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Frank Stoffel: Good morning, everyone, and welcome to Allianz's Third Quarter and 9 Months 2025 Media Conference Call. Thank you for joining us today. My name is Frank Stoffel, Head of Financial Communications and Valuation Relations, and I'm here at our headquarters in Munich with our Chief Financial Officer, Claire-Marie Coste-Lepoutre; and our Group Head of Communications, Lauren Day. Today's conference call is scheduled for 60 minutes. And as usual, we will answer your questions following our presentation. With this, it is my pleasure to hand over to our CFO, Claire-Marie Coste-Lepoutre. Claire-Marie Coste-Lepoutre: Thank you very much, Frank, and good morning to all of you. I'm very pleased to report on another very strong quarter for the group, which is building to an excellent contribution to the year and our 3-year plan. Our results are supported by both an ongoing top line momentum and an attractive margin development. Across the organization, we are working on our 3 strategic levers of smart growth, productivity and resilience, with first signs of materializations into our numbers. As you can see on Page A4, year-to-date, our business volume growth continues to be very strong at 8.5%. As previously, this growth is diversified from a segment perspective and within the segment across businesses and geographies, which gives us a lot of strength for the future. Our operating profit is now up by more than 10% year-to-date. The number FX adjusted would even be 13%. Here as well, we see positive developments in all our segments. Our core net income growth is accelerating compared to the first half of the year. Year-to-date, it grows by 10.5% or actually 8% adjusted for the disposal gain of the Life JV with UniCredit in Italy that we did book in the second quarter, and as well as the anticipated tax effect of the disposal of our stake in Bajaj that we did book in the first quarter. Our core EPS adjusted for this exact same 2 effects is now up 10%, which is very strong and ahead of our 7% to 9% target range. Similarly, our core ROE is above 18% and well ahead of our target level as well. Our solvency ratio emerged at 209%, and our operating capital generation continues to be very strong, which gives us flexibility for current and for future capital deployment. Given the excellent performance of the organization at the end of September, I'm very happy to indicate that we have adjusted our outlook upward yesterday night, and that we expect to end the full year at least at EUR 17 billion operating profit. Of course, the year is not over, and we can still see NatCat or market movements. But clearly, we are very confident with the overall outcome. Let me move to Page A5, and let's have a look at our P&C business. Here, we have another excellent quarter, which is building on previously excellent quarters. We are achieving another level of -- another record level of operating profit, now 15% up versus last year, as you can see on the right-hand side of this slide. Year-to-date, our total business volume is at plus 8%, which is excellent. This 8% growth is ahead of our assumed medium-term growth rate of 6% to 7%. Approximately half of the growth is volume and the rest is price. Compared to the first half of the year, the volume growth has been accelerated from both retail and commercial. Our internal top line growth for the third quarter is in line with what we have seen for the second quarter as is our rate change on renewal for the full book, which is now at around plus 5%. We have achieved a very good level of combined ratio at the end of the third quarter at 91.6%, with both retail and commercial performing, as you can see. Also, you can see in our material, how broadly spread the performance remains. In particular, I'm very happy with the development of our attritional loss ratio with more than 1 percentage point of progress year-to-date. This has been particularly driven by our retail business, with the benefit of the underwriting and pricing actions, which are earning through. Also, our constant focus on productivity continues to deliver with our expense ratio down by around 30 bps, just below 24%. And the third quarter was very mild from a natural catastrophe's perspective, but we booked no runoff overall. So we further increased our reserve confidence during the quarter. Overall, our P&C business is doing excellently. We see volume growth, which reflects a mix of strong ongoing developments, especially in retail and targeted growth in commercial as we manage the cycle. Our profitability is not just a reflection of more benign natural catastrophes, but also very strong attritional improvement, relentless focus on productivity and significant prudence when it comes to the recognition of runoff. Let me now move to Life Finance on Page A6, where you can see that we are fully on track to meet our targets there. The numbers are as well more impacted by FX and P&C. And you may remember that we have disposed the UniCredit JV, which is now showing up in the numbers as of the third quarter. Our value of new business is up 4% FX adjusted, with our PVNBP up 5% at a very stable new business margin, which is as well above our 5% ambition level. So we see good developments across the businesses. Our life new business can always be a bit lumpy. And last year, our third quarter was extremely strong, where we are benefiting from various promotions. You may remember that our U.S. life business was up 60% last year in the third quarter. And we also had some large ticket transactions, in particular at Allianz Leben last year in the third quarter. So I think to get a good sense of the fundamental growth in new business of our Life & Health portfolio, this is actually really good to look at the 2 years development between the 9M 2025 and the 9M 2023, where we have been growing by 20%, which gives us an estimated annual growth rate of approximately 10% FX adjusted, which we also consider is the right level of appreciation if you just purely were normalizing the number between 9M '24 and 9M '25. If you look in more details at the profile of our business development, you will see as an example that we continue to grow at 93% in our preferred line of business, that our health business in Germany continues to show exceptional momentum once again with year-to-date new business profit up 56%. Italy is also worth a special mention to highlight with a growth of 13%, excluding the UniCredit business with the vast majority of that business coming into united. Let's move to the contractual service margin. And as you know, the net CSM development is a much better indicator when it comes to the real reflection of the future stock of profit to be earned by us. The net CSM year-on-year is at 5% or is at 8% FX adjusted. This is clearly well on track for our targets as is the normalized growth of the CSM, which is just under 4% at the end of the third quarter. Our Life operating profit emerged at EUR 4.2 billion, growing 6% adjusted for FX. This puts us well on track against our targets. Overall, our Life business momentum is good. Our new business profitability is at a very attractive level, and our IFRS profitability is emerging as expected from a very diversified portfolio. Let's move to Asset Management on Page A7. And here, you can see how structurally our business is doing well at navigating the market environment, delivering outstanding net flows, performance and profitability. We had our best third quarter ever in terms of net inflows at EUR 51 billion, which brings the annualized year-to-date growth rate to around 7%, which is a very impressive level. Net flows in the third quarter are positive, both at PIMCO and AGI across various strategies, platform and geographies. Our asset management franchise continues to be supported by the performance we deliver to our clients with 92% of our third-party assets under management outperforming their benchmarks on a trailing 3-year basis at the end of the third quarter. If you look further in our material, you will see that our third quarter revenues are up 9% FX adjusted. The revenues are supported by the higher average asset under management, the continued resilience in fee margins at both our asset managers together with performance fees in solid territory. Overall, this leads to revenues at EUR 6.2 billion at 9M, which translates into EUR 2.4 billion of operating profit for the segment. This is supported by the continued focus of both our asset managers on productivity, which is fueled by cost discipline, the operating leverage as we grow our revenues, overall resulting in a cost/income ratio improving 60 bps year-to-date, now below 61%. So overall, on Asset Management, we see an attractive diversified franchise with growth momentum and profitability. Let me move to Page A8, where you can see the development of our solvency ratio, which is characterized by a continued very strong operating capital generation, which is fueled by the excellent performance of our P&C business in particular. This capital generation continues to support our attractive payout, both dividends and share buyback with some of our recent -- together with some of our recent capital deployment like the investment into Viridium or the partnership with the Royal Automobile Association in South Australia. As part of our Capital Market Day commitment, we are focusing on the implementation of our capital management framework, and we are confident to achieve our full year objective of more than 20% in terms of operating capital generation. Our sensitivities are almost unchanged at a low level and continue to offer confidence of the resilience of our profile. So overall, we are in a very good position, both in absolute level, sensitivities and our ability to generate solvency through our business portfolio. While we benefit from some positive one-offs in our operating capital generation this year, there are fundamentally a lot of positive elements to be appreciated there this year so far. Let's move to Page A9. And Page A9 is focusing on the special event we had this year. As you can see, we are celebrating the 25-year partnership between PIMCO and Allianz following the completion of our first investment into PIMCO back in 2000. We thought it's very worthwhile to do a zoom on this. And clearly, it has been an exceptional partnership we are very proud of, which has generated considerable value. Let's move to next page to have a look at that at some metrics. PIMCO has, for instance, grown its assets under management sevenfold, its operating profit ninefold, the latter now making up nearly 20% of Allianz Group operating profit. PIMCO is as well adding value through its strong management of almost 50% of the group's assets. PIMCO's franchise as a leading active fixed income manager has been underpinned by consistently strong investment performance. Here again, at the end of the third quarter, for example, 97% of our assets under management were outperforming on a 3-year basis. As I have already mentioned, PIMCO has seen outstanding flows this year and continues to capture a high market share of the flows seen by the industry into active fixed income strategies together as well with the support of some of the more recent initiative, as an example, the active ETF product that I also already mentioned in the second quarter. We continue to look for ways to further increase the synergies between PIMCO and the wider Allianz Group as we leverage the benefits of an integrated asset management and insurance group. The relationship is very symbiotic alongside PIMCO being a manager of our general account assets, Allianz insurance businesses can seek new strategies for PIMCO and help expand distribution as well. PIMCO as well is supporting and benefiting from our third-party capital optimization vehicles like Sconset that we have deployed for Allianz Life in the U.S. Beyond all of this and what may be less identified in the case of PIMCO is how innovative this business is. The success of PIMCO plays as well in its ability to constantly look across the business at new and better ways of acting or investing. You have many examples of that actually also in the presentation of Christian Stracke in the Capital Market Day presentation. So looking ahead and as we outlined at the Capital Market Day last year, we are very positive about PIMCO's future as a leading active manager with skills in both the public fixed income markets and across a broad range of alternative strategies, which are a first part of its business. The focus is there mainly on asset-based finance strategies that support the real economy, as an example, the investment in data centers. So after 25 years of success, we clearly look forward to many more years of working together, sizing growth opportunities and delivering excellent performance to our clients. Let me wrap up on Page A11. So clearly, we have an excellent year so far where our delivery momentum continues across all our segments. Here, I want to take a small pause to say a big thank you to all our employees for their work and engagement in delivering such results. Together, we are working on executing the Capital Market Day levers, including the focus on higher capital generation and the strengthening of the resilience. As part of that, both the fundamentals and the diversity of our business continue to give us confidence even if the environment can be volatile or uncertain. With all of this in mind and given the performance achieved at the end of the third quarter, we have confirmed yesterday in our ad hoc EUR 17 billion to EUR 17.5 billion range for the outlook. This is subject to the traditional caveats, but clearly, we are very confident. With this, I will be very happy to take your questions, and I hand over back to you, Frank. Frank Stoffel: Thank you, Claire-Marie. We are now very much looking forward to taking your questions. But before we start our Q&A session, let me, as usual, remind you of the housekeeping items. We will answer your questions in English. But if you are more comfortable to ask your questions in German, please feel free to do so, and we will repeat it back in English for everyone else on the call to understand. [Operator Instructions] The first question of the day comes from Michael Flämig, Börsen-Zeitung. Michael Flämig: Mrs. Coste-Lepoutre, Mr. Stoffel, I have 2 questions, please. You said it's an excellent year for Allianz. Mrs. Coste-Lepoutre, indeed, we are experiencing an extraordinary success story in the property and casualty insurance. What risk do you see for the current level -- high level of profitability? And the second one, the share buyback ended some weeks ago. You said there is more room for capital management. When we -- when will you decide about a new share buyback program? Claire-Marie Coste-Lepoutre: Well, thank you very much for your questions. Maybe let me start with the second one. So we have clearly highlighted in the Capital Market Day what is our total payout approach, which is made of 60% level of dividend and then minimum 15% additional payout, which can be under the shape or form of share buyback, obviously. That 15%, we want to give us flexibility, obviously, and we want to return back to our shareholders over a 3-year period of time. So that's our total payout approach. This is unchanged at this point in time. And we just finished -- we did just conclude our share buyback that we had announced together with our full year numbers. So it's definitely too early to discuss another one at this point in time. Then I think your second question was around P&C and basically, what are the drivers for the strong performance in P&C, if I am right, right? It was not in particular about rates? Michael Flämig: That's right. And what are the risks there in the future? Claire-Marie Coste-Lepoutre: Yes. So a very good question. I think like -- so what we see in P&C is, first of all, from my perspective, so we need to distinguish between retail and commercial. And maybe let me start with retail. I think clearly is a very strong driver for the performance in retail is the fact that we have been working very strongly on -- I mean, on addressing the inflationary effect on one end, which has led to us taking quite early initiatives, which have fueled both the underwriting, the rate development, but as well, simply the overall pricing action. So that's one driver of it. Clearly, we see that the way we have been able to do that is translating itself in particular into our attritional loss ratio. So that's why I'm always very carefully looking at that dimension. But that's only one part of the story, I believe. The second part of the story is that across the organization, there is a lot of focus on generating good growth and engaging both with our clients, but also working on higher retention and cross-sell, so basically working on the overall growth triathlon that we have been mentioning in the Capital Market Day, for which we see good early signs in some of the geographies like Germany, like France, like Latin America, like Australia or Switzerland. So we see across our portfolio that this focus on those actions are starting to come into actions, and I expect more of them to continue as we progress into our plan. The second dimension, which is very important as well for retail, is the fact that we did not go only with price increase, we have been working a lot on productivity and in particular, around claims, right? So there has been a lot of actions to optimize our processes, also leveraging AI, but also leveraging one of the company we have in-house solved to really secure that we are paying less for the spare parts and so on and so forth. So a lot of actions as well to minimize the pain associated to the inflationary trends and to basically enter that back into our pricing also to fuel the growth. So I think those will be some drivers on the current performance on the retail. Obviously, we had also good support or very good support from the mild NatCat environment. But as you have seen in our numbers, we have offset that almost entirely by a lower level of run-off. So clearly, that's not one of the driver of the overperformance. Maybe moving to commercial, which is a different dynamic. So commercial, as you know, first of all, our book is very different compared to our competitors. Our commercial business is very diversified. We have the large corporate and specialty business there, but we also have Allianz Trade. We also have -- sorry, Allianz Partners and our mid-corp business. So we see very good dynamic into our mid-corp business, which is fueled by the Allianz commercial initiative with also still good stability of rates. So I think for the future makes us confident in terms of focus. Then Allianz Trade continues its excellent trajectory. And on partners as well as part of our platform play, we continue to see very good development both in terms of growth and margin development. So that's also very supportive of the dynamic. Obviously, there is market softening for the large corporate and specialty business that we are maneuvering with, and we are cautious about that as well for the future. So now if we step back and you were asking about the overall dynamic, we are confident on the momentum we are on, and we will be also managing cautiously as it's planned for and as it was anticipated in the Capital Market Day when it comes to the cycle effect on the commercial side. Frank Stoffel: The next question of today comes from Jean-Philippe Lacour, AFP. Jean-Philippe Lacour: Yes, hello to Munich. Bonjour, Madame Coste-Lepoutre. Maybe can you again explain when Allianz sales performance has been supported by underlying improvements, can you explain what does that mean first of all, on the premiums policy, did they raise or did they remain stable? And on the exposure on the other hand, exposure to certain risks. So can you maybe elaborate on this? And one question I can maybe ask again is we have to understand when -- I mean, when the things are tough and there is a lot of claims, so we can understand that maybe the insurer has to write the premiums and then the things are going very well this year. So the profits are high. So how do you return this either to shareholders, we understand it. And on the premiums policy maybe for the clients. So that will be my 2 questions. Claire-Marie Coste-Lepoutre: Yes. Thank you very much, and bonjour. So maybe like starting on your second question, which is -- so I think -- maybe let's take the example, let's illustrate the example with the case of Germany. If you look at -- in retail, right, if you look at our price position in Germany retail, we are competitive in the German market. And this is also very clear when you look at the growth trajectory of our retail business in Germany actually. And then if you look at the overperformance of the German business currently in the third quarter, you have a couple of drivers there. The main driver is the fact that we have a very -- I mean, very significantly improved natural catastrophe experience, by 7 percentage point of combined ratio. So that's a massive effect, right? Obviously, there was no negative weather this quarter or actually this year on the German business. Does not mean that natural catastrophes are not going to materialize themselves either in the fourth quarter or going forward, right? So that should be part of what we are ready to cover our clients for. Secondly, there is an improvement, which is coming from the very, very strong focus of the German colleagues on productivity. So we have a better expense ratio, but we also have a lot of productivity, which is coming as an example, from the processing of the claims, from also the way we are managing the cost of the spare parts and so on and so forth, as I have already mentioned. And then basically, the fundamental effect of the actions which are needed, and I will come back to that in a minute in terms of having the offset of the pricing effect into the numbers is coming in the better attritional loss ratio, which has been improving year-on-year, but exactly as expected and as needed as well to meet the cost of capital that we have for our business. Now if you look at the inflation we see in our dedicated markets, it's a very different type of inflation compared to the headline inflation. So the inflation continues to be high. So typically, in motor, as an example, the inflation is still in the high single-digit level for -- in Germany, but actually across Continental Europe. So we need to reflect that as required in our pricing, but we try to dampen that effect via all the actions I have been mentioning so that we minimize the effect or the replication of that effect into our clients. So I think that's the way to think about the overall dynamic there. The topic of affordability for us, rest assured is a fundamental one, and we are very focused on this and working as extensively as we can as an organization on that aspect. No, go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Sorry. No, no, go on. Claire-Marie Coste-Lepoutre: No, no. Go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Please, the first question on the underlying improvement, yes. Can you maybe explain for [Foreign Language] what you mean with that? Claire-Marie Coste-Lepoutre: Yes. I think so the underlying improvement I was mentioning is exactly -- what I was referring to is the fact that when we look at our loss ratio, so loss ratio is the total level of losses we are paying against the premium we receive. We are tranching that loss ratio into different components. So that's becoming a bit technical, but we have what we call the attritional, which is a pure type of both frequency of severity of normal losses which are happening, and then we have what is related to the very exceptional losses and what is related to the natural catastrophes. So when you look at the pure technical development of the business, you need to look at what are the standard losses making. And that's a very important aspect in particular in retail because that's the way we are driving the portfolios. And here, what we see now is that with all the actions that have been taken, we see the improvement of this fundamental piece of our loss ratio. So that's what I call the fundamental improvement, and that's a very important aspect for us in terms of overall steering. Jean-Philippe Lacour: I have a question on New Caledonia. There are news to saying about the claim you had with others. And generally, are you still active in this market? Or did you retire from New Caledonia? Claire-Marie Coste-Lepoutre: So I think on New Caledonia, the key point on New Caledonia is what is the overall legal frame and environment into which we can operate or not when we are insuring. So I think it's very important for us when we are underwriting a contract with our clients, that we have clarity on how typically the state will react in a certain environment. So the issue we had with New Caledonia is the fact that while we were thinking there will be the state intervening in terms of riots, that did not materialize itself at all. So then you are in a different type of environment compared to the environment against which you were providing the insurance coverage. So that's part of the conversation if you want for us to decide this or no, in general, to be ensuring our clients. Frank Stoffel: Next question will come from Tami Holderried from Handelsblatt. Tami Holderried: Allianz was recently victim to cyber attacks in the U.S. in the summer and more recently in the U.K. Maybe you could comment on if you're planning on changing your cybersecurity efforts as a consequence? And if you're expecting, I don't know, financial impact from these attacks? Claire-Marie Coste-Lepoutre: So thank you very much for your question. So we have a very strong cybersecurity setup in place. We have always had. So I cannot share with your numbers, but you will be astonished if you were to know how many cyber attacks we are withstanding every day and basically coping with. So we have a very strong setup. Obviously, we always are revisiting our cyber prevention setup because this is a risk that is constantly evolving, and so we have to be on top of it as much as we can constantly, right? So maybe if you allow me on both the U.K. and the AZ Life attacks, those are very specific attacks on well-known or well-reported cyber attacks that went into specific systems. So the Oracle e-business suite for the U.K. and third-party cloud-based CRM system at AZ Life. Both events are absolutely isolated and did not and have nothing to do with the broader Allianz Group. So you need really to look at those 2 as independent event entirely separated. So that's the way to look at it. Maybe on the U.K. one, which is the most recent one, it has been -- it's an incident where we have obviously taken all the actions that are needed, where we have also reported to both the authorities and the investigation set up the matter very, very quickly. But the incident only affects Allianz U.K. and represents less than 0.1% of our total customer in the U.K. So it's a very, very small base. There is no operational impact. And obviously, the business did entirely continue as normal. As a result of that event, we have 80 current clients and 670 past customers. And obviously, we have notified them and we are engaging with them in case of questions. And as always, we are very sorry for what happened to them, and we are available to support them as required. But overall, clearly, completely isolated, completely separated, very small and as well, we are reactive to be ready to cope against those situations in general. Frank Stoffel: Our next question comes from Ben Dyson. Ben Dyson: I've got a couple of questions, if I may. What was just on the -- you mentioned earlier that the benefit from lower natural catastrophes that was offset by lower contributions from runoff. I was just wondering if you could say a bit more about why there was lower contribution from runoff. And if it was -- if that meant that you've been strengthening reserves in some areas. And if so, where -- what that was for? And then the second question I had was around the collapse of First Brands and Tricolor in the U.S., whether -- I just wanted to ask whether Allianz had in the exposure either on the investment side or on the underwriting side, for example, through Allianz trade to those collapses. Claire-Marie Coste-Lepoutre: Thanks a lot for your question. So on your question on NatCat and the runoff, so indeed, we have increased confidence in our reserve level as part of this offset. And then on your question on First Brands. So we -- as you know -- I mean as a matter of policy and also for trust and confidence of our clients, we never comment on individual exposures on a single-name basis. What I can just mention to you is that in the overall context of Allianz Trade, first of all, you have seen, again the excellent numbers of Allianz Trade. Allianz Trade is very good at maneuvering the type of environment we are into. And obviously, the automobile sector has been under quite some scrutiny in the current environment, given the tariffs in particular and also the various effects on the supply chain. So Allianz Trade is always very good at looking at early signs and acting proactively when it comes to this type of exposure. So that suggests the overall approach and the way that the Allianz Trade credit has performed as a business. Frank Stoffel: Thank you, Ben. A question from [ Maximilian Voltz from Plato ] has reached us via e-mail. I would just read it out for the benefit of everybody. The question about the business as a whole. In Germany, we are seeing many insurers increasing their share of European business at the expense of German business because the German market is saturated. How is this affecting you? Is the share of German business in your European business declining? And what is your strategy? Claire-Marie Coste-Lepoutre: So I think clearly, I was mentioning excellent momentum in our P&C portfolio. So Core Continental Europe, you can see that we benefit from a very strong level of growth across the portfolio, including for the German business that is performing extremely well, and has done a lot of work to secure and to leverage, I will say, the growth [indiscernible] that we see translated in sales into practice as we speak. So clearly Allianz France is seeing a very nice and positive development. We also see very nice and positive developments on our Allianz Direct business. So Allianz Direct has seen an internal growth of 14% into the quarter and actually 7% is volume into that business. So we are comprehensively on a good trajectory, I would say, in the overall setup. Frank Stoffel: I see in the line, a follow-up question from Tami Holderried from Handelsblatt. Tami, do you have a follow-up question? Tami Holderried: Yes. Sorry. Ms. Coste-Lepoutre, you mentioned the Viridium deal that just went through this summer. On that, do you plan on leveraging the Viridium IT platform and transferring life insurance policies from Allianz to Viridium in European markets? Maybe even without telling them, but maybe just using the IT platform and having Viridium manage some growth portfolios? Claire-Marie Coste-Lepoutre: So I think -- for Viridium, so for Viridium, maybe just overall, let me let recap a bit. So Viridium is an investment for us. First of all, I like this investment because it comes with good expectations when it comes to return, right? So that's a good investment on a stand-alone basis. The second aspect of the Viridium investment is the fact that it's part of our play between the asset management and the life insurance business, so basically offering good opportunities as well for PIMCO and AGI in terms of assets under management. And the last piece is indeed related to the fact that we believe, as a company and as an organization also together with other insurers, that we need to have a high-quality back book operator, a life back book operator available in Europe, and we believe we can support as part of that setup in doing so. And you are right that for some of our portfolios, there could be opportunities for us to be ourselves a client of Viridium, not in Germany because today, if you look at our unit cost, given the size of Leben, there is no interest whatsoever to go into that direction, but that can be interesting for some of -- some other European markets where together maybe with other insurers, we would also be interested in doing so. So that required to -- that will require to optimize indeed the IT system of Viridium, which is today a German market system. So you need to enhance the features of the system to make it working for other markets. So that's part of the strategic initiative that Viridium is looking at to balance investment into a new platform and the market opportunity. So I cannot speak for Viridium, but certainly that's the work they are doing at this stage. Tami Holderried: And I guess you cannot give more detail on what countries you're looking at specifically, right? Claire-Marie Coste-Lepoutre: No, not really, yes. But I think you could identify that fairly easily. As an example, if you were to look at our Capital Markets Day material, you will see some insights. Frank Stoffel: Thank you, Tami. We have another follow-up question from Ben Dyson from S&P. Ben Dyson: Okay. Thanks for taking my followup question. I just had a quick question on reinsurance. So almost with particularly property catastrophe prices coming down. I was just wondering if there's anything that you're going to change about your reinsurance buying strategy at January 1 this year. Claire-Marie Coste-Lepoutre: Thanks a lot. So indeed, we see the softening cycle on the reinsurance side, so which for us is a positive, as you mentioned, right, because we are a net buyer of reinsurance, so that's a good thing for us. I mean, at this point in time, we are really happy with our reinsurance program. You may remember that we actually had to adjust a bit our insurance program when the market -- when the reinsurance market did go into hardening, so we had to increase some of our retention and so and so forth, but now those retentions have not moved. So if you want the economic value -- the implicit economic value of the retention is down and up for us. So that's -- so we like overall the program. What we may do is that if the conditions are really good and if we see appetite from some of some -- I mean, from the reinsurance market for certain type of more optimistic coverage, which gives us maybe high level of risk return profile like trading, as an example, volatility against more certainty in particular at a lower return period, there we need -- we may adjust our reinsurance program. But overall, short answer would be positive for us, and we are not planning adjustments to our program. Frank Stoffel: This appears to be the last question for today. Thank you very much for your active participation during this call. Just as usual, for your calendars, we will report our financial results for the full year on February 26, and we look forward to continuing our exchange then. This concludes today's media call on our 3Q and 9 months' financial results. Have a great remaining day. Thank you, and goodbye.
Operator: Good morning. My name is Sergio, and I'll be your conference facilitator today. Welcome to Frontera Energy's Third Quarter 2025 Operating and Financial Results Conference Call. I would like to remind you that this conference call is being recorded today and is also available through an audio webcast on the company's website. Following the speakers remarks, there will be time for questions. Analysts and investors are reminded that any additional questions can be directed to Frontera following today's call at ir@fronteraenergy.ca. This call contains forward-looking statements, information within the meaning of applicable Canadian securities laws relating to activities, events or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions and beliefs of the company based on information currently available to it. Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information. The company's MD&A for the quarter ended September 30, 2025, and the company's annual information from dated March 10, 2025, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which is made, and the company disclaims any intent or obligation to update any forward-looking information, except as required by law. I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Mr. de Alba? Gabriel de Alba: Thank you, Sergio, and good morning, everyone. Welcome to Frontera's Third Quarter 2025 Operating and Financial Results Conference Call. Joining me on the call are Orlando Cabrales, Frontera's CEO; and Rene Burgos, Frontera's CFO. Also available to answer questions at the end of the call, we have Alejandra Bonilla, General Counsel; Renata Campagnaro, VP, Marketing, Logistics and Business Sustainability; Ivan Arevalo, VP, Reservoir, Reserves and Operations; and Andrés Sarmiento, VP of Corporate Sustainability and People. Thank you for joining us. During the quarter, the company generated $86.6 million in operating EBITDA from continuing operations, generated adjusted infrastructure EBITDA of $30.4 million and $115 million in cash provided by operating activities, extended its crude oil hedges through the first half of 2026 and ended the quarter with a strong balance sheet, including $172.1 million of total cash. The company also declared a quarterly dividend of CAD 0.0625 per share or approximately $3.1 million in aggregate and has bought 385,200 shares through its noncourse issuer bid program year-to-date. Over the past 12 months, Frontera has distributed more than $112 million to shareholders through dividends and share repurchases, including $66.5 million paid to shareholders in the third quarter via substantial issuer bid, reducing shares outstanding by 14% since the end of 2024. Additionally, the company successfully repurchased over $80 million of its senior unsecured notes due 2028, reducing the balance outstanding to $314 million, demonstrating a strong commitment to returning capital to all stakeholders. In addition, Frontera is pleased to announce it has been approved to trade on the OTCQX Best Market that increases the company's visibility in the United States and reinforces Frontera's commitment to strong financial disclosure and corporate governance practices. Trading in the OTCQX enhances the company's access to broader U.S. investor base, including the U.S. retail market, offering shareholders improved liquidity and supporting long-term value creation. Trading began today under the ticker symbol FECCF. Notably, OTC market activity has represented over 30% of FEC's total share trading over the past 5 years, highlighting the relevance of the U.S. market to Frontera's investor community. Access to this highest tier of the U.S. OTC market further strengthens Frontera's ability to reach a broader investor base and enhance long-term value creation. In regards to Guyana, the government of Guyana through its council, communicated its willingness to participate in a final without prejudice meeting with Frontera and its partner, CGX Energy, to discuss the matters in dispute. The government proposed November 25 or December 2, 2026, as possible date for this meeting. While expressly reserving all rights, the joint venture remains open to engaging in good faith discussions with the government. I'd like now to turn the call over to Orlando Cabrales, Frontera's CEO; and Rene Burgos, Frontera's CFO, who will share their views on our third quarter results. Orlando? Orlando Cabrales Segovia: Thank you, Gabriel. Good morning, everyone, and thank you for joining us for today's call. Let me open my remarks by underscoring the strategic significance of Frontera's decision to pursue the spin-off of the Colombian infrastructure business. Frontera has consistently drawn interest from investors and strategic parties who recognize the unique strengths and value propositions present in the upstream oil and gas and infrastructure businesses. While the upstream oil and gas and infrastructure businesses complement each other, each has its own operational profiles, life cycles and appeals to different investor groups. As part of Frontera's commitment to unlock shareholder value and enable future consolidation opportunities, the company has announced its intention to spin off its Colombian infrastructure business. The separation will create 2 focused independent companies, Frontera E&P and Frontera Infrastructure. Frontera considers the strategic separation an opportunity to surface value that is not currently reflected in Frontera's market capitalization. The separation will allow Frontera's distinct businesses to explore independent organic and inorganic opportunities and deliver superior returns for shareholders. The separation is expected to be completed during the first half of 2026 and will be subject to shareholder approval. Frontera's third quarter financial and operating results reflect the actions taken by our team to create value for stakeholders, maintain financial and operational flexibility and safeguard our strong balance sheet. Despite the price volatility, we are staying focused on what we can control. Continuous operational improvements and cost efficiencies, aiming to become a stronger and more resilient company. During the quarter, our production costs decreased by 5% compared to the previous quarter, mainly driven by the adoption of new field production technologies, ongoing optimization efforts, cost reduction in O&M contracts and digital process implementation. On the transportation side, costs have decreased by 1% quarter-over-quarter, resulting from optimized transportation routes and pipeline agreements, including the expiry of our long-term Take-or-Pay agreement Ocensa P-135. These improvements were partially offset by increasing energy costs as we process higher liquids volumes during the quarter. We have also simplified our corporate structure during the third quarter through a targeted reorganization initiative that will improve organizational and operational efficiencies, generating between $10 million and $15 million in expected savings in overhead going forward. I would like to thank our employees for their efforts and commitment to address the challenges during this year. In our Colombian operations, where we have seen our production decrease by 2% this quarter, mainly due to adverse weather conditions as well as related operational and logistical challenges, which have since been resolved. The 2025 rainy season has proven to be among the most severe in the past decade with rainfall significantly exceeding historical averages. With this in mind, we have revised slightly our 2025 annual Colombia production guidance to a range of 39,000 to 39,500 BOE per day. For the 9 months ending September 30, Frontera averaged 39,240 BOE per day of production, a 3% increase from the same period of 2024. We have also revised our 2025 capital expenditures guidance reducing the higher end by around $25 million to reflect the disciplined approach to capital spending and ability to identify ongoing operational efficiencies. On the exploration side, the high-impact Guapo-1 well at the VIM-1 block was spudded targeting natural gas and condensate with drilling expected to be completed by the end of the year. This well has the potential to significantly increase the company's natural gas reserves, including potentially providing much needed supply to the Colombian market in the short to medium term and helping to derisk nearby continued prospects. The company continues to make significant progress within its infrastructure business, which includes interest in ODL and Puerto Bahía, where together with its partner, GASCO, Puerto Bahía has reached final investment decision on the planned LPG project. The initial phase is scheduled for completion in the first half of 2026, aiming to address supply constraints in Colombia's domestic LPG market. The LPG project is expected to generate between $10 million and $50 million in yearly project EBITDA once it reaches its target capacity. We continue to see positive momentum in where ODL saw a strong quarter-over-quarter volumes and EBITDA growth, led by an increase in production associated with Ecopetrol's Caño Sur block. In Puerto Bahía, the ports operating EBITDA remained steady quarter-over-quarter despite lower liquids throughput volumes associated with our trader's exit from the country. The financial impact of the reduced liquids throughput volumes, however, was offset entirely by an increase in activity from our general cargo operations, which saw a strong growth in container volumes that exceeded 3,600 twenty-foot equivalent units TEUs in October. During the 9 months ending September, 11, 454 TEUs were handled at Puerto Bahía, representing a step fold increase compared to 306 TEUs handled during the same period in 2024, capturing volumes and supporting the growth opportunities in this market. Finally, in SAARA, the water management volumes are rising steadily, averaging about 157,000 barrels per day this quarter with a peak of 230,000 barrels of water per day. I would now like to turn the call over to Rene Burgos, Frontera's CFO. Rene Diaz: Thank you, Orlando and Gabriel. And good morning, everyone. Thank you as always for your interest and support of the company. I'd like to take a moment to highlight a few key financial aspects of our quarterly results. For the third quarter, the company recorded net income from continuing operations of $28.2 million or $0.38 per share. Our operating EBITDA from continuing operations for the quarter was approximately $86.6 million compared to $73.5 million in the prior quarter. Although the pricing environment remains subdued, we have seen favorable Colombian crude oil differentials. We also had higher sales volumes during the quarter and saw a decrease on our production and transportation costs, highlighting our operational discipline. Turning to our key operational performance indicators. During the quarter, we saw average Brent sales prices at $68.17. Demand for our heavy crude barrels remained strong in the third quarter. We saw also average Vasconia differentials on export sales remaining under $2 at $1.82 for the quarter compared to $1.69 in the prior quarter. Our purchased crude net margin associated with our dilution and transportation programs was $2.70, lower than the $3.65 for the prior quarter as a result of improvement in our [ VIM-1 ] purchasing strategy. Reviewing our operating costs, our production, energy and transportation cost per barrel for the fourth quarter totaled $25.74. This compares to $25.45 for the prior quarter. The increase in quarter-over-quarter operating cost was related to our energy costs, resulting from higher fuel consumption from higher process production liquid volumes at our facilities. In our infrastructure business, adjusted infrastructure EBITDA for the quarter was $30.4 million. This compares to $20.1 million in the prior quarter. The quarter-over-quarter increase was mainly a result of higher revenues from the ODL business due to higher volumes transported to the pipeline. As of September 30, 2025, the company reported a total cash position of $172.1 million, including $158.6 million of unrestricted cash and cash equivalents. In the quarter, the company invested $50.9 million in capital expenditures, drilling 16 wells in the Quifa and CPE-6 blocks, paying $66.5 million to shareholders through a substantial issuer bid, receiving $14.7 million in insurance compensation for the Sabanero block and $18.5 million in cash dividends from the ODL investment. Turning now to risk management. Our current risk management strategy supports our operations and planning. Frontera uses derivative instruments to manage exposure to oil prices and FX volatility. On the oil side, the company has entered into structured hedges, successfully securing up to 40% hedging ratio until June 2026. Our strategy has ceiling between 63 and 65 Brent, particularly against a drop in oil prices with through the spread at a price drop of $55. Frontera has also covered 20% of the company's expected peso exposure until the end of 2025 with floors at over COP 4,200 level. These hedges provide the company with cash flow visibility and help mitigate impacts from future fluctuations by allowing us to deliver on our targets. I'd like to provide more details on our infrastructure business spin-off. The separation will create 2 independent companies with clear strategic priorities. Frontera E&P, our pure-play upstream oil and gas exploration and production company. Over the last 12 months, Frontera E&P generated stand-alone operating EBITDA of $336 million. With approximately $220 million in net debt, Frontera E&P has a net leverage of 0.7x. Frontera Infrastructure, comprised by our interest in ODL and Puerto Bahía will emerge as a leading energy infrastructure business, leveraging robust cash flows from ODL and aiming to invest in near-term future projects at Puerto Bahía to deliver a growing and long-term revenue stream. Over the last 12 months, Frontera Infrastructure generated infrastructure adjusted EBITDA of $117 million and infrastructure distributable cash flows of $75 million, which is comprised of Puerto Bahía's operating EBITDA plus ODL dividends and distributions received. With approximately $154 million in net debt, Frontera Infrastructure has a net leverage against infrastructure distributable cash flows of 2x. For additional information, please refer to our press release issued today, including a description of our non-IFRS measures described here. Before moving on, I'd like to highlight again that this quarter, Frontera qualified to trade on the OTCQX Best Market. This upgrade includes access for a broader U.S. investor base, including the U.S. retail market and provide shareholders with a more convenient trading optionality alongside our primary TSX listing. OTCQX is the highest tier of the U.S. OTC market and aligns well with the TSX disclosure and government standards. The platform offers U.S. investors real-time Level 2 quotes and streamlined access to our disclosures at otcmarkets.com, improved transparency and visibility for current and prospective shareholders. The enhanced trading structure should also support tighter bid offer spreads and more effective execution as U.S. investors transact to the brokers they already use, while providing greater visibility into meaningful U.S.-based ownership positions. The U.S. market has already been an important source of activity for Frontera with more than 30% of our commercial volume over the past 5 years trading on the OTC platform. The OTCQX qualification builds on the success in demand and provides a cost-effective way to buyer participation, increase visibility and strengthen long-term engagement with our shareholder base. As always, please feel free to reach out to us at ir@fronteraenergy.ca if you have any questions. I would like now to turn the call back to Orlando. Orlando Cabrales Segovia: Thank you, Rene. Before I conclude today's call, I would like to highlight that the company continues to advance towards its 2028 sustainability goals as well as on the 2025 plan with progress made on almost every goal during the third quarter. On the sustainability front, in the third quarter of 2025, local suppliers accounted for 11.5% of total purchases, reflecting the ongoing commitment to local supportive economic development. Additionally, we maintained a strong performance in health and safety indicators, achieving a total recordable incident rate of 0.57 and also attaining a water reuse rate of 36% within our operational activities. In addition, Frontera achieved the level of excellence certified by Great Place to Work. I would like to congratulate Mr. Ivan Arevalo, who is assuming responsibility for Reservoir and Reserves; and Mr. Andrés Sarmiento, who transitioned to VP of Corporate Sustainability and People. These adjustments are aligned with Frontera's vision to enhance synergies, optimize processes and ensure a comprehensive approach to managing all aspects of our operations. With that, I would like to conclude by saying thank you to Gabriel and Rene for their comments, and thank you, everyone, for attending our call. I will now turn the call back to our operator. Operator: [Operator Instructions] Your first question comes from Anne Milne from Bank of America. Anne Milne: Thank you for all the information on the proposed spin-off. I was just -- I had a couple of questions on that front. Will these 2 new companies have completely independent management teams, which I assume they will. And at what point, I guess, it will be right afterwards, you will continue to provide financial information on the E&P section like you're doing the segment as you're doing right now? And then the second question is on the E&P segment. Could you give us at least some basic trends of what you're expecting for 2026? I know you probably can't give guidance, but maybe you have some general comments. Orlando Cabrales Segovia: Let me start with the last one. We are working on the 2026 plan. We are expecting to announce that early next year. So that is the first thing. The second thing is that details around the separation of the 2 businesses will be provided in due time. But yes, you can expect that the management teams are going to be different as 2 separated companies. And the other one... Rene Diaz: No, the last one, I think you should expect to continue to see the level of disclosure that we have. I think it's quite transparent to distinguish between one and the other. But we would appreciate any questions that anybody has, but we can continue to improve our transparency. But yes, you should continue to see the level of detail that can inform... Operator: Your next question comes from Tom Klamka from Gramercy. Tom Klamka: Can you confirm, it looks like in the press release, the capitalization of the 2 companies will essentially follow the existing capitalization, Frontera debt goes to Frontera and infrastructure goes to infrastructure? And is there any additional leveraging anticipated as part of this transaction? Rene Diaz: That's terrific question, Tom. Thank you for joining the conference call. I think the press release tries to make it as clear as possible. Today, our $530 million of investments are going to be divided into the appropriate lines. As you may recall, most of our debt sits into 2 unique transactions, one being the FPI loan, which covers our infrastructure assets and the other being the Frontera senior notes, which are effectively part of the E&P business. So that should follow in that path. As to any incremental leverage and any additional details, like Orlando said, this will be provided in due time. I think what we can -- what you can add to this is that our plan is to have this completed before the end of the first half of 2026. Tom Klamka: Okay. And then you show the debt service at infrastructure being about $56 million a year. I'm assuming most of that is amortization because the interest burden should be much lower, like, I don't know, 25, 30, something like that, correct? Rene Diaz: Look, that's right, if you look at our indebtedness, our debt is around 10%, 10.5% for the FPI transaction. And you got to also remember that we have turbo amortization. So even when we do capture -- when we have cash from the dividends generated, all those dividends go to pay. So the best way to think about pay down the debt, sorry. The best way to think about it is that we keep cash, that cash from that -- from the ODL transactions are going to very quickly amortize. So yes, to your point, look, when we started the year, we started around $220 million in May when we closed the transaction, right? Now we're close to $202 million. And today, we're sitting in ODL at around $30-something million. So you should expect a very quick deleveraging by the end of the year in December with the cash flow sweep, we should see FPI at around $175 million to $180 million of debt. Tom Klamka: Okay. And then just last question on the guidance changes. It looks like there's some production changes and you have some cost savings, but it looks like you're keeping your EBITDA guidance at the $270 million to $315 million at the lower Brent level, correct? Orlando Cabrales Segovia: That is correct. Yes. We are keeping the EBITDA guidance. Operator: Your next question comes from Oriana Covault from Balanz Capital. Oriana Covault: I have a doubt in terms of the LPG and the gas -- the associated gas deployment that would be needed. So if you could share any additional color on timing and commissioning for the project? And since when should we expect to see this incremental EBITDA generation? Rene Diaz: Oriana, can you repeat the question? I think you said -- let me try to repeat it. I think you said LPG project, you want to know the timing and when we're going to see the EBITDA generation, is that what you said? Oriana Covault: Yes. Sorry, can you hear me better now? Rene Diaz: Yes, that's better. That's better. Oriana Covault: Okay. Perfect. So yes, in essence, I just want to understand better on the dynamics of this LPG project. How would be the natural gas deployment associated? And just kind of curious if this means that you'd be interested in perhaps pursuing any potential increase in natural gas and drilling more in that sense, that would be helpful to understand. Orlando Cabrales Segovia: Yes, I think the -- I mean on the LPG project, we are working to -- on fast tracking the project via a first phase that we call our first phase, which is our ship-to-trucks mechanism that will come online in the first half of 2026. And this phase is to ensure we meet the market demand for LPG right now in the country prior to the construction of a permanent onshore refrigeration unit. That is expected to be online in 18 months 2027, sometime in 2027. When we announced this project, we are expecting an EBITDA range between $10 million and $50 million when we reach the maximum capacity of the project. That means when we build the refrigeration unit in 18 months. But that's for the project... Operator: Your next question comes from Isabella Pacheco from Bank of America. Isabella Pacheco: So my questions on the infrastructure were already answered, so I'll go to another front. After the Guyana impairment and your Ecuador exit, what are your plans to replace reserves? Are there any near-term drilling campaigns in Colombia that could materially impact 2026 production? Orlando Cabrales Segovia: I mean we are permanently looking at our portfolio. And when there are opportunities to sell to buy, we will see those opportunities. So we are currently looking at the market. And if there are opportunities that make sense, either to buy or to sell, we will look for that. So that is something that we do constantly. Sorry one last thing is that the drilling of Guapo, the Guapo well is a high-impact well is an exploration well and that could bring additional reserves to the company going forward. And as you know, the gas market is needing that additional supply. So there is an opportunity there. Operator: [Operator Instructions] There are no further questions at this time. Please proceed. Orlando Cabrales Segovia: Okay. Thank you, operator. Thank you, everyone, for attending today's call. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Welcome to Tivic Health Systems third quarter 2025 financial results and operational update conference call. This call has been prerecorded. This call is being webcast, and the replay will be available on the IR of the company's website for three months. Before we begin, let me remind you that during today's call, management will make various forward-looking statements. Investors are cautioned that these forward-looking statements are based on current expectations and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those indicated in our forward-looking statement. Please read the safe harbor statement contained in the press release that Tivic Health issued today as well as the risk factors contained in Tivic Health's filings with the SEC, including its annual report on Form 10-K of the year ended 12/31/2024 and the Form 10-Q to be filed with the SEC today as well as other companies' SEC filings. Hosting today's call is Jennifer Ernst, Tivic CEO, and Lisa Wolf, Tivic CFO. Now let me turn the call over to Jennifer Ernst. Thank you, and welcome to everyone listening today. Jennifer Ernst: I'm pleased to be reporting on the progress we have made during the third quarter in building a new Tivic. As many of you know, at the start of the year, we undertook a significant strategic transformation of Tivic Health Systems, Inc. Beginning in February, with the licensing of entolimod and related assets, we expanded from bioelectronics to biologic pharmaceuticals with a common focus on the immune system and the ways we can harness the immune system to improve clinical outcomes and save lives. We've accomplished a great deal in a very short time. In Q2, we built out the team and secured the first meetings with potential customers for Entelimod's use as a military countermeasure. We continue to deepen those connections and expect to be meeting with BARDA in the coming months to discuss stockpiling opportunities. While our commercial focus is squarely on moving Intaloupe through our first BLA with the FDA for acute radiation syndrome, we've also continued to enrich our pipeline. We licensed Entelimod and Entelasta for neutropenia and have begun discussions with leading institutions about conducting investigator-led studies in this area. We have filed new intellectual property, IP that supports the potential use of our TLR5 agonist as adjunctive therapies for immuno-oncology cancer therapeutics. We have completed the optimization study for our VNS device design, uncovering the key parameters that have the strongest influence on the autonomic nervous system activity. And we are completing the exit from the consumer health market, increasing focus on prescription therapeutics. Today, let me focus more on our fully licensed entolimod portfolio and report to you where this drug candidate stands from a clinical development perspective. Entalimod itself is a first-in-class late-stage, highly derisked drug candidate. And the first commercial opportunity for Tivic Health Systems, Inc. with entolimod is for acute radiation syndrome, which we are developing as a potential military stockpile drug. Entolimod for ARS is intended to be used as a countermeasure to exposure from lethal levels of ionizing radiation. Entelimod is of strategic value because its novel mechanism of action gives it the potential to treat radiation and cause damage to the GI tract, unlike the G CSF drugs that are currently stockpiled for ARS. We're focusing our efforts on building relationships with U.S. and allied governments and on entolimod's manufacturing readiness. Following the feedback we received from speaking with military officials at the Military Health System Research Symposium, and with the support of BARDA stakeholders, we requested a TechWatch meeting. Participating in a TechWatch meeting with BARDA and its interagency partners would give us further opportunity to discuss their interest in Entolimod for ARS and in the follow-on molecule Entelasta. Also this quarter, we completed the transfer of two entolimod INDs from Strattera to Tivic Health Systems, Inc. They cover the development of entolimod for ARS and for advanced cancer. The transfer of these INDs enabled us to move forward with entolimod clinical programs in neutropenia and lymphocyte exhaustion. With existing human safety data and prior dosing studies, we anticipate being able to move directly into Phase II clinical studies in both of these indications. We believe our TLR5 mechanism of action could yield a wider range of clinical benefits than the approved colony-stimulating factor or G CSF class of drugs. Importantly, this includes addressing radiation-caused and chemotherapy-caused damage to the GI tract. Specifically, the G CSF drug class stimulates new blood cell formation only, whereas Tivic Health Systems, Inc.'s TLR5 mechanism of action engages a pathway that prevents cell death, a mechanism that can unlock benefits across multiple organ systems, including the GI tract. Prior studies have shown that entolimod has the potential to be used prior to exposure, for example, in advance of a medical radiation treatment, to protect critical cells responsible for white blood cell production and the epithelial lining of the GI tract. These features of Entelimod open opportunities in the oncology space, and these INDs enable us to conduct clinical trials in these oncology-related applications. I'm also pleased to report the successful verification of the entolimod cell line. Working with our contract manufacturing organization, we successfully produced new Entelimod proteins. In vitro testing verified that the resulting protein structure and yields are suitable to move into larger batch production. This representative first production of any form of biologic represented a major manufacturing milestone that advances us along the path to current good manufacturing practices, or CGMP. Now CGMP is a required step in preparing for the biologics license application. Unfortunately, the contract manufacturer with whom we have been working has experienced financial stress in the wake of government actions earlier this year, actions that impacted several of their customers' programs. So while this has resulted in delays to our original schedule, we are working closely with the team and with our investors to establish stability and traction. At the same time, we've made good progress with other manufacturing partners to ensure we are able to meet our timelines and production requirements. And now just a few updates turning to our VNS program. This week, we announced the results of the findings from the optimization trial for our noninvasive vagus nerve stimulation program. The study served to isolate parameters that most significantly impacted autonomic system activity. And, admittedly, we had some surprise findings, ones that suggested we may be able to influence both sympathetic and parasympathetic activity, whereas our prior work had focused solely on the parasympathetic effects. Learning may cause us to reassess the initial commercial focus that we were targeting. Now our findings are particularly compelling because they advance the field of neurostimulation. Personalization of the stimulation frequency, the lateral placement of the stimulation electrodes, and the duration of treatment all impact the clinical outcome, and not necessarily in the expected ways. While modern implanted devices are often utilizing real-time data to tune treatment, our study confirmed the hypothesis that VNS stimulation parameters delivered noninvasively can benefit significantly from personalization as a means to increase responder rates and increase the clinical effects. Because of the greater understanding gained from this trial, we are evaluating alternative commercial opportunities that could be enabled. Now the program has taken a little bit of a backseat this year with our limited resources committed predominantly to the integration of our lead biologics candidate and its follow-on applications in oncology. We remain confident, though, that our noninvasive VNS approach has the potential to deliver clinical outcomes similar to or better than those of surgically implanted vagus nerve devices. And at this point, I'd like to ask Lisa Wolf to review the financial results for the quarter. Thank you, Jennifer. Lisa Wolf: For ease of listening, all of the financial metrics I will be comparing the third quarter ended 09/30/2025, to the prior year quarter ended 09/30/2024. And the nine months ended 09/30/2025, to the nine months ended 09/30/2024 unless otherwise stated. Financial results for the third quarter and first nine months of the year reflect our transition as a company with our focus towards the biopharmaceutical market and away from the consumer device market. As mentioned in our last quarterly call, we plan to exit the consumer device market by the end of the year. Toward that end, during the third quarter, we recorded reserves for excess and obsolete inventory of $230,000, which is included in the cost of goods sold. We also wrote off certain assets related to clear up, with a net book value of $117,000, which is included in other expenses. We do not expect to incur additional significant costs associated with our exit from the consumer device business. Additionally, we have now discontinued the allocation of any significant resources toward clear up sales. As part of this progression, the company launched a new corporate website that puts the emphasis on our transformed mission and expanded clinical pipeline. Revenue net of returns totaled $140,000 for the quarter, compared to $126,000 in the year-ago quarter. Revenue net of returns totaled $302,000 for the nine-month period compared to $600,000 in 2024. The increase in the quarter was a result of increased unit sales, driven by reduced selling prices as we push to reduce prior to exiting the business. The decrease for the nine-month period was primarily due to decreased unit sales resulting from reductions in our advertising spend as we focused our resources on the advancement of our TLR5 program. Cost of sales increased to $291,000 from $82,000 in the year-ago quarter primarily due to the $230,000 of inventory reserves recorded in 2025. Cost of sales decreased to $343,000 from $359,000 for the nine-month period primarily due to lower unit sales offset by the $230,000 inventory reserve. Gross margins, excluding the $230,000 inventory reserve, were 42% for the third quarter, compared to 35% for the year-ago quarter. Gross margins excluding the $230,000 inventory reserve were 37% for the nine-month period compared to 40% for the year-ago quarter. Operating expenses were $2,300,000 for 2025 compared with $1,500,000 for the same period in 2024. Operating expenses for the first nine months of 2025 were $5,900,000 compared to $4,400,000 for the first nine months of 2024. The increases for the quarter were due to increased research and development investments in our biologics program, increased corporate costs, and increases in advertising costs per ClearApp as we push to sell through that inventory prior to our exit from the consumer business. The increases for the nine-month period were primarily due to increased research and development investments in our biologics program and increased corporate costs offset by reductions in sales and marketing costs for CLEAR as we focused our resources into the advancement of the TLR5 program. Net loss was $2,600,000 for 2025 compared with $1,400,000 for 2024. Net loss for the nine-month period of 2025 was $6,000,000 compared with $4,200,000 for the same period in 2024. At 09/30/2025, cash and cash equivalents totaled $3,500,000 compared with $2,000,000 at 12/31/2024. We believe that these funds, along with remaining planned tranches of our preferred purchase agreement, will allow us to make meaningful progress toward GMP manufacturing validation for entolimod, which is a key value inflection point for the company. There's also no debt on the balance sheet. And with that, I'd like to turn the call back to Jennifer for closing remarks. Jennifer Ernst: Thank you, Lisa. So to recap, we started a process in February to transform the business. And today, this transformation is well underway. In the third quarter and subsequent weeks, we've transferred two INDs to Tivic Health Systems, Inc., completed the cell line verification required to enable a future BLA with the FDA, wound down the consumer health tech business, advanced discussions of potential pathways to deploying entolimod as a military countermeasure and stockpile drug, and last but not least, we closed additional tranches of the company's $8,400,000 financing for a total of $3,800,000 in net proceeds during the third quarter. So yes, the transformation progress is well underway. And I want to thank you for listening and for your continued interest in Tivic Health Systems, Inc. We look forward to continuing our progress in the coming weeks and months as we focus on advancing value creation activities on behalf of our shareholders, while at the same time working to bring life-saving and life-enhancing treatments to patients in need. And with that, I'll turn the call back to the operator. Thank you. Operator: This will conclude today's conference. You may disconnect your lines at this time, and have a great day. Thank you for your participation.
John Nesbett: Good afternoon. And welcome to the TOMI Environmental Solutions, Inc. Third Quarter 2025 Financial Results Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. John Nesbett of IMS Investor Relations. Sir, the floor is yours. Good afternoon. Thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's Chief Executive Officer and Chairman, Dr. Halden Shane, E.J. Shane, our Chief Operating Officer, and our Chief Financial Officer, David Vanston. A telephone replay of today's call will be available through November 28, 2025, the details of which are included in the company's press release issued today. A webcast replay will also be available on TOMI's website at www.steramist.com. Certain written and oral statements made by management of TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements should be evaluated in light of important risk factors that could cause our actual results to differ materially from our anticipated results. The information provided in this conference call is based upon the facts and circumstances known at this time. Please refer to our filings with the SEC, including our 10-Q for the quarter ended September 30, 2025, for a discussion of these risk factors. The company undertakes no obligation to update these forward-looking statements after the date of this call. Now, I will turn the call over to TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane. Please go ahead. Halden Shane: Thank you. Thank you, John. And good morning, afternoon, or evening to everyone from around the world. Thank you for joining us for TOMI Environmental Solutions Third Quarter Earnings Call. Today, we will share our third quarter 2025 results along with key updates and reasons we believe TOMI is on the cusp of a breakout. After a challenging start of the year, the third quarter marked a decisive turning point. We delivered a 95% sequential revenue increase driven by expanding recurring revenue streams and deeper customer engagement. A key takeaway from our third quarter performance is the increase in capital purchases of our mobile equipment as our service provider partners grew in number. This includes both well-known industry leaders and smaller, long-term players who are increasingly recognizing the value of clean tech and the superior advantages of our SteriMist IHP technology. Our vision remains steadfast: a future where sales of mobile capital equipment, IHP Corporate Service, our custom integration platforms, and, of course, our core BIT solution business model all grow in tandem. A new growth engine: recurring revenue. That's the theme. Building on the momentum, our third quarter revenue reached $2 million, marking a 95% increase over quarter two. This growth was driven by strong equipment sales and most notably recurring BIT solution sales, which have risen 21% year to date. In 2025, we placed significant emphasis on our existing customer base, ensuring implementation usage, and tailored protocol development for customers across all our industries. This focus has positively affected BIT's solution sales, which have seen stable and increased sales in each quarter. By sustaining this momentum, while ramping up capital equipment sales and successfully closing project bids for automation solutions, we will not only achieve our overall growth objectives but also enhance predictability, which is essential for scaling the business effectively. Another theme: momentum builds expanding pipeline and backlog. Our sales order backlog was $900,000 at the quarter end and grew further to $1.3 million by October 31, with approximately $3 million in pending integration contracts expected to close before year-end. Our active pipeline surpassed $15 million, encompassing both domestic and international customers across the industries we currently serve, as well as emerging sectors showing strong interest. These figures are more than just metrics; they signal the business opportunities we anticipate in the coming quarters and extending into 2027. Another theme: visionary markets beyond traditional boundaries. We are doubling down on investments in innovation and customer success. Our SteraMist IHP technology continues to gain industry recognition, this year being named the Disinfection and Decontamination Products Company of the Year 2025. Our platinum customer roster includes top-tier leaders across every sector we serve, further validating our solutions and positioning TOMI as a trusted partner in global health and safety. Regulatory developments are opening new markets. The FDA's broadened approval of hydrogen peroxide and our breakthrough demonstration of SteraMist efficacy against honeybee colony collapse position us to serve not only life sciences and healthcare but also agriculture, food processing, and environmental biosafety. The opportunity before us is vast, expanding the relevance and impact of SteraMist on a global scale. Strategic execution: laying the groundwork for 2026. To maintain and accelerate this momentum, as stated earlier, we are intensifying customer outreach through personalized engagement strategies, deploying targeted marketing campaigns that highlight real-world success stories, and forging deeper partnerships with key industry players. Our SteraMist Pro Certified program and learning management system are empowering the market with essential education while onboarding specialized service providers. We are also in the process of updating, improving, and adding to our training programs across all delivery systems. Looking ahead, heading into 2026, TOMI is sharpening its focus on biosecurity advancements that address evolving global challenges, from climate-driven health risks to supply chain vulnerabilities. We will prioritize scaling our automation integrations for high-efficacy environments, exploring untapped opportunities in sustainable agriculture and public infrastructure, and fostering collaborative R&D with academic and industry partners. This will empower us to deliver solutions that enhance environmental resilience, safeguard communities worldwide, and drive sustainable returns, ultimately positioning TOMI as the go-to innovator in a rapidly changing world. I will now hand the call over to our Chief Financial Officer, David Vanston, who will provide a brief overview of our financial results for 2025 compared to the same period last year. David? David Vanston: Thank you. Thank you, Dr. Shane. In 2025, our revenue was $2 million, a decline from $2.5 million in Q3 2024, representing a 24% decrease in sales. This was primarily driven by a timing reduction in the quarter of IronHP services sales from a key customer who reorganized its operations. This impact is expected to be temporary, and the customer's operations-related service activity is expected to resume to a normal level in the near future. Importantly, year-to-date service demand remains robust, with quote activity and pipeline volume up approximately 35% year over year in the life sciences and food safety area. This trend supports our expectation for continued growth in the fourth quarter and beyond. For the nine months ended September 30, 2025, solution revenue was $760,000, an increase of 21% year on year as earlier stated by Dr. Shane, compared to the same period in '24 as we continue to drive recurring sales of solutions within our customer base. A positive point was our gross profit remained strong at 61% as a percentage of sales for the three months ended September 30, 2025, and for the same period last year. The consistency of our gross profit margin underscored the resilience of our product mix and disciplined cost management. For the three months ended September 30, 2025, we experienced an operating loss of approximately $320,000 compared to an operating income of $149,000 in the same period last year. Our net loss for the three months ended September 30, 2025, was approximately $450,000 or 2¢ a share, compared to a net income of $58,000 or 0 compared to the same period last year. As of September 30, 2025, our financial position includes cash and cash equivalents of approximately $190,000, working capital of $2.5 million, and shareholder equity of $2.2 million. I will now turn the call over to our Chief Operating Officer, E.J. Shane, to discuss the upcoming business highlights. E.J. Shane: Thank you, David. Our previously announced active projects are currently on track for delivery by the end of the year, and we are currently negotiating an additional $3 million in custom and integrated contracts, with bids expected to close before the year-end. 2025 showcased TOMI's evolution into a trusted technology partner for regulated industries. Implementing experiments with agencies such as NASA and Fort Detrick alongside repeat orders from global leaders underscores SteraMist's position as a gold standard for contamination control. With major pharma companies investing in United States onshoring and sectional facilities, TOMI is ideally positioned to capture expanded opportunities in sterile automation systems. Automated, repeatable, and validated decontamination rooms and chambers remain in high demand as the pharmaceutical industry evolves. We believe our IHP technology is emerging as a benchmark for sterile environments, as evidenced by its adoption this year with premier companies. As of the third quarter, the onshoring of pharmaceutical production positions us favorably, specifically in Virginia for the next few years, particularly with major commitments from Merck, Eli Lilly, and AstraZeneca, who are establishing new production sites. As we build on the strong momentum we've shared today, the key question is obvious: How will we keep driving growth in BIT Solutions sales, IHP service, capital equipment, and custom integrations? As Dr. Shane noted earlier, our BIT solution gains come from growth in personnel and operations and better training for our current customers. We will keep this going to drive steady adoption and stronger reach in key sectors. We are nearly complete on updated training documents, rolling out a more comprehensive program that emphasizes ongoing recertification. This approach not only raises customer standards for implementation safety but also may generate additional revenue and deeper product adoption, strengthening TOMI's role as an essential partner. 2025 unfolded an essential chapter in TOMI's journey marked by breakthroughs that not only validated our recent innovations but also directly fed our pipeline of opportunities. It began in July with the installation and commissioning of our SISSA for a neighboring pharmaceutical company, which falls under our Ceramis Integrated System or SISSA platform of offerings targeting the pharmaceutical isolator market. A milestone that led to successful integrations into additional enclosures at Virginia Commonwealth University and the University of Miami, and a promising wave of future installations with both existing and prospective manufacturing partners. In the life sciences and manufacturing sectors, we see a powerful shift toward continuous bioprocessing, flexible facilities, and AI-enabled operations. These advancements demand decontamination solutions that integrate effortlessly with automation while minimizing downtime, precisely where our custom engineers system or CES excels, offering rapid, efficient sterilization to support production and operational efficiency. While our CES remains in demand due to its tailored approach, we recognize that its extended timeline from initial interest to full commissioning can be extensive. As the CES pipeline continues to expand, we are strategically prioritizing our hybrid and the SIS products, which offer faster close rates and quicker integration and implementation within facilities. This balanced approach ensures that all our custom automated advances at a comparable pace, with the hybrid and SIS lines serving as the ideal solution for automated integration segments, driving quicker revenue realization than the CES. Building on our Q3 momentum, August marked a significant step forward when our East Coast distributor, Aerie Science, helped us secure a new university client for our SIS platform, solidifying our presence in the academic vertical and opening doors to specialized applications in research environments. This progress carried into this week's ALAS conference. We collaborated closely with Aerie on promising upcoming projects and showcased our advanced product lineup alongside our enhanced engineering capabilities in programming and design. By engaging manufacturers of cage washers, decontamination chambers, and biological safety cabinets, or BSCs, we are expanding our partnership options for future integrations, strengthening our pipeline with diverse choices while positioning these collaborators as valuable resources to expand the SteraMist IHP brand and technology into high-potential sectors such as government agencies, universities, and animal research. Additionally, discussions with ALAS included a new potential representative company for the West Coast, as well as opportunities for complementary products that could generate fresh revenue streams by pairing seamlessly with our core technology. Stay tuned for updates on these developments as they might diversify our pipeline heading into next year. In healthcare, new initiatives like the Joint Commission's Accreditation 360 program, set to launch in 2026, may open new revenue streams for TOMI as well. The program will create a growing need for verifiable, auditable disinfection data, which SteraMist delivers through its advanced logging and reporting features, helping providers meet stringent standards and enhance patient safety. In quarter three, we celebrated a landmark addition to our roster of customers with a major player in the eye health industry. Bausch and Lomb rapidly adopted our mobile handheld surface units in two facilities in under four months and committed to open the solution orders for 2026, promising sustained revenue streams in a sector in need of advanced durability. In September, we made significant strides in capital equipment segments by onboarding a specialized service provider focused on healthcare and mold remediation, quickly followed by SteriClean and TAP purchasing mobile systems, with the latter expanding their thermos lines with foggers. We continue to speak with these three and other larger franchise service providers for a widespread adoption of SteraMist IHP technology across their networks. Our highly regarded SteraMist Pro Certified or SPC program continues to nurture a dynamic environment of partners and customers, enhancing implementation and long-term usage. Large contract cleaning, bioremediation, and restoration firms such as DareClean and TAC are scaling up their offerings to handle complex high-margin jobs in biohazard, mold, and mycotoxin cleanup using our advanced technology. This year has brought a transformative shift in our business development approach, with initial purchases of one or two units at select locations inspiring broader rollouts across entire organizations, a pattern that is starting to play out successfully in both the life sciences and commercial industry. To sustain this momentum, we continue developing these organic expansions, which is key to scaling our business and, of course, its model. A prime example is our growing relationship with Nestle, which is gaining traction, and they have expressed a strong desire to establish our technology as the global standard across their nutritional facilities worldwide. We have already deployed multiple Steripox to various branches internationally, setting the stage for substantial recurring revenue and further international growth. We continue to pursue the cannabis market under our food safety division, and quarter three sparked some significant interest domestically and internationally, opening doors to promising new partnership discussions. Our current distributor, Sterile Girl, continues to market and slowly gain traction, adding to the referral base and efficacy use data for the market. We have unofficially entered a collaboration with Smithers, the largest testing lab in the United States, which we expect to yield lead referrals soon and will soon begin a study in Morocco that positions us for entry into the European and African medical cannabis markets. A key quarter three highlight pertains to a regulatory change: the FDA's final order amending regulations to allow the use of hydrogen peroxide in food processing. This ruling is game-changing for SteraMist, validating our BIT Solutions food-grade hydrogen peroxide as the sole active ingredient and providing a clear regulatory framework with a competitive edge in the multibillion-dollar food safety market. By expanding applications beyond environmental disinfection to direct food-related protocols, such as in the ready-to-eat, or RTE industry, where convenience food like prepackaged meals and salads demand pathogen control, it positions TOMI to capture a significant share across the supply chain. With no residual concern due to SteraMist IHP's breakdown into oxygen and humidity, we can now disinfect equipment, processing lines, and facilities in food-present environments to target threats like salmonella, listeria, and E. coli, decontaminate packaging and storage areas to prevent cross-contamination, and sanitize transportation vehicles for end-to-end hygiene. This broadens our addressable market and drives revenue growth in high-demand sectors. Thank you, and I will return the call over to Dr. Shane for his closing statements. Halden Shane: Thank you, E.J. We remain focused on strengthening our organizational foundation, enhancing our C-suite, management, and division leadership, building out our sales and technical teams, and expanding our network of global distributors. The third quarter marked a notable period of recovery and reaffirmed the soundness of our strategy. We are seeing steady improvement financially, operationally, and strategically. Our team is dedicated to driving growth and innovation across all divisions, leveraging our expanding portfolio of products and services. We are encouraged by the opportunities that lie ahead. Our sales backlog remains strong, and the sales strategy implemented at the end of last year is beginning to deliver promising results. We are motivated by the progress in our strategic partnerships and the growing interest from clients seeking to improve their operations with our solutions. With continuous investment in infrastructure, technical expertise, and a stronger sales strategy, we believe we are well-positioned for a successful fourth quarter with momentum carrying into 2026. I'd like to highlight a recent strategic milestone that positions us for sustained growth. On November 5, we entered into an equity purchase agreement with Hudson Global Ventures, giving us the flexible right but not the obligation to sell up to $20 million in common stock over a twenty-four-month period. Full details are in our Form 8-K filing. The agreement provides the flexibility for on-demand access to capital without upfront commitments or heavy dilution, helping us fund the strategies, goals, and momentum we have described today, including our business development needs, hiring customer service specialists, technicians, programmers, trainers, and operational support to accelerate our pace while maintaining our strong reputation with customers across the industries we serve. It will also enable us to expand on key initiatives, such as advancing R&D, regulatory pursuits, and market expansion, ensuring we seize opportunities in clean tech and biosecurity while creating long-term value for shareholders. Thank you for your continued support as we unlock TOMI's next era of growth. We're excited about what's ahead. Now, operator, let's open the call to questions. Operator: Thank you, sir. Ladies and gentlemen, at this time, you'll be conducting our question and answer session. If you would like to ask a question, please press 1 on your telephone. 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. Please pick up your handset before pressing the star keys. Thank you. Our first question is coming from Sameer Joshi with H.C. Wainwright. Your line is live. Sameer Joshi: Hey. Good afternoon. Doc, David, E.J. Really good quarter. Congratulations on the nice turnaround and progress. One of the key things I think you announced was the FDA approval or clearance for the hydrogen peroxide usage. It opens the food, RTE, and prepackaged as E.J. outlined. What are your sales and marketing efforts towards this, and have you identified initial targeted customers that you would pursue? Halden Shane: So it's relatively new, this approval. And we foresee that the food industry in itself, both whether it's in processing, storage, packaging, transportation, etc., can be a key marketing vertical for us. And I'm really excited about it because, especially our type of technology does not have any residue. And it's gonna be a game changer. But you know, in order to go ahead and tell you how much and who, it's a little too early, I think. And I find that a lot of the food companies themselves are not aware of the change. But things are changing in this industry. They're leaning away from old established disinfection and parasitic acids and things like that, and dips, etc., that they've been using. And our technology is definitely should be on top of their list as a choice. Sameer Joshi: Yeah. No. It certainly makes sense for you. What you're saying. And I'm sure it will open up a big market. On the Q3 performance, again, as I said, congrats on the nice turnaround. The operating expenses were also contained, despite the nice revenue increase. Should we expect these operating expenses at the operating expense level as well as the gross margin level to continue to sort of improve financially? Halden Shane: So for your model, I think your expenses are gonna increase. And, you know, I think they're gonna be positive in relationship to revenue. David might have something to add to this if you'd like, David. David Vanston: Yeah. I think for the gross margin, you may get one or 2%, but nothing significant. Already seen that over the year on year, we're holding around the 60% margin. I mean, that helps us with the continuing solution sales that come in. So I don't expect our margin to be under too much pressure. But as Doc pointed out, if we're going to scale up, I would expect, you know, the revenue line will go up at the same time, but the percentage of the total operating expenses as a percentage of our total revenue will not significantly change. Sameer Joshi: Yeah. That is what I was driving at because I did out the R&D efforts and initiatives. They will increase, but you will still have leverage, and the revenues are probably going to increase faster. David Vanston: Yes. Correct. Sameer Joshi: Got it. Last question, on the international front, I think you did mention Morocco, Africa. What kind of sales effort is in place? Do you have representatives in these countries? How should we think about how the sales are going to be realized? Halden Shane: So we have different distributors in some of these countries that are focused on them. I think that a lot of our global partners, where we mentioned one in the food industry on the call earlier, is implementing this in many of their facilities globally. Similar to that, you see other types of partners that we have that have a global footprint in various countries that are interested in increasing their demand and use for SteraMist going forward. Sameer Joshi: Yeah. Hey, Doc. May I squeeze in one more? Because I think you had pointed out that your capital equipment sales increased, I think that bodes well for solution sales in coming quarters. Do you have visibility on what kind of solutions sales you will see in the coming quarters? Halden Shane: I don't. We, you know, again, think the first half of the year, we had about a 41% increase in solution sales over 2024. And in the third quarter, we were down to about, I believe it was in the mid-twenty 1%. So it averaged down a little bit. I think by the end of the fourth quarter, our recurring sales should pop up again because people wanting to get the solution in by end of year. And I think that's the key to this whole call is we get more technology out there. We do it via manufacturing, but also by increasing our sales and our sales strategies in these areas. And more equipment leads to more solution sales, which is the model that would drive a very successful business going forward. Sameer Joshi: Thanks, Doc. Thanks for taking my question. Halden Shane: Thank you for the questions. Operator: Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press 1 on your telephone keypad. Our next question is coming from John Nelson, who is a private investor. Your line is live. John Nelson: Thank you. Hi, Halden, and congrats to you and the TOMI team on the enhanced momentum that the company seems to be generating right now. I have continued to steadily add to my stock position since my latest 13G amended filing in July. So I'm very pleased with your results. And I know the efforts are superlative. So thank you. Halden Shane: Thank you, John. Questions? John Nelson: Oh, you're welcome. Questions. Is there anything updates you can give me on what's going on with servicing or trying to service the military and defense markets? Halden Shane: I don't have one. Maybe E.J. has something to say about that. E.J. Shane: Hey, John. Yes. This past quarter, a lot of our service was directly attributed to one key site. I can't really go into too much detail, but they are looking to replace formaldehyde and have been, and we're working with them. We did quite a few studies with them in Q3. We went there eight or nine times and had positive results. I don't expect that one to show a close before the end of the year, but we are definitely expecting it to be a pretty big deal in 2026. John Nelson: Okay. Good. Thank you. Any updates on the CAR-T cell disinfection business? Halden Shane: E.J.? E.J. Shane: No, Doc. Don't think we have anything, sir. John Nelson: Okay. You mentioned in the press release that you've now onboarded all three of the top major service provider companies in healthcare mold remediation? And I was curious as to any expectations that we should have for a rapid versus slow rollout by these parties? E.J. Shane: So yes, and I know you've been asking. You know, it wasn't ServiceMaster, but bringing on SteraClean and Tact and this other group was definitely a big deal in Q3. Especially with their quick assessment to add more units pretty quickly thereafter their initial buy. They do have a focus more on biohazard and mycotoxin remediation, and we expect to really keep working with them and gain live case studies to be able to bring on the rest of their facilities and then, of course, additional franchises. So I do see a dramatic shift in our service providership. I think it's the way we've now outlined the way we train and support them with the program and the learning management system we offer to them. And we're a little more aggressive in the correspondence and staying up to date with everything they're doing. It is proving good outcome. I'd expect more. John Nelson: Okay. Great. A lot of attention is being paid, and a lot of dollars is going to the data center market. Google just announced that they were planning on investing $40 billion in new data centers in Texas. So could you comment at all on any plans to try to penetrate the disinfection market for those types of facilities? Halden Shane: Sure, John. That's one of our reasons that we are expanding and want to expand our sales teams. In multiple verticals, and that's one that makes a huge amount of interest and potentially success for us because they do need disinfection. They're large facilities. And we will handle their materials tremendously. So we are gonna work on that. We just do not have the employees at the moment to focus on that. And that's one of the reasons for capital needs and to increase our existing sales force. John Nelson: Got it. And besides the data centers in planning stages for being developed, there's also the current existing market, and many of them are crypto data centers that are being basically converted to use by the magnificent seven. Halden Shane: Yeah. So that's true. Oh, and last question is, on the FDA, you know, broadening the permitted use of peroxide in the food industry, and I was wondering if you could maybe give us a few more details on how you're increasing your awareness for that market. Halden Shane: So we are doing it on social media. And we do have plans to increase it further. Like I said earlier, with the call from the analysts, we know who they are that need our product, and sometimes they don't even know they can use our product. So it's more in an educational mode at the moment. But I think that, you know, also in the medical supply, medical sterilization end of medical materials, medical processing, sites that have huge ethylene oxide sterilization. Our products are great replacements. So there's a lot of work. A lot of low-picking fruit for us to work at in those areas and those verticals. And as the team gets bigger and moves forward, we will be focused on them. John Nelson: Okay. And in marketing, are you targeting the companies that have had problems in the past? Halden Shane: Are you targeting companies first that have had problems in the past with infections and disease? E.J. Shane: We are, John, but we did start our initial beginning point was to start with our current database and the correspondence that we have had with food safety customers, probably the past year and a half or two that couldn't come on board because, prior to the ruling, it had different restrictions for the EPA label. So we're now in correspondence with those with the new FDA petition and reaching out how to create protocols under that guideline. So we did start with individuals that we were already talking with. John Nelson: Mhmm. Okay. Good. And then, one more that I just thought about is any progress or developments in the use of SteraMist for replacing ethylene oxide in the medical instrument sterilization market? E.J. Shane: Yeah. I mean, those kind of go hand in hand. With under both accounts, in food and in medical device treatment. The other partnerships that we're starting to build in device manufacturing will also lead to that replacement being able to have IHP streamlined into different enclosures to decontaminate these devices. And another large machinery that's used in both industries. So it's definitely all being high prioritized and discussed. John Nelson: Okay. Thank you very much. Halden Shane: Of course. Thanks, John, for the questions. Operator: You're welcome. Thank you. Ladies and gentlemen, this does conclude our question and answer session. So I would like to turn the call back over to Dr. Shane for any closing remarks. Halden Shane: I just wanna thank everybody for joining us today and for the continued support. And we will be speaking at our next earnings call. Many thanks. Have a wonderful day or evening, wherever you might be. Operator: Thank you, operator. Thank you, and thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good afternoon. And welcome to Dragonfly Energy Holdings Corp.'s Third Quarter 2025 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. I'll now turn the call over to Szymon Serowiecki, Investor Relations. Please go ahead. Szymon Serowiecki: Thank you, Operator. Appreciate you joining us for today's call. Joining me here today are Dr. Denis Phares, Dragonfly Energy Holdings Corp.'s Chairman, President, and Chief Executive Officer, and Wade Seaburg, Chief Commercial Officer. Tyler Borns, Chief Marketing Officer, is also available for Q&A. Before I turn the call over to Denis, I'd like to make a brief statement regarding forward-looking remarks. During this call, the company will be making forward-looking statements within the meaning of The United States Private Securities Litigation Reform Act of 1995 based on current expectations. These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Actual results may differ due to factors noted in the press release and in periodic SEC filings. Management will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release on the company's website. Note that all comparisons that will be discussed today are on a year-over-year basis unless otherwise noted. I'll now turn the call over to Denis. Denis Phares: Thank you, Szymon, and thank you everyone for joining us on this Friday afternoon. I know this is an unusual time for an earnings call, but as many of you have seen, we have had an exceptionally busy and productive period leading up to today's announcement. In the third quarter, we continued our return to strong year-over-year revenue growth with sales increasing 26% to $16 million. Our gross margin expanded by over 700 basis points to nearly 30% driven by operational improvements and positive product mix. Together with disciplined cost control, this led to a $3.3 million improvement in adjusted EBITDA. Just as importantly, this was a quarter defined not only by financial performance, but by business execution. Beyond our financial results, we successfully executed a comprehensive capital raising and debt restructuring that fundamentally reshaped our balance sheet and greatly improved our liquidity. Since July, we raised approximately $90 million in gross proceeds through three unstructured common equity offerings. Then in early November, we finalized a transformative restructuring of our term debt. This restructuring of our debt included a $45 million prepayment, $25 million of debt converted into preferred equity, and the forgiving of $5 million outright. As a result, our total debt principal now stands at only $19 million, which carries a significantly lower interest rate and extended covenant flexibility through 2026. Achieving this level of balance sheet improvement in just a few months reflected strong execution and confidence from both our lenders and investors. These decisive actions represent an important inflection point for Dragonfly Energy Holdings Corp. In addition to the financial benefits, we believe our improved balance sheet sends a strong signal to current and potential customers about the company's stability and long-term financial health as our previous financial condition influenced some customer decisions and adoption timelines. With these actions behind us and a strengthened balance sheet, we can now dedicate more time and resources to business growth. In short, we have established a much stronger financial foundation and significantly enhanced our capital structure. We are now positioned to allocate resources toward near-term revenue opportunities, strategic investment in our proprietary technology, and continued expansion into adjacent markets. For the first time as a public company, we feel we are playing offense. Now I'd like to turn the call over to Wade to discuss our activities and accomplishments in our key end markets. Wade? Wade Seaburg: Thanks, Denis. I'd like to focus on the strong momentum we are building in our OEM business and how our strategic approach is driving results in our key markets. In the RV market, we expanded our OEM footprint through several notable partnerships. Our partnership with Airstream, which we announced on our last call, continues to gain momentum. Battleborn batteries are now standard across Airstream's 2020 motorized models, reinforcing our position as a trusted supplier in the premium RV segment. We also announced two new important partnerships during this quarter. In August, we announced our partnership with Awaken RV, a newly launched manufacturer founded by industry veteran Scott Hubbell. Awaken selected Battle Born Batteries as the standard lithium power solution across their entire debut lineup of molded fiberglass trailers, recognizing our ability to deliver the safe, reliable, and long-lasting power that off-grid travelers demand. Then in September, we expanded our long-standing partnership with Ember RV, making Battle Born batteries standard across its 2026 Overland series with factory-installed systems delivering up to seven kilowatt hours of power. Ember has relied exclusively on our batteries since their founding in 2021, and this latest expansion demonstrates their continued confidence in our technology and our ability to adapt to continuously evolving OEM needs. Our RV partnerships span premium brands like Airstream, innovative new entrants such as Awaken RV, and established partners like Ember RV, underscoring our position as a leading provider of high-performance lithium power solutions across all market segments. Importantly, while the overall industry remains challenged, we are consistently gaining market share through deepening integration with existing partners and wins with new manufacturers. Turning to heavy-duty trucking, we continue to gain traction in a market where current capital investment remains constrained. Several fleets that completed pilot programs have expanded into additional units after experiencing measurable gains in idle reduction, fuel savings, and driver comfort. In particular, we recently began receiving production orders from a large nationally recognized fleet following a long-term pilot of our lithium power systems designed for idle reduction and hotel load support. These orders reflect the continued expansion of our solutions into real-world operations, with meaningful customer validation emerging from pilot programs. Expect to make an announcement soon. Our collaboration with PACCAR, one of the most respected commercial truck manufacturers in the world, and the only American-owned Class A truck manufacturer, is another important milestone in this segment. Earlier this year, PACCAR completed independent testing of our lithium power systems at their technical center. The systems were evaluated under the worst-case idle reduction conditions, and the results formed the basis of a jointly coauthored white paper focused on practical lithium power solutions that reduce idling, fuel costs, and maintenance for Class eight fleets. We debuted the white paper at the Battery Show, where it was reviewed by industry technology leaders, and it has continued to attract attention across the sector. At the ATA MCE Conference in October, it became a frequent topic of discussion among carriers and system integrators searching for commercially viable electrification solutions that can withstand real fleet demands. We believe this collaboration provides credible third-party validation of our technology under demanding conditions, and it has increased our visibility with large fleet operators who are exploring practical and cost-effective paths to electrification. As we have said before, we believe this significant adoption in heavy-duty trucking is a matter of when, not if, with growing validation from respected OEMs and leading fleets. We believe Dragonfly Energy Holdings Corp. is well-positioned to capture meaningful share as this market turns. Now I will turn the call back to Denis to discuss key technology developments, third-quarter financial results, and our fourth-quarter outlook. Denis Phares: Thanks, Wade. Our commercial traction aligns with continued advancements in our technology platform. During the quarter, we expanded our intellectual property portfolio with two newly granted United States patents. The first strengthens our proprietary DragonFly intelligence platform and enables more robust data exchange, improved system reliability, and advanced performance across mobile and stationary applications. The second patent advances our wake speed charge control technology and supports high-power vehicle-to-trailer charging and broader system integration. With approximately 100 filed, pending, or granted patents, our IP portfolio reinforces our evolution into a complete power systems provider. I also want to reinforce our domestic manufacturing capabilities, which continue to differentiate Dragonfly Energy Holdings Corp. in today's volatile trade environment. With final assembly completed at our Nevada facility, we maintain greater control over quality, cost management, and production timelines. During the quarter, we received recognition of our domestic manufacturing capabilities through a $300,000 grant from the Nevada Tech Hub. This non-dilutive capital is supporting modernization initiatives, including upgrades to key manufacturing lines, and is expected to generate six-figure annual savings while enhancing efficiency and scalability. As a Nevada-based company with a 400,000 square foot manufacturing facility in Reno, we are proud to contribute to the state's vision of building a complete lithium loop from domestic battery manufacturing to recycling. Now turning to our third-quarter results. Net sales grew 26% year-over-year to $16 million, reflecting a 44% increase in OEM net sales. Within our OEM segment, adoption trends in our core RV market remain healthy. Existing partners are integrating our solutions across additional model lineups while we continue to add new manufacturers to our customer base. Net sales to DTC customers totaled $5 million compared to $5.2 million, reflecting continued macroeconomic headwinds. Third-quarter gross profit increased an impressive 65% to $4.7 million, with gross margin expanding 710 basis points to 29.7%. This substantial margin improvement reflects increased volumes, product mix, and operational efficiencies achieved through our corporate optimization program. Operating expenses decreased to $8.5 million from $8.9 million. Net loss was $11.1 million versus a net loss of $6.8 million, and net loss per share was $0.20 compared to a loss of $0.98 per share. Adjusted EBITDA improved to negative $2.1 million from negative $5.5 million, reflecting continued strength in the OEM segment and gross margin expansion. Turning to our outlook for 2025. We expect net sales of approximately $13 million, representing a growth of approximately 7% year-over-year in our seasonably slowest quarter. We are forecasting adjusted EBITDA of approximately negative $3.3 million. While we had initially targeted adjusted EBITDA breakeven by year-end, we have made substantial progress toward this objective against a much more challenging backdrop than we anticipated, characterized by a volatile tariff environment that extended the freight recession, macroeconomic uncertainty, and the government shutdown that impacted our industrial customers, some of which rely on government funding. Despite these challenges, we have fundamentally strengthened our balance sheet and expanded our OEM footprint, providing a solid foundation for execution in 2026. We remain confident in our ability to achieve profitability as we continue executing on our growth initiatives. To summarize, this was one of the most strategically important quarters in our company's history. We strengthened our balance sheet, secured meaningful validation in heavy-duty trucking, expanded OEM penetration, and improved our margin profile. These achievements reflect disciplined execution across our commercial, operational, and financing strategies. With a stronger financial foundation and real momentum across our end markets, we are well-positioned to capture the opportunities ahead. We remain focused on operational discipline, margin expansion, and executing against a clear strategy that moves us toward profitability, and we are confident in our ability to create long-term shareholder value. Operator, we would like to open the call to questions. 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 2. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from George Gianarikas of Canaccord Genuity. Your line is already open. George Gianarikas: Hi, everyone. Good afternoon. Thank you for taking my questions. Maybe the focus first just on the guidance a little bit for Q4 as to which segment of the business is dragging down, like sequentially the revenue? Is it the OEM business that's sort of impacting the Q4 outlook? Thank you. Denis Phares: Hi, George. Thanks for the question. Yeah. It's an interesting economic environment we're in right now. And I would say, in terms of our OEM business, Q4 is always the slowest quarter by seasonality. We've got a number of days off on the holidays. So that's not unexpected. There may be a little bit less than what we expected in the OEM segment, but really, what's happening is we don't have as much visibility in the DTC segment. And DTC is typically strongest in the fourth quarter. We've got the Black Friday sales coming up. And given the macroeconomic conditions now and the low consumer sentiment, we're just trying to be cautious because we really don't have a lot of visibility there. Also included in the DTC segment, we have a number of industrial customers that have basically shut down due to the government shutdown. So just a number of things really led to us being a little bit more cautious with our guidance. George Gianarikas: Right. And maybe assuming a return not asking for '26 guidance necessarily, but assuming a normalization, the consumer is it fair to say we can look for significant growth in 2026? And how are you thinking about the year for us with the form and shape of 2026? Denis Phares: Yeah. We're pretty confident about 2026. Not only do we expect more of a return to normality, but we're also expanding into those new segments. So there's not a lot. For example, the trucking business that we're starting to break into right now is going to be the primary growth driver in 2026 for us. So obviously, when you're growing from a very low number into a completely new big business segment, that's where we expect to be the most tangible growth. George Gianarikas: Got it. And in terms of can you help us sort of right-size our mind in terms of where the balance sheet where the cash sits today after these transactions, where the share count sits today, to understand how to sort of have a real-time snapshot of your assets and your share count. Denis Phares: Well, I mean, my goodness. It's night and day from where it was. You know, our balance sheet, quite frankly, was a significant hindrance to us in terms of business growth. And I'm not even talking just our inability to invest as much as we wanted in near-term growth opportunities. But, you know, a lot of these new fleets, for example, or new customers that are these large fleets, they're public companies. And, obviously, they're going to look at our balance sheet, and that's going to influence their decision. And so everybody likes the products. Everybody knows we're an innovative company, and it's really difficult for them to really commit the way that it has been. And now with this turnaround, you know, for the first time as a public company, we've been able to alleviate the going concerns. It really puts us in a completely different situation, allows us to really invest in the growth that we've been expecting over the last, honestly, twelve months. George Gianarikas: Maybe just to understand the numbers though, Denis. Like, how much cash do you have on the balance sheet now? Because these transactions happened after the end of the quarter. So can you just sort of update us on the proper share count for our models, proper cash for our models as Denis Phares: So there's about 125 million common shares, 121 million shares. And a pro forma cash balance after the debt pay downs and everything is on the order of $30 million. George Gianarikas: Oh, $30 million. Okay. Denis Phares: Right. George Gianarikas: And maybe just to talk about be my last question. But some of the growth initiatives that you're able to put in place now that the balance sheet has been fixed essentially? Like, what are the sort of things that you were able to do from a customer perspective to expand your and accelerate your growth in 2026? Denis Phares: Well, for example, we've had a pretty lean outside sales team. And we've been trying to expand into these large markets, the trucking market, for example. But also we talked a lot about the oil and gas market for a long time. We have we believe the only Class one, DIV2 lithium-ion battery certification on the market. And we have not been able to invest in growth into that segment, which we believe is an enormous opportunity. And you know, there's been changes in the past. There were changes in how natural gas is treated. But nevertheless, even though it affected what we were doing in terms of methane reclamation, there are still large opportunities for storage in that segment because it's primarily dominated by lead-acid batteries. So there's a ton of meat on the bone that we really haven't been able to invest in in terms of specifically manpower. But also, we've been able to invest more in product development as well. And that's really where we put a lot of our cash this year to really try to get that new OEM business and try to accelerate trucking. So our product development will also be able to accelerate with new resources. George Gianarikas: Thank you so much. Congratulations on all the good work you did. You've done over the last couple of months. Denis Phares: Thank you, George. Operator: Your next question comes from Chip Moore of Roth Capital. Your line is already open. Chip Moore: Hey, good evening. Hey, Denis and Wade. Thanks for taking the question. Denis Phares: Hi, Chip. Chip Moore: Hey, Denis. You know, I wanted to echo congrats on debt restructuring, right? Clearly, understandable that that's been a hindrance on the commercial side. So maybe just expand on your comments about facing some headwinds there. I know it's early, right? It's only closed a week ago. So are you thinking about early feedback from potential customers, whether it's fleets or OEMs? Is this more so think about capital budgets for next year? And with this comfort, that really helps? Just what are the conversations you're having? Denis Phares: Well, it was like a flip of the switch, really. I mean, we were starting to get POs now. I mean, you've got to consider the fact that as a vendor, our balance sheet is going to be a large part of what customers look at. It's not just the product and the benefits of the product, but also our long-term viability as a company. And I think that what we've been able to accomplish in a very short period of time has basically taken that out of the conversation. And now the focus is on the product itself and on the ROI and driver comfort and the ability of fleets to operate more efficiently now. You know? It really is a game changer in terms of the fact that the conversations have completely changed over now to how do we get going with these projects. Chip Moore: That's great. And you know, a follow-up there, Denis, maybe you talked about EBITDA breakeven. Obviously, you need some more volume, but it sounds like the outlook here next year is getting better. You'll also have a bit lower interest expense as well. Right? So just you know, any more thoughts there? And then, you know, as you do hit breakeven, how are you thinking about some of the other growth areas, dry electrode, and some of those any update there? Denis Phares: Yeah. So you're right. We need more volume to get back to where we anticipated we would be. But the stage is set because we are getting better gross margins. We're operating more efficiently. We've gone through an optimization program to really set the stage for our ability to be profitable again. So all these things are very, very good things, and driving volume is our number one priority, and that's how we get back to profitability. Of course, we continue to make progress on the dry electrode. And even on the solid-state chemistries, but the top priority is getting back to profitability. And we're not going to jeopardize the long-term health of the company by overspending on those initiatives. But we are making progress. We continue to make progress. And, of course, with the extra resource that we have, that progress will be accelerated. Chip Moore: Very clear. Thank you. And maybe just the last one, just the government shutdown impacts, I imagine it's not massive, but has that abated here as things have opened up? Hopefully, we don't get another one shortly. But yeah. Thanks. Denis Phares: I think it's a little early to see what the overall ramifications are since we just opened up again. But we do have important customers that were unable to follow through with some relatively meaningful projects because of the government shutdown. So we're keeping an eye on that and obviously, we've taken that into consideration with the guidance for this quarter. Chip Moore: Okay. Thanks very much. Appreciate it. Denis Phares: Thank you, Chip. Operator: There are no further questions at this time. I would hand over the call to Denis Phares for closing remarks. Please go ahead. Denis Phares: Thank you for everyone joining us today. Look forward to sharing additional details with all of you in the coming quarters. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
Operator: Greetings. And welcome to Sidus Space, Inc.'s 2025 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note this conference is being recorded as of today, November 14, 2025. I will now turn the conference over to Adarsh Parekh, Chief Financial Officer. You may begin. Adarsh Parekh: Good evening, everyone. And thank you for joining us for Sidus Space, Inc.'s 2025 third quarter earnings conference call. Joining us today from the company is Carol M. Craig, Chairwoman and Chief Executive Officer, and myself, Adarsh Parekh, Chief Financial Officer. During today's call, we may make certain forward-looking statements. These statements are based on our current expectations with respect to the future of our business, the economy, and other events, and as a result, are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the forward-looking statements made on this call. These factors include our ability to estimate operational expenses and liquidity needs, customer demand, supply chain delays, including launch providers, and extended sales cycles. For more information about these risks and uncertainties, please refer to the risk factors in the company's filings with the Securities and Exchange Commission, each of which can be found on our website, www.sidusspace.com. We also expect to discuss certain financial measures and information that are non-GAAP measures as defined in the applicable SEC rules and regulations. Reconciliations to the company's GAAP measures are included in the management discussion and analysis of financial conditions and results of operations section within Sidus' 10-Q. Listeners are cautioned not to put any undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. At this time, I would like to turn the call over to Carol. Carol, please go ahead. Carol M. Craig: Thank you, Adarsh. Good evening, and thank you all for joining us. On our second quarter earnings call, we shared that Sidus Space, Inc. is evolving into a diversified space and defense innovator. Not just a satellite manufacturer, but a company with capabilities that span the full mission life cycle, from low Earth orbit to the lunar environment and beyond. In the third quarter, we continued executing on this strategy by expanding our vertical integration, advancing our LizzieSat constellation, and strengthening partnerships that support both commercial and defense customers. Our goal remains clear: to deliver full-spectrum solutions from design and manufacturing to on-orbit operations and data services, with the agility to meet evolving mission requirements. We are building a company designed for long-term sustainable growth driven by innovation, dual-use and software-defined satellites, all-domain computing solutions, and recurring data-as-a-service opportunities. Over the past eighteen months, we have proven our ability to design, build, launch, and operate advanced multi-mission satellites with extended design life and complex functionality. These are not CubeSats; they are precision-engineered microsatellites built to deliver mission-critical performance. Our vertically integrated model enables scalability and efficiency, allowing us to adapt our manufacturing facility quickly to new priorities. Like our products, our operations are designed for adaptability and speed. Sidus Space, Inc. is already a trusted part of the space supply chain, and our offerings now extend across civil, defense, and commercial markets. This diversification strengthens our ability to support national security programs, including Golden Dome, SDA's proliferated architecture, and NASA's Artemis initiatives. Our multi-mission all-domain approach represents a new model for how space companies operate, combining agility, integration, and strategic focus to meet diverse customer requirements. For those who are new to our story, Sidus Space, Inc. has consistently executed while adapting to a very dynamic environment. During the third quarter, we navigated uncertainty around government funding and shifting federal budgets. However, our diversified revenue model, which spans commercial, defense, and civil sectors, provides a built-in hedge against external risk. Having led through volatile environments such as this for over twenty-five years, I am confident that Sidus Space, Inc. is built to remain resilient and adaptable regardless of the external landscape. Over the last couple of years, we have strategically invested in our infrastructure, technology, and team to build capabilities comparable to larger competitors but with far less capital. The result is a lean, efficient company with a competitive cost structure. An example of that is our software-defined LizzieSats with their five-year design life and redundant systems, delivering high performance at $5 million or less per 100-kilogram satellite, including multiple sensors, and offering strong value for government and commercial customers. During this quarter, we made significant advancements towards completion of the Mobile Launch 2 contract. This program was originally approximately a $4 million contract that expanded to over $8 million over the last few years due to changing requirements and supply chain dynamics. Over nearly four years, we have built and will have delivered 57 complex electronic cabinets for installation at the Kennedy Space Center. With this program now nearing completion, we expect improved gross margins and stronger revenue visibility as well as a reconfigured facility ready for expanded satellite and defense manufacturing. At Sidus Space, Inc., we believe our vertically integrated model sets us apart from our competition. Few U.S. companies can design, manufacture, test, and operate their space hardware entirely in-house while maintaining lean operations. This vertical integration gives us unmatched speed, control, and flexibility, enabling rapid entry into new markets, development of recurring revenue streams, and leadership in the emerging multi-domain space economy as well as the all-domain defense industry. Our recent on-orbit progress continues to validate our approach. We completed commissioning of the AIS sensor on LizzieSat-3 and established communications with the customer site. We continued upgrading our flight software, integrating new algorithms, and activating additional payloads aboard LizzieSat-3. These advances strengthen our constellation architecture and accelerate technology maturation across all past and future LizzieSat-driven satellites. And we successfully demonstrated that our satellites can support multiple sensors on a single versatile platform with the expectation of delivering fused data products that will increase mission value for maritime, environmental, defense, and commercial customers. Our LizzieSat platform is increasingly software-defined, enabling rapid in-orbit reconfiguration and performance optimization. The next-generation hyperspectral and multispectral cameras that we have selected to deliver our data services can adjust spectral bands and imaging modes dynamically, allowing a single satellite to serve multiple missions from maritime awareness to environmental monitoring to defense intelligence. Combined with our onboard AI and our FeatherEdge edge processing suite, LizzieSat is designed to learn and adapt in orbit, improving data quality and operational efficiency over time. As global demand rises for resilient, secure, and cost-effective space capabilities, we believe Sidus Space, Inc. is well-positioned to meet that need. Our modular, multi-use solutions spanning satellites, onboard AI, and VPX SOSA line electronics enable customers to rapidly deploy and reconfigure systems for maritime, environmental, defense, and commercial missions. This flexibility shortens development cycles, reduces costs, and increases mission readiness. A key differentiator is the United States and allied governments prioritize distributed software-defined architectures. This quarter, we completed two successful capital raises with funds to be invested in commercializing all-domain product lines, expanding the LizzieSat constellation with LizzieSat-4 and LizzieSat-5, and advancing our Orlaith AI ecosystem. We also progressed our Fortis DPX computing suite designed for aerospace, defense, energy, robotics, and autonomous systems. The first three products, the Sidus single board computer, FeatherEdge 248 VI Edge computer, and precision navigation timing module are on track for year-end validation. The Sidus single board computer offers on-orbit and terrestrial edge computing. The FeatherEdge 248 VI features artificial intelligence and machine learning processors designed for extreme environments and size-constrained applications. The precision navigation and timing module integrates atomic clocks, M-Code GNSS, and IMUs for GPS-denied operations. This modular Fortis platform establishes a scalable all-domain command and control architecture complementing our space platforms and is expected to contribute meaningfully to revenue starting in 2026. From a program execution standpoint, we remain focused on expanding our technology portfolio and delivering solutions aligned with our long-term vision and mission. A key element of reaching our upcoming milestones is completing the Mobile Launcher 2 contract, which will allow us to shift additional resources toward higher-margin satellite and data programs. As noted earlier, we currently have two additional LizzieSat spacecraft in production for a planned late 2026 launch. These satellites will feature advanced software-defined imagers and increased onboard processing capability. Additionally, we are hosting multiple customer technologies. Customers for these missions and related prelaunch revenue include The Netherlands Organization, Lone Star Holdings, and additional data customers that we have not yet announced. Achieving this initial fast launch cadence was critical to our ability to learn, adapt, and advance our technology in real-time. In just over a year, we launched three Sidus-designed, Sidus-built, hybrid 3D-printed satellites with onboard AI and multiple sensors at a pace that allowed us to rapidly integrate lessons learned into each successive mission. Every launch informs the next, enabling continuous improvement, faster integration, and greater scalability across our architecture. This rapid cadence of innovation is not limited to low Earth orbit. It is foundational to how we are expanding capability across all domains and all orbital classes. Looking beyond LEO, we are developing a lunar-capable LizzieSat platform featuring higher power, advanced radios, and enhanced propulsion. Few U.S. companies can offer this level of multi-domain, multi-orbit versatility. We believe it positions Sidus Space, Inc. as a truly differentiated supplier for the emerging lunar and cislunar mission landscape. In summary, Sidus Space, Inc. continues to execute on its plan to deliver next-generation technologies from dual-use multi-mission satellites, all-domain computing systems, to AI-driven data architectures. Our progress this quarter reinforces the foundation for long-term growth, recurring revenue, and sustained leadership across the expanding space and defense ecosystem. I'll now turn the call over to Adarsh for the financial update. Adarsh Parekh: Thank you, Carol. At Sidus Space, Inc., we continue to build a scalable, vertically integrated company across space, technology, and artificial intelligence. Our focus remains on operational excellence, rapid innovation, and delivering cost-effective, high-impact solutions for our customers. Our investments to date have centered on expanding our satellite constellation, advancing innovation, and implementing a robust ERP system to support scale and profitability. Momentum from 2024 and 2025 carried into 2025, which reflects both our transition to commercialization of dual-use multi-domain products and the near-term financial impacts of scaling a deep tech space-based enterprise. During 2025, we continued our progress in establishing Sidus Space, Inc. as a mission enabler. Our rich space and defense heritage positions us to take advantage of opportunities across multiple sectors, with a combined focus on commercial space innovation and national defense priorities. Let's review our results starting with the nine months ended September 30, 2025. Total revenue for the first nine months of 2025 was approximately $2.8 million compared to $3.8 million in the same period in 2024. While this reflects a decrease of about $1 million or 27%, the change aligns with our strategic shift away from legacy contract work toward higher-value commercial space and AI-driven solutions. This repositioning is intentional and expected to generate more sustainable recurring revenue in future periods. The impact of milestone-based revenue recognition also influenced year-over-year performance and comparison. Cost of revenue rose to approximately $8 million, a 48% increase from $4.6 million during the first nine months of 2024. Key contributors to the cost of revenue included a $1.6 million increase in depreciation tied to satellite and software investments, a changing contracts mix requiring greater material and labor inputs, ongoing global supply chain pressures impacting manufacturing operations. Gross loss for the period was approximately $4 million compared to a loss of about $719,000 in the same period last year. This increased gross loss reflects increased depreciation, which is non-cash and directly tied to recent investments that position us for future revenue generation, the transition away from legacy high-margin contracts as we focus on long-term value-added offerings, a shift in contract structure, which is expected to yield greater returns in future quarters. When adding back satellite-related depreciation, gross loss for the period was $1.2 million compared to a profit of $485,000 in the same period last year. Selling, general, and administrative expenses totaled $13 million compared to $9.9 million in the prior year. This $3.1 million increase supported key growth initiatives, including strategic headcount additions to support scale and expanded employee benefits to remain competitive. Equity-based compensation and performance-based bonuses initiated during 2025 increased mission operations expenses to support our growing constellation, infrastructure investments in software tools, depreciation expense, and launch rebooking fees, as well as payoff of our Decathlon note payable as described further in the notes to the consolidated financial statement. To provide a broader view of our performance, we also report adjusted EBITDA, a non-GAAP measure we use internally to guide strategic decision-making. Adjusted EBITDA loss for the first nine months was $12.6 million compared to $8.3 million in the same period last year, reflecting ongoing investment in scaling our platform. The reconciliation table, interest, depreciation, fundraising, severance, and equity-related expenses, is included in our Q3 2025 earnings release. For the three months ended September 30, 2025, total revenue reached $1.3 million, a 31% decrease compared to about $1.9 million in Q3 2024. This reduction was primarily due to the timing of fixed-price milestone contracts, including projects executed through our related party, Craig Technologies. Cost of revenue for the quarter rose to $2.6 million, up 42% from the prior year. This increase reflects the $501,000 increase in satellite and software-related depreciation, higher input costs from more complex contracts, ongoing global supply chain cost pressures. Gross profit for Q3 2025 was a loss of $1.3 million compared to a profit of $38,000 in Q3 2024. The increase in gross loss was primarily due to higher depreciation from recently capitalized assets, which are essential to future revenue streams, contract mix evolution, reduced contribution from legacy services as we transition to higher-margin recurring revenue models. When adding back satellite-related depreciation, gross loss for the period was $277,000, compared to a profit of $559,000 in the same period last year. SG&A expenses for the quarter totaled $4.3 million, up from $3.2 million in Q3 2024. Key drivers included strategic headcount growth aligned with our move to higher-value offerings, expanded mission operations for satellite support, increased software infrastructure investment, accrued equity compensation, employee bonuses, and higher depreciation expense. Adjusted EBITDA loss for Q3 2025 was $4 million, a 62% increase from Q3 2024. The change reflects continued scaling efforts and is supported by full reconciliation details in our Q3 2025 press release. Net loss for the quarter was $5 million compared to $3.9 million in the same period of the prior year. As noted, this increase is primarily tied to strategic investments in infrastructure, personnel, and operational capacity, as well as non-cash depreciation related to our expanding satellite constellation. Turning to the balance sheet, as of September 30, 2025, Sidus Space, Inc. had $12.7 million in cash compared to $15.7 million as of September 30, 2024. During the quarter, we completed two public offerings of 16.9 million total shares of Class A common stock, from which Sidus Space, Inc. received approximately $15.5 million of net proceeds. As we move forward, we continue to manage cash conservatively while making strategic investments in our next-generation satellite builds and high-growth product lines. Additionally, by Q4, we expect to implement meaningful cost reduction activities and operating efficiencies to support long-term profitability. With that, I'll hand the call back to Carol for closing remarks. Carol M. Craig: Thank you, Adarsh. The milestones we achieved this quarter are more than operational wins. They create pathways to future revenue across commercial, civil, and defense markets. Each satellite launch, hardware delivery, and AI demonstration strengthens our track record and reinforces Sidus Space, Inc. as a trusted partner for critical missions. Sustaining that momentum requires constant innovation, which is why we continue to invest in internal R&D, advance new technologies, and grow our patent portfolio to protect our IP and increase the value of our platform. Our technologies, designs, and capabilities now span the full spectrum of space, from LEO to GEO to lunar missions, expanding our relevance and reach. Whether hosting government payloads in orbit, enabling Edge AI for real-time data delivery, or contributing to long-term lunar infrastructure, we are building a presence that touches every layer of the evolving space economy. Sidus Space, Inc. is not just building satellites; we are enabling the next generation of real-time intelligent data connectivity by linking sea, ground, air, and space into one integrated domain. This sea-to-space diversification strategy reduces reliance on any single market segment and is central to driving long-term sustainable growth. Our mission remains the same: deliver reliable, scalable, and intelligent solutions from initial design through deployment. Our vertically integrated model and culture of innovation give us a strategic advantage, allowing us to innovate faster, control quality across the life cycle, and bring advanced technologies to market more efficiently than traditional aerospace providers. And as you have heard today, Sidus Space, Inc. continues to shift from R&D and infrastructure build-out to commercialization and revenue generation. We have launched and begun commissioning our third satellite, established the foundation for a scalable micro constellation, and introduced a new generation of rugged dual-use technologies. Lean operations allow us to operate with lower fixed costs, offer competitive prices, and pursue strategically valuable contracts that may be overlooked by larger players. As we continue to build meaningful momentum and a stronger foundation for the future, we have strengthened our balance sheet, launched high-potential new platforms like Orlaith and FortisVPX, and are positioned to generate diversified revenue in 2026. The path forward is ambitious, but it is the right path for unlocking sustainable growth. Our all-domain multi-revenue model enables us to adapt quickly, serve diverse customers, and scale with demand. And now I would like to address some of the questions we received. The first one, how should we think about the commercialization timeline for Fortis DPX? While our first three VPX products remain on track for release to production in January 2026, we expect customer integrations and revenue contributions to begin shortly thereafter. Interest in the Fortis product line spans from defense, aerospace, robotics, and autonomous systems. Second question, can you update us on the commissioning timeline for LS-3 and how additional satellites change your revenue model? The LS-3 commissioning is progressing well. Because there are multiple payloads and sensors along with our integration of updated and enhanced software, it is not a quick process. But our satellites have a five-year design life and were manufactured with that timeline in mind. The additional satellites in production, currently LS-4 and LS-5, expand hosted payload capability, data ability, and on-orbit AI throughput. We have improved the data rates and added software-defined subsystems as well. Because of the nature of the software-defined imagers, we expect increasing data contributions from more industries and customer missions from LS-4 and LS-5. Next, are customers already evaluating FortisVPX or FeatherEdge? Yes. We have active early access programs with both government and commercial customers for our proven FeatherEdge platform, and several have already begun transitioning toward multi-year hardware agreements. We have also received positive market feedback in response to our conceptual introduction of Fortis VPX. What does your geographic revenue mix look like going forward? Well, we see strong momentum internationally, especially among allies seeking sovereign U.S. origin multi-domain capabilities. Within the U.S., greater budget clarity is helping stabilize and improve program timelines, which we view as an upside. Next question, how should we think about backlog composition? Our backlog is increasingly being driven by VPX SOSA hardware, engineering services, and LizzieSat integrations. These are multi-year high-visibility contracts with strong alignment to defense modernization priorities. How does the capital raise position the company? The recent capital raise funds a significant portion of our near-term product commercialization, LizzieSat scaling, and AI development. The capital is intended to accelerate innovation and fund growth. And a popular question is, can you expand on alignments with the DOD's Golden Dome vision? The DOD's Golden Dome vision centers on creating a resilient, distributed, multi-layered sensing and communications architecture that spans all domains: air, land, sea, space, and cyber. We believe Sidus Space, Inc.'s technology roadmap aligns directly with that need. Our strengths in autonomy, rapid deployment, ruggedized edge computing, and multi-mission sensing allow us to deliver space-based nodes that are capable of operating as part of a larger adaptive defense network. We also believe that our LizzieSat platform's ability to host multiple sensors, process data at the edge, and push actionable intelligence to users in real-time makes it ideally suited for Golden Dome-style architectures that value speed, survivability, and interoperability. As the department moves toward more proliferated and software-defined systems, we see increasing opportunity for Sidus Space, Inc. across both unclassified demonstrations and classified programs that require adaptable, resilient, and rapidly upgradable satellites. And lastly, what is the potential market for your lunar-capable Lizzie Lunar platform? NASA's Commercial Lunar Initiative and allied nations are all expanding lunar exploration and programs. There are very few U.S. companies that can provide smaller, cost-effective lunar buses, and we believe our early mover position creates a strategic opportunity. As we have already demonstrated, we have been selected to build lunar satellites for commercial customers. And with that, I want to thank our employees, partners, and shareholders for your continued trust and support. Look forward to delivering strong progress in the months ahead. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.
Luca: Good day everyone and thank you for joining us. And welcome to the Cineverse Corp. Second Quarter Fiscal Year 2026 Financial Results Conference Call. My name is Luca and I will be your moderator today. After today's prepared remarks, we will host a question and answer session. And star six to unmute. I would now like to turn the call over to Gary S. Loffredo, Chief Legal Officer, Secretary, and Senior Advisor for Cineverse Corp. Please go ahead. Good afternoon, everyone. Gary S. Loffredo: Thank you for joining us for the Cineverse Corp. Fiscal Year 2026 Second Quarter Financial Results Conference Call. The press release announcing Cineverse Corp.'s results for the fiscal second quarter ended September 30, 2025, is available at the Investors section of the company's website at cineverse.com. A replay of this broadcast will also be made available at the Cineverse Corp. website after the conclusion of this call. Before we begin, I would like to point out that certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All of the information discussed on this call is as of today, November 14, 2025. And Cineverse Corp. does not assume any obligation to update any of these forward-looking statements except as required by law. In addition, certain financial information presented in this call represents non-GAAP financial measures. And we encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. I am Gary S. Loffredo, Chief Legal Officer, Secretary, and Senior Advisor at Cineverse Corp. With me today are Christopher J. McGurk, Chairman and CEO; Erick Opeka, President and Chief Strategy Officer; Mark Wayne Lindsey, Chief Financial Officer; Yolanda Macias, Chief Motion Pictures Officer; and Mark Antonio Huidor, Chief People Officer. All of whom will be available for questions following the prepared remarks. On today's call, Christopher J. McGurk will briefly discuss our fiscal year 2026 second quarter business highlights. Then Mark Wayne Lindsey will follow with a review of our financial results. And Erick Opeka will provide further details on our business and operating results and new initiatives. I will now turn the call over to Christopher J. McGurk to begin. Christopher J. McGurk: Thank you, Gary, and thanks, everyone, for joining us here today. I'd now like to cover some important business highlights. And then Mark Wayne Lindsey will review our financial performance, then Erick Opeka will cover our operating progress, and new business initiatives in much more detail. We had a slightly down revenue quarter with strong margin improvement. Total revenues were $12.7 million, down 3% from the prior year quarter. During the quarter, we closed a $1.1 million licensing deal for the Toxic Avenger that will be recognized in future periods. With this license fee revenue, the revenues for the quarter would have been $13.4 million, up 5% from the prior year quarter. Operating margins grew by 7% from the prior year quarter to 58%. Net income and adjusted EBITDA in the quarter were impacted by the investments we have been making to build our technology sales force, grow our Matchpoint deal pipeline, and fill and market our theatrical release portfolio. We expect those investments to generate returns over the balance of the year and beyond. At the same time, we continue our intense focus to control costs and leverage the savings and efficiencies of Cineverse Services India to manage SG&A spending. The Toxic Avenger unrated released on August 29 did not perform as well as we hoped at the box office. However, our marketing campaign is helping the film perform very well in the ancillary distribution markets, particularly VOD, physical, and licensing with Amazon and Hulu. And the film will be profitable, with an expected IRR of 40%. We own the domestic distribution rights to this film in all media in perpetuity. And so we believe it will be a strong and valuable addition to our over 66,000 title film library. Now, the performance of The Toxic Avenger unrated is very instructive about the risk-reward profile of our portfolio film strategy. As much so as Terrifier two and three were. Two films that dramatically overperformed everybody's expectations at the box office and then in the ancillaries. Because we keep our all-in acquisition and theatrical releasing costs on our films to less than $5 million each, and because we utilize our fan-centric streaming channels, advertising technology, podcast network, and social media footprint to generate millions of dollars in media value with relatively little out-of-pocket marketing costs, our film portfolio has enormous downside protection. While, at the same time, our strategy sets the stage for upside breakout performances like Terrifier three, which opened to number one at the box office and ultimately did $54 million in ticket sales on opening marketing spend of only $500,000. I can guarantee you that none of our competitors with their traditional film releasing models would have achieved anywhere near a 40% return on investment on the Toxic Avenger unrated. In fact, I am very certain that all of them would have lost money on the release. And our next two releases, Silent Night, Deadly Night on December 12, and Return to Silent Hill, on January 23, 2026, follow the same blueprint to a T. Both are fan-centric IP-based films that have an all-in investment projected to be well below $5 million each. And also below our investment level in the Toxic Avenger unrated. Also of note, our IP-based family film, Air Bud Returns, is nearing the completion of principal photography and continues to generate much buzz on social media, the press, and late-night TV. We expect to release this film in late calendar 2026. Our unique film releasing approach and artist-friendly model have both been attracting more and more quality directors, producers, and agents to approach Cineverse Corp. as a film distribution partner versus the traditional studios and other independents. Nowhere is this more evident than in our announcement last week that we will be releasing the twentieth anniversary edition of Pan's Labyrinth. The horror fantasy masterpiece from acclaimed screenwriter and director Guillermo del Toro, who has had massive recent critical and commercial success with his visionary film version of Frankenstein. Pan's Labyrinth won three Academy Awards and has received over 100 other worldwide film awards. It is widely acknowledged as a classic visionary film with a strong message that is tailor-made for the world today. When it debuted at the Cannes Film Festival, it received a twenty-two-minute standing ovation. The longest tribute in the history of the festival. The film has been invited back to Cannes for a special anniversary presentation next May, which will kick off our marketing campaign for a late 2026 theatrical release, including large formats. We have a multiyear domestic distribution deal in all media on this movie, making it a terrific addition to our film library. And as he stated in his video announcing his partnership with us, Guillermo brought this classic beloved movie to Cineverse Corp. versus the majors and other independent studios because he wanted to take advantage of our unique nontraditional, artist-friendly approach to film releasing. Expect more announcements in the next few months as we meet with more key industry talent and evaluate multiple new film opportunities that fit our releasing model and ecosystem of marketing assets. And we just received an updated third-party valuation of our content library. The library is now valued at $45 million, significantly above the $3.2 million in book value on our financials. This valuation of just one of our key assets is strong evidence of our belief that we remain very undervalued given our current market cap. We also made very strong progress in building out our Matchpoint technology sales pipeline with dozens of potential partners, including large entertainment companies and major studios now actively evaluating our technology. We just recently announced we have already closed four of those deals. And we are also quickly moving forward on our high micro drama joint venture with Banyan Ventures. Preliminarily called MicroCo. With a goal of becoming the domestic market leader of this more than $8 billion rapidly growing worldwide business, we are very encouraged by the response to our plans by potential investors and strategic partners and by the creative community. We also have already received a funding commitment from a leading venture capital firm. So Erick Opeka will speak in more detail on all this in a minute. But now I would like to turn things over to Mark Wayne Lindsey for a financial review. Mark? Thank you, Chris. Mark Wayne Lindsey: As Chris noted, we closed on a $1.1 million licensing deal for the Toxic Avenger unrated that will be recognized in future periods in accordance with current accounting rules. In the prior year quarter, the company recorded $1.6 million from a similar Dog Whisperer license agreement. Excluding these timing effects, performance across the company's core business line continued to show solid underlying growth. For the quarter, we had a slight decrease in revenue, but strong gross margin growth with $12.7 million in revenue, $8.4 million or 3% decline over the prior year quarter, and a gross margin of 58% compared to 51% last year quarter. Materially above our guidance of 45% to 50%. For the quarter, we reported a net loss of $5.5 million and adjusted EBITDA of negative $3.7 million compared to a net loss of $1.2 million adjusted EBITDA of $500,000 in the prior year quarter. The decline in both numbers is primarily the result of SG&A expenses impacted by increased investments in sales, marketing, and technology to support our expanding theatrical and technology initiatives as well as startup costs associated with our newly formed MicroCo venture. We fully expect to see strong top and bottom line results in the remainder of our fiscal year as a result of these upfront investments and in fiscal year 2027 with the launch of MicroCo. We had $2.3 million in cash and cash equivalents on our balance sheet as of September 30, with $5.9 million available on our $12.5 million working capital facility. The decline in cash from year end is directly attributable to the payment of royalties during the quarter, majority of which was related to the Terrifier three two related to Terrifier three and advanced payments associated with our increased theatrical slate. We would also like to highlight the positioning of our current balance sheet with no long-term debt, no acquisition-related liabilities, outstanding warrants have been reduced to 700,000 shares, and $5.9 million available on our capital facility as of quarter end. In addition, our content library evaluation has been finalized reflecting an increase in the value of our library to $45 million compared to the current book value of $3.2 million as of quarter end reflecting material asset value not included on our balance sheet. Finally, coming off of fiscal year with record revenues and strong revenue and gross margin growth, this quarter, we believe the SG&A investment that we have made during the first two quarters of the year will lead to strong top and bottom line results for the remainder of the year. With that, I will turn the floor over to Erick Opeka to discuss our operating and strategic growth initiatives. Erick? Thanks, Mark. Erick Opeka: This was a strong quarter across streaming, distribution, technology, and our emerging businesses. Starting with streaming, total streaming viewers in the quarter reached 143.8 million, up 47% from last year. Total minutes streamed were 3.4 billion, up 45%. Fast minute stream were 3.2 billion of that, up 47%. And SVOD subscribers grew to 1.39 million, a 6% increase year over year. Several of our key channels delivered their best ever quarters in viewer growth. Our Barney channel more than doubled year over year. Dog Whisperer grew nearly 1000%. Screenbox TV increased 32% ScreenBox SVOD is up 27% since the launch of TerrorFire three. With Toxic Avenger unrated, we expect to see the majority of the impact in Q3, the current quarter. Secured a co-exclusive licensing deal with both Amazon and Hulu for the film. And as Chris noted, combined with the surge of direct-to-consumer subscribers on Screenbox, that we anticipate expect a healthy IRR that exceeds our baseline expectations of around 40%. We achieved this while minimizing downside risk through our theatrical model, and we plan to follow the same approach for our upcoming slate of horror, thriller, and independent films. Our Cineverse branded channel has now grown more than 6400% since its relaunch in January, in viewership. This reflects the strength of our fandom strategy and our ability to convert efficiently into long-term users. On distribution, our hybrid model continues to deliver. We are capturing strong licensing revenue while still preserving key windows on our own streaming platforms. That balance allows us to monetize content today while growing long-term recurring engagement and it continues to be a competitive advantage for our company. Turning to advertising. Environment this quarter was mixed. Bill rates in CPM were pressured as the market continues to adjust to large amounts of new inventory that Amazon, Netflix, and others brought online over the last year. Combined with macro concerns and tariff uncertainty, many core CTV advertisers remain cautious which create choppiness across the category. It was no different with us. Even so, our direct sold business performed well and repeat partners keep returning because campaigns on our platforms deliver results. What matters most is that our audience base continues to expand rapidly. Every new viewer and every new fast channel widens the funnel so that when conditions normalize, we have the scale to benefit disproportionately. And we are heading into that period into a period that tends to be favorable. Political spending begins ramping in our fiscal Q4, calendar Q4, and early fiscal Q1 calendar no. Sorry. Early fiscal Q1 calendar Q2. And, historically, that lifts our entire ad business. Easing interest rates should also bring more confidence in budget back in the market. So we are also preparing the next phase of our ad stack with the integration of Synacor, our massive AI-driven metadata repository into three c three sixty. This will allow advertisers to target audiences around specific shows, series, genres, and fandoms with far greater precision. The value prop is simple. Instead of buying a show directly on Netflix, an advertiser can buy the entire audience that loves that show or similar shows across the Internet at lower cost with better attribution. And we believe this will be a major differentiator. Next, turning to technology. Matchpoint had one of its strongest quarters yet. Added more than 20 new customers in the last hundred days, and launched Matchpoint three point o expanded internationally, and are now onboarded with a major Hollywood studio. Also secured new partners in APTN, The Asylum, Spark, and Waypoint, and expanded fast distribution across LG, ANZ, RockBot, and Roku UK. In addition, Matchpoint is currently under evaluation by a second major Hollywood studio as well as a major television broadcaster. As previously stated, these deals require a longer and more complex deal cycle but offer significant recurring revenue opportunities for the company and bring significant market validation which attracts additional large players. The acceleration is being driven by the state of the industry. As consolidation continues, library distribution needs keep increasing. Studios are under intense cost pressure, and everyone is trying to prepare their catalogs for the AI era. Most of the entertainment industry still relies on legacy systems, messy vaults, manual workflows, and antiquated delivery infrastructure that heavily rely on external manual vendors. Methods are no longer viable within this new streaming era as they cannot scale to the massive modern distribution demands. Matchpoint was built for this exact moment. It automates packaging, delivery, metadata, rights intelligence, and AI search into one system. So we are now evaluating strategic partnerships and selective acquisitions could accelerate expansion to ingest catalog transformation, QC, and AI native library preparation. Our goal is straightforward. We want Matchpoint to become the operating system for content libraries worldwide. And finally, MicroCo continues to build momentum ahead of plan, and I want to emphasize micro dramas are not a fad. Our research indicates that at maturity, microdramas could represent up to 20% of professional streaming viewing time. That would make the format central to the entertainment ecosystem and essential for every major streaming platform to be involved with. And we have a leadership team designed to build this category. Jenna Winograde, former president of Showtime, is our CEO. Susan Rovner, who led television at both Warner Brothers Discovery NBC Universal, is our chief content officer. Lloyd Braun, former chairman and president of ABC Entertainment behind hits like Lost and The Sopranos, serves as cofounder and chairman. The industry response has been overwhelming. We are seeing exceptional inbound interest from producers, creators, brands, studios, and institutional investors. The current short form market is fragmented, and no platform integrates professional production, creator tools, AI native work flows, discovery, and monetization. And that is what MicroCo will be designed to provide. We already have significant commitment from a leading venture firm and are actively engaged with additional partners. Developing on our initial development on our initial slate is underway, including live action, creator-driven series, new IP, and franchise-based projects. The platform is being built from day one to be entirely AI native, allowing us to move more quickly and deliver a modern experience. We expect to announce more details soon, including the name, platform features, partnerships, and launch timing. By combining our technology, our AI, and metadata systems, our automation capabilities, our phantom channels, and this leadership team, we believe MicroCo can create significant industry value and meaningful shareholder value extremely rapidly. Across the company, our focus remains the same. We are building for scale, for margin, and for durability. We now have multiple inches of growth that reinforce one another supported by technology, data, and a fast-growing audience footprint. And we feel very well positioned for the next several quarters and for the long term. With that, operator, we can open the line for questions. Luca: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, the first question comes from the line of Daniel Louis Kurnos with Benchmark. Your line is open. Please go ahead. Daniel Louis Kurnos: Yes. Thanks. Afternoon. One for one for Erick. Just Chris, you know, Toxy, not as good in the box, but great in the ancillaries. Obviously, the licensing deal, it is nice to see some of the pay window stuff. Does this influence either your expectations for your upcoming slate based on what happens? Just kind of more of an adjacent category to the traditional, horror And, also, just does it change how you view which films you go after? Obviously, you have your blueprint, but you kind of are it is going to take a little while to sort of settle in to see you know, what fits and and what kind of produces what kind of results. And then for Erick, just on Matchpoint, appreciate the incremental color. Just, you know, want to get a sense on timing of monetization. I know that while you said longer sales cycles, we got a new studio there. Sounds like you guys are looking to also accelerate the growth but it it seems like it is moving along nicely. So just any color you can give us on you know, contribution and sort of where you expect to be, say, like, you know, twelve to twenty-four months from now with Matchpoint would be super helpful. Thank you. So, Dan, this is Chris. Thank you. I will take that first question. Christopher J. McGurk: Well, I think as I said in my remarks, we really believe that Toxic Avenger validated our theatrical releasing strategy as as much as Terrifier two and three did. Because it showed the downside protection, the strength of our ability to market movies in the the ancillaries, as well as theatrical and the utilization of our marketing ecosystem. I will repeat again. I do not think anybody in this business that had released a movie other than us would have got anywhere near 40% IRR. On on that picture. But it is it is outperforming in the ancillaries. I do think one piece of key learning that we we got out of this is all of the other films in our release straight slight are straight down the middle genre pictures, horror pictures, family picture, fantasy now from Guillermo del Toro. This movie, Toxic Avenger, which we know, we picked up the rights forever. For a virtual virtually nothing. Was kind of a mixed genre movie. What was it, a superhero movie, a horror movie, You know, comic book movie? You know, a comedy was a little bit of all those things. And I think if there is one piece of key learning, that we take away from the release is movies like that are difficult to make work theatrically. So we are going to kind of avoid anything that is max of being a mixed genre movie in the future. Erick? Erick Opeka: Yeah. Thanks, Dan. So, first up on basically, we think about Matchpoint, one of the one of the first thing I will I will unpack the the the revenue cycle concept. So and I will and I will also, Tony is also on the call, and he I think he can provide some additional color. But I will first, I will give you so the the big the big picture. As I noted in the call, we are we are seeing a pretty rapid and overwhelmingly positive response to the product as we we take it out broadly to studios, broadcasters, and so on. All of them are seeing incredible margin pressure and, you know, really need to entertain cost cuts and efforts to sort of maintain their margins as, you know, some of those business are level setting, others are maturing, and others are entering a new phase of consolidation technology sort of centricity. So as we see that happen, all of them are expressing significant interest in using tech to to accomplish that. There really are not really you know, there is always been the promise of a unified solution in the market, but none none really exist that do what Matchpoint does. And so we are seeing incredible response think the biggest challenge is obviously number one, as these large companies are are highly bureaucratic and the cycle time from, you know, first conversation to you know, steady state operation you know, in its best incarnation, six months, up to nine months in its longest incarnation. You know, I and and I think I will I will I will let Tony really kind of talk about it more specifically with you know, the studio that we are working with. But other prospects on that front I would also say we are also in a lot of other businesses that have a high degree of cycle time that are are much faster return as you can see, you know, with new management in that unit that is experienced in the industry, we have been able to bring in 20 customers in, you know, in, you know, a little over a quarter and change. I think we are going to continue to see that And then the last thing I will add is is as you noted, we do see an opportunity in the market. You know, most of the competition in this space are at relatively low margins, but have strong established customer bases. So there is a thesis that you know, there there could be either partnership or M&A opportunity in the space that would effectively allow us to take relatively low cost and lower margin businesses you know, in the, you know, in the low twenties op margins to 20 to 30 gross margins and and take them up to the 80 to 90% software gross margins that we could get out of Matchpoint for most of the business lines. Tony, I do not know if there is anything else you want to add on the the sort of the cycle time and the prospect on the larger customer base. Tony Weedor: Yeah. Sure. Thank you, Erick. Yeah. Absolutely. As as reported, a quarter or two ago, we went into the pilot with a major studio. And as you would imagine, given the uncertainty within the Hollywood studio system, which consolidation, several studios being acquired or potentially being acquired It has created a sort of a ecosystem or this inertia within the industry where everyone is a little afraid of moving, not knowing where things are going. But in spite of that, as Erick pointed out, they are all under pressure to reduce costs, grow revenue, into new territories, and launch their services more widely. All of them rely on traditional legacy vendors who do this manually. So time to market is an important factor for them. And that is as we have discussed many times before, that is what Matchpoint excels at. So with the major studio that we just recently onboarded, it took us months just get into the financial systems. We are we are through that. We are in the process of finishing our first order. This was essentially a validation that we can actually do what we said we can do. That is going well. The feedback that we have gotten from the studio is if if this goes as well as they are seeing, they are they are completely interested in expanding the relationship taking away from some of the competing vendors that we are competing against. So what we see is the strength in the automation, the cost savings, the time to market, all the efficiencies that Matchpoint brings to us is a tremendous interest to the studios. At the same time, one of the challenges is what we do is so different that the the the sack and studio that is evaluating what we do, they they they understand what we are doing. But it changes how they do everything. But they see the benefits and and so that is a a process that is taking a little longer. But the upside to that is once we get accepted, this is we are not just a vendor. We really become part of their supply chain. And that is critical for what we are trying to do, where what we will do will be ongoing recurring revenue deep in the plumbing of a major studio. We expect that each studio could bring mid mid seven to low eight figure, revenue per year growing based on expansion. So our goal is as our pointed out, is to really be the operating system for the studio system. We feel there is no one else in the that has anything close. To what we do, and we feel we have a huge competitive advantage. One area that that we are working on is, offering more professional services, custom development, for the studios who are still trying to transition from legacy systems to automation. And that is an area that in the past we have not really focused on because of the high cost and low margin. But when we combine that with the automation, we really feel that we have an all-in-one solution to these studios who need a level of getting them up to speed and in order to leverage the automation that we bring. So with that in mind, I I think the to Erick's point, the feedback we get and have received across the market has been extremely strong and robust. You know, it it is it is I will not even go through all the comments and feedback we get. It it is stellar. And no one has seen anything that, comes close to what we have built. And that gives us a huge, technology moat that, you know, we feel very bullish about the future of Matchpoint. Super helpful. Thanks, guys. Luca: There are no further questions remaining, so I will pass the conference back over to Cineverse Corp.'s Chairman and CEO, Christopher J. McGurk. For closing remarks. Christopher J. McGurk: You all for joining us today and please feel free, if you wish, to reach out to Julie Milstead. With any additional questions you might have. We look forward to speaking to you all again on our next quarterly call. Luca: That concludes today's conference call. Christopher J. McGurk: Thank you very much. Luca: Thank you for your participation. You may now disconnect your line.
Rosalyn Christian: Ladies and gentlemen, greetings, and welcome to the Quantum Computing, Inc. Third Quarter 2025 Shareholder Update Call. At this time, all participants are placed on a listen-only mode. Following management's remarks, the call line will be open for questions. It is now my pleasure to introduce your host, Rosalyn Christian with IMS Investor Relations. Thank you. Yuping Huang: And I want to welcome everyone to the Quantum Computing, Inc. Third Quarter 2025 Shareholder Update Call. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements based on our current expectations and projections regarding future events and are subject to change based on various important factors. In light of these risks, uncertainties, and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. On the call today, we have Dr. Yuping Huang, interim CEO and chairman, and Chris Roberts, CFO. The team will provide an update on the business, followed by a question and answer session. With that, I would like to turn the call over to management. Please go ahead, Yuping. Yuping Huang: Thank you, everyone, for joining us today to hear about QSET's progress in 2025. The past few months have been pivotal for our company. We ended the quarter with a strengthened balance sheet, a growing portfolio of commercial relationships, and a clear disciplined strategy for scaling our technology. To date, in 2025, we have reached over $1.5 billion in capital, and we now have the resources to execute thoughtfully on our long-term vision of putting quantum technology into the hands of people. In the third quarter, we raised $500 million and subsequent to the quarter, raised another $750 million. This raises put us in a very strong position to drive our roadmap forward and make strategic investments in engineering, manufacturing, and sales. As many of you know, QSI's mission has always been centered around building quantum systems that are practical, scalable, and accessible. We're not just developing quantum technologies for laboratories. We are working to make quantum usable for a broader community of innovators, with the ultimate goal of having our technology as ingrained in society as cell phones. This is what sets QSI apart. While many quantum players remain focused on theoretical advances or systems that require complex cryogenic environments, our integrated photonic approach enables room temperature operation, compact form factors, and energy-efficient performance. These advantages not only reduce the cost and complexity of deployment but also make it possible to scale quantum solutions to a wide range of real-world settings, from aerospace and defense to telecommunications, finance, and data security. As the technology matures, we believe the key differentiator will not be who can build the most powerful quantum prototype in isolation, but who can scale quantum reliably and affordably. The challenge ahead is one of engineering and manufacturing execution, and that's where QSI's focus lies today. Our long-term goal is to move from prototype and small batch manufacturing towards volume production, and we see that transition taking shape by the end of this decade. To get there, our current three-year roadmap is focused on refining our processes, scaling small batch production, and expanding our team and facility to position QSI for industrial scale output. In other words, the technology is there. Our quantum machines and chips have been validated across multiple use cases. The next step is to scale the engineering and manufacturing behind them, and we now have the team, resources, facility, and a plan to make that happen. Let me take a moment to highlight some of the key updates from the third quarter. First, on the commercial front, we continue to see growing adoption of our quantum and photonic solutions across research, enterprise, and government sectors. During the quarter, we recorded revenue from our ongoing NASA LIDAR initiative, which uses our Direct3 quantum optimization machine to remove solar noise from space-based LiDAR data. This project represents a significant technical achievement and underscores the real-world value of QSI's quantum computing technology for scientific and environmental applications, as well as our initiatives to drive strong relationships within government programs. We also saw meaningful momentum in our commercial engagements. Following the sale of our ImmuCore reservoir computing device earlier this year to a global automotive manufacturer, in the third quarter, we completed a transaction with a major US financial institute, marking another important milestone in validating our quantum AI and security platforms in real-world settings. Our foundry operations in Tempe, Arizona, also continue to progress. As we have shared previously, this facility, also known as Step 1, is a small-scale manufacturing site designed to qualify processes and to support early customer programs in thin film lithium niobate photonic chips. This is an important first step in our broader manufacturing strategy. Since launch, our team has been refining the production line, expanding our operations staff, and building relationships with early customers across research, government, and commercial sectors. This engagement helps us fine-tune both process quality and device yield. Importantly, we are already in the early stage of planning for Fab 2, which we expect to begin developing over the next three years. Fab 2 will be designed to support higher volume manufacturing and serve as a cornerstone for scaling production to meet growing demand in telecommunications, sensing, and quantum information systems. As we advance this manufacturing strategy, our hiring efforts are ramping accordingly. Over the past quarter, we have added key technical and operations staff to strengthen our execution capabilities, and we expect that trend to continue as we prepare for higher production volumes. We have also continued to broaden awareness of QSI's capabilities within the quantum and photonic communities. Over the past several months, we have been active participants at multiple industry events and conferences, presenting our work and engaging both public and private sector partners. Those events include the IEEE International Conference on Quantum Computing and Engineering, the NYC Quantum Computing Meetup, Quantum World Congress, the Dutch Photonics event, the 51st European Conference on Optical Communication, Quantum Tech Europe, and the Quantum Innovation and Readiness Forum. We also recently joined the Quantum Economic Development Consortium and the Consumer Technology Association, aligning QSI with an expanding network of technology leaders and innovators. These memberships enhance our visibility and influence in shaping the future of quantum computing, cyber photonics, and AI-driven solutions across the consumer technology landscape. In September, we deepened our thought leadership presence in the photonics and AI community through a webinar hosted by Optical titled "Photonic Machine Learning for Time Series Program." The session highlighted how our ImmuCore reservoir computing platform and next-generation photonic architecture address memory and power consumption bottlenecks in modern AI workloads and underscored our thin film lithium niobate foundry capability for high-performance photonic systems. This engagement further expands our credibility in both academic and industrial circles and underscores QSI's increasing visibility as a practical quantum and photonic innovator. We have also been pleased with the increasing level of inbound interest from prospective customers and collaborators in academia and industry. The conversations we are having today reflect the momentum building behind integrated photonics and quantum-ready devices, where QSI has a clear first-mover advantage. QSI's approach positions us uniquely for the next phase of industrial evolution. While the broader quantum computing sector continues to grapple with scalability and stability challenges, our integrated photonics platform operates at room temperature with significantly lower size, weight, power, and cost requirements—the so-called SWAP-C advantages. These advantages become increasingly relevant as global energy constraints and the computational demands of artificial intelligence push existing infrastructure to its limit. We believe that energy-efficient, room-temperature quantum devices represent a critical piece for the next generation of computing, and QSI is positioned to deliver such solutions at scale. Over the next three years, our roadmap priority is small-scale, high-value manufacturing as we refine processes, demonstrate performance across customer applications, and establish supply chain and design partnerships. In parallel, we will be developing the foundation for Fab 2, which will enable volume manufacturing and allow us to bring quantum-enabled devices into wider use across multiple sectors. The quantum era is unfolding faster than most predicted, and QSI is determined to ensure QSI remains at the center of this transformation, delivering technologies that make quantum practical, scalable, and accessible to the world. With that, I will now turn the call over to our Chief Financial Officer, Chris Roberts. Chris Boehmler: Thank you, Yuping. And now let's review the financial results from the quarter. Revenue during our third quarter totaled approximately $384,000 compared to $101,000 in the same period last year. The increase in revenue was primarily due to increases in the number, size, and level of effort on research and development services contracts and custom hardware contracts. We also started to recognize some revenue for cloud-based access to the Dirac 3 quantum optimization system during the third quarter. Looking ahead, the company continues to build a healthy pipeline of sales and partnership opportunities, which we expect will support future growth as customer adoption of our products and technologies continues to increase. Our gross margin for the third quarter increased to 33% compared to 9% in 2024. However, it's important to keep in mind that with a small number of active contracts, some of which involve custom design work, gross margin is likely to be variable from one period to the next. As Yuping mentioned earlier, we have been active in the capital markets and substantially strengthened our balance sheet during the third quarter, closing on a $500 million equity financing in September 2025. As a result, we ended the third quarter with cash and cash equivalents of $352 million and investments of $460 million on our balance sheet at the end of the quarter. After the end of the third quarter, we also closed on an additional $750 million financing in October. As a result of the recent financings, we now have substantial resources to implement our TFLN fabrication and quantum machine development initiatives. In addition to organic growth plans, a key element of our long-term strategy is to evaluate opportunities that could help us accelerate our vision of putting quantum technology in the hands of people. Operating expenses for the third quarter totaled $10.5 million compared to $5.4 million in the same quarter last year. The increase in operating expenses is the result of substantial growth in personnel for research and development, engineering, manufacturing, sales and marketing, and administration as we position the company for long-term growth. We are scaling our organization across the board to support this expansion plan, including all functional areas of the company. As a result, SG&A expense is expected to grow in the near term as we invest in the necessary resources to advance our technology and execution capabilities. The company reported net income of $2.4 million for the third quarter or approximately $0.01 per share compared to a net loss of $5.7 million in 2024. The increase in net income this quarter was primarily due to a gain of $9.2 million from the mark-to-market of a derivative liability plus interest income of $3.5 million. For the nine months ended September 30, 2025, the company reported a net loss of $17.1 million or $0.12 per share, compared to a net loss of $17.3 million or $0.19 per share in the first nine months of 2024. As of September 30, 2025, total assets stood at $898 million, up from $154 million at year-end 2024. Since the end of 2024, cash and cash equivalents have increased by $273 million to $352 million, and total investments have increased by $460 million. Total liabilities at the end of the third quarter were $20 million, which is a decrease of approximately $26 million compared to year-end 2024. This decrease in liability is driven primarily by a $25.8 million decrease in the derivative liability related to the Q Photon merger warrants. Stockholders' equity rose to $878 million at the end of the third quarter, which also shows our strengthened financial position. Now it's my pleasure to turn the meeting back over to Yuping. Yuping Huang: Thank you, Chris. As we move into the final month of 2025, I wanted to take a moment to thank our employees, partners, and shareholders for their continued support. The technological and strategic progress we have made this year positions QSI for what I believe will be a defining period ahead. Our technology is maturing rapidly, and our focus remains on scaling our engineering and manufacturing capabilities, advancing customer programs, and continuing to strengthen our relationships across government, industry, and academia. With a solid balance sheet, a growing team, and a clear roadmap, we are well-positioned to drive this next phase of growth. Thank you for joining us today and for your continued confidence in our mission. With that, we will now open the call for questions. Operator, please go ahead. Operator: Certainly. Everyone, at this time, we will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Max Michaels from Lake Street Capital. Your line is live. Max Michaels: Hey, guys. Thanks for taking my questions. A few here kind of scattered around a couple of different topics. The first one is going to be I noticed that press release about POET Technologies. Was wondering if you could give maybe a little bit more detail on outside of just what was said in the press release and maybe think about sort of the long-term opportunities with them and then maybe some other partnerships you have in the pipeline similar to that POET Technologies. Yuping Huang: Okay. Sure. Thanks, Max. So on that front, we have actually been very actively talking with multiple parties on using our thin film lithium niobate technology for the next generation high-speed transceiver technology. So as you probably know, the industry is recognizing thin film lithium niobate as the next generation platform for much higher speed Internet. So this collaboration with POET is one of the agreements that we have discussed and has come to fruition. And we look forward to working with them and also with others to explore thin film lithium niobate for telecom and other applications. Max Michaels: Okay. And my next one is just sort of around that top five US bank you guys secured or purchase order you guys secured in the quarter around Quantum Security Solutions. Can you give some other sort of use cases you guys are having discussions with with other large opportunities, I guess, or other large firms outside of just security solutions? Yuping Huang: Yes. In fact, we have been talking with other firms, including the potential of putting our technology on photonic integrated chips so that we can really shrink the size of our current quantum communication systems, our quantum path chips, and our quantum random number generators to an inch square chip. So there are many sectors, including the wireless or Internet providers, so they can easily adopt. We have been in discussion also with some potential partners to see if we can apply our quantum communication technology to the aerospace platform so that it can solve the issue of the long-term quantum Internet challenge. Max Michaels: Then, Chris, I think you mentioned inorganic opportunities around M&A. And sort of how evaluations and multiples trended in that space as well as maybe adding on sort of the end markets or technologies you guys plan on going after when it comes to M&A? Chris Boehmler: Well, the M&A market continues to be volatile, and the valuations depend in good part on how the stock market's going. And right now, it's very unsettled. We are looking actively for acquisition candidates and evaluating them as they come up. Nothing formal we can announce at this time, but we are working very hard in that direction. As I mentioned before, we're looking at M&A as a way of doing two things. One is to acquire customers and revenue and product lines that can be moved forward and migrated forward with our technologies. And we're also looking to fill in some key aspects of our own technology roadmap so we can accelerate our commercialization. Does that help to answer your question, or do you have a different point in mind? Max Michaels: Nope. Nope. That's great. Thanks for taking my question, guys. Chris Boehmler: Sure thing, Max. One thing is let me just add to what Yuping said about the POET project. It's a perfect example of why we built Fab 1. Because we have the only fabrication facility in the US that can work with thin film lithium niobate. And this gives us the ability to do this type of advanced prototyping of product concepts that we can then, if we're successful, move forward into Fab 2 and produce in collaboration with a firm like POET for a larger market. This is a real validation of the idea behind the investment in Fab 1. Max Michaels: Okay. No. Perfect. Thanks, guys. Chris Boehmler: Oh, you're welcome. Thanks for joining the call. Operator: Thank you. Your next question is coming from Troy Jensen from Cantor Fitzgerald. Your line is live. Troy Jensen: Hey, gentlemen. Congrats on all the progress here. Maybe a couple of quick ones for Chris first. Can you tell us what is the remaining CapEx for Fab 1? Chris Boehmler: Roughly? Fab 1 is a good question. Yeah. Fab 1 is pretty much built out or it is built out, but I'm always looking at new equipment, but Yuping might be a better one to answer on that. I don't have anything I know of that's lined up near term. Yuping Huang: Yep. So right now, Troy, Fab 1 is fully operational, and we actually are making chips to deliver the 10 plus foundry service orders that we have so far. But we do have a plan to install a very high-speed measurement equipment in the foundry so that we can quickly test the property of high-speed electro-optical modulations on the chip. So there, we are looking at an additional CapEx of about $2 million to add this very high-speed testing equipment. Troy Jensen: Alright. That seems pretty modest. With respect to Fab 2, building that out, would you guys obviously, hopefully, be producing your own picks, but is the idea to outsource capacity to other people that need thin film lithium niobate capabilities? Yuping Huang: Yes. Yes. So we are scoping Fab 2 to both support our own quantum machine manufacturing as well as to serve the increase in demand for thin film lithium niobate chips. As the industry is becoming more and more interested due to the many nice properties of this interesting material for different applications beyond quantum. So, Troy, our goal there is that we hope that we can quickly establish a Fab 2 that can make hundreds to hundreds of millions of chips per year. So that will both support our own needs for our quantum machines and also substantially serve demand from others on the thin film lithium niobate manufacturing. Troy Jensen: Great. Okay. How about a quick one for Chris? Could you let us know what the share count will be exiting 2026? Chris Boehmler: Well, at the moment, we have 224 million shares outstanding and 250 million shares authorized. We're not expecting to do another financing, so it'll probably end up with another couple of million shares potentially if options are exercised. But it would not be a large number. Troy Jensen: Is that what you guys are offering? That just happened. Chris Boehmler: I mean, if you include the offering that happened here in Q4, any other I mean, yes. Including the $750 million offer that was included in October. We have 224 million shares outstanding. There are several million outstanding warrants and stock options, which I have no way of predicting when they may be exercised. But that gives you a sense of the range of possible outcomes at the end of '26. Troy Jensen: Great. So for a share count that we should be modeling, it should be that 224 number for Q4? Chris Boehmler: 224 for Q4. Yes. That's probably the best number I can provide. At the end of '26, that's a little harder because it really depends on market conditions and Troy Jensen: No. That's good. How about if I could toss in one more? For Yuping here? I guess I'd love to hear stats on your QPU with respect to Q account or Fidelity or maybe it's, you know, too early to talk about that now and, you know, maybe correct me if I'm wrong, but is the near-term opportunity more in sensing and other applications that you guys are targeting right now versus kind of the QPU type sales? Yuping Huang: Sure. I can talk about both. So on the QPU front, in fact, we have been upgrading our current Dirac 3 system. Some of our external users actually start to find some real nice advantages over classical computers. So we have some pretty exciting results there. And in the meanwhile, we are actually making great progress in building the next version of that, which is based on the same architecture and built for optimization. But we increased the speed by orders of magnitude. So we are making pretty good progress here for our quantum optimization machine. And in the meanwhile, as I reported last time, we do have the roadmap of going to gate-based machines. And we have done a lot of theoretical work and proof of concept in the lab. But we just got started on the hardware development because the gate machine requires very high-quality thin film lithium niobate chips. And as you know, we just finished the construction of Fab 1 in March and over the summer. So we gave out the recipe and set up the processes, and so the fun has just started, and with that, we will quickly get to the hardware of the gate-based machine. So on the quantum sensor part, yes. And as we reported, we did sell one of our quantum photonic wire vibrometers, and people are using it for different applications. And we also sold a quantum communication system to a US bank as we reported. And we have also made some sales on the AI front, and we continue to engage the community on thin film lithium niobate, and we have recorded more sales on foundry services. Troy Jensen: Gotcha. Alright, guys. Well, keep up the good work. Yuping Huang: Thanks. Well, I appreciate your calling. Operator: Thank you. Your next question is coming from John McPeak from Rosenblatt Securities. Your line is live. John McPeak: Hey, guys. Congratulations, Dr. Yuping and Chris on the momentum in the business and the bank deal. Yuping Huang: Thank you, John. John McPeak: Recently, there's been some new implementations of Shor's algorithm that suggest that pretty soon we're gonna be able to crack RSA 2048. I guess when I say soon, we're talking about years, at least kind of over the career of a CSO at a large company, so they can't just ignore it. And I'm just wondering if that might be increasing the pipeline of potential security deals, particularly in the financial sector. Yuping Huang: Yes. Definitely. So, John, one thing that we all have to keep in mind is that if somebody somewhere has a very powerful quantum computer to crack our passwords, they will not make a public announcement on that. Right? So we have to really deal with the cyber threat. We really have to think ahead and act fast and plan ahead. So far, as I know, the only truly secure cyber solution against the attack of the quantum computer would be using quantum itself to secure our Internet. So at QCI, our engineers are leveraging over ten years of R&D work in quantum communication, quantum encryption, quantum authentication, and now we are pushing our engineering effort to put our technology in a practical footprint. In fact, we have designed our technology so that it is fully compatible with existing fiber-based telecom infrastructure. So in order to use our technology, you can just buy some end units from us and hook them onto the fiber portal in your garage, and you will be able to enjoy quantum-secured Internet. And so you don't need to worry about if somebody has already a powerful quantum computer or not. So, yes, John. To answer your question, I think it is time. It is really, really time for us to start to adopt quantum Internet solutions. John McPeak: Thank you. So on the other side of the business, the optimization, you know, I guess the Dirac 3 is just starting to have revenues recognized this past quarter. How is that market trending right now? Is there more awareness of these solutions for optimization? Yuping Huang: Yes. Yes. And I would like to put it this way. Quantum computing is a pretty disruptive technology. And just like how other disruptive technologies are commercialized, we must address three hurdles before we can see wide adoption and very meaningful revenue. The first is that the customers really need to know and understand the technology itself. The second is that we need to see a clear path to be able to integrate and adopt the technology with their existing systems and solutions. The third is that we, as the technology providers, must lower the entry level so that people can quickly get to the technology. So that includes making the device very compatible, having a very easy user interface, and ensuring the price tag is reasonable. For the first one, we are ramping up our marketing communication, including pushing out more educational material on our website, publishing open access journals so that people can find the material to know and understand our technology. For the second, we are actually building and expanding our applications team to explore and help with potential customers to adopt our technology. Now for the third, we are actually in the phase of transitioning ourselves from a technology innovation company to volume production so that we can reduce the unit cost of our quantum computing products. So those are the three measures that we are taking that we are on now in order to quickly get our technology into the hands of people. John McPeak: Thank you. That's helpful. Yuping Huang: Thank you, John. Operator: Thank you. And once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Your next question is coming from Ed Woo from Ascendiant. Your line is live. Ed Woo: Yes. Congratulations on all the progress. I was just curious about international opportunities. It seems like most of your focus now is in the US. Do you have plans to focus on international opportunities? Yuping Huang: Yes. Yes. In fact, quantum is also very hot outside the US, and we have been very active in talking to and looking for opportunities, either partnering or providing our products and services to international institutes. For example, we actually sold our ImmuCore system, which is an AI device at Edge, and we sold our vibrometer to Europe, and we are working with a distributor in South Korea to explore the market there. And then our Dirac 3 actually has users from Singapore. Ed Woo: Great. Thanks for answering my questions, and I wish you guys good luck. Yuping Huang: Thank you. Chris Boehmler: Thanks, Ed. Operator: Thank you. That concludes our Q&A session. I'll now hand the conference back to management for closing remarks. Please go ahead. Yuping Huang: Thank you, everyone, for joining and participating in today's call. I encourage you to follow us on our social media channels, including LinkedIn.
Operator: Good day, and welcome to Modiv Inc. Third Quarter 2025 Conference Call. All please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks and then we will open up the call for your questions. To ask a question, analysts may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. And to withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to John C. Raney, Chief Operating Officer and General Counsel. Please go ahead, sir. John C. Raney: Thank you, Chloe, and thank you everyone for joining us for Modiv Inc. Third Quarter 2025 Earnings Call. We issued our earnings release after market close today, it's available on our website at modiv.com. I'm here today with Aaron Scott Halfacre, Chief Executive Officer, and Raymond J. Pacini, Chief Financial Officer. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our expected acquisitions or dispositions and business plans, are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Ks and 10-Q. With that, I'd like to turn the call over to Aaron. Aaron? Aaron Scott Halfacre: Thanks, John. Hello, everyone. Hope you're doing well. This time, we're gonna do it. We are doing everything a little bit differently. Certainly, I had the call on a Friday afternoon. I'm surprised to see if many of you dialed in as you did. Hopefully, you have a cocktail in your hand. But we're not gonna do prepared remarks. I put a little more context into the press release. So we're gonna prefer all questions, but I think what I'll say is kind of an iteration. I you know, it's really grindy, and I really like that. You know, we purposely waited toward the end of the earnings season because some of the early reporters, it was interesting to see them come out like, wow. It's pretty solid. And then, you know, they just got hit in the markets. And I was like, okay. We'll see what else works comes out. And then so it was really I really wanted to spend some time observing because I candidly, doesn't really move the needle when we come out. And typically when we come out, you know, we're you're stacked four deep, and you guys don't have a chance to breathe. And I wanted to give you a chance to breathe. And so that's the only reason. So there's nothing else into it other than that. We won't do this that often. But, you know, I feel, you know, generally optimistic. I mean, look. No one knows where Powell will be in December. You know, are they done or not? But I think we all probabilistically underwrite that, you know, there's gonna be a new Fed regime come May. And so and that regime has a high propensity to be easing. So at some point in the future, we should see easing. And so you know, Modiv Inc. share price is very easy to predict in a five-minute pattern, and probably on a five-year pattern, but not sort of in between. But if you think you've got easing, you think you've got a long period of capitulation, we started to see sort of non-equity when I say equity, I guess, we've seen preferred and debt deals being done. Which I think, you know, are key leads of capital market activity. Know, I think July, we saw I think I well, at least I got a palpable sense that there was some interest. And, you know, we saw, like, the deals, like, we saw with the fundamental deal, we saw the early the pre-version of the Plymouth deal announced, and we saw the sort of Elm Tree, and we were starting to see pipeline. And then it kinda went like sideways in late August, September, or early October where it's just, like, people got scooped and their shadows were seen. For instance, we saw we were we were in process bidding on a pipeline deal that we liked. And it was it was a company that was doing Prophco sell along with an Opco transaction, and they were, like, guns ablaze, and then they pulled it. We've seen some of that stuff, over the course of last quarter. So it was a bit of sort of a volatile quarter where people thought they had a look, and then the market gave them a head fake. And then they're like, oh, you know, pausing on the margin. But I think, you know, we get this real palpable sense there's still a lot of money on the sidelines. I think still right now, a lot of people just want like, you know, blood bath returns. They wanna they really wanna, you know, shiv people who they think that are desperate. And, you know, some of those people are being, you know, picked off. Right? We're seeing more read stuff that, you know, I think either they waved the white flag or they didn't have the wherewithal or whatever. But you know, and so I think that capital still really sort of let's just be patient and let's just only get the super, super sweetheart deals. But if we start to see real easing and we start to see some consistent trends for REITs, I don't know if that means we need you know, consolidation on the sort of the rest of the S&P and Nasdaq to get that or not. It's hard to say. Because you could argue that you know, until tech and some of these names cool off, then no one's really gonna ever consider you know, boring REITs. But at the same time, if they force correct, is that just gonna drag everyone back down? So it remains to see. It's pretty cloudy. But even despite that cloudiness, I feel pretty optimistic. About what I'm seeing. And, again, it's because I'm gritty and grindy, and I like that. So that doesn't mean, you know, we're off to the races, but it does feel like I mean, for us, I mean, we're like a goddamn cockroach that could survive a nuclear war. There's no real fundamental reason why we should be as durable as we are given how small we are now in the context. I mean, we there's a reminder. I said before. We came out two weeks before Putin invaded Ukraine, and we came out, like, what was it? Three and a half weeks before the Fed started raising rates. So the entire publicly traded existence of us has been, like, you know, dog shit. Yet I feel like our balance is stronger. I feel like our AFFO is better. I feel I just I have a much more clarity now than I did even a year ago. And so I think that leads to optimism. But enough of me rambling. Let's open up to questions, shall we? Operator: Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. And if you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star to the number two. We'll pause for a moment as callers join the queue. Our first question comes from the line of Craig Gerald Kucera from Lucid Capital Markets. Your line is open. Craig Gerald Kucera: So, Craig Yeah. Hey, guys. Good afternoon. Just a few for me. Were there any onetime revenue in your other property income, and how should we think about that going forward? Raymond J. Pacini: Yeah. It was a $300,000 fee that we obtained for terminating some ease of rights that are marked for property. And that's it. Aaron Scott Halfacre: So did you be add a little clarity to that? There so our north of property, which is in Melbourne Space Coast, there was a large piece of sort of underutilized near vacant land. And, you know, it was a former, like, I don't know, call it, like, a kids park or something like amusement park. And that's getting redeveloped into a housing project. You know, townhouse type of arrangement. And the prospective buyer had come to us because there were certain easements and they wanted certain rights. And so we negotiated it to a while, candidly. I would say we probably negotiated for nine to twelve months, and they basically gave us a fee for to sign a paper. And so what that that's that's what that was. Craig Gerald Kucera: Got it. Was that was that all recognized here in the third quarter, or will we expect any other additional fees? Going forward? Raymond J. Pacini: One time. Craig Gerald Kucera: Okay. Yeah. One time. Okay. Got it. It looks like you added another asset to the held for sale bucket. Can you give us some color on on what you're looking to sell here? And are you actively marking that for sale as well? Aaron Scott Halfacre: Yeah. So, obviously, we've had Costco in the help for sale up until this point. And then I guess, about six weeks ago, we formally engaged a broker to sell Clara. So Clara is held for sale. And in the process right now of, I think, our anticipation is that we would try to get this sold either by the end of the year or probably early early January. So that's the other property that's gonna help for sale. Craig Gerald Kucera: Got it. And speaking of the, the Costco property, I think KB Home was expected to extend a couple times until maybe December. Are you getting any change in sort of their viewpoint on the asset if they still expect it to close? Aaron Scott Halfacre: Yeah. So they they they did extend to December. We've had some conversations recently about they're wanting to time the closing for their for a demolition permit. But, you know, they've they've gotta go through their process. But as it stands right now, per the agreement, you know, we have not been heard if they're gonna extend beyond December 15. So they have one more extension that would take us through to, I think, February 15. But right now, it's through December 15. Craig Gerald Kucera: Got it. Am I over to bet my bet is is they'll close by then. Aaron Scott Halfacre: Okay. Fair enough. And just one more for me. I feel like last quarter, you were saying you were seeing an increasing number of acquisition opportunities. I'm just sort of curious, based on your opening commentary, it sounds like things are maybe more loosening up, but now sort of seized. What's your that sort of the your viewpoint currently, or do you think things are coming back? Aaron Scott Halfacre: Yeah. So it's interesting. So I would say that we were seeing, some some stuff in, you know, that sort of July time frame. And then we started throwing out some bids, and then it kind of kind of contracted because we got a little sideways. And I would say we've seen more in the last week and a half than we had probably in the prior month and a half. So I I don't know what it was about it. I mean, if the markets were just volatile, maybe because the end of summer, maybe it was because we knew we had the September decision. I'm I'm not sure. But, you know, it kinda we didn't see much. And now we're starting to see more. Like, now it actually feels look. I'm measuring it by quantity, not quality. It's starting to feel healthier. Like, there's a definitely I mean, I think John C. Raney, I'm thinking we've probably looked at you know, four or five deals in the last week. Right? John C. Raney: Yeah. At least. Quantity is Aaron Scott Halfacre: yeah, quantity is down I mean, quality is still challenging. Right? I mean, we I think the one thing that that I like, you know, if you imagine us as a as a as a steel blade or a knife, you know, we're constantly sort of sharpening and sharpening on a grindstone and getting better at what we want knowing better what we want. And so our box buy box has probably gotten a lot tighter and there's there's stuff that I probably would've you know, been willing to bid on two years ago. I'm like, man. Forget it. I'm out. I don't wanna bother. So we're we've gotten much more selective, but that that said, you know, I it feels right now at least, and they and it's usually odd because, candidly, you don't tend to see a lot at year end. You tend to see them waiting early January. Right? That's where pipeline tends pick up normally. Like, now you would generally think it's gonna slow down because you know, these take anywhere from thirty to sixty ish days to close, and so then you're, smack in the holidays, and you're like so think that's an interesting sign. I think some of I think what we are seeing sort of key lead wise is there's probably more PE activity going on. Which I think is always an indicator an early indicator. Right? PE and hedge funds sometimes can be you you you generally construe them as to be smarter capital, maybe not smart capital, than sort of you know, people who have just know, got long buyers or doing ten thirty ones or something like that where they they're forced by mandate to do something. These guys are looking for for something. So we we have seen a little bit of PE activity pick Craig Gerald Kucera: Okay. Great. Thank you. Operator: Our next question is from Gaurav Mehta from Alliance Global Partners. Your line is open. Gaurav Mehta: Yeah. Thank you. Following up on your comments on acquisition can you comment on where the cap rates are for the kind of properties you're looking at? Aaron Scott Halfacre: Cap rates are mainly seven handles. That's first year. Right? Some we've seen some eight, but mainly seven handles. Not not necessarily low seven handles, but seven handles. Like, I think brokers are certainly asking for for the moon, and that's their job, and I get it. On a weighted average basis, those are probably, you know, tens. Right? And so now I I I guess fairness, we've seen some wider ones, but you're like, I own that. You know? Have we seen any tighter ones at all? Raymond J. Pacini: Know that I have. Right now, to be honest with you. Gaurav Mehta: Okay. Thanks for that color. Second question on I guess, asset recycling as the acquisition market picks up for for your target assets? Should we expect that you may sell more assets to fund those acquisitions? Aaron Scott Halfacre: You should expect that we we will be deliberate and systematic about asset recycling. If you think back, right, so we did the the the asset recycling, the GIPR, which is a large bowl. And so just by for for everyone's education purposes, you know, generally speaking, if you sell if you do seven individual transactions, to seven individual buyers in a given year, that's sort of the limit. For an IRS perspective. If you go over that, you you kind to have to get what is called a private letter ruling to sort of get exemptive relief because otherwise, you might be deemed deemed traitor. You're dealing. Like and so when we sold that big bunch of you know, office and and dollar stores to GIPR, that was one transaction. And then you know, that was sort of kicked it off in earnest. We sold the the the one in Nashville. We sold one out in in California. And then, you know, it gets kinda got really super volatile, and we've been sitting on the KB thing for the Costco purchase for for a while. Looking forward to that closing soon. You know, as I said, OES has this purchase option, so we can't do anything with that until we actually have conversations with them and their process. Is you know, they have time on their clock. So that one is what wasn't gonna happen immediately. And then and then you know, the solar property, we've been with it's been four years of trying to get a to get a lot split. So San Diego is is, like, really difficult to work with in terms of doing anything. That's taken on. So it's felt really, like, long in the tooth. Like, we haven't really shown much recycling. And I think at the same time, we have other assets we could they would fly off the shelf. Right? They would just immediately go. And and what I say these other assets is, obviously, there's the Kia asset, which is a noncore, but we also have in our industrial bucket some legacy assets. Not all there's a handful one until they're, like, a that are not absolute trip I don't like because it's leakage and it's not scale efficient. Some of them are are just not the very focused sharpened knife blade of manufacturing that we want. And so those would have flown off the shelf in this period of time. But at the same time, we're saying, they're not hurting us. Very comfortable credits. Let's see if we get a little bit of a more stability in the cap rate markets. If cap rate mark if the cap rates start to start to tighten, then we can comfortably roll those off, and we're not, like, leaving a lot of chips on the table. And so I think what you'll see over the next period of time is we will continue to do that. Start recycling those, and it'll be systematic, and we'll use since those have a long legacy, that we'll have to we'll have in terms of a low basis, we've held them for a long time that they will be ten thirty one or they'll be tax sensitive. So we will be sort of timing rolling into new acquisitions. With the advent of those being sold. If that makes sense. Gaurav Mehta: Okay. Thanks for that color. That's all I had. Aaron Scott Halfacre: Cool. Operator: Our next question is from John James Massocca from B. Riley Securities. Your line is open. John James Massocca: Good afternoon. Hey. So as we think about maybe going? As we think about maybe over a longer time horizon, you know, the outlook for for, like, true gross. What's kind of interesting maybe as the the Fed dynamic changes a little bit in terms of sources of capital perspective. And I just maybe hop in on you know, your preferred stocks had a little bit of a run, There's been some smaller REITs that have been out there in the preferred market. But that would in some people's mind, be a leveraging transaction if you did raise in that market. So just kinda curious where we should be thinking about sources of kind of external growth capital in the future if and when the market gets a little more accommodative? Aaron Scott Halfacre: Well, I think when we know the market is accommodative, I think that that'll be a better time to ask that question. I think for us, and I've kind of alluded to this, is that, like, I that question predates that we have to grow, and we have to find sources for it. Right? And I kinda rebel against that question in general right now, and I don't I know I don't I know the answer is underwhelming. Like, well, if don't have external growth capital, you can't really grow. And I was like, yeah. I don't you know, we I have several assets that are you're gonna you know, can trade low sixes, and then we can rotate them into mid to high sevens. And so that's growth. Right? And that's something to do in the near term. Until it makes it clear that we're the trend know, you think about we're in a downward trend in REITs, or we have been, generally speaking, and, you know, it's correlated to rates. And so until we have clarity on where rates are, then I think we'll start to see you know, where pricing is. And another way I think a couple ways I think about it. Right? And I'll talk the preferred stuff too in a second. But you know, look at o or w b care. I mean, I think their dividend yields are, high fives. Right? Mid fives, high fives. You know? And we're, what, eight. So we're roughly 200 base 50 basis points off of them, two hundred two hundred fifty basis points. That doesn't seem terrible to me. I don't like it. I think we're certainly undervalued. Right, from a standpoint. But, arguably, everyone is. Right? I mean, it was always forever. It was, you know, sub four dividend yield. And they're trading fairly wide. I mean, that's much wider than a money market. And do they do they have a lot of risk in them? I don't I mean, they have risk that they may not grow. But so I think we need to see you know, the broader, more liquid, the more easily bought, the easily loved names, right, the big names to start to see some love. From the broader institutional community, which they haven't seen. Because flows into REITs has not been good. When you start to see that, then then the next sign would be, okay. Are we are we you know, we're we're we're the we're the tail. Do we start to see that? Right? So, obviously, price of our share our share price, if it's at a a a realm that's accretive, then then we would start to access that. But we're not there yet. And so until it is, I can't do anything with that. Right? The strategic capital stuff, look, we're always looking. I think like, we've had like, we've seen three preferred deals really in the last week. G m GMRE, we saw Pine, and we saw Frontview. I thought I thought the deal that Preston and Fitzgerald did was was really I like that. It was clever. Right? I'd love to have conversations with him and reach out to him and do it. But I think that was a clever deal. Right? I think that one is a constructive deal that'll cause growth. If I look at g m r GMREs and pints, look, I get it. It's cheaper. That that 8% preferred is cheaper than your equity loans. But you gotta step back. And then and so that answers the question. Which source of capital do I wanna use? And I wanna step back to the primary question and say, should I be using either of those? And if my if I have a hammer and the hammer says, you know, hammer every mill. That says growth on it. Then you're gonna use capital. But like, I mean, think about it. If you just pull back on a time horizon, and you under and you underwrite that we could be in an easy environment and that this time next year, our returns our our share prices could be better. As a as a category. Then won't it feel a little like a chump to have issued a bunch of perpetual preferred at 8%. When you could've just waited and your maybe your dividend deal and equity could've been issued at seven and a half or seven. But, clearly, I get that they will they will make that accretive. So it's not like it's bad. It's not like they're gonna destroy themselves by it. By no means. I mean, they're probably finding paper I mean, investments that are wider than that age. So it's gonna be accretive. But they are also just burdening their franchise with this thing that they gotta have to deal with. And so to me, I just wanna step back and say, hey. What is does it really make sense? Do I need to post you know, stats for the quarter Because that's what everyone else does. But that was kind of my framework about being a small read is the bigger guys, yeah, I get it. They got super low cost of capital. They do need to show activity. Right? But our smaller folks I mean, is that the right blueprint? So many small cap REITs just try to follow this bigger mantra of the normalized REIT, and they're just not. And and I know it's a it's a circular thing. Like, you said, well, if you don't grow, then you're never gonna get capital, and therefore, you're always gonna be small. And I'm like, maybe. But maybe you could actually create a really valuable franchise. That you know, people will buy. And you know? But that just that's it. That's an experiment that we're doing. I fundamentally take the view that if I improve the real the the durability and quality of the income coming in, and I sort of rightsize the balance sheet and make it stronger, not weaker, and that I continuously do the right things over time that you know, as I think Warren Buffett says, when the tide goes out, you know, you'll see who had have their swim trunks on. And so right now, I don't know where those buckets of I know that categories of where those buckets of capital is, but I don't have a line of sight to tell you, yeah. I'm I've got someone who's gonna give me equity It's $18 a share. Because if I did, I would just you know, I would take it, and I would go put it to work. John James Massocca: With the in place portfolio, just kinda broadly, what's the feeling amongst tenants as you reach out you know, given maybe we have a little more certainty even versus the last earnings call around the tariff outlook and it's still some uncertainty, but just kind of curious how they're feeling and if there's anything maybe notable from a tenant credit perspective worth calling out. Raymond J. Pacini: No. I look. Aaron Scott Halfacre: Most of these operators, you know, quarters don't move that Right? They they're they look annually. They look at cycles. They're getting orders. I think the tariff news is if anything, it's old. Right? I mean, the volatility certainly tempered. I mean, you tell me, I don't think we've heard of the the verdict yet on the supreme court. And even if we do, there's two other tariffs that he can implement. And so no one knows. Right? But what we do know is it hasn't there's there's no been there's no blood in the streets. And and and our businesses are operating. I mean, most of our businesses buy US and sell US. Right? We we own a lot of durable businesses. So we haven't seen anything we haven't seen anything new on the radar. Says, oh oh, no. This is you know, tariffs are are are gonna squeeze us. I think look. People would love to have clarity on tariffs. I think tariffs do economic impact you. But the near term noise is there's not really been anything. And, like, we kinda said, I think two quarters ago, that most of our the vast majority of our tenants learned from COVID and then the first Trump administration. You know, it's not the first time he's talked about tariffs. That they didn't wanna have dependencies on places that could get squeezed, aka China. Right? And and so a lot of the meds over the ensuing years have mitigated that risk in as this is good business practice, And that happens to look like a good reaction to the near term conversations about tariffs, but I we haven't heard anything recently. Or or at all. Since our first conversation, I think everyone was alarmed because, like, liberation day, people are, like, charged. Right? And now it's, like, yeah. Okay. Let's let's wait till we actually know something else, and then maybe that's then we maybe we can then sort of reforecast. But nothing yet. John James Massocca: K. And then on just kind of a line item by line item basis, you know, probably more likely into 2026, what's the potential impact to property operating expense maybe even typically like a net property operating expense from completing the former Costco headquarters transaction and even maybe even the Clara if you're able to sell Clara's former property. Aaron Scott Halfacre: So I would give you characteristics that, you know, right now, as we roll, we're I'd say that cost delta on operating expense vis a vis the fee. Right, so the extension fees, is we're probably running we're probably bleeding a about $40,000 a month. On that. On that property. Right? So you're not gonna so there's a there's a fairly amount of CapEx, but we have also gotten, you know, these extension fees that sort of offset that. From from an AFFO perspective. But there's probably about $40,000 a month bleed on that. How we think about it in sort of third quarter, Yeah. Cholera actually is know, it's been lumpy. It's, you know, know, you you got security fences in there. Things like that. I like, if we get that flushed out, I don't think you're gonna see, like, don't Ray, you correct me wrong. I don't think we're gonna see world changing property expenses go down just because those clear out. We we're fairly neutral on that, but, I mean, there's a little bit of movement. In in 2026. I think, you know, as we get rid of some of we have a hand like I said, a small handful of non absolute triple nets. I think on the margin that that could that could reduce property expense next year. Raymond J. Pacini: Well, I I think it'll go down a bit, you know, maybe a 100 k or so. But I think as we sell some of the other properties, as we do the recycling, There are some others that where there's some leakage. And so over time, it'll probably go down a little bit further. John James Massocca: That help? Aaron Scott Halfacre: Yeah. It's very helpful. Appreciate all the detail. That's it for me. Thank you very much. John James Massocca: Thanks. Operator: Our next question is from Stephen Chick from Sabis Garden Capital. Your line is open. Stephen Chick: Hey. Thanks. Guys. I'm wondering if you could or if you know of what the same store rental income would be, You know, rental income is down 2%, but I think there's an overhang, obviously, from Costco and solar is probably in there as well. Do you calculate what same store rental income would be? Or a figure like that? Aaron Scott Halfacre: It's we don't. And and I think the general view reason why because our there's so much movement in our portfolio that we have, you know, So but I think it's fair that once we complete a recycling that that would be and we think we're largely baked, particularly if we don't have external growth capital. I think it's fair that we would start implementing same store You know, we may try to run that for you and polish that sometime and before your end or something like that, but I I don't think we have it handy. Right? Do you Raymond J. Pacini: No. But I'd say that I you know, our overall average is two and a half percent rent growth a year just based on escalations in the leases. That gives you some idea of what's happening there. Stephen Chick: Yep. And I I would care Okay. Characterize it. Aaron Scott Halfacre: As we we recycle those, a lot of the legacy ones have the low lower bumps. Right? They're they're twos or or they're every five kinda thing. Every five years. So I think, you know, I think that if you look at there's a pie chart on our website, shows kind of the weighting of those. A lot of the the pro stuff that we put in the last two years or last three years to their average north of two and a half percent. But I think over time, that could you know, or same store could could trend that way. Stephen Chick: Okay. That's helpful. And then I can you say I I didn't catch it. On solar, did you say when you thought that property would would be resolved or sold? Aaron Scott Halfacre: We're a lot lot closer than we ever were. I mean, so we literally started this process in 2021. We engaged consultants and went through the process. And it's we're four years into it. We were doing some blast, so we had to, you know, to get the split and negotiate certain easements and then have the city look at it. And what ultimately I don't have the details a 100%, but at a high level, we had to we had to do some some modest construction work to the entrance of the driveway to be meet the new ADA compliance standards of the city. And so it took us a while to get them to give us the green light to do the construction. The construction is now underway. Asking which is, you know, not a very long job. It's probably a couple weeks But then we have to go back and then get approval of all that stuff. But, you know, my guess right now like, I'm like, it's been a debate internally. There are some people who think we can get it done by year end, and I generally sort of hedge the downside. So I think it's a first quarter event. Ideally, it's a early first quarter event, but who knows? But once it's once we're, like, locked and loaded, then then we'll we'll we'll that property will be taken to market, so that'll be another held for sale. And it's like, the tenant is just finished You know, they they left in September. They ended their lease in September. They cleaned it all out. It's a beautiful box inside. You know, it's good. You know, we've had people we've had brokers know, come and looking at it. You know, our intent is not to lease it, but it's to sell it to an owner user. And we think that's the best the best end result for that property. Stephen Chick: Okay. Alright. Thanks. That's helpful. Appreciate it. Operator: There are no questions at this time. I would now like I would now like to turn the conference back to Aaron Scott Halfacre. Please go ahead. Aaron Scott Halfacre: Great. Thank you, everyone. Appreciate what you've for you dialing and listening. We look forward to giving you updates as time goes ahead. Hope you have a great weekend. I hope you can all rest up for the for the Thanksgiving holiday, and for those who who are curious, we will not be at NAREIT. I don't wanna go to Denver Dallas in in December, and it's just not a you know, not relevant for us, I think, at this point. But, enjoy the conference, and I wish you guys all the best. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the East Side Games Group Third Quarter 2025 Results Conference Call. [Operator Instructions] I would now like to hand over the conference to the speaker today, Jason Bailey, Board Chair, CEO and Founder of East Side Games Group. Thank you. Please go ahead. Jason Bailey: Hello, and welcome, everyone, to the East Side Games Group Q3 2025 Earnings Call. I'm Jason Bailey, Board Chair and CEO of East Side Games Group. Today, we will share highlights from the third quarter ended September 30, 2025. I'd like to remind you that certain statements made on this call are forward-looking within the meanings of applicable securities laws. This call contains references to non-GAAP measures, and please refer to our fourth quarter press release and MD&A for cautionary statements relating to the forward-looking information and reconciliations of non-GAAP measures to GAAP results. References to all figures are in Canadian dollars on an IFRS basis, unless otherwise noted. Additional materials can be found on the Investors section of our website at www.eastsidegamesgroup.com under the Financial Information section. Q3 was another solid quarter with another consecutive queue of revenue growth. We launched 2 new Match titles that are driving strong engagement and laying a solid foundation for continued growth in this new genre for us. As of the end of Q3, matches accounted for 22% of our total revenue. The team will now provide further insights and details. First up is Mr. Chan. Jason Chan: Thank you, Jason. Hi, everyone. I'm Jason Chan, Interim CFO of East Side Games. Today, we report our results for the company's third quarter and year-to-date periods ending September 30, 2025. As a reminder, all amounts provided are in Canadian dollars. Our total revenues for the 3 and 9-month periods ended September 30 was $20 million and $57.8 million, respectively. Revenue for the third quarter decreased by $1.3 million or 6% compared to Q3 of last year and increased by $800,000 or 4% sequentially compared to Q2. Excluding onetime publisher payments, revenue growth would have been 12% sequentially quarter-over-quarter. As a reminder, this quarter reflects our first quarter of the newly launched RuPaul Match and only one month of Squishmallows Match, where we've invested heavily into scaling the player base for these 2 games as we have seen strong payback windows and retention numbers. This quarter represents peak spend where we are aggressively acquiring users and spending on marketing within disciplined return criteria to grow these games. We have confidence that this spend will return in the next 2 to 3 quarters and then we will generate sustained cash flow thereafter as we start to harvest and fully monetize these retained users for years to come. These top line results also reflect stability in our core game portfolio and growth in our new game launches in the second half of 2025. We continue to see stability in our core game portfolio with mixed performances across titles and good investment opportunities in BeFit, Milk and Cheech Kush. We finished the quarter with a daily active user count of 227,000 players, which represents an increase of 12% quarter-over-quarter. ARPDAU was $0.97 over the same period, which represents a decrease of 6% as a result of the influx of new users from the new game launches. Our priority remains to efficiently scale our 2 new game titles for the remainder of 2025 and beyond. Adjusted EBITDA for the 3- and 9-month periods ended September 30, 2025, were negative $3 million and $600,000, respectively, compared to $2.5 million and $9 million, respectively, for the same period ended 2024. This represents a decline of $5.5 million in the comparable period in 2024. This decline can primarily be attributed to the development, launch and marketing spend associated with the launch of RuPaul Match and the Squishmallows Match titles. As mentioned previously, we made a significant and strategic investment in our match portfolio this quarter, allocating roughly 60% of our total marketing spend to support its future growth, including new supplemental marketing initiatives like TV ad placements, where we have seen the strongest returns on our investment. We expect to see these investments return in the next 2 to 3 quarters, and it is our belief that at the current time, this quarter represents a trough in our adjusted EBITDA margins with the existing portfolio of games as we look into Q4 and 2026, and realize the returns on these acquired users. Future spend on these titles could remain elevated if we continue to see attractive returns. As a reminder, our core studio portfolio profitability remains consistent and stable. The company had $3.2 million in cash and $2 million in debt as of the end of the third quarter 2025 for a net cash position of $1.2 million. The company continues to generate cash flow from its core portfolio that is being used to support the launch and future growth of the new game titles, as previously mentioned. Accordingly, with the company's strong cash generation from operations in the core portfolio and available financing, the company continues to be well positioned to execute on further growth opportunities to provide further value for our shareholders. We will continue to repurchase our shares through the NCIB program, adhering to the exchange restrictions. In Q3, we bought back 147,000 shares and canceled 168,000 shares. And to date, we have acquired and canceled a total of 4.5 million shares at a cost of $3 million. We're going to continue to balance investing in the future growth of the company with returning capital to the shareholders via the share buybacks as we believe the market is currently undervaluing our shares. I will now pass things off to our Chief Product Officer, Jim Wagner. James Wagner: Hello. I'm Jim Wagner. Q3 was a productive period marked by meaningful progress in product development and portfolio expansion. While we continue to execute on our core strategy of leveraging our narrative Idle and Mobile Match 3 expertise, our recent launches also surfaced important learnings and challenges to address in the months ahead. We launched 2 new Match 3 titles based on strong IPs, each showing encouraging but distinct results. Squishmallows Match achieved high ratings and strong player sentiment, though we see opportunities to further optimize its performance over time. RuPaul's Drag Race: Match Queen demonstrated promising monetization performance and effective product marketing with ongoing opportunities to expand its audience and engagement. Both titles provide valuable insights that will help refine our approach to future updates and launches. The launch of Squishmallows Match got off to a strong start, driving more installs than any of our previous match game launches and receiving positive early feedback from our players, with the game currently sitting at 4.6 stars on Google Play and 4.8 stars on the Apple App Store. Our recently introduced feature, Super Lightning Ball, has contributed to nearly a 20% increase in ARPDAU during AB testing across our other Match titles. Looking ahead, we plan to roll out 8 monetization enhancements in Q4 aimed at supporting sustained growth and further strengthening the player experience. RuPaul's Drag Race: Match Queen had a solid launch last quarter and has maintained positive momentum with the rollout of new features, currently achieving a $0.97 ARPDAU, the highest ARPDAU across our match game portfolio. While we're encouraged by these results, we recognize there's still plenty of work ahead to build on this momentum and deliver the best possible experience for our players. We've introduced a second weekly pass to the game, which now contributes a meaningful 7% of our in-app purchase revenue, highlighting the strength of our monetization segmentation strategy. The launch of our daily goals feature has successfully increased daily return rates and overall player engagement. Additionally, we continue to enhance content by releasing 8 new Queens through our weekly Queen Pass. Other key highlights from Q3 include Bud Farm: Idle Tycoon, the Event Piggybank tested through an AB test experiment, proved to be a monetization highlight, delivering a 4.5% lift in total revenue. We plan to replicate the success across our other titles in the portfolio. Cheech & Chong's: Kush Kingdom, our Match 3 game experienced impressive growth and scaling with revenue increasing by 260% over the quarter. And Doctor Who: Lost in Time, we launched a brand-new collection feature alongside a monthly pass for monetization, which has shown strong early results and established an additional steady revenue stream for that game. Based on the momentum of Q3, our Q4 road map is focused on deepening engagement, increasing retention and layering in new monetization opportunities across our top titles. In terms of engagement and retention, we're revitalizing several games with new ways to play and connect. The Office: Somehow We Manage is launching a new mini game, while RuPaul's Drag Race: Match Queen will roll out a daily leaderboard based on a popular segment from the show to boost engagement and competition. Trailer Park Boys: Greasy Money will introduce in-game chat, a studio first to deepen community and retention. Milk Farm Tycoon is expanding the core loop with new production areas to enrich the overall experience. In terms of new monetization streams, we'll be adding additional passes. Match Queen will introduce a collab pass for brand/influencer integrations to drive new players to the game. And in Squishmallows Match, we're adding a pass to increase collectible incentives. Following great Q3 success, we're planning a wider rollout of a new way to buy in-game currency to Trailer Park Boys: Greasy Money, RuPaul's Drag Race: Superstar and Cheech & Chong: Bud Farm. In summary, Q3 was a period of high-impact execution with new game launches and feature releases driving growth across our key performance indicators. While we recognize there is still progress to be made with RuPaul's Drag Race: Match Queen and Squishmallows Match, we remain confident in the strategic plans we have in place. We believe our focused approach in Q4 will sustain momentum and deliver long-term value to both our players and shareholders. Over to Lisa Shek, Chief Operating Officer. Lisa Shek: Hi, I'm Lisa Shek. Squishmallows Match is our fourth title in the Match genre. This marks a major milestone in diversifying our portfolio and continuing to expand into new audience segments. Working with Jazwares, we've delivered a game that not only honors the Squishmallows brand, but also brings it to life through high-quality and engaging gameplay. We're also excited to be testing new marketing initiatives with Jazwares, including early access to real-world content drops exclusive for our mobile players. Our core titles remain profitable, allowing us to experiment and invest in the long-term growth of our match business through new channels, partnerships and innovative initiatives. This quarter, we saw strong results from our first-ever in-show TV placement on RuPaul's Drag Race, which attracted our most engaged players to date, driving a 300% increase in first week player value for that segment. Building on this success, we're planning additional high-impact collaborations that extend our games into cultural moments and entertainment spaces where our audiences already live and play. Looking ahead to Q4, we'll double down on our top-performing match games, supported by holiday-driven events and seasonal content. With these initiatives, we're well positioned to close 2025 strong and set the stage for continued success in 2026. Over to Hakeem Harrison, Head of Growth. Hakeem Harrison: Hello. I'm Hakeem Harrison, and I lead ESG's growth initiatives along with the wider marketing organization. Looking back at Q3, our biggest win on RuPaul's Drag Race: Match Queen came via strong collaboration between organic marketing, growth and analytics to capitalize on the final 2 in-show placements on RuPaul's Drag Race: All Stars in July. After seeing how the first 2 in-show placements boosted installs, we increased our marketing spend by 66% the weekend following the July 18 placement. Normally, that kind of jump would make installs more expensive and returns lower. But in this case, costs stayed steady and early returns actually improved. We also prioritized building a strong foundation for our organic marketing ecosystem, launching high engagement campaigns and co-branded collaborations with Jazwares to grow our community from the ground up on Meta and TikTok. This strategy is central to driving authentic word-of-mouth momentum, strengthening fan loyalty and fueling sustained cost-efficient growth paired with UA initiatives. Q3 was a strong quarter for core portfolio UA as we were able to increase investment 25% quarter-over-quarter while staying in the pocket for our breakeven targets. As we prepare for Match Queen's appearance in every episode of the new season of RuPaul's Drag Race, marketing and growth will test screens and speakers channels in Q4, including connected TV and digital podcasts and radio. The goal is to replicate organic and non-attributed install volume by placing Match Queen, Mid Reel on Paramount+, Amazon Prime Video and other IPs with strong streaming audiences. Pairing audio with targeted CTV advertising has shown a 20% incremental performance lift for iHeartMedia. To offset high seasonal pricing in the U.S. and Tier 1 Western markets, Q4 will emphasize localized international expansion. This includes refining geo targeting, language adaptation and creative testing to drive installs and lower CPI across new markets. We're expanding creative outsourcing to broaden appeal beyond the core Drag Race audience and attract more casual gamers, lowering acquisition costs and increasing campaign diversity. In parallel, we're deepening player segmentation across match titles to sharpen targeting, creative direction and live ops campaigns, driving install growth, stronger retention and higher ARPDAU through localized personalization by leveraging our existing marketing ecosystem, including social channels, newsletter and landing page touch points to build early awareness, drive adoption and establish an authentic player base along with paid scale, evaluating opportunities to apply full funnel learnings from RuPaul's Drag Race: Match Queen and Squishmallows Match across other titles from creative strategy in UA pacing to influencer integration, community engagement and live ops retention loops. The goal is to create a repeatable insights-driven launch framework that maximizes both organic momentum and paid efficiency across the ESG portfolio. Jason Bailey: Thank you, everyone. Q3 was another growth quarter. We continue to build momentum in Q4 with our growth efforts in Match as well as keeping our core portfolio of idle games performing. Match is now a significant contributor to our top line revenue at an average of $1.5 million in September, and with a DAU of $77,000 and ARPDAU of $0.64. This ARPDAU is well above industry standards in this genre. As Hakeem mentioned, we are pushing hard with marketing on these new games in areas outside of paid UA campaigns within the usual networks. We continue to buy aggressively in the traditional networks, but we know that out-of-the-park success will be found through nontraditional means. We hope to see these efforts pay off in Q4 and especially in 2026. Though EBITDA was significantly negative and cash on hand decreased significantly, this is directly attributable to our successful investments in these new titles. We are extremely confident that this investment and ongoing investments will pay back with positive ROI in the next 2 to 3 quarters. These are players and games with multiyear lifespans. Heavy investment now will pay dividends for many years to come. We especially see this with our titles in our core portfolio. Some of the games are approaching their 10-year anniversaries and continue to be our top-performing titles. We expect to continue our deep investing period for these titles through Q4, a positive sign for the health of our success in our foray into the Match genre. Thank you for joining today's call. We look forward to updating you on our continued progress next quarter. We will now take some questions from our shareholders and analysts. Operator: [Operator Instructions] Your first question comes from Neal Gilmer of Haywood Securities. Neal Gilmer: In the prepared remarks, you referred to sort of this Q3 is sort of the trough. The sales and marketing spend, not quite, but almost double sort of what we've been seeing recently. And obviously, you touched on that in various aspects of your prepared remarks. How should we be thinking about that going forward? Obviously, that spend is to drive the revenue growth, so we can expect an increased growth rate on the revenue side of things. Do you need to continue investing at these sorts of levels? Or you referenced to sort of this being the trough, meaning that there's going to be a little bit of a scale back on the spend from the $12 million that was in Q3? Jason Bailey: Neal, good to hear from you. You're correct. You understand that right, that we're -- our most aggressive spend was in Q3. Q4 spend is still going to be high, but not quite as high as Q3 was. We're still pushing hard, especially with getting Squishmallows off the ground. Room Match has kind of hit a nice momentum, and we feel really, really good about that. We have really good insights on where we're spending and how that's coming back. We have huge plans for that, especially in Q1. But yes, I don't remember the exact numbers off the top of my head, but I want to say it was somewhere around $6 million that we spent just on marketing these new match titles, and it's not going to be quite as high in Q4. Neal Gilmer: Okay. Appreciate that. And so -- again, I take it from the prepared remarks. It sounds like Q4, maybe Q1, you're going to stay sort of in that EBITDA negative territory until that really sort of inflection of revenue sort of helps offset these increased costs and that we should be looking to sort of that back to EBITDA positive in and around mid of 2026? Jason Bailey: That's correct. That's a good assessment as well. We're shooting for longer payback windows in Match than we do with idle. With idle, we generally shoot for kind of 90-day payback windows. In Match, we're shooting more for 180-day payback windows. So the cost of user acquisition is a little bit higher, but the retention rates on Match are also higher. We see a lot better -- a higher number of players who install today still playing in a year from now. So we know that, that longer-term investment is worth it. And as mentioned in the prepared remarks, some of our titles are approaching 10 years and still performing strong, and we expect the same thing to happen here with these match titles. Neal Gilmer: Right. And so that's just the nature of the different genres and the customer base? Jason Bailey: Yes. So it's the opportunity really of knowing that they have those stronger retention rates and that the games are a little bit stickier. So we're able to spend a little bit more aggressively with the user acquisition now and knowing it will pay off in the long run. Neal Gilmer: Okay. Fair enough. You tapped your line of credit a little bit in Q3, it looks like. What's sort of your philosophy and plans going forward? Are you going to continue to draw based on sort of how you see the return on this user acquisition spend? Or how should we be thinking about that? Jason Bailey: We're happy with the early results and the numbers and the experience coming back with our user spend now. So we're going to keep that aggressive. I do expect us to probably go into debt -- the -- right now, we're tapping our line of credit a little bit just for cash flow management, but we still have cash on hand. I expect that through Q4, we'll probably eat up some more of that cash and go into -- and be actually tapping our line of credit, but not terribly significantly. Operator: [Operator Instructions] There are no further questions at this time. I would hand over the call to Jason Bailey for closing remarks. Please go ahead. Jason Bailey: Thanks for attending, everyone. I appreciate it. The last couple of quarters, we've done the earnings video, and then we've decided to kind of go back to this earnings call format. So it's probably going to take a bit to kind of get the momentum back on it and then do an annual video instead of a quarterly video. But I strongly suggest you go on YouTube and check those previous quarter videos out. Thank you for attending this call. And as always, you can reach out to me, jason@eastsidegames.com, and I'm happy to engage with anybody who has any questions. So thanks for your time, and talk soon. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect. Jason Bailey: Thank you.
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