx. I think the decline in the cross-border volumes, obviously, we have to [Technical Difficulty]. Unknown Analyst: So for your SGD 30 million investment, right, decrease of cost, right. So what's the -- how much cost you decrease? So for example, your average -- no, no, I think you decrease your overall cost. The SGD 30 million investment you have to decrease your overall cost per package [Technical Difficulty] reduce the cost. So how much cost will actually decrease. So for example, let's say package previously cost will be x amount to deliver. So this SGD 30 million based on the same volume of the decrease percentage. Su Yin Neo: Well, it is very specific to the processing segment of the entire delivery to almost half of the cost [Technical Difficulty]. Currently the cost [Technical Difficulty] a lot of it is manpower cost. As you know, manpower cost continues to increase year-on-year. So that's something that the automation is meant to deliver as an outcome, [ 2 ] vessels to get productivity as well as give us more capacity to offer more cost-effective solutions to our customers. Unknown Analyst: And this reducing cost is including depreciation? Su Yin Neo: Yes. Unknown Analyst: [indiscernible] 2 questions. One on Logistics and Letter, the international part, how much of the decline was actually [Technical Difficulty] supply chain realignment and how much was really a competitive loss assuming the volumes are pretty much bottomed out, let's say, all your postal volumes, this is the worst [Technical Difficulty]. How much more rationalization of postal network is needed [Technical Difficulty]. Su Yin Neo: I think the structural decline of mail is clearly an evolution that has undertaken over the last decade or so. E-mail is coming in, everyone's gone digital now. There is still obviously a proportion of our population that still requires physical letters and centers. So that will continue. The decline will continue to come given that more and more digitalization is ongoing. Government is also pushing direction. Clearly, government has also now taken a position that it's digital first but not digital only. So this will obviously try to buffer that decline somewhat. But that said, I think in relation to the parts of the e-commerce business, which Mark touched on earlier, where we utilized the infrastructure as well as the network that mail to also deliver e-commerce, I think that's where we are, one, our assets a lot harder. But in that case, given change and shift in the volumes that we're doing in the nature of the business as well. We will continue to be looking at how we can evolve the network. We also want to change the way we do deliveries to meet the new and coming demands of our customers. So that will be an ongoing process because while, as you know, the market is very competitive in the last [Technical Difficulty]. We are obviously still as part of the strategic review, reviewing how we can utilize our assets lot differently to get greater yields for revenue, so that's also part of the overall review of our business. Unknown Analyst: So you think there is more upside to the international... Su Yin Neo: I think the international... Unknown Analyst: Is it more like a blip or maybe really the new... Su Yin Neo: So I think if you observe what's happening in the cross-border space, whether it's the big boys, even your DHL, FedEx and all, I mean these are obviously issues now being half empty. This is an issue that is affecting everyone globally in the landscape. I don't think it's unique to SingPost. Where our position will be other thing is we will then look at where is the space that we can play in the cross-border and international business. I think that's also part of the strategy that we want to undertake. Unknown Analyst: And on the postal network... Chin Chong: On the cross-border trade, there's a lot of uncertainty right now. I think we all know. One day, there's tariffs on China and other day, there's no tariff tariffs. So we are also adjusting the government. Unknown Analyst: On the postal network, more rationalization before assuming everything remains... Su Yin Neo: As I mentioned earlier, as we our business the last mile e-com part of the network, we are still rationalizing whether that network is efficient in how we manage it, whether it versus fixed base, cost base, variable cost base. So these are things that we are undertaking. I can't give you an answer right now, but I think what we are trying to do is to meet whatever customers need, evolving needs that our consumers have to make sure that we deliver the best cost-effective for [Technical Difficulty]. Isaac Mah: Maybe just to add on to what Su is saying, I think our press release and we also said now 80% of Singaporeans can reach touch points in 10 minutes. And the network size -- total network size is [Technical Difficulty] [ 2,500 ]. So I think this is a very core part of what we do, and this I think [Technical Difficulty]. Su Yin Neo: I think just to add on to what Issac mentioned, if you look at the network expansion that we've undertaken in the last couple of months, we have not put in any money. It is really leveraging on existing infrastructure, working with partners using their infrastructure to extend the level of [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So what's the current plan in terms of years? I'm asking in terms of years that you can foresee business -- the core business property turning around to rather I would say, decent profit or rather a sizable profit to justify the current market valuation. Isaac Mah: So maybe just focus on what we're sharing the first half. So I think the key message is that last half, there were losses. This half we have turned the corner, right? So significant efforts have put through. There's still work to be done. We are also in the process of the strategy [Technical Difficulty]. Chin Chong: Your question will be answered when we have completed our [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] I understand you're coming. Chin Chong: [Technical Difficulty] I think many people have asked. We thank everybody's patience. As we are doing this strategic review, I think once we are ready, we will be very happy to answer all these questions. Unknown Analyst: Do you have an answer to the clients. Chin Chong: I don't have answer to that, but we are doing [Technical Difficulty]. Unknown Analyst: Just 1 question. So actually, why do you choose to. [Technical Difficulty] I mean Singtel is quite stable and doing very well. Chin Chong: It is a very good question, but since we are on the results announcement and not [Technical Difficulty]. Unknown Analyst: Postal network additional agency services can you... Chin Chong: Sorry. Unknown Analyst: On the postal network to optimize the revenues better, what additional agency services can you? Isaac Mah: Currently, we already provide services to 47 agencies. We are exploring adjacencies or other parties that we can work with. But right now, it's still in the early stages. And I think we would like to wrap it up together with the whole strategy review it's all kind of tied into investments we need to put in to unlock some of these capabilities as well as the wider play around our logistics business. And our core really is the ability that we give every single address for every day and how to leverage on those success factors. Unknown Analyst: So somehow it feels like all questions are lined up to you, strategic review. Chin Chong: The number of touch points we have, the post offices, we are reviewing on the optimal number. I think that will depend on a couple of things. One that we see, the second one can we expand the business model. Maybe we do need to fully own all our post offices. We want to balance touch points' cost. So the cost -- fixed cost maybe reset to other models, maybe the franchise network or something like that. So these are the ideas that we are but we've got nothing to share with you. Unknown Analyst: How much of your post office rationalization is dependent on rentals versus -- I'm trying to see whether the focus is on improving revenues at current network or cost is also a factor you think cost is just too much. Isaac Mah: I think it will be a combination of both in any kind of business, you have to look at what's the opportunity in the market that can grow the top line as well as the cost is involved in. So it's definitely a combination of the 2, not one or the other. Unknown Analyst: In your slide, you see revenue decline from the agency services. There were also higher rental income. Isaac Mah: So maybe -- so if you think from that perspective, the post office segment has not only have income from providing services itself, but some of the post offices no longer occupy the full footprint. So we have actually leased out some of that. So that's in the rental income portion of that segment. However, given our network of post offices is finite, and we won't -- in sense, we won't be renting more space just to lease it out, if that makes sense. So the opportunity -- while there might be opportunities there to continue to grow the rental income network, it will be fairly limited. Unknown Analyst: Any thoughts on trying to do something with regards to collection points, franchise. Su Yin Neo: We already do that. Yes, we already do that. So... Unknown Analyst: [Technical Difficulty]. Su Yin Neo: Yes. Actually, so in the [Technical Difficulty] agents that they operate on, for example, we have mom and pop store, [Technical Difficulty]. So they also collect on our behalf. We realize that I think in our business that drives the way our consumers our further investment into infrastructure is definite not the way to go, which is why as you can see through working with partnerships and all using third party, all kind of third party we are open to explore how our network and keeping costs low such level cost item that... Unknown Analyst: What's the feedback so far, Finding it more efficient, running. Su Yin Neo: Yes. So we obviously have to study profile of where users are. For example, a lot of it is really in our first mile network. So our first mile network is where your sellers are the ones that's using us through the platform to then deliver for us to then pick up items rather than us going to a door to pick up 1 or 2 items, you can drop it off at your convenience at these locations. And given that now we've got 2,500 of them all over the island, working with the likes of Pick, Cheers and all have been very, very helpful in now bringing that convenience down to 10 minutes everywhere. So that's been a great extension of our convenience points. To improve the target audiences, which a lot of it is the upstream customer that we have, which is the sellers really in the success of keeping our cost of the network. Unknown Analyst: Is there anything more can do to optimize it better or most of the benefits are already captured? Su Yin Neo: Well, I think it's a matter of now finding the right partners, how more could you expand that without incurring additional cost --. Chin Chong: I believe we can do more. I mean in a couple of ways, in our own post offices where our margins will be converged. I think if we can find a way to run our own post offices at lower cost, that will improve margins. Of course, in the partner network today, I think awareness is not so great because you also asked the question. So I think we probably can drum up awareness and work out the processes in such a way that our margins. I mean even the network itself, we are working together now. We also can leverage on that to make it more [Technical Difficulty]. If you note some of the moves that I think has undertaken, we are trialing the posting of letters at the post office box, that is [Technical Difficulty], letterbox nest, our asset line. We are the only ones with that access and all those things letters. So letters plus more parcels is one area we will be also looking at and see how we can leverage and squeeze more out of our infrastructure. So we have our own infrastructure, the partner infrastructure. We will see how we can lower cost to serve and maybe get more volumes into [Technical Difficulty]. Unknown Analyst: In the SGD 30 million investment at the parcel sorting center in [Technical Difficulty] at what point can that center completely take over parcel and [Technical Difficulty] Is there a time line. Su Yin Neo: Middle of next year. Unknown Analyst: By next year. Su Yin Neo: Middle of next year. Chin Chong: But it will not fully take over. We will take over [Technical Difficulty]. Su Yin Neo: For parcels, yes. Parcels, yes, but we also -- in this facility, we also got the processing capability for larger parcel is really focused primarily on the small parcels. But as you know, primarily about 70%, 80% of parcels that come across the cross-border domestically are small. So we will generate about 400,000 capacity just from this [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] Su Yin Neo: Cross-border [Technical Difficulty]. Unknown Analyst: And the large ones will be moving... Su Yin Neo: The large one is already at the logistics. Isaac Mah: Currently, there's still -- we still process [Technical Difficulty]. I think his question was when will -- will we ever move. Unknown Analyst: Everything. That facility is quite big. I've seen it. Chin Chong: I think it will not take over everything because we've got the sorting center for mail that is here. There's a certain shelf life to it and there's a certain purpose of extremely digital. I mean the utility of course, if we completely write down that thing it's going to hit our focus. So over time, we will migrate and concentrate more and more so [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So is there any change in stance? Chin Chong: We are reviewing that stance. And once we are ready, we --. Unknown Analyst: Secondly, is there any [Technical Difficulty] I think there's a very good delivery network can deliver [Technical Difficulty]. I think also government something that --. Chin Chong: I'm not sure NTUC [Technical Difficulty] but se we talk to --. Unknown Analyst: [Technical Difficulty] Su Yin Neo: [Technical Difficulty] Unknown Analyst: For your cross-border, which are still profitable or it is very dependent on postal network. Su Yin Neo: Yes. So currently, when we reintegrated the international business, I think we primarily went back to our foundation, which is postal. So the postal network continues to be the most cost effective way of doing deliveries. However, as maybe compared to some service levels are probably not as high as compared to [Technical Difficulty]. So where we are looking for opportunities now is if there are consumers and customers that are not looking for express level delivery, there is a space for us. And it continues to be profitable [Technical Difficulty]. So currently as Isaac alluded to in his presentation, a lot of this is only when we have the volume and the cost. Unknown Analyst: So have you kind of still a large amount non-postal network related cross-border logistics. Su Yin Neo: Currently, not as much as we have focused on what we do best. But that obviously does not stop us from working on partnerships. Like for example, the recent U.S. duty paid solution that we introduced was actually working with a partner and that is on a commercial solution. Unknown Analyst: The SGD 30 million, the new sorting center -- you also mentioned that triples your capacity? Su Yin Neo: Yes, our small package sortation capacity, which is currently now housed here. So once that is ready middle of next year, it actually triples what we can do for small packets. Unknown Analyst: My understanding is the bottleneck still largely at the last. So even if you spend -- I know [Technical Difficulty] I think the capacity does it really move the volumes? Su Yin Neo: I think what we always try and get out of network in -- particularly in the last mile because of density. For us, we are very fortunate because we run a postal network. We actually deliver to every address. But sometimes you open, right? But the moment we can increase density, which means if we can deliver more to a single location, that makes our network a lot more ... Unknown Analyst: And that bottleneck is at the sorting center? Su Yin Neo: Currently now for us, it's actually [Technical Difficulty]. Chin Chong: Probably a change. So sorting center, we increased capacity. Last mile, if you densify, you bring on more parcel... Unknown Analyst: My impression was always the last mile was the bottleneck rather than sorting... Su Yin Neo: For us, increasing the capacity to process is definitely one of the key drivers for improvement of revenue. Unknown Analyst: Just to follow on this, you said that it will help your e-sellers the convenience for the e-sellers. But in this, I presume there will be more critical to capture the inflow rather than the outflow. I mean, correct me I'm wrong or maybe you're referring to the e-sellers that really a large part of postal volumes... Su Yin Neo: Actually, there's 2 components. [Technical Difficulty] coming a lot from China. There's also obviously a lot of domestic sellers. They actually buy from overseas, then we sell here. So essentially the same -- they're all in the same thing. It's just a matter of selling what are coming from. Isaac Mah: I think it's also important to note that they are selling through the post offices. Su Yin Neo: Yes. Isaac Mah: So basically, your convenience for them makes the platform and the platform more [Technical Difficulty]. So it's a virtuous cycle. While it directly benefits the convenience of these small sellers, it's part of the platform strategy. So it's the overall ecosystem. Unknown Analyst: Just last one for me. Your income [Technical Difficulty] but at the same time, your interest expense [Technical Difficulty] net cash. So I was just wondering, will there be -- will you be kind of moving further down. Isaac Mah: So interest expense has actually fallen off quite a bit versus last year. I think previously, we carried even at SingPost group level, we carried about SGD 300 million in debt to Australian business. That has now all since paid down. So it has actually come down a lot versus last year versus if you compare it to our cash holdings, it is actually not that big because the amount of interest earned on the cash is actually higher. So we do still have 2 tranches of bonds outstanding, one, SGD 100 million tranche and another [ SGD 250 million ]. On top of that, there's also the perpetual of [Technical Difficulty]. But if you look at the kind of -- because that is a hybrid, right? So on the kind of the equity accounting available to us, we are seen as a net cash position. Chin Chong: Your question is especially the interest rates come down, [Technical Difficulty] I think some of that. Unknown Analyst: Just a follow on Paul's earlier question talking about densifying the last mile that has to do with the capacity on these orders. Quickly understand. Are you actually having shortfall there a pipeline which is stuck at the sorting center? Or are you thinking that once it triples, then you'll be able to this investment is to address the backlog volume preparing for [Technical Difficulty]. Su Yin Neo: [Technical Difficulty] So what happens now is that during the peak period, the period where there's a lot more volumes, you have to then at the bottom. So in our business, unless you have the automation and the sortation capabilities, then the alternative is. [Technical Difficulty] And as you know, people cost is always going up. So this investment is reaching the point where we recognize that we need the capacity. We need the cost of each item to then be lower. So it was the right time to put investment in, one, address existing prices that we have in terms of requiring men to do the issue as well as to create capacity to allow our customers to go alongside with them as that business grows every year. Chin Chong: [Technical Difficulty] Selena Chong: We have time for maybe 1 or 2 more questions. Anyone? If not then we'll just bring this session to an end. We want to thank everyone for participating. Cheers.
Selena Chong: Good morning, everyone, and welcome to our First Half FY '26 Results Briefing. Today, we are pleased to have with us our Group CEO, Mark Chong; CFO, Isaac Mah; and COO, Neo Su Yin. So this session will be webcast live and recorded. So without further ado, let me hand over to Mark Chong. Chin Chong: Yes. Thanks, Selena. Actually, before we jump in, could we -- could I know who is online? Selena Chong: It is audience, participants of the webcast. [Operator Instructions] Chin Chong: So thank you, everyone for coming to our results announcement for H1 of FY '26. My name is Mark Chong. I'm 10 days old on the job, I think there may be a fair bit of interest on how we are going to take the company forward, our strategy. I really would like to share those with you when we are ready. But being only 10 days on the job, I'm afraid there's not much I can talk about on the future plans. Today, we are really talking about the results announcement. So that's going to be the focus of this section. And you know that SingPost has divested some assets overseas. We have folded the international division into the domestic ops. We are now a single entity. We have dropped the group -- the word group from our titles. We are just as we are. So the immediate order of business for us right now is to ensure that our business, our core business run well. Our customers are well served. So we are looking at for the immediate-term operational efficiency, widening our network to serve our customers and keep the core business running well. Through our recent divestments, we, of course, received the proceeds. We have paid out a special dividend. We have paid down debt, a chunk of debt, and we'll keep the rest for our working capital, et cetera. So we will continue to maintain a disciplined capital management approach [Technical Difficulty] and therefore [Technical Difficulty]. So those are the immediate priorities. For the results, I will now hand over to Isaac to take us through. Thank you. Isaac Mah: Thank you, Mark, and good morning. As Mark conveyed, our focus is on a stable and sustainable future, underpinned by a strong financial position. And this first half really has been defined by actions that reflect that commitment. We completed a major organizational realignment following the sale of the Australian business. This was an important step to ensure that our corporate structure is rightsized, optimized for the remaining side of the business. This included removing overlapping corporate support functions, integrating the cross-border operations into the Postal and Logistics business in Singapore and further streamlining activities. Along with that, we have concluded several transactions. This includes the unwinding of the cross-holdings with Alibaba, leading to the divestment of 4PX and the cessation of the joint venture Quantium Solutions. Various Quantium Solutions subsidiaries have also since been divested, and we have also completed the sale of the freight forwarding business, Famous Holdings. The combined result of these actions is a stronger balance sheet, providing the financial flexibility and foundation for future growth. Next slide, please. Now our operational developments over the first half are centered on 2 areas that enhance our capacity, efficiency and reach. First, on the capacity front, the SGD 30 million investment to expand parcel sorting capacity at the e-commerce logistics hub in Tampines is on track and expected to be fully operational by mid-2026. E-commerce remains a growth driver for the logistics business. As such, we are tripling our capacity to address demand, efficiency and service quality, which in turn will enable us to scale up this business segment efficiently. On the network front, we expanded our reach across the island through strategic collaborations and partnerships to offer customers maximum convenience and choice. This includes partnerships with Pick Lockers, Cheers and FairPrice Xpress outlets. We have also been deploying 24/7 POPDrop kiosks that provide a one-stop service to customers. Our post office also serves as partnership touch points with DHL and FedEx. We have also started a trial for the posting and return of mail directly at the Letterbox nests of several HDB housing blocks. If successful, this may be rolled out island-wide, which will enhance customer convenience. These investments in capacity and network are key, not just to make the business more efficient, but also to solidify our competitive position and serve customers even more effectively. Now on to the financials. As we move from the second half of the last financial year into a review period, cost discipline was key. This has enabled the company to reverse from a SGD 0.5 million loss in the preceding 6 months to an underlying net profit of SGD 5.5 million this half. The operational discipline, costs have come down, reflecting 2 key drivers: one, organizational streamlining and cost management efforts; and two, the reduction in expenses in tender with lower volumes and revenue. The recent divestments have led to exceptional gains on disposal of about SGD 9 million. There is also a fair value gain on SingPost Center of SGD 5.5 million in exceptional items. As a result, profit from continuing operations was higher at SGD 20.6 million. In comparison, discontinued operations incurred a SGD 2.2 million loss this half compared to a SGD 21 million profit in the prior period when the divested Australian business was still included. Put together, net profit was 17% lower year-on-year. Excluding these exceptional gains, the underlying net profit or UNP was SGD 5.5 million, lower year-on-year, but as mentioned, better than the loss in the second half of last year. The lower UNP year-on-year is attributable to 2 main factors: the loss of profit contributions from the Australian business, which previously bolstered our results, the softer performance in the cross-border business, which I'll cover next in the segments. Now with the change in SingPost profile, we have revised the business segments to Logistics and Letters, Post Office Network and Property Assets. This change was from Australia, International and Singapore. Logistics and Letters, which now cover the delivery business, both domestically and internationally as well as other services is our largest segment by revenues. Post Office Network comprises agency services, product sales and rental of space and the post office. Property Assets refer to rental and related contributions from properties, the largest contributor being SingPost Center. Now moving into a segment-by-segment review. Logistics and Letters faced a challenging operating environment, which resulted in lower revenues of SGD 153.5 million and an operating loss of SGD 4.4 million. Letter mail volume continued its structural decline, a trend that we have been managing for some time. Volume of domestic e-commerce deliveries softened about 3% over the period. In contrast, cross-border e-commerce volume fell by 63% year-on-year, a reflection of the difficult market conditions in that space. This was part of a much larger global trend, which has seen significant volatility, particularly with the U.S. tariff situation. We have taken actions to streamline the cross-border operations and also implement cost management measures to align with the reduced business activity. Along with the drop in volume-related expenses, the segment operating costs have fallen about 27% year-on-year. Now moving on to the Post Office Network. In the Post Office Network, the decline in revenues was mainly due to lower agency services revenue. This was partly cushioned by higher rental income from leasing within the Post Office Network properties. Our efforts to control costs and optimize the network yielded results. Costs were reduced by 13%, which lowered the operating loss from SGD 6.7 million to SGD 5.8 million. Property Assets. Property Assets comprises property rental and related activities and mainly at SingPost Center. The segment continues to provide consistent revenue streams. With a focus on maintaining high tenancy levels, we saw improved revenue performance driven by rental growth at SingPost Center. Overall occupancy rate was 99.2%. Operating profit was lower, primarily due to higher expenses like property management service costs and property tax. Now on to the balance sheet. There are a couple of points I would like to highlight. One, the balance sheet movements are largely the effect of the consolidation of subsidiaries that were divested. Two, with the divestments this year, including the Australian business, our financial position has been strengthened by proceeds from disposals. The company's cash position is SGD 594.1 million. This provides us with financial flexibility, enabling the funding of operation investments as well as future requirements. To complete the financial picture, let me highlight some points on cash flow. Cash flows generated before working capital was lower compared to the prior period. This was expected primarily due to the absence of contributions from divested subsidiaries. The negative operating cash flow after working capital changes was driven mainly by higher settlement of payables. Investing cash flows was largely due to proceeds from disposals, reflecting the realization of value from these noncore assets. Financing cash flows was primarily -- financing cash outflows was primarily due to the special dividend payout to shareholders in August with respect to the sale of the Australian business. Now lastly, I'm glad to share that the Board has declared an interim dividend of SGD 0.08 per share, which represents 30% of the UNP for the first half. That concludes my presentation. Our disciplined approach has positioned us well for the road ahead. With that, I will hand over to Selena to move on to the Q&A session. Thank you. Selena Chong: So, Mark, Isaac [Technical Difficulty]. Chin Chong: Yes. Why don't we start. Selena Chong: If anyone has any questions to [Technical Difficulty], can identify yourself for the benefit of audience of the webcast. Unknown Analyst: [Technical Difficulty] Just 2 questions from us. First is how should we think about [Technical Difficulty]. Second question is could you give more color about segment of [Technical Difficulty] for cross-border customers and also what is your outlook for the segment and [Technical Difficulty]. Isaac Mah: So first off, we don't typically comment on [Technical Difficulty]. I think what you've seen in our presentation is that we have actually executed very well on several cost control initiatives. We will continue to see the efforts of this in our numbers. Going forward, we believe that there continues to be good opportunities in the Letters and Logistics space, and we'll continue to build on our network as well as our service levels, which would then ensure the right for us to play in this region. Su Yin, anything you want to add to that? Su Yin Neo: Yes. I think as you know, with the geopolitical situation as well as [Technical Difficulty] structurally being a lot inner in order for us to then take the strategic review [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So the structural decline of the Post Office Network also the volumes, how do you actually stop that because this is a structural problem. So is there any plan for any [Technical Difficulty] what are the key plans to stop this structural decline because this has been happening over the last 10 years, actually it is still in decline. So how do you encourage people to use more [Technical Difficulty] structural decline. I think you have seen that this is not possible [Technical Difficulty]. Chin Chong: I think the decline of postal post structurally that cannot be [Technical Difficulty]. So we will follow its course and all that. But I think what was good that [Technical Difficulty] was the arrival of e-commerce, the growth of e-commerce. So parcels came along, and I think SingPost played quite hard on the post side. And what we have to do going forward is to make ourselves competitive. So I think what we have as advantages are, of course, we still have the postman who cover all the blocks and all the letterbox nest. So we will leverage on that better quality of service in terms of touch points, et cetera. And I think you note our investments in SGD 30 million in the sorting new, the Tampines hub also to lower our cost to serve, right, and provide higher CapEx. I think the decline in the cross-border volumes, obviously, we have to [Technical Difficulty]. Unknown Analyst: So for your SGD 30 million investment, right, decrease of cost, right. So what's the -- how much cost you decrease? So for example, your average -- no, no, I think you decrease your overall cost. The SGD 30 million investment you have to decrease your overall cost per package [Technical Difficulty] reduce the cost. So how much cost will actually decrease. So for example, let's say package previously cost will be x amount to deliver. So this SGD 30 million based on the same volume of the decrease percentage. Su Yin Neo: Well, it is very specific to the processing segment of the entire delivery to almost half of the cost [Technical Difficulty]. Currently the cost [Technical Difficulty] a lot of it is manpower cost. As you know, manpower cost continues to increase year-on-year. So that's something that the automation is meant to deliver as an outcome, [ 2 ] vessels to get productivity as well as give us more capacity to offer more cost-effective solutions to our customers. Unknown Analyst: And this reducing cost is including depreciation? Su Yin Neo: Yes. Unknown Analyst: [indiscernible] 2 questions. One on Logistics and Letter, the international part, how much of the decline was actually [Technical Difficulty] supply chain realignment and how much was really a competitive loss assuming the volumes are pretty much bottomed out, let's say, all your postal volumes, this is the worst [Technical Difficulty]. How much more rationalization of postal network is needed [Technical Difficulty]. Su Yin Neo: I think the structural decline of mail is clearly an evolution that has undertaken over the last decade or so. E-mail is coming in, everyone's gone digital now. There is still obviously a proportion of our population that still requires physical letters and centers. So that will continue. The decline will continue to come given that more and more digitalization is ongoing. Government is also pushing direction. Clearly, government has also now taken a position that it's digital first but not digital only. So this will obviously try to buffer that decline somewhat. But that said, I think in relation to the parts of the e-commerce business, which Mark touched on earlier, where we utilized the infrastructure as well as the network that mail to also deliver e-commerce, I think that's where we are, one, our assets a lot harder. But in that case, given change and shift in the volumes that we're doing in the nature of the business as well. We will continue to be looking at how we can evolve the network. We also want to change the way we do deliveries to meet the new and coming demands of our customers. So that will be an ongoing process because while, as you know, the market is very competitive in the last [Technical Difficulty]. We are obviously still as part of the strategic review, reviewing how we can utilize our assets lot differently to get greater yields for revenue, so that's also part of the overall review of our business. Unknown Analyst: So you think there is more upside to the international... Su Yin Neo: I think the international... Unknown Analyst: Is it more like a blip or maybe really the new... Su Yin Neo: So I think if you observe what's happening in the cross-border space, whether it's the big boys, even your DHL, FedEx and all, I mean these are obviously issues now being half empty. This is an issue that is affecting everyone globally in the landscape. I don't think it's unique to SingPost. Where our position will be other thing is we will then look at where is the space that we can play in the cross-border and international business. I think that's also part of the strategy that we want to undertake. Unknown Analyst: And on the postal network... Chin Chong: On the cross-border trade, there's a lot of uncertainty right now. I think we all know. One day, there's tariffs on China and other day, there's no tariff tariffs. So we are also adjusting the government. Unknown Analyst: On the postal network, more rationalization before assuming everything remains... Su Yin Neo: As I mentioned earlier, as we our business the last mile e-com part of the network, we are still rationalizing whether that network is efficient in how we manage it, whether it versus fixed base, cost base, variable cost base. So these are things that we are undertaking. I can't give you an answer right now, but I think what we are trying to do is to meet whatever customers need, evolving needs that our consumers have to make sure that we deliver the best cost-effective for [Technical Difficulty]. Isaac Mah: Maybe just to add on to what Su is saying, I think our press release and we also said now 80% of Singaporeans can reach touch points in 10 minutes. And the network size -- total network size is [Technical Difficulty] [ 2,500 ]. So I think this is a very core part of what we do, and this I think [Technical Difficulty]. Su Yin Neo: I think just to add on to what Issac mentioned, if you look at the network expansion that we've undertaken in the last couple of months, we have not put in any money. It is really leveraging on existing infrastructure, working with partners using their infrastructure to extend the level of [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So what's the current plan in terms of years? I'm asking in terms of years that you can foresee business -- the core business property turning around to rather I would say, decent profit or rather a sizable profit to justify the current market valuation. Isaac Mah: So maybe just focus on what we're sharing the first half. So I think the key message is that last half, there were losses. This half we have turned the corner, right? So significant efforts have put through. There's still work to be done. We are also in the process of the strategy [Technical Difficulty]. Chin Chong: Your question will be answered when we have completed our [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] I understand you're coming. Chin Chong: [Technical Difficulty] I think many people have asked. We thank everybody's patience. As we are doing this strategic review, I think once we are ready, we will be very happy to answer all these questions. Unknown Analyst: Do you have an answer to the clients. Chin Chong: I don't have answer to that, but we are doing [Technical Difficulty]. Unknown Analyst: Just 1 question. So actually, why do you choose to. [Technical Difficulty] I mean Singtel is quite stable and doing very well. Chin Chong: It is a very good question, but since we are on the results announcement and not [Technical Difficulty]. Unknown Analyst: Postal network additional agency services can you... Chin Chong: Sorry. Unknown Analyst: On the postal network to optimize the revenues better, what additional agency services can you? Isaac Mah: Currently, we already provide services to 47 agencies. We are exploring adjacencies or other parties that we can work with. But right now, it's still in the early stages. And I think we would like to wrap it up together with the whole strategy review it's all kind of tied into investments we need to put in to unlock some of these capabilities as well as the wider play around our logistics business. And our core really is the ability that we give every single address for every day and how to leverage on those success factors. Unknown Analyst: So somehow it feels like all questions are lined up to you, strategic review. Chin Chong: The number of touch points we have, the post offices, we are reviewing on the optimal number. I think that will depend on a couple of things. One that we see, the second one can we expand the business model. Maybe we do need to fully own all our post offices. We want to balance touch points' cost. So the cost -- fixed cost maybe reset to other models, maybe the franchise network or something like that. So these are the ideas that we are but we've got nothing to share with you. Unknown Analyst: How much of your post office rationalization is dependent on rentals versus -- I'm trying to see whether the focus is on improving revenues at current network or cost is also a factor you think cost is just too much. Isaac Mah: I think it will be a combination of both in any kind of business, you have to look at what's the opportunity in the market that can grow the top line as well as the cost is involved in. So it's definitely a combination of the 2, not one or the other. Unknown Analyst: In your slide, you see revenue decline from the agency services. There were also higher rental income. Isaac Mah: So maybe -- so if you think from that perspective, the post office segment has not only have income from providing services itself, but some of the post offices no longer occupy the full footprint. So we have actually leased out some of that. So that's in the rental income portion of that segment. However, given our network of post offices is finite, and we won't -- in sense, we won't be renting more space just to lease it out, if that makes sense. So the opportunity -- while there might be opportunities there to continue to grow the rental income network, it will be fairly limited. Unknown Analyst: Any thoughts on trying to do something with regards to collection points, franchise. Su Yin Neo: We already do that. Yes, we already do that. So... Unknown Analyst: [Technical Difficulty]. Su Yin Neo: Yes. Actually, so in the [Technical Difficulty] agents that they operate on, for example, we have mom and pop store, [Technical Difficulty]. So they also collect on our behalf. We realize that I think in our business that drives the way our consumers our further investment into infrastructure is definite not the way to go, which is why as you can see through working with partnerships and all using third party, all kind of third party we are open to explore how our network and keeping costs low such level cost item that... Unknown Analyst: What's the feedback so far, Finding it more efficient, running. Su Yin Neo: Yes. So we obviously have to study profile of where users are. For example, a lot of it is really in our first mile network. So our first mile network is where your sellers are the ones that's using us through the platform to then deliver for us to then pick up items rather than us going to a door to pick up 1 or 2 items, you can drop it off at your convenience at these locations. And given that now we've got 2,500 of them all over the island, working with the likes of Pick, Cheers and all have been very, very helpful in now bringing that convenience down to 10 minutes everywhere. So that's been a great extension of our convenience points. To improve the target audiences, which a lot of it is the upstream customer that we have, which is the sellers really in the success of keeping our cost of the network. Unknown Analyst: Is there anything more can do to optimize it better or most of the benefits are already captured? Su Yin Neo: Well, I think it's a matter of now finding the right partners, how more could you expand that without incurring additional cost --. Chin Chong: I believe we can do more. I mean in a couple of ways, in our own post offices where our margins will be converged. I think if we can find a way to run our own post offices at lower cost, that will improve margins. Of course, in the partner network today, I think awareness is not so great because you also asked the question. So I think we probably can drum up awareness and work out the processes in such a way that our margins. I mean even the network itself, we are working together now. We also can leverage on that to make it more [Technical Difficulty]. If you note some of the moves that I think has undertaken, we are trialing the posting of letters at the post office box, that is [Technical Difficulty], letterbox nest, our asset line. We are the only ones with that access and all those things letters. So letters plus more parcels is one area we will be also looking at and see how we can leverage and squeeze more out of our infrastructure. So we have our own infrastructure, the partner infrastructure. We will see how we can lower cost to serve and maybe get more volumes into [Technical Difficulty]. Unknown Analyst: In the SGD 30 million investment at the parcel sorting center in [Technical Difficulty] at what point can that center completely take over parcel and [Technical Difficulty] Is there a time line. Su Yin Neo: Middle of next year. Unknown Analyst: By next year. Su Yin Neo: Middle of next year. Chin Chong: But it will not fully take over. We will take over [Technical Difficulty]. Su Yin Neo: For parcels, yes. Parcels, yes, but we also -- in this facility, we also got the processing capability for larger parcel is really focused primarily on the small parcels. But as you know, primarily about 70%, 80% of parcels that come across the cross-border domestically are small. So we will generate about 400,000 capacity just from this [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] Su Yin Neo: Cross-border [Technical Difficulty]. Unknown Analyst: And the large ones will be moving... Su Yin Neo: The large one is already at the logistics. Isaac Mah: Currently, there's still -- we still process [Technical Difficulty]. I think his question was when will -- will we ever move. Unknown Analyst: Everything. That facility is quite big. I've seen it. Chin Chong: I think it will not take over everything because we've got the sorting center for mail that is here. There's a certain shelf life to it and there's a certain purpose of extremely digital. I mean the utility of course, if we completely write down that thing it's going to hit our focus. So over time, we will migrate and concentrate more and more so [Technical Difficulty]. Unknown Analyst: [Technical Difficulty] So is there any change in stance? Chin Chong: We are reviewing that stance. And once we are ready, we --. Unknown Analyst: Secondly, is there any [Technical Difficulty] I think there's a very good delivery network can deliver [Technical Difficulty]. I think also government something that --. Chin Chong: I'm not sure NTUC [Technical Difficulty] but se we talk to --. Unknown Analyst: [Technical Difficulty] Su Yin Neo: [Technical Difficulty] Unknown Analyst: For your cross-border, which are still profitable or it is very dependent on postal network. Su Yin Neo: Yes. So currently, when we reintegrated the international business, I think we primarily went back to our foundation, which is postal. So the postal network continues to be the most cost effective way of doing deliveries. However, as maybe compared to some service levels are probably not as high as compared to [Technical Difficulty]. So where we are looking for opportunities now is if there are consumers and customers that are not looking for express level delivery, there is a space for us. And it continues to be profitable [Technical Difficulty]. So currently as Isaac alluded to in his presentation, a lot of this is only when we have the volume and the cost. Unknown Analyst: So have you kind of still a large amount non-postal network related cross-border logistics. Su Yin Neo: Currently, not as much as we have focused on what we do best. But that obviously does not stop us from working on partnerships. Like for example, the recent U.S. duty paid solution that we introduced was actually working with a partner and that is on a commercial solution. Unknown Analyst: The SGD 30 million, the new sorting center -- you also mentioned that triples your capacity? Su Yin Neo: Yes, our small package sortation capacity, which is currently now housed here. So once that is ready middle of next year, it actually triples what we can do for small packets. Unknown Analyst: My understanding is the bottleneck still largely at the last. So even if you spend -- I know [Technical Difficulty] I think the capacity does it really move the volumes? Su Yin Neo: I think what we always try and get out of network in -- particularly in the last mile because of density. For us, we are very fortunate because we run a postal network. We actually deliver to every address. But sometimes you open, right? But the moment we can increase density, which means if we can deliver more to a single location, that makes our network a lot more ... Unknown Analyst: And that bottleneck is at the sorting center? Su Yin Neo: Currently now for us, it's actually [Technical Difficulty]. Chin Chong: Probably a change. So sorting center, we increased capacity. Last mile, if you densify, you bring on more parcel... Unknown Analyst: My impression was always the last mile was the bottleneck rather than sorting... Su Yin Neo: For us, increasing the capacity to process is definitely one of the key drivers for improvement of revenue. Unknown Analyst: Just to follow on this, you said that it will help your e-sellers the convenience for the e-sellers. But in this, I presume there will be more critical to capture the inflow rather than the outflow. I mean, correct me I'm wrong or maybe you're referring to the e-sellers that really a large part of postal volumes... Su Yin Neo: Actually, there's 2 components. [Technical Difficulty] coming a lot from China. There's also obviously a lot of domestic sellers. They actually buy from overseas, then we sell here. So essentially the same -- they're all in the same thing. It's just a matter of selling what are coming from. Isaac Mah: I think it's also important to note that they are selling through the post offices. Su Yin Neo: Yes. Isaac Mah: So basically, your convenience for them makes the platform and the platform more [Technical Difficulty]. So it's a virtuous cycle. While it directly benefits the convenience of these small sellers, it's part of the platform strategy. So it's the overall ecosystem. Unknown Analyst: Just last one for me. Your income [Technical Difficulty] but at the same time, your interest expense [Technical Difficulty] net cash. So I was just wondering, will there be -- will you be kind of moving further down. Isaac Mah: So interest expense has actually fallen off quite a bit versus last year. I think previously, we carried even at SingPost group level, we carried about SGD 300 million in debt to Australian business. That has now all since paid down. So it has actually come down a lot versus last year versus if you compare it to our cash holdings, it is actually not that big because the amount of interest earned on the cash is actually higher. So we do still have 2 tranches of bonds outstanding, one, SGD 100 million tranche and another [ SGD 250 million ]. On top of that, there's also the perpetual of [Technical Difficulty]. But if you look at the kind of -- because that is a hybrid, right? So on the kind of the equity accounting available to us, we are seen as a net cash position. Chin Chong: Your question is especially the interest rates come down, [Technical Difficulty] I think some of that. Unknown Analyst: Just a follow on Paul's earlier question talking about densifying the last mile that has to do with the capacity on these orders. Quickly understand. Are you actually having shortfall there a pipeline which is stuck at the sorting center? Or are you thinking that once it triples, then you'll be able to this investment is to address the backlog volume preparing for [Technical Difficulty]. Su Yin Neo: [Technical Difficulty] So what happens now is that during the peak period, the period where there's a lot more volumes, you have to then at the bottom. So in our business, unless you have the automation and the sortation capabilities, then the alternative is. [Technical Difficulty] And as you know, people cost is always going up. So this investment is reaching the point where we recognize that we need the capacity. We need the cost of each item to then be lower. So it was the right time to put investment in, one, address existing prices that we have in terms of requiring men to do the issue as well as to create capacity to allow our customers to go alongside with them as that business grows every year. Chin Chong: [Technical Difficulty] Selena Chong: We have time for maybe 1 or 2 more questions. Anyone? If not then we'll just bring this session to an end. We want to thank everyone for participating. Cheers.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technology's Third Quarter of 2025 Earnings Conference Call. [Operator Instructions] Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to [ Etian Tian ], IR specialist of CBAK Energy. Ms. Tian, please proceed. Unknown Executive: Thank you, operator, and hello, everyone. Welcome to CBAK Energy's earnings conference call for the third quarter of 2025. And joining us today are Mr. Zhiguang Hu, or Jason, Chief Executive Officer of CBAK Energy; Mr. Thierry Li, Chief Financial Officer and Company Secretary; and [ Yvan ], who will help with our interpretation, will join us for the Q&A section. We released our results earlier today. The press release is available on the company's IR website at ir.cbak.com.cn as well as from the Newswire Services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligations to update any forward-looking statements, except as required under the applicable laws. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO. Please go ahead, Jason. Zhiguang Hu: Hello, everyone. Thank you for joining our earnings conference call for the third quarter of 2025. Our consolidated revenue rose sharply this quarter, increasing 36.5 percentage year-over-year to $50.9 million compared with approximately $44.6 million in the same period last year. The strong growth was primarily driven by the recovery of Hitrans, our battery raw material segment. Since acquiring Hitrans in 2021, the segment has been weighed down by industry-wide overcapacity and prolonged decline in raw material prices, resulting in several years of weak performance. Recently, however, we have been pleased to see clear signs of recovery. Raw material prices have rebounded steadily, driving a meaningful turnaround at Hitrans. In the third quarter alone, Hitrans generated approximately $27.2 million in revenue, representing 143.7 percentage increase year-over-year. With the continued recovery in the raw material market, we are confident that Hitrans team will build on this positive momentum to further expand sales and narrow losses in the coming quarters. Our Battery business also began to stabilize in the third quarter after a short-term volume decline caused by our ongoing product portfolio upgrade. Revenue in this segment grew 0.7 percentage year-over-year, effectively returning to the same level as the prior year quarter. This improvement was mainly driven by robust demand for our Model 32140 battery produced at Nanjing plant, where production capacity remains fully utilized and a significant backlog of orders persist. To address this supply shortage, we are activating the launch of Nanjing Phase II facility, although slightly delayed. We now expect mass production to begin in mid-November 2025. Compared with the 13-gigawatt-hour capacity of Phase I, Phase II will add another 2 gigawatt-hour of capacity. Given the current supply-demand imbalance in the market, we anticipate this expansion will make a substantial contribution to next year's sales. In October 2025, we officially commissioned a new product line in -- at our Dalian facility. Historically, this plant has focused on producing Model 26650 and 26700 battery model, product with nearly 2 decades of market presence. In response to evolving customer needs, we invested in a new line dedicated to manufacturing the larger, higher performance 40135 Model. Over the past year, many of Dalian's customers have been conducting testing and certification process for the Model 40135, a necessary step that temporarily impacted shipment volume and contributed to a brief slowdown in the battery segment revenue growth. Early market feedback, however, has been very encouraging. Previously, the Dalian plant had 1 gigawatt-hour of capacity for the Model 26 Series. The new line has an additional 2.3-gigawatt-hour capacity for the Model 40135, similar to the Nanjing expansion. This upgrade is expected to become a key growth driver for 2026. Now, let me turn the call to our CFO, Thierry Li. Jiewei Li Thierry: Thank you, Jason. As Jason mentioned, Hitrans delivered a very solid performance this quarter, with sales increasing significantly and net loss narrowing to $2.1 million, an 18.8 percentage improvement from $2.6 million in the same period of 2024. If this momentum continues, we believe Hitrans is on track to return to profitability in the coming quarters. Meanwhile, although our Battery business reported flat year-over-year revenue, following a weaker performance last quarter, segment net income rebounded strongly, up 122.7% to $4.53 million compared with $2.04 million a year ago. This rebound was mainly driven, as Jason noted, by robust demand for our Model 32140 batteries, which are currently in short supply. With both segments showing minimal improvement in profitability, our consolidated net income attributable to CBAK Energy shareholders reached $2.65 million, representing a 150-fold increase year-over-year. Looking ahead, we are confident that the new 40135 production line at our Dalian facility, together with the upcoming 32140 production expansion at our Nanjing plant will further enhance our earnings performance. Combined with the ongoing recovery of our raw materials industry, which continues to strengthen Hitrans' results, we believe that our overall performance in the coming quarters and years will deliver sustainable value for our shareholders and investors. Furthermore, we continue to pursue overseas manufacturing expansion, but progress remains contingent on updates to China's export control policies covering lithium battery materials and equipment. Until the Chinese authorities clarify or adjust these restrictions following the recent meeting between the Chinese and U.S. presidents in Busan, we are unable to advance specific overseas projects. On the commercial side, we have signed a term sheet with one of Asia's largest publicly listed companies to jointly develop an overseas lithium battery production base. This reflects strong strategic alignment and commercial potential. However, we would like to remind investors that policy shifts could affect our overseas plans and timelines. Should policy conditions permit, management of the company has reached a firm consensus that establishing a stable overseas production base outside China will significantly enhance our supply reliability and strengthen our position as a preferred supplier to major global customers. Thank you. We will now open the floor for the Q&A section. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of Brian Lantier from Zacks Small-Cap Research. Brian Lantier: Really impressive results from the LEV division. I was wondering if you could talk a little bit about the -- any particular customer concentration in that market. And how sustainable you see the light electric vehicle sales going in the coming quarters? Zhiguang Hu: Thank you, Brian. [Foreign Language] [Interpreted] So actually, for the LEV business, especially the 2-wheelers and 3-wheelers, so I think now we are developing pretty good, especially in the Southeast Asia countries. And for example, in India, for the top 10 2-wheelers OEM, and we are -- we have all in communication with them. And some of them we have already had mass supplied to them. And also, for example, in India, for the battery swapping business, we are also incorporating with one of the biggest battery swapping company in India as well. So in this industry, I think now we are developing pretty good. Brian Lantier: Okay. Great. That's really helpful. Regarding Hitrans, what do you see overall in the market regarding potential oversupply? Has demand come up to meet the supply in the industry? And should we expect more balance in the market going forward? Jiewei Li Thierry: Okay. Brian, let me take this question. For Hitrans, this product is always very clear. They're making NCM raw materials to a couple of the battery manufacturers. Some of them are not our competitors because we're making LFP cells. So Hitrans is exploring the market, but I don't think they're going to find some other new customers beyond the current area. So what Hitrans will do is to keep improving the quality and the performance of their current raw material products. And along with this recovery of the whole industry, I think we can expect or anticipate a much stronger performance of Hitrans in the coming quarters. Brian Lantier: Okay. Great. And, I guess, just looking forward to 2026, it sounds like you could, at some point be -- have production capacity above 6 gigawatts. When do you expect that to be the case? Is it midyear, the end of 2026? And has it become any easier to secure the necessary production equipment to power these expansions? Zhiguang Hu: [Interpreted] Yes. So currently, the status is all of the equipment has already been installed in the warehouse in both Dalian and Nanjing factories. So we have already -- well, in Dalian, it's already trial production. And in Nanjing, it will be start of trial production in this month. And we, hopefully, by Q1 next year, then we will achieve mass production for both factories. And also, in terms of all of the orders we have got, and then the 6 gigawatts-hour will be achieved next year, which is in accordance with the order we have already received from the customers. Jiewei Li Thierry: And I would like to add another point, I think in mid-November, we're going to announce our Nanjing expansion plan, it's going to complete soon. And then, we are preparing a video showing the latest equipment we have and the new production line for the purpose that all our investors and shareholders can have a very, very clear picture of how our factory looks like. Operator: [Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Jason for closing remarks. Zhiguang Hu: Thank you, operator. And thank you all for participating in today's call and for your support. We appreciate for your interest and look forward to reporting to you again next quarter on our progress. Operator: Thank you all again. This concludes the call. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to Strata Critical Medical Fiscal Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference call over to Matt Schneider, Vice President of Finance and Investor Relations and CFO of Strata Keystone Perfusion subsidiary. Matt, you may begin. Mathew Schneider: Thank you for standing by, and welcome to the Strata Critical Medical Conference Call and Webcast for the quarter ended September 30, 2025. We appreciate everyone joining us today. Before we get started, I would like to remind you of the company's forward-looking statement and safe harbor language. Statements made in this conference call that are not historical facts, including statements about future time periods, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and actual future results may differ materially from those expressed or implied by the forward-looking statements. We refer you to our SEC filings, including our annual report on Form 10-K filed with the SEC for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this conference call are made only as of the date of this call. As stated in our SEC filings, Strata disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. During today's call, we'll also discuss certain non-GAAP financial measures, which we believe may be useful in evaluating our financial performance. A reconciliation of the most directly historical comparable consolidated GAAP financial measures to those historical non-GAAP financial measures is provided in our earnings press release and investor presentation. Our press release, investor presentation and our Form 10-Q and 10-K filings are available on the Investor Relations section of our website at ir.stratacritical.com. These non-GAAP measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Hosting today's call are our co-CEOs, Will Heyburn and Melissa Tomkiel. I'll now turn the call over to Will. William Heyburn: Thank you, Matt, and good morning, everyone. It's been a very exciting few months as we closed 2 transformational transactions during the quarter, both the divestiture of our passenger business and the acquisition of Keystone Perfusion, setting us up incredibly well for long-term growth and value creation. We also rebranded the company in Strata Critical Medical and change our ticker symbol at SRTA to reflect our sharpened focus on health care. I'm happy to report that Strata is off to an exceptional start. In Q3, year-over-year revenue growth accelerated to 29%, excluding Keystone well above of our expectation for mid-teens revenue growth in the second half of the year. This resulted in record segment adjusted EBITDA performance, which saw 80% year-over-year growth, excluding Keystone this quarter. This great profit improvement was driven both by volume and significant improvements in aircraft performance as we emerge from a period of particularly heavy maintenance on our own fleet. This resulted in a medical segment adjusted EBITDA margin increased to over 15% in Q3 2025, excluding Keystone versus our 10.8% in the prior year period and 12.5% in the first half of this year. Our sequential growth in Q3 2025 versus Q2 2025 is particularly impressive in the context of the seasonal sequential decline in industry transplant volumes, demonstrating a significant impact of Strata's continued market share gains and our customers' adoption of new services. We're also encouraged by the positive free cash flow from continuing operations in the quarter, and we expect to consistently generate free cash flow moving forward. Before I walk through the financial results in more detail, I'll turn it over to Melissa. Melissa Tomkiel: Thank you, Will. It's an honor to be here as co-CEO discussing this exceptional first quarter performance at Strata. Our integration of Keystone and our launch of Strata's new clinical services division is off to a fantastic start. With these new capabilities, we are now truly an end-to-end organ recovery platform, and the team is focused on tailoring solutions that deliver operational efficiencies and cost savings to the transplant community broadly starting with our existing customers. Our go-to-market strategy uses the same playbook we've employed successfully in our core logistics business, locating resources closer to our customers. We are colocating staff and equipment acquired through Keystone near our existing logistics hubs, enabling us to offer all in lower cost to deliver these services. We are also rolling out new offerings to reduce the cost of DCD dry run recoveries, a consistent pain point for our customers. By utilizing local surgical, NRP and air resources in strategic service areas, we enable our customers to avoid incurring what can be very significant air transportation costs and wasting their surgeons valuable time until we know that the organ will be accepted. This is an industry first, and we're thrilled to have a way to make the transplant process more cost efficient for our customers. We hope it will enable centers to go after organs that otherwise may not have been worth the time and expense increasing transplant volumes. We continue to strategically focus on where the puck is going and industry data shows the market is heading in our direction. Industry-wide NRP adoption rates continued to increase during Q3 with transplants of organs that have undergone NRP approximately doubling versus the prior year. This is an encouraging validation of our strategy to increase exposure to the fastest-growing sectors of the transplant ecosystem. It also further aligns our mission with that of our customers, enabling more reliable and lower cost access to life-saving organs. We've also seen great responses from our colleagues across the transplant industry. This is a particularly exciting quarter for our friends at OrganOx as they received FDA approval to perfuse livers with the metra device while in flight. We've already done the work to support our customers who choose to utilize this technology, all part of our device-agnostic strategy. We still believe that the customer is always right, and we will always do everything we can to support the rapidly broadening set of life-saving technologies driving growth in organ transplant volumes. With that, I'll turn it back over to Will. William Heyburn: Thanks, Melissa. I'll now walk through the financial highlights from the quarter. All financial results discussed during this call reflect continuing operations only as the results of the passenger business have now been reclassified as discontinued operations for all periods. Revenue rose 36.7% year-over-year to $49.3 million in Q3 2025. Excluding Keystone, revenue increased 29% versus the prior year period. Despite the sequential seasonal decline of industry-wide heart, liver and lung transplants in Q3 of approximately 6%, our revenue increased 3% sequentially, excluding Keystone. Organic revenue growth in Q3 was driven primarily by strength in Air Logistics, where both new and existing customers contributed to the strong results in the quarter. We added 1 new OPO air logistics customer late in Q3. I'd also highlight that organ placement services revenue more than doubled year-over-year, albeit on a small base as we continue to scale the business and acquire new customers. During the quarter, we added 1 new organ placement customer. Revenue growth can be noisy quarter-to-quarter, but our year-to-date growth rate, excluding Keystone of 15% reflects strong outperformance relative to the industry transplant volume growth of approximately 4%. Keystone, which closed on September 16 saw only a 0.5 month of revenue contribution during the quarter for a $2.8 million impact. For the full month of September, Keystone's revenue increased over 40% year-over-year. Moving to margins. As expected, we saw a significant sequential improvement in Medical segment adjusted EBITDA margins to 15.1% in Q3 2025, excluding Keystone versus 12.5% in the first half of the year driven primarily by improved performance in our own fleet. Adjusted unallocated corporate expenses of $3.3 million in Q3 2025 are down approximately 40% from our run rate prior to the passenger divestiture reflecting our significantly reduced corporate overhead as a purely medical-focused business, and this also came in ahead of our guidance for $3.5 million. Turning to cash flow. There's been a lot of noise this quarter given the unique transactions completed during the period and accounting that unfortunately is not particularly intuitive in our situation. As such, we'll take a minute to walk through all the nuances, but we'll start with the most important point. We now expect this business to be solidly free cash flow generative going forward. And if you cut through all the noise this quarter, we generated approximately $2 million of free cash flow from continuing operations in the quarter and $2.7 million of free cash flow from continuing operations before Aircraft and Engine acquisitions. Now we'll dive into the details. Due to the unique nature of Keystone's capital structure or employees participated in a phantom equity plan, a portion of the upfront consideration was paid to employees participating in this plan through Keystone's payroll system post-close. As a result of this structure, accounting rules required us to recognize $44.3 million of the Keystone purchase consideration and operating cash flow instead of investing. While the underlying total cash consideration from the Keystone transaction is unchanged, this accounting treatment resulted in a negative operating cash flow in the quarter. So the difference between adjusted EBITDA of $4.2 million in the quarter, and cash from operations of negative $37.3 million was primarily driven by this $44.3 million impact from the Keystone acquisition consideration mentioned above and Joby transaction costs of $6 million. This was partially offset by operating cash flow from discontinued operations of approximately $8 million. Capital expenditures, inclusive of capitalized software development costs were $3.2 million in the quarter, driven primarily by capitalized aircraft maintenance of approximately $2.5 million and capitalized software development of $0.3 billion. We ended the quarter with no debt and approximately $76 million of cash and short-term investments. Before moving to the outlook, there are a few quick housekeeping items to review. First, the Joby transaction closed during the quarter. As a reminder, the total value of the transaction was up to $125 million, consisting of an $80 million upfront consideration in cash or stock, $35 million in 2 separate earn-outs over a total of 18 months that can also be paid in cash or stock and an indemnity holdback of $10 million. Joby chose to pay the $80 million upfront consideration in stock, and we monetized the shares during the quarter for cash proceeds of approximately $70 million. The $10 million difference was driven by a significant decline in Joby's stock price during both the pre-closed VWAP measurement period, which determined the number of shares we received and immediately after we received the shares. We have clear capital deployment priorities and took a market-neutral view as we liquidated the Joby shares. Lastly, we booked a legal provision during the quarter for ongoing litigation related to our go-public transaction that's been disclosed in our SEC filings over the last several years. Moving now to the outlook. Due to the strong demand we saw in Q3, which continued in October, we are raising our 2025 revenue guidance range to $185 million to $195 million. We are also reaffirming the adjusted EBITDA guidance range of $13 million to $14 million for 2025. Medical segment adjusted EBITDA margins are expected to rise sequentially in Q4 versus Q3's 15.3%, primarily due to the mix impact of the Keystone acquisition. Adjusted unallocated corporate expenses are expected to be approximately $3.5 million in Q4. Finally, we are looking forward to Monday, November 17, when we are hosting our inaugural Investor Day at the NASDAQ market site in New York City at 2:00 p.m. There has been considerable change at Strata over the last few months and we are excited to provide a deep dive on the business and share our plans for significant growth and value creation over the coming years. Leaders from across the business will participate in the event and will be on hand to answer questions afterwards. We will also introduce our formal 2026 financial guidance and medium-term financial targets during the event. We hope you can join us next week. With that, I'll turn it back over to the operator. Operator: [Operator Instructions] It comes from the line of Ben Haynor with Lake Street Capital. Benjamin Haynor: It sounds like everything is going quite well, and nice to see the guidance raise here. Could you maybe provide a bit of a disaggregation of where the growth came from in terms of the revenue here during Q3? William Heyburn: Sure. Happy to do that, Ben. Thanks for being on the call. Look, it was a pretty even mix of new customer acquisition. We continue to take market share and some strength within our existing customers. And some of that strength can also come from customers taking new services from us. We've broadened the suite of services that we offer. So very happy to see all of those things coming together for revenue growth that far exceeded. Benjamin Haynor: And maybe this is a question for the event next week. Do you see the growth as coming from similar directions in the future. Are the growth drivers similarly weighted as you see it? William Heyburn: Yes. Look, we continued to add new customers in the quarter, as we talked about during the call, and we see an equally attractive opportunity to consolidate market share in a very fragmented marketplace where we think our offering is significantly stronger just given our scale and our local service model. And then we also see a really attractive underlying industry growth trajectory where you have new technology and evolving regulations that are resulting in really attractive growth. And that really attractive growth means more people get organs that need them ultimately resulting in lives being saved. So we think everything is aligned to create multiple ways for us to achieve our growth objectives here. And we're really excited to talk about that in a lot more detail next week at our Investor Day. Benjamin Haynor: Okay. Great. Looking forward to that. And then on the heavy maintenance that you performed earlier this year across the fleet. What should we expect in terms of fleet margin kind of the remainder of the year downtime impact? Any moving pieces that's changed because of the maintenance schedule earlier this year? Mathew Schneider: Ben, this is Matt. Yes, so we did see scheduled maintenance events kind of come down into the third quarter that will continue into the fourth quarter. As we said on the call, prepared remarks, we do expect margins to increase sequentially within the Medical segment. So we are seeing that benefit and we'll talk more next week about the margin expectations moving forward. But I think you see that improvement in the first half versus the third quarter, what we're expecting in the fourth quarter, all kind of in line with how we've been talking about it over the last few quarters. Benjamin Haynor: Okay. Great. And then lastly for me, you mentioned the relocation things associated with Keystone. Is that relatively de minimis in terms of expenses that, that will generate? Or is that something that we should kind of factor in? William Heyburn: I don't think it's anything you need to factor into the SG&A. It's just more about aligning our resources so that we're not flying people across the country when we don't have to deliver these services. So that's one of the big advantages here is putting those things together. Operator: [Operator Instructions] Our next question is from Jon Hickman with Ladenburg Thalmann. Jon Hickman: Yes, I don't know who this question is for, but with the Keystone acquisition, could you give us a sense of how many individual separate customers you are serving now? William Heyburn: So Keystone has a number of different business lines, Jon, Will here. Across both the cardiac care business and the transplant business, there's almost 250 different customers across the country. So it's a really great geographic diversity across the country. And that's one of the reasons that we like this model because the perfusionists that serve those cardiac care customers could also be utilized to provide those NRP services that we provide to transplant center customers. So there's this really strong foundation of trained personnel that are based locally across the country for the cardiac care business that can then support the transplant business as well. And we see a big opportunity to bring those valuable services to our mutual customer base because there's only about 10% overlap of the transplant customers between the legacy Strata business and Keystone. So great opportunity there. Jon Hickman: So is there any customer that's like, I don't know, 5% or more now of revenues. Any one customer that's that large. William Heyburn: We don't break out the customers on a business line by business line basis, but it's a very diversified business given that 250 customers for the revenue base there. Jon Hickman: Okay. And then could you elaborate -- I couldn't -- you gave us a lot of information pretty quickly. You said you got a new customer right at the end of the quarter? William Heyburn: Yes. On the logistics business, we added a new customer on the logistics side for organ procurement organization. And if you recall, Jon, those contracts tend to be a little more focused on the ground than on the air, but they'll do a little bit of both. And so excited to see that continued momentum for new customer acquisition. And a lot of that market share gain is what drove our outsized growth in this quarter from customers we added earlier in the year. And then we also mentioned that we added a new customer for organ placement as well. Jon Hickman: Okay. So as far as on the logistics side or the organ transplant side, so you were very heavy in the -- on the air side and Keystone had more ground services. Is that my recollection? Are you kind of evening out that those 2 revenue sides now? Or is air still predominantly the larger part? William Heyburn: Air is still a much larger part of the business, Jon, though, you're correct in a sense that Keystone is weighted more towards some of the organ procurement organization customers, which do -- they do have a lot of ground business that, that generates, though Keystone's revenue is really generated by surgical recovery services and NRP services that they're providing to those customers. But it creates a ground opportunity for us to provide the logistics to those underlying Keystone customers. But it won't create a material shift in the logistics business in terms of the weighting between air and ground. Jon Hickman: Okay. And then are you going to get to a point where you're going to break out like 2 different like logistics versus the Perfusion aside? William Heyburn: Yes. So if you look at our investor deck that we just posted this morning, you'll see that we've added a breakout on a pro forma 2025 basis of what the business mix is assuming Keystone was acquired on January 1 of this year. So that's sort of the best indicator of what the go-forward business mix is likely to be. I would flag for you that the Keystone business is concentrated in some of these really fast-growing subsectors of the transplant industry. So we talked on the call about how it grew more than 40% year-over-year in the month of September. So you will see a little bit of shift towards those services because we do expect, for example, NRP to continue growing as a percentage of the overall DCD recovery. So some of those underlying industry dynamics, we'll talk about a lot of it in much more detail next week at the Investor Day, will result in some mix shifts towards those services. Operator: And as I see no further questions in the queue, I will pass it back to Matt. Mathew Schneider: Great. So we got a few questions from investors directly, and we're just going to address that now. So the first question is, just a question about the seasonality that we saw in the third quarter with transplant volumes down mid-single digits. Will, why don't you take that one? William Heyburn: Sure, Matt. This is something that we expected, and we've seen it in the industry volumes the last 3 years or so in a row. At the end of the day, there's a supply and availability of transplant surgeons factor that drives the amount of volumes that can take place in the industry. And just historically, we've seen more vacations, more unavailability of surgeons and it does, unfortunately, impact the volumes. This year was no different. There could be some other factors at play on the year-over-year. There's always some lumpiness as we like to say, and the transplant volumes. But as you can see, given our market share growth, our new offerings and expanded service lines, we're growing right through that seasonality, which is where we want to be. Mathew Schneider: Great. Multiple ways to outgrow the industry. We also got a question just how is the Keystone acquisition going so far, we closed about 7, 8 weeks ago. Melissa, why don't you handle that one? Melissa Tomkiel: Sure. Thanks, Matt. We're getting real good positive reaction from our customers on the Keystone acquisition, and it's really a great team of people that we're thrilled to have join us. With Keystone surgical recovery and NRP capabilities, it truly makes us an end-to-end organ recovery platform. So the customers are really excited about having us as a one call option. Mathew Schneider: Great. Well, we received a few other questions, but we're going to save those for the Investor Day next week. We're going to hand it over back to Carmen. Operator: Thank you so much. And ladies and gentlemen, this concludes our conference. Thank you for your participation, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Almirall 9 Months 2025 Financial Results and Business Update Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Pablo Divasson, Head of IR. Please go ahead, sir. Pablo Divasson Fraile: Thank you very much, Nadia, and good morning, everyone. Thank you for joining us for today's quarterly earnings update and review of Almirall's 9 months financial results of 2025. As always, we are sharing the slides we are using today in the Investors section of our website at almirall.com. Please move to Slide #2. Let me remind you that the information presented in this call contains forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to materially differ from what we are sharing today. Please move to Slide #3. Presenting today, we have Carlos Gallardo, Chairman and Chief Executive Officer; Jon Garay, Chief Financial Officer; and Karl Ziegelbauer, Chief Scientific Officer. Carlos will start with the business highlights covered covering the first 9 months of 2025, followed by an update specifically on biologics and the key growth drivers of our medical and dermatology portfolio. Karl will provide you with an R&D status update presenting our pipeline. And Jon, will then talk you through the financials before Carlos concludes the presentation, and we open for questions. I will now hand over to Carlos Gallardo, our Chairman and CEO. Please move to Slide #5. Carlos Gallardo Piqué: Thank you, Pablo, and good morning to everyone on the call. Almirall delivered strong year-to-year-to-date results in 2025, and we are confident to reiterate our guidance, mid-term outlook and peak sales expectations. Our consistent growth is powered by the success of our medical dermatology portfolio, where we continue to deliver innovative treatments and broaden access for patients to support our physician community. Ebglyss delivered strong momentum in the third quarter of 2025 as European markets start to scale with launches now completed in the key countries. Encouraging uptake in newly launched geographies reinforces our confidence in the product's positioning and growth potential. Ilumetri continues to deliver steady year-on-year growth, keeping us on track to achieve peak sales of over EUR 300 million. Wynzora now capturing leading market share in key countries, together with Klisyri, strong performance across Europe are 2 other important contributors to our European revenue base. This underscores the breadth of our dermatology portfolio and Almirall's position as a comprehensive provider one-stop shop for diverse dermatological needs. We built our strong presence in the medical dermatology field throughout the year. In addition to participating in major events such as the 2025 annual AAD meeting, we reinforced our presence at the 2025 European Academy of Dermatology and Venereology Congress in Paris. Our contributions include 44 scientific abstracts, 2 expert live symposia and the presentation of 2-year positive study data on Ilumetri as a late-breaking abstract. On the clinical side, we are excited to share that the anti-IL-1RAP antibody has entered Phase II for Hidradenitis Suppurativa. We also plan to start Phase II studies in the upcoming months for the other proof-of-concept assets. Karl will soon provide a full update on the recent developments in our pipeline. Please move on to Slide 7 for an update on our biologics portfolio. In the first 9 months of 2025, Ilumetri generated EUR 171 million in net sales, marking a steady 12% growth year-on-year. We remain on track to achieve over EUR 300 million in peak net sales even as the product and the class start to reach a more mature stage in its growth curve. Ilumetri continues to be well positioned in the psoriasis market, keeping its market share and consolidating its position as a leading product within the leading anti-IL-23 class. The successful launch of a 200-milligram formulation provides greater dosing flexibility for patients, enhancing its competitive positioning and supporting long-term growth. In addition, 2-year positive study data presented at the 2025 EADV highlights the product long-term value and the overall impact on patient well-being. Please move on to the next slide on Ebglyss highlights. We view Ebglyss as one of the most successful atopic dermatitis launches in recent years since we gained approval in Germany in December 2023. It has quickly become our second best-selling product. Meanwhile, the advanced therapy segment within the atopic dermatitis market in EU5 continues to expand rapidly, growing at an annual rate of around 30%. Sales for the first 9 months of the year nearly quadrupled year-on-year to EUR 75.5 million, while Q3 sales reached EUR 31 million. Our focused execution has delivered solid quarterly growth momentum as European markets are scaling at a healthy pace following launches in most countries, with Portugal and Ireland undergoing negotiations. Encouraging early traction and market share uptake are evident across new geographies, building confidence in Ebglyss growth trajectory and positioning it as a key driver for future expansion. It is important to note that good reimburse reflects the high unmet need in atopic dermatitis and the value health care systems place on innovation. We are continuing to expand and increase brand awareness across multiple markets within the first year, with which we are very pleased. In terms of clinical advancements, our collaboration with Lilly remains highly productive, fostering valuable knowledge exchange that drives ongoing market development. At EADV 2025, we presented numerous study results on lebrikizumab, reinforcing our commitment to advancing care in atopic dermatitis. This included new real-world evidence from the ADlife study, long-term extension data up to 3 years patient-reported outcomes and safety analysis. Collectively, these results highlight rapid symptom relief for sustained efficacy, further strengthening Lebrikizumab's differentiated pipeline. Let me turn it over to Karl for an update on our pipelines. Karl Ziegelbauer: Thank you, Carlos, and good morning to everyone on the call. This slide shows you the status of our pipeline. Let me focus on the progress we made in the last month. We expect the approval of sarecycline in China still this year. Together with our partners, Sun Pharma and Eli Lilly, we continue to work on expanding the labels for our key products, Ilumetri and Ebglyss, respectively. Our partner, Sun Pharma announced in July the top line results of 2 Phase III studies to assess the efficacy and safety of tildrakizumab in patients suffering from psoriatic arthritis. Both trials met their primary endpoint at week 24 and are still ongoing for additional 28 weeks until completing the open-label extension. We keep you updated for next steps. Our partner, Eli Lilly has recently published data from an additional 32-week extension of the Phase III ADjoin trial at the 2025 Fall Clinical Dermatology Conference that indicates that lebrikizumab sustained similar levels of skin clearance when administered as a single injection of 250 milligram once every 8 weeks compared once every 4 weeks. This supports a potential less frequent maintenance dosing in patients with moderate to severe atopic dermatitis. These data build on lebrikizumab proven efficacy and demonstrate the potential for disease control with even less frequent dosing. Lilly has submitted this data from the ADjoin extension trial amongst other data to the FDA for a potential label update. As the regulatory and market access environment is different in Europe, we will stick to our label with a recommended 250-milligram lebrikizumab for weekly pathology. At the same time, we are investigating lebrikizumab maintenance dosing of 500-milligram administered once every 12 weeks as part of our ADhope 2 clinical trial. Together with our partner, Eli Lilly, we are running joint clinical development programs to make lebrikizumab available to additional patient populations. The different programs are well on track and a data overview can be found in the appendix. We have created an exciting early clinical pipeline addressing novel mechanisms and best-in-class compounds in high medical skin disease. In the coming 9 to 12 months, we plan to have initiated for proof-of-concept Phase II clinical studies across a spectrum of different dermatological diseases. Let me highlight some of the progress. For our anti-IL-1RAP monoclonal antibody called LAD191, we have completed Phase I single and multiple ascending doses in healthy volunteers. We have also explored pharmacokinetics, pharmacodynamics and safety in patients suffering from hidradenitis suppurativa and presented those data at EADV meeting in September this year. LAD191 was well tolerated and demonstrated a favorable safety and PK profile with patients with hidradenitis suppurativa. LAD191 showed a trend in decrease in neutrophil count. Furthermore, it led to downstream cytokine reduction and early signs of clinical improvement in HS lesion count. A Phase II study to explore the efficacy of multiple dosing regimens of LAD191 compared to placebo in participants with moderate to severe hidradenitis suppurativa has been started. Together with our partner, Simcere, we are developing a so-called IL-2 mutant Fc fusion protein to stimulate regulatory T cells as a novel approach to treat autoimmune kinase. We have recently completed Phase I and plan to start a Phase II study in alopecia areata within the next month. Our partner, Simcere has initiated a Phase II study to evaluate the efficacy and safety of this IL-2 mutant Fc fusion protein in subjects with moderate to severe atopic dermatitis. In summary, we're making good progress with both our early and late-stage pipeline programs. With that, I will hand over to Jon for the financial review. Jon U. Alonso: Thank you, Karl, for the update on our R&D pipeline, and good morning, everyone. As Carlos highlighted earlier, company's consistent execution continues to achieve solid tangible results. In the first 9 months of 2025, Almirall delivered a strong performance with net sales growing nearly 13% year-on-year on track with the company's full year guidance. European dermatology portfolio remains the key growth driver in net sales, reinforcing Almirall's path towards leadership in medical dermatology. Gross margin moderated to 64.9% of sales in the first 9 months, reflecting ongoing pressure related to Ilumetri royalties. EBITDA for the period reached EUR 180.7 million, marking a 27% increase versus the same period last year, driven primarily by robust top line growth and a lower SG&A over net sales ratio. SG&A increased 6.2% to EUR 366.7 million, with the mentioned lower growth in the third quarter. However, as with previous years, we do expect a certain pickup in expenditure in the final quarter. R&D spending increased by about 14% year-on-year, representing 12.5% of net sales. The ratio of spending relative to net sales moderated this quarter following higher investment in Q2, keeping us on track with our annual target. We closed September with a net debt-to-EBITDA ratio of 0.1 after solid cash generation in the quarter. Our low leverage provides significant flexibility to pursue licensing opportunities and targeted both on acquisitions on an opportunistic basis. These results reinforce our confidence in delivering full year 2025 guidance and the midterm outlook shared earlier this year. For the full year, we expect to land near the midpoint of our guidance range for both net sales and EBITDA. Please keep in mind the tough comparison against Q4 2024 revenue when the company reported sales growth of 17%. In addition, as mentioned earlier, we expect a pickup in SG&A in the next quarter, which simply reflects a natural pacing of quarterly cost and sales trends. As a reminder, our 2025 guidance calls for net sales growth of 10% to 13% and EBITDA in the range of EUR 220 million to EUR 240 million. Let's move to the details of our sales breakdown on the next slide. The European dermatology business delivered a strong performance with net sales growing 24.5% year-on-year in the first 9 months. Additional details will be shared on the next slide. In general medicine and OTC, European sales were mainly impacted by the recent divestment of Algidol and the out-licensing of Sekisan. Excluding these portfolio changes, the segment remained broadly stable. A delayed allergy season in Ebastel continued erosion of Efficib/Tesavel and lower sales of minor products were largely offset by a solid contribution from Almax. On out-licensing, we expect full year income to remain broadly consistent with 2024 and prior years as these transactions are part of our ongoing strategy to maximize portfolio value, including the deals mentioned earlier. Performance in the U.S. declined and further details will be shared on the next slide. In the rest of the world, general medicine remained broadly stable, while dermatology saw a slight decline. Let's take a closer look at the dermatology business on the next slide. Our European dermatology business continued to prosper. Ilumetri exhibited its characteristic summer seasonality with flat quarter-on-quarter sales and healthy year-on-year growth. Ebglyss consolidated its position as a primary growth engine for the company. Meanwhile, we are actively building market share for Klisyri and Wynzora as the launches gain traction across key European regions. Ebglyss delivered EUR 75.5 million sales in the first 9 months as European markets scale up after launching in all key countries. This performance is in line with expectations and reinforces our confidence in the product robust growth potential. Both Skilarence and Ciclopoli maintained sales growth in line with prior years with a slight growth compared to the last year. In the U.S., performance declined year-on-year. While Klisyri's large field launch continued to generate growth, these gains were offset by persistent pressure on the legacy portfolio. Products such as Cordran Tape, Physiorelax and Aczone remain impacted by ongoing generic competition. Additionally, Seysara sales fell versus last year primarily due to a contraction in the overall oral antibiotic market for acne. In the rest of the world, dermatology sales dipped year-on-year, reflecting lower license income compared to 2024. Now let's review financial statements on next slide. In terms of P&L and once revenue has been covered, gross margin moderated to 64.9% in the first 9 months of 2025 as we continue to face ongoing margin pressure, primarily driven by higher royalty tiers linked to Ilumetri's growth. At 12.5% of net sales, R&D spending remained broadly in line with the same period last year with the third quarter reflecting a moderation in investment levels compared to the elevated activities in prior quarters. SG&A expenses increased 6% versus the same period last year as we continue to support these launches in new markets and other key products. As highlighted earlier, we expect SG&A to pick up in the final quarter of the year due to the typical seasonal timing of our marketing activities. Financial expenses improved year-on-year, primarily reflecting an EUR 8 million positive impact from the valuation of the equity swap driven by share value increase year-to-date. Finally, a reminder that our effective tax rate remains impacted by the inability to offset the U.S. tax losses against European profits, consistent with the full year guidance provided earlier this year. Please move to the next slide to take a look at the balance sheet. Our balance sheet remained very stable in the first 9 months of 2025 compared to the same period prior year as shown in the slide. Goodwill and intangible assets decline was driven by depreciation, which outweighed the impact of R&D capitalization and progress in our pipeline. In the third quarter, capital expenditures remained minimal, primarily related to the recently extended collaboration agreement with Simcere. Our net debt ratio remains low at 0.1, providing continued flexibility to pursue inorganic growth opportunities. The decrease in net debt primarily reflects solid cash flow generation during the third quarter. Let's take a look at the cash flow statement next. Company improved cash generation during the first 9 months of 2025 by EUR 44 million versus same period prior year. Cash flow from operating activities was EUR 146 million during the period, representing an improvement by EUR 40 million versus last year, mainly driven by material improvement of profit before taxes is slightly offset by working capital increase as our business grows. Cash flow from investing activities reached minus EUR 104 million, improving EUR 20 million versus prior year, driven by lower investments, mainly EUR 43 million in the sales milestone booked in 2024 partially compensated by milestones related to Wynzora and pipeline progress. Finally, cash flow from financing activities was minus EUR 43 million, an increase in cash outflows by EUR 17 million compared to last year, driven by higher cash dividend selected by shareholders and partially offset by the positive equity swap impact mentioned earlier. With this, I would like to pass the word to Carlos for his closing remarks. Thanks a lot, everyone, for your attention. Carlos Gallardo Piqué: Thank you, Jon. As Jon confirmed, we remain on track to deliver our 2025 guidance and midterm outlook as we have a clear ambition to achieve our double-digit net sales CAGR through 2030 and reach an EBITDA margin of approximately 25% by 2028. We are poised to lead in a rapidly expanding medical dermatology market, leveraging a proven platform for sustainable growth. Over the past decade, we have built a foundation that combines scientific depth, operational excellence and a pipeline with disruptive potential, including several first and best-in-class assets. Together with our long-standing relationship with dermatologists and patient communities across Europe, which drive our relevance as a leader in medical dermatology, this strength represent a clear competitive advantage, positioning us to capture a meaningful opportunities for both growth and margin expansion. To translate this strength into sustained value creation. We apply a focused and prudent capital allocation strategy. We are investing in current and upcoming launches to drive midterm growth, actively strengthening our pipeline through internal R&D and in-licensing, maintaining a stable dividend policy and remaining open to targeted business development and licensing opportunities, all supported by a solid liquidity position. Our strategy of turning disciplined execution into solid financial results is encouraging. As we close the third quarter for 2025, momentum remains strong. Ilumetri and Ebglyss continue to drive double-digit total sales growth, reinforcing the strength of our dermatology franchise. Looking ahead, we expect further pipeline milestones in the coming months, adding depth to an already differentiated portfolio. We are committed to shaping leadership in medical dermatology in Europe, turning innovation into growth and delivering lasting value for patients and shareholders. With this, we conclude the presentation. And I hand it back to Pablo for the Q&A session. Pablo Divasson Fraile: Thank you very much, Carlos. Nadia, back to you for the Q&A, please. Operator: [Operator Instructions] And it comes the line of Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: Just a few pieces. Starting off with Ebglyss, please could you remind us, is the pediatric opportunity included in your current peak sales guide? And what's the overlap there with your current sales force? Or would that require additional SG&A investment? And then with Ebglyss with the peak sales guide, have you ever disclosed kind of what that implied penetration is would be of the European ATD market when you reach that peak? And then secondly, on your midterm guide, how important is the Klisyri inflection in terms of reaching that midterm? Or is it primarily driven by your 2 biologic therapies? And then finally, I may be looking incorrectly, but I couldn't find the IL-1RAP trial? And when might we expect the data from that to read out? Carlos Gallardo Piqué: Thank you very much, Lucy. I'm not sure I got your last question about the anti-IL-1RAP. Is the question about what? Lucy-Emma Codrington-Bartlett: It is when will we expect the data from that? Carlos Gallardo Piqué: Maybe you can with this question. Karl Ziegelbauer: Thanks a lot, Lucy for the question. As I mentioned, for our anti-IL-1RAP monoclonal antibody, we have just started a Phase II in hidradenitis suppurativa and we start getting data towards the end of 2026, 2027. Carlos Gallardo Piqué: Thank you, Karl. And about your other questions, Lucy. So pediatric indication, yes, it's ongoing. It's an important part of our clinical study to generate further data. And yes, the potential of this population is already included in the peak sales estimate, and we don't expect further investment. We don't need further investment. We already have the necessary infrastructure to capture the pediatric opportunity. In terms of the peak sales, we have not disclosed the penetration, but we believe we have the best product in our hands. So it will be -- a we believe that at peak sales Ebglyss will be playing a very significant role in treating naive patients for moderate to severe atopic dermatitis. Lastly, your question about the midterm, the key is to realize the value on our -- on 2 of our biologics, Ebglyss and Ilumetri, that's what will drive our ambition to grow double-digit growth and the margin expansion. Klisyri and Wynzora will play a lesser role on that regard. Operator: And the question comes from the line of Guilherme Sampaio from CaixaBank. Guilherme Sampaio: Two, if I may. The first one on ADjoin and of course, the data was quite enticing. I appreciate the additional color that you provide on what you're doing. But you could provide a bit of time line for the options that you're following to obtain a label update? And the second question is a bit towards 2026. If you could provide us some initial indications on how you're seeing the year in terms of top line and EBIT expansion? Carlos Gallardo Piqué: Thank you, Guilherme. The time line, I missed probably for ADjoin. Karl, can you take this question please? Karl Ziegelbauer: That you mean -- Sorry, the ADjoin study? Guilherme Sampaio: No, no, no. I mean so the efforts that you are undertaking to leverage on data that could be similar to ADjoin to obtain potential more favorable dosing... Karl Ziegelbauer: Yes. AD is a chronic disease that requires chronic treatment. That's why generating data that shows a long-term efficacy and safety are very important. We are running a study that is called ADlong, where we will generate data on efficacy and safety of lebrikizumab for up to 5 years. We have recently published 4-year interim data that have shown that patients who have been well controlled after week 16 maintain a very good skin clearance and efficacy for up to 4 years. And we will have then 5 years data next year 2026. Carlos Gallardo Piqué: And here about your question about the 2026 outlook, we have to be a bit more patient as we typically shared these expectations in February. But I think that Jon has provided already a highlight, right? You can comment. Jon U. Alonso: As Carlos has mentioned, Guilherme, it's too early to provide detailed performance figures for 2026. I know that my predecessor, Mike used to share some high-level indications with you all ahead of the fiscal year results. So if some context can help, we can offer that we expect 2026 growth and EBITDA to be in line with the most recent midterm guidance. We expect net sales to remain into the double-digit territory. And please bear in mind that our midterm guidance does not include a typical M&A except beyond the usual portfolio optimization we do every year. We will see certain pressure in the gross margin as we have several licensed products that are subject to royalties, which means that actual margin expansion will happen at EBITDA level as sales are expected to grow more rapidly than SG&A expenses once the commercial infrastructure for Ebglyss has already been fully deployed in Europe. R&D expenditure or the net sales ratio aligned with the 1 shown in 2025 seems to be a fair proxy in the near midterm. So hopefully, this helps and we will disclose further details early next year. Operator: And the question comes from the line of Natalia Webster from RBC. Natalia Webster: Firstly, just a follow-up on Ebglyss. This continues to grow well quarter-on-quarter, but I was just curious to hear a bit more about how you're seeing the competitive dynamic evolving in Q3? And if the continued NEMLUVIO launch has impacted Ebglyss' market share in key European markets? And then my second question is on Efinaconazole following the approval in Germany in August. Are you able to provide some more details on your launch preparations and thoughts around growth potential for this product over the medium term? Carlos Gallardo Piqué: Okay. Natalia, thank you for your question. So as I mentioned before, Ebglyss dynamics remain very favorable and in line with our expectations. We continue to receive very positive feedback from dermatologists, both in the more experienced ones in countries where we have launched already a number of months ago, but also in the newly launched countries such in France, the feedback form remains very consistent. So very good news. The majority of the prescriptions continue to come from naive patients, and that's very aligned with our strategy. So also confirmation of our expectations and good news there. In terms of NEMLUVIO impact, it's too early to say as NEMLUVIO has only launched in Germany, in Europe. So far, as we mentioned in other calls, we believe that new entrants will expand the market, and we remain confident, and that's based on the feedback of the dermatology community, that the anti-IL1 and anti-IL13 remains the key class to treat these patients. And also, we believe that IL-31 is more indicated for prurigo nodularis. But in any case, we believe that new launches will have to make even more noise and expand the market as only 10% of eligible patients that could be treated with advanced biologics or advanced treatments are only treated today with this treatment. So there's a tremendous opportunity to continue to help patients in this class that will lead to market expansion. On Efinaconazole, we are getting ready for launches in selected countries, and we will update you more probably in 2026. And -- but we will play a modest role in the contribution to sales at the end. Operator: And the question comes from the line of Joaquin Garcia-Quiros from JB Capital. Joaquin Garcia-Quiros: Yes. So the first one, there was a EUR 20 million -- a bit more than EUR 20 million positive impact in free cash flow from other adjustments. Just if we could have more color on what exactly was the cause of that? Then on M&A, would you consider now that I know is still on ramp up, but there's been a few years now since launch on a more relevant M&A acquisition or you're still targeting on smaller deals? And then lastly, could you have a bit of insight on to hidradenitis suppurativa and the alopecia areata market? Do you have some information on these? How big could this be for you? Carlos Gallardo Piqué: Thank you, Joaquin, for the question. So I will leave the first one to Jon, but let me answer the second question from my side. In terms of M&A, we remain extremely focused on delivering value for the company in organic growth to make sure we maximize the penetration Ebglyss and Ilumetri. And of course, moving our -- the assets into POC, right? So that's where we dedicate a lot of our efforts. However, licensing and M&A continues to be an important part of our strategy. So far, now we are looking at bolt-on opportunities from an acquisition perspective and platform licensing from early and late-stage opportunities in all geographies. HS and alopecia areata, these are 2 areas where there's tremendous unmet need from a patient perspective, and that's based on strong feedback from the dermatology community. We are very exciting to have 2 assets that have potential to be the first and best in class. And we believe that if we get positive results and our target product profile is confirmed that we will have a therapies in our hands that will have a significant impact on the company, on the patient, but also from a sales perspective in the company. And we cannot -- now we're not prepared to provide more specifics here, but could be a major impact to the company is a target product profile is confirmed in the clinical trials. Jon, so for the first question, Joaquin. Jon U. Alonso: It's Jon, yes. Sorry for the first question, Joaquin. Thanks for your question. Yes, the improvement you have seen in our cash flow statement relates to an advanced payment received during the quarter regarding a license deal for one minor product in our portfolio to commercialize this in the countries included in the Eastern Europe and Western Asia, most only in the Commonwealth of Independent States. There is no impact in the P&L as it will be recognized in the future years. I hope it helps. Operator: And the question comes from the line of Jaime Escribano from Banco Santander. Jaime Escribano: So a few questions from my side. Could you remind us the pediatric indication for Ebglyss, when do you think it can be launched? Or when could we have some impact in sales basically? Second, on Seysara in China, what could we expect here? Any news? And what's the potential in revenues? And then a little bit of housekeeping for the modeling. Can you remind us tax rate for this year more or less where could we stand? Also the milestones for 2026, if you can remind us? And a final question. Yes. My final question is a spicy one. I don't know if you will answer, but basically, when you see Bloomberg consensus at around EUR 280 million EBITDA for 2026, how do you feel about this figure? Is it something fair? Is it something ambitious? Or you feel comfortable with that? Karl Ziegelbauer: Yes Jaime, this is Karl speaking. Thanks for your question. The pediatric study called ADorable 1 and ADorable 2 are run by our partner, Eli Lilly for the first one that covers participant 6 months to younger than 18 years. The Lilly expect primary completion in December this year and full completion in December 2026. And ADorable 2 is then the long-term safety and efficacy and the primary completion is expected in December 2027. Then after that, of course, there is the combination of the data, the submission and then the extension of the label before we then can finally launch. Carlos Gallardo Piqué: Do you want to comment on Seysara China? Karl Ziegelbauer: Yes. On Seysara, China, as I have mentioned in the presentation, we expect the approval of Seysara in China still within this year. Carlos Gallardo Piqué: Thank you Karl. Jon do you want to take the other 2 questions from Jaime? Jon U. Alonso: Thank you very much, Carlos. I think the first question regard -- related to the tax rate for this year. So right now, the tax rate is around 40%, which is a significant improvement versus prior year and is aligned with the full year guidance we provided for this year. We are working as hard as we can to try to be more effective here. But right now, I'm not confident providing any guidance for next year. We will just try to work and see how much we can improve. The other 2 questions regarding to 2026 in the sense of milestones and EBITDA. If we start with milestones, I think that, again, bear in mind for us, it is too early provide the detailed performance figures for 2026. But bear in mind, I think to assume certain milestone levels similar to 2021. Initially, it could be a good estimate, and we will provide further details in February 2026 when we disclosing the guidance. Regarding the Bloomberg consensus, right now, we are very positive about the performance of the company and confident in achieving our stated guidance. That's why we have reiterated it this quarter. Coming back to next year, it is still too early. But so far, we cannot -- I cannot tell you if we agree or we do not agree. It's a statement based by third parties. And what we have shared just in this call is that we expect to remain in the midterm range provided for the company. We will provide more information in February, so please stay tuned. Thank you very much. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Pablo Divasson for any closing remarks. Pablo Divasson Fraile: Thank you very much, Nadia. Thank you. As there are no further questions, ladies and gentlemen, this concludes our today's conference call. Thank you for your participation. You may now disconnect. Operator: Thank you for joining today's conference call.
Operator: Good afternoon. Thank you for attending the Laird Superfood, Inc. Third Quarter 2025 Financial Results Call. My name is Matt, and I'll be a moderator for today's call. [Operator Instructions] I'd now like to pass the conference over to our host, Trevor Rousseau, Head of Investor Relations with Laird Superfood. Trevor, please go ahead. Trevor Rousseau: Thank you, and good afternoon. Welcome to Laird Superfood's Third Quarter 2025 Earnings Conference Call and Webcast. On today's call are Jason Vieth, Laird Superfood's President and Chief Executive Officer; and Anya Hamill, our Chief Financial Officer. By now, everyone should have access to the company's earnings release, which is filed today after market close. It is available on the Investor Relations section of Laird Superfood's website at www.lairdsuperfood.com. Before we begin, please note that during this call, management may make forward-looking statements within the context of federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those described. Please refer to today's press release and other filings with the SEC for a detailed discussion of these risks and uncertainties. And with that, I'll turn the call over to Jason. Jason Vieth: Thank you, Trevor, and good afternoon, everyone. Thank you for joining us today for our third quarter 2025 earnings call. I'm pleased to report another quarter of solid top line growth as we continue to execute on our strategy to build Laird Superfood into a leading player in the premium plant-based functional food space. Net sales for the third quarter increased 10% year-over-year to $12.9 million, driven primarily by strong performance in our wholesale channel. For the first 9 months of 2025, net sales were up 15% to $36.5 million. Our wholesale channel continues to be a standout with net sales up 39% in the quarter and 40% year-to-date. This growth reflects our focused efforts on expanding distribution, particularly in grocery and club stores, where we've seen robust velocity gains and increased shelf space. We're seeing strong consumer demand for our core products like coffee creamers, hydration enhancers and functional beverages, as shoppers increasingly seek out clean, functional ingredients that align with healthier lifestyles. The wholesale channel contributed 53% of net sales during Q3 and through the first 3 quarters of 2025, represented 49% of our total net sales. This is well aligned to our strategic intent of transitioning Laird Superfood to being a wholesale-led company. In our e-commerce channel, which represented 47% of net sales in the quarter, we experienced an 11% decline year-over-year, primarily due to softness in our direct-to-consumer platform from lower new customer acquisition. However, this was partially offset by continued growth on Amazon.com. Year-to-date, e-commerce was relatively flat, and we remain optimistic about this channel's potential as we refine our digital marketing strategy and leverage our loyal repeat customer base, which accounted for about 88% of DTC sales in the quarter. Gross profit for the quarter was $4.7 million, down 7% from the prior year, with gross margin contracting to 36.5% from 43% last year. This was fully expected and largely due to commodity cost inflation and channel mix shifts towards wholesale, but also due to the nonrecurrence of a onetime supplier settlement benefit that we recorded in Q3 of last year, which impacted margins by about 3 points. Year-to-date, gross profit increased 9% to $14.4 million, as we have managed to offset a good portion of the commodity and tariff impacts that have swept the national headlines. Anya will provide more details on our financials in a moment, but overall, these results demonstrate the progress that we're making in scaling our business while navigating a dynamic market environment. Turning to business highlights. We're excited about the momentum in our wholesale expansion. We've continued to add distribution points at major retailers and our velocities in core categories like shelf-stable creamers continue to outperform our expectations. This validates our focus on premium functional ingredients that resonate with consumers, shifting away from sugar laden and artificial options. On the innovation front, we're continuing to invest in product development to diversify our portfolio and drive repeat usage. We are excited to be launching our new protein coffee in the next month, and we have already begun shipping our new liquid creamer products. On liquid creamers, this marks an enormous improvement to our existing formulation. We've now replaced the coconut oil with organic coconut cream, increased the level of adaptogenic mushrooms and replaced cane sugar with lower glycemic index coconut sugar. The resulting taste and texture are far superior to our previous products, and I would dare say the best tasting and healthiest products on the market. We are relaunching these creamers as organic formulations and packaging them in a post-consumer recycled plastic bottle that will be really attractive on the retailer shelves. Now back to protein coffee. We have high expectations for this launch. This marks Laird Superfood's first foray into dairy products, a market which is somewhere around 10x as large as the plant-based market that we have been participating in to date. And the product that we are launching is dynamite. It's a high-quality freeze-dried coffee, blended with 10 grams of dairy protein per serving, perfect for anyone looking to add protein to their diet. And with low calories and no sugar, it's also a perfect fit with today's health and wellness trends and great support for anyone taking GLP-1s. As part of our strategy to streamline operations and focus resources on our highest growth opportunities and Laird Superfood brand, we've made the decision to discontinue the Picky Bars brand in the second quarter of 2026. This will allow us to redirect investments toward the core Laird Superfood brand, which we believe has the strongest potential for scale. In connection with this, we recorded a $661,000 impairment charge in the quarter related to Picky Bars intangible assets. From an operational standpoint, we were able to reduce our inventory by more than $1 million in the third quarter. You'll recall that we had strategically built our inventory through the first half of 2025 in order to meet rising demand without the out of stocks that we experienced last year and to mitigate the impact of tariffs on imported raw materials, particularly from Southeast Asia. As we continue to sell through this inventory in the coming quarters, we expect cash flows to improve as a result. And speaking of tariffs, I am also pleased to be able to report that we recently were informed that our coconut milk products will not be subject to additional tariffs, reducing the impact on our go-forward costs and improving our 2026 financials by more than $1 million. For the balance of 2025, we're focused on optimizing our supply chain, managing costs and driving efficiencies to expand margins over time. We'll also continue to monitor the macroeconomic factors like commodity inflation and potential trade policies, but we're well positioned to navigate them as we close out this year and head into 2026. Q3 was another step forward in our journey to build a scalable, profitable business. We're executing on our plan, and I'm excited about the opportunities ahead. With that, I'll turn it over to Anya for a more detailed review of our financials. Anya Hamill: Thank you, Jason, and good afternoon, everyone. I will now provide you with some additional details on the third quarter of 2025 financial results and our outlook for the full year performance. I am pleased to report another robust quarter for Laird Superfood highlighted by double-digit top line growth, healthy gross margins, positive adjusted EBITDA and $1.1 million of positive operating cash flow. Net sales grew 10% to $12.9 million compared to $11.9 million in the prior year period and $12.0 million last quarter. And excluding Picky Bars products, net sales increased 14% in the third quarter. Although net sales growth came in softer than anticipated, primarily due to the timing of large wholesale customer orders, our underlying fundamentals remain strong and unchanged. Our wholesale channel continued to deliver exceptional momentum, increasing 39% year-over-year and representing 53% of total net sales, driven by ongoing distribution gains in both grocery and club. E-commerce sales declined 1% year-over-year, reflecting softness in DTC though this was primarily offset by continued growth on Amazon. Overall, the e-commerce channel contributed 47% of total net sales. Gross margin in the third quarter delivered robust 36.5 points compared to 43.0 points in the corresponding prior year period. It is worth noting that prior year Q3 margins have benefited from onetime favorable supplier settlement that accounted for approximately 3 points of gross margin. Excluding that onetime benefit, Q3 gross margins were about 3.5 points lower than corresponding prior year period and 3.4 points lower than the second quarter of 2025. These results are in line with our expectations given commodity inflation in our key raw materials, such as coffee and coconut milk powder and increased tariff costs. We are confident in our ability to hold gross margins in upper 30s for full year 2025 and beyond, which is at the level of best-in-class CPGs, despite inflationary pressures and even without using pricing as a lever. Our supply chain team continues to drive efficiencies by directly partnering with key raw material suppliers, and co-packing partners to find cost savings to offset rising commodity costs. Operating expenses increased $0.4 million in the third quarter compared to the same quarter last year, driven by increased marketing investment and advertising costs as well as increased selling costs due to higher sales volume. General and administrative expenses were relatively flat during Q3 of 2025 with Picky impairment charges, largely offset by decreased personnel costs and professional fees. Net loss for the third quarter was $1.0 million compared to $0.2 million loss in the prior year period. The increase in net loss was primarily due to $0.7 million impairment charge of long-lived intangible assets related to the Picky Bars brand as well as higher marketing and selling costs on higher top line sales. This was offset in part by decreased personnel costs. Adjusted EBITDA was positive $0.2 million compared to $0.1 million in the same quarter prior year. The improvement in adjusted EBITDA was driven by top line growth and discipline around cost control as we are well on the way to breakeven and profitability. Now turning to our balance sheet. We ended the quarter with $5.3 million in cash and no debt. As we discussed last quarter, we made targeted forward purchases of certain raw materials earlier this year to mitigate tariff-related cost increases. During the third quarter, we began drawing down this inventory, reducing our position from approximately $11 million to $10 million, while increasing our cash balance by $1.1 million quarter-over-quarter. We expect to continually building our cash position in the fourth quarter and into early 2026, as inventory continues to convert to cash. We exited the third quarter with solid momentum in our core categories, a strong innovation pipeline and continued confidence in our team and our brands. While macroeconomic uncertainty, particularly with e-commerce channel and the timing of large customer orders are impacting our near-term top line, our underlying fundamentals remain strong. Reflecting year-to-date trends and these time and effects, we are updating our full year 2025 net sales growth expectation to approximately 15% growth. We continue to expect gross margin to hold in the upper 30s range and to achieve breakeven adjusted EBITDA for the full year. We also remain confident in our ability to deliver a strengthened cash position, supported by our disciplined execution and positive operating cash flow in the third quarter. And now I will turn the discussion back to the operator and open it up for questions. Operator: [Operator Instructions] First question is from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: Great. First one for me, I just wanted to zero in a little bit more on the guidance. So certainly understand the volatility and size and timing of some key customer orders in the wholesale channel. I guess I was just a little confused if this negatively impacted Q3 results or Q4 or maybe both? If you could just give bit more color on perhaps where this timing shifted to, would be helpful? Jason Vieth: Yes. Eric, good to hear from you again, and thanks for that question. Yes, I mean the reality is this -- you hit it on the head, this is a timing issue related to reorders and new orders of -- pretty substantial orders, by the way, for new regions in club space, that's primarily what drove this. Similar, because we only have a couple of customers that we ship to that distribute them to the rest of the retail space, that being, of course, UNFI and KeHE, we did experience a little bit of a timing issue there, too. What we're seeing is we have really healthy sell-through, and we just had a timing issue that kind of caught us a little bit off. I think we're being a little bit -- as we go into Q4, we're also being a little bit cautious looking at timing there, too. And everything is just -- it's turning well, and the results look great. It's just moving a little bit slower than we expected with regards to when replenishment schedules come and the inventories that are being carried. And I think there's some rebalancing of inventories that took place also especially with the retail distributors. So we're taking a cautious eye towards that. It's -- for us, it's impacting Q3, Q4, but we don't believe that there's long-term impact from -- in any of those to the long-term health of the business. We think that the business is still exactly as it was. In fact, we continue to gain momentum, especially in that club space. So we think we're exactly where we thought we'd be, just off by -- broadly exactly where we thought we'd be, just off with a little bit of timing. Eric Des Lauriers: Yes. Yes. No, that certainly makes sense to me. And yes, I mean, at this size and the size of the orders, certainly, this dynamic isn't unique to you guys. I just wanted to sort of zero in on Q3 versus Q4, but I got what I need to know. Next question, I suppose is somewhat related. Last quarter, the 750-milliliter product, Refresh, had some nice impact on shelf space and velocities. I just wanted to sort of check in and see how those sales are trending? And any sort of early indications on how you might think of this protein beverage as well? Obviously, not out on shelves yet, but just curious how you're looking at that as well? Jason Vieth: Yes. Yes. Great question. I'll take that one again and probably try and hand everything to Anya from here, she can work out her vocal cords. So on the first piece with regards to the 750 ml, the upsizing worked about as we expected. When I go look at the data now, what I can see are a decline in units and a commensurate increase in dollar sales relative to the resizing that took place. Recall, we went from 500 ml to 750 ml, so up 25%. And we saw units shrink down just about that much on a velocity basis and sales basically hold from a velocity perspective. So it's kind of -- I'd give that one -- maybe I'd grade data, a checkmark at this point, don't really get to an A to F scale because we're going to go right back into it again. We -- that was a 9-month exercise essentially. And as we mentioned, we're leading that co-packer completely and moving to just an incredible formulation in a better package that's 100% organic that we think is really poised to make wave. So we did what we had to on that one. We had to play some catch up, as you guys know, because we had lost some distribution of small accounts right out of the gates and put a lot of pressure on our broker to make that up. We're just getting to where they've made it up and then we're going through the transition again. But we've got all the battle scars on our backs, and we're going to make sure, as we go forward, that those lessons get applied so that we don't relive Groundhog Day on that one. We feel like we know exactly what we need to do. Our broker is very clear. The communication is there. We're into that transition now. In fact, you can find us on a couple of selves already with the new post-consumer recycled plastic bottles, 100% organic formula, great tasting, super healthy creamer at Whole Foods and a few other retailers already. And we think -- we don't have any returns on that yet. It just hit the shelf in the last week, but we think that's going to be dynamite. So we're where we expected to be. When I look at -- if I look at the scanner data, we're right on it, in fact. And so kudos to the team for its forecasting. It just took us longer to get here than we thought it would take. So we finally got caught up, and we'll hold that from here. Eric Des Lauriers: Great. I appreciate that color. Next one just a bit of like a high-level question. So coffee prices obviously at record highs right now. On the one hand, I could see that having a negative impact to volumes of coffee-adjacent products like creamers; on the other hand, it may have a tailwind to coffee alternatives like your mushroom-based coffee and a functional copy. So just curious what you're seeing from a sort of macro impacts on your different product types here? And just kind of how to think about the impact of elevated coffee prices on your business? Jason Vieth: Yes. It's -- this is on our mind pretty constantly, probably everybody in the category. We have done a nice job of acquiring our coffee throughout 2025 to put us in a position to be able to hold the line on price so far. And so we've not -- we've taken in total, I think, $1 at retail in the last few years. And so we're in a position where if coffee continues to climb like this, and we have to make purchases into that headwind, we may need to touch price. But by holding -- and we were a little bit premium price coming in. But by holding price through that time, I think we've been able to capture a lot of volume, and we've been able to gain nice distribution points as well by partnering with retailers to be a strong premium yet not ridiculously priced play for them. And so it's been good for us. I think on the creamer side, we've certainly seen creamer slowdown. We know volumetrically, there's got to be a slowdown that's obvious, but there's still so much share for us on the coffee -- in the coffee category for us to be able to take and we think we have just an incredible proposition with a high altitude peruvian organic coffee with functional mushrooms at the price point that we're at. And so far, what we're seeing is we're being rewarded for that. Eric Des Lauriers: That's great. Congrats on the continued strong wholesale growth, and I appreciate you taking my questions. Jason Vieth: Thanks, Eric. Operator: Next question is from the line of Nicholas Sherwood with Maxim Group. Nicholas Sherwood: Can you talk about some -- what you've seen in limited time offer products? I've seen the pumping spice creamer on the shelves, I was kind of just want to see what you've been seeing from retailers and consumers when it comes to those products? Jason Vieth: Yes, what we've seen is that there's -- it's been a pretty good pumped in year, it looks like across the category. We got a late start with one of our key retailers, just kind of a weird operational SNAFU, but we've done really well. We're catching up on that as well. So for us, it will end up being a pretty typical year. It's not a big part of our business. In fact, I think in the future, it's an opportunity for us, and we are selling aggressively as we move from this year in that space. But we sold out early in almost all retailers. I think we call it a really successful year. Nicholas Sherwood: Okay. Perfect. And then switching gears, looking at e-commerce. How -- what is the strategy for the Amazon sales to start replacing some of those lost DTC sales? And is that something that we can kind of expect to see more in 2026? Can you kind of just walk me through what kind of strategy you're seeing there right now? Jason Vieth: Yes. Yes, great question. So the 2 key strategies that we have from a sales perspective are: one, to take our products to retail. When I got here a couple of years ago, we were a very small portion of retail business, and we're now about running around 50-50. And we expect over the next couple of years that to grow and approach 2/3, 1/3 retail to online business or wholesale to online and then only grow from there. So our expectation is that we become more wholesale-driven over each year as we go forward or at least over the period of a couple of years. Within online, we expect that we become more Amazon than we do wholesale and -- I'm sorry, more Amazon than we do DTC. The problem with Amazon from an overall growth and pricing perspective is, you really have to watch to make sure that you're priced in line with the rest of retail. So we've done that. As a result, we've seen strong growth over the last couple of years. It slowed down most recently, and we hear that that's pretty much an industry issue right now that Amazon has slowed across the food space for most brands. We have some good strategies that we're tweaking right now to implement against that, reapportioning spend across various top and bottom funnel drivers at the site and then driving -- using our awareness to drive folks back to Laird when they get to the Amazon site as well. So we feel good about the future of Amazon. For us, DTC is really intended to be a place where consumers can go to find a full breadth of product, they can sign up for the broadest offering of subscriptions and they can get education, especially as it relates to Laird and Gabby and what they eat and how they -- basically, how they run their lives from a health and wellness position across the, I think, physical, emotional, spiritual dietary spectrum. And that's what it's played out for -- over the year for us, rather. So if you think about the next, I would call, a couple of years, we would expect DTC to be fairly flat. We had a great year last year. This year is a little bit more challenged over the course of the 2 years. I think it's close to flat. And as we go forward, that's really our intent. The growth driver of online should be Amazon and then the wholesale business for the entire company. So for us, DTC plays a more marginal role as time goes on. Nicholas Sherwood: Understood. And then my last question is talking about this new protein coffee. It looks like a really big opportunity for the company. Can you sort of walk me through what you're thinking for the strategy on activating that new product? Are there specific regions, specific types of consumers that you're looking to reach or specific retailers that you're partnering in the early stages of this product activation? And are there any early learnings that you've already had kind of in the early stages of bringing this to market? Jason Vieth: Yes. Great question, and I apologize at the same time to Eric, I forgot to answer that when he'd asked that earlier as well. Yes, we're really excited about this product. This is our first foray into dairy. I think you guys have heard us in the past talk about Laird and Gabby's diet being omnivorous in nature. This is an area that we've always intended to go as a company. It also happens to be the 90% to the 10% that is plant-based, so it just opens up an incredible market for us. This protein coffee product, this has been a really big trend on TikTok for a long time, putting the protein powder into the coffee, and we're excited to bring it to market. We've basically taken the highest quality freeze-dried coffee -- cold-brewed freeze-dried coffee that I've ever tasted. It is so smooth and fantastic, put it together with a pretty unique blend of dairy proteins, I won't go into details for competitive reasons, but it's pretty unique and the ability to get it to blend and froth as a cold beverage is really unique and it tastes great. It's a product that is great for anyone seeking protein, but it's really on trend right now with what's going on with GLP-1. And as folks are having to find high protein products to supplement their loss of protein and overall calories. So we feel like we're right on trend with this product. We've got a really -- we have a partner for a very early big launch, so we'll be putting shippers on their floor and the retail space will come back and talk about that next quarter. So coming out of the gates really strong there and then seeing some good pickup for permanent placement as well. This will be a product that we launch online simultaneously to putting it into the stores, so you'll see it in DTC, on Amazon and out at retail. We're going to support it with some third-party social influencer groups that help to really get the brand out and run a 360-degree campaign on this, where we'll bring in retail activations with that influencer work that I just mentioned, some organic marketing that Laird and Gabby will execute, we'll put onto our website, and then we have strong TikTok execution behind it as well. So you'll really see bring probably our strongest launch effort in my tenure here at Laird to this product. And hopefully, we'll see consumers respond in kind. So we'll make a big deal out of the fact that we're getting into dairy. Yes, we think that, that will be really well received. It's very clean product, as it always is for us. And I think it's a real market-changer with regards to delivering a great taste with that nutritional profile in this category. Operator: Next question is from the line of George Kelly with ROTH Capital Partners. George Kelly: A few questions for you. First, just to follow up on that prior question related to the protein coffee that you're launching. Do you anticipate launching additional dairy products as soon as next year and what might those look like? Jason Vieth: Yes. Great question, George. Thanks for that. We do. We're working on a platform right now to make this much broader than just a singular product that we bring out. We think that there's opportunity across a number of products that we're probably not ready to go into at this point, George, but you can imagine that there are really 2 vectors to that. One is in the dry category space where we see additional opportunity to expand this line and potentially take it into very close but adjacent lines that we're in today. So you can probably surmise a pretty good guess against that. And we also see the opportunity to take this into liquid products. And so we've been working to develop both of these. We think that protein is very important. We believe that we can bring a cleaner protein, not only the protein source, but the ingredients that surround it than what you see at market today and that we have the brand to do that. So you will absolutely see additional dairy products. And yes, we would expect them to come to market over the course of the next 15 months. George Kelly: Okay. Okay. That's helpful. And then the conversation in response to one of the questions just about the sort of how you're going about the instant the protein coffee launch. I was hoping you could do some kind of similar with the new liquid product. And I guess what I'm trying to understand, it's just so hard for me to try to quantify what the ramp could look like and the implications on the model and consolidated growth for the next few years, et cetera. It's just such a big category and such an important category and you've had kind of varying success there historically. So I guess if you could help at all just with what the distribution plan is? Have you lost any distribution points versus the prior formulation? And do you anticipate a lot of promotion behind it? Or just any kind of context you can give about that launch? Jason Vieth: Yes. Yes. Thanks, George. That's another very good question that I wanted to speak to a bit more. So yes, what I would tell you is this: We lost some distribution early on in that transition, as I mentioned. We've largely recovered that. I think we're just about right back to where we expected to be and regained what we had lost. I don't think we've got the right product or proposition in the past. At the 500 ml, we were a little bit too small. We went to 750 ml, I think there was a self-inflicted wound there, if I'm honest, in that we went to 750 ml, and we really didn't capture the consumers, didn't really highlight plus 50% more now at a better price. And so there was a value question. I think people just got confused as we made that transition in general. And so what you'll see now is a very different product that's appearing. I mentioned that plastic bottle that is already recycled and lived one life, which is very important to our consumers. We're highlighting that story. It's 100% organic. That's very important to our consumers, especially in the Natural channel, we're highlighting that story. There's no more cane sugar in there, it's now all coconut sugar. There's no more coconut oil, it's now all coconut cream and the product tastes unbelievable. And so -- and we've added more mushrooms as well. So it's a more efficacious dose of the adaptogens. So there's a lot there to tell and it takes to -- exactly to your point, it's going to take a bigger marketing activation to do that. So that is absolutely underway. We haven't started to execute, we're letting some of the distribution rollout before we do, but you'll start to see that come out very soon with activations, specifically linked to where we picked up the distribution already. That -- all those transitions take place over the course -- most of them over the course of the next 2 months, so into January. Just a couple of small laggards after that. But retailers are really excited. They wanted to get on board, a couple of them cut in ahead of their planned changeovers. And so we -- I think we are really in a fortunate position to be able to turn on marketing in a big way here as we close out this year to start January. So you'll start to see that very similar to what I described. With the protein coffee, you'll really start to see that come to life here over the course of the next few weeks. And relative to the size, you're exactly right. I was having this discussion earlier today with an investor and the reality -- or actually, it was with our Board. The reality is this is a category that's over $6 billion. It's largely comprised of products that contain 4 ingredients. The only healthy one of which is water. We're mostly transporting water and the rest is sugar, bad-for-you oil, hydrogenated oils and chemicals. And there's this incredible opportunity to reinvent, and we just haven't had the right proposition, and I think we do now. So we'll activate early, get the early reads, figure out where we are. And then I hope that we're able to really press this one in a big way based on the feedback that we get in the marketplace. George Kelly: Okay. That's helpful. And then 2 last questions for me. Tariffs, what's the impact this year and the expectation for next year? And then the second question is on Club. I was curious if you have any significant promotions planned in the next quarter or 2? And that's all I had. Anya Hamill: George, this is Anya. So I'll take the questions on tariffs and club, and then Jason, feel free to add anything. So the tariff situation is very dynamic, and we are assessing those kind of as it unfolds. I think Jason mentioned earlier or maybe on the prerecord that we have some favorable developments as far as some of our key raw materials now being excluded from the tariffs such as coconut milk powder, so that was good news. We -- but it's still very much kind of unfolding and emerging. We started seeing the tariffs impact in Q3 and so you see that reflected in our gross margins. Anticipate kind of similar dynamic to continue into Q4. And then we are developing our plans for next year and evaluating what the action items that we need to take and pricing could be on the table if we need to, but our intent and goal is to continue holding the margins in the upper 30s, so even with the additional tariffs and the commodity costs. So that's on tariffs. And then with regards to club, we had a great success in club this year, and we have a strategy, a rollout strategy with -- to support the new regions, distribution and new products, and we intend to continue executing on the strategy in Q4 and into next year. Operator: There are no additional questions waiting at this time. So I'll pass the call back to the management team for any closing remarks. Jason Vieth: Yes. So look, it's -- I think we all know the headwinds that are in the consumer and overall in the consumer economy right now and the challenges that others are facing throughout this year and kind of only magnifying more recently. We're really excited to still be growing this business in the double digits, and we believe we're in a position to continue to do that next year and for future years to come for quite some time. We have a lot of white space. We have an incredible portfolio of products, and as we -- and an incredible team. And as we look to the balance of this year and into next year, we're still incredibly optimistic that despite any headwinds that have emerged and will continue to emerge that we're going to fight our way through and stay at the top of it. So thanks again to everybody for being a part of the journey and listening to the story again today, and we look forward to seeing you in a quarter. Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, good morning, and welcome to TIM 9 months 2025 Results Presentation. Paolo Lesbo, Head of Investor Relations, will introduce the event. Paolo Lesbo: Ladies and gentlemen, good morning, and welcome to TIM 9 month 2025 Results Presentation. I am pleased to be here with the CEO, Pietro Labriola; the CFO, Adrian Calaza, and the rest of the management team. Today, we will guide you through the highlights and review the main operating and financial results. As usual, we will close with the Q&A session. Before we begin, a brief reminder. As in previous quarters, Sparkle continues to be reported as discontinued operation, in line with the guidance provided last February. It is therefore excluded from the scope of these results, unless otherwise stated. Please also refer to the safe harbor statement in the appendix for additional details regarding the reporting perimeter. With that, I now hand over to Pietro to start the presentation. Pietro, the floor is yours. Pietro Labriola: Thank you, Paolo, and good morning, everyone. Let me begin with the highlights of today's presentation. TIM delivered a solid operational and financial performance in Q3, both in Italy and Brazil. Year-to-date results are in line with our budget, and we remain on track to meet full year guidance. It's important to note that the shape of our performance reflects the seasonality built in the plan. For this reason, we confirm our full year guidance. In Italy, the pricing environment in the consumer segment showed a slight improvement, with mobile front book price increases already visible in the market and some back book adjustment announced for Q4 by our competitors. Meanwhile, we have also strengthened our partnership with Poste Italiane, signing the MVNO contract and launching TIM Energia powered by Poste, an initiative that extends our presence into a new adjacent market. In the enterprise segment, we posted another quarter of robust growth driven by cloud. We also signed a letter of intent with Poste to establish a joint venture focused on developing proprietary solution, leveraging open source cloud and artificial intelligence. This partnership position TIM and Poste as leading players in the country's digital transformation. We will share more details later in the presentation. In Brazil, market dynamics remain highly rational and TIM Brazil delivered strong results with consistent growth and improved cash generation. In September, TIM successfully returned to the debt capital market for the first time since the 2023 bond issuance and the 2024 net cost separation. We issued a EUR 500 million bond that priced the lowest spread in the past 15 years for TIM and was the euro note with the lowest coupon of a sub-investment grade in the last 3 years. It received an exceptional response from investors with demand 6 times the offer, a clear sign of bringing confidence in the group's solidity. Let me now walk you through the key figures for the group in the 9 months. Total revenues were up 2% to 3% year-on-year with service revenue growing 3%. EBITDA after lease increased 5% to 3%. CapEx stood at EUR 1.2 billion, around 12% of total revenues. As a result, EBITDA after lease minus CapEx rose 10%, reaching EUR 1.5 billion. Equity free cash flow confirmed a structural improvement versus last year when NetCo was still consolidated and progress in line with our budget. Adrian will elaborate on cash flow in a moment. Net debt after lease remained stable at around EUR 7.5 billion with a leverage ratio below 2.1x. At domestic level, performance was equally solid. Total revenues grew 1.2% and service revenue 1.9%. EBITDA after lease increased 4.1%, showing that our operational model continues to scale effectively with cost discipline and repricing initiatives translating directly into profitability. CapEx reached EUR 0.7 billion, around 10% of total revenues. Consequently, EBITDA after lease minus CapEx was up 8%, reaching EUR 0.8 billion. In summary, these numbers confirm that our focus on execution and value creation is paying off. Quarter-after-quarter, we are building a more efficient and profitable team, in line with our industrial plan. The detailed Q3 metrics are available in [indiscernible]. Let's take stock of where we stand against our full year targets. Our metrics are in line with guidance. In Q3, the positive drivers we had anticipated started to kick in, supporting the expected domestic EBITDA after lease growth. In fact, domestic EBITDA after lease in Q3 was EUR 30 million higher than in Q2, up 6% quarter-on-quarter. Year-on-year growth was slightly softer at 4%, reflecting a tough comparison base. The Q3 domestic EBITDA after lease margin improved by 0.8 percentage points year-on-year and by 0.9 percentage points sequentially. Looking ahead, year-on-year growth in Q4 will be markedly stronger, benefiting from easy comps. Let me recall the main positive drivers progressively coming into play. First, the full effect of the back book price increases implemented also in Q3. Second, the usual seasonality of the enterprise business, which typically accelerates in Q4. This year, this effect would be amplified by a strong contribution from the National Strategic app. Third, additional OpEx efficiencies generated by the cost transformation program. Fourth, labor cost savings following the renewal in July of the solidarity agreement, which provides for a reduction in working hours for TIM employees until the end of 2026. In terms of cash generation, equity free cash flow after lease was positive at EUR 50 million in Q3. This result was fully in line with our expectations. It was lower than last year, mainly due to one-off effects. Adrian will provide more details on this dynamic in a moment. We expect cash generation to significantly accelerate in Q4, supported by higher EBITDA after lease and a strong contribution from net working capital, which typically benefits from favorable seasonality in the last quarter. We remain confident of lending smoothly in line with our full year target of EUR 500 million of equity free cash flow with some potential upside. Net debt after lease at the end of September was broadly stable at around EUR 7.5 billion, just EUR 50 million higher than in Q2, reflecting the impact of the buyback and minority dividends of TIM Brazil. Overall, our full year guidance is confirmed. Let's now move on to review the performance of the 3 entities. In consumer, the trend remains positive and fully aligned with the objectives of our value strategy. Year-to-date, total revenues for TIM consumers were broadly stable at EUR 4.5 billion down 0.4% year-on-year with service revenue split. In Q3, service revenues were slightly negative at minus 0.5% year-on-year, mainly reflecting a lower contribution from MVNOs, while retail services remained stable. At the end of September, we launched Team Energia powered by Poste, a significant add-on to our customer platform and the first tangible initiative of former cooperation with Poste. We are pleased with the market's positive response, especially considering that we have not yet carried out any dedicated communication campaign. Back book price adjustments continue in Q3, mainly in mobile. Year-to-date, we repriced around 4 million wireline and treated 4 million mobile consumer lines. The benefits are clearly visible. Wireline ARPU increased, mobile ARPU remains stable and churn stayed under control, a remarkable outcome given the multiple price adjustment implemented over time. This validates the effectiveness of our volume-to-value strategy launched in 2022 and we know that similar action have recently been announced in the market, starting from Q4. Wireline net adds were stable in Q3 and on a 9-month basis, the trend improved significantly versus last year. In parallel, we continued our push of FTTH and 5G fixed and wireless access with net debt growing 9% and more than doubling year-to-date, respectively. Mobile net debt saw a slight sequential deterioration. However, the number portability balance remained neutral also in Q3, confirming the trend observed in the first half. As mentioned in previous earnings calls, SIM cards involved in number portability and an ARPU of around EUR 12, EUR 13 compared with about EUR 1 for the other SIMs. This means that most of the mobile lines lost year-to-date had the limited impact on service revenue. Finally, a note on our customer platform. TIM Vision service revenue continued to grow steadily, up around 5% year-to-date. In enterprise, we are pleased to report the 13th consecutive quarter of growth. The performance remains solid and fully consistent with our strategy to focus on high-value ICT services. Over the first 9 months, total revenues grew mid-single digit to EUR 2.4 billion, with service revenue up more than 5%. Following the unboxing event held in October, it is now even clearer why TIM Enterprise continue to stand out in the European context. Our distinctive edge come from the combination of a unique portfolio of assets and advanced capabilities in cloud, IoT and cybersecurity. This positions TIM as a leading provider of secure and sovereign digital services for the country. Year-to-date, cloud remains the key growth driver with service revenue up 23% year-on-year, reinforcing TIM's position as well as Italy's leading ICT players. Revenues from other IT declined by 5% as growth in Security and IoT was offset by a contraction in the licensed businesses, reflecting our deliberate portfolio reshaping to phase out low margin activities and focus on higher value solution. Connectivity performed as expected, showing a slight decline. Within the mix, fixed connectivity remains stable year-on-year, while mobile declined due to the phase out of a major public administration contract that we deliberately choose not renew. This decision is consistent with our strategy to avoid low or negative margin tenders. The value backlog contracts signed but not yet activated is expected to reach around EUR 4 billion by year end, up 5% versus last year. Moving to Brazil, results once again confirm strong execution and market leadership. The market remained healthy and rational and TIM Brazil continued to deliver profitable growth, reaffirming its position as the most efficient operator in the country. Year-to-date, top line grew mid-single digit, driven by mobile service revenue. Customer base monetization remains a key focus with successful upselling from prepaid to postpaid, leading to the highest ARPU in the market. Meanwhile, 5G network expansion continued at pace with TIM maintaining its leadership in 5G coverage. Now reaching more than 1,000 cities. Efficient operational execution supported robust EBITDA growth and margin expansion. In the 9 months, OpEx remained below inflation and EBITDA after lease exceeded 38% of revenues, up 7% year-on-year. TIM Brazil also delivered strong cash generation with EBITDA after lease minus CapEx growing double digit. These results demonstrate that the operational discipline that has driven success in Brazil are the same principle regarding the transformation of our domestic business. In both markets, the formula is the same. Focus, efficiency and value creation and the results speak for themselves. I'll now hand over to Adrian for the detailed financial results. Adrian Calaza: Thank you, Pietro, and good morning, everyone. Before moving to cash flow and debt, let me start a few comments on CapEx and OpEx. At group level, CapEx was stable at EUR 1.2 billion in the first 9 months and EUR 0.4 billion in Q3. Accordingly, CapEx intensity remained soft at around 11% of revenues, mainly due to phasing, but we expect CapEx to pick up in Q4, both in Italy and Brazil as it did last year. About 25% of CapEx was customer-driven, while the majority was allocated to infrastructure investments, in particular, mobile networks, IP backbone, and data centers, where we continue to increase our capacity to cope the significant growth on cloud services. Group OpEx increased modestly in the 9 months, up 0.9% year-on-year, mainly due to TIM Brazil, while domestic OpEx remained broadly flat. Notably, in Q3, domestic OpEx were down 0.7% year-on-year, thanks to lower industrial costs, including the MSA and labor costs, partially compensated by volume-driven costs. I remind you that Q3 last year was the first one with official figures following network disposal. Therefore, we are pleased to confirm similar trends compared to the pro forma basis. In Italy, both OpEx and CapEx discipline continued to be insured by the transformation plan. As a reminder, progress is measured against initial OpEx and CapEx trajectory that is the cost base line we would have incurred without the plan. We currently have more than 80 transformation initiatives underway which have delivered over EUR 130 million of incremental benefits year-to-date. Our efforts are focused on 4 main areas: the commissioning legacy technology consolidating ICT vendors, aligning service levels with actual customer needs and optimizing labor costs through the renewed solidarity agreement. Net debt after lease at the end of Q3 was broadly stable at EUR 7.5 billion. Let me highlight the main differences versus last year to clarify the cash flow dynamics and address the questions you might have in mind. First, working capital. In Q3, absorption was higher than last year, mainly due to a reduction in days payable outstanding. As part of our vendor consolidation efforts, we reduced the number of suppliers in certain purchasing categories, securing better pricing conditions in exchange for a slightly shorter payment terms. This effect was concentrated in Q3 when the change was implemented and will not repeat in coming quarters. Second, financial charges. In Q3 2024, cash interest expenses were EUR 27 million lower, reflecting a remarkable increase of the mark-to-market valuation of securities in our portfolio, keeping aside such 2024 one-off performance driven by the reduction in the interest rates. The financial charges are slightly down year-on-year. Third, cash taxes and other. Last year benefited from dividends received from INWIT through Daphne also a one-off factor. And fourth, payback. In Q3, we had EUR 49 million equivalent outflow related to share buyback at TIM Brazil. As Pietro mentioned, we have good visibility on cash generation for Q4. We expect a ramp up supported by both higher EBITDA after lease and a robust contribution from the networking capital, which typically benefits from favorable seasonality in the last quarter of the year. We remain on track to achieve or even exceed our full year target of EUR 500 million in equity free cash flow after lease with leverage below 1.9x. To conclude, as you know, yesterday was my final day as group CFO. This almost 4 years have been an incredible journey reached with challenges, but mainly of rewarding moments of growth and transformation. Looking back, I am deeply proud to see the group firmly on a positive path, not just financially but above all, operationally. I'm grateful to Pietro for his vision and courage and for giving me the opportunity to contribute to this journey. My thanks to all our colleagues, both in Italy and Brazil for the unwavering commitment. To my peers in Pietro's leadership team for their patient and friendship and especially to my team for their unconditional support and extraordinary capacity. Special thanks to the financial community and our shareholders who believed in this transformation story. It was an honor to serve alongside you all, and I am confident that the group's momentum will continue with Piergiorgio to whom I wish every success as he takes on this role. With that, I hand over to Pietro for the very last time. Pietro Labriola: Thank you, Adrian. Today, we are also sharing some high level updates on the strategic partnership we are developing with Poste. A more detailed disclosure of the expected synergy will come next year when we update our plan. Starting with initiatives within TIM Consumer. The MVNO contract has been signed and customer migration are set to begin in Q1 2026. As mentioned earlier, TIM Energia powered by Poste is showing strong early traction, confirming the cross-selling potential we can leverage together. Additional cross-selling initiatives, targeting retail and SMB customers are currently under evaluation. Moving to TIM Enterprise. We are exploring cost-saving opportunities through joint procurement initiatives and we have signed a letter of intent to establish a joint venture on cloud services, focused on generative AI and open source technologies. This JV will position TIM and Poste as front runners in the country's digital transformation, further strengthening enterprise positioning as a key player in sovereign initiatives. A more comprehensive update will follow next year. Let's now move to the final slide for the closing remarks. To wrap up, our 9-month results are fully on track to meet full year targets, both operationally and financially. We confirm our guidance for the full year. We're advancing the strategic partnership with Poste to generate synergies between the 2 groups. The MVNO contract and the TIM Energia powered by Poste are the first initiatives unlocking mutual benefits with more to come to further expand our respective product portfolios. In the enterprise place, both groups play a central role in Italy's digital ecosystem. TIM in the telecom infrastructure and cross services and Poste in public digital services. Our partnership remains key to enabling secure nationally controlled digital transition. We are delivering what we said we will deliver, and we'll continue to execute with consistency and discipline. Before closing, I would like to take a moment to thank Adrian. His contribution over this year has been fundamentally transforming the company, not all in terms of financial results, but above all, in restoring the discipline, transparency and credibility that's now define TIM. Adrian, thank you for your professionalism and the deep commitment to the group. At the same time, I'm very pleased to welcome back Piergiorgio, returning to TIM after several years. His deep knowledge of the sector and of our company we ensure continuity and competence. Two essential qualities in a market where understanding the business and the technology is an imperative. The best way to predict the future is to bid it. And that's exactly what we are doing because, as I always say, inaction is not an option. With that, we are ready to take your questions. Operator: [Operator Instructions] The first question is from Mathieu Robilliard at Barclays. Mathieu Robilliard: First, I wanted to thank Adrian for all the collaboration, transparency over the years and obviously, welcome Piergiorgio. With that, I had a few questions. The first 1 was in terms of the Consumer division. So obviously, very impressive ARPU progression on the fix continues, a bit less this year -- or this quarter rather on mobile, but the trajectory is good. Meanwhile, however, the volumes continue to be a bit depressed. So my question was a bit forward-looking, which is if we look into 2026, and we think about how this -- the top line, the service revenue can progress. Do you expect to have improving volumes to support the growth of the service revenues? Or is it still going to be based essentially on ARPU progression. And is there room for that? So that's the first question. The second question was about the migration of the use of the Open Fiber network versus the one of FiberCop for fiber. If you could maybe give us a sense of how is your base progressing there? And I wanted to check what kind of contract you had with Open Fiber. I understand that with FiberCop, you have no volume commitment, which gives you a lot of flexibility. I was wondering if that's the same thing with Open Fiber. And lastly, if I may, on M&A, obviously, we've seen some press reported news that some players could engage some discussions. And I was wondering if you would welcome that kind of scenario in Italy. Pietro Labriola: Thank you, Mathieu. I will answer immediately to the third question related to the M&A. I think that I must be repetitive because I'm saying to all the markets since several quarters that. Whoever will be that we proceed with the market consolidation in Italy will be a good sign for us then can be TIM to manage the situation or can be another player. I think that it's really important because this is a trigger that we allow to continue and to improve the network efficiency and the efficiency on the cost base. So I'm very happy if someone will do a first move and will proceed on that. It's important to remember when in 2022, we started to talk about these things, no one was believing us. When we're saying that from volume to value was the driver of the growth, no one was believing us. Now also looking at the result of a lot of players, not only in Italy, but also in Europe, everybody are using this claim from volume to value. And the market consolidation in Italy is no more a dream because the free step succeed, that is Vodafone Fastweb. And I'm quite optimistic that quite soon, there would be a further step. Related to the consumer division, I will leave Adrian to elaborate more on that, having in mind that on the mobile and Adrian will explain better, we can expect also in the reduction of the volume because, as he will explain a part of the cancellation as related to seasonality phenomenon and to the past commercial approach, not only TIM, but of everybody. On the fix, you were mentioning that we are proceeding. And so we are also quite optimistic on the consumer. Let me give also a more strategic outlook on the consumer market. In the past, I was always more confident in the improvement coming from the industrial cost base, market consolidation and these kind of things. And I was more worried about the possibility of a real growth of the ARPU. I spent the last 10 days in an innovation trip, and I have now a more optimistic view. Why that? All the AI, all the new functionality that you are experiencing in the market and everybody described about the future, we request mainly 3 things: low latency, higher uplink and higher throughput. In the actual offer, we have nothing of that. So these 3 pillars will become one of the main driver. I'm talking about medium, long term about potential ARPU increase. And in such a case, different from the customer platform will be mainly connectivity with a very high margin. Now I'll leave Adrian to answer. Adrian Calaza: Thank you, Pietro. Thank you, Mathieu, for the question. So we see a positive outlook going towards '26, meaning that we continue to believe we can go on with the price increases. The price increases of this year proved to be successful, and we also expanded a little bit the segment in Q4. So we will continue in Q4. That will be positive, of course, on the ARPU contribution. Equally, I have to point out that yes, on fixed, we still see some negative networks, but a large proportion of that, very large is due to the voice-only customers that are phasing out the voice fixed technology and that is actually considered in the plan. So if we look at the net broadband, we are improving and we continue to believe we will improve, thanks to several factors. One is exactly what you mentioned, the improved coverage of FTTH network, thanks also to the agreement with Open Fiber. So we are growing in terms of acquisition and transformation of technology on the Open Fiber network that we are continually working on. And also, especially from last summer due to the very wide progression of FWA which, for us, FWA 5G for TIM is a new technology that is also coming with very high margin. As Pietro was pointing out, we see an improvement that you also noticed in our portability trend in the mobile market. The mobile market is somehow stabilizing, and we measure a sizable improvement of the net active customer year-over-year. That is improving. And so we think that this phenomenon will continue to increase because, as Pietro was pointing out, the market is deflating in terms of rotation and volumes, which is, of course, coming with benefits on the ARPU dilution and on the net balance effect. Pietro Labriola: Is it fine, Mathieu? Mathieu Robilliard: Just on -- thank you so much. But just in terms of the type of contract you have with Open Fiber, is it a volume commitment? Or is it on a per-line basis. Just to understand if it's similar to what you have with FiberCop, I don't know if you want to disclose that. Adrian Calaza: It is an agreement that is complementary to FiberCop, of course -- complementary in terms of coverage, we use that mostly on a per line basis but is a wholesale agreement that is complementary to FiberCop. Pietro Labriola: But in any case, immaterial. Open Fiber as offer on the market that are per line or with a minimum commitment based keeping the price flat for the next years. So we use a mix on that based on our convenience in the different areas. Operator: The next question is from Fabio Pavan at Mediobanca. Fabio Pavan: Yes. Before asking questions, I would love also to thank Adrian for supporting this. Yes, very precious and we will also welcome Piergiorgio on board. Coming to the questions. First one is a follow-up on what Pietro, you just said. So there is anything that you can do in order to support sector consolidation even if you are not at the driving seat? Second question is on Poste and the letter of intent signed on the cloud side. Could you give us some more color about how would you, let's say, approach the market? Is it going to be something targeting Poste customer base, is it going to be a bundled offer. Pietro Labriola: Okay. Thank you, Fabio. Let's start from the second question about the JV with Poste. I will leave Elio to elaborate more on that also because this was a very clever idea that Elio elaborate and that was accepted also by the counterpart. But in any case, if you think in this way, we'll talk about unboxing TIM Enterprise 1 month ago, we told to everybody that for us it was very important to fill up the value chain that today we are managing through some external partner. Now the idea is that, that was very well explained by Elio that we want to do that internally. We don't want to do everything internally, but we'll do that, that has a much future-proof reliability. Now I leave to Elio to talk about the JV. Elio Schiavo: Thanks, Pietro, and thanks, Fabio, for the question. So we made pretty clear that in our strategy, there are 3 things that we need to hear about. One is the insourcing of capabilities because this will allow TIM Enterprise to improve margins. The second 1 is we have been very vocal, as you know very well, during the last few months about this opportunity of sovereign cloud and because we believe that from this country and the continent Europe more in general, they need to face -- they need to embrace the opportunity of creating a kind of digital independency. And for doing this, it's clear, you need to develop open source capabilities, which is something that Poste will provide within this -- in the creation of this joint venture. And the third point is that we need to embrace as much as possible model and model by model of artificial intelligence. So the idea is to create a structure which is fast, agile, flexible, able to attract talents and able to integrate vertical capabilities resulting potentially from M&A activities. So -- and so the aim of this company will be to serve both Poste and TIM for embracing the new technologies and at the same time, to provide the market with a solution that today -- an end-to-end solution on new technologies that today, we don't see in the market. And as I said, the 3 areas of focus will be cloud migration and sourcing capabilities, open-source platform and artificial intelligence. Hope I answered the question. Pietro Labriola: And what is really important that for the first time after several years, we are a newcomer. So we don't start from legacy. And this is what will have passed because just to give you an idea, if you are already a system integrator with a lot of developers, you will have to face the challenge of the AI that will have the software development. We start now from scratch. So we'll be able to explore since the beginning, the possibility to increase the productivity with the number of developers that are lower. In the meantime, focus on open source is key in the development also of our sovereign cloud strategy because this is the area in which you have less dependence by other countries' technology. It doesn't mean that this is a complete alternative to the partnership with the hyperscaler. We'll continue to partner with them because they are key also in terms of innovation. About the consumer segment, what they want to highlight Fabio is that, as we told during the call, the performance that we are having today on TIM Energia powered by Poste is a multiple of what we are thinking to have without having launched yet an advertising campaign. So this is a first test to try to understand us, our customer platform strategy can work. Let's remember, sometimes we forget that we are now the second content platform in Italy. And now we started with the Energia that will pass for the increase. We are working also for further activity on the consumer side, as we mentioned, we are starting the portfolio of both companies, Poste and TIM and we are trying to understand how to exploit the channel for this activity. These are all things that will develop more in detail during our next 3-year plan presentation. About the first question that is related to the sector consolidation, it's clear that we are very supportive. It doesn't mean that we can accept anything that will transform in a weaker company TIM, but I think that the rationality in this market is becoming more normality, so we are very welcome in any kind of market consolidation that will make this market more equilibrate and rationale. Operator: The next question is from Keval Khiroya at Deutsche Bank. Keval Khiroya: I have 2 and good luck as well, Adrian, from my side. So firstly, your financial expense remain high whilst your cost of debt on new issuance has been falling and you highlighted the EUR 500 million bond you issued. What financial expenses assumptions have you baked into your guidance for the next 2 years? And is there any opportunity to optimize these further? And secondly, can you give us your latest expectations on the concession fee case? I think you previously expected a year-end outcome on that. Adrian Calaza: Yes. Kevin, thank you for the question. As a matter of fact, financial expenses, we've been mentioning -- I think it was a couple of quarters ago and also in the plan that the run rate for 2025 was something between EUR 150 million and EUR 160 million per quarter, and we are on the lower end of that number. Last year, we had some positives that were one-off mainly coming from some mark-to-markets that we counted, but we are on track. And as a matter of fact, slightly below with what were our projections at the beginning of the year. Going forward, clearly, this is a number that will probably go down, especially because of the net financial position and the gross debt will be reducing going forward. In terms of average interest rate of our gross debt, the domestic, it's clearly that the bonds of lowest coupons, so the ones that were issued in 2015, 2016 are maturing and the weight of the issuance that we did in '22, '23, with much higher coupons is more important. So it's not a matter of average interest rate, but more a matter of the evolution of the gross debt, but obviously, the numbers should be reducing in the coming quarters. But again, just to mention the EUR 150 million of financial expenses of this quarter is it's slightly better than what we projected. Pietro Labriola: About the concession fee, as you can imagine, formally, we don't have any further detail informally too, but the only thing that I can share with you and that is public is that in the process of approval of the state balance, it was put in a provision for 2026 for the payment of some litigation and was expressively mentioned that there could be also the TIM one. It doesn't mean anything. But again, you can understand. Operator: The next question is from Javier Borrachero at Kepler. Javier Borrachero: So my question, Pietro for you, a bit of follow-up on this cash windfalls. So I mentioned the concession. Maybe on the earnouts, maybe you can also give us some color on where you still think that the Open Fiber, FiberCop merger earnout is still possible or maybe now it's too late. And on the energy one, if that is -- if you are more confident that here, you can maybe get some cash. And regarding all the proceeds from all these cash windfall, say, concession fee, earn-out, et cetera, what is now your view given that the share price has had a phenomenal performance year-to-date doubling. What is now your view in terms of the use of that cash in terms of the balance between dividends and share buybacks based both on your own what is already guided in terms of shareholder remuneration for the next few years, but also in terms of any extra proceeds that you may get going forward? Pietro Labriola: Javier, so first of all, about the -- the first point is that the exceptional performance of the stock. If I may, it was strange the previous value because in terms of multiple, you see that we are still slightly below the average of the European Telco. So it's not strange the actual value, it's strange the value in the past. And if I may just for me and Adrian, the plan in place for which we are today at EUR 0.50 is the same that was presented in April 2024 in March 2024, when the stock was down 25%. So it's just a matter of the trust and execution, nothing changed. About all the proceeds, the earnouts on and so forth. About the earnout, I'm still optimistic on the fact that we can get something. We never declare that we get all the amount. We always told that we can get something. And the deadline for the expiration is the end of 2026. But the earnout is due, not only in a case of a merge, but also strategic commercial partnership that will generate synergies. So while I can understand in some way, some worries related to a potential to merge at last time for the approval. Also, if we have to remember that in the case of the [indiscernible] deal at European level, it took 6 months for the approval. So I'm optimistic that something will happen also because looking at what is happening also in the press, I'm optimistic that all the discussions and all the fight we bring everybody to see rational because rationality drive the return on investment also for the private equity and something will happen. It's important to remember that we have 0 in terms of earnout in our plan. Then in the case in which the concession fee and all these things will happen. At that time, we will evaluate what is the best. It doesn't mean that we don't have a clear understanding, but the number of pieces that are moving at the same time, oblige us to have several options. So I don't have -- we don't have in mind, just 1 option. We have several options. But everybody, all the different options will be driven by market-friendly approach. And about the plan, we stay stick to the plan. We continue to maintain the guidance about the shareholder remuneration. And so we move forward in that way. Operator: Next question is from Giorgio Tavolini at Intermonte. Giorgio Tavolini: The first question is on Deutsche Telekom that has recently announced a EUR 1 billion collaboration with NVIDIA to build an AI factory in Germany. Do you believe TIM Enterprise could play a role in developing similar giga factories in Italy possible through joint venture with other national players beyond Poste Italiane. I mentioned this because I saw your role in the national strategic hub and the need to ensure data sovereignty. The second question is on sector consolidation and the recent rumors about a potential Wind Tre Iliad merger. So beyond the team potentially being a passive beneficiary of the market repair. I was wondering if such a merger could pave the way for a consolidation between TIM and Poste Mobile since it would ease the antitrust concern and now that TIM, Iliad deal would be completely off the table. And the third question is on the recent proposal on inflation index fee increase for Telco tariffs that was proposed by a political party. I was wondering if you think this measure could be reconsidered by policymakers to help restore sector profitability and return on investments. And in particular, you raised the prices for the fourth consecutive year. So is it correct that if this measure is introduced, this would extend all the players in the market, including Iliad to push their prices above the current ones? Pietro Labriola: Giorgio, let's start from the third one, then I will leave to Elio to answer to the first one. About the index, we will continue to discuss with the different, let me say, stakeholder about that because I think that this is a rational approach and sooner or later, my expectation is that also on the fiber business wholesale, it will be needed a kind of inflation index. If it will happen, it's quite clear that must be reflected also in the retail price. So this is not this year, but this is something mainly in Italy. I have to remember that it happened already in U.K., if I'm not wrong in Netherlands. So this is a trend in the market. Then let's remember that we have the lowest price in Europe. So I'm quite optimistic to that if it will not be this year, but sooner or later, it will happen. Related to the prices increase, I have to remember and then I will ask Andrea to give also more color that a part of the price increase that we did was with the kind of more formal approach, not in terms of giga because Italy has packaged with a huge amount of Giga, but about 5G. I have to say thank you also to Leo our CTO because we were able to move from the last place in the ranking for the 5G quality to the first place. And it allowed to Andrea also to do price up also based on the 5G., but we are still talking about what they tell the 5G of marketing, not real 5G with low latency, that will be the next step for a further price increase and we'll continue also next year with this kind of approach. About the sector consolidation, we are positive about that. It's clear that any kind of further simplification of the market structure is more than welcome. So let's take the window, we don't have to anticipate, but again, we have a clear idea about the possible scenario. Thanks to God, we are no more playing poker, but we are starting to play a chess game. And so every time we have to think what could be the further moves. And we have a clear understanding about what could be the different further moves that we have to act on in relation to the events about Deutsche Telekom, I leave it to Elio and then if Andrea wants to add something about the repricing, we will do and before to Elio and then to Andrea. Elio Schiavo: Thanks, Pietro. So thanks for the questions. First of all, let me underline that this news about the partnership between Deutsche Telekom and NVIDIA confirms that the Telco industry is back again to the center of the innovation process. And this depends on -- basically on the fact that infrastructure, both the network and the colocation became and will be very, very relevant going forward because as you can imagine, majority of those new technologies will need a house where to stay and a network that can help them to move data at a very fast speed. So -- and we are at the center of that business environment. So in the country, as you mentioned, that there are many giga-motions we look at this in a very pragmatic way. First of all, there is nothing giga that can happen in this country without TIM being involved because at the very end, you need to connect to the market. We are the only one having bandwidth for doing it. And we are in talks with NVIDIA. And as I said, we are looking at this, trying to size how big is the effort, but more importantly, how big is the opportunity that can be taken together. Clearly, and the Deutsche Telekom is the clear example. It's very difficult for them to do this without having a big Telco on board and I guess we are the ones they want to deal with. But -- so we will -- we will try to understand, as I said, very pragmatically this what will mean. And the way we will measure this is what is the length, the duration, and the size of the ROI that we can extract both together from this business. But let's say, we are talking to them, and we do believe that there is a good opportunity to be taken. Pietro Labriola: Before turning to Andrea also to elaborate something on top of what Elio told sometimes we focus too much in something that is real estate or computing capacity. But computing capacity is nothing without connectivity. Also, mask that is much more well-known than me in elastic talk is explained that he's foreseeing a future in 3, 5 years where the computing capacity will be distributed, but what will be needed is low latency and uplink. And we have the 5G frequencies, and so we are the one that can provide low latency. We don't have the ownership of the passive fiber, but latency, throughput at uplink come through the electronic that you put in the last mile and the last you must have a very wide spreaded backbone. And also on that, we are the best player. So if you add this capability, the ones that were mentioned by Elio it's clear that we continue in this kind of technological future to be the best player to get the main part of the cake. Andrea Rossini: Thank you, Pietro. Thank you, Giorgio. So this gives us the opportunity also to talk a bit more about our replacing action and strategy and as also Pietro pointed out, we did price ups, but we also gave more benefits to the customer. And in particular, during the last years, also thanks to great work done by Leo Capdeville with the technology team. We upgraded millions -- literally millions of customers to 5G, to the basic level of 5G. We did also something that other operators have not done yet, which is forward-looking. We created a 2 level of 5G, a basic level, which is optimizing use of network because as you know, 5G is much more efficient in terms of use of bandwidth and energy. And we created a top level of 5G, let me say, quality, which we sell for premium. So this gives us an opportunity also to upgrade ARPU going forward and optimize network efficiency. Now as also Pietro pointed out, we are in favor since many years of a general increase of prices to the customer base. We have worked a lot because we believe that sustainability in a sector in which the usage of network is increasing, is coming with price increase. So we are in favor of price inflation. And we believe that this, especially together with consolidation in the market can be a structural solution to the sustainability of the network. So looking forward, by the way, as Pietro pointed out, also with more segmentation of service on latency, uplink use of network with AI, we can see an ARPU increase in the mobile market because demand of connectivity is always increasing. Operator: The next question is from Domenico Ghilotti at Equita. Domenico Ghilotti: Well, first of all, I joined the other analysts and say goodbye to Adrian, and thanks for your support. And well, just a couple of questions remaining. One is on the Sparkle deal. If there is any update on the transaction? And then on the cash flow, can you help us understanding how was the impact of the vendor consolidation that you were mentioning? And also from the let's call it, extraordinary working capital item that you were flagging in the past for 2025. Pietro Labriola: Thank you, Domenico, about Sparkle. We are proceeding that. We are waiting for the approval from some local authorities. I think there are 2 or 3 for which we are still waiting. So sometimes the closing could be at the beginning of 2026 and not in the last quarter 2025, but all the things are proceeding very well, while about the cash flow, I leave to Adrian. Adrian Calaza: Domenico, thank you for your words. On the cash flow, yes, and this is something that we've been working for a period, and it was also commented during the Enterprise Day, a month ago, it was -- one of the targets was in the consolidation and obviously consolidating those vendors in some of the main OTT is the payment terms clearly are shorter. It has had an impact of something around between 6 and 7 days in terms of DPOs, so it was fully absorbed in the quarter. This is an onetime effect. And going forward, we expect an improvement on Enterprise margin as we projected in the plan. In terms of extraordinary items were those that we disclosed when we presented the plan in February. Remember that there were mainly 2 effects along the year. It was the -- all the unfolding of the -- of the [indiscernible] and there is some effect on this quarter was mainly on the [indiscernible]. So no additional extraordinary effect rather than those. So on the first quarter, we expect only the effects of the [indiscernible]. And as you know, the fourth quarter is always the most intense positively in terms of working capital. So we are on track as we mentioned and probably slightly by better. We'll see the fourth quarter is, again, the biggest in terms of cash flow generation. Operator: The next question is from Paul Sidney at Berenberg. Paul Sidney: Just a couple of questions for me, please, building on a couple of the questions that we've had already. Firstly, in terms of the Poste and cloud and AI JV LOI signing. We know very well what TIM Enterprise capabilities are in this area, but could you just expand a little bit about what capabilities Poste will bring to this JV in this area? And then secondly, just staying on the theme of price changes. We've seen you successfully put through price changes over the year. We've seen some very welcome recent price increases from Fastweb on mobile, Vodafone Fixed Wind on their back book as well. You mentioned the prices have landed well for TIM for yourselves. But I just wondered, has there been any adverse reaction in the wider market from the press, sort of consumer groups, the government even -- because obviously, when you look at these price increases on a percentage basis, they can be pretty material. But great to get your thoughts. Pietro Labriola: About the second question, then I can leave to Andrea, but in practice, what we are doing is that we are increasing the price. There is a right of our customer to cancel the contract if he doesn't agree about that because we are in a more severe market environment from this point of view. So there is nothing specific and then also to be also more clear, we are not doing price increase in a blended way. Andrea has developed a very strong CVM, customer value management. And so the evaluation of the target of the customer or for the price increase is based also on the willingness to pay for an improvement of the service. With the propension to cancellation, so on and so forth. So it's a traditional marketing activity that we're performing better, sometimes than the other. I can tell you that in the past, we've seen us changing the wording of the message, respecting the law can change also the level of churn that you will expire, but again, this is not a Telco activity. This is a marketing activity. So we are -- sometimes we are better than other to work on the marketing side. About the Poste JV, I [indiscernible] but in a nutshell, sometimes some of you are considering Poste as the traditional main services. A lot of you do not know that Poste has hired during the last years, several hundred people expert in open source activity and developing. So they have also specific know-how in this area, and it will help. So this is part of the contribution that they can put inside this kind of activity. Adrian, I don't know if you want to add something? Adrian Calaza: Just to add a few information to what Pietro said. So -- this is clearly unknown as Pietro mentioned as well, actually, Poste has a huge open source operations, they have almost 500 in open source engineers. And the idea is that they will contribute a few hundreds of them. So you believe 250, 300 will join the joint venture. And the idea is that, that will be the Army that will help us to create this open source platform to tackle the cloud sovereign business. So we will contribute the hybrid cloud migration capability that will contribute the open source capability. Both together, we will try to attract talents for developing an AI business that, as I said, will serve both TIM and Poste and the market. Pietro Labriola: As we mentioned during unboxing TIM Enterprise, we are talking about sovereignty, digital sovereignty, and have [indiscernible] also on our side on this project is a further reinforcement of, let me say, a neutrality towards other technology and is reinforcement about the sovereignty. Operator: The next question is from Andrea Todeschini at Akros. Andrea Todeschini: So first one would be on the contract that you have with the tower companies for your mobile network. I believe there -- the contract should be up for a new one in the first half of next year. So I was wondering if you do see some room for potential savings coming from renegotiating that contract and if there's anything you can share with us? And second question regards the equity free cash flow guidance for full year '25. So we clearly know that it's really back-end loaded in the fourth quarter. I was wondering if you could see if you have any visibility for some possible upside, so not just reaching the guidance but maybe doing a little bit better in the full year. Pietro Labriola: Andrea great. You are the less shy person because I think that this is a question that everybody was asking, we confirm the guidance. We're optimistic that we can do also something better. But as we told also in the last call, the market to our company will never forgive any kind of underperformance. So, we want to stay focusing deliver the guidance with the optimism that we can do better. About the TowerCo, I have to remember to everybody the list of the main point of our cost. First one, MSA with FiberCop. Second, cost of labor, third energy, fourth TowerCo. So in a professional and serious way, we are talking with our main partner about possibility of efficiency in the interest of both companies. Operator: The next question is from Andrea Devita at Bank Intesa. Andrea Devita: So on the consumer company, looking at the ARPU, just wondering whether after further EUR 1.7 million reprice in Q3 alone. So we haven't seen yet a rebound, so flattish minus in Q3. So if we could expect a rebound in Q4, at least or otherwise, if it is the balance of customers in, customers out [indiscernible] ARPU pressures again. And again, on consumer, I saw that there was 1 percentage point service revenues took out from the -- from the MVNO. So wondering whether this will accelerate in Q4? And finally, again, on consumer, whether it is already material, the contribution and if you could roughly quantify of adjacency and energy and so on in terms of service revenue growth contribution in Q3. Pietro Labriola: I will Andrea to elaborate on that. The only point about the MVNO that is very important that it was already included in our budget. So just to be clear that we are not surprised is something that we are forecasting and planning and that we are managing. Adrian Calaza: Thank you, Pietro. So on the ARPU, starting from your first question, indeed, you're right, mobile ARPU is basically balancing repricing, price ups with ARPU dilution that is coming from the difference between front book and back book. This is a dynamic that is in the market. And therefore, we consider that, let me say, ARPU stability or slight improvement as we show in the 9 months of '25 is what we are aiming for in the current market condition. As I explained before, we see improvement in the market because we see a declining number of rotation in the market, the mobile number profitability balance has improved and therefore, the dilution effect on the customer base ARPU is somehow decreasing. We also, as Pietro pointed out at the beginning of this presentation, with slight sign of improvement on the front book pricing by some competitors. Therefore, this compensation is probably improving going forward, that's possible to bring a rebound in the ARPU in the future quarters. Now coming to your question on ARPU, still, of course, the effect of radiation services is more visible on fixed ARPU because in fixed ARPU, we incorporate more services and that is also a market that is giving us the opportunity to upsell customers, for instance, with content services. So that is more visible on the fixed side. MVNOs as Pietro pointed out, I think the essential answer is, yes, we see a decrease, but this was planned due to the fact that, of course, Fastweb is bringing more and more traffic on their own network now that they consolidated with Vodafone. And this was in the plan. And the value of aviation market is for the time being, so what we call the customer platform approach is visible mostly on devices, connected devices and TIM Vision, which is bringing actually a growth to the -- as you see also in the chart, in the 9 months of '25, thanks to the fact that we grow the customer base significantly, and we also grow the portfolio of services. Energy, we launched in October, so certainly it's not visible yet, but we started on a good foot. Operator: The next question is from Ben Rickett at New Street. Ben Rickett: I just had 2 questions, please, on Fixed Wireless Access. So firstly, I was really interested in where you're seeing demand for your Fixed Wireless Access product -- is that mainly in rural areas? Or do you also see demand in areas that have fiber coverage? And second question, I was estimating that about 8% of your broadband base is now on Fixed Wireless Access. I was interested, do you have an idea how high that could go before it starts to impact the mobile network quality that your mobile subscribers experienced. Pietro Labriola: Generally speaking, it's so important to explain what we can foresee for the future about the Fixed Wireless Access Technology. With Andrea and with Leo, we have started to see also evolution where the installation of the fixed [indiscernible] assets will become more easy, self-installable and the rate of coverage will move from 3.5 to 5 kilometers. This will be an important element in our pocket to optimize the cost structure. And it's not only a matter of cost structure. Sometimes, and this happened for everything in our life, if you want something, you want to buy and use. If we have to wait as a customer, I mean, too much time and so the installation of the fiber can get more time, it becomes an issue. Why? Because people will change their mind, while mobile today in the easiest way is go in a shop, get a chip, you have a plan, you come back home and with the tethering, you are already working. This is the reason for which with Andrea and Leo, we are working also in the future to a possible solution that is an hybrid solution to [indiscernible] Andrea because if not we say that I speak to Mark. Andrea Rossini: Thank you, Pietro. I mean, this gives us the opportunity to actually beat the expectation of Pietro because we launched that very proposition at the beginning of last week. So we launched, let me say, innovative proposition that is combining FWA connectivity that is immediately available to the customer out of the shop. And that when the fiber comes, then that connectivity can be either given back to TIM or it can be used for a second home. By the way, in a nomadic way, so it can be brought as a sort of super Wi-Fi add-on to the mobile customer. So that proposition we launched last week. It's an initial, let me say, experiment. But we believe that there is market, as Pietro pointed out for a further expansion Equally, on FWA, today, we use it complementary to fiber. So let me point out that today, we do not overlap FWA to FTTH areas. We use it also mostly complementary to FTTC because FTTC performance in many areas is actually quite good. And so customer have better service with FTTC. Today, we see most sales in areas where we do not have FTTH coverage that are not necessarily rural because Italy is a very complex market with many small towns that are not covered by FTTH. So the market is quite huge, and you can also see it from the authority data that the market of the FWA is quite big. Up to a few months ago, team did not have a wide 5G coverage available. And now thanks to the work by Leo, we have a very wide coverage of the territory with 5G, just to your question, what is the amount we can support before affecting mobile traffic. We believe we have a long run to go because at present, we still have a few customers on 5G, and we have capacity that is capacity that is increasing. And of course, we can find also technological solution, but maybe Leo want to comment more that can actually give more capacity to the FWA. Operator: The last question is from David Wright at Bank of America. David Wright: Yes, I think you indicated Pietro before that the [indiscernible] causation still in consideration. It looks like that could drag into next year. That being the case, I don't think that S.p.A. will be net income positive this year. But if you could just give us some guidance there. So is there any obligation to pay, say the share dividends in 2026 as a shift in the cash flow? And if the gas station doesn't trigger those payments this year. Do you consider the [indiscernible] save share take out differently, there's a little bit less pressure to do so. Just your thoughts around that would be useful. Pietro Labriola: David, you can understand that all these hypotheses are price sensitive also on the value of the stock. So due to fact that we have to guess on something, I think that it's better to not go too much in detail. But what I want to reassure you and to everybody is that whatever we will do will be market friendly. And again, we are analyzing all the possible scenario that will help the corporate structure of our company, but also in the meantime, with the best market friendly approach. David Wright: Where is S.p.A. 9 months earnings? Is that published? Have I missed that? Pietro Labriola: No, I was telling that we tried to answer to you as best as possible based on the sensitive data that we are discussing. Before to close the call and to leave to Paolo Lesbo, I want again to thank you Adrian for all these years since 2015. But -- what is important to remember to everybody that Adrian is in the Board of TIM Brazil, and he will continue to stay in the Board of TIM Brazil also for the next year. It will help us also due to high knowledge that he has about the Brazilian country and the one which we work here from Italy. We will continue to help us to drive the group towards a further increase in our evaluation. Thank you, Adrian. Paolo Lesbo: Okay. Thank you very much, everybody, for your participation today. We will be back beginning of next year with full year results, which we are very confident will be fully in line with yours and our expectation. Thank you, have a nice rest of the day. Bye-bye. Operator: Ladies and gentlemen, the conference is over. Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to the HF Foods Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand over to Madeleine Kettle of ICR. Please go ahead. Madeleine Kettle: Welcome to HF Foods Group Third Quarter 2025 Earnings Conference Call. Joining me today on today's call are Felix Lin, the company's President and Chief Executive Officer; and Paul McGarry, the company's Interim Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current beliefs and expectations about future events, which are subject to several known and unknown risks and uncertainties. If you refer to HF Foods earnings release as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from those expressed or implied by these forward-looking statements. The company undertakes no obligation to update or revise these forward-looking statements in the future. In these remarks, the company will make several references to non-GAAP financial measures, including adjusted EBITDA and non-GAAP diluted earnings per share. We believe these measures provide investors with a useful perspective on the underlying growth trends of the business and have included in the earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. Now I will turn the call over to Felix. Xi Lin: Hello, everyone. Welcome to HF Foods Third Quarter 2021 Earnings Call. I'll provide a business update, and Paul will speak to our third quarter financial results. Then we'll open up the line for Q&A. I am pleased to announce that we continued our momentum in the third quarter of 2025. Net revenue increased 2.9% year-over-year to $307 million and gross profit increased 0.5% to $50.4 million. Also notably, adjusted EBITDA increased 41.5% year-over-year to $11.7 million. Our results reflect our continued discipline execution against our strategic initiatives and showcase the resilience of our business model. Despite ongoing macro challenges, including tariff pressures and shifts in consumer spending behaviors, our transformation initiatives are paving the way for continued growth and improvement throughout the business. Our third quarter performance demonstrates the strength of our operational focus and strategic positioning. We have been actively diversifying our supplier base and exploring alternative sourcing strategies to ensure continuity and cost effectiveness in our supply chain. Our strategic inventory management and proactive pricing actions have allowed us to effectively navigate the changing environment while delivering solid net revenue growth and significant adjusted EBITDA growth. We are encouraged by our strong performance in the third quarter and a solid foundation we built. While we have seen some lower foot traffic consistent with broader industry trends, this was offset by strong volume in select markets and pricing actions we have taken. Based on our current trends, we expect Q4 results to be similar to what we achieved in Q3. We remain extremely confident in our long-term growth strategy and are committed to our capital investment in growing our capacity as we continue building momentum for the rest of the year and into 2026. Our digital transformation initiative continues to deliver on its promise. We've reached a major milestone on May 1 with the successful deployment of a new modern ERP application across our entire network. All of our locations are now offering on a single unified ERP platform that will help us to achieve breakthrough levels of efficiency, visibility and control across our operations, unlocking the full potential of our centralized purchasing capabilities over time. I am pleased to report that the ERP system is running smoothly as planned. The next phase of this program is focused on rationalizing our sales force. With our operations unified on a single system, we now plan to restructure our sales operation which will reduce costs over time and further strengthen our competitive positioning. We expect the initiatives to kick off in the second half of Q4 2025 and run through the first part of Q1 2026, providing efficiencies in our sales operations. We're consolidating two sales operations into one, which we believe provides us better control over the overall sales process and provides improved customer service. This represents the final key piece to our business integration transformation. Our strategic facility enhancement initiatives continue to advance across multiple regions, positioning us for sustained growth. Renovation at our Charlotte distribution center are largely complete with the final permits imminent. Our state-of-the-art Atlanta facility project, which we expect will create meaningful organic growth opportunities through expanded cross-selling capabilities is on track for completion later this year. The cold storage capacity expansion in Atlanta is expected to double our capacity in the region and enable us to significantly increase frozen seafood sales to our existing customer base along the Eastern Seaboard, meaningfully expanding our Southeast presence. In the quarter, we announced the acquisition of our Chicago warehouse. This strategic acquisition advances HF's ongoing transformation plan to improve operational efficiency, reduce facility cost and strengthen organic growth through cross-selling opportunities. Acquiring the facility enable us to exit the lease agreement early, improve operating expenses and invest in facility to grow additional capacity and drive consolidation opportunities. These exciting infrastructure investments reflect our ongoing commitment to optimizing our distribution network and creating a stronger foundation for sustainable growth. M&A remains a core pillar of our growth strategy. HF Foods is the only scaled food service provider in the Asian specialty market in the United States. And we believe we are the strategic acquirer of choice within our space. We are focused on expanding our geographic footprint in high-potential markets, capturing operational synergies, broadening our customer base and enhancing our product and service capabilities. We remain disciplined but optimistic about M&A opportunities in 2025 and beyond. We're actively evaluating opportunities, and we believe our proven ability to successfully navigate the tariff landscape positions us uniquely to identify and execute attractive tuck-in acquisitions that will benefit from the operational expertise and scale. Before I turn the call over, I'd like to welcome Paul McGarry, who is joining us on the first earnings call as interim CFO of HF Foods. Paul has been a key member of our finance team as our Vice President, Corporate Controller, and brings extensive finance experience and deep knowledge of HF Foods business operations. We're grateful for his seamless leadership during this executive transition. Now over to you, Paul. Paul McGarry: Thanks, Felix. I will now review our results for the third quarter ended September 30, 2025 versus the same period in 2024. Net revenue for the third quarter increased 2.9% to $307 million from $298.4 million in the prior year quarter. The increase was primarily attributable to volume increases and improved pricing in our meat, poultry and seafood categories. Gross profit increased by 0.5% to $50.4 million for the quarter compared to $50.2 million in the prior year quarter. The increase was primarily attributable to an increase in volume and improved pricing during the quarter. Gross profit margin remained relatively consistent at 16.4% compared to 16.8% in the same period in 2024 due to an increased proportion of sales from lower margin products, particularly seafood. Distribution, selling and administrative or DS&A expenses decreased by $0.4 million to $49.3 million for the third quarter. DS&A expenses as a percentage of net revenue decreased to 16.1% from 16.6% in the prior year period, primarily due to increased net revenue and lower personal professional insurance costs, partially offset by increased rental occupancy and other expenses. Income from operations for the third quarter of 2025 increased to $1.1 million compared to $0.5 million in the prior year quarter. The improvement was driven by the increase in net revenue, gross profit and a decrease in DS&A costs. Adjusted EBITDA increased 41.5% to $11.7 million for the third quarter 2025 compared to $8.3 million in the prior year quarter. Total interest expense increased slightly to $2.9 million for the third quarter of 2025 compared to $2.6 million in the prior year quarter. Net loss was $0.9 million for the third quarter of 2025 compared to a loss of $3.8 million in the third quarter of 2024. The improvement was primarily driven by an increase in net revenue, gross margin and managing certain DS&A costs. Adjusted net income increased to $4.3 million compared to $2.2 million in the prior year period. Loss per share improved to a loss of $0.02 compared to a loss of $0.07 in the prior year period. Adjusted earnings per share increased to $0.08 compared to $0.04 in the prior year period. In summary, our third quarter results demonstrate the effectiveness of our strategic transformation initiatives and operational discipline in driving meaningful progress across our business. While we continue to navigate macro headwinds, including tower pressures, and shifting consumer patterns, our proactive approach to pricing, inventory management and operational efficiency has enabled us to deliver growth and build momentum for the future. These strong results reinforce our confidence in the strategic foundation we've established and position us well as we continue to execute on our growth strategy. I'll now hand it back over to Felix for closing remarks. Xi Lin: Thanks, Paul. As we look ahead to the balance of 2025 and beyond, I want to emphasize our commitment to executing the comprehensive transformation initiatives that are reshaping HF Foods. 2025 is a year of strategic investment for HF and the investments we're making in our facilities, digital infrastructure and operations will establish a strong foundation for our next phase of growth. While short-term uncertainties persist, we remain focused on our long-term strategic objectives. Our investments in digital transformation and infrastructure are strategically designed to drive organic growth through cross-selling opportunities while positioning us to complement this expansion with target M&A initiatives. Our key competitive advantages stem from the growing demand for attended Asian cuisine and our unmatched position as a leading nationwide Asian specialty distributor. We're methodically building the infrastructure systems and capabilities needed to fully capitalize on these strategic advantages. As we move forward, we'll continue to identify and implement additional efficiency measures while maintaining our commitment to service excellence and sustainable growth. Thank you for your continued support as we execute our strategic transformation. We look forward to sharing our progress with you on our next call. I will now hand it over to the operator for a live Q&A. Operator: [Operator Instructions] Our first question comes from William Kirk of ROTH Capital Partners. William Kirk: Felix, you talked about capacity increases for 2026 between the active projects you laid out a couple and I guess, the possibility of M&A. How much do you think capacity increases in 2026? Xi Lin: Bill, yes, that's a good question. I mean capacity-wise, right now, if we think about what we've been communicating, it's limited to the Southeast. So specifically for Atlanta, we talk about cold storage, it's effectively going to double our capacity in the Atlanta market. So we're moving from a 100,000 square feet warehouse to roughly about 190,000 square feet warehouse in that market. William Kirk: Okay. And thinking about restructuring of the sales force, I know you kind of said it goes from 2 to 1. How much cost savings do you think you can generate through that initiative, and maybe more importantly, how do you balance extracting those efficiencies while not losing the uniqueness that your sales force provides. Xi Lin: Yes. I think part of the moat that we've been communicating is the fact that, again, we understand our customers, especially in the way to do business, the language and the product rationalization itself. So all of that, again, will remain the same. This is really more of an efficiency play. So over time, we'll have better control over pricing strategy, promotion with our broader program here in the future. So again, this is one of those things that we've been prepping here for the better part 2025. So really, we're just getting towards the end of execution itself. While at the end of the day, again, there might be some level of disruption, but it's going to be expected and planned based on everything that we've been working on internally. But I do expect going through the end of 2025 and certainly, midpoint through the Q1 2026 everything should get normalized here for us? William Kirk: Okay. And if I can sneak one more in. Were there any standouts or like a differential in the monthly cadence in the quarter? And then when you're looking at the quarter-to-date period, where does that shape up versus kind of how you guided 4Q? And have you seen any impact from -- potential impact from government shutdown? Xi Lin: Yes. I mean, Q3 has largely kind of followed the trend that we saw in Q2, right? There's still the impact from tariffs in terms of inventory, pricing and certainly, foot traffic. Beginning of Q3, we saw it continue to be a little bit softer, but it rebounded nicely towards the end of Q3. And as we kind of get into Q4 as well, selected markets, I think there are going to be a little bit of impact from government shutdown. For example, Virginia where we have a nice frozen seafood business based out of Richmond, Virginia, certainly that the market they service have a large, call it, government employee population. So the shutdown have impacted volume and foot traffic in that selected market. But overall, going through the entirety of 2025, I think the team has done a really good job. Other markets would pick up volume. One specific market, for example, in Salt Lake City where not just in 2025, but over the last couple of years, we've been very effective in rationalizing our product and our business mix to kind of get rid of some of the lower margin business and free up some capacity to drive better business performance. So that's probably one of the biggest reasons why we're still able to deliver year-over-year growth for the quarter. Operator: Our next question comes from Daniel Harriman of Sidoti & Company. Daniel Harriman: Congratulations on the continued progress. Felix, I've got 2 quick questions, one of which kind of follows up on the previous questions, but with 2025 being a year of investment, looking out to '26 and '27, how should we think about maintenance CapEx on a sustained basis year-over-year? And then secondly, again, referencing 2025 as a year of investment, can you just talk a little bit more about the timing of the ramp-up and how we should think about organic growth moving forward? Is it going to be -- are we going to see some of that in 2026 or given the external pressures or is your assumption that we may be needing to look at a little bit further? Xi Lin: Daniel. Yes, so addressing your first question regarding CapEx. I think on an annual basis, our typical maintenance CapEx budget probably fluctuate between $10 million to $15 million a year. So on a go-forward basis, that's largely going to be around, again, driving efficiency improvements, cutting cost out within our D.C. operations. And in '26, I think CapEx might be a little bit higher just given the fact that we announced the strategic acquisition of our Chicago warehouse. And certainly, as we make more progress trying to drive additional capacity in the Midwest market, there might be newer facility acquisition on the horizon. So for the foreseeable future, I think it's going to be more than the $10 million to $15 million that we have previously communicated in terms of normal maintenance. Getting back to the organic growth, I think previously, we talked about, it's likely going to take about 3 to 4 years in terms of ramping up once the capacity is ready. So I do believe that '26 is going to be the first year there will be some incremental volume gains, specifically with respect to frozen seafood in the Atlanta and Southeast market. And it's going to take, again, probably a couple of years for us to get there and fully utilize the entire new capacity that's going to come along here at the end of the year. But I think the larger cross-selling organic growth opportunity, it's always going to be perhaps in the Midwest market. So certainly, the investment is going to go in as we plan to in 2026, which will pay dividends potentially '27 and beyond. Operator: [Operator Instructions] With no further questions in the question queue, we have reached the end of the Q&A session. I will now hand back to Felix Lin for closing remarks. Xi Lin: So again, I'd like to thank everyone for joining the call today. We're pleased with the transformation and progress we've made to date and the results we have achieved this quarter. We remain extremely confident in our long-term outlook and invite all of these continue following the HF story. Thank you, and we look forward to updating you on our next earnings call. Operator: Thank you. Ladies and gentlemen, that concludes this event. Thank you for attending, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Lincoln Educational Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michael Polyviou. You may begin. Michael Polyviou: Thank you, Kevin. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued a news release reporting financial results for the third quarter ended September 30, 2025, as well as recent corporate developments. The release is available on the Investor Relations portion of the company's corporate website at www.lincolntech.edu. Joining us today on the call are Scott Shaw, President and CEO, and Brian Meyers, Chief Financial Officer. Today's call is being recorded and is being broadcast live on the company's website. A replay of the call will be archived on the company's website. Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions, are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance. The company cautions you that these statements reflect certain expectations about the company's future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the company's control and may influence the accuracy of the statements and projections upon which the segmented statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on information available at the time those statements are made and management's good faith belief as of the time with respect to future events. All forward-looking statements are qualified in their entirety by the cautionary statement. Lincoln undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date thereof. One other housekeeping matter. During the Q&A portion of the call today, we would ask them to limit themselves to 2 questions and then requeue as an addition. In advance, we thank you for your cooperation. Now I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead. Scott Shaw: Thank you, Michael, and good morning, everyone. Thank you for joining us today for our review of another exceptional quarter of operating and financial performance for Lincoln Tech. Our third quarter student start growth of 6% exceeded our internal forecast and marked the 12th consecutive quarter we grew student starts over the prior year's period. We also continue to realize double-digit growth rates in total student population, total revenue, and consolidated adjusted EBITDA over the prior year periods, while also recording the third consecutive quarter of declining year-over-year bad debt levels. We generated $0.12 a share in net income while continuing to invest in our highly successful and expanding growth strategies, and once again are increasing our guidance for full-year financial results. Brian will provide the details on the guidance. Lincoln has earned a well-deserved reputation for setting the standard of excellence in helping American corporations and organizations in their constant search for employees trained and skilled in trades such as HVAC installation and repair, residential and commercial real estate electrical systems, installation and repair, automotive and diesel systems maintenance and repair, welding, and nursing and other health care professions. Careers in these fields offer graduates secure, rewarding, and advancement opportunities likely to remain in strong long-term demand despite advancements in artificial intelligence. Recently, our growth has accelerated due to the nation's increased interest in skilled trade careers and through our successful development of greenfield campuses and the expansion of successful programs to existing campuses. Since the beginning of 2024, we have opened new campuses in East Point, Georgia, and Houston, Texas, while relocating outdated and space-constrained campuses in Nashville and Philadelphia to new and expanded state-of-the-art facilities. As we reported during our second quarter call, East Point's start rate after 18 months of operation achieved a level we plan to achieve after 3 years of operation. Due to this exceptional growth, we have secured an additional 15,000 square feet of space immediately adjacent to our current facility to meet the increasing demand. Meanwhile, in Nashville, the start of existing programs at the new campus exceeded our expectations. The expanded campus enabled the addition of electrical and HVAC programs, which also added to the momentum. In Levittown, Pennsylvania, we completed the transfer of our automotive program from Philadelphia and have started our first classes in HVAC, welding, and electrical. Finally, we began our first classes in our new Houston, Texas campus during the third quarter, and the response is also exceeding our pre-opening expectations. East Point, Nashville, Levittown, and Houston are generating stronger and faster returns than we anticipated when we made these investments. This both increases conviction in our greenfield and expansion strategy and is accelerating our growth, allowing us to fund our ambitious growth plans from operating cash flow supplemented with our credit facility for seasonal needs. New campus development has driven about half of our recent start growth, and the implementation of our innovative Lincoln 10.0 hybrid teaching platform, increasing returns from marketing efforts, and the expansion or addition of programs have generated good, solid organic growth at existing campuses. As a result, we are realizing increasing levels of instructional efficiencies, space efficiencies, and organizational productivity through Lincoln 10.0 and other initiatives. Brian will provide more details on the progress we are making by leveraging our operating expenses to generate cash flow that is funding our expanded growth objectives in a few minutes. As the overall national growth and new job creation slow, interest in skilled trade training as an alternative to the traditional 4-year college education continues to expand. The federal government's actions impacting student loans have further fueled this interest, and our team is executing our updated growth strategies for the benefit of our students, corporate partners, instructors, and shareholders. Last week, we announced plans to expand Lincoln's presence in Texas by developing a new state-of-the-art campus in Rowlett, Texas, a northern suburb of Dallas. This new campus, our 24th nationwide, is located near major interstate highways 635 and 30 and will complement our highly successful Lincoln Tech campus in Grand Prairie, Texas, which is west of Dallas. The new 88,000 square foot campus will have a capacity for over 1,600 students and will offer automotive, welding, electrical, and HVAC training when it opens at the beginning of 2017. We have found that by having 2 strategically located campuses in growing metropolitan markets, we are able to leverage resources and enhance our ability to serve students, instructors, and corporate partners. In Atlanta, our 2 campuses, located in Marietta and East Point, have both benefited from marketing and other corporate resources, resulting in higher-than-expected starts at both campuses. We are hoping to generate similar leveraging opportunities in the Dallas market when the Rowlett campus opens. Similarly, our new campus under development in Hicksville, Long Island, is progressing towards opening in late 2026 and will be our second campus in the metropolitan New York City area, where we have successfully operated our Queens campus for over 20 years. With each new campus, our objective is to achieve $25 million to $30 million in annualized revenue and $7 million to $10 million in EBITDA for the fourth year of operation, if not sooner. In addition to new campus development, program expansion or replication at existing campuses is contributing to Lincoln's growth. We added or expanded 6 programs at existing campuses during 2024 and are well on the way to adding 5 more this year. In total, these 11 programs are a key contributor to our start growth. Lincoln's partnerships with corporations throughout America have long been a contributor to our success. Our tailored training for these companies helps them close the workforce skills gap while providing graduates with secure, rewarding career opportunities with advancement potential. This year, many potential partners have extended decision-making timelines largely due to ongoing economic uncertainty. However, during the third quarter, we did expand our innovative training program with CMC Corporation, under which we are training their employees at their facilities rather than at Lincoln campuses. We signed our original 5-year agreement with the company in 2023 and believe our extended partnership with CMC illustrates the contribution we are making to closing their workforce skills gap. Another key growth initiative at Lincoln involves our health care programs. Our new leadership for this segment is hard at work developing changes to our instructional model and improving operating effectiveness and efficiency. One area of focus is to expand our offerings beyond the current LPN certificate so that students can earn RN degrees. Such a development would substantially increase our addressable market in the nursing field. Meanwhile, last quarter, we talked about our efforts to regain enrollment status at our Paramus Nursing program. We have now exceeded the graduation benchmark in this program for the past 12 months and have received approval from the State Board of Nursing to begin reenrolling students starting in January of 2026. This is great news and is a testament to our ability to deliver quality nursing training across New Jersey. New Jersey, like most of the nation, faces a severe shortage of nurses at all levels, and we look forward to doing our part to lessen the shortage and bring greater and better nursing care to the state. We also introduced you to our high school share program during our last call and have made some substantial progress with this initiative. For instance, at our Mahwah, New Jersey campus, the number of students enrolled through high school shares has doubled from last year. More and more school districts in New Jersey, as well as other states where Lincoln operates, have inquired about implementing a share program at their schools. Under this program, students attend Lincoln classes during their junior and senior years and then continue after high school to gain their certificate in less time, which accelerates their entry into rewarding careers. With school districts under constant budgetary challenges, our initiative enables the continuation of skilled trades training within the high school while building our enrollment. We are quite excited about the potential for this initiative. It, along with additional investments in our high school outreach programs, leads us to be optimistic about our opportunities to enroll more high school students graduating in the spring and summer of 2026. In addition to these initiatives, we are also exploring expansion efforts through corporate development activities, including acquisitions and joint ventures. Recently, several start-ups targeting skilled trades have contacted Lincoln to explore ways we could facilitate their strategy through our capabilities. These discussions are in the early stage and require little, if any, of our development resources, but do illustrate the expanded interest in increasing skilled trades training in America to address the continuing skills gap. While there is a decided focus on growth at Lincoln, we continue to make investments in people and processes to ensure that we deliver an exceptional learning experience for our students. We want to be the best, and we want the best for our students. To achieve this goal, we are constantly evaluating new software, curriculum, and training aids. In addition, we want our instructors to have industry-recognized credentials that ensure they have the most up-to-date knowledge in their field, so our students have an edge on their competition. With technology ever changing, we are constantly in pursuit of what will help our students master the skills they desire to become the technicians, welders, and health care providers that will lead the next generation of skilled, hands-on professionals. We believe one way to measure the effectiveness of our investments in people and processes is our graduation rate, as well as the employment of our graduates in their field of training. Despite our growth in students, both metrics remain strong, and we are constantly evaluating ways to build on this success rate. For nearly 80 years, Lincoln has remained focused on delivering high-quality, life-changing career education, and no one else has our combination of longevity, scale, and proven experience. By continuing to expand our network of schools, replicating our most in-demand programs at our existing campuses while building new campuses in new and existing markets, we believe we will comfortably surpass the objectives established last year of approximately $550 million in revenue and approximately $90 million of adjusted EBITDA in 2027. Therefore, today, we are increasing our targets, which Brian will review in more detail in a few moments. While we are always evaluating acquisitions that make strategic and financial sense for our company and our shareholders, our new 2027 milestones will be achieved organically through our existing operations and new campuses developed internally. As I've discussed before, our country's existing severe skills gap will likely get worse before getting better, and we believe there are many significant underserved markets in America where employers and employees will benefit from our innovative and proven approach to skilled trades training. Despite all this positive news and solid execution, it appears that the market still does not understand who we are and what we can become. Furthermore, while others in our sector have had their businesses negatively impacted by internal execution challenges and the external environment, we at Lincoln Tech have not. Consequently, I want to bring additional clarity to our story. First, while the government shutdown has been the longest in history, our students have continued to receive timely disbursements of federal aid used to finance their education at our schools. The U.S. Department of Education reminded the higher education community of the minimal impact on students at the beginning of the shutdown, and our businesses have not been affected. Second, we continue to see strong interest in our programs, and the current environment for us has not lessened. Third, the decline in our Healthcare segment is not meaningful, nor is it a concern. We have been rationalizing our program offerings for the past several years to focus resources on our most in-demand programs to meet market demand as well as to ensure that we have the industry-leading curricula and training experiences that will set our students apart and give them an edge in the employment market. Within our reported Healthcare segment, there are non-healthcare programs such as culinary and IT, as well as small allied health programs such as patient care tech and dental assisting. We are selectively exiting these noncore programs, and we'll continue to do so when we see better opportunities for the classroom space. Our focus currently is on our licensed practical nursing and medical assisting programs. And during this quarter, these grew by 2%, and this is without LPN starts at our Paramus campus, which will restart in a few months. As we have mentioned in the past, we are continuing to work on plans to offer registered nursing programs in the not-so-distant future. Fourth, growth initiatives are meeting and exceeding our expectations and guidance. We are replicating our most successful programs wherever there is demand and we have space, and we are opening new campuses that our research tells us are underserved. In simple terms, we are constantly looking to double down on our success. Our minimum expectation is for all of these investments to achieve a threshold 20% IRR on a fully burdened basis, including all direct costs needed to open and operate these facilities. I'm very proud to say that to date, we have exceeded this threshold. Fifth, we've been investing in our team to ensure that we have the talent to not only deliver on what we have announced to date, but also to enable us to capitalize on new opportunities as they arise. One clear example of this is our significant refocus on growing our high school student population. Our recent high school results, along with the increased outreach by numerous high schools around the country who are asking for ways for us to help with vocational training, are clear indicators that the stigma of career technical training is lessening. Students, parents, and even high school guidance counselors are more interested in the trades than ever before. To tap into this opportunity, over the past 7 months, we have hired new talent and are reinvigorating our high school recruiting strategy, and we are already seeing good results. As many of you know, I have been with Lincoln Tech for nearly 25 years, and I believe that our organization has never been stronger nor has had as many growth opportunities as we have today. Moreover, we have consistently proven to ourselves that we can capture opportunities. We have achieved what we have set out to achieve and continue to find new opportunities. Recent survey results show that our employees have never been more engaged and satisfied. We are all working for the common good of our students so that they can graduate, launch their careers, and find satisfaction and pride. As obstacles arise, and they always do, we find solutions. Our business is strong and our company is vibrant. Finally, I'd like to note, we will be continuing our investor outreach during the remainder of the fourth quarter. This week, we have several virtual meetings scheduled by ThinkEquity. Next week, we will be attending the Southwest IDEAS Conference in Dallas. And later this month, we will be in Montreal on November 26 with Barrington. Next month, Brian will be attending Northland's Virtual Conference on December 16. Additionally, we will be hosting an Investor Analyst Day at our new Nashville campus on March 19, 2026, to showcase the site and review our long-term growth plan and operating objectives. I urge you to contact Michael Polyviou if you would like to attend. Finally, with Veterans Day being observed tomorrow, I want to extend our appreciation to our military members and their families for their valued service and sacrifice to our country. Now I'll turn the call over to Brian Meyers, so he can review some of our recent financial highlights and guidance. Brian? Brian Meyers: Thanks, Scott, and good morning, everyone. Lincoln delivered another strong quarter with several key metrics once again exceeding our internal forecast. Continued momentum in enrollment growth, combined with improved operating efficiencies, was the primary driver of this performance. These results reflect the strength of our model and our continued focus on operational execution. Before I get into the quarter's financial results, a couple of reminders about our year-over-year comparisons: first, the financial comparisons in my remarks exclude the Transitional segment, which consists of our former Summerlin Las Vegas campus, which we sold in late 2024. Second, as noted on last quarter's earnings call, our reported Q2 starts include an adjustment for the 2,764 students that start on July 1 to align with the prior year class start timing. For this quarter's comparison, we have excluded those starts to maintain consistency with the prior year. With those points in mind, let's turn to the quarter's financial highlights. Revenue for the quarter was $141.4 million, an increase of 25.4%. The strong performance reflects the continued momentum in student starts year-to-date. Turning to student starts. Starts for the quarter were approximately 6,400, representing a 6% growth. We had originally expected starts to be relatively flat, given the strong 22.5% growth in last year's third quarter. Achieving a 6% growth over such a high comparative base underscores the persistent demand we are seeing for our programs. The outperformance was mainly in skilled trades, which experienced better-than-anticipated starts, particularly in our new programs and replications. Revenue per student increased by 4.8%, reflecting both tuition increases and the timing of book and tool revenue. The average student population grew by nearly 20% and the ending population increased by about 17%. As we closed the quarter with over 2,500 more students than the prior year, the ending population climbed to about 18,200 compared to 15,600 in the prior year. Breaking down the composition of this quarter's start growth. Transportation and skilled trade programs delivered an 11.8% increase in starts, driven by continued strong demand as well as successful program additions and expansions. Excluding the program launches in 2024 and 2025, we still achieved a robust 7.9% growth. As anticipated, our health care and other professional programs experienced a 13.7% decline in starts. Approximately half of this decline resulted from the discontinuation of the smaller programs, which we have determined are no longer part of our core program offering. We continue to refine our program offerings to align with areas of strongest student interest and employer demand. As we sunset smaller programs, we will strengthen our core offerings while improving our profitability, particularly in our licensed practical nurse and medical assistant. In addition, as Scott mentioned, we are pursuing degree-granting approval to offer a registered nurse program. Also, as noted, we will commence new enrollments in our LPM program at our Paramus campus beginning in January 2026. Turning to expenses. Total expenses were $135.1 million compared to $106.3 million in the prior year. The increase was in line with our internal expectations and primarily driven by direct costs associated with the larger student population as well as ongoing investment in our growth initiatives. From a profitability standpoint, our adjusted EBITDA grew by 65.1%, reaching $16.9 million, up from $10.2 million last year, which includes the Transitional segment. This improvement continues to highlight the operating leverage generated by several key initiatives. As Scott mentioned, these include efficiencies from our Lincoln 10.0 hybrid teaching model, which has contributed to lower instructional costs as a percentage of revenue and improved space utilization. In addition, we are seeing improvement in bad debt expenses, which have declined as a percentage of revenue for three consecutive quarters. Net income for the quarter was $3.8 million compared to $4 million, including Transitional. Adjusted net income was $6.3 million or $0.20 per diluted share compared to $4.1 million or $0.13 per diluted share, representing an increase of $2.2 million or 54.9%. Looking at our balance sheet. We ended the quarter with $65.5 million in total liquidity. This quarter, we generated $23.9 million in cash from operations. On a year-to-date basis, cash from operations totaled $15.8 million as reflected on our cash flow statement. Due to our seasonality, most of our income and cash are generated in the second half of the year, with the highest level typically in Q4. We finished the quarter with $8 million in outstanding borrowings and $13.5 million in cash on hand. Based on historical trends and an outlook for a strong fourth quarter cash flow, we are forecasting to end the year without any debt outstanding and a higher net cash balance. Now turning to capital expenditures. We continue to execute on our key expansion projects. The total capital expenditures were approximately $21.7 million for the quarter and $68.1 million for the first nine months of the year, as reflected on the cash flow statement. The majority of our quarter's spending was tied to our growth initiatives, including two recent campus relocations and the build-out of our new Houston campus, which opened during Q3. As Scott mentioned, we are excited to announce our fourth greenfield campus in Rowlett, Texas. The build-out is expected to take approximately one year with an anticipated opening in the first quarter of 2027. We view the expansion as an important step in our growth strategy and are encouraged by the strong performance of our prior greenfield campuses. While new campuses require meaningful upfront investment and take approximately two years before they become operational, they are an exceptional growth driver for Lincoln. These investments are expected to generate internal rates of return exceeding our 20% threshold. Our East Point campus, now in its second year of operation, is well on its way to delivering returns significantly above this threshold. Looking ahead to the remainder of 2025. Based on our performance and strong momentum across our core growth drivers, we are raising our full-year guidance across all metrics. We now expect revenue ranging from $505 million to $510 million, adjusted EBITDA in the range of $65 million to $67 million, net income ranging from $17 million to $19 million, student starts growth of 15% to 16% and capital expenditures unchanged at $75 million to $80 million. As a reminder, our guidance excludes stock-based compensation, one-time noncash pension termination expense expected in Q4, pre-opening and net operating losses from new and relocated campuses, and program expansions. For more detailed guidance, please refer to our earnings release, which was filed earlier today. Beginning in 2026, we will no longer adjust our EBITDA for preopening costs and net operating losses from new campuses and program expansions as we currently do. Going forward, adjusted EBITDA will reflect only the add-back of noncash stock-based compensation and other nonrecurring items. In our discussions of operating expenses, we'll continue to call out the losses incurred from campuses that have not yet commenced operation to provide investors with a clear understanding of the profitability of our current operations in future periods. While we will provide formal 2026 guidance during our fourth quarter earnings call in February, we can communicate today that based on our current growth, improving profitability and current investment plans, we expect our 2026 adjusted EBITDA under the revised methodology to exceed our 2025 guidance of $65 million to $67 million, which excludes approximately $10 million of add-backs for new campuses and program expansions. Finally, looking ahead, we remain confident in our long-term growth trajectory. With respect to our previously communicated 2027 financial objective of $550 million in revenue and $90 million in adjusted EBITDA, we now expect to exceed both of these targets. Based on our current performance trends and strategic initiatives, we are projecting to achieve more than $600 million in revenue and over $90 million in adjusted EBITDA by 2027 without the benefit of adding back approximately $10 million of expenses for new campuses and program expansions that were included in our original long-term plan. In closing, as our nation observes Veterans Day, I also want to extend our sincere gratitude to all members of our Lincoln community, students, instructors, and alumni who have served or are serving in the armed forces. And with that, I'll turn the call back over to the operator for your questions. Operator? Operator: [Operator Instructions] Our first question comes from Alex Paris with Barrington Research. Alexander Paris: I just wanted to ask a couple more clarifying questions on 2026. Actually, Brian's final comments in his prepared comments. So this year, in 2025, the adjusted EBITDA guidance of $65 million to $67 million. That includes the impact or the add-back of roughly $10 million in pre-opening costs and so on? Brian Meyers: Correct. You're talking about in 2025? Alexander Paris: Yes, in 2025. And then you said regarding 2026, it sounded like you're forecasting maybe another $10 million of preopening costs. Brian Meyers: Correct. And even without those add-backs, we'll be able to exceed the $90 million that we originally had in our plan with the add-back of that $10 million. Alexander Paris: And you'll exceed the $65 million to $67 million that you're going to do in 2025 based on guidance? Brian Meyers: Correct. Alexander Paris: This is my follow-up question. What about CapEx for 2026? I think you said $70 million to $80 million this year to my notes here somewhere. Brian Meyers: We haven't put anything out yet for 2026. We'll announce that in February. It will probably be similar or maybe slightly down from this year. Operator: Our next question comes from Luke Horton with Northland Capital Markets. Lucas John Horton: Congrats again on a nice quarter. Just wondering if we could get a sense of what drove this strong performance? I mean, a little bit from a campus level or from a program mix perspective. Just looking at the updated guide for 2025 starts, I mean, this implies nearly a 30% start growth in 4Q. So, a little bit for the quarter, what drove the beat, and then the expectation in 4Q of that strong start from a campus-level or program mix perspective? Brian Meyers: Right. So at the low end of the range, that's actually a 15% stock growth for Q4. And at the high end of the range, it will be about a 20% stock growth for Q4. So, not exactly 30%, but with that being said, we are forecasting robust stock growth for Q4. Scott Shaw: Which is what we guided to before, just based on the trends we're seeing, as we are seeing strong interest overall, as well as the performance of our new campuses and programs. Lucas John Horton: And then you guys did mention building out some more square footage at East Point. Can we get a sense of student capacity with these ads? Is this a meaningful expansion here, just trying to rightsize the space? Scott Shaw: Sure. So we're probably adding, frankly, about 500 student capacity with this addition. Lucas John Horton: And then just lastly, on the health care side, you guys talked about expanding to RN programs beyond just the LPN. You said in the near future, I guess, could you just walk us through the timeline of this, or from a regulatory perspective, what needs to be done here? And then would that give you accreditation to offer these across all campuses? Or is it a state-by-state accreditation? Scott Shaw: Yes, it's a good question. So it's a long process, and it is step-by-step. Today, where we have our LPN program, we're not degree-granting. And in order to offer an RN, we have to become degree-granting. So we have applications to become degree-granting in New Jersey, New York, and Connecticut. And so that process could take anywhere from 12 months to, frankly, 48 months, depending on the state. We're obviously pushing to make it happen as quickly as possible. But we know that our LPN students, a large percentage of them are going on to become RNs as well, as naturally the RN career itself is the largest in the health care sector. And in these states, and particularly New Jersey, is one of the highest that has the greatest shortfall of nurses to population. So we feel really good about the opportunity. It's the process of getting through the regulatory hurdles to get there. But we're also looking in certain other states where we have degree-granting already, but don't have an LPN program; we're evaluating putting an RN program there. But there's been nothing decided as of yet. Operator: Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: The 2027 new guide, I just wanted to make sure I'm apples-to-apples with the old guide. I think the $550 million excluded Atlanta, Houston, and then the program expansions at Levittown and Nashville. Can you clarify that? Scott Shaw: Go ahead, Brian. Brian Meyers: No, it always included -- it didn't include Houston because when we first put that out, Houston, what wasn't announced yet. It was really only included for the new campuses, the East Point. So it included revenue from East Point. Now exceeding $600 million, that includes everything announced as of today for revenue. Eric Martinuzzi: So that would be assuming Pikesville and Rowlett are online, they would contribute towards that 600? Brian Meyers: Correct. [indiscernible] online first quarter of '27. Correct. Eric Martinuzzi: And then the decline in the hop starts. You clarified that that was tied to Paramus, and we're going to get the green light for Paramus in 2026. And then the massage and culinary, we're choosing not to pursue those. At what point do we get back to organic positive growth? And were we positive ex the Paramus and the massage and culinary here in Q3? Scott Shaw: Yes. So as I mentioned, the two core programs that represent more than 80% of the students in health care are LPN and medical assisting. And those two programs grew at 2% in the third quarter. I would anticipate next year that we should be positive again, especially with the opening of nursing at our Paramus campus. So in 2026, certainly, those two programs will continue to grow. Operator: Our next question comes from Raj Sharma with Texas Capital. Rajiv Sharma: Congratulations on solid results again, especially given where some of the other players in the education space are talking about. So it seems like in the healthcare starts, there's a lot of noise. There are programs that are going out, and the programs are coming back in. So what starts, and what kind of growth do you expect? I know you just said about 2%. Is that overall, your other noise goes away in the health care arena, and now you're left with LP, and can you talk about just ongoing in the next couple of years, what should we expect from the health care and nursing segment? Scott Shaw: Sure. So again, let's just put this all in perspective. Today, the health care and other segments are 20% of our population. So the bulk of what we're doing is all in the automotive and skilled trades, and those are the programs today that we're replicating. As we said in the call, the core programs in health care, LPN, and MA are still growing, and we would anticipate that to continue into the future. We are going to complement that in the future with an RN. But again, it's too early in the game to say where things are going. All I can share with you is that all of our guidance and all the information that we're sharing incorporates all these changes that are taking place. And the overall message is that our business is very, very robust and our growth rates will reflect that. I don't know if that helps you. Rajiv Sharma: Yes. And then just following on, I know Brian had touched on the guidance of fiscal '26. So the way I read it is you're talking about the EBITDA guidance, the apples-to-apples would be the $65 million, $67 million this year would have been $75 million, $77 million at least for fiscal '24. Are you saying anything about start of next year's revenue growth? Do you see anything on the horizon that would disrupt the current starts growth for transportation or health care? Scott Shaw: No. I mean, as I think we said in our remarks, things are, frankly, very robust, have been very steady, and we're seeing just strong conversions and strong interest, both also, as we said, from the adult market and the high school market. And I'll just highlight that the high school market is seeing increased interest, and that's an exciting opportunity for us, and we're going to capitalize on that more so in 2026, given the investments we're making today. And then that will grow even more, I believe, into 2027. Rajiv Sharma: And then just lastly, on the regulatory horizon, any developments that we should be on the lookout for? I mean, anything happening in the negotiated rulemaking that we should be on the watch out for? Scott Shaw: Sure. There's nothing that I'm aware of that affects Lincoln Tech that's out there. Obviously, we have to stay on top of it because things change in this environment very quickly. But as of right now, Raj, I don't see anything that's going to derail us from what our plans are and where we're going as a company. Operator: [Operator Instructions] Our next question comes from Steve Frankel with Rosenblatt Securities. Steven Frankel: What did you learn from East Point that maybe you're going to change as you open this new campus in Texas? Is there anything that you take away from the early days of East Point that says, well, maybe we could do these things to get an even faster start? Scott Shaw: Yes. I think that the biggest thing we took away is that we made East Point very efficient. It was less than 60,000 square feet, and it filled up so quickly that in planning our next campuses, we already realized that we should be looking at larger square footage, as our more recent campuses, even our relocations, Philadelphia is at 90,000, Houston is at around 90,000. And as we mentioned, Roulette will be around 90,000. And I also highlight that within that 90,000, we have about 10,000 to 12,000 of undeveloped space for future programs. So we just decided, given the success that we were seeing, that we should build facilities that could accommodate more in those local markets, as well as build in some opportunity for future expansion opportunities for us. So that's the biggest lesson. The others are operational. We hadn't opened a new campus in about 18 years. And I think that we've now figured out what the model is and when to staff it, and how to get the excitement within the market up before our campuses open up. I mean, East Point was a market where we already had a presence with our campus in Marietta. Houston is a market where our name isn't as well-known. So we're spending a little bit more to make it well known, but we're starting to see similar results as in East Point. So things are going well, and we constantly learn as we open up new programs and replicate in each market. Steven Frankel: And then from a 30,000-foot view, have you seen any material decline in interest for legacy auto diesel programs? Or does that continue to be a healthy portion of the skilled trade mix? Scott Shaw: We're still seeing positive growth, but certainly, the skilled trades are growing faster at this point. Things fluctuate. Obviously, if you look at our numbers overall or I would say we've replicated the skilled trades the most. Simply because it's the most cost-effective for us to do that. So we have more skilled trades programs today than we have auto programs. But we are still seeing, as I've mentioned, our organic growth has been, frankly, very strong due to improvements in the Lincoln 10.0 and due to increased marketing efforts to get the word out, and frankly, the receptivity that's out there. So skilled trades are definitely growing more for Lincoln than auto, but we're seeing positive growth in, frankly, all segments. Operator: Our next question comes from Griffin Boss with B. Riley Securities. Griffin Boss: So I'll just start off, you sort of back out an average tuition per student. That came in very strong in the quarter. I think Brian mentioned something about structurally higher tuition. But curious if you could expand on that. Is this higher average tuition per student just pricing? Or is it also program mix? Brian Meyers: It's a good question. For the quarter, we got the benefit of the timing of books and tools. I think I might have mentioned that in my prepared remarks. When we give out tools, we earn the revenue when it was given out, but we also have the expense. So, that big start that happened on July 1, we did have a pickup in revenue there, but we also have an offsetting expense on that as well. We benefited from that for Q3 as well. Scott Shaw: But just to be clear, we raised tuition by 3% or less. It varies by program, and that happens just once a year, so usually at the beginning of the year. So the changes that Brian is mentioning could either be a somewhat program mix or, as he said, we got the benefit of all these starts. And so when students start, we book a lot of the books and tools revenue at that point. So that can distort it slightly. Brian Meyers: Right. Because overall, it was about 4%. So as Scott was saying, about, I would say, 2% to 3% is tuition increases. We do benefit from a little bit of our program mix being slightly higher with our starts, but then some of it was due to the book and tool revenue. Griffin Boss: And then just last one for me. Can you remind us what maybe the average ramp-up period is for new campuses? Obviously, you talk a lot about revenue and EBITDA expectations, but you mentioned that this new Routed campus will have 1,600 student capacity. How long does it take you to fill those seats? When you open up a campus, do you expect to have a certain amount of capacity initially that maybe increases over time? How do you think about that? Scott Shaw: Sure. So I mean, just looking at East Point as an example, obviously, a very strong performer for us. Within the first 18 months, it has about 700 to 800 students. We would anticipate that our other campuses will perform similarly in the first 18 to 24 months. When we say it has about 1,600 student capacity to get our return on investment that we're looking for, we don't need that many. Frankly, we're basing that off of closer to, let's say, 850 to maybe 1,000 students. So I hope that helps you. Operator: Our next question comes from Alex Paris with Barrington Research. Alexander Paris: Just a quick follow-up. I meant to ask on the previous -- In light of Veterans Day tomorrow, you mentioned military. Just curious, what is Lincoln's overall military exposure as a percent of total enrollment? And what is the character of that military enrollment? Is it military tuition assistance for active duty? Or is it the Veterans Administration GI bill? Scott Shaw: Yes, it's a good question. Well, as a reminder, we started as a military training organization by our founder to train vets from World War II. And unfortunately, we're down to only about 5% to 6% of our students today who are military. And part of that is because when we move to the Lincoln 10.0 model, you're not allowed to provide housing benefits to our military through the GI bill if it's a diploma hybrid program unless you have a degree program. So our initiative to get degrees in a number of states where we don't have degrees will enable us to start reenrolling veterans in those areas. So they're all using their GI benefits. So these are people who have left the military. And we would anticipate as we get, as I said, degree branding, particularly in the states of New Jersey and New York, that we'll start seeing, frankly, a growth again in our veteran population. Alexander Paris: So to be clear, it's veterans, and that's what I thought. You don't have a material amount of active duty. And GI bill funds are flowing. It had been an issue for another one of your competitors, the American public. Scott Shaw: Yes, that is correct. That's what I tried to say in my remarks, I mean for us, for Lincoln, for what we do, who we serve, the shutdown and the changes that are taking place in Washington have not negatively impacted our business, and that's why we're able to get those strong results that we've been achieving to date and that's why I believe that we'll continue to achieve these strong results going forward. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Scott Shaw for any closing remarks. Scott Shaw: Great. Thank you, operator, and thank you all for joining us today as we reviewed our continued progress, growth, and increased financial guidance for the full year. As more and more high school graduates and adults seek a time-efficient, cost-effective path to develop skills that can serve them a lifetime, interest in our programs continues to grow. And with our student start growth, new campus development, and increasing level of operating efficiencies, we believe we have numerous opportunities to generate increasing levels of shareholder returns over several years. Our success is only made possible by the commitment and dedication of our faculty and staff to our students and their success, and we will continue to share with the world that middle skills careers like the ones we offer lead to rewarding, productive, and fulfilling careers that our nation desperately needs. I'd like to thank our shareholders for their support and our entire team for their dedication to achieving our goals. I hope to see you during my time on the road visiting shareholders, employers, and politicians as I share the Lincoln Tech story. Thank you all again, and have a great day. Bye-bye. Operator: Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.
Kenny Green: Ladies and gentlemen, thank you for standing by. I would like to welcome you to Camtek's Results Zoom Webinar. My name is Kenny Green, and I'm part of the Investor Relations team at Camtek. [Operator Instructions] I would like to remind everyone that this conference call is being recorded, and the recording will be available from the link in the earnings press release and on Camtek's website from tomorrow. You should have all received by now the company's press release. If not, please view it on the company's website. With me today on the call, we have Mr. Rafi Amit, CEO; Mr. Moshe Eisenberg, CFO; and Mr. Ramy Langer, COO. Rafi will open by providing an overview of Camtek's results and discuss recent market trends. Moshe will then summarize the financial results of the quarter. Following that, Rafi, Moshe and Ramy will be available to take your questions. Before we begin, I'd like to remind everyone that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding risk factors that may impact Camtek's results, please review Camtek's earnings release and SEC filings and specifically the forward-looking statements and risk factors identified in the recent press release issued earlier today and such other risk factors discussed in Camtek's most recent annual report on SEC Form 20-F. Camtek does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today's discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP financial results can be found in today's earnings release. And now I'd like to hand the call over to Rafi Amit, Camtek's CEO. Rafi, please go ahead. Rafi Amit: Thanks, Kenny. Hello, everyone. Camtek concluded the third quarter with record performance. Q3 revenues reached a record $126 million, reflecting over 12% growth year-over-year. We also maintained solid gross margin of 51.5%, contributing to a record operating income of over $37.6 million. Our strong cash position of approximately $800 million, including the additional cash generated by our successful $500 million convertible notes offering in Q3 provide us with the financial flexibility to drive growth organically as well as to explore potential opportunities for inorganic growth across our market. Revenue distribution remained in the line with our expectations and closely matched last quarter result. High-performance computing applications contributed approximately 45% of total revenue, while other advanced packaging applications accounted for about 25%. The balance came from CMOS image sensors, compound semiconductor front-end applications and other general applications. We continue to see a shift of CoWoS like production toward OSATs, a trend that is favorable for our business, given our strong position within this segment. We've received significant orders for installation this year from 2 Tier 1 OSATs for CoWoS and CoWoS like applications. We have also received significant orders from several OSATs for fan-out application. Regarding the HBM market, we maintain our leadership position with all the manufacturer. Our tools are not only qualified, but actually are the tools of reference for 3D metrology steps for HBM4 at all the HBM players. We have installed tool for HBM this quarter and through the entire year for both 3D and 2D steps and have orders on hand for HBM shipment for the next quarter. Regarding our guidance for Q4, based on our current order, our sales pipeline and ongoing customer engagement, we expect Q4 2025 revenue to be around $125 million, representing annual revenue of $495 million, a record year for Camtek with a strong growth of 15% over 2024. Let me share some of our recent technological development and business highlights. We continue to enhance our technological capabilities and strengthen our competitive edge. The next generation of devices that will power the future of HPC will require cutting-edge inspection and advanced 3D metrology solutions, area in which Camtek is strongly positioned and continues to innovate. Our new product, Eagle G5 and Hawk were designed to meet the most demanding new requirements and at the same time, perform at very high throughput. These models have been very well received by the market and are expected to contribute approximately 30% of our revenue in 2025 with an even larger share expected next year. The Eagle G5 has been recently selected for 2D applications over our main competitor at major IDM, and we have received multiple orders for installation this year and into '26. We have also won significant business at 2 Tier 1 OSATs after an evaluation of multiple vendors, including our main competitors. Regarding the Hawk, we have already received repeat orders for major Tier 1 player for shipment in 2026 and 2027 after multiple Hawk systems were used flawlessly in production for several months. The Hawk provides the most advanced 3D performance in terms of throughput and accuracy. This is our ninth generation of white light triangulation that provides superior coverage for different bump types and process steps compared with laser triangulation technology used by our competitors. We are planning to introduce an enhanced version of the Hawk early next year, featuring significant improvement in throughput and overall performance across both 3D metrology and 2D inspection. This advancement will further strengthen the Hawk's position as the most advanced tool in the segment. Regarding 2D inspection domain, we have made significant investment over the past year to expand our capabilities of both the Hawk and Eagle G5 in the 2D inspection applications. We have implemented breaking through HI driving algorithms into our detection technologies. We are currently evaluating these innovations with key customers, and we are confident that these new cutting-edge inspection solutions will enable to further grow our market share in this segment. I would now like to share some insight regarding the HPC market. With the accelerated adoption of AI and the recent announcement of a major data center investment by leading industry players, it is clear that the industry is heading toward a significant expansion of manufacturing capacity. Only the HBM portion is expected to more than double itself in the next 3 years. That said, we expect a natural time lag between those investment announcement and the actual purchase of equipment to support this new capacity. Turning to our preliminary outlook for 2026. This industry development, which point to sustained growth and continued investment in wafer fab equipment, strengthen our expectation that 2026 will be another year of growth for Camtek. At this stage, we expect our 2026 revenue to be weighted toward the second half of the year with a somewhat slower start, as the market continues to absorb existing capacity before the next wave of expansion begins. In summary, the massive investment in data centers and the accelerating adoption of AI-driven applications are expected to translate into increasing demand for advanced semiconductor manufacturing equipment. With Camtek's strong market position and the cutting-edge capabilities we have recently added, we are well positioned to capitalize on this trend and deliver significant growth while further expanding our market share in the coming years. And now Moshe will review the financial results. Moshe? Moshe Eisenberg: Thank you, Rafi. In my financial summary ahead, I will provide the results on a non-GAAP basis. The reconciliation between the GAAP results and the non-GAAP results appear in the table at the end of the press release issued earlier today. Third quarter revenues came in at a record $126 million, an increase of 12% compared with the second quarter -- third quarter of 2024. The geographic revenue split for the quarter was as follows: Asia was 93% and the rest of the world accounted for 7%. Gross profit for the quarter was $65 million. The gross margin for the quarter was 51.5%, similar to the previous quarter and an improvement from the third quarter of last year. Operating expenses in the quarter were $27.2 million compared to $22.9 million in the third quarter of last year and $26.6 million in the previous quarter. The increase over last year is mainly a result of increased R&D expenses. Operating profit in the quarter was $37.6 million compared to $34.2 million recorded in the third quarter of last year and $37.4 million in the second quarter. The improvement over last year is due to the increase in gross profit, partially offset by the increase in operating expenses. Operating margin was 30%, similar to the level last year and last quarter. Financial income for the quarter was $6.5 million compared to $6.4 million reported last year and $4.9 million in the previous quarter. Within that, interest income increased slightly due to the increased cash balance from profit cash from operations as well as from the convertible notes issued towards the end of the quarter. Net income for the third quarter of 2025 was $40.9 million or $0.82 per diluted share. This is compared to a net income of $30 million or $0.75 per share in the third quarter of last year. Total diluted number of shares as of the end of the third quarter was $50.3 million. In the next quarter, the number of shares will increase, as the effect of the convertible notes will apply to the full quarter, and it is expected to be around 51 million shares. Turning to some high-level balance sheet and cash flow metrics. Cash and cash equivalents, including short- and long-term deposits and marketable securities as of September 30, 2025, were $794 million. This is compared with $543.9 million at the end of the second quarter. We generated $34.3 million in cash from operations in the quarter. In the quarter, we successfully completed a $500 million new convertible notes offering. At the same time, we repurchased for $267 million existing convertible notes with a balance sheet value of $167 million, less expensive. As a result of the tax asset -- as a result, a tax asset was created in the amount of $12.3 million, which led to a onetime GAAP loss of $89 million net. The positive net cash flow from this activity was $219 million. Inventory levels decreased to $142 million from $149 million, as we have been able to introduce planning efficiencies. Accounts receivables remained stable at $112 million, representing 81 days outstanding. As Rafi said before, we expect revenues of around $127 million in the fourth quarter. And with that, Rafi, Ramy and I will be open to take your questions. Kenny Green: [Operator Instructions] And our first question will be from Charles Shi from Needham. Yu Shi: Maybe the first one, Rafi, you mentioned about the timing lag between announcement and implementation. Just kind of wonder if there is another timing lag, let's say, between DRAM front-end equipment investment versus packaging? And how should we think about when you mentioned about the second half weighted next year, a lot of that probably attributes to that timing lag. But how should we think about the level of, let's say, a little bit of moderation in first half? It seems like that's what you alluded to. And what's the -- based on the order, based on your customer engagement, how big the second half next year could be? Rafi Amit: Okay. In general, we are also in the period of preparing the budget for next year. So when we collect all the information, all the discussion with customers, what we call the pipeline in order, all of these show us that we can feel very comfortable more for the second half and the first half -- because delivery time of us is about 3, 4 months maximum. So it's a little bit not easy for us to predict more than this period. So when I collect all the information, this is -- based on this, we feel more comfortable on the second half to say what we can see and what we can feel. But maybe Ramy can contribute to more details about this. Ramy Langer: Charles, we feel very comfortable that 2026 is going to be a growth year. We feel comfortable. But speaking with customers and seeing all the announcements, and there is no doubt that it's going to be growth. We have the pipelines, and we feel very comfortable about next year. I think at this stage, we cannot anticipate exactly the numbers, and we don't usually give any indications about one quarter after the next one. So at this stage, we cannot provide a solid guidance about the first quarter. So we are very, very comfortable about 2026. It will be a growth year. We feel that the second half will be better than the first half, although the numbers and exactly how will be the details, it's too early to comment at this stage. Yu Shi: Got it. Yes. Moshe, maybe a question for you. The OpEx looks like Q3, there's a good amount of R&D expense increase, maybe offset by a slight moderation SG&A. I think based on all the commentary you talked about Eagle G5, Hawk, it's probably not a surprise R&D expense come up a little bit. But still would like to see if you can provide any more color on the R&D expense. And let's say, going forward, do you expect this level of R&D will continue? And how should we think about a little bit that in Q4 and beyond Q4? How you plan for OpEx? Moshe Eisenberg: Definitely -- Charles, so definitely, the one area within the OpEx that we continue to increase and spend more resources on is the R&D. We see that as an investment for our future growth. We are continuously adding capabilities, as you heard from Rafi in his prepared remarks. So we do not expect any major decline in R&D, but it could vary from quarter-to-quarter based on certain activities, but it will remain at this level and should increase as a percentage of revenue -- as we grow the revenue, sorry. Kenny Green: Our next question will be from Brian Chin of Stifel. Brian Chin: Maybe firstly, China has clearly been a very strong geography for Camtek this year. Can you comment on what has driven the strength? And off a strong 2025, do you expect China up in 2026 and also more second half weighted? Ramy Langer: We feel comfortable with what's happening in China. We see continued investments. As you know, a lot of the business in China is more OSATs related, and there is a lot of room to continue and invest in this space. We are seeing also investments, by the way, from other OSATs in the world. So all in all, I think the OSAT segment is pretty healthy. I think Rafi mentioned in his prepared remarks that we have won business in a couple of OSATs, significant orders. So we definitely expect China to continue and be healthy in 2026. Brian Chin: Okay. Great. Reflecting again also on your commentary about a slower start to next year. It sounds like the preliminary outlook might be for Q1 revenue to decline relative to Q4 levels. Is this more tied to HPC or China? And would you expect 1Q revenue to still improve on a year-over-year basis? Ramy Langer: So I think at this stage, we've said that it's too early for us to comment on accurate numbers. We're not in a position to state them. And I think Rafi mentioned it and we talked about in the prepared remarks. I think what is important that we see 2026 as a growth year. There are lots of opportunities. Definitely, the HPC continues to be very strong. If you take the HBM, the HBM business is growing at over 30% a year. It's going to double in the next 3 years. And we see a lot of investments there. Our market position, as we mentioned, is very strong at all the HBM manufacturers. We are the tool of reference for the HBM4 at each of these locations. So we feel comfortable. And I think in 3 months, we'll be in a much better position to comment on the [Technical Difficulty]. Brian Chin: I should ask a quick follow-up just based on that. When you say tool of record at HBM4, are you talking about 3D? And also, can you also comment on... Ramy Langer: I will elaborate in 1 minute, but I just want to mention one thing. There is no weakness in China. And now let's talk about the tool of record. So first of all, we are tool of record for all the 3D metrology for HBM4 at all the HBM manufacturers. We are also a tool of record for several 2D inspection steps at different steps, at different manufacturer. Kenny Green: Our next question will be from Matt Prisco of Cantor Fitzgerald. Matthew Prisco: First, just maybe a little more detail on that first half versus second half weighting. Any areas of your business or end markets that are seeing this dynamic more pronounced? And then what's giving you that confidence in the second half balance? Is that actual orders on the books today? Or is that more just generally what you're seeing in terms of those industry trends and customer conversations? Ramy Langer: So the way we work with our customers, we hold a lot of discussions with them. We build a very detailed, what we call, a pipeline that is per customer, per the requirements that he's doing. And then we correlate it with what we see on the market. So all in all, and I think you have seen from previous years that we were able to understand the market and more or less be on target with the discussion that we had with you guys. So I think that from those discussions, understanding the market, understanding the HPC market is a market that is going to grow. But I think that what you see from the things that we are seeing around there, as we said, there is a certain time lag. And we don't think it's going to be very long. It's probably going to be pretty short. And therefore, we are very confident with the second half with the first half, we will be able to comment in 3 months. Matthew Prisco: Helpful. And then on that HPC front, maybe can you walk us through the contribution expectations for next year? Are you thinking that grows as a percentage of revenues versus today? And are there any expected difference in that revenue contribution from HPC first half versus second half? Ramy Langer: We -- if you go back, we have grown the business in '24, in '25. And definitely, we expect to do the same in '26. Our -- what we call the high-performance computing was roughly 50% of our business. And definitely, when you look ahead, this business will continue to grow. The HBM is going to grow. The CoWoS contribution is going to grow. We see the applications growing. You are seeing also when you talk about the applications today, the NVIDIA applications with the servers. You are going to see end of '26, '27, also a big growth in the density of the HBM memory that is going to use for the applications. So what we are seeing -- looking away, we are seeing 2 things. On one hand, you are seeing a lot of growth in the capacity that will come as this application -- the current application is going to require more density of memory and also we will see new applications. On the other hand, the move to HBM4 is going to be what we call inspection and metrology intensive because the bumps are getting tighter. There are going to be more bumps, the density grow, they will need to do more inspection and metrology. So if you couple all of these things together, definitely, we will continue to see growth. And I believe that the 50% part of the business is going to be maintained in general over the longer period. So yes, we are very optimistic about the business and the market. And we're listening to all the announcements that are being mentioned every time, the amounts just of the data centers that are going to be set in the next few years is huge. You're seeing it's hundreds of billions of dollars that are going to be invested. And definitely, the fabs that will support it will gradually come online. Kenny Green: Our next question will be from Craig Ellis of B. Riley. Craig Ellis: I wanted to start, Ramy, with one for you that just goes a little bit deeper into some of the things that have come up so far. So as we think about second half weighted calendar '26 growth, can you help us understand how Camtek is positioned for that from a manufacturing capacity standpoint currently? Do you have what you need? Do you need to add? And when will you need to start bringing in working capital? Because I think everything we all see suggest, this will be one of the bigger capacity ramps we've seen in a long time. And then since shipping costs have been an issue at times in the past, in the middle of the income statement, how will we manage shipping costs for a potentially significant surge in shipments in the back half of the year? Ramy Langer: So general form the manufacturing capacity, and I think we discussed in previous meetings, we already about a year ago, added a significant portion of capacity. We are also going to add some capacity in Europe, as we discussed, in order to have another buffer just in case that we need more capacity. So from a capacity point of view, we have enough clean room space. We have enough employees. And therefore, from that point of view, we feel very comfortable. Currently, we are running at 2 shifts. We can always extend it to a third shift. But from that point of view, we feel very comfortable. From a material point of view, we're running, as Moshe mentioned, we're more efficient about the material flow. As a result, we were able to reduce the inventory. But all in all, we have enough material on hand to start the ramp, and we have excellent relationship with our subcontractors and other suppliers if we need to expedite material of any kind. Regarding the shipping cost, yes, we had a surge in the shipping cost in the past year. I think we overcame all of these issues. Shipping costs are back to normal. And hopefully, we do not see any issues regarding that. Did I answer your question, Craig? Craig Ellis: Yes, you did, Ramy. And then I'll ask the follow-up to Rafi. Rafi, you have significantly strengthened your balance sheet with the convert, and you mentioned that one of the things that can do is enhance inorganic growth options. Can you talk about areas of the business where you feel like there's potential to add capability where you see opportunity to augment the current portfolio with something that would strengthen it and add further to the growth down the road? Rafi Amit: Okay. We -- our today, Chairman, Lior Aviram, we hire him to spend 1% of his time only for M&A activities. And now we had another person for this purpose. So they work like a group, and they do a great job. The first map in the industry. And we divided it to, I would say, to inspection to metrology, to software to many, many type of area that could be integrated and interest Camtek. So I think right now, we have about maybe 40 potential customers or companies that we said, look, this about this amount of company could be very interested for us. And on a weekly basis, we do some discussion with them. Even we pay a visit to see them, to talk to them. So I feel very confident that maybe this year in 2026, we can see much better results for that. Ramy Langer: Can I just add a little bit that may be misunderstood. So Lior, our Executive Chairman, is 100%. Most of his time goes to just the M&A activities. And I think we are very comfortable with the progress that we are making and there are quite a few opportunities, but that's something that we will speak in future calls once we have more material information and we can share it. Kenny Green: Our next question is going to be from Tom O'Malley from Barclays. Matthew Pan: This is Matthew Pan on for Tom O'Malley. Just one follow-up on the supply chain in terms of AI announcements. Any more detail you could share on those conversations with the supply chain? And if there's any broadening out in sort of -- in terms of conversations with the leading-edge players? I know you mentioned a lot more conversations with OSATs. Ramy Langer: Obviously, Tom, there are a lot of conversations with all their relevant manufacturers and customers that are related to the high-performance computing. And it's very hard to try and quantify it in very short times. And this is -- and at least this is the reason that we feel very comfortable that 2026 is going to be a growth year because everybody is positive about the future and what's going to happen. It is really a question now of timing, how fast the ramp is going to be. So all in all, I think the activities are there. I think Rafi in his prepared comments talked about the advancement and the process improvements that everybody is making. And so all in all, I think this industry is moving in the right direction. But as we said, to turn all of these announcements into something that we need to start to manufacture tomorrow, obviously, there is a slight time delay and I think we will be able to discuss it more in details in about a quarter. Matthew Pan: Got it. Just one follow-up. We've been asking a couple of companies this. Curious if you've looked into sort of what you think WFE spend as a percentage of total AI compute investments would be. So we've heard a couple of companies saying high single digits, maybe closer to double digits percentage, but not sure if you've taken a look into that. Ramy Langer: Obviously, we see these comments. And I think it's too early today to say the numbers. I see numbers from high single digits to low double digits. I think it's a little premature now to really comment on the WFE in 2026. Kenny Green: Next question will be from Blayne Curtis of Jefferies. Ezra Weener: Do you hear me? Kenny Green: Yes, we hear you. Ezra Weener: This is Ezra Weener on for Blayne. First one would be in Q3 and the guide for Q4 and I guess into the weakness in the beginning of next year, can you talk a little bit about the moving pieces between CoWos and HBM, -- what's strong, what's weak there? Ramy Langer: We bundle it all together as we call it high-performance computing because the reason is basically what is it? It's the CoWos, there is the chiplet and the chiplet is surrounded by stacks of HBMs. So it really is one business. And the orders can shift by quarter here and there per the different vendor. And today, it's a little bit more complex because you get the OSATs and the OSATs are also participating in the CoWos and CoWos like business. And therefore, it's a little bit harder to tell you what is stronger versus the CoWos because we sometimes don't know what the OSATs are doing. So again, what I can tell you is that the business, the HPC continues to be strong. It will be strong also in the fourth quarter. It also will be strong in the range of 50% in 2026. We don't see any change in the pattern. Ezra Weener: Got it. And then second question would be you talked about an improvement in the hawk for early next year. Can you talk about what that means for the applications you can address and pricing? Ramy Langer: So I want to be very careful because, of course, a more detailed information is confidential. What I can tell you what we said in our prepared remarks that as after a year since the introduction of the Hawk, we have identified potential in order to improve the performance and to create even a bigger gap in the market. So we are going to improve the throughput in general for both the 3D metrology and the inspection. We're going to make these changes very soon. And we are speaking with our customers, obviously, very closely, and they understand what is going to come. What I think the -- what I want to say that what is important and the message that I want to say across that we, the Hawk will be the best equipment we have in its segment and we are very proud and it's performing very well. It's been well accepted by our customers. It's already in production at multiple places, very successful. So we believe that with the improved version, our market position will be even stronger once we implement those improvements, and they're going to happen very soon. Kenny Green: Our next question will be from Michael Mani of Bank of America. Michael Mani: Start, could you talk about the utilization of your tools across your main customers, maybe particularly focusing on some of the HBM customers. Is there anywhere where you might be seeing a little more idle capacity given the amount of shipments over the last couple of years? And is that a headwind in the near term and partially explaining maybe the softer first half of the outlook? Ramy Langer: First of all, we don't really know the utilization of our machines at our customers. We sometimes see pressure on us to fix the machines, but we don't really know these numbers. They feel -- they keep them very close to their chest. So this is something that, unfortunately, I cannot comment on. What I can tell you that all the machines that we are shipping are being installed and are being taken into production. I don't see any machines that are held that don't require immediate installation or not used. From that point of view, I think the industry is healthy. People are using the equipment and people want service and people are pushing us to do things and deliver our commitments as fast as possible. So from that point of view, I don't see any slowdown in the industry. Michael Mani: Great. And my follow-up, if you could just give us an idea about how to think about gross margins for next year. It sounds like maybe the first half is at the lower end of the sort of 51% to 52% range that you kind of trended along for the last couple of quarters. Maybe there's an uptick in the second half, especially as some of these higher ASP tools kick in. But any kind of high-level trajectory in terms of gross margins to think about for next year would be very helpful. Moshe Eisenberg: Michael, this is Moshe speaking. Yes, gross margin should gradually improve over the next few quarters as we ship more and more products from our new tools, the Hawk and the Gen 5, which have higher gross margin. Obviously, if there is a slower quarter, this may have an impact on the overall gross margin. But again, in general, the gross margin should improve over the current levels. Kenny Green: Our next question is from Edward Yang of Oppenheimer. Edward Yang: Can we come back to the -- just the competitive environment and market share dynamics. It sounds like you had some -- won some share in 2D. -- competitor talked about 3D. Is it just fair to say the backdrop is relatively stable with some give and take? Ramy Langer: So first of all, we have not lost any market share to our competitor -- to our competitors. And we believe that with our new technologies and the new capabilities we're going to implement will probably enable us to win more -- to increase our market share. And I want to make it as we gain in the 3D and you sort of hinted maybe you lost something -- you gain in the 2D, you may have lost something in the 3D. That's not the case. Our position in the 3D is very strong. We are the reference tool for all the 3D metrology steps at all the HBM vendors and basically across the industry in the OSATs, there are very, very few places where we are not. So definitely, we are in a very strong position. I think the technology that we are implementing today, the new technologies, the new products that we have introduced a year ago are starting to be very meaningful to our revenues. We are gaining a lot of market share. We are gaining in new applications. We are able to do things that we couldn't do a year ago. I think with the new capabilities, we'll do even more applications. And my expectations is that we will win more steps at the HBM level, at the CoWoS and all the different applications. And then definitely, we -- our target is to increase the market share in the 3D and in the 2D. Edward Yang: Okay. And just for my follow-up, can you talk about the outlook for non-HPC advanced packaging. That actually outperformed HPC in 2025. Would that still be the case for 2026? And what's driving that? Is that mobile? Or what are the end markets that's driving that outperformance? Ramy Langer: I'll tell you that if I look at the advanced packaging, in general, advanced packaging for us is around 70%, 50% is the HPC and another 20% is what we call the conventional advanced packaging. I think the main application today is fan-out. And you see fan-out -- in some of it goes to mobile, but I think it's more -- it has a variety of applications. So I would say it's hard for me to tell you which are the end products, but definitely, the application that we see is span out and it's taking more and more, I would say, space you're seeing today in advanced packaging. And I expect this to be similar in '26. Kenny Green: We have a follow-on question from Craig Ellis of B. Riley. Craig Ellis: There's been a lot of inquiry and very helpful color understandably on HBM and CoWoS. But my understanding is that the company is positioned quite well for hybrid bonding. And we do expect that to be very important as leading-edge foundry moves to backside power delivery. Can you talk about specific product traction, breadth of exposure there? And how we should think about hybrid bonding contributing to calendar '26 year-on-year growth? Ramy Langer: So look, in general, hybrid bonding, we see it as an additional opportunity. I think in '26 from a revenues point of view, it's still going to be moderate. What we are seeing is more, I would say, the volumes are still. And we have a few machines at customer sites, major customer sites that are being used for the hybrid bonding, I would say, for the pilot lines or for the initial preproduction that they are doing. So definitely, there is a very nice opportunity there on the 2D inspection side. We see a lot of potential also on the metrology side. And this is something that we've been working on developing capabilities, and I believe this will contribute also in the long run. I think the volumes from hybrid bonding will come more into '20. We'll start to see them higher in '27. I think in '26, it's not going to be so significant. Kenny Green: So that ends our question-and-answer session. Before I hand over back to Rafi for his closing statement, in the coming hours, we will upload the recording of this call to the IR section of Camtek's website. I'd like to thank everybody for joining this call and hand back to Rafi for your closing statement. Rafi, please. Rafi Amit: Okay. I would like to sincerely thank all of you for your continued interest in Camtek. A special note of application goes to our dedicated employees and exceptional management team for the outstanding performance and commitment. To our investors, I am truly grateful for your trust and long-term support. I look forward updating you on our continued progress in the next quarter. Thank you very much, and goodbye. Kenny Green: Thanks, everyone. You may go ahead and disconnect.
Margarita Chun: Good morning, ladies and gentlemen. This is Margarita Chun YPF IR Manager. Thank you for joining us today in our Third Quarter 2025 Earnings Call. Today's presentation will be conducted by our Chairman and CEO, Mr. Horacio Marin; our Finance VP, Mr. Pedro Kearney, and our Strategy, New Businesses and Controlling VP, Mr. Maximiliano Westen. During the presentation, we will go through the main aspects and events that shape the quarter results. And then we will open the floor for a Q&A session together with our management team. Before we begin, please consider our cautionary statement on Slide 2. Our remarks today and answers to your questions may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these remarks. Our financial figures are stated in accordance with IFRS, but during the presentation, we might discuss some non-IFRS measures such as adjusted EBITDA. I will now turn the call over to Horacio. Please go ahead. Horacio Marin: Thank you, Margarita, and good morning, everyone. Let me start by highlighting that this was another quarter in which we continued to deliver solid operational performance. Despite the contraction in international prices, we maintained strong profitability levels compared to last year, gaining further operating efficiency and consolidating the tremendous progress that has been achieved in our Shale operations. Revenues amounted to $4.6 billion, 12% below the previous year, in line with the 13% year-on-year decline in the Brent price in addition to other offsetting effects. Adjusted EBITDA reached approximately $1.4 billion, representing a sequential increase of more than 20%, while remaining flat versus the previous year. The sequential improvement reflects higher shale production, coupled with the successful strategy of reducing exposure to conventional mature fields. The year-on-year comparison shows YPF's ability to maintain its profitability despite the contraction in international prices, driven by an improved production mix with a higher proportion of shale and continuous improvement in operational performance. That exit strategy led us to an impressive lifting cost reduction of 28% quarter-over-quarter and 45% year-over-year. During the third quarter, our shale oil production increased by 35% internally, reaching 170,000 barrels per day. More recently, in October, preliminary figures indicate shale oil production expanded by another 12% over the average of the third quarter, totaling around 190,000 barrels per day. This production level is fully aligned with our annual target of shale oil production of roughly 165,000 barrels per day. Moreover, it will enable us to slightly exceed the December 2025 production target of 190,000 barrels per day. Furthermore, the higher shale oil output that generate a remarkable shift in our production mix has allowed us to improve our EBITDA by around $1.3 billion on an annual basis versus 2 years ago. CapEx activity continue to be focused on developing our unconventional resources, representing 70% of our total quarterly investment. At the same time, we maintain our focus on achieving further operational efficiency in our shale operation. In that sense, let me highlight that during the quarter, YPF completed the drilling of the longest well ever in Vaca Muerta, exceeding 8,200 meters with a horizontal length of nearly 5,000 meters at our Loma Campana block. Moreover, during September, in La Malga Chica, we completed the drilling of a 4,000-meter horizontal well in just 15 days, setting the record as the fastest well ever drilled in Vaca Muerta. Lastly, in early October, we drilled one of the fastest well in the Rio Grande block located in the south half of Vaca Muerta. This well has a lateral length of more than 3,000 meters and was completed in just 11 days. Moving on to our downstream segment. During the third quarter, we achieved strong operational performance, reaching the highest processing level since 2009 at 326,000 barrels per day. This processing level was 9% higher than last year, representing a solid utilization rate of 97%. In that sense, we are pleased to announce that La Plata Refinery was named Refinery of the Year in Latin America by the World Refinery Association. Additionally, La Plata refinery ranked in the first quartile across several KPIs in Solomon global refinery benchmarking based on 2024 results. This recognition represents the result of the successful implementation of the third pillar of our 4x4 plan, our efficiency program based on operational excellence and technological innovation. On the financial side, free cash flow was negative as expected for a total amount of $759 million. This negative free cash flow position is mostly explained by the extraordinary effects related to the recent acquisition of the Shell asset from the Total Austral for $523 million and the impact of the mature field exit strategy. As a result, net debt increased to $9.6 billion, pushing our net leverage ratio up to 2.1x. However, excluding the acquisition of total assets and one-off costs related to mature fields, the negative free cash flow pro forma would have been $172 million with a net leverage ratio pro forma at 1.9x. Additionally, a few days ago, we have successfully retapped our 2031 international bond issuing $500 at 8.25% yield, the lowest interest rate for the international bond of the last years, replacing and improving our average life and financing costs. On a final note, let me briefly comment on the recent announcement regarding Argentina LNG project. In early October, within the Stage 3 of the project, we signed a technical FID with Eni for a full integrated LNG project of 12 million tons per year expandable to 18. Moreover, recently, last week, we signed a preliminary framework agreement with a new partner, the Arab company, ADNOC. In addition, we continue working with the Phase 1 and 2. All in all, the project continued to demonstrate the interest of international players in long-term investment in Vaca Muerta, which is essentially for creating a solid structure for the development and financing of the project. In summary, during the third quarter, we continue progressing to achieve the ambitious target set for the year, delivering solid financial and operational results while we continue to strengthen and prepare YPF for new and even more challenging goal in the future. I now turn to Max to go through some details of our operating and financial results for the quarter. Maximiliano Westen: Thank you, Horacio, and good morning to you all. Let me begin by expanding on Horacio's comment about the evolution of our oil and gas production. During the quarter, total hydrocarbon production averaged 523,000 barrels of oil equivalent per day, declining 4% on a sequential basis and 6% on a year-over-year basis as a result of the divestment program of mature conventional fields, partially offset by the expansion of our shale production that accounted for approximately 70% of the total output, increasing its portion once again and as expected, vis-a-vis the previous quarter. Oil production reached 240,000 barrels per day 3% below the previous quarter and 6% down against last year. Nevertheless, it is worth highlighting that shale oil production recorded an impressive growth of 35% against last year and 17% versus the previous quarter, almost neutralizing the conventional production decline driven by the successful exit strategy of our mature conventional fields that accounted to only 14,000 barrels per day in the quarter. Beyond crude, natural gas production totaled 38.4 million cubic meters per day, down 3% on a sequential basis. This decline reflects an 18% contraction in conventional production from mature fields, partially mitigated by an expansion of 5% in shale gas production. Regarding prices within the Upstream segment, crude oil realization price averaged $60 per barrel in the third quarter, essentially flat on a sequential basis and contracting 12% year-over-year, aligned with the variations of Brent. Natural gas prices increased by 6% quarter-over-quarter to an average of $4.3 per MBtu, supported by the seasonal factor included in the planned gas program between the months of May and September. Now let me dive into the evolution of our shale oil output. YPF reinforces its leading position in the development of Vaca Muerta oil, accounting for roughly 1/3 of the country's share. In the third quarter, we continued to deliver a solid performance driven not only from our key core hub assets, but also from contributions from the North and South hub blocks. In the third quarter of 2025, shale oil production delivered an impressive growth rate of 55% when compared to 2023 levels. Based on preliminary figures, October production reached an all-time high of 190,000 barrels per day, representing a strong increase of 70% vis-a-vis November 2023 and ahead of schedule. As Horacio previously mentioned, based on the current production levels, we expect to comply with the average production target announced for the full year 2025 of around 165,000 barrels of oil per day, and we expect to slightly exceed the exit rate of 190,000 barrels of oil per day as of December 2025. In the third quarter, we continued with the strategy of developing Vaca Muerta beyond our core hub blocks. In this context, let me point out the success story of La Angostura Sur, our flagship South hub block 100% owned by YPF under an unconventional concession valid through 2059, underscoring the long-term potential of the south of Vaca Muerta for YPF. Over the past 12 months, shale oil output from this block has jumped from only 2,000 barrels of oil per day in October of last year to more than 35,000 barrels per day in October this year, representing in financial terms, a field with a pro forma annual EBITDA of more than $500 million. The results achieved so far are impressive. Moreover, the block expects to reach a production plateau of over 80,000 barrels of oil per day in upcoming years with a very competitive breakeven price below the $40, demonstrating resilience amid evolving global dynamics. Finally, wells drilled in the block during the initial stage of development have demonstrated promising productivity levels that underscore their long-term potential, recording an estimated ultimate recovery of around 1.3 million BOE per well, including oil and natural gas. Furthermore, the high potential is also driven by a total inventory of roughly 350 wells, of which less than 15% has been developed. Regarding our upstream cost structure, let me point out that the combined strategy of divesting mature conventional fields and growing our shale business has enabled us to generate significant savings in our average lifting cost of more than 40% over the last 2 years, moving from $16 per BOE in the third quarter of 2023 to $9 per BOE in the third quarter this year. This remarkable cost improvement was achieved due to the significant shift in our production mix where unconventional production increased from about 45% of the total output in the third quarter of 2023 to nearly 70% in the third quarter of 2025, while conventional production portion fell from around 55% to 30% in the same period. As a result, since shale lifting costs remained at a very competitive range of $4 to $5 per BOE, YPF was able to improve its cost structure and therefore, its annualized savings would amount to approximately $1.3 billion. YPF will continue and deepen this strategy, supported by the completion of the sale and reversal of mature conventional blocks by the end of 2025, the AndNDEes-1 project and the sale of the rest of the performing conventional fields, the ANDE 2 project, which initial results are expected by the end of this year. Consequently, YPF will become 100% pure shale player with an efficient lifting cost structure of around $5 per BOE in the near future. Now let me walk you through the performance of our shale activities. In the third quarter, we drilled 54 horizontal oil wells on a gross basis, primarily in operated blocks with a net working interest of 58%, bringing the year-to-date to 159 horizontal oil wells on a gross basis. This keeps us on track to achieve our full year target of 205 wells in 2025. In terms of completion and tie-in of oil wells during the quarter, we recorded modest level of activity compared to last year, but year-to-date, we continued growing. In the third quarter, we completed 63 horizontal oil wells and tied in 64 on a gross basis. However, in the first 9-month period of this year, we completed 186 wells and tied in 187 wells, growing around 20% compared to the same period of last year. In terms of efficiencies within our shale operations, during the third quarter, we continued setting new records on drilling and fracking performance. We averaged 337 meters per day in drilling in our core hub, while we recorded 279 stages per set per month on fracking in unconventional blocks, increasing by 7% and 16%, respectively, when compared to the same quarter of 2024. As we have been flagging in previous calls, this constant improvement in operation metrics is the result of the implementation of our real-time intelligence center and the joint efforts of our technical team and key contractors that work relentlessly to introduce further efficiencies to our operations. Finally, regarding the CapEx composition within the upstream business, it is worth noting that how YPF managed to significantly transform the portfolio by reallocating investments from conventional to shale activity in the last 2 years. In this regard, in 2023, investments in conventional business represented 35% of the total upstream portfolio, while in the last 12 months of September 2025, CapEx in conventional assets only represented 5%. Furthermore, within the shale portfolio, investments in facilities represented a significant portion of total CapEx over the last 2 years, which is expected to remain steady in 2026 and begin to gradually decline starting in 2027. Switching to our Midstream and Downstream segment, the third quarter processing levels averaged 326,000 barrels per day, a record high since 2009 with our refinery utilization at 97%, representing an increase of 9% and 8% versus the third quarter 2024 and the second quarter 2025, respectively. This remarkable success is mainly driven by the record processing levels of 208,000 barrels per day achieved in September at La Plata refinery, combined with record production of middle distillates reducing to almost 0 full imports. Domestic sales of diesel and gasoline remained strong in the quarter with dispatch volumes rising 3% quarter-on-quarter and 6% year-over-year, reflecting higher demand across all commercial segments, retail, agribusiness and industrial. Moreover, we managed to modestly expand our leading market share to 57%, which increases up to 60% considering gasoline and diesel produced by YPF and dispatched at third-party gas stations. Furthermore, in the third quarter, YPF achieved an improvement in the premium mix in both gasoline and diesel sales. In terms of prices, during the third quarter, local fuel prices remained broadly aligned with international parities, albeit dropping against the previous quarter based on a very volatile environment. More recently, October preliminary figures show a narrowing of the gap between local fuel prices and import parities while recovering on a healthy midstream and downstream adjusted EBITDA margins of nearly $70 per barrel. Now let me briefly comment on the progress of the quarter regarding the efficiency program for the upstream and downstream businesses. Thanks to the supervision of our upstream real-time intelligence center, we managed to drill 100% autonomously more than 30 horizontal wells in real time using AI complemented with traditional techniques. While in fracking, we became the first company worldwide to perform 100% autonomous fracture remotely from our real-time intelligence center using predictive algorithms. Additionally, we have successfully executed 24 hours of continuous pumping in our fracking operation during 63 hours, fully supervised by our upstream real-time intelligence center. Regarding the downstream segment, as Horacio already noted at the beginning of the call, our La Plata refinery was awarded as the refinery of the Year in Latin America. Also, this refinery achieved the first quarter in several KPIs of Solomon's benchmarking, such as net cash margin, return of investment, operational availability and personnel efficiencies categories. Finally, the record high processing levels in our refineries have started generating a surplus of gasoline and mid-distillates, allowing YPF to export refined products to neighboring countries and replace imports of YPF and other local refineries. For instance, in the third quarter 2025, YPF exported around 30,000 cubic meters of jet and gasoline to Uruguay. And during the first 9 months of the year, we replaced more than 230,000 cubic meters of gasoline and middle distillates imports. Now let me share further details regarding the Argentina LNG project. As briefly anticipated by Horacio, regarding the Phase 3 of the project in early October, we signed a technical FID with Eni for a fully integrated LNG project of 12 MTPA expandable to 18th MTPA. And more recently, during the last week's APEX conference in Abu Dhabi, we signed a preliminary framework agreement with a new partner, the Arab company, ADNOC, that formally announced their intention to join the Argentina LNG project. Moreover, during the quarter, we continued working on the Phases 1 and 2. The project considers the development, design, construction and operation of a fully integrated natural gas LNG plus natural gas liquids NGLs project based on wet gas upstream fields located in the Vaca Muerta reservoir. The infrastructure involved in the project includes a liquefaction capacity of 12 MTPA expandable to 18 MTPA through 2 or 3 floating LNG vessels of 6 MTPA of capacity each, a dedicated 520 kilometers gas pipeline, a dedicated 650 kilometers Y-grade pipeline for NGLs and onshore facilities, including fractionation, storage and port facilities. The CapEx for the entire project is estimated at around $20 billion with a potential expansion to $25 billion in both cases, including the financial costs. Leverage of the project is expected to be around 70% on the total project cost in addition to the upstream investments required to accelerate shale natural gas production. Consistent with present LNG transactions, the project is intended to be financed through nonrecourse financing with multiple sources of funding, including ECAs, development banks and commercial banks as potential anchors of the financial structure. The FID is expected by the first half of next year, while the commercial operations for the first floating LNG is estimated by 2030 and following ones from 2031 and 2032. In summary, Vaca Muerta has the scale, the quality and cost competitiveness to position Argentina as leading global LNG exporter and Argentina's LNG project will unlock Vaca Muerta's full potential, enabling exporting its unconventional shale gas production to the world. Now I will turn the call over to Pedro. Pedro Kearney: Thank you, Max, and good morning, everyone. On the financial front, the third quarter ended with a negative free cash flow position as expected that amounted to $759 million, mainly explained by the recent acquisition of the shale assets La Escalonada and Rincon La Ceniza blocks to Total astral, closed at a purchase price of $523 million by the end of September. Moreover, despite the third quarter adjusted EBITDA surpassed CapEx deployment and regular interest payment, we recorded negative working capital associated with the discontinued operations in our mature fields, income tax payments from our subsidiaries and longer collection days from natural gas clients and blank gas program that started to normalize during October. It is worth noting that excluding the one-off items related to M&A transactions and the negative impact of the mature fields exit strategy, our negative free cash flow would have amounted to $172 million in an environment of lower international prices. Finally, on the liquidity front, our cash and short-term investments totaled at $1 billion by the end of September, remaining essentially flat vis-a-vis the previous quarter. In terms of financing, during the third quarter, we continued progressing on our financial program by securing local loans obtained from relationship banks and by tapping the local capital market at very attractive financing costs. In that sense, during the third quarter, we issued 2 dollar net bonds for a total amount of $300 million at an interest rate of 7.5% and a tenure of 2.5 years. In addition, we issued $225 million from dollar capital bonds with a 5-year tenure and an interest rate of 8.5% tendered in the international market to local investors. That, combined with a $300 million international bridge loan allow us to find the recent acquisition of shale assets. More recently, during October, we issued $100 million net bond with a 15-month tenure at an interest rate of 6%. Considering this last bond issuance, we issued new local bonds for a total amount of $625 million with an average tenure of 3 years and an interest rate of 7.65%. Moreover, aiming to reduce the cost of carry and taking a proactive approach towards debt investors, we scheduled for this month, the prepayment of $120 million of our secured notes due 2026, paying in advance the last amortization, which matures next year and thereby redeeming in full the bond ahead of schedule. Finally, let me share 2 very important news regarding YPF financial strategy. First, during October, we reopened the syndicate corporate cross-border loan market. We signed an export back loan for $700 million with 10 international banks with a 3-year tenure and a 6-month availability period as a prefunding strategy for the financing of our 2026 maturities. This transaction was possible after several months of work, showcasing YPF ability to access cross-border funding. Moreover, the loan was oversubscribed and attracted participation from new banks from Central America and Asia, demonstrating the market support and confidence in YPF. Finally, as Horacio previously mentioned, 2 weeks ago, we successfully returned to the international capital market. After 2 days of virtual meetings with more than 40 international investors, we led the recap of our 2031 international bonds of $500 million at a yield of 8.75%. Demand for this reopening exceeded all expectations with international and local investors oversubscribing orders 3x, reaching a peak order book demand of $1.5 billion. The proceeds will be used to fully repay the bridge loan for the acquisition of Total astral shale assets and to finance YPF investment plan. This issuance represented YPF tightest new issue yield on an international bond issuance in the last 8 years and improved the maturity profile of itself, extending its average life. So with this, we conclude our presentation and open the floor for questions. Operator: [Operator Instructions] Your first question comes from Alejandro Demichelis with Jefferies. Alejandro Anibal Demichelis: Yes. Congratulations on the quarter. Production has been very strong, particularly on the shale oil side of things. Could you give us some indication of how you're seeing production growing into 2026, 2027? That's the first question. And then Horacio, you mentioned all of the improvements that we are doing on the refining side and so on. We have seen you recently taken full control of the revenue asset. So could you please give us some indication of how you see that asset developing on the rest of the refining portfolio? Horacio Marin: Okay. Thank you very much for the question. Regarding the production, we see -- you can expect the same that we talk in line what we see in New York this year but at average for next year in the order of 215 and '27 in order of 290. We can give you a better number in the next call. But we think that we are going -- we are in line with all the program, okay? Regarding the refining side, [indiscernible] what was important was for the [indiscernible]. The [indiscernible] was very, very important for YPF because they give us a very good logistical advantage comparing with our, I would say, our competitors. And that's why it was that we decided to take that step because it was a difficult situation with the partner in that matter. For the gas stations, there is no difference because we were supplying those gas stations. We are going to take the best one with the YPF brand and we maintain the other with [indiscernible] as is today. And on the other side, in the refinery, which is in Campo Durán is close. But our idea is to make value for all the shareholders by doing something of this sort that we say in Santa Fe Bio, okay? So we are working on in that direction. Operator: Your next question comes from Leonardo Marcondes with Bank of America. Leonardo Marcondes: I have 3 from my side. My first question is regarding capital allocation and M&A. We have seen YPF quite active on the M&A front, right? In this regard, what should we expect from the company going forward? I mean, does the company continue pursuing new M&A opportunities? Or is it time to focus on the development of the assets within the portfolio? My second question is regarding the divestments and capital allocation as well. So could you share your plans for Metrogas and also YPF Agro? And when could we expect to hear more news on these matters? And lastly, my third question is regarding the LNG projects. I mean how do you expect to fund this project? And if we should expect any sort of project finance evolving there? Horacio Marin: Okay. Thank you very much for the question. For the first Okay. Thank you very much for the question. For the first one, Pillar 2 of our YPF 4x4, is active portfolio management, that means buy and sell. It depends where you can make more value for shareholders. We were active out with the bat field, and we see -- there was a big opportunity this year for the, I would say, core assets in Vaca Muerta. And that's why we decided to buy the total asset of Vaca Muerta. What you are going to expect, I don't see that there will be a lot of changes in our strategy, but we don't see that we will be active next year for major acquisition in Vaca Muerta, not in the others, okay? So that is what is our thought. Regarding Metrogas, Metrogas, we are in the process of the extension, the 20-year extension of the company, the contract. More than contract is the concession. They tell me concession here because remember I am an old man, I don't remember all the words as there are people here that they say you are wrong iss a concession, okay? So it's a concession. And our idea there is that after that, we start with the bank, and we are going to sell as soon as possible, okay? And for the law, we have to sell because of the -- I don't know how the -- I ask Herman that is the lawyer [Foreign Language] the vertical integration that they have the company, we have to sell before the plant gas is out. And so we are going to sell that. And YPF Agro is not necessary capital allocation. What is there is that we are -- YPF wonderful commercial channel that was built by YPF say, 20 years ago or so and it's extremely extremely successful. That's why there is the other company that refinery also they call with the name. So they copy the YPF. Our idea is because we have the knowledge of selling on the other things is that to have a strategic partner that can make more value for us and for all the shareholders and to have like a mixed company where we put the CFO inside, and we will have 50% and 50%, okay? That is the idea, and they will be very close now. That is on the stake right now, okay? And that is the second question that you asked. Regarding the LIC, you're right, it's a project finance that we are going to do with our partners. You're right. Operator: Your next question comes from [indiscernible] with Morgan Stanley. Unknown Analyst: First one on my end is, could you give us more color on what drove the working capital losses this quarter? And what should we expect in terms of working capital gains or losses in the coming quarters and how this should contribute to free cash flow generation into 4Q? Second one is if you could give us more color on what drove the lifting costs. Was it just higher shale output? Or are there any other factors which explain this decline and how this -- how should we should expect this into 4Q as well? And if I may, a third one, if we should expect an acceleration of 4Q '25 CapEx? And how should your CapEx stand versus the guidance? Horacio Marin: The first question after I will pass to Pedro, so they can explain in more detail than me. But I can tell you the more general, but I will pass to Pedro. For the second one in the lifting cost, remember that we are going out of mature fields and reducing the production from there, but you are increasing a lot of the production as you see in the presentation in the Vaca Muerta fields. So there is several reasons why we reduce. First, we have a clear in Pillar 3 that we have to make efficiency every day in our life. The second thing is when you increase a lot of the production, you reduce the fixed cost. And so you have to expect that we are going to maintain or reduce. But I think to maintain is a good number that we have, I think we are in a very low lifting costs, okay, is very low. Which more you asked any other factors explain this decline? I expected, I explained that. I think I answered that. In the fourth quarter '25, the CapEx, no, we think that we are going to end up in the year with a little less CapEx than we said at the beginning of the year. And the production, if you see the -- while you see, you don't see that, but I see the report, the daily reports, we are -- they -- now we are in more than 190. Today -- yesterday it was more than 284. We have someday 199.94. So I start discussing with the guy why it's not 200, but it doesn't matter. So we are close and we are in better shape than we thought at the beginning of the year. So we are focusing in looking at the results and looking at the best places to drill. That's why we are expecting those results. And with the CapEx, I say. I pass to Pedro so they can explain about the working capital. Pedro Kearney: Thank you very much for your question. So as you noted, during the third quarter, we recorded a negative working capital by about $360 million, and that was driven by multiple reasons. The first, the seasonality of the natural gas sales that was -- that were accrued in the third quarter and are expected to be collected in the fourth quarter. That's approximately $100 million. Second, we recorded in the third quarter longer collection days from the natural gas clients and from the plan gas program that started to normalize during October and November. That's approximately $50 million. Third, in the third quarter, we recorded a positive stock variation in the downstream business for about $60 million. That's the result of higher oil purchases to third parties to restock inventories given the inventory drawdown that we recorded in the second quarter. Then we recorded a particular lag in the OpEx and the CapEx from the mature fields that were out from YPF financial statements since the end of June, and those payments were phased during the third quarter. And finally, this negative free cash flow includes a decrease in the mark-to-market position of our sovereign bonds, which increased and changed fortunately during October and November. Operator: Your next question comes from Daniel Guardiola with BTG. Daniel Guardiola: I have a couple of questions here. The first one is on costs. And I would like to know if you can share with us how do you envision the trajectory of your lifting and D&C costs for 2026 and eventually, if possible and onwards, it will be great, especially considering the asset sale you did of conventional assets and the potential renegotiation of contracts with some of the service companies. My second question is on leverage, given the fact we saw an increase in leverage during this Q to 2.1x. And I would like to know if you can share with us what is the maximum leverage at which the company feels comfortable operating at. And in that sense, given that leverage has been going up in the last couple of quarters, I would like to know if you guys have ever considered to hedge your exposure to oil prices to offset any potential volatility in oil prices. So those would be my 2 questions. Horacio Marin: Okay. With the listing and the drilling and completion cost, I can give you more details in the next call. We are working very hard to reduce the unit cost with all the service company, and we are in negotiation during the week, okay? So I cannot tell you exactly, but I think we are going to reduce the unit cost very important because Argentina is another country. So that's why we are going to work on that. In the listing, I think I answered that, okay? You have to expect that we are going to be in that region, okay, that we say. Regarding, that were -- you say our debt in -- I think you have to take into account that last year, we bought 2 assets, okay? That's why the ratio goes up. We don't go -- we are not going to increase. It's not our goal that we think that we are in the maximum that we want to be. And during '23, you are going to see a reduction. But taking into account what is that we bought 2 good assets in Argentina, the best in gas and the -- I don't say the best in oil, but one of the core that is very important. That's why we thought that was important to buy those assets and make more value in the future in the near future for all the shareholders. Operator: Your next question comes from Guilherme Martins with Goldman Sachs. Guilherme Costa Martins: [indiscernible], is a strong ramp-up of shale operations being seen in the second half of the year. I have 2 quick questions here. My first one is on downstream. I understand you guys were not able to price prices in line with international parity in 2Q, right? I would just like to get a little bit more color on what happened in the competitive environment. You mentioned a volatile dynamics, but any additional color would be grateful. And my second question, if you guys could please provide an update on the ongoing divestment of Metro fields. When we should see next divestments being concluded? When we should see production continue to decline following the exit of those assets? And whether we should see additional cash outflow from the exit of those legacy assets? Thank you. Horacio Marin: Sorry, okay. Talking about prices, we have a policy that I cannot open -- be totally open because it's not we are going to say to our competitor. But we have moving average because there was -- in the last -- this quarter, there was a lot of volatility in prices. And remember that we have the exchange rate, the oil price, the biofuels and the taxes. And so in our country, the consumers need to, we are not accustomed to have changes on prices every day, okay, and big changes. So we have a moving average. And I don't know if you remember that we built a new real-time [indiscernible] center in the commercial side that is unique. I don't know if you are making, I don't know if you are making [indiscernible], okay? We have there everything that you can imagine with use AI and a lot of things. And from there, we are working with the new policy of prices that is micro pricing. And we are working and always trying to maintain our policy in -- but the last quarter was the big volatility in -- also in Argentina. You know that there was a lot of volatility. And that's why it was very difficult to go up because sometimes goes up, sometimes goes down. But now we are in a good shape. And the second one was about the -- I think and all that stuff. Today in the afternoon, we are going to sign [indiscernible] that was the last one. And we have only one area that is in Rio Negro that we are going to sign very quickly. But after that, we are out [indiscernible], okay? It was the most important for the value of our shareholders. But we understood, we are in the process of negotiating now to go out from conventional. Those conventional are areas that make value for all, but it's very important because we have the determination to go to be unconventional -- integrated unconventional company. So that is our goal, and we are going to negotiate in the next month to be out more than we can lots of assets and to be next year or if we can to be totally unconventional company. Operator: Your next question comes from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I have 2 here on my side. First one, Horacio, can you remind us what legislations, I mean, either new legislations or adjustments on existing ones that YPF still relies on to move forward with and projects. As far as I remember here, there wasn't many new regulations that the oil and gas industry as a whole depend on, but there are some specific timing on some projects to be included under the region. So not sure if there is -- actually not check there is any kind of discussion on the 8% export taxes for the industry. So I think it would be great to have a broader recap on this political or regulation landscape. And the second question, actually a follow-up on the domestic fuel prices. You just mentioned about what did you notice in terms of upside or downside potation since the established a more dynamic pricing model, the real-time center and so on? And what can you tell us about the recent news saying that some politicians in Argentina wanted to create a law which you need to give a 72-hour notice advanced before adjusting fuel prices? Those are my 2 questions here. Horacio Marin: Okay. Thank you for the question. I don't know, thank you for the question. But beyond, the -- really is -- if you are refrain to the export duty for conventional, there is something new. I know exactly what you say on the new because remember, we are YPF, we are a private company, and we are not in the, I will say, regulation side. So really, I don't know. And conventional, remember that is not our -- now is not our core, okay? But I read in the news they sent to you that they are negotiation on that, but I have no idea what will happen. Regarding resi, for sure, the resi will be apply for LNG and if supply for infrastructure for LNG. And for LNG, we expect that to be in all the chain. The second one that you say that is -- yes, I read in newspaper the same to you, but that is regulation. I have to answer the same. I'm not working on regulation at all. Operator: There are no further questions at this time. I'll now turn the call back to YPF management team for closing remarks. Horacio Marin: Okay. Thank you very much for your attention, for your questions, and you are always very polite with us. So I would like to say thank you for that. And you have to expect that this is a company that will change a lot the way of management, the way of working every day. I'm very proud for all the work that all the employees is doing now and the energy that we are putting. And so you have to spread '26 a very clean year of the results. The problem of this year, and I imagine for you, it is very difficult to see because there is dirty with mature fees with taxes, with deferred taxes that only account I can understand. And when they explain, they are confused. So it's difficult to understand what you are saying. And so you have to 26, a very clean one, and you will see there how we are making the value for our shareholders that you can see in this quarter. I relate to for you because there are some people that are confused we say that the production is increasing operation where you're making value because we are reducing the conventionals. And if you annualize the value so far only to change the mixture is $1.3 billion. And this quarter, you can see that. So we are really very proud of we are doing all the people that we are an executive committee and all the people that are working there. Thank you very much for all of you. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.