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Operator: Good evening, ladies and gentlemen. Welcome to Nu Holdings conference call to discuss the results for the third quarter of 2025. A slide presentation is accompanying today's webcast, which is available in Nu's Investor Relations website, www.investors.nu in English and www.investidores.nu in Portuguese. This conference is being recorded, and the replay can also be accessed on the company's IR website. This call is also available in Portuguese. [Operator Instructions] [Foreign Language] [Operator Instructions] I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer at Nu Holdings. Mr. Souto, you may proceed. Guilherme Souto: Thank you, operator, and thank you, everyone, for joining the earnings call today. If you have not seen the earnings release already, a copy is posted in the Investor Relations website. With me on today's call are David Vélez, our Founder, Chief Executive Officer and Chairman; and Guilherme Lago, our Chief Financial Officer. Throughout this conference call, we'll be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for Nu Holdings, but are not financial measures as defined by IFRS and may not be comparable to similar measures from other companies. Reconciliations of the non-IFRS to the IFRS financial information are available in the earnings press release. Unless noted otherwise, all growth rates are on a year-over-year FX-neutral basis. I would also like to remind everyone that today's discussion might include forward-looking statements. which are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties and could cause actual results to differ materially from our expectations. Please refer to the forward-looking statements disclosure in the earnings release. I will now turn the call over to David. Please go ahead, David. David Velez-Osomo: Hello, everyone, and thank you for joining us today. In Q3 2025, effectively every single one of our metrics continued to grow, reinforcing our position as the leading digital bank in Latin America and one of the leading fintech platforms globally. Our customer base grew to 127 million customers, with more than 4 million net additions in the quarter while maintaining an activity rate above 83%, a clear reflection of the depth of engagement we continue to build with our users. In Mexico, we surpassed 13 million customers now reaching around 14% of the adult population. And in Colombia, we're approaching 4 million customers. Both markets continue to demonstrate strong traction, highlighting the scalability of our model. The solid growth, combined with continued ARPAC expansion, which surpassed $13 this quarter, has led to record revenues of over $4 billion. These results highlight the compounding effect of our customer expansion, deeper engagement and disciplined monetization. Our gross profit continues to rise sharply, reflecting strong unit economics and operating leverage. And with a cost-to-income ratio of 28%, we continue to progress on our trajectory of improving efficiency. And finally, we delivered net income of $783 million, another quarter of solid profitability even as we keep investing in growth and innovation across all markets. This consistent performance is a direct result of our business model, one that attracts millions of new customers every quarter, fosters deeper engagement that expands monetization, all while operating on a low-cost and highly efficient platform. This formula continues to drive our earnings growth across markets, but with each component playing a distinct role in every geography. In Brazil, we now serve over 60% of the adult population and estimate that we're already the largest player in the SME segment by number of accounts. Having reached scale, revenue per customer has become the main growth driver. Our focus going forward is broadening our product portfolio, deepening engagement across all segments and continuing to execute our credit strategy, increasing exposure among customers with the strongest risk-adjusted returns. In Mexico, our main focus remains on expanding our customer base, deepening product adoption and advancing financial inclusion, all while laying the groundwork for sustainable long-term monetization. Given the scale-up phase, ARPAC levels are already nearing those seen in Brazil, reflecting the strong unit economics of the credit card business in that market, driven by a higher share of interest-bearing balances and a steadily declining cost to serve supported by our ongoing platformization efforts. Both markets demonstrate the strength and adaptability of our model, which is capable of driving rapid growth and scale in earlier stages while expanding profitability as market matures. Diving deeper into Mexico, our second S-curve, we see a market now beginning to scale and one that we expect will contribute meaningfully to our results in the years ahead. We're building strong foundations, having reached market leadership position in the Mexican digital banking space, already reaching 13 million customers or around 14% of the adult population compared with about 10% when Brazil entered its inflection point back in 2019. Even with the product portfolio still largely centered on the credit card, ARPAC has already reached $12.5, reflecting strong customer engagement and the favorable unit economics of this product in Mexico. On the cost side, cost to serve is already below $1 and recent adjustments to deposit yields are beginning to flow through our cost of funding. Looking ahead, we'll continue stacking U.S. curves with focus and discipline, while Brazil and Mexico remain our core priorities where most of our resources and execution efforts are directed. We also see transformational optionality in the U.S. following our filing for a national bank charter, a step that could unlock new opportunities over time as we remain fully focused on our core markets. As we continue scaling across markets, we're also building the next generation of our platform, redefining how we operate and how customers experience banking. We have heard several investors asking us about our AI strategy, and so we wanted to spend a few minutes on it. Our vision is to become AI-first, which means integrating foundation models deeply into our operations to drive an AI-native interface to banking, while creating meaningful benefits for both our customers and our business. For our customers, AI is enhancing our understanding of each individual and their financial needs, allowing us to deliver personalized recommendations, contextual offers and products and proactive insights at the right amount. It will also transform the way people interact with Nubank, be it through a simpler and seamless app or through a number of additional channels, embedding conversational user interfaces. We think there is a significant opportunity to include agentic workflows across most products and services, improving customer experiences across the board. For our business, AI is strengthening how we manage risk and scale efficiently. It is helping us to design safer and more precise financial solutions, reducing credit and fraud losses and enabling tailored collection strategies that drive better recoveries. At the same time, it is enhancing productivity across the company from leaner operations to faster development cycles and higher engineering throughput. When we bring all of this together, becoming AI-first means accelerating our flywheel by scaling to offer higher-quality products at lower costs, unlocking the full value of open finance, deepening cross-sell and product penetration and opening new revenue streams, all while optimizing pricing and delivering superior value for both customers and shareholders. But AI is not a buzzword for us. We believe Nubank is uniquely positioned to become AI-first and a leader in the use of AI in financial services globally, and we're already starting to see the first breakthroughs. Since our early days, we've known that technology and data will be our strongest competitive advantage, being cloud-native and built entirely on modern architecture enables us to simulate, experiment, train and deploy foundation models at scale. Coupled with our proven ability to attract world-class talent, this puts us ahead of incumbent banks and regional fintech competitors and places us in a unique position globally. Over the past 12 to 15 months, we developed nuFormer, our proprietary approach for building large generalizable models based on advanced transformer architectures and self-supervised learning principles, similar to those powering world-class LLMs. These models provide a deeper understanding of customer behaviors and can be deployed across our critical risk and personalization engines. To reach this level of performance, the first generation of our nuFormer model was built with 330 million parameters and trained on approximately 600 billion tokens, an unprecedented scale of data by financial industry standards. Yet that represents only a fraction of our full data set, which spans trillions of tokens and reflects the vast scale and diversity of Nubank's platform. Our business model with principality at its core generates a deep repository of high-quality transactional and behavioral data, giving us a distinctive edge by enabling nuFormer to learn from richer context and continuously strengthen its predictive power. Historically, gains in credit performance have come from our main fronts, incorporating more and better data sources into models, expanding training samples or reducing bias within them, optimizing positive frameworks, including the use of complementary models that evaluate different dimensions of credit risk, and finally, refining modeling techniques from definition of targets to model architecture and feature engineering. The adoption of foundation models represents a radical expansion of this last frontier. It brings a research-driven approach that moves the needle through advances in model architecture and training processes, enabling rapid and continuous improvement as AI researchers push the boundaries of what's possible. When we applied this approach, the models were built to deliver an average improvement about 3x higher than what's typically observed in successful machine learning model upgrades. Translating this into business outcomes, our initial models enable a major upgrade to credit card limit policies in Brazil, allowing us to meaningfully increase limits for eligible customers while maintaining the same overall risk appetite. This successful breakthrough within an already robust underwriting model, like Credit Card Brazil, underscores the significant potential of these advanced approaches. We're now focused on scaling this innovation beyond Brazil, already in motion in Mexico and extending them across every part of Nubank from personalization and cross-sell to fraud and collections, further reinforcing both the strength of our model and our ability to execute at scale. That said, we're still just scratching the surface. As always, at Nubank, it's still day 1, but we believe that embedding AI into our business represents a once-in-a-lifetime opportunity to further differentiate Nubank from traditional banks. We're building on years of experience in model governance, privacy and large-scale model deployment to ensure we continue evolving responsibly. This means having robust processes to make sure our tools truly promote our customers' financial well-being with the right guardrails in place to bring these advanced models safely into production within a highly regulated environment. We'll continue to share our progress as this journey evolves. And with that, I'll hand it over to Lago, our CFO, to walk you through the financial highlights of the quarter. Thanks a lot. Guilherme Marques do Lago: Thank you, David, and good evening, everyone. To begin, I'd like to start with our credit portfolio. Total balances reached $30.4 billion in the third quarter, up 42% year-over-year on an FX-neutral basis, with very solid growth across all products. Credit cards accelerated during the quarter, supported by our ability to continuously enhance the precision of our credit models and increased limits for our customers, all while maintaining very healthy risk metrics as we will see in the following slides. At the same time, secure lending grew 133% and unsecured loans 63% year-over-year, reflecting the ongoing diversification and maturation of our portfolio. Together, secured and unsecured loans now account for nearly 35% of total balances, up from 27% a year ago. This reinforces our capacity to broaden the credit spectrum and serve a wider range of customers' needs over time. Moving to loan originations. We reached a record high of $4.2 billion in the quarter, up 40% year-over-year on an FX-neutral basis with growth coming from both unsecured and secured lending. In unsecured lending, performance was supported by the strong momentum in our SME portfolio and by new credit policies introduced for both business and individual customers. These updates are enabling us to safely expand eligibility and increase average loan sizes while keeping new originations more concentrated in lower risk segments. In secure lending, results were driven by strong originations in public payroll loans or Consignado, which grew nearly 130% year-over-year along with a gradual normalization of INSS loans. Now turning to deposits. Our balances reached $38.8 billion, up 34% year-over-year on an FX-neutral basis, while the cost of funding actually improved from 91% to 89% of interbank rates. This is a clear demonstration of our ability to grow volumes while enhancing efficiency, continuing to build a scalable and sustainable funding franchise across Latin America. In Colombia, deposits continued to grow steadily, even with funding costs below the interbank rate. In Brazil, we saw strong inflows across all segments, reinforcing the depth and the resilience of our deposit franchise. And in Mexico, we had anticipated some outflows following the recent reduction in deposit yields. This was a deliberate move that reduced our consolidated funding cost and this was fully aligned with both our expectations and our long-term strategy for sustainable growth. Recent trends in Mexico reinforce our confidence in our ability to continue expanding and strengthening our deposit franchise. Moving to net interest income. We reached $2.3 billion in the quarter, up 32% year-over-year on an FX-neutral basis, driven again by the continued expansion of our credit portfolio. Net interest margins contracted by about 40 basis points from the prior quarter. This reflects our disciplined approach to optimizing risk-adjusted returns as we continue to expand originations in lower risk segments, including in credit card interest-earning portfolios, unsecured loans also to lower-risk individuals and higher shares of SME and secured loans within our total interest-earning portfolio. While some of these products carry lower nominal yields, they strengthen the portfolio's overall quality and resilience over time, as you can see in the next slide. Our credit portfolio continues to outperform our expectations, supported by disciplined underwriting and a healthy mix shift towards customers and products with stronger risk-adjusted returns. Combined with better recoveries, these factors drove a 7% decline in credit loss allowance expenses quarter-over-quarter, also on an FX-neutral basis, mainly reflecting lower provisions in our 2 largest products, namely credit cards and unsecured loans. As a result of this lower cost of credit, our risk-adjusted net interest margins expanded to 9.9% in the quarter, underscoring the resilience and the quality of our portfolio. Next, looking at delinquency metrics for our consumer credit portfolio in Brazil. The 15-90-day NPL ratio remained well within expectations, ending the quarter at 4.2%, slightly below the historical third quarter seasonality. The 90+ day NPL ratio increased marginally to 6.8%, also very much in line with the expected seasonality and the underlying portfolio dynamics. Now finally, our coverage ratios remained solid, even though they declined modestly in line with the recent movements in credit loss allowance. We continue to maintain what we believe to be a quite robust provision buffer both over the total portfolio and specifically over the 90+ day NPL balances. Moving to gross profit. We delivered another quarter of solid growth, reaching $1.8 billion, up 32% year-over-year, also on an FX-neutral basis. The expansion in gross profit margin now to 43.5% reflects the consistent top line growth, combined with the continued improvement in the risk-adjusted performance that we saw in the prior slide. These trends reinforce the sustainability and the scalability of our business model as we continue to balance growth, profitability and risk discipline across the 3 markets in which we operate. In the third quarter, our efficiency ratio decreased slightly to 27.7%, reflecting continued progress in productivity and operating leverage. Yet, we will continue to invest intentionally and strategically to become the largest and the most loved retail financial institution in Latin America. These investments are fully aligned with our long-term value creation strategy, even if they sometimes create short-term pressures on costs. That all said, the structural trend remains clear, as we scale, revenue growth and disciplined cost management will continue to drive efficiency gains and margins expansion. Now to wrap up, we delivered a record high net income of $783 million and a record ROE of 31%, up 39% year-over-year, also on an FX-neutral basis. We achieved these results while we continue to deliver strong operational growth, always putting our customer at the very center of everything that we do, offering better products, lower fees and an exceptional experience. These results once again highlight the strength and the scalability of our model as well as our ability to combine growth with profitability. Now with that, we will open the call for questions. Thank you. Operator: [Operator Instructions] I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer. Guilherme Souto: Thank you, operator. Could you please open the line for Mr. Yuri Fernandes from JPMorgan. Yuri Fernandes: Congrats on delivering -- I think the debate from investors here, I'd love to hear your thoughts, David, are related to your provisions, Lago. Your cost of risk was lower. I think you are doing a risk migration, right, growing more middle income in Brazil, growing more secured lending. When we check your new Stage 3 formation, new Stage 3 formation improved. But I guess investors, they will try to understand the lower provisions this quarter that helped on EBIT. So if you can like provide some explanation for investors to understand what drove this lower provision, I think this will help with the understanding for the quarter. Thank you very much, and congrats again. Guilherme Marques do Lago: No, thanks, Yuri, for the question. Yes. I think asset quality has been positive over the past 2 quarters. I think this quarter, we have also seen kind of asset quality performing as per expectation, even it's likely better than expectations. We have also had some effects of the policies that we have intensified over the past now 3 to 4 quarters of reactivating customers in Brazil who had defaulted with us a few years ago and only now after they have cured their debt, we are also kind of offering them additional credit opportunity that has materially improved the recovery levels. And then finally, we actually have seen through both machine learning, but also the predictive AI technology and modeling that David alluded, the ability to actually have greater precision in some of the credit modeling techniques. So what you have seen is kind of asset quality performing in line or even better, but it's still, if I would now draw your attention, Yuri, to, let me go here, Slide 17, you see that the coverage ratio that we continue to have are at levels that we believe to be fairly robust in both the total balance as well as NPL 90+. Now let's see how it goes, but we are also kind of in the mid of the fourth quarter of 2024 now, it's November 13. And we continue to see asset quality performing relatively okay. So that's kind of the main background for the evolution of our CLA this quarter. Guilherme Souto: Operator, could you please open the line for Mr. Jorge Kuri from Morgan Stanley. Jorge Kuri: Congrats on the numbers. Great results. My question is around your net interest margin. I heard what Lago said about the mix of credit being responsible for the decline in NIM. I have -- I'm looking at just the nominal numbers and your interest income was up 14% quarter-on-quarter versus a loan book in total that was up 11%. So it doesn't seem that you're growing your income less than the assets, which would be sort of like a signal of mix deterioration. It's actually the other way around. But on the flip side, your interest expense was up 24% quarter-on-quarter versus your deposits up 6%. And so you talked about the cost of deposits coming down, but it's just in this -- in dollar numbers, it's kind of like doesn't add up. And so I'm just wondering if you can walk us through these dynamics and exactly what explains that NIM contraction. Guilherme Marques do Lago: Sure, Jorge. Look, 2 things on this. So first on the revenue and then on the cost. I think on the revenue side, we have seen the growth being kind of more heavily weighted into less risky assets, not only asset classes per se. For example, you can see that if you go to Slide 12, you can see that, for example, secured lending has outpaced the rest of the portfolio. Secured assets has no everything else constant, lower kind of yield levels. But even within lending and within credit card, Jorge, we are seeing kind of a faster growth on a balanced basis. towards less risky customers that would have, all else equal, kind of lower yields. So that is one of the things that would justify, but you correctly pointed out that we have also seen an increase in interest expenses, and that has come entirely from Brazil. So our average funding cost in Brazil has gone up and the average funding cost in Mexico and Colombia have been coming down. When we look at the average funding cost that we published on Slide 14, you will see kind of the -- what we call the cost of deposits as a percentage of the interbank rate going from 91% to 89%. And they may call the question, why, how do I kind of connect the dots, right? If you are lowering the cost of funding as a percent -- expressed as a percentage of interbank rates, how can your cost of funding expressed in dollars be going up? It's because the piece that is going up is the piece denominated in Brazilian reais, which is subject to the nominally higher interest rates of SELIC of 15%. So the weighted average cost of fund expressed as a percentage of the interbank deposit rate, which is what you see here on Slide 14, has come down. But the overall interest expenses, dollar-wise, has gone up a little bit. So the combination of lower asset yield because of the mix with a slightly more expensive funding base in Brazil has compressed net interest margins in the quarter, which is what you see on Slide 15 that has gone from 17.7% to 17.3%. What I would, however, point out is, when you're taking into account the asset quality or the cost of risk, you actually see an expansion in margin. And that is what is shown on the subsequent slide, which is Slide 16. Our risk-adjusted margin has actually gone up from 9.2% to 9.9%, which goes to show that even though we have kind of increased the growth towards less risky assets that has come at the expense of slightly lower asset yield. This has been more than offset by much lower cost of risk, which has led to the expansion of risk-adjusted NIMs. Jorge Kuri: All right, Lago. Thank you very much. That was very clear. And if you remind my follow-up on the previous question, on provisions. You mentioned recoveries stronger than expected. Would you mind quantifying that and what impact it had on the combined provision number? Guilherme Marques do Lago: We don't -- we are not disclosing this one-off impact, Jorge. It's basically the additional of the recoveries, mostly from the customers that we reactivated over the past now 3 quarters. This is a program that we have done by kind of offering a second chance to customers who defaulted was a few years ago have completely kind of paid down their debt and then we have seen that out of those customers, the recovery has been higher than we had booked for. But we are not disclosing the exact breakdown of the additional recovery coming from this program. Guilherme Souto: Operator, could you please open the line for Mr. Pedro Leduc from Itau BBA. Pedro Leduc: If I may, on credit cards, please. Last quarter, we saw a big increase in newly granted limits. And this quarter, we may be seeing some of the effects here. There's more cards active, more cards generating revenues, transaction volumes, the cards seem to be going up. Can you talk a little bit more about how you're seeing this rollout perform on the ground? It looks like you did another small increase now in 3Q. If you can talk about that as well. And I think it may tie up also to the -- what we're seeing in the stages and the probabilities. It seems like this growth is coming from slightly better quality mix. If you can also include that. I know it's a longer question, but I think you get the spirit. Guilherme Marques do Lago: Sure, Leduc. Thanks for the question. So look, we announced a relatively large credit limit increase program in the second quarter of 2025. And the rollout of that credit limit program was spread roughly 1/3 in the second quarter, 1/3 in the third quarter and 1/3 expected to be finalized in the fourth quarter. So we have not yet seen the full effects of that CLIP program materializing in the financial performance of the company. It's something that we will only see in full most likely towards the mid and end of 2026 because it takes some time for limits to converge into PV and for PVs to converge into IBB. So there's some leeway there as well. Second point, Leduc, you're right. I think a substantial portion of the credit limit was granted to less risky customers. And so kind of the average unit of risk that we have added has actually lowered over time. However, as we increase the limits to kind of lower-risk customers, we also decreased the flip side, the utilization, right? So I think if you have BRL 1,000 limits and we increased this by 20%, you would experience much higher utilization than if you have BRL 100,000 limits and we increased this by 10%, but both the utilization as well as the credit performance related to this credit limit increase have now both performed largely per our expectations. So nothing kind of deviates or forces us to revisit both from the offensive as well as on the defensive side, the pace and intensity of those movements. Now even though we did disclose in the second quarter that we saw a big CLIP, a credit limit increase, I don't think we should see this as a one-off, right? This is really a continuous enhancement of the programs that will not be kind of a straight line, but we will see kind of CLIP programs being introduced from time to time. This is what we've seen over the past years. And then if you go, Leduc, to what David mentioned at the beginning of his session about the implications of the predictive AI modelings to our credit underwriting, I would say that, first, we have introduced this to credit limit increases that has not yet been introduced to releases by which I mean we have been able to sharpen how we increase credit limits of existing customers. We have not yet applied this to the determination of the new customers to which we granted the initial line, which we call customer acquisition. We have also not introduced this to lending. And we have not introduced this to Mexico and Colombia. So I think there's still quite a lot of runways for us to see further improvements and enhancements in our credit underwriting performance. Guilherme Souto: Operator, could you please open the line for Mr. Mario Pierry from Bank of America. Mario Pierry: Congrats on the results. Let me double-click a little bit on Mexico and Mexico ARPAC of $12.50 that you're showing and which is a quite impressive number, right, especially given that Mexico is fairly new for you and the ARPAC is almost similar to Brazil. Can you give us like a little bit more details on the breakdown of this ARPAC between interest income and fees? Because -- and I ask this, right, because we saw the regulator in Mexico now proposing a cap on card interchange fees. So I was wondering what is your view on that? And how much that could impact your results in Mexico. Also staying with Mexico, you only give us data, right, the NPL data and coverage data for Brazil operations only. I was wondering if you could share any asset quality metrics from Mexico, that would be helpful. Guilherme Marques do Lago: Sure, Mario. Let me try to address each of those questions, and feel free to follow up if I miss any of them. So I think on Mexico, you mentioned about the evolution of the customer in ARPAC and cost to serve. And I would draw your and the attention of the others to Slide 7, where you can see the evolution of our customers in Mexico. It's now about 13 million customers, accounts for roughly 14%, 15% of the adult population of Mexico, but accounting for now nearly 25% of the bank population in Mexico. So we can easily say now that about 1 out of every 4 banked Mexicans are customers of Nubank, which makes us quite excited. And then as you said, you see kind of the ARPAC evolution in Mexico. Most of them are kind of interest related, both from credit card lending and floating from our deposit base. The fees, the interchange related to both credit cards and debit cards account for a smaller portion of the overall ARPAC. That said, Mario, I think you alluded to the public consultation that the Mexican government has recently issued aimed at capping the interchanges of both credit cards and debit cards in Mexico. We have, since this kind of came out, been in very active dialog with other industry participants and with the government itself. And even though that accounts for the smaller portion of our revenues, we are concerned with the idea of caps and price control there because they may actually inhibit, the financial inclusion and credit deepening than we have seen in Brazil and other countries as they make the unit economics of new-to-credit customers less compelling. So we are kind of in active discussions with all of the industry participants. We are very confident that kind of we will be able to find together as an industry to a good balance that will not put at risk our ability to promote together with other fintechs, the financial inclusion in Mexico over time. Mario, I may -- have I -- did I forget any of your questions? Mario Pierry: No, no, that's helpful. And then on the NPLs. And just to clarify, like when you say, right, that the fees are a smaller percentage, are we talking about like 15%, 20%. Any idea or new color you could give to us? Guilherme Marques do Lago: No, we don't provide this breakdown. But I think if you take a look at the financial statements that we posted with the regulators in Mexico, you will largely get a good proxy of kind of the weight of each of those components for us. But I think even if the, Mario, for example, let's assume that interchange account for a small portion. If you cap this in the magnitude that has been proposed by the government, the existing kind of business plan that we have, a significant portion of the new customers of the ones that we would bring from informality to the bank may be compromised, right? So we do believe that it's our obligation and duty to be able to share this very openly with the stakeholders in Mexico to continue to foster the competition and financial inclusion that we want to do so. Mario Pierry: Okay. And the second part of my question was on the NPLs in Mexico, as Mexico becomes more relevant, right? Like are you going to disclose the NPLs for the total group rather than just Brazil? And if you can make any comments on how that is behaving in Mexico and the coverage that you're seeing? Guilherme Marques do Lago: Yes. No, absolutely. We do expect that as Mexico gains relevance in our overall credit portfolio, we will start providing kind of a much more granular disclosure on its asset quality. Today, it still accounts for less than 10%, 15% of our overall book, but we are certainly ready, able and willing to provide those levels of the disclosures. The asset quality and asset performance in Mexico overall has been a fairly good story for us. I think we spent the good part of 2023 and 2024 kind of sharpening the data stacks and the models. And what you have seen over the past 12 to 18 months, it's a relatively strong acceleration of the growth of our credit book in Mexico, growing at a clip of about 50% to 70% on an annualized basis. But more than the top line growth or the size of the book, the asset quality has performed very much in line, in some cases, even better than expected. Also, we have recently launched kind of a lending product in Mexico. We have been kind of working primarily with credit card. And lending has been doing really, really well in Mexico. I wouldn't be surprised if differently from Brazil at some point in time, lending becomes an even bigger business for us in Mexico than credit cards. So I would say, yes, the left side of the balance sheet has expanded nicely in both kind of quantum and quality. And then on the right side of the balance sheet, as you may have seen, Mario, we have been kind of sequentially redesigning and repricing deposits. It has led to a fairly substantial drop in cost of funding in Mexico. And still preserving what we see very intensively there, which is primary banking relationship, transactionality, activation. So for most of the customers, it has actually been going up. We are an all-time high of transactionality there. So very excited with Mexico with what we're seeing. Still early days. But as David mentioned, it's playing out to be as strong, if not even stronger than Brazil. Mario Pierry: It's very impressive how quickly and how profitable you're growing in Mexico. Guilherme Souto: Operator, could you please open the line for Mr. Marcelo Mizrahi from Bradesco BBI. Marcelo Mizrahi: So my question is regarding the cost of risk again. So I understand what drives the cost of risk to go down. But as Lago has said, so about the campaign to recovery to bring back clients, so we are already seeing the number of active cards going up. So the question is, looking forward, this level of cost of risk, it seems that is the new level in the next quarters. So the growth of the NIM will come with this proportionality, so more from the cost of risk than from the net interest margin. Guilherme Marques do Lago: So thanks for the question. I think it will -- in terms of NIMs, starting with your -- the latter part of your question, it will be a function of both asset mix as well as LDR, right? So I think as we increase kind of -- we continue to increase the ratio and the weight of secured lending in our book, we could eventually see the continuous kind of lowering of the asset yield. But as LDRs go up, we should expect to see kind of NIMs even expanding potentially. So it will depend on the velocity with which we increase kind of our credit assets versus the velocity with which we continue to increase deposits in both Brazil, Mexico and Colombia. In terms of cost of risk, we don't provide guidance on cost of risk in the short or in the long term. What we have been doing, as you have followed us for some time, is we have been kind of measuring and managing the business with a paranoid focus on the short-term data that we collect on the margins. So far, the data has proven to be fairly encouraging and reassuring for us to continue to grow the book. However, as we have done in the past, if and when we see any deterioration in asset quality across any of the segments, any of the products or any of the geos, we will not hesitate to kind of -- to pull the brakes, reassess, revisit whether we will go. So that's one of the reasons why we are so hesitant to provide kind of a guidance on both top line as well as cost of risk. Marcelo Mizrahi: Can I just do a follow-up here on the LDR. So looking for the -- what is happening now in Mexico. So for me, it makes sense to see this -- part of this profitability coming from the leverage of the portfolio. So on the LDR part. Are you guys seeing that already or not? Guilherme Marques do Lago: Yes. Look, I think LDR in Mexico is about 15%, 1-5, right? So certainly, it's in many respects, one of the most liquid financial institutions that we may have in the region. Having said that, over the past 2 quarters, most of the expansion of NIMs in Mexico has come from the lowering of the cost of funding rather than any material changes in LDR. Going forward, however, I think that LDR will play a much bigger role than any material change in cost of funding. Guilherme Souto: Operator, could you please open the line for Mr. Thiago Batista from UBS. Thiago Bovolenta Batista: Congratulations for the results. I have one question, actually, one question divided into two, about regulation. The first part of the question is about mortgage. With the recent change in regulation on saving deposits and mortgage in Brazil, do you believe it is possible to start to operate in this market in the near future? And second, on the FGTS loans, with the change that we saw probably 1 month ago or less than that, do you believe that FGTS loans will be reduced in a material way? David Velez-Osomo: Thank you for your question. So we've looked at the mortgage space in Brazil, and certainly, there are a number of attractive angles, specifically around principality. But it's not a priority for us right now. It's not a product that I see yourselves really doing over the next couple of years. The main reason for that is we think about our balance sheet fundamentally as a small balance sheet that is well capitalized that has very high velocity and very high return on equity. So from that perspective, we're going to be picking products, especially credit products that have short duration, very data-intensive that gives us the opportunity to react very quickly to changing macroeconomic environments and that maintains -- it gives us a lot of agility. And obviously, mortgages is kind of the opposite of that. It does -- it's very long-term duration, removes a lot of agility. It requires a lot of long-term funding. So it doesn't really match with the type of products that we want to be offering directly from the balance sheet and perhaps down the road, there might be an opportunity to partner with somebody to actually do it, but it's not something that we -- that we'll be prioritizing right now. On FGTS regulation, yes, I think the regulation would have a decrease of our FGTS originations. But given the size of the portfolio and the rest of the lending products that we offer, it wouldn't really be material. So yes, effect on FGTS, but not really a material effect overall on the portfolio growth. Guilherme Souto: Operator, could you please open the line for Mr. Gustavo Schroden from Citi. Gustavo Schroden: Congrats on the results. Thanks for the call. Most of my questions were answered. So let me do a follow-up here. The first one is, I'd like to understand better this -- the asset quality. Indeed, the bit was on the lower ECL. So despite this some metrics like 90 days NPLs relatively stable and early NPLs improving, when we analyze the transfers to Stage 3 in both credit cards and loans, it is continually increasing, right? I mean it's rising. So I'd like to understand how we reconcile this increase in transfers to Stage 3 with this, let's say, lower risk credit portfolio you are adopting and this lower provision expenses in the quarter. Guilherme Marques do Lago: Gustavo, thanks for the question. Look, we've been -- I think other than what we've already mentioned related to the better-than-expected asset quality performance in some of the segments, especially with Credit Cards Brazil, I think the other positive surprise -- I wouldn't say surprise, I mean the positive outcome that we have had after kind of many months and years of investment is also on the ability to improve our collections engines and platforms, which has had kind of a material improvement in Brazil. And I think it will start to have material improvements in Mexico, most likely starting in the fourth quarter of 2025. But other than that, it's just kind of a general performance of the portfolio. There's nothing atypical or nothing abnormal that you would have seen over the past 2 to 3 quarters that we wouldn't expect to continue seeing in the next 2 to 3 quarters unless we see kind of material changes in macro. Gustavo Schroden: Okay. Okay. Understood. And my follow-up would be regarding Mexico. Assuming this, let's say, improving in cost of funding, we follow data from Mexico and we can see that you are improving the cost of funding there. Assuming a potential improvement also in loan-to-deposit ratio, and we also follow the NPL ratio, and we see the NPL ratio in Mexico under control. So do you think that assuming these trends you are posting Mexico, we can expect like some positive ROE or bottom line in Mexico soon? Guilherme Marques do Lago: So Schroden, I wouldn't guide in any way or form as we haven't done in the past on kind of the P&L or net income either for the company or for any of the legal entities. So I would stay away from trying to provide you any high conviction outlook on when we're going to become net income positive or ROE. That said, I'm much more comfortable providing you with our impressions of the profitability potential of Mexico. If you take a look at our business in Mexico, it is -- it posts actually unit economics that are as compelling, if not more compelling than Brazil's. It has higher ROA. It has higher ROE and allows us to actually provide kind of with material credit access to a portion of the population that it hasn't yet had no access to credit. If you take a look at the more than 13 million now, almost 14 million customers in Mexico, about 20% of those did not have access to kind of a banking or credit before joining Nubank. And we think that in Mexico, we enjoy a very favorable cost structure compared with many of the other players in the region that allows Nubank to play at segments that incumbent banks are unable and unwilling to play to price it lower and still have compelling kind of unit economics. And we are super excited with what lies ahead in Mexico. We are still very, very, very early. But as we continue to gain scale, we will see kind of economies of scale and operational leverage playing out there. In fact, today, Mexico already has a cost to serve that is about $1, which is much better than what Brazil had when it was at the same point in time with development of Mexico, and it already has kind of very encouraging ROEs and ROAs trends. Big question in Mexico become how fast the economy will truly digitalize and how much kind of a banking penetration will grow. We are now excited not only to witness this but also to be a very active agent in promoting this together with other players in the industry and with the Mexican government. David Velez-Osomo: The other point I would just add here is that if we wanted to be profitable in Mexico, we would be profitable already. It's a decision. We literally touch about on mechanization and we're profitable immediately. We have already had the scale to generate that profitability. But that would actually be a really bad decision. It would be sacrificing the future for a short-term decision. We've always told investors we're optimizing for the long run. We're really optimizing to try to make investments that will pay for long as possible. And this is a very attractive market. Another data point that I think Lago mentioned previously is, on the ARPAC question, this is a country has a 40% higher income per capita than Brazil and where credit cards are majority, about 80% are revolvers versus only in Brazil, about 10% to 15% for our portfolio are revolvers. So anyway, it's a big market, low penetration, a lot of the advantages that we have, like our capabilities on credit underwriting, the efficiency ratio. Good unit economics provide a really compelling investment opportunity. And so we'll continue investing the excess capital that we have in trying to maintain a leadership position in the country. Gustavo Schroden: Okay. Okay. Okay. That's a great answer. And as I said, we have followed your data in Mexico in the -- and we can see these trends improving. This is why I was asking about the potential profitability maybe sooner than we were expecting. But thanks again, and congrats on the results. Guilherme Souto: Operator, could you please open the line for Mr. Tito Labarta from Goldman Sachs. Daer Labarta: First, I have a follow-up question, Lago, on your comment on the higher interest expenses just driven by higher funding costs in Brazil and SELIC being a little bit higher, I think. But just to understand, because average SELIC only increased modestly in the quarter. Was there any impact perhaps from just more working days in the quarter. You had also launched the Turbo Money Boxes. I was wondering if that had any impact. I was a bit surprised by how much the interest expenses jumped. Guilherme Marques do Lago: So no, Tito, you're right, there were a few additional working days in the quarter, but it would have been equally offset by the revenues as well. But what you will see is that as we kind of took a more aggressive stance on the segmented portion of our deposits in Brazil, by which I mean, for a selected profile of customers that we think that are primary bank relationship customers or are prone to become primary banking relationship customers, we have been more aggressive with the Money Boxes, with the Turbo Cajitas and that has, all else constant, increased our cost of funding in Brazil. So that is unequivocal observation. What I was trying to allude only, Tito, is that how would you reconcile what I've just said with Slide 14, which is where we show kind of the cost expressed as a percentage of interbank rate coming down. And I was just trying to say that the reason why it comes down is because we do a weighted average of percentage of CDI, a percentage of IBR and percentage of TIIE in Mexico. And as both Colombia and Mexico went down, that line here on Slide 14 goes down, notwithstanding the fact that overall cost of funding denominated in dollar has gone up because of our deliberate intention to play more aggressiveness on the segmented roles of Cajitas in Brazil. Daer Labarta: Okay. No, that's very clear. That helps clarify a lot, yes. I mean we expected funding costs in Mexico and Colombia to come down. I was just a little bit surprised by how much that had gone up specifically in Brazil, and as you mentioned, more than offset by the revenues. So my second question is somewhat on the revenue. Just thinking on the loan growth, very good loan growth overall. But first on the secured lending, right? And David, you mentioned your FGTS could be a headwind, but it shouldn't have an impact. Do you expect that to be potentially offset by private payroll loans? I don't think you're necessarily growing significantly there. Just think about what could offset that FGTS potential headwind would be helpful. Guilherme Marques do Lago: Yes. No, absolutely, Tito. Look, let me put it this way. The secure lending class or segment that we define here is largely composed by FGTS, public payroll loans and private payroll loans. So grossly, those are the 3 components. You do still have a smaller portion that we call IBL, investment backed loans, but that's a much minor portion. We do expect to see a material headwind in terms of FGTS if the new regulation kind of prevails. But we do believe that this will be more than offset by an increase in public payroll loans at this point in time, more so than on private payroll loans. On public payroll loans, we have seen a fairly material uptick in our ability to originate public payroll loans in Brazil in the third quarter. We expect to see this in the fourth quarter as well. And as we see, nominal interest rates in Brazil finally coming down, we do expect to see portability going up as we have seen in all of the prior cycles, and that will give us the opening to actually get a disproportionately higher shares of the public payroll loan market in the country. Now going to your third and final piece, which is private payroll loans. We are very, very bullish on this product in the medium and in long term. We are still more cautious than some of the other players in the industry with respect to its cost of risk, mostly related to what we call employee-related collateral. But we are seeing this kind of improving quarter-after-quarter, and we are reflecting and watching this very carefully on when and how we will lean in more aggressively in the future. It's not something that we are taking as a base case now, but we are certainly paying very close attention to that. For now, public payroll loans is the one that will offset the slowdown in FGTS, Tito. Daer Labarta: That's very clear. Thanks a lot, Lago. And congrats on the results. Guilherme Souto: So thank you, everyone. We now have approached 60 minutes of the call. So we are now concluding today's call. On behalf of Nu Holdings, our Investor Relations team, I want to thank you very much for your time and participation on Nu earnings call today. Over the coming days, we'll be following up with questions received tonight but we are not able to answer. And please do not hesitate to reach out to our team if you have any further questions. Thank you, and have a good night. Operator: The Nu Holdings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the Quantum Corporation Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded for replay purposes. It is now my pleasure to introduce your host, Quantum's Vice President, Corporate Affairs and Corporate Secretary, Tara Ilges. Please go ahead. Tara Ilges: Good afternoon, and thank you for joining today's conference call to discuss Quantum's Second Quarter Fiscal 2026 Financial Results. With me on today's call are Hugues Meyrath, Quantum's CEO; and Laura Nash, Chief Accounting Officer. Following management's prepared remarks, we will open the call to questions from analysts. Before we begin, I would like to remind you that comments made on today's call may include forward-looking statements. All statements other than statements of historical fact, should be viewed as forward-looking including any projections of revenue, margins, expenses, adjusted EBITDA, adjusted net income, cash flows or other financial operational or performance topics. These statements involve known and unknown risks and uncertainties that we refer to as risk factors. Risk factors may cause our actual results to differ materially from our forecast. For more information, please refer to the detailed descriptions we provide about these and additional risk factors under the Risk Factors section in our 10-K and 10-Qs filed with the Securities and Exchange Commission. The company does not intend to update or alter forward-looking statements once they are issued, whether as a result of new information, future events or otherwise, except where required by applicable law. Please note that today's press release and management statement during today's call will include certain financial information in GAAP and non-GAAP measures. We will include definitions and reconciliations of GAAP to non-GAAP items in our press release. With that, it's my pleasure to turn the call over to Quantum's CEO, Hugues Meyrath. Hugues Meyrath: Thank you, Tara, and good afternoon, everyone. Thank you for joining us for our second quarter earnings conference call. As announced earlier this afternoon, we made solid progress during the quarter with revenue at the high end of our guidance range. Non-GAAP operating expenses, $5 million lower from the prior quarter and positive adjusted EBITDA. These results demonstrate the initial benefits of the restructuring we implemented in June. Although there is still more work to be done, I believe this puts the company on the right track and sets the stage for continued progress in the quarters ahead. Also notable during the quarter, we reached a key milestone toward our goal of becoming debt-free by entering into a definitive agreement with Dialectic to convert approximately $52 million in term debt to senior secured convertible notes subject to shareholder approval. At the same time, we also eliminated the existing leverage and minimum liquidity requirements and agreed that $15 million of proceeds from our standby equity purchase agreement can be used for additional working capital if required. This important milestone in our financial transformation provides increased financial flexibility to execute on our operating initiatives and revitalized go-to-market strategy. To underscore this point, I can confidently say that this is the best financial position that Quantum has been in for some time. Assuming we receive shareholder approval for the prior reference debt exchange, the company will have eliminated $140 million in total debt from the balance sheet since the peak debt in 2020. As I discussed last quarter, since taking on the CEO role, I focused on building a leadership team and Board of Directors that combine deep market expertise with operational excellence. Most recently, we added Geoff Barrall as Chief Product Officer, who is highly respected technology innovator and leader with decades-long track record across the enterprise storage industry. He founded BlueArc, served as CTO of Hitachi Vantara and most recently was CPO at Index Engines, where he led product and engineering strategies that shaped several category defining storage and data management platforms. At Quantum, Geoff is conducting a comprehensive review of our product portfolio and pipeline, identifying along with sales where we can deliver the greatest value, sharpen road map priorities and align engineering investments directly with customer needs and market opportunities. His leadership is ensuring that our innovation engine is tightly focused on the solutions and use cases where Quantum can lead and win. This alignment across product, sales and customer success is already fostering a faster, more data-driven decision cycle, one that's anchored in real-world customer feedback and measurable return on investment. As part of our revitalized go-to-market strategy, our CRO, and I met with more than 60 customers and partners this quarter. What this confirmed is that Quantum has a very loyal customer and partner installed base as well as a very solid sales team. Our customers believe in the value we provide and they want us to succeed. Regionally, we're seeing strong execution across the globe. EMEA continues to execute and perform well. APAC revenue more than doubled quarter-over-quarter following our shift to a new distribution model. As a reminder, we nominated new exclusive distributors after ending a relationship with Quantum Storage Asia, also known as QSA. QSA is an unrelated and unaffiliated entity and is not authorized to use our name, sell our products or sell our support. Under Gregg Pugmire's leadership, the Americas business rebounded and outperformed other regions, reflecting the tighter structure and coordination between inside and field sales teams. I would also like to point out that we closed the quarter with one of the largest backlogs in recent history, over $25 million compared to our historical target range of $8 million to $10 million underscoring strong sales traction and customer confidence. Ultimately, our focus remains on the customer experience, aligning more deeply with trusted long-term partners to deliver transformative data solutions at scale across industries and borders. One of the most meaningful proof points this quarter was winning the Library of Congress 100-year Archive project. After a rigorous 2-year evaluation, they moved away from a competing platform and selected Quantum's ActiveScale Cold Storage and Scalar i7 RAPTOR to preserve the nation's most valuable digital archive for generation to come. This wasn't just a competitive win. It was validation of the architecture we've been building. ActiveScale is unlike anything else on the market. It's an end-to-end object storage platform with intelligent tiering across flash disk and tape, so customers can get the right performance at the right cost as data ages from hot to hold. Our patented 2-dimensional erasure coding delivers a high level of durability, efficiency, and cyber resilience that traditional object stores can't match, which is exactly why an organization like the Library of Congress chose Quantum. Scalar i7 RAPTOR is the backbone of the solution. It's the industry's densest tape system, delivering up to 200% more capacity per rack, outstanding power efficiency and an automated cyber resilient architecture. It's built for true hyperscale archiving and customers see that. It recently achieved Veeam Ready status and won Best of Show at IBC, Europe's largest media and entertainment conference reaffirming our leadership in secure high-density storage for markets like government, research and media. And we're building on that leadership. Last week, we introduced new capabilities in ActiveScale that fundamentally changed what cold data can do. With industry first ranged, restore and more than 5x faster access to small objects, customers can now pull back only the data they need instead of rehydrating entire files. That means long-term archive and AI data lakes can behave like active query ready data sets. Cold data becomes live data, instantly usable for AI training, inference, analytics, compliance, you name it. No other vendor can do that. On the innovation front, I also want to highlight our strategic partnership with Entanglement. They chose Quantum as the storage fabric for their next-generation AI and HPC data centers. The future of AI isn't just about faster compute. It's about secure, scalable, high durability data infrastructure that can feed those compute engines continuously and efficiently. Our solutions give them exactly that: tiered sovereign cyber resilience storage with the scale and performance AI requires. Together, we're enabling a new class of regionalized AI infrastructure, one that brings compute to the data, protects the data with post-quantum encryption and supports massive AI and HPC workloads at scale. This partnership underscores something we're seeing across the market. The next era of AI depends on the intelligent data platform and Quantum is becoming the platform of choice. With that, let me turn the call over to Laura Nash, our Chief Accounting Officer, to review our second fiscal quarter results in more detail and our third fiscal quarter outlook. Laura, please go ahead. Laura Nash: Thank you, Hugues. Good afternoon to those joining us on the phone and webcast. I will provide an overview of the company's GAAP and non-GAAP financial results for our second fiscal quarter 2026 ended September 30, 2025. Before I begin, I would like to emphasize that all comparisons to financial figures in prior periods reflect the company's previous restatement of financial results as well as certain revisions to immaterial misstatement of published quarterly financial results for the fiscal year 2025. Revenue in the quarter was $62.7 million compared to $64.3 million in the first fiscal quarter of 2026 and $71.8 million in the prior year second quarter. We saw a notable increase in backlog to over $25 million at the end of the second quarter which is significantly above our historical target run rate of $8 billion to $10 billion and has given us a strong start to fiscal third quarter. GAAP gross margin for the second quarter was 37.6%, compared to 35.3% in the prior quarter and 42.7% in the fiscal second quarter of 2025. Although we still have more work to do in order to expand our gross margins back above 40%, the sequential improvement in the second quarter reflects the initial operating efficiencies from our restructured service organization. GAAP operating expenses for the second quarter were $31.7 million, compared to $35.3 million in the prior quarter and $36.2 million in the year ago quarter. Operating expenses on a non-GAAP basis for the second quarter were $24.8 million compared to $30 million in the fiscal first quarter of 2026 and $30.4 million in the year ago quarter. The $5.2 million sequential reduction in operating expenses and $5.6 million reduction from the year ago quarter primarily reflects the realized savings from a lowered cost structure following on those recent restructuring actions in the current fiscal year. GAAP net loss for the fiscal second quarter was $46.5 million or a loss of $3.49 per share compared to a net loss of $17.2 million or a loss of $1.87 per share in the previous quarter and a net loss of $12.2 million or a loss of $2.54 per share in the year ago second quarter. The primary driver for the increase in our net loss was due to the most recent debt amendment to our term line. As Hugues previously mentioned, this amendment provides us with covenant relief and access to proceeds from the standby equity purchase agreement for working capital. It was treated as a partial debt extinguishment for accounting purposes and resulted in a sizable noncash loss, largely due to the issuance of the forbearance warrants. The warrants were recorded at a fair value of approximately $25 million and our liability classified which will introduce some volatility into our GAAP earnings on a go-forward basis as the warrant valuation is adjusted for our stock price at each reported period. Non-GAAP loss for the second quarter was $7.1 million or a loss of $0.54 per share compared to a net loss of $14.5 million or a loss of $1.58 per share in the prior quarter and a net loss of $7.4 million or a loss of $1.54 per share in the same quarter a year ago. The improvement in non-GAAP net loss for the quarter reflects a combination of the improvement in gross margin and a significant reduction in operating expenses, while we continue to bear approximately $6 million of interest expense per quarter, as we execute on our plans to become debt free, we will expect to benefit from the reduced interest burden. Adjusted EBITDA for the second quarter improved sequentially to a positive $0.5 million from a negative $6.5 million in the first fiscal quarter of 2026, and compared to a positive $1.1 million in the prior year quarter. The achievement of positive adjusted EBITDA above our expectation of approximately breakeven for the fiscal second quarter was primarily driven by the execution of our restructuring initiatives that significantly lowered our cost structure over the prior quarter. Turning to the overview of debt and liquidity at quarter end. Cash, cash equivalents and restricted cash at the end of the fiscal second quarter were approximately $15.3 million. Total outstanding term debt at quarter end was $106.1 million and company's net debt position was approximately $90.8 million. As Hugues previously mentioned, in late September, the company announced a definitive agreement to restructure approximately $52 million of outstanding term debt held by Dialectic for senior secured convertible notes, which is subject to shareholder approval. Upon closing, the proposed debt exchange transaction will meaningfully reduce the company's future outstanding debt and interest expense while also increasing our overall liquidity and financial flexibility. Turning to the company's outlook for the fiscal third quarter of 2026. Revenue for the third quarter is expected to be approximately $67 million, plus or minus $2 million. We expect the third quarter non-GAAP operating expenses to be approximately $25 million, plus or minus $2 million, reflecting the continued realized benefit from our most recent cost reduction actions. As a result, non-GAAP adjusted net loss per share for the fiscal third quarter is anticipated to be a negative $0.51 plus or minus $0.10 per share based on an estimated 14 million shares outstanding. Adjusted EBITDA for the fiscal third quarter is expected to be positive $1 million, plus or minus $1 million. With that, I'll now hand the call back to Hugues. Hugues Meyrath: Thank you, Laura. In closing, the second fiscal quarter marked a pivotal step forward for Quantum with initial evidence of progress from the restructuring actions we've taken, combined with tangible proof points resulting from our refreshed leadership and reinvigorated sales team. We've fortified our financial foundation by significantly reducing operating expenses, added liquidity by raising additional capital and proposed a transformative debt exchange to decrease our outstanding debt by 50%. With renewed customer loyalty, a reenergized team and sharpened go-to-market strategy, Quantum is poised for growing momentum and value creation in the quarters ahead. With that, I'll now turn the call to the operator for the Q&A session. Operator: [Operator Instructions] We take the first question from the line of Elle Niebuhr from Lake Street Capital Markets. Elle Niebuhr: This is Elle on for Eric Martinuzzi. I was just wondering if you could give a little more color on your pipeline build. So given the new senior sales additions, what is the current health of the North American pipeline? And then are there any new lead development processes implemented recently? Hugues Meyrath: Yes, I can touch base on that. The pipeline is actually pretty good. As we mentioned, we have record backlog in the $25 million range. It's really a bit all over the place, all over the product line from tape, tape media anywhere DXi has a pretty solid pipeline as well. And StorNext, like it's pretty much across the board. So no specific issues in the pipeline right now. I think the changes in the sales force have been really impactful. The team is very energized. And frankly, we see our 3 geographical teams competing with each other, which is great. So it's a positive dynamic. With regard to lead generation, we actually are changing the lead generation program and trying to focus on qualifying leads down to opportunities and pass some of those to our channel partners. So it's part of -- part of our way to reinvigorate the channels is not the focus just on leads, but just try to qualify them as far as we can to the finish line before we hand it over to our partners. So I'm really pleased with the progress so far. Elle Niebuhr: Awesome. Good to hear. And then one more for me. Just going off of product R&D, what are your development priorities for DXi backup appliances, the Scalar tape libraries and the StorNext file management software? Hugues Meyrath: Yes, I mean, good question. And we have a lot of products in the portfolio. I think from a tape library perspective with i7 launching, we feel like our focus right now is scaling manufacturing, and it's really in the finished touches of the product, right? So it's about trying to build and sell as many of those as possible this kind of the phase we're in. And this could be a really big product for us. ActiveScale Cold Storage and ActiveScale in general has its own dedicated team. There was a press release yesterday with the Ranged Restore, and we talked about it during the call. So they're on the path of continuing to improve and specifically, for us the winning combos, having object store focused on cold storage and whatever we can do that's differentiated because it's the combo of ActiveScale and tape libraries together make a killer combo right now in the market. But they're -- they have their own team, so we don't really have to prioritize that versus something else. StorNext, we have a new Chief Product Officer, Geoff Barrall, StorNext is super important to us. So we're in the midst of [ reinvigorating ] the road map on StorNext. And as we talked in the prior calls, it's a very important product for us. We have a huge installed base. We're getting a lot of feedback daily from our customers as to what they need. So we're realigning resources to focus on that and make sure we put more energy into our core StorNext customers. With regards to DXi, I think it's a product, again, like in good shape with its own separate development team. So our focus right now on DXi really is about lead generation conversion to opportunities and really scaling sales onto the DXi side of things? Operator: We take the next question from the line of Nehal Chokshi from Northland Capital Markets. Nehal Chokshi: That backlog number is jaw-dropping, congratulations. That's amazing. So let's talk about that backlog. Let's frame this up in terms of bookings. Well, first, before we do that, that backlog is just product? Or is that kind of plus book services as well? Laura Nash: It's Laura here. Thank you for your questions. So the backlog is product. Nehal Chokshi: Product only. And therefore, product bookings would have to be up -- sorry, just give me a second. So product bookings were up 28% year-over-year, at least. Is that correct? Laura Nash: So I think -- and Hugues can add in here. I think what we're seeing is the sales team was really executed well towards the end of the quarter. And where we're seeing kind of a significant effort to drive the revenue linearity. And I know we've discussed previously to make sure that we could start to get kind of a more linear revenue and invoicing pattern. So Hugues, I don't know if you have anything further to add there? Hugues Meyrath: Yes. I don't have on top of my mind what the number was a year ago. But from a mix, there was a very strong mix across the product as well. We definitely have a little bit of manufacturing limitations in terms of our ability to shift the low end tape libraries. So there's a bit of that. You have some hyperscaler demand in there. And with the new sales team in place, a lot of people have been closing a lot of deals, late in the quarter, and we do not have the ability to ship them this quarter. So that backlog is going to be useful as we enter the next quarter, the current quarter. Nehal Chokshi: Got it. And is there a significant customer concentration in the backlog? Hugues Meyrath: Sorry, I didn't hear the question. Do you mind repeating? Nehal Chokshi: Of that $25 million product backlog, is there a significant customer concentration, especially given that there's some hyperscalers there? I mean is there like [ 15%, 20% ] of that backlog to some customer, or anything like that? Hugues Meyrath: No, it's not specifically to one hyperscaler, it's not, it's fairly blended across products. There is a little bit from one of a hyperscaler but not in a meaningful way that this would skew this off. Nehal Chokshi: Did that Library of Congress one go into backlog? Or is that -- was that recognized into revenue within the quarter? Hugues Meyrath: It's in backlog. Nehal Chokshi: It's in backlog. Okay. Would that be potentially the largest element within your backlog then? Hugues Meyrath: I mean Library of Congress is a -- go ahead, Laura, yes. Laura Nash: I was going to say, yes. So there is a mix of customers, geographies and product types within that. Library of Congress is one component, but not necessarily the largest component. Nehal Chokshi: Okay. All right. So the bottom line is here is that you are seeing significant product momentum. And it sounds like you're attributing this to the changes in the organization that you brought to the table. Is that correct? Hugues Meyrath: I think it's certainly a component that sales has been executing extremely well. For sure. I mean, between the beginning of the quarter and the last day of the quarter, we've seen a change in sales momentum in sales culture, where we did accelerated bookings throughout the quarter and they continue to close deals like the first month of this quarter as well. So I think it's a good sign from a recovery perspective. Past that, like I think it's an endurance race, right? We have to deliver quarter after quarter. And I think they do have that mindset. So -- but it's definitely -- definitely feel a good moment for the sales team. Nehal Chokshi: Okay. And don't you guys have a significant federal vertical exposure? Hugues Meyrath: We do have some federal business as well. I would say it's probably understaffed in an area where we need to put more heads into, to go back and grow the business. Nehal Chokshi: Okay. But the government shutdown did not impact that portion of the business there, it sounds like. Hugues Meyrath: Yes. I mean not significantly, but I think now we have to go back and flow some of those deals, right? So fortunately, we're back on track there. Nehal Chokshi: Okay. And then just given this significant product bookings backlog here, I mean, your $65 million implies that your product revenue would still be down year-over-year. Just walk us through the logic on why you're guiding that way given the significant bookings momentum that you saw through the September quarter and through the first month -- first 1.5 months of the December quarter. Hugues Meyrath: So you're asking why we're guiding so low in the next -- in the current quarter. Nehal Chokshi: I mean that implies that you're kind of expecting a big falloff in bookings momentum. Is that what implying or no? That's the question. Hugues Meyrath: Yes. Look, I mean, there are a couple of challenges we still have that I'm not 100% comfortable with, right? We definitely had a huge spike in bookings, like I said, it's an endurance race, and it's the first quarter as CEO. And I understood first quarter for our CROs, it's the first quarter for North America, VP, I think we did great. But we have to continue to close and there was an impressive rate the sample of 3 to 4 months, right? So I think fundamentally, there's nothing to indicate that they can't continue to execute on that. But we definitely want to make sure that we provide like -- we're on solid footing as move forward and don't overpromise. I do think from a supply chain perspective, we still have some challenges, most of them are associated with the manufacturing of the tape libraries. I think we left money on the table, specifically in the lower and mid range market in tape libraries because of our inability to manufacture and ship fast enough. And I think that challenge expands a little bit to even the higher end of the tape libraries. I think our transition to Avnet is not fully complete. And that causes a little bit of a pause as to how we can monetize some of those bookings in the current quarter. Nehal Chokshi: Okay. Got it. That's helpful. Final question for me. Product gross margin while gross margin did improve significantly overall, Laura, as you know, that's because of basically cost takeouts in the service organization. When we look at the product gross margin, it's still down like 500-plus basis points year-over-year. Can you put a narrative behind why that is? And do you expect an improvement on that product gross margin, and if so, why? Hugues Meyrath: Yes. I mean I can give you a macro reason first before we go into the details, but the biggest issue we have is we have too many SKUs, we have too many platforms, and there's tightness in many of the platforms we have from a supply perspective. Prices are going up on some of the levers, some platforms have like aging DDR4 in there, which is tight. So I think there's -- in general, the supply chain is tight across the board from a cost perspective and quite -- not super consistent from a pricing perspective. And I think that's kind of something we need to work through. We are focusing on reducing platforms and figure out who the optimum partner is for us and how we stream on our supply chain so that we can deliver more consistent margins forward. It's something that takes though like 2, 3 quarters to get through, but definitely get the message, and I think a lot of tightness right now in the supply chain that affects the cost. Operator: [Operator Instructions] As there are no further questions, we conclude today's conference call of Quantum Corporation. Thank you for your participation. You may now disconnect your lines. .
Operator: Good afternoon, and welcome to the Beazer Homes Earnings Conference Call for the Fourth Fiscal Quarter and Full Year Ended September 30, 2025. Today's call is being recorded, and a replay will be available on the company's website later today. In addition, PowerPoint slides intended to accompany this call are available in the Investor Relations section of the company's website at www.beazer.com. At this point, I will now turn the call over to David Goldberg, Senior Vice President and Chief Financial Officer. David Goldberg: Thank you. Good afternoon, and welcome to the Beazer Homes Conference Call discussing our results for the fourth quarter of fiscal 2025. Before we begin, you should be aware that during this call, we will be making forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors described in our SEC filings, which may cause actual results to differ materially from our projections. Any forward-looking statement speaks only as of the date the statement is made. We do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is simply not possible to predict all such factors. Joining me today is Allan Merrill, our Chairman and Chief Executive Officer. On our call today, Allan will discuss highlights from the full year, the current operating environment, including the discussion of both our operational response and our strategic positioning and the progress we're making towards our multiyear goals. I will then provide some highlights from our fourth quarter results, guidance for our first fiscal quarter fiscal '26 results and some commentary on how we are thinking about full year fiscal '26 expectations. Updates on our balance sheet and liquidity, including our outlook for capital allocation and land spend and finish with a discussion about our shareholder rights agreement. Allan will conclude with a wrap-up after which we will take any questions in the remaining time. I will now turn the call over to Allan. Allan Merrill: Thank you, Dave, and thank you for joining us on our call this afternoon. Fiscal '25 was a productive but challenging year, highlighted by both community count growth, and prudent balance sheet management as we operated in a very difficult new home sales environment. In the fourth quarter, we were able to improve our sales base, including in Texas, and exceed our expectations for home closings and profitability. For the full year, we were able to make continued progress on our multiyear goals. Specifically, we finished fiscal '25 with an average active community count of 164, up 14% from last year. We reduced our net debt to net cap below 40% and we grew book value per share to nearly $43 from a combination of profitability and the impact of share repurchases. It is certainly the case that fiscal '25 didn't go exactly like we expected at this time last year but I'm very proud of the resilience our team demonstrated. We effectively responded to the environment, allowing us to remain on track to achieve our multiyear goals for community count growth, deleveraging and book value per share accretion by the end of fiscal '27. By this time in the quarterly reporting cycle, you've already heard from our peers that the macro environment remains quite challenging as consumers grapple with both confidence and affordability and builders work through excess inventory. For now, conversion and sales paces remain well below historical norms and aggressive incentives and move-in ready specs are still required to sell homes. However, we are encouraged by the recent decrease in months supply of new homes and the improvement in affordability arising from wage growth and lower mortgage rates. If these trends persist, we should see better selling conditions over the next year. But rather than waiting for the environment to improve, we are taking actions to enhance returns and capitalize on our differentiated strategy. Over the course of fiscal '25, we took steps to improve both profitability and balance sheet efficiency. Relative to profitability, we rebid our material and labor costs, which has resulted in savings of about $10,000 per home so far. These savings should be fully realized in our closings by the fourth quarter and we continue to pursue additional opportunities. In the fourth quarter, we completed a reduction in force, a painful but necessary reflection of the current environment, which resulted in run rate savings of about $12 million per year. And we made product and sales leadership changes in several divisions, including Houston and San Antonio. Our Texas pace improved to 1.8 in the quarter, up from 1.3 last quarter. To enhance balance sheet efficiency, we re-underwrote our portfolio to identify assets that were not a strong fit with our strategy, this led to asset sales of $63 million and a profit contribution of about $7 million. This portfolio realignment will continue in fiscal '26 with nonstrategic asset sales likely to generate more than $100 million in capital for reinvestment and likely to occur at or above book value in the aggregate. We increased the share of our lot position controlled by options from 58% to 62%, and we completed a sale leaseback of about 80 of our model homes to free up cash for higher return uses. Our entire industry seems to use some version of the same affordability playbook. Higher purchase incentives, smaller square footage and fewer features, all help buyers attain home ownership. But they don't excite homebuyers and they don't address all of the costs that are straining affordability. At Beazer, we are focused on the total cost of homeownership by offering lower mortgage rates through competition and elimination of the middleman, lower utility bills from dramatically more efficient homes and lower insurance premiums through competition and advanced building practices. On this slide, we've shown these savings for a recent closing here in Atlanta. This example demonstrates savings of about $3,000 per year versus comparable new homes. That represents nearly $50,000 in buying power or additional value for our buyers. And this is demonstrative of what we can do for every home buyer. We think that's an incredibly compelling value proposition in a housing market hampered by affordability constraints. The next step in our journey and likely the most important one for our shareholders, is to ensure that homebuyers and realtors in our market know what we have created. Last month, we introduced Enjoy the Great Indoors. Our campaign to increase brand awareness and help our sales team explain the many benefits of owning a Beazer Home. Strategically, we believe we are uniquely well positioned to offer homebuyers solutions that address affordability concerns. Both our operational responses and our differentiated strategy are designed to help us achieve our multiyear goals for growth, deleveraging and book value per share accretion. With 169 active communities at year-end and nearly 25,000 active lots under control, we are confident we can reach our greater than 200 community count goal over the next two years. In fiscal '25, we were able to deleverage to just under 40%, an important milestone on our progression. We anticipate decreasing net leverage by several points in fiscal '26 and our goal remains to reach a net debt to net capitalization ratio in the low 30% range by the end of fiscal '27. Finally, we grew book value per share to nearly $43, extending our track record for strong book value growth. Our goal is to generate a double-digit CAGR in book value per share through the end of fiscal '27 through both profitability and share repurchases, which would equate to a book value in the mid-50s. With that, I'll turn the call over to Dave. David Goldberg: Thanks, Allan. During the fourth quarter, we closed 1,400 homes well ahead of our expectations. Our stronger-than-anticipated closings in the quarter were a function of two factors: First, we executed 83 model home sale leasebacks to improve balance sheet efficiency. Second, we sold more specs that could close in the quarter than we expected. Given the competitive environment currently, the margins on the specs we sold and closed in the quarter were below our expectations heading into the quarter. The combination of a higher percentage of specs and larger incentives resulted in a 17.2% gross margin. On the positive side, our strong fourth quarter closings led to improved operating leverage in the period with SG&A at 9.6% of total revenue. All told, in a tough market, we were able to deliver fourth quarter adjusted EBITDA of approximately $64 million and $1.02 in diluted earnings per share. With that said, let's detail our expectations for the first quarter compared to the same quarter last year. Our outlook contemplates market conditions remaining challenging, with incentives elevated as builders push calendar year-end closings. We expect to sell approximately 900 homes with specs representing up to 75% of the total. We expect to end the first quarter with about 170 communities. We anticipate closing about 800 homes in the quarter with an ASP around $515,000. While spec sales will remain elevated, we expect a lower portion of these sales to close in the period compared to the fourth quarter. Adjusted gross margin should be around 16%. This is primarily being driven by the higher level of incentive on specs and a very low share of to-be-built sales in the quarter's closings. SG&A total dollar spend should be relatively flat compared to last year's first quarter. We expect land sale revenue to be about $10 million with minimal P&L benefit. This should generate adjusted EBITDA between breakeven and $5 million. Interest amortized as a percentage of homebuilding revenue should be about 3%. We should generate a net tax benefit of approximately $2 million. All of this should lead to a net loss of about $0.50 per diluted share. While it's difficult to predict full year results at a seasonally slower time of the year, we wanted to provide some commentary on our full year goals. Simply put, we want to meet or exceed our fiscal 2025 adjusted EBITDA despite beginning the year with fewer homes in backlog and lower first quarter margins. It won't be easy, but here's why we think we can do it. We expect a combination of community count growth and a slightly improved sales pace, especially in the third quarter to help generate a 5% to 10% increase in closings versus fiscal 2025. ASP will also be up from a changing mix of communities delivering homes. We expect first quarter gross margin to represent the low point for the year, and we have a clear strategy to deliver about 3 points of margin improvement by the fourth quarter, assuming no reduction in current incentives. Here are the catalysts, we believe will drive this improvement. First, the realization of the savings from our rebidding should grow sequentially over the year, adding about $10,000 a home or nearly 2 points of margin by year-end. Second, we expect to benefit from a positive mix shift within our existing communities. Our most aggressive incentives have occurred in our communities priced below $500,000, typically 3 to 5 points above our higher ASP communities. The share of our closings from these lower-priced communities should fall by double digits by the fourth quarter. And third, our newest communities are performing very well. The 48 opened since April 1 have generated margins more than 200 basis points above our reported margins. These new locations should grow to more than 1/3 of our closings by year-end. Any reduction in incentives or a more favorable mix of to-be-built homes would only help. Estimating the timing and exact impact of these factors is difficult but they should all contribute to sequential margin improvements this year. Finally, SG&A as a percent of total revenue should be down compared to our full year fiscal 2025. Our balance sheet remains healthy with total liquidity at the end of the fourth quarter of nearly $540 million, with $215 million of unrestricted cash nothing drawn against our revolver and no maturities until October 2027, we have ample resources to fund our growth plans in fiscal '26 and still allocate capital toward our other goals. In fiscal '25, we repurchased about 1.5 million shares for about 5% of the company. We continue to view our stock's current valuation as compelling, and we expect to repurchase at least that many shares in fiscal '26. During the fourth quarter, we spent $122 million on land acquisition and development, bringing our full year fiscal '25 total to $684 million. At the same time, we generated $63 million in land sale proceeds for the full year, leaving our net land spend just above $600 million. At year-end, our active controlled lot position was nearly 25,000 with 62% of our lots under option contracts. With our 2027 community count under control, we're able to be very disciplined in our land spending allowing us to allocate capital to maximize flexibility and returns. Finally, earlier this week, our Board unanimously authorized the company to enter into a new rights agreement to continue the protection of our deferred tax assets. At the end of September, our deferred tax assets totaled more than $140 million, about $84 million of which related to energy tax credits. The rights agreement is critical to reduce the risk of an unintended ownership change, which would limit our ability to realize benefits related to these credits. We would note two important points about our rights agreement. First, at the end of the year, our DTA represented more than 10% of our book value and that percentage is expected to grow through June 30 as we continue to recognize additional energy efficiency credits. Second, the agreement will be presented for shareholder ratification at our upcoming annual meeting in February and will expire if shareholders do not support it. Ultimately, our board took this action because they believed it was prudent to protect these assets, which were earned through our incorporation of energy efficiency products in our homes on our way to becoming America's #1 energy-efficient builder. With that, I'll now turn the call back over to Allan. Allan Merrill: Thank you, Dave. 2025 was certainly challenging, but it was also productive. We demonstrated both operational agility and strategic discipline and we made progress towards each of our multiyear goals. Although we don't expect 2026 to be dramatically different at a macro level, we are encouraged by following new home inventories and better affordability. But we aren't just waiting around hoping for better conditions. With a leaner, more efficient balance sheet and numerous catalysts for margin improvement, we're positioned to make further progress toward our multiyear community count, deleveraging and book value growth goals. Our homes are different, they're better, and in 2026, we expect that both customers and investors will notice. Let me finish by thanking our team for their ongoing efforts to create value for our customers, our partners, our shareholders and for each other. With that, I'll turn the call over to the operator to take us into Q&A. Operator: [Operator Instructions] Our first question comes from Rohit Seth with B. Riley Securities. Rohit Seth: Just on the gross margin, you got a 7.2% -- 20.3% in the fourth quarter. You're [guiding] to 16% in Q1, a little bit of a decline there, but you got the cost savings coming through. So just curious, you said you mentioned incentives are going up. Just curious when the rebate benefits start to hit, is that in Q2, Q3? David Goldberg: Well, yes, Rohit. Look, we really talked about three things. So you put it correctly in Q1, obviously, going in, we have incentives, higher and specs have been a higher percentage of our sales closings and backlog, frankly. So that you're going to see in Q1 and close in Q1. But as we go through the year, we didn't give an exact timing, but we talked about being able to pick up three points and those are really the three points that we talked about, right? The direct costs, which are nearly two points of margin improvement with the $10,000 of rebid we've got so far. And frankly, what we continue to work on. And then you think about the mix shift that we discussed in some of our existing communities, we went into some depth about lower-priced communities and what that means and the shift away from lower-priced communities, that's going to add some margin accretion as we move through the year. And then finally, and we talked about it pretty in-depthly, we've got a lot of new communities that have come online. The margin profile of our new communities is better than our existing communities. And frankly, as those constitute a higher percentage of our overall closings that will be accretive to margins. So look, we try to make it pretty clear. We're not waiting for the market to get better. This isn't about assuming incentives are going to come down or that something is going to change in the macro environment. If those things happen, great, but what we're really trying to do is control what we can control. Rohit Seth: And then on your orders, your orders improved substantially from your 3Q, I think you had some issues there that you want to resolve what you did. Q1 guide of about 900 orders. Just curious what you saw maybe October and November? Allan Merrill: I think -- it's Allan, October was sluggish as it usually is, so it was sort of in line with our expectations. I would expect, as we have seen, I think, almost every year, November and December, we'll build on that. So nothing out of the normal seasonal pattern and I think the overall guide is to just below 2. I think it's about 1/8 for the quarter. Operator: Our next question comes from Alan Ratner with Zelman & Associates. Alan Ratner: Thanks, as always, for all the thoughtful comments, and I know it's not easy to give a '26 outlook right now, but I think you walk through the moving piece as well. Dave, just on -- or Allan, on the margin improvement for the year, I think you certainly walked through the tailwinds. One thing I didn't hear mentioned is land costs. And I would be surprised if your land, flowing through the P&L, at least is not somewhat of a headwind relative to '25. So how should we think about that as a at least a partial offset to the tailwinds you have on the material and labor side and mix? Allan Merrill: So I understand the question entirely. You always ask very good ones. What I've seen and what we've seen, Alan, is that the newest communities that are starting to hit the P&L. They've referenced 48 that have opened since April have across the board had better margins than existing communities. Now they're very, very low impact in closings in Q1. And that grows. So I mean, there's got to be -- you're right about the fact that having bought later, they may have a per lot cost that is higher, but it appears to date that the mix of product and price is still allowing us to show margin improvement on those new communities. I realize that's a little contrary to some other narratives, but that's the experience we've had since April. David Goldberg: And there's not a big move in the percentage of land cost as you look forward. And remember, the ASP, we talked about is probably going to go up, especially in the second half of the year as we come out of some of our lower cost communities, and that's part of that percentage is not changing. Alan Ratner: And then second, on the volume side, just 5% to 10% growth being, I guess, the goal for next year. I'm hoping you can help bridge that a little bit for me. I mean, I'm looking at your backlog, it's down 36% to start the year. I look at your spec count, that's also a bit lower than it was entering 2025 not that that's a bad thing, but your first Q orders guidance is also down year-on-year. So it feels like you had a pretty big hill to climb out of to put up closing growth for the year. So can you help us think through exactly how that's going to flow through at least based on your expectations? David Goldberg: Yes. Look, Alan, I would kind of focus on a couple of things. And there's a lot that goes into it, obviously, backlog is less and less predictive in a more spec-oriented market. And so what you really have to think about is units under production, your ability to turn units. And frankly, given the community count growth that we have and the sales pace improvement that we expect, especially in the third quarter off a pretty easy comp, we get to our 5% to 10% number. But that's really where it comes from. Allan Merrill: Alan, you're a student of the industry, obviously. If you go back and look at '16, '17, '18, '19 and just look at units under production and the number of times they turn relative to closings in an environment where sales paces were not in the 3s, they were in the low, mid and high 2s in different years. We were turning the units under production 2.5x. We don't even have to turn the unit under production number from September at that speed to get to up and closings. So it really is a function of sales more than it is backlog or more than it is a function of units under production. And we absolutely think having a higher community count and having not repeating our Q3 challenge of 2025 will help us get there. But that's -- you characterized it, we characterized it. That's our goal. And we laid out very clearly the parts and pieces of how we can get there. Alan Ratner: And if I could squeak in one last one, there's been a lot of chatter over the last month or so about things the administration is or might potentially do as far as getting involved in your guys' business to try to improve affordability, increase production, et cetera. There was an article in the Journal today about forward rate commitments, which was pretty negative just in terms of the mechanics of it, and I'm not going to get into it whether I agree or disagree with that. But you guys have a little bit of a unique mortgage program and yet you're competing against these aggressive rate commitment rate buydowns that your competitors are offering and you're probably doing it to some extent as well. What are your thoughts about forward rate commitments in terms of -- are they healthy for the market? Do you expect them to continue? Do you expect them to be cracked down upon by FHFA? And any thoughts you can give, I think, would be helpful. Allan Merrill: It's obviously, a tricky topic because there are lots of different facts and we can look at different buyer profiles and different lenders and see things that are good or bad from our perspective. We'd like to give customers choices. And if they want to use incentive dollars to buy rates down, we have a mechanism for them to do that, and they get tremendous transparency from multiple lenders on exactly how those dollars are being spent on their behalf to achieve that rate buydown. If they want to use those dollars in the design center, if they want to use those dollars on the price, our buyers have the opportunity to make those choices. And I think any time you've got transparency in the marketplace and consumers are making choices. We feel pretty good about that. Operator: Our next question comes from Alex Rygiel with Texas Capital. Alexander Rygiel: Dave, I do appreciate all the guidance here for 2026. A couple of quick questions. The gross margin on your land sales was obviously low in the quarter, and you talked a little bit about your expectations for 2026. Can you just talk a little bit bigger picture sort of exactly what you're doing here with regards to your land sales and what the strategy is? Allan Merrill: Yes. What we've done is a combination of probably two different things. The easiest part is a number of the communities that we've bought over the last three or four years were larger than we intended to use. And as we have brought them through entitlement and development, they're at a natural state now where we can -- what we call sell off a product line. We're at least consider selling off a product line. So that's just sort of absolute ordinary course. It doesn't happen a lot, but there have been instances where opportunity to control 300 or 400 lots, maybe four product lines. We want to do two or three of them, and we want to have a partner do the other one, but we control the asset. So that will be a part of our asset sale activity in 2026. But the other thing, and I talked about this in the script was we went through this, we realized middle of last year, I mean, by the spring selling season, it was clear the demand environment did not take off. And we were very intentional about rescrubbing everything in our pipeline. And one of the things we realized that sort of links to the incentive discussion is in those lowest priced communities where incentives were the highest, those did not generate the kind of returns that we wanted. And I'm delighted with the fact that we've been able to sell. We sold $60-odd million of that in '25 at a nice gain. I think we've got other opportunities to harvest and reinvest that capital in locations where we can make great returns. It's hard to predict what will be the result of negotiations over individual sales, but we expect the aggregate value will be over 100, and we expect that in the aggregate, there will be a gain. It will be above our cost. I don't know that, that will be true about every single asset, it's hard for me to predict that. But I feel excellent about the underwriting that we have done in our assets. I think that held value or gain value since we bought them. But we are aligning really the locations where we have the best opportunity to get paid for our differentiated value proposition. You got to remember, and I don't mean to sound pedantic, but we're the first builder to do Zero Energy Ready at scale. And so figuring out which buyer profiles, which submarkets align best with that differentiated value proposition, there are some places that are price, price and only price, those are spots where I am happy that we've got a market to sell some land to others who want to play that way. We'll take our capital and put it in places where our value proposition is well rewarded. Alexander Rygiel: And then coming back to your spec home strategy, with 75% of your sales in the quarter are up spec related. What's your view on sort of how we end 2026 and what that mix looks like sort of heading into 2027? Allan Merrill: You ever heard the expression, "It's nice to want things"? Somebody -- if you got kids, they want something and you're like, "Oh, honey, that's great. It's nice to want things". I want for us to have a much, much lower spec ratio. We are dealing with the reality though that right now, the buyer dynamic is specs are how to drive an acceptable sales pace. So I think it can take -- I mean there are an infinite number of possible outcomes. But let's take kind of two ends of the spectrum. I think if the environment stays as it is, rates stay where they are, we're still fighting affordability. We're dealing with an overhang in markets of inventory. I think specs are going to stay much higher than we would like long term. I think if we see some strengthening in the spring selling season, and I'm not predicting that, but it's certainly possible. We're seeing -- we talked about some green shoots and affordability, and it appears there's a little reduction in that inventory, which we anticipated, we could be in an environment where we can move back to 60-40 or 50-50. We don't love being at 75-25 because we absolutely do make more money on to to-be-built where we give buyers the opportunity to have the style selections in their home. But we are going to play in the market that is out there, not the one that we want. And so we've acknowledged that for the time being is different than we want, but it is the way it is. Alexander Rygiel: And then one last question. Any directional thoughts on net land spend next year? Allan Merrill: I think directionally, it's going to be on the order of what it was in '25. It could be a little more, it could be a little less. I mean but it's not going to be dramatically different. We've got development activity going on as we move toward that 200 community count and we'll have some takedowns as we open additional communities. But as Dave said, we have a lot of discretion over our land spending this year, which is a good place to be. Operator: [Operator Instructions] Our next question comes from Sam Reid with Wells Fargo. Richard Reid: Just following up on the direct cost savings. You talked to that $10,000. It sounds like it's labor and material. I was wondering if you could just bucket those savings a little bit in greater detail. Some of your peers have called out some nice savings on the labor side, and we've heard anecdotally some nice savings on the material side, too, but just would love to see -- hear what you're seeing and the drivers behind that $10,000 number. David Goldberg: Sam, I appreciate the question, but we don't really bucket out the individual labor versus material cost. I don't know, Allan, if you have other thoughts. Allan Merrill: Well, I can help you in one way and then it's something that's a little bit different for us, and we kind of committed to it last year that we would do it, and that is drive down the cost of delivering a Zero Energy Ready Home. And I think of that $10,000 probably it's not half, but probably several thousand dollars relate to finding efficiencies but maintaining the performance of our homes. Again, I come back to we're the first builder at scale to do Zero Energy Ready. And so some of the trades, some of the material providers we weren't getting discounts as we were doing that for the first time. And I think we've been able to use our experience in the construction science that we have to reduce those costs. So that's a piece of that $10,000 but the larger share of it, as Dave said, is a combination of things. We've got some turnkey trades. We've got some piecemeal trades. So I kind of distrust people talking about labor and materials as they can completely bucket it because, again, in a turnkey market, if you've got a cost reduction, it's a combination of both, and you can't really know that. Richard Reid: And then just wanted to quickly hear any thoughts on the economics of the model home sale leasebacks. I mean I realize that's not something that's going to be big every quarter. But just kind of curious, high level sort of what those economics look like. David Goldberg: Yes. Look, just big picture. There were 83 sales and you can kind of work out the revenue impact from that. We've given that information. And the profitability was roughly in line with what we did as an overall business. Allan Merrill: There was a financing cost. Look at it like if you're doing land banking or something like that, maybe a little better than that. I mean it was just a way to use our cash we can redeploy it in the business earning a higher return than that cost of funds. Operator: Our next question comes from Julio Romero with Sidoti & Company. Julio Romero: You guys said that the sales pace in Texas improved sequentially in the fourth quarter. Can you just talk about your expectations for Texas from a sequential sales pace in the first quarter? And then secondly, what's kind of embedded with regards to the market in Texas from a full year standpoint? Allan Merrill: Look, our full year forecast for all three of our Texas markets is subdued but it's nothing like what we experienced in the aggregate in the third quarter of last year. I don't want to get into quarterly state-wide projections but it's nothing like a snap back to what I would call normalcy. We were under 2 in the fourth quarter. I think we want 8, which is better than the one free for sure, but it's still not great. we're not assuming, as I said, some dramatic improvement. But I'm really, really happy with our teams in San Antonio and Houston. I mean, we struggled in the third quarter, and they really found a different gear. I'd like that whole state to lift up. It did have a huge effect for us as a company with nearly 40% of our communities in Texas. But I think we're taking a fairly cautious static view that, that market doesn't get dramatically better over the next 9 or 10 months. Julio Romero: And you mentioned one of the things that's encouraging you is the improvement in affordability arising from wage growth. Can you just speak to which markets in particular you're seeing that? And which markets are you encouraged about the prospects for improving wage growth helping your business in '26? Allan Merrill: So we've got a national data slide, and I think it's -- I don't know what slide number it is, Slide 5, where we have tried to consistently for, I mean, multiple years and every quarter, just kind of track this percentage of what the mortgage payment represents as a percentage of the income. And it's -- we haven't done anything to manipulate the data. We've cited all of our sources, and we've just kind of done an apples-to-apples-to-apples over a period of time. And you can see that with rates being down 40 or 50 basis points, 2% or 3% and in some markets, more wage growth over the last year. Those two things together have changed the direction of travel of the line. It's still at an elevated level. I think trying to drop it down a market is not something I don't have that data in front of me, but we are super intentional about our footprint. The places where we are, we like because they have multiple sources of job growth. They have multiple sources of demand. Again, we're really committed to where we are and part of that is because we have confidence in the economies. Operator: Our next question comes from Jay McCanless with Wedbush. James McCanless: So good job on getting the specs down sequentially. I guess, should we expect further diminution there? Or you guys going to have to add some to get ready for the spring season? How should we look for the direction on that? Allan Merrill: That's a great question. I think that number will pick up a little bit, honestly, as we do get ready for the spring selling season, but we're very careful. We watch sales paces. We don't start specs just to start specs. We react to where the demand is. So to the extent that it's up, it's going to be because sales pace is supported at being up, not because we were chasing a dream. James McCanless: The second question I had, looking at the fiscal '26 slide, if you think about land revenue being up from $60 million to $100 million you're saying 5% to 10% closings increase. And just rough math makes me think high single digit, maybe potentially low double-digit growth in total revenues. I guess how much -- how good is the line of sight you think to getting to that $100 million in land sales and especially if you could walk us through again when you think this closings jump might occur back half or whenever? Allan Merrill: Well, the closings are certainly going to be in the back half. I mean we know exactly where our backlog was coming into the quarter. We've guided to as few as 800 closings in the first quarter. So for us to have closings growth, it is going to be back half weighted to also where the community count growth will appear. On the land sale side, Jay, we've got good visibility. I mean these are transactions where in every instance, we have multiple parties that we're either talking to or we're talking to before going under contract or under LOI. So I feel pretty good about it. These are highly desirable locations and we're going to get out of them at or above book. So I feel like that's going to be great because that's the capital we can recycle into higher returns. James McCanless: And then just the last question I had makes a lot of sense on protecting the DTAs like you all talk about in the deck, assuming that the shareholders do vote for that, I guess, how much of that remaining balance do you think you guys can monetize whereas some portion of that is going to be lost within the program. I think in the deck, if it's ratified, it's still going to expire sometime in '28, I guess how much of that value do you think you can get out of those DTAs before it has to disappear? Allan Merrill: Well, let's sort of separate it. We're really focused on the energy efficiency tax credits. And I think Dave quoted the number of $84 million. That number is going to grow through June of 2026, every Zero Energy Ready Home that we deliver is eligible for a $5,000 credit. So that's going to be the source of that number growing. The program ends in June but we will be able to use all of those energy efficiency credits. It's just a question of how quickly we can use them, which in turn, is a function of what level of profitability we have '26, '27, '28. We think we will use them relatively quickly, and that's why one of the features of this rights plan is that subject to shareholder approval, it will go away the sooner of those energy efficiency credits being gone for three years. This is absolutely to allow our shareholders to recoup the costs that we've already incurred to build these homes. And I think we'll be able to do that over the next several years, and that's what the rights plan is really about. Operator: At this time, I am showing no further questions. Allan Merrill: All right. I want to thank everybody for dialing into our fourth quarter call, and we look forward to speaking to you on our first quarter call. Thanks so much. This concludes today's call. Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: Good afternoon, and welcome to the Evolv Technology Third Quarter Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Brian Norris, Senior Vice President of Finance and Investor Relations for Evolv Technology. Please go ahead, sir. Brian Norris: Thank you, Megan, and good afternoon. Welcome to today's call. I'm joined by John Kedzierski, our President and CEO; and Chris Kutsor, our CFO. Earlier today, after market close, we issued a press release detailing our third quarter 2025 results and full year outlook. The release is filed with the SEC and available on the Investor Relations section of our website, where you will also find a supplementary slide highlighting the benefits of our transition to our direct distribution model, which we'll reference during the call. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our current expectations and views of future events, including, but not limited to, statements regarding our future operations, growth and financial results, our potential for growth and ability to gain new customers, demand for our products and offerings and our ability to meet our business outlook. All forward-looking statements are subject to material risks, uncertainties and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from these forward-looking statements because of a number of risks and uncertainties, including, without limitation, the risk factors set forth under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 28, 2025, and our quarterly report on Form 10-Q for the 3 months ended September 30, 2025, filed with the SEC earlier today. The forward-looking statements made today represent our views as of November 13, 2025. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance or the events and circumstances reflected therein will be achieved or will occur. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which we believe provide additional insights for investors. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA and adjusted EBITDA margin, adjusted earnings and adjusted earnings per diluted share. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We will be discussing key operating metrics such as annual recurring revenue, or ARR, remaining performance obligation, or RPO, both of which we believe are helpful to investors in understanding the progress we are making in this business. One last item, we have an active IR schedule coming up, including the Craig-Hallum Alpha Select Conference next week in New York and 2 events in December, the UBS Technology Conference in Scottsdale and the Northland Capital Conference, which is being held virtually. We will also be on the road this quarter at several financial centers across the country. For more information, please contact me at bnorris@evolvtechnology.com. With that, I'd like to turn the call over to John. John Kedzierski: Thank you, Brian, and thanks to everyone for joining us today. Our results throughout the year demonstrate meaningful progress toward greater consistency and stability across the organization. We're moving closer to our goal of building a scalable, high-growth business with predictable performance. Our focus remains on disciplined execution and an unwavering commitment to our customers' success. Our Q3 results reflect the latest steps on that journey. Revenue was $42.9 million, up 57% year-over-year, driven by strong new customer acquisition and expanded deployments within existing customers as well as higher onetime product revenue associated with certain customer wins, including the largest customer contract in the company's history. We have also benefited from the completion of certain short-term subscription contracts, including the premier international soccer tournament we supported over the summer. Chris will get into more detail on revenue in a few minutes. Our overall visibility continued to strengthen with Q3 marking the strongest booked-to-deployed unit ratio in the company's history. Thanks to the changes we have been sharing with investors in our go-to-market model, we expect 2026 to be an inflection point where Evolv's ARR growth will outpace revenue growth. Let me explain that encouraging trend a bit further, which we introduced to investors on our prior call. While we are delighted with 57% year-over-year revenue growth, it is important to note that our deployed unit count grew by about 30% year-over-year, which we believe provides a more normalized view of the fundamentals of the business. The gap between revenue growth and unit growth is primarily based on 2 factors. First, it reflects the trailing impact of our legacy distribution fulfillment model, which results in a higher proportion of the total contract value taken in the immediate period, lower ARR and lower total contract revenue as compared to direct purchase fulfillment. The second factor driving the delta between revenue growth and unit growth is a higher proportion of purchase versus subscription sales or our mix. Specifically, units purchased by our customers represented 57% of unit activity in Q3 compared to 41% in the year ago period. By transitioning away from our legacy distribution model, we now capture 100% of the average revenue per unit or ARPU. This shift increases recurring revenue over the 4-year subscription term and delivers back to Evolv a higher level of cash per unit. To illustrate the differences between distribution and direct fulfillment, we've created a chart and posted it on our Investor Relations website. While we have largely completed the move away from the distribution fulfillment model, and we have also repriced our solutions effective July 1 to emphasize software and ARR, it will take some time for our revenue recognition to match our new pricing. As a result, in Q3, we saw higher onetime product revenue related to the prior distribution model and associated revenue recognition treatment. Over time, our revenue recognition will more closely match our pricing and the majority of our ARPU will be in ARR instead of onetime product revenue. In summary, the trailing effects of distribution fulfillment and a higher proportion of purchase units drove revenue to outpace unit and ARR growth and why we believe 30% is a more meaningful measure of year-over-year growth. We finished the quarter with annual recurring revenue, or ARR, at $117.2 million, reflecting growth of 25% year-over-year. While our ARR growth trailed revenue growth in Q3, we expect this ratio to begin to flip in 2026 with faster ARR growth relative to total revenue growth, as I mentioned. We reported our fourth consecutive quarter of positive adjusted EBITDA with adjusted EBITDA margins of 12% in Q3. We welcomed over 60 new customers in Q3 and are raising our year-end estimate for active subscriptions to between 8,000 and 8,100. This continues to represent a very small slice of the hundreds of thousands of entrances that advanced weapons detection can help protect. We continue to see a strong trend of customers proactively upgrading to our Gen2 Express platform. These upgrades typically reset the subscription churn with fresh 4-year commitments. Gen2 upgrades also helped drive a sequential 8% increase in RPO, which stood just shy of $300 million at the end of Q3. eXpedite, our new autonomous AI-powered bag screening solution continued to gain strong traction since its Q4 2024 launch. In Q3 alone, we added 12 new customers, primarily in schools where we are beginning to see one-for-one deployments of eXpedite and Express to help streamline security by lowering alarm rates and enhancing the student experience. We believe the combination of Express plus eXpedite provides an exceptional security experience in terms of threat detection capabilities and false alarm rates. Based on early deployment data across education customers, Evolv eXpedite has shown an alert rate of approximately 2%, demonstrating strong promise in balancing detection with the goal of keeping false alarm rates low. Beyond the numbers, we are making a real difference in the communities we serve. Every day, we screen on average more than 3 million people. And since the launch of Evolv Express, we have screened over 3 billion visitors. Evolv eXpedite introduced just a few quarters ago, has already been used to screen more than 1 million bags. On average, our technology helps customers detect and tag 500 firearms daily. What does that look like in real life? In August, at a high school in Nashville, our system identified and helped intercept a loaded handgun at the door. In October, Evolv Express detected a loaded firearm in a student's backpack at a high school in Georgia. And just 2 weeks ago, our solution identified a concealed firearm during morning arrival at a high school in Atlanta. These 3 examples provide a small glimpse into the impact we are having on education. In the third quarter, we added over a dozen new school districts across the U.S. These included 2 new districts in New Jersey, 2 in Michigan, 2 in California and 1 each in Wisconsin, Tennessee, South Carolina, Nevada, Montana, Louisiana, Iowa and Connecticut. In health care, we are driving meaningful change by helping hospitals elevate safety standards while minimizing the impact on patient and visitor experience. Our solutions are enabling smoother and faster entry while enhancing threat detection at critical access points. With growing demand across the sector, we are now screening hundreds of thousands of visitors daily in medical facilities nationwide. A few recent wins in this market include WellSpan Health, UC Davis Health and Seattle Children's Hospital. Shifting to sports and live entertainment, we expanded our presence in professional hockey with -- the Buffalo Sabres, who entered a multiyear subscription agreement to deploy 9 Evolv Express Gen2 systems at KeyBank Center. This deployment is part of a broader 2025 arena upgrade initiative aimed at improving ingress and egress for fans. In Collegiate Athletics, the University of North Carolina at Chapel Hill is deploying Evolv Express to enhance safety and streamline entry at its athletic venues. In the world of professional football, Bank of America Stadium, home to the Carolina Panthers and Charlotte Football Club, recently completed a long-term renewal upgrading to Gen2 of Evolv Express. The venue now operates 19 systems and has added Evolv eXpedite for enhanced bag screening and faster guest entry. Staying in professional football, our technology is now being deployed at nearly a dozen practice and training facilities league-wide. This initiative includes both Evolv Express and Evolv eXpedite. We believe this is a strong endorsement of our ability to deliver a superior security experience for a variety of entry flows, covering fans, staff members, players, media and VIP guests. These wins reinforce our ability to penetrate diverse markets and deliver trusted solutions that drive long-term growth. We welcome all our newest customers and take sacred the trust they have placed in us. We look forward to the challenge of earning their business every day. Shifting into business operations. We're excited to announce a new strategic partnership with Plexus -- a collaboration that expands production capacity, global reach and operational resiliency. Plexus is a global leader in design, manufacturing and supply chain services that brings the infrastructure and expertise to support the next phase of our growth. With 26 facilities and more than 20,000 team members worldwide, they'll help deliver our technology to the places people gather every day. I want to shift gears for a moment and share some exciting developments on the product development front. I'm pleased to share that we recently released the latest versions of our software, Evolv Express 9.0, Evolv eXpedite 1.2 and – MyEvolv Portal and Evolv Insights 6.0. These updates reflect our ongoing commitment to improving performance and user experience for our customers, now numbering over 1,000 globally. With this release, we've introduced several enhancements aimed at supporting security teams in their day-to-day operations. Among the highlights is a new integrated tablet interface, which brings together the workflows of Express and eXpedite into a single streamlined user interface. We also released the integration of eXpedite into the -- MyEvolv Portal, enabling customers to see operational data for walk-through and now bag screening in a single location. With these enhancements, we have strengthened the bundled customer ownership experience for Express plus eXpedite. We've also expanded alert tagging and added sensitivity tuning, giving our customers more control in how they manage their security operation. These improvements are the results of listening closely to our customers and continuing to push the boundaries of what's possible in safety and efficiency. Through our subscription model, we're able to deliver these software capabilities seamlessly via the cloud, enabling innovation to reach the field without disruption. With each release, we aim to raise the bar, not just for ourselves, but also for the entire industry. Before I hand things over to Chris, I want to take a moment to share a bit of context around our outlook. We're seeing strong momentum in the business. Our backlog continues to grow, and we've got a healthy pipeline. For those reasons, we are raising our 2025 outlook. We now expect to grow revenue by about 37% to 40% in 2025 compared to our previous guidance of 27% to 30% growth. I would point out that our upwardly revised revenue forecast for the year of between $142 million to $145 million includes certain onetime benefits, in particular, related to onetime revenue recognition from our legacy fulfillment and pricing models that I mentioned earlier. Excluding these short-term revenue items, we will be forecasting total revenue growth in 2025 of about 30% year-over-year. We continue to expect to deliver positive full year adjusted EBITDA with full year margins in the high single digits. We remain committed to generating positive cash flow in Q4. Looking ahead to 2026, let me start with this fundamental principle. We're planning to add more units in 2026 than we did in 2025 with ARPU trends remaining stable. As a reminder, our 2025 results included the largest customer contract in the company's history, more than 250 units. We plan to grow on top of that order. The changes in our distribution fulfillment model and pricing structure will allow us to capture 100% of contract ARPU, shift more of that ARPU from onetime revenue into ARR and RPO and create an opportunity to maximize leverage in the business over time. We estimate that the subtle but powerful shifts of emphasizing ARR over short-term product revenue will defer about $5 million to $10 million of revenue in 2026 that we would otherwise have captured had we not changed our distribution and pricing structure. We expect that $5 million to $10 million to convert into long-term recurring revenue streams that will benefit future years. We're currently modeling full year 2026 revenue of between $160 million to $165 million. Importantly, we expect ARR to grow by at least 20%, outpacing total revenue growth in 2026, which is an important pivot for Evolv. This management team continues to prioritize ARR growth and other long-term value drivers. With that, I'll turn it over to Chris, who will take you through our financial results and the details behind our outlook. George Kutsor: Thanks, John. Good afternoon, everyone. I'm going to review our third quarter results in more detail and then walk through our updated guidance for the rest of the year as well as context on our early thoughts for next year. As John mentioned, revenue was $42.9 million in Q3, an increase of 57% year-over-year. This was fueled by strong new customer growth and expanding deployments across our customer base. It also includes a few items that, while positive, aren't expected to recur at the same scale every quarter, as John mentioned. Let me unpack those a bit further. First, our new contract with Gwinnett County Public Schools, the largest in Evolv's history, contributed approximately $3 million in revenue in Q3, primarily as onetime product revenue. Second, Q3 included a very high proportion of direct purchase method deployments compared to our legacy distribution motion, which brings more immediate revenue recognition and less ARR, which John covered already. The nearly $3 million of product revenue recognized for Gwinnett County this past quarter is an example of that effect. We also recognized approximately $3 million in IP license and other onetime revenue in Q3, primarily tied to our legacy distribution subscription model. Finally, we had roughly $1.5 million in short-term subscription revenue or rentals. These short-term subscriptions are valuable and remain part of our strategy, but they tend to be episodic in nature. When adjusting for these specific items, you get a more normalized view of Q3 revenue closer to $35 million to $36 million, which would reflect growth of about 30% year-over-year. Annual recurring revenue, or ARR, at September 30 was $117.2 million, reflecting growth of 25% year-over-year and 6% sequentially. Remaining performance obligation, or RPO, was approximately $299 million at the end of the third quarter compared to approximately $275 million at the end of the second quarter and $269 million at the end of Q3 last year. Adjusted gross margin was 51% in Q3 compared to 64% in the same period last year. There are 3 drivers here worth diving into a little bit deeper. First, as discussed on our last call, the shift from distribution fulfillment to direct purchase fulfillment creates a near-term gross margin headwind, but it also brings higher gross profit dollars over the term of the contract, along with higher revenue, higher ARR, higher RPO and cash compared to the legacy distribution model. With the business now delivering a consistent track record of positive adjusted EBITDA, that's an important long-term trade-off we are pleased to make. Second, we saw the impact of several large education contracts that included significant volumes of our newest product, eXpedite. eXpedite is still operating at subscale manufacturing cost. We expect eXpedite costs to improve in 2026, which we expect to positively impact future gross margins. And finally, we recognized approximately $3 million of onetime costs related to inventory and service adjustments. Moving down the P&L. Adjusted operating expenses, which excludes stock-based compensation, loss on impairment of equipment and certain other onetime expenses were $24.8 million compared to $25.2 million in the third quarter of last year. This modest year-over-year decline in contrast to strong year-over-year growth in units deployed, total revenue and ARR growth reflects the actions we have taken since the start of the year to reduce spend and improve the profitability of the business. We believe it is also an excellent indicator of the leverage we believe is central to our business model. Adjusted EBITDA, which excludes stock-based compensation and other onetime items, was a positive $5.1 million in Q3 of '25 compared to a loss of $3 million in the third quarter of last year. This resulted in adjusted EBITDA margin of 12% in the third quarter of 2025. Turning to the balance sheet. Cash, cash equivalents and marketable securities increased $19 million sequentially to $56 million, up from $37 million at the end of Q2 2025. This primarily reflected proceeds from the new credit facility that we completed in July, along with tighter inventory management and stronger overall collection activity. I'm going to provide some additional details to our updated 2025 outlook that John mentioned a few minutes ago. We now expect total revenue to grow by 37% to 40% in 2025 to be between $142 million and $145 million this year. This is up from our prior guidance, which called for revenue between $132 million and $135 million. A few things we'd encourage investors to consider for context in our '25 revenue estimate. First, as I mentioned in my earlier commentary, the largest deal in the company's history contributed about $3 million to Q3 revenue, and we expect to contribute more than $5 million for the full year due to higher upfront revenue recognition related to the residual effects of our legacy distribution fulfillment model. Second, IP license and other revenue was about $3 million in Q3, and we're expecting that to be about $10 million for the full year. That onetime revenue stream is primarily tied to our legacy distribution fulfillment model, which has been phased out. Investors should assume that IP licenses are no longer a driver to revenue growth starting here in Q4. Third, short-term subscription contracts contributed about $1.5 million to revenue in Q3, and we are expecting that to be about $2 million for the full year. Those opportunities are generally onetime in nature, so it is not something that we plan around. In light of these 3 factors, we estimate a more normalized revenue growth rate for 2025 would have been about 30% year-on-year growth compared to 2024. We expect 2025 adjusted gross margin to be in the range of 52% to 54%, not due to ARPU compression or a change in competitive pressure, but because of the shift to direct purchase fulfillment. To reiterate my previous comment, the direct purchase fulfillment model is a headwind to gross margin in the first year of the new contract. But over the term of the subscription contract, it generates higher total gross profit dollars, higher revenue, higher cash and ARR compared to the distribution fulfillment model and also makes us easier to do business with. With strong top line growth and continued focus on expense management, we expect to deliver positive full year adjusted EBITDA in 2025 with full year adjusted EBITDA margins in the high single digits compared to our previous guidance, which called for margins in the mid-single digits. We expect to be cash flow positive in the fourth quarter of 2025. Turning now to 2026. As John mentioned, we remain encouraged by the changes we made this year, and we expect to see ARR growth begin to outpace revenue growth in the next year. While we are still developing our final plans, let me set some additional context to the 2026 outlook. The fundamentals of our business remain strong with a robust customer demand and a stable pricing environment. We expect to add more units in 2026 than we did in 2025, with ARPUs remaining relatively consistent and the trends that we've seen this year continuing. In other words, we expect continued unit growth and stable pricing. That said, we expect recent shifts in our distribution fulfillment and pricing model will result in less onetime revenue, but more ARR and RPO in 2026 compared to 2025. We encourage investors to refer to the presentation material posted on our IR website for a graphical view of the positive impact of pivoting to direct purchase. We also expect a higher percentage of new units in '26 to be full subscription compared to 2025, which will also lower the '26 growth rates but drive faster ARR growth. We expect the changes we've made to our direct purchase pricing model, changes that maximize ARR by making the upfront hardware price lower, commensurate with reduction in our manufacturing costs will push at least $5 million to $10 million of revenue out of 2026 and into ARR and RPO. The higher ARR and associated recurring subscription value will also provide higher ARR rates when those contracts move to renewal discussions 4 years down the road. We believe all of these are smart changes for the business in the long term. We are currently modeling full year revenues of about $160 million to $165 million in 2026. And again, the important news here is that we expect to add more units in '26 than we did in '25 with ARPU trends remaining stable and ARR growing at a faster rate than total revenue. Specifically, we expect ARR to grow by at least 20% year-over-year. And to reiterate John's earlier comment, we believe 2026 will be an inflection point for the company as ARR begins to outpace revenue growth. While we haven't finalized our investment plans, we are committed to growing revenues faster than total expenses in 2026 and therefore, are currently modeling modest expansion of adjusted EBITDA margins. We will share more thoughts on how we're thinking about 2026 during our Q4 call in March. And in the meantime, we're focused on finishing a strong 2025. Before we open the call for Q&A, let me turn the call back over to John for a few closing remarks. John Kedzierski: Thanks, Chris. We continue to be driven by our mission to make the world a safer place to live, learn, work and play while building a leading IoT SaaS security business. We believe security is a necessity, not a luxury. We remain highly confident in our market position. We continue to move forward with purpose, guided by a clear strategy and an unwavering commitment to long-term value creation. We've been intentional and transparent about the adjustments we're making, whether refining our go-to-market and pricing model to maximize ARR and recurring revenue, forging new partnerships to enhance cost efficiency and reduce COGS or evolving our organizational structure to ensure we optimize every investment across the business. Each of these steps underscores our focus on building a scalable, high-growth business with predictable performance. Our strong Q3 results and the momentum we see across the organization reflect meaningful progress in all of these areas. While we're proud of these results -- as I remind our team often, we will not be complacent. We are moving steadily toward our goal of creating a business that is both scalable and consistently high performing. We deeply appreciate the partnership of both our customers and our investors in the continued confidence they place in us and more importantly, in the mission we are pursuing. George Kutsor: Thank you, John. At this time, we'd like to open the call up for Q&A. Again, we ask participants to limit themselves to one question and one follow up. Operator: [Operator Instructions] Our first question will come from Jeremy Hamblin with Craig-Hallum. Jeremy Hamblin: Congratulations on the very strong results. Just want to come back to the kind of the call outs of some of the onetime items here. Understand certainly for the short-term contracts, the $1.5 million of why you would exclude that and understand kind of the front revenue recognition of some of those deals that are going through distributor. But in terms of thinking about the build overall -- you do have the largest increase you've seen in recurring revenues as well as the largest increase you've had in RPO in a quarter. So just help me understand in terms of the large contract, how the revenue recognition overall on that will play out on a go-forward basis as an example. John Kedzierski: Jeremy, I'll start and Chris can address any other specifics you might have. So as we communicated in the prepared remarks, we just shared, one of the impacts of legacy distribution model is more upfront revenue. We have largely moved away from that and the majority of our purchase subscriptions were executed through our direct fulfillment. But there'll be a tail of effect about how we take revenue on those deals over time, and that will normalize and result in a new pricing that we've already put in place months ago in July 1. As Chris mentioned, we'll ultimately recognize about $5 million of that order. It's a very significant proportion of the total order that we'll take in the first 2 quarters of a 48-month deal. Again, we expect that to adjust to the overall longer 48-month revenue recognition as we get into 2026. George Kutsor: Jeremy, just a bit more context to that. This effect is only relevant for purchase subscription orders and doesn't have the effect for full subscription orders. And the effect is due to the hardware pricing that's part of the mix of the contract that we do in a purchase subscription order. So for about half of our business, this is the effect. And the impact, as John was talking about, ties back to GAAP accounting, ASC 606 that requires us to take that amount of upfront revenue in the way that's reflected in our remarks. So hopefully, that gives you the perspective as to why it's happening and the proportion of our business that it happens to. Jeremy Hamblin: Understood. That's helpful. Dovetails nicely, though into -- I wanted to ask about the new strategic contract manufacturer agreement you've entered into. In terms of how you expect that to change what your baseline cost is for Gen2 or potentially Gen3 machines on a go-forward basis. Can you give us a sense for whether or not you expect that to reduce the manufacturing cost for the Gen machines -- I'm sorry, for the Express machines and whether or not they're also going to be manufacturing eXpedite and what that might do for the ramp of that business as well? John Kedzierski: Jeremy, we're pleased and looking forward to the partnership with Plexus. We just executed that agreement. We're focused on onboarding them and get them to start manufacturing our product, which we will be focused on through the first half of 2026. Over time, we look forward to a larger scale and the potential of cost synergies that will come and the ability to be able to leverage their entire footprint. George Kutsor: You should expect our full portfolio to eventually be available at Plexus as well. John Kedzierski: As you would expect, we're doing it thoughtfully and carefully. Operator: Understood. And then just one more quick one before I hop out of the queue. In terms of the eXpedite bag scanner product, what is the rough attachment rate that you're getting with that on sales of Express machines? And how does that vary? Are you getting more success with that, let's say, in the education vertical or in the stadium vertical versus a couple of your other verticals? John Kedzierski: We're very pleased with the progress of eXpedite -- as we have shared in the prior quarter, a very significant portion of that large education order was eXpedite. In Q3, we had 12 new additions of eXpedite customers. To answer your question directly, 11 of those also acquired Express. And that's a trend that we're really excited about. We have seen deployments across education, sports, entertainment and health care. Operator: Our next question will come from Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: Yes. So you talked about the number of units growing in '25 versus '24. Is that -- are we talking aggregate units, so Express plus eXpedite in 2025 is greater than '24 and the same thing, '26 versus '25? Are we talking the Express units only? John Kedzierski: The aggregate units, of Express and eXpedite, which is consistent with how we've been discussing this year. Eric Martinuzzi: Okay. And then can you remind me just the delta between the price of those 2 if someone were to purchase them outright, maybe not the absolute dollar. John Kedzierski: We shared before, the unit economics are similar. As Chris commented, we expect the gross margins to be more similar over time. Today, eXpedite is a new product, hasn't benefited from the multiyear manufacturing scale that we built into Gen2. So right now, it's a bit of a headwind on gross margin. George Kutsor: And Eric, remind you, that's also a 4-year subscription go-to-market model for eXpedite as well. Operator: Your next question will come from Shaul Eyal with TD Cowen. Shaul Eyal: On results, and thanks for the color and transparency on the business and the outlook. As you guys shift away from distribution to direct fulfillment model, just curious, what was the reaction of some of those channel partners involved? John Kedzierski: It's very positive. There's one thing I want to make sure we're very clear on. This had no impact on our channel. But the majority of our business as it has, continues to transact from a channel. What the change was is how our channel partners get the product from us. In the past, in the motion that we introduced in 2023, they would purchase it from a distributor. Now they purchase it directly from us, which means that we capture 100% of the ARPU. We did not see the portion that went through distribution. So from a direct channel partner reaction, we have simplified their buying process. They used to have to buy one solution to an end user by issuing 2 orders, one to our distributor contract manufacturer for the hardware and one to us for the subscription. So their process to do business with us is much simpler. Shaul Eyal: Got it. This is great. I appreciate it. And maybe the biggest contract that you discussed, those 250 units, yes, we're becoming greedy here. How many of these contracts are currently in the pipeline? I know they don't come too often, but I think we're beginning to see where the business is heading as we start to thinking about '26 and maybe even '27 down the road. Just curious how many of those, call it, triple-digit transactions are out there? John Kedzierski: We haven't provided specific outlooks or details on our pipeline. But what I'll reiterate is that in the preliminary '26 guidance we just provided, we're planning to grow units over this year, which included that 250 units [ award ]. Operator: [Operator Instructions] Your next question will come from Michael Latimore with Northland Capital Markets. Unknown Analyst: This is [ Aditya ] on behalf of Mike Latimore. Could you tell me what percentage of your bookings came from existing customers? Brian Norris: Yes, for sure. This is Brian. It was well over 50%. A bit of that was slightly skewed in that one of the largest orders in the company's history was actually an order that started very briefly in Q2. So if I exclude that, it would be right around 50% on the quarter, it was higher because of that. So we're certainly seeing very significant expansions from existing customers to both Express and now eXpedite as well. Unknown Analyst: Got it. And could you give some color among the new verticals? Are there any promising ones such as the warehouse or office? John Kedzierski: Our vertical mix overall has stayed consistent. As we've shared in the past, sports and entertainment, education and health care are our largest verticals. In Q2, we discussed a large Fortune 500 distribution customer that entered the fold, and we're thrilled for the potential in that area. And we're focused on growing our vertical presence everywhere. And we like the diversity in the mix that we have, but we see opportunities to continue to expand. Operator: That was your last question. I'd now like to turn the call over to John for closing remarks. Brian Norris: Actually, it's Brian. I'm just going to close it out by, again, thanking everybody for joining us today. Again, we have a very active IR program here in the quarter, 3 conferences, multiple other visits to financial centers across the country. Look forward to meeting as many folks as we can each period. Thanks so much, and have a wonderful Thanksgiving. Operator: Thank you for joining. This concludes today's call. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Origin Materials Third Quarter 2025 Earnings Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I will turn the call over to Ryan Smith, Co-Founder and Chief Product Officer. Please go ahead. Ryan Smith: Thank you. Good afternoon, and thank you for joining us, everyone. Speaking first today is Origin's CEO and Co-Founder, John Bissell; followed by CFO and CEO, Matt Plavan. Then we'll open the call to questions from analysts and discuss questions submitted as part of this quarter's "Ask Origin" campaign. Ahead of this call, Origin has issued its 2025 third quarter press release and presentation. These can be found on the Investor Relations section of our website at originmaterials.com. Please note that during our discussion today, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views as of today, should not be relied upon as representative about views of any subsequent date and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion on the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our quarterly report on Form 10-Q filed today. During today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Origin Materials performance. These non-GAAP measures should be considered in addition to and not a substitute for or in isolation from GAAP results. You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and our filings with the SEC, which will be posted to our website. The webcast of this call will also be available in the Investor Relations section of our company website. And with that, I will turn the call over to John. John Bissell: Thank you, Ryan. Good afternoon. Today, we are announcing financing that strengthens our balance sheet and provides access to additional capital that can be staged according to our manufacturing capacity build-out. This financing fuels the scale-up of PET cap production. Our financing is composed of debt financing, both equipment backed and corporate level debt with the flexibility to optimize cash management and cost of capital by optionally servicing the debt with equity. Following our evaluation of multiple corporate financing structures over the past couple of quarters, we have executed a secured convertible debt facility with an initial close of $15 million in cash by the end of the month, with the capacity for additional tranches up to a total of $90 million as needed to maintain a healthy cash flow and to fund growth. During the third quarter, we evaluated a number of term sheets for CapFormer equipment financing and from those in the fourth quarter added USD 20 million in equipment backed financing capacity, bringing our total equipment financing capacity to approximately $30 million. We believe the funding from these 2 sources will enable us to continue to keep pace with our manufacturing build-out and to serve the forthcoming volume orders pursuant to qualification. For those new to Origin, we are making a big difference with a small cap and the technology behind it. Our technology platform produces what we believe are the only commercial-ready PET caps as opposed to the HDPE and polypropylene caps, which today dominate the over $65 billion closures market. Our platform excels in 7 areas: recyclability; oxygen and CO2 barrier, enabling shelf life extension; closure diameter, which enables more economic large-format production; thickness, which enables lightweighting; rigidity for a premium fuel; use of recycled content; and optical clarity. Our innovation stands to be transformative for the packaging industry. In addition to achieving key financing milestones this year, we continue to execute our operating plan. Our CapFormer deployment schedule is on track, and we are maintaining our related guidance. As such, we continue to expand PET cap production capacity in accordance with our revenue growth strategy. We remain on track for completing factory acceptance testing through CapFormer Line 6 by the end of 2025. To optimize capital deployment Line 7 and Line 8 start up could extend into Q1 2027, updated from Q4 2026. On the commercialization front, we are executing our water first go-to-market strategy with line of sight to our revenue targets in 2026. Last quarter, in California, we put our closures on what we believe are the only beverage products on the market with PET caps. Since then, we've built sales momentum globally, marketing our products in North America, Europe, South America and Asia and bolstering our customer pipeline in accordance with our water first growth strategy. In recent months, our sales team displayed PET caps at key international conferences for the plastic parts and beverage industries and it is clear that Origin holds a strong lead in PET cap commercialization. Water customer demand is strong, growing and provides a path on the way to CSD sales. More than half of the water brands in Origin's customer qualification funnel are also potential CSD customers. This quarter, our customer Berlin Packaging placed its first order, which we are now in the process of fulfilling. Berlin Packaging is a respected market leader and represents a sales and distribution partner for Origin. Berlin's broad and deep distribution footprint not only extends our market reach for 1881, but opens the door for all our forthcoming formats across closure applications globally. You can find more about our Berlin packaging relationship in our August 2025 release. We extended our technology lead this quarter by making significant progress with 2 priority challenges: Impact resistance and multi-day heated horizontal stress testing. Amongst separate cap designs, we successfully exceeded performance requirements for both of these tests. In upcoming production trials, we expect to consolidate these features into a single cap design. With that, I'll hand it over to Matt, who will discuss the quarter's financing and strategic highlights and provide a review of our expected near-term financial performance. Matthew Plavan: Thanks, John, and good afternoon, everyone. First, while the details of the convertible debt financing will be published in the 8-K to be filed in the coming days, I would like to share a qualitative perspective on our financing strategy. We expect the next several quarters to be operationally dynamic at Origin with concurrent executions of a number of critical workflows, including key design iterations, multiple customer qualification processes and significant capital equipment acquisition and capacity build-out activities. At the moment, we believe the combination of our equipment financing and convertible debt instrument is the optimal funding strategy for the agility to best respond to the rapidly evolving working capital needs and to have ready access to future equipment funding at the optimal cost of capital for a given situation. We anticipate drawing additional tranches in 2026 as needed, although we are not obligated to do so. It is at our discretion, contingent upon meeting certain minimum equity and financial conditions. Similarly, it is the company's decision whether to service any outstanding debt with either cash or shares, contingent on meeting certain minimum liquidity requirements. Second, our revenue and run rate adjusted EBITDA guidance remains unchanged. Before consideration of potential strategic review outcomes, we continue to expect 2026 revenues of $20 million to $30 million, 2027 revenues of $100 million to $200 million, and we continue to expect to reach EBITDA adjusted run rate breakeven in 2027. Third, during this quarter, Origin settled securities litigation with no finding of liability or wrongdoing. Announced in October 2025, Origin entered into binding agreements to settle the shareholder class action lawsuit and the related derivative lawsuit initially filed in August 2023 and March 2025, respectively, pending in the United States Court for the East District of California. The proposed settlement, which will be fully covered by insurance, resolves all claims asserted against Origin and the other named defendants in the lawsuit. Even when a company has strong confidence in its position, which Origin does, the way the litigation process works, it can often cost more to fight through vindication than it does to settle and make the case go away. This settlement allows us to avoid distractions associated with the lawsuits and avoid uncertainty and focus on our core business. Lastly, Origin's strategic review engagement with RBC Capital Markets announced in our Q2 2025 earnings release is progressing well with productive engagement from potential counterparties. We look forward to sharing more on this topic as appropriate. With that, I'll pass it back to John for concluding remarks. John Bissell: Thanks, Matt. I'll conclude with the following: We secured financing that strengthens our balance sheet and provides access to substantial additional capital. We are the clear technology leader for PET caps poised to grow and dominate a new market category. We are making strong progress with respect to our manufacturing capacity build-out and product development and demand is strong, both for water and CSD applications. We look forward to sharing our milestones with you as we progress in our mission centered on the future of packaging, sustainable materials and recycling that actually works. With that, I'll open up the call for questions. Operator, may we have the first question please? Operator: [Operator Instructions] Our first question today comes from Frank Mitsch with Fermium Research. Frank Mitsch: And congrats on the financing. Can I -- I wanted to ask a couple of questions on the cash position and the convertible debt financing. Okay. So you're going to get $15 million by the end of this month. And it is at your option to get up to the $90 million, the additional $75 million. I believe, Matt, you mentioned that there were some milestones or some mileposts that were necessary for you to pass in order to get the future funding. Can you -- is that true? And can you just kind of describe that those mileposts? Matthew Plavan: Yes. Frank, thanks for the question. And at this point, the 8-K with the deal terms, it's going to be out by month end, probably sooner. And frankly, I think it's best to see all the terms together at one time in order to get a proper understanding of how the instrument works. And so I think I need to wait until we file that to really get into a level of detail beyond what we did in the prepared comments. So I think that's the approach we should take at the moment. Frank Mitsch: All right. Fine. I'll be on the lookout for that. The burn rate in the third quarter was $15 million. It's a little bit higher than perhaps I've been thinking. Can you offer your outlook in terms of the burn rate for the next couple of quarters? Matthew Plavan: Yes. So the burn rate is a combination of kind of at the moment, kind of what our operating expenses are cash operating expenses. And as we talked about in Q1 and Q2 together in the first 6 months, that was approximately $20 million, and then the rest was CapEx for CapFormers. In Q3, it was roughly $10 million on OpEx and $5 million on CapEx, so relatively consistent. And I think as we look into 2026, that's probably a good guide to use. Of course, as we begin generating gross profit, we're going to reduce the net burn. But as we've said before, this is a capacity build story to gather all the -- to be able to service all the demand. So we're going to keep building the CapFormers, and that's kind of why we have the financing lined up that we do to take care of that. But it's a relatively straightforward split, 50-50, 60-40, something like that, between OpEx and CapEx for the foreseeable future. Frank Mitsch: Terrific. And John, you indicated that Lines 2 and 4 are going to be starting up in the fourth quarter and in the first quarter. And I was wondering if you could give us an idea as to when you expect that that's going to be generating acceptable product quality for the customers because it's kind of important, I guess, given the NASDAQ delisting, I guess, is you're extended until April of 2026. So if these lines are up and running and you're qualified, et cetera, then I think there could be scope to see the stock get to $1 on its own. But yes, if you can give us a little more color on the start ups of Lines 2 and 4, please? John Bissell: So we're making good progress on the start up of those lines already. And we're excited to get them up running and producing consistent product that we can test with our customers. As we said before, it can be a little bit tricky to predict exactly when we're going to get line time with customers to do that qualification on the customers' lines, right? So first, you've got to get our lines up and running, and then you've got to be take that product from those lines and specifically use it in the customer lines, check that off. And then you can figure out exactly what the timing is to start generating revenue off of that and making sales into that customer line. But we do think that we can make really significant progress across all of those items in the window that you were just referring to, which is really sort of through the end of Q1. We think we can do a lot across those. We're sort of not ready to commit on any single particular customer at this point, but we really think we can make a lot of progress across all of those. There's plenty of time for us to do that, and we're -- we like the way that the Lines 2 and 4 are starting up right now anyway. Frank Mitsch: All right. Very helpful. And then I guess, lastly, speaking of customers, you're getting your first order, you received your first order from Berlin Packaging. I assume that, that's for a water application. I'm curious -- and I assume that you're through qualifications, et cetera. But any color that you can give on that first order and what your prognosis is for future orders from Berlin Packaging. John Bissell: Yes. So we're excited to ship it. We haven't heard feedback from Berlin's customers on it yet. So we're excited to see that. I think that's going to be part of what we talked about I suspect next quarter is learning everything that we learned from those -- from Berlin's customers. We have been busy setting up our customer support service. So a lot of the work that we've been doing is really product development-oriented engagement with customers where we're going from qualifying in a very prescribed fashion with Berlin. What's a little bit different is we don't necessarily control exactly which customers are going to be using our caps there. So we need to have the ability to responsively provide customer service instead of just sort of planning too far in advance. So we're excited to do that. We've got that capability pretty much set up. And I think that's going to give us a heck of a lot of information about how our cap is performing, how people are using it. And as with most applications in the world, as you as you start to use something for that application, you're going to learn things that you weren't expecting. And that's, frankly, as an engineer and scientist, that's really exciting. Operator: Now I'll turn it over to Ryan Smith, Co-Founder and Chief Product Officer for a Q&A section answering Ask Origin questions submitted by investors prior to today's call. Ryan Smith: Thank you, operator. Prior to our earnings call, we invited all investors to submit questions as part of our Ask Origin campaign. So thank you so much to everyone who participated. These questions were, of course, submitted before our call today, and we answered many of them thoroughly with our prepared remarks. We will generally be answering the most relevant questions today during the time that we have. So let's start with the first question. The investor asks, could you please provide more explanation about the various phases of qualification and their significance? And this is specifically in reference to qualification of the Lines, terms like FAT and SAT. John Bissell: Yes. So first, I think your comment just now, Ryan, is a useful one to remind everybody of, which is, for better or for worse, we do talk about qualification in 2 different contexts. One of them is qualifying our product with customers on their bottling lines. And that's been a significant focus of ours over the last year or so. And that's a process where we send them caps. They run our caps on their bottling lines. And they see both how do those caps perform from a throughput and a quality perspective in their bottling lines, examples of things that could go wrong there, not specifically for our caps, but caps in general, could be misapplication of the caps or jamming of their bottling systems. And then the other thing that they're really looking for in the aggregate is how do those caps end up performing on those -- the products that they are making on the line. So there's sort of the performance of the cap running through the process and then there's the performance of the cap as part of the final package for the product. And there, you could have under application of the caps that might make it not feel properly or could be over application of the caps, which might cause a problem for, I don't know, tamper evidence or it might make it too hard to get off or something like that. These are sort of generic comments on what could go wrong with those sort of things. And so those are the 2 elements of customer qualification. And of course, with customer qualification, you're both looking for our particular cap design that's being qualified. It's also what do we maybe need to change, adjust settings on their lines in order to make our cap run properly on their lines. These are pretty typical things that you might manage your way through during a customer qualification process, whether it's a PET cap or any other cap. And so that process is what we often are referring to. And the key part of that process is we have to get on to our customers' operating lines. And they have to give us the time to do those runs, collect the data appropriately, make sure that our cap is working properly, and then they can incorporate our caps into their product and planning cycles going forward. But obviously, that's a long-winded way of saying, that's actually not what the question was about, although I think it was really worth walking through. The question is about our qualification of our own lines. So not the lines for using caps, but the lines for making caps. So this is what -- these are our cap forming lines. And what we do during factory acceptance testing which is FATs, which is something we talk a lot about, is that's us testing the performance of the equipment at the site that the equipment was fabricated and assembled. So hence, in the factory, not our factory, but the factory of the equipment suppliers. And that's verifying that before the equipment ever leaves the factory that it's operating the way it's supposed to, to all of its specs. With successful completion of the FAT, the factory acceptance test, it all gets boxed up. It gets shifted to wherever we're going to install and operate that equipment. So frequently, that means our Reed City manufacturing location in Michigan. We unbox all of the equipment. We reintegrate all of it, assemble it, start it up and then we run it again. And we see if it performs the same way now installed at a completely different location where we're going to be operating it for the foreseeable future, to see if it runs the way that it did during the factory acceptance testing. When we have checked that off and it is running the way that it was before, that is the completion largely of the site acceptance test or the SAT. So that's the FAT and the site acceptance test. Now we also go through a line start-up and qualification process for ourselves, which is where we're really -- we're not testing whether the equipment is working. We are dialing in the equipment so that it is operating exactly to the performance specifications that we're looking for as long-term operations of that equipment. And that's less of a test if this equipment work, that's do we have it honed in properly so that we're getting the level of precision that we want to see on those lines so that when we're shipping caps to customers, we are comfortable with those caps, statistically are meeting the specifications as frequently as they need to, to make sure that when we go on to customer qualifcations on their lines, that those caps are going to work the way that they're supposed to. Ryan Smith: Great. The next question from an investor, asks, can you speak to the customer demand in Europe versus the U.S. given the environmental stance of the current U.S. administration and how that factors into your expected growth plans? John Bissell: Yes. I think the first thing to say here is we see a real delamination between the sort of sustainability treatment and public opinion of something like a sustainable material or climate technology, low-carbon materials, those sorts of things. And end of life and recycling type sustainability. So those -- they're often sort of different working groups, if you're looking at the larger sort of meta organizations. They are frequently handled by suddenly different people, even if they might report up into the same broader sustainability group in inside of a company, and they're driven by different consumer factors. So while we have, I think, like everybody else, certainly seen somewhat of a change in tenor on the climate side of things. And notwithstanding that, that really hasn't changed our own view of the importance of climate, but I think that the broader view on climate has changed. We have not seen a reduction in intensity for end-of-life recycling type value propositions or sustainability efforts. And so we have seen a lot of push still in the U.S. just like we had before around resolving the issues for recycling and end of life, particularly for plastics. And I think -- and same in Europe, obviously, there's tethering in Europe that is leading a little bit sort of tethering activities or other kinds of end of life activities in the U.S. But I'd say, in both cases, we see really strong demand elements that are coming from this end-of-life and recycling sustainability desire. I think also, as the plastic and plastic microparticles are becoming more inherently linked to consumers. I think that's driving recycling more. And frankly, we think that, that favors PET quite significantly compared to other packaging materials. So we're really excited, frankly, about all of those demand elements. And I think it's all good right now for PET caps as far as you can tell. Ryan Smith: Excellent. All right. And so this next question, I think, was motivated by the fact that Origin has participated in a number of trade shows recently. The investor asks, have any concrete developments come from your recent spate of trade shows in the U.S. and Europe? John Bissell: Yes. So not things that we're ready to sort of communicate externally. A lot of these deals can take quite a long time. There's a lot of involvement especially if it's not just a straight up, I'm going to buy some caps from you that you're already making. And obviously, in our face of life, there are a lot of transactions or sort of commercial development activities that involve something that we could do or will do in the future or those kinds of things. And those take a little while to be able to communicate out. So lots of concrete things that happened there. not all things that we can talk about. But I will say our sales team and our business development team has been really busy with the outputs of not just those trade shows, but in general, and I think that our experience so far has been as people become aware of what we are doing, we get a lot of inbound interest as a result of that. And so that sort of qualitatively tells us that there's lots and lots of markets that we haven't touched, haven't tapped, isn't aware of us. It's going to be valuable for us to continue to push our message and show people our product and that there is a high percentage of the market that is very interested in PET caps across the board, both small companies and large covers. Ryan Smith: Yes. That makes sense. All right. And then last question here, John, to close this out. What do we have to get excited about as we look into the future? John Bissell: Look, we are excited about the capacity that we're bringing online. We think that, that's going to enable us to really drive caps to the larger customers. We're excited about new product features and continued product development, which left us -- access more parts of the market. And frequently with -- especially with large customers, while they want to start with a single product, they want to have a vision for how something like a PET cap can solve a lot of their -- solve the sort of cap and sustainability problem associated with caps of different non-PET materials, solve that for their whole portfolio. And so showing how we can do that to them is something that additional product types or product features can do, and we're really excited about that. We're excited about the financing that we just closed here. And we think we can show how that can drive the business the way that we all wanted to. And I think I think with all of that said, I think we're in a really good spot. And we've got the right products in the right market and we have the right resources to go execute on it. So there's going to be a lot to talk about. Thank you. Ryan Smith: Excellent. And that's all for our ASK Origin questions. Thank you, John. Thank you, Matt, and thanks to all of our investors on the line today. This concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Profound Medical Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stephen Kilmer, Investor Relations. Please go ahead. Stephen Kilmer: Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements within the meaning of applicable securities laws in the United States and Canada. All forward-looking statements are based on Profound's current beliefs, assumptions, and expectations, and relate to, among other things, any expressed or implied statements regarding future financial performance and position and expectations regarding the efficacy of Profound's technologies in the treatment of prostate cancer, benign prostate hyperplasia or BPH, uterine fibroids, adenomyosis, pain palliation of bone metastases, desmoid tumors, osteoid osteoma and the potential treatment of abdominal cancers and hypothermia for cancer therapy. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. Listeners are cautioned not to place any undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Profound undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, other than as required by law. Representing the company today are Dr. Arun Menawat, Profound's Chief Executive Officer; Rashed Dewan, the company's Chief Financial Officer; Dr. Mathieu Burtnyk, Profound's President; and Tom Tamberrino, our Chief Commercial Officer. With that said, I'll now turn the call over to Rashed. Rashed Dewan: Good afternoon, everyone, and welcome to our third quarter 2025 conference call. On behalf of the management team and everyone at Profound, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support. I will turn the call over to Mathieu in a moment to provide commercial updates. However, before I do, I would like to provide a brief summary of our third quarter 2025 financial results. To streamline things, all of the numbers I will refer to have been rounded, so they are approximate. For the 3-month period ended September 30, 2025, the company recorded revenue of $5.3 million, with $4.1 million from recurring revenue and $1.2 million from onetime sale of capital equipment. Third quarter 2025 revenue was up 87% from $2.8 million for the same 3-month period a year ago. Gross margin in Q3 2025 was 74.3% compared to 63.1% in Q3 2024. Total operating expenses in the 2025 third quarter, which consists of R&D and SG&A expenses, were $12.8 million compared with $10.8 million in the third quarter of 2024. Overall, the company recorded the third quarter 2025 net loss of $8 million or $0.26 per common share, down from a net loss of $9.4 million or $0.38 per common share for the same 3-month period in 2024. As of September 30, 2025, Profound had cash of $24.8 million. As Arun will discuss later in the call, we believe that we are now on a path to profitable growth. In keeping with that, we expect our cash burn to decline and eventually turn cash flow positive with -- as our revenue continues to grow and our margins remain high. That said, we have recently received some inquiries about potential future financing plans, and if we have a shelf registration statement filed in the U.S. With respect to our thoughts on future financing. While we have not made any current plans, we'd like to assure investors that we will continue to be opportunistic with the goal of limiting shareholder dilution as much as is practicable. And with respect to a shelf, we do not currently have one in place, but plan to file an S-3 later this evening as a matter of good corporate housekeeping to keep our options open as we move forward with our financial growth. With that, I will now turn the call over to Mathieu for an update on clinical and development activities. Mathieu Burtnyk: Thank you, Rashed, and good afternoon. Last quarter, we initiated the pilot release of our new TULSA-AI Volume Reduction software, which is specifically designed to shrink benign and large prostates primarily caused by the condition known as BPH. I am delighted to announce today that the full product release will be launched at this year's annual meeting of the Radiological Society of North America, or RSNA, which is taking place in Chicago at the end of this month. The new volume reduction software leverages AI-powered planning and accelerated ablation together with the same TULSA hardware, the same regulatory indication for use and the same reimbursement codes to provide fast and efficient workflows, which are on par with mainstream BPH treatment options. The pilot release has 2 primary objectives. The first was to demonstrate total procedure time of 60 to 90 minutes and the second was to obtain early user feedback to incorporate into the complete feature set included in the full product release. Both of these objectives have been resolutely met. To date, early surgeon feedback has exceeded our expectations. With the precision of real-time MRI guidance and the flexibility of transurethral ultrasound ablation, surgeons have described that they can create treatment designs that mimic any other BPH procedure, whether it's coring the apple like Rezum and Aquablation or a more complete resection like HoLEP. In other words, no matter the prostate shape or size and the needs of the patient for a small or large ablation, TULSA with volume reduction can do it. TULSA also goes beyond with the ability to precisely carve out the ejaculatory ducts, visualize and target cancer lesions, or even prophylactically ablate regions suspicious for cancer, such as PI-RADS 3 lesions or in patients with high PSA or that have a known genetic risk. Surgeons have also described how they can use the efficiency benefits of the new software features for patients with prostate cancer. With the improved workflows and flexibility to customize each treatment to the individual patient, surgeons will have the ability to create what they call TULSA days, where they stack multiple cases in 1 day with predictable and efficient outcomes, whether with prostate cancer, BPH or patients with both cancer and BPH. And that is all with no overnight stay, no blood loss, no fulguration, no grade 4 adverse events, and no need for patients to discontinue their anticoagulant therapy. The pilot launch of the volume reduction software has motivated incremental increase in BPH procedures from Q2 to Q3 and into the first half of Q4. With the full product launch at RSNA later in November, we believe we are well positioned to demonstrate increased utilization in BPH with double-digit percentages of our total procedures in 2026. Speaking of RSNA, we're just 2 short weeks away from the meeting in Chicago, where the TULSA-PRO will be featured prominently. Our booth will feature the full product launch of our new TULSA-AI Volume Reduction software and the final perioperative outcomes from the CAPTAIN trial will be presented by Dr. Peji Ghanouni from Stanford. In addition, the Innovation Theater will host a special session titled Discover TULSA-PRO, AI-powered, MRI-guided precision prostate ablation, which will be presented by both Dr. Joseph Busch from the Busch Center as well as Dr. Daniel Costa from the MD Anderson Cancer Center. In a separate session, Dr. Busch will deliver an oral presentation describing his TULSA outcomes from a cohort of 160 patients. And finally, the TULSA procedure will be the subject of 3 different educational exhibits from each, the University of Texas Southwestern, the NIH or the National Institute of Health, as well as from the Sapporo Hokuyu Hospital in Japan. We certainly look forward to an impactful event. I would like to take a moment to provide an update on our CAPTAIN trial. During our last earnings call, we announced that the CAPTAIN trial was fully recruited and all patient treatments were complete, making it the first randomized controlled trial ever comparing a new technology to the standard of care of robotic radical prostatectomy to successfully recruit to target. We believe one of the reasons for the success is the capability of TULSA to perform safe and effective whole gland ablations, making it a true incision-free prostatectomy as opposed to other ablative procedures that can only target small unifocal disease. Completion of all patient treatment marks a significant milestone as it cements the timing of data readout, including the primary 1-year safety and 3-year efficacy outcomes. The trial, however, is already collecting important secondary endpoints. The final perioperative outcomes will be presented at RSNA as well as at the Society of Urological Oncology, or SUO, in early December. The data will prove TULSA's superiority to robotic surgery and blood loss, hospital stay, post-op pain, and time of recovery. This will be followed closely by its peer-reviewed publication, which we expect to be submitted to a scientific journal before the end of this year, which we believe will be the beginnings of a key driver towards gaining favorable recommendation from the relevant professional society treatment guidelines and positive reimbursement coverage from private payers. Since RSNA starts in just a few days and CAPTAIN side effect data would have been needed to have been submitted prior to any presentation, it won't be part of what's presented there this year. However, we are considering appropriate ways to unveil it relatively soon without risking breaking any embargoes ahead of AUA in May. So please, stay tuned on that front. And with that, I'll turn the call over to Tom. Thomas Tamberrino: Thank you, Mathieu. In Q3 2025, we continue to build on the commercial momentum we established earlier this year. We saw strong traction with our TULSA-PRO platform. As Rashed mentioned earlier, we achieved a year-over-year revenue increase of 87%, up from $2.8 million in Q3 2024. Our gross margin also improved significantly, reaching 74% compared to 64% last year. This reflects the growing efficiency and scale of our commercial operations. As of now, we have 70 TULSA-PRO sites. And the company's TULSA-PRO qualified sales pipeline is also growing and currently stands at 93 new systems being classified within one of the Verify, Negotiate and Contracting stages, which are the final 3 phases of our sales process. Q3 was a true commercial inflection point. We're seeing broader adoption of TULSA-PRO across both academic and community hospitals. That's largely due to increased awareness of the system's clinical benefits and the streamlined reimbursement pathway made possible by the Category 1 CPT code. Our team remains focused on targeting high-volume urology centers and supporting physician training. We're leveraging positive clinical outcomes and patient testimonials to drive engagement and deepen relationships with our customers. Looking ahead, I'm confident in our ability to sustain this growth. We are well positioned to capitalize on the expanding interest in image-guided interventions, and we're continuing to scale our commercial footprint while validating our technology in the prostate care market. We have established flexible business models to drive adoption. With our 25 for 200 program, hospitals performed 25 cases in year 1 for roughly $200,000 with a path to capital conversion. This model allows hospitals to break even on a per procedure basis, typically by the 12th case, while providing Profound with committed revenue. Our standing pricing model includes a capital system priced around $500,000 and disposables averaging $5,500 per procedure. We're seeing success at our model sites. In Texas, the Prime hospital system is demonstrating Medicare profitability. And in the near future, we are confident that our TULSA Plus sites will prove that integration with [ iMRI ] can deliver a payback in under 2 years. Rather than competing with HIFU, IRE or cryo physicians, we're collaborating with them. These clinicians already prefer alternatives to radical prostatectomy or radiation, but their current options limit patient volume. TULSA's versatility enhances their offerings and over time, many of them gravitate toward adopting our technology. We're also building strategic partnerships on a global basis, whether that be through distribution agreements with the likes of Al Faisaliah Medical Systems in Saudi Arabia, Getz Healthcare in Australia and New Zealand or partnerships with OEMs such as Siemens. There's more to come on the partnership front, and I'm excited about the opportunities ahead. Thank you for your time. I will now turn the call over to Arun. Arun Menawat: Thank you, Tom, and good afternoon, everyone. As you just heard from Tom, after experimentation and refinement, both his team and their messaging to potential customers, we now know how to sell TULSA programs. As I have presented earlier this week at the Stifel conference, we believe we are now on a path to not just grow, but profitably grow. The math to achieve this target is simple. With this 200 TULSA programs using existing MR installed base, assuming 50 TULSA procedures per site per year and 5,500 in recurring revenue to Profound procedure, we would be at $55 million in procedure revenue, about $10 million in annual service revenue and selling 40 TULSA-PRO systems per year at $500,000, $20 million in new capital revenue. That will put us around $85 million annual revenue. With 70-plus percent gross margin already achieved, we would be profitable well before that. Putting this together, with what Mathieu has already discussed, the trifecta is finally here. The MR is here and high MRI is coming rapidly. In the very near term, our strategy is to focus on existing MRs and achieve an installed base of 200 TULSA-PRO sites. That is where our sales team is focused right now. Simultaneously, we are in the final stages of achieving comparative -- compatibility with the new Siemens Interventional MR, the Free.Max. We believe that as early as next year, TULSA Plus sites with Free.Max plus TULSA-PRO will be operational, opening the door to the future, the interventional MR suite with TULSA. These sites will further streamline the patient and staffing workflow, making it easier to further drive adoption. Second, we are now beginning to get confirmation from multiple hospitals that they are being paid to all -- for all qualified Medicare patients and that they are satisfied with the amount received. In addition, many commercial payers are also now covering the procedure on a case-by-case basis. In some cases, that's based on pre-approvals. In some cases, they are being submitted after the procedure and being paid. And in others, there are initial denials, but we are getting reversals through appeal. So while that is still a bit of a mixed bag at this stage, as we have said earlier, we're tracking appropriately at this stage and remain confident that we will begin to secure national or regional coverage decisions from the commercial payers starting middle of next year as there is an ample clinical data to support our applications. Third, we are excited to be upgrading our AI-powered software to include simpler patient workflow for patients who suffer from BPH symptoms. Having the flexibility to treat a variety of patients with prostate cancer and now with BPH gives our sites the flexibility to create a treatment day which leads to efficiency and easier scheduling for the hospital staff. We believe that altogether, this trifecta gives us a good chance to not only grow in high double-digits, but with high margins, we believe we can achieve profitability and continue to grow profitably. Before my closing remarks, I would like to take a few moments to talk about our second large opportunity, Sonalleve. We're getting more and more incoming calls from both TULSA users and non-TULSA sites that are interested in interventional MRI and the ability to also treat diseases in the body cavity such as diseases of the uterine adenomyosis and fibroids and cancers such as liver and pancreatic cancers. In fact, FMS, who we announced an exclusive distribution agreement with, for Saudi Arabia, earlier this week originally called us about Sonalleve. Once they were introduced to TULSA-PRO as well, they quickly wanted to discuss both and not only for Saudi Arabia, but also potentially other countries they're active in, such as other Gulf region countries and Brazil, where they own multiple hospitals. Sonalleve, which is offered primarily as a onetime capital sale, uses the same MR imaging and thermography technology as TULSA-PRO and combines that with focused ultrasound from outside the body to treat disease. There are currently 10 Sonalleve devices operational in parts of Europe, China and Southeast Asia, where over 4,000 women have already been treated with the technology for adenomyosis and uterine fibroids, diseases of the uterus that can cause chronic pain and heavy and/or prolonged menstruations. Treatment with Sonalleve has demonstrated pain and symptom relief without affecting the ovarian reserve and with reports of women preserving their fertility. Sonalleve is also now being used in research and clinical trials in Europe for the ablation of pancreatic cancer, tissue and other oncological diseases. To summarize, Profound is the only company that combines the real-time imaging and thermography capabilities of MR and AI-driven treatment designs to allow physicians to precisely and gently address disease tissue without any incision, associated tissue boiling or charring, blood loss, severe or prolonged pain, or need for overnight hospital stay The sales team is clearly delivering and the pipeline, as we define it, now over 50 as compared to 80 in mid-August. TULSA-PRO installed base now sits at 70, and we expect to reach at least 75 installs by the end of the year. The new TULSA-AI Volume Reduction module to treat patients with BPH symptoms in significantly reducing the procedure time, making it very competitive with other BPH treatment technologies. This application has the potential to add 400,000 patients to our annual TAM, essentially tripling our previous TAM. Adding the BPH module also enables physicians to create a full TULSA day during which both their prostate cancer patients and BPH patients are treated. From the perspective of ease of scheduling and creating a TULSA program, this ability is important. The second technology platform, Sonalleve, is poised to start becoming a more core part of our story in the coming months and quarters, both internationally and in the United States. And finally, as user interest in Profound's technologies continues to build, we're deploying our own direct sales team in North America while partnering with select strategic distribution partners to support the business potential and the customer base in other parts of the world for both TULSA-PRO and Sonalleve. This ends our prepared remarks for today. With that, we're happy to take any questions you might have. Operator? Operator: [Operator Instructions] Our first question comes from Ben Haynor of Lake Street Capital Markets. Benjamin Haynor: First off for me, just very encouraging to see the utilization jump up in Q3 after kind of a frustrating first half of the year. And it does sound, based upon your [ commentary ] in the press release that, that trend continues into Q4 thus far. Could you provide a little bit more color and maybe characterize how that's tracking? Arun Menawat: Yes. Ben, I'm going to let Tom answer that because [ he's ] a fantastic pipeline. So Tom, if you could please go ahead. Thomas Tamberrino: Yes, happy to, Ben. Thank you for the question. So to make sure I'm hearing it correctly, specifically, you're calling out the improvement in utilization, right, treatments that have been completed here in Q3 and whether we have experienced that trend continuing to date through the beginning part of Q4. Is that correct? Benjamin Haynor: Yes. Basically, are you seeing that acceleration continue as we close out the year? Thomas Tamberrino: So the answer is yes. And what I can tell you is that the tailwinds that are coming online are the fact that the CPT1 coding that we've referred to and the reimbursement associated with that through Medicare is coming through exactly as we thought it would. So, there's tremendous validity in terms of the ability to provide treatment to men who are Medicare eligible. Added to which indignity, our market access and patient access team are doing a tremendous job of working with individual patients on obtaining private insurance coverage on a one-to-one basis in the absence of any payer policies, right? We don't have any negative payer policies or positive payer policies at this time. And we have a corporate strategy to address that with the private payers as well. So what's happening is we've got the tailwind of Medicare patients coming online, right, moving away from a cash pay-only market. We've got individual wins with private insurance companies. And added to that, we've got a growing body of evidence, as has been stated through not only the Busch press release that came out, but also several others that there's an appetite for this technology across the globe. And I'm not sure if you've met urologists, but they're a competitive bunch. So, one country wants to get started before another country. And that also comes back to the U.S. as well where if you've trained with another physician during your days in fellowship or residency and they're using it in a country that is not this country, there's competitive juices flowing. So there's a multiple factors that are going into driving that adoption. And let's not forget the most important reason why, is that patients are seeking TULSA-PRO out based on their own research and identification of the results of other men who have faced prostate disease. That is our greatest referral base. Benjamin Haynor: Excellent. That's very helpful. And then on the folks that have gotten commercial payers to pay and typically, you see commercial rates roughly double Medicare rates. Is that about what you've seen? Is -- Do you have sufficient experience there to make any comments? Arun Menawat: Yes. Ben -- Mathieu, I know you have some numbers too, but we are starting to get a number of sites that are willing to share the numbers and the Medicare numbers are definitely where they are supposed to be, but the numbers from private payers are significantly higher. And Mathieu, if you have some numbers, please, go ahead and talk about that. Mathieu Burtnyk: Yes, absolutely. So we are -- to Arun's point, we are starting to get some information from some of our sites as we're working with them on ensuring all of their charges are set up properly and so on. And the volume of Medicare patients is higher than the commercial ones that are getting approved. But even from a Medicare perspective, there's a site that's kind of call it national average. They have confirmed that they are receiving about $13,000 for Medicare as well as Medicare Advantage patients, which is right along the CMS rule. And for commercial payers, I was actually surprised to see it. I mean, this is a one particular site. I don't know if it's necessarily applicable to all sites around the country, but they're seeing payments like payment dollars from like $25,000 all the way up to $65,000 per patient. And -- so when you look at sort of the contribution margin from those, again, even on the Medicare and Medicare Advantage, they're actually making sort of $3,000 to $4,000 per patient in a contribution margin perspective. And then, of course, those that are -- the payers that are paying in that $25,000 to $65,000 range, then it's much more significant there. So seeing very, very positive numbers from those sites that are willing to share that information with us, and that's an initiative that we're going to continue to go through in Q4 of this year as well as into 2026. Benjamin Haynor: That's great. And then lastly for me and then I'll jump back in queue. You got 93 folks -- 93 sites that are in the engage stage. How many of those do you expect to kind of fall out and ultimately become customers? And any -- over what time period sort of information that you could share there would be fantastic. Thomas Tamberrino: Thank you, Ben, I know you would do the same for me if I maybe misstated. So I want to make sure we clarify, these are in the Verify, Negotiate and Contracting phases, which is the tail end of our pipeline that then leads into closing, right? The engage portion is further up the pipeline. So this is a much different subset of accounts that we're referring to. Benjamin Haynor: Okay. So [indiscernible] how do you [indiscernible] to kind of fall out? Thomas Tamberrino: Arun? Arun Menawat: Yes. I mean I think, Ben, the way to think about this, this is a real pipeline, which is why, as Tom described, we are making it available because I realize everyone is wondering how real the future look like, and it's kind of highly vetted pipeline. I think 2 things. One is that it does give us good confidence for the Q4 growth. And I think the -- for the 2026, I don't think they're all going to close in 1 quarter, obviously. But I think the way to think about this is 2025 Q4, the pipeline [indiscernible] will close. And then 2026, we're starting with a really good pipeline to be able to continue to grow. Operator: And our next question is coming from John McAulay of Stifel. John McAulay: I wanted to start off today just on setting expectations for the fourth quarter. Again, apologies if I missed it, but in the past, you've talked about 70% to 75% growth for the year. And now with the strong 3Q report, the -- there's a smaller implied step-up to get to that range. Just wanted to hear your general thoughts as we head into the fourth quarter and expectations in terms of the revenue and whether that 70%, 75% guidance still stands? Arun Menawat: Yes. John, that's a great question. I think that based on the information we have provided, Tom and the team have already closed 3 sites, which is why our installed base is now at 70. Hopefully, that gives you some confidence. And then the pipeline information hopefully gives you confidence as well. And so, where we are, we remain comfortable with that 70% growth target. We have delivered the first quarter with growth. We think we can deliver the second quarter with growth and then continued growth. So I think bottom line, John, we're comfortable with that 70% growth target. John McAulay: Got it. That's helpful. And as a follow-up, gross margins stepped up again, now a little over 74% here. Can you just talk about the capital versus consumable dynamic? What's driving the acceleration? And what's a reasonable long-term target here? Arun Menawat: I think we are more likely than not probably at the right place on gross margin. The reality is that the margin is about the same on both the recurring revenue as well as the capital. And so, John, I would say, using a number between 70% to 75%. We always thought we would get above 70%. We are kind of feeling like this is about where we would like to be running the business in the low 70% range. John McAulay: Just if I could sneak in one more. It's a follow-up on Ben's question at the beginning. Arun Menawat: Yes, please. John McAulay: In the 3 stages of the negotiation or in the contracting that you're talking about, these 3 latter stages, just want to put a finer point on -- I mean, what's the fallout rate here from stage to stage? So for the one that's in the final [indiscernible], what sort of percent closing rate are you seeing? Before that, what's the percent chance that it reaches that final stage of the pipeline and so on and so forth? You see what I'm getting at? Arun Menawat: So -- yes, I do. I understand that very well. So I would say given that we are -- the pipeline is new and so on, our ability to really predict a specific is not as high because we have less data. But from our history, from our prior company and so on, I would say that for the next couple of quarters, we think that, that sort of pipeline in the 50-plus percent range is -- will ultimately close. We think, as our sales team gets more experience, that number will more than likely increase to 65%. So, this is where -- we don't put things into that tail end until we have at least a 50% confidence that they will close. Operator: [Operator Instructions] Our next question will be coming from Michael Freeman of Raymond James. Michael Freeman: Congratulations on these big results. Just detail, I'm curious, you mentioned 70 total units installed. With your pre-announcement, you mentioned 67. Is the 70 units total installed, is that as of today's date? Or was -- did this happen in Q3? Arun Menawat: That's right, Michael. The team really has been working pretty hard. So the first 3 deals of this quarter already closed. And so that's why we decided we would share with you what it is as of now as the end of the quarter. Michael Freeman: Perfect. Okay. That's helpful. More data, the better. Now, Mathieu went over a bunch of data -- upcoming data reveals. I wonder if you could just review for us what you think would be -- are going to be the highest impact data reveals that will happen over the next few months? What do you think would be dial moving in terms of things like commercial reimbursement and general uptake? Arun Menawat: Yes. It's a very good question because more and more our physicians are pretty convinced that the TULSA technology is clinically efficacious and from side effects significantly better because many of them have done their own publications and research. And as Tom and Mathieu have talked about, many of our sites have now done 100, 200-plus cases. So clinical outcomes is -- people are beginning to get there. But I think where it will have the most impact is going to be ultimately in getting to the guidelines and to getting the reimbursement coverage from all insurance companies. So I'm not -- I think from that perspective, I know everybody is looking for [indiscernible] too, but I think the impact is going to be on the high level. And I think it will ultimately impact serious growth for our company. But at the moment, it may not necessarily be the most important data that people are looking for. I think the other set of data that I think people are looking for is the one that actually Mathieu talked about on the BPH side when we can start to show that the patients who have BPH can be treated with our technology in an hour or less or that to be able to see that a number of these patients also had a comorbidity, which might be early-stage cancer, might be some prostatitis or other [ disease ] that they could treat those patients for those diseases at the same time. I think that is going to really impact the BPH part of our market. So that, I would say, is the #1 -- from a clinical perspective, what I think they're looking for. From the reimbursement perspective, I think we're starting to get the data. The more data we get, I think the easier it will be to start driving adoption of the technology. Michael Freeman: Okay. All right. And just last for me. What -- I do notice that there's more discussion of the Sonalleve recently. I wonder if you could describe the motivation for this renewed focus on the Sonalleve? Arun Menawat: Yes, Michael, I'm happy to. So I think what happened is that, from our end, we have limited resources. We have stayed focused on TULSA. And all of our resources have really been spent on TULSA. And in the site, we have about 10 sites running. And to be honest, we've supported them with very limited resources, if any. But they have continued to do and the results are amazing. And the change that took place this summer is when HistoSonics got acquired for $2.25 billion, everybody started looking and say, well, how come we're not paying attention to this other technology. And then when we started talking with physicians who -- we were getting incoming calls and we said, well, we have an MR based. And I think if anything, we got to -- we're getting more excitement about the fact that we are MR-based because we can see the diseases better. And when you look at uterine diseases, you can see the adenomyosis, the abnormal tissue, fibroids, abnormal tissues, so it can be targeted and maintain the fertility. And then the trials for pancreatic cancer and other body cavity disease cancers were actually sponsored by research organizations that are now starting to say, hey, these results actually look pretty impressive. So, I think it's a combination of the business side having a benchmark and then the fact that MRI -- iMRI is coming and the fact that these results are now looking pretty impressive. It's a combination of all of this. And it's pretty exciting for us, to be honest. And -- well, I don't use the word exciting frequently. It's because I think that we're actually the only company that can create an ecosystem in the end. And that ecosystem can be treating these high-volume prostate cancer diseases, the BPH and then go into the body cavity and go after uterine diseases and then solid organ tumors. So, we are -- we think that there is a real opportunity here, and we're going to stay very disciplined as you know how we are, but I do think it's time to start exploring the Sonalleve asset more closely. Operator: And I'm showing no further questions. I would now like to turn the call back to Arun for closing remarks. Arun Menawat: Thank you. We appreciate your time. And as I said at the Stifel Conference this week, and we have talked about already today, we do believe that it is happening. The pipeline is amazing. The sales team is out there. And so we are really looking forward to updating you on the Q4 and year-end results next year. Thank you so much. Operator: And 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 Aurora Mobile Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. And to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host today, Rene Vanguestaine. Please go ahead, sir. Thank you, Michelle. Rene Vanguestaine: Hello, everyone, and thank you for joining us today. Aurora Mobile's earnings release was distributed earlier today and is available on the IR website at ir.gguang.cn. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer, Mr. Shan-Nen Bong, Chief Financial Officer, and Mr. Guanyang Chen, General Manager. Following their prepared remarks, they will be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and is defined in The US Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions, which are difficult to predict and may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, and or factors are included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, as required under applicable law. With that, I would now like to turn the conference over to Mr. Luo. Please go ahead. Weidong Luo: Thanks, Rene. Greetings to all. Welcome to Aurora Mobile's 2025 Third Quarter Earnings Call. Before I comment on our Q3 results, I would like to remind everyone that the quarterly earnings are available on our IR website. You may refer to that as we proceed with the call today. Without further ado, let's get started. As we did in the past, based on the Q3 earnings numbers, the suitable discretion I will give to the fourth quarter result is good things. Kind of impulse. Because we record the first-ever back-to-back quarterly net GAAP profit in our history. Following the Mandan net debt profit last quarter, our strong business performance carried us across the line again in Q3. Let me elaborate more on the strong business we have had in this quarter. Firstly, the group's revenue this quarter of RMB 19,900,000, achieving a remarkable 15% year-over-year and 1% sequential growth. This RMB 19,900,000 was at a very high end of the guidance we have provided. Secondly, our global flagship product, Engagement, continued its great momentum with another quarter of great numbers. Engagement app recorded a very strong quarterly growth in customer number and contract value growth. In particular, Engage Labs ARR for September 2025 stood strongly and reached a new milestone at RMB 53,700,000. It has grown by 160% year-over-year. Thirdly, our financial risk management business had its best quarter yet, recording the highest quarterly revenue of RMB 222,600,000 with growth of 43% year-over-year. Fourthly, gross profit exceeded our expectation and grew strongly by 20% year-over-year while achieving the highest growth gross profit for the past fifteen quarters. Gross margin has also improved year-over-year and quarter-over-quarter. Last but not least, have you ordered a great number about its grade? It's equally important that we are generating positive cash flow and in great cash position. Indeed, we are. The net operating cash inflow of RMB 23,300,000 recorded the highest level since 2020. It is very humbling for me to share with you all on yeah. And others, there are quarterly financial results. As I mentioned in the pre-earnings call, assuming historical GAAP net profit was not easy. For us to have back-to-back GAAP net profit is simply a great achievement for Aurora Mobile. To achieve that, all the processes in the organization worked really well for the entire fourth quarter of 2025. Our hard work and commitment to excel throughout Aurora Mobile will not stop here. There are more we need to achieve together. And we will. Short of giving our promise on this call, I truly hope for all the team's dedication or execution on our group's strategy and going forward. Now let me share more on the individual business performance. Our total Q3 group revenue has grown both year-over-year and quarter-over-quarter. In particular, revenue grew 15% year-over-year driven by strong numbers from developer services and financial risk management basis. Again, in this quarter, all business segments, many developers' subscription services, video ad services, and vertical applications, record story acceleration, with double-digit year-over-year revenue growth. This is the second consecutive quarter we have such a strong revenue growth momentum. Developer services revenue, which consists of subscription services and value-added services, increased by a strong 12% growth year-over-year and flat quarter-over-quarter. Subscription revenue has solid revenue numbers, well, it increased by 11% year-over-year and increased 7% quarter-over-quarter. Value-added services revenue grew by an impressive 22% year-over-year, but decreased 44% quarter-over-quarter. Our core business developer subscription services with revenue of RMB 57,300,000, record year growth of 11% year-over-year and 7% quarter-over-quarter. Year-over-year revenue growth was mainly driven by an increase in both customer numbers and ARPU. Subscription revenue recorded the fifth consecutive quarter of renminbi 50,000,000 plus revenue and reached its highest level in history in this quarter. Next, Amy Shea Moore on our global Flex global flagship product. Engaged App, which continues its excellent growth acceleration path quarter after quarter since its introduction. Firstly, Engage Labs ARR has reached a new and important milestone of RMB 53,700,000 mark in September 2025. This 160% year-over-year ARR growth was just impressive. Secondly, we had another very strong quarter for engagement where the cumulative contract value we get signed amount to renminbi 128,000,000 by the 2025. In Q3 alone, we signed up more than maybe $15,000,000 worth of new contracts. This is just outstanding. We do expect this revenue growth momentum to continue for the next twelve to twenty-four months. Thirdly, global customers from all corners of the world continue to purchase our products and services. The customer number has increased by 156% year-over-year, reaching 1,312. This was driven by the continued progress we are making for our global go-to-market effort. Firstly, our engagement products and services are now sold to customers in more than 52 different countries and regions globally. This is a great testament that our global flagship product, Engager, is indeed a globally accepted product. From customers originated from all four corners of the world. Our global flagship product, Engagement, has a very unique and different position in the market. We have been taking market share from competitors in all the overseas markets we operate in. This is evident from the growth rate of engagement we have seen today. From the market intelligence, we have gathered it shows that the demand for our engagement products and services remains strong. With this great result delivered by EngagedLab, once again reinforced my strong belief that this global flash product is the to spare as far as revenue growth is concerned for us in the next twelve months or twenty-four months. Within subscription revenue, some of the notable wins this quarter include anonymity two, LipSig, Shanghai Disneyland, BYD, and China Eastern Airlines, just to name a few. Value-added services revenue will remain b 7,100,000, increased by 22% year-over-year, but decreased by 34% quarter-over-quarter. Solid revenue year-over-year growth was mainly due to the increase in new advertisers acquired between the years. The absence of traditional quarter online shopping festival will result in a negative revenue growth sequentially. Now let me pass the call over to Shan-Nen Bong, who will share more about the application and other aspects of our financial performance for this quarter. Thanks, Chris. Shan-Nen Bong: And next, I'll go over the revenue for a particular application that includes financial risk management and market intelligence. Overall, vertical application had a good quarter. Where revenue grew both year-over-year and quarter-over-quarter. Within vertical application, financial risk management recorded significant 33% growth in revenue year-over-year and 3% quarter-over-quarter. Financial Risk Management had its Following the strong Q2, sequential excellent quarter. It is now the third consecutive quarters of revenue in excess of RMB 21,000,000 under its belt. Another significant milestone for this business is that it recorded the highest quarterly revenue in history of RMB 22,600,000 in this quarter. This 33% year-over-year revenue growth mainly due to a strong 44% in customer number growth. The customers that we sign up or renew in QT in Q3 include, but not limited to, nursing. And many more licensed credit and financial institutions throughout China. Market intelligence revenue, on the other hand, decreased by 23% year-over-year and 2% quarter-over-quarter due to the weak the continued weak demand for the Chinese APP data. And this result is in line with our expectation. Next, I'll go over some of the P&L and balance sheet items. Our gross profit had spectacular results too. In this quarter where it grew 20% year-over-year and 7% quarter-over-quarter. The rupee 63,800,000 gross profit we had was also the highest gross profit for the past fifteen quarters. With the group revenues grew 15% year-over-year, yet our gross profit grew by 20% year-over-year, it shows that we had recorded very high margin revenue in this quarter. This is certainly a key target that we would like to maintain and extend beyond this quarter. Onto operating expenses. The Q3 operating expenses was at RMB 64,400,000, representing a 12.8% increase year-over-year, an increase of 5.8% quarter-over-quarter. Operationally, our Q3 revenue grew by 15% year-over-year while OpEx only grew by 12.8%. Overall, we are pleased to see how we have been controlling OpEx to support the double-digit revenue growth across our business line. I'll now dive deeper into the individual OpEx category. For R&D, expenses increased by 7% year-over-year to renminbi $25,900,000, mainly due to the increase in staff costs and associated expenses. Technical service fee and cloud cost also contributed to the year-over-year increase in R&D expenses. Selling and marketing expenses increased by 19% year-over-year to RMB 26,600,000, mainly due to the increase in sales commission in line with revenue growth and the cash collection in this quarter. Marketing expenses for investment in global business expansion also contributed to the year-over-year increase in selling and marketing expenses. G&A expenses increased by 13% year-over-year to RMB 11,900,000. Mainly due to increase in staff cost, professional fees, better provision. Next, I'll share three very important KPI that we closely monitor. For NDR, you should I mean, net dollar pension rate, a commonly used KPI for SaaS companies, is stood at 104% for our core developer service business for the trailing twelve months ended 09/30/2025. And this is the very first time where NDR numbers have exceeded 100% milestone. The number says it's all. It means customer retention rate coupled with the fact that our customer has increased their spending with us through upsell, upgrades, and extension. And this is the best testament of our sustainable SaaS business. Secondly, another important financial KPI for tracking the performance of staff company is total deferred revenue. Which represents cash collected in advance from customers for future contract performance. Which was at historical high of RMB 166,300,000. And this higher deferred revenue balance is a hallmark of a high-quality scalable business. It signifies the strong customer loyalties, predictable future revenue, healthy cash flow, and effective sales strategy. Thirdly, we continue to maintain healthy AR turnover days level at forty-nine days. And this remains at an industry-leading level. Cash from customers. We will continue to work hard to ensure we actively and timely collecting and at the same time mitigating the risk of bad and doubtful debts. On the cash flow, we recorded another great numbers. For the quarter ended 09/30/2025, recorded net operating activities cash inflow of 33,300,000. This is the best quarterly cash flow numbers we have since 2020. Onto balance sheet. Total assets were renminbi $3.08 8,200,000 as of 09/30/2025. This includes cash and cash equivalent of $1.01 1,200,000. Accounts receivable of 43,900,000. Prepayments and other assets of 15,700,000. Operating lease right of use assets of 15,900,000 fixed assets of 2,900,000, long term investment of $1.01 3,000,000, goodwill of 37,800,000, and intangible assets of 11,500,000 resulting from Sendcloud acquisition in March 2022. Total current liabilities were $2.07 4,600,000 as of 09/30/2025. And this includes accounts payable of 31,900,000. Other operating at least liability of 4,100,000. Deferred revenue of $1.06 6,300,000. Accrued liabilities of 72,300,000. Now let me take a few minutes here to recap the description. Good things come in pairs. That Chris mentioned at the beginning of this call. This quarter, we have many great achievements that I would like to take a few minutes to reiterate. Weidong Luo: First, we achieved our very first back-to-back GAAP net profit in history. Number two, our core developer subscription business had its best revenue in history of 57,300,000. As did the financial risk management business. Our flagship product, EngagedLab, continued its expansion beyond the shores. Apart from great growth in customers' number and contract value, EngagedLab business reached another very important key milestone. Where the ARR was at 53,700,000 in September 2025. Representing a stunning 160% year-over-year growth. Gross profit grew 20% year-over-year and recorded its highest levels for the past fifteen quarters. Number five, operating activities brought in net cash inflow of RMB 33,300,000. Our NDR net dollar retention for core developers to be recorded at the best number in history of 104%. And now let's turn to business outlook. Based on the current available information, the company sees the Q4 2025 revenue guidance to be in the range of RMB 94,000,000 to RMB 96,000,000. Representing a solid growth of one to 3% year-over-year compared to the same quarter 2024. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimate of the market and operating conditions and customer demands, which are all subject to change. Before I conclude, I'll give a quick update on the share repurchase plan. In this quarter ended 09/30/2025, we repurchased 4,000 ADS. Cumulatively, we have repurchased a total 327,000 ADS since the start of our repurchase program. And today, our board of directors of the company approved a share repurchase program whereby the company is authorized to repurchase up to US dollars 10,000,000 worth of its ordinary share, including in the form of ADS. During the twelve-month period starting today. And this is a 100% increase from the US dollars 5,000,000 program we had previously. The company proposed repurchase will be made from time to time in the open market at a prevailing market price. In private negotiated transaction, in block trades, and or other to other legally permissible means. Depending on the market conditions and in accordance with applicable rules and regulation. Company's board of directors will review the share repurchase program periodically and may authorize adjustment in terms of size and terms. The company expects to fund the repurchase of its existing cash. And this concludes our prepared remarks. We'll be happy to take your question now. Operator, please proceed. Operator: Thank you. As a reminder to ask a question, please press 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press 11 again. And our first question will come from Calvin Wong with Spica Capital. Your line is now open. Calvin Wong: Good evening, management. Thank you for taking my questions. First of all, congrats for delivering another set of stunning results this quarter. I have only one question. Based on my reading of the earnings release, I noticed the strength of engagement that business. And how it strengthened the group's financial result. So I would appreciate if management could tell us more about EngageLab. And why the growth trajectory has been so strong since day one. Thank you. Shan-Nen Bong: Let me take this call. Kevin, to hear from you again, and thanks for interest. And I'll take your earlier statement about EngagedLab rules to track has been strong since day one. And this is factual, and we are very proud of the achievement since day one. And for those listeners, have access to our ER deck that we have uploaded to the IR web page, You can refer to, I think, slide number three we have the pictorial display or diagram of engagement of EngishLab business to date. And one new particular data point that we have included in this quarter's earning deck is the ARR. It's the annual recurring revenue for English lab business. For the month of September, 2025, the ARR was at 53,700,000. And this is a 160% jump from a year ago. And we are very encouraged by this number. Because it shows that the business has a very significant growth trajectory, and we have made great revenue expansion in just twelve months. I would say the success of EnglishLab is not by chance that we are lucky. It was a result of endless improvement upgrades that we made to the product and service offering that help us to acquire more new customers and retain existing customers globally. If you look back, when Chris decided to launch English Lab back in 2022, the mission was pure and direct. Just to address our customers' main needs of reaching out and engaging with their users in a cost-efficient and effective manner. And through EngageLab, our customers are able to reach and engage with the users who anyone or all of the following messaging channels such as app push, web push, email, SMS, WhatsApp, and OTP. And also from a technical standpoint, have done all the heavy lifting for our customers too. To deliver the global solution for our customers, we have invested heavily in data facility in eight cities globally. And just this week, we have launched a new data center in Turkey. Further expanding our global infrastructure. That aside, we have also incorporated our notification channel for all different operating from iOS to Androids. From Harmony OS to others. And it makes it easy and efficient for our customers to ensure that their notifications are delivered no matter where the users are and what phone they are using. And maybe you can think of EnglishLab as reaching your users without borders. And for service-wise, we have received countless compliments from our customers. Our customer service team is very responsive and delivers a much better service than our peers. And this says a lot from a customer standpoint. And they when they encounter issues, they need solutions. And this is something that we can deliver, and we are proud of it. And therefore, with such a great value proposition, customers can get a one-stop engagement platform and great services all wrapped in one it is not hard to see why EngagedLab has been able to deliver such great numbers quarter over quarters. And historical results aside, and both Chris and myself had great hopes and confidence in the English lab business going forward. As Chris rightly called out during the call earlier, EnglishLab is the touch bearer for our revenue growth in the next twenty-four months. And, Kevin, hope this answers your question adequately. Calvin Wong: Great to hear that. It's very clear then. Operator: Thank you. And our next question will come from Jack Sun with Gullingway Research. Your line is open. Jack Sun: Good evening. I'm Jack Sun from Gong Fu Research. Thank you, management, for taking my question. Congratulations on another good quarter with solid earnings. In particular, two consecutive quarters with getting that profit. Well done. I have a question for the management. Help me to recap what went well in Q3 that delivered another quarter with a GAAP net profit. Thank you. Shan-Nen Bong: Hi. Hi, Jack. Thanks for the question. Yeah. It was a great quarter indeed. I think Chris mentioned we executed very well operationally and everything just went well. And this flow on to our financials number that we have released earlier today. There are a couple of things I can share more. Firstly, revenue in Q3 has been very strong. All business lines recorded great year-over-year double-digit growth. What I mean is we are now head and shoulders above where we were a year ago. And both the subscription business and the financial risk management recorded their own best revenue quarter in history. Equally important is the revenue by EnglishLab where it contributed RMB 13,000,000 in this quarter alone. Also a historical high. We grew our revenue not at the expense of sacrificing margins. This is evident that while we grew our revenue significantly, our gross profit reached the highest level for the past fifteen quarters. At the same time, our gross margin increased year-over-year and quarter-over-quarter too. And this is a really hard act to follow. And since revenue, gross profit grew at a faster pace than our OpEx, the US GAAP net profits is a certainty. And which is why we had a second quarter of US GAAP net profit. And two other important and great KPIs that I would like to reiterate here. One is the NDR. Where we reach 104% for our core developer sufficient business. And this is the very first time NDR exceeded 100%. And what that means is simple and straightforward. Our customers have been buying more of our services between the periods through upgrades, upsell, and other services. And this is a great number to have. And secondly, is the deferred revenue balance of 166,300,000, another historical high balance. In short, we have 166,300,000 worth of secure revenue that we can recognize in the future. And the best part is we have already received cash. So for this 166,300,000, we don't need even have to worry about cash collection effort or the risk of bad debt in the future. And managing cash flow has also yielded great results. In this quarter, we have net operating cash inflow of 23,300,000, the highest level for the past twenty quarters, which is actually the five years the past five years, the best results. And with that positive inflow of cash, our $9.30 quarter-end cash balance has also climbed to 141,200,000, the highest balance in the past fourteen quarters. It improved by 40% year-over-year. And you can see, it's not hard for you or anyone to conclude that this quarter has been great. And however, rest assured that we are not contented by the present. We need to move faster and expand more. Therefore, we will continue to invest as part of our global growth plan. And lastly, if time permits, I would like to quarterly invite you and other investors to drop by our central or head office. We are more than happy to host you and chat with greater detail any question you might have. Yeah. This is my answer to your question, Jack. Jack Sun: Okay. Thank you. That's very clear. Appreciate that. Operator: Thank you. I show no further questions in the queue at this time. I would like to turn the call back over to Rene for closing remarks. Rene Vanguestaine: Thank you, everyone, for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you all. Operator: This does conclude the conference call. Thank you for participating and you may now disconnect.
Operator: Good day, and welcome to Bilibili's Third Quarter 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead. Juliet Yang: Thank you, operator. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purposes only. The definition of these measures and the reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer, Ms. Carly Li, Vice Chairwoman of the Board, Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. I will now turn the call to Mr. Chen. Rui Chen: Thank you, Juliet. And thank you to everyone for joining us today to discuss our 2025 third quarter results. Our 2025 momentum carried through the third quarter as we delivered solid growth, improved profitability, and attracted an even larger, more engaged community. As an influential hub of diverse interests, our high-quality content offerings and unique community experience continue to fascinate the hearts and minds of the young generation. We are increasingly seeing this in our key user metrics, which have resumed an accelerated growth trajectory since the beginning of the year. In the third quarter, our DAUs rose 9% year over year to 117 million, MAUs grew 8% to 376 million, and average daily time spent per user increased to 112 minutes, up six minutes from the same period last year. Each hit an all-time high. We are very proud of these numbers, as they show users' rising demand for quality content and the welcoming community spirit that makes Bilibili unique. We will keep building on the strong user momentum and reinforcing our leading user mindshare as the best PUGV community in China. This solid community growth is translating into increasing commercial value, with even greater opportunities ahead. While enjoying engaging content, users are demonstrating a stronger willingness to spend on our platform, both directly and indirectly. Monthly paying users hit a record high of 35 million in the third quarter, up 17% year over year, with more users converting through our various games and VAS offerings. We are also seeing deeper engagement around consumption, as users increasingly turn to Bilibili for advice and inspiration, with real purchasing intent. Our advertising business also accelerated, and revenue grew 23% year over year in the third quarter. With an average user age of 26, a maturing cohort with stronger purchasing power and expanding consumption needs, we are capturing more commercial potential across the platform and realizing greater value from our users' evolving needs. Building on these strong fundamentals, we delivered solid financial results in the third quarter. Total net revenues grew 5% year over year to RMB 7.7 billion. As our revenue mix shifts toward high-margin business, gross profit increased 11% year over year, with gross margin expanding to 36.7%, marking the thirteenth consecutive quarter of growth. Supported by disciplined cost management and higher operating leverage, our non-GAAP operating and net profit surged 153% and 233%, respectively, year over year. Our non-GAAP operating and net margins reached 9% and 10.2%, respectively, showing meaningful improvements from the same period last year. These metrics underscore the sustainability of our growth model, reflected in our continued profitability expansion. Notably, we welcomed another blockbuster game, Escape from Duckhoff, Haori Yakufu, in October. This self-developed single-player extraction shooter game became an instant hit after its debut, selling over 3 million copies globally and earning great user reviews. The success illustrates our sharp genre insight, in-house development capabilities, and solid execution in reinventing games for new generations of gamers. There is still a lot of unmet demand in the market, and we are ready to tap into it with our upcoming pipeline and robust game content ecosystem. As we continue to strengthen our business fundamentals, AI is becoming a key enabler of our future growth. Later this year, we plan to launch several AI-powered applications, including multilingual video accessibility features such as AI-enabled dubbing, subtitles, and lip-syncing. We are also developing a new video generation tool tailored to video podcast production, where compelling storytelling defines high-quality output. Beyond these initiatives, AI is consistently enhancing our operational efficiency, and there is so much more to explore. Looking ahead, our focus remains on empowering our unique PUGV community, strengthening our commercialization capabilities, and sustaining profitability. We will continue to scale our core businesses while exploring opportunities such as innovative games and AI-empowered solutions to enhance user experience and capture additional monetization potential. With that overview, let's take a closer look at our core pillars of content, community, and commercialization. Beginning with content and community, our ecosystems continue to grow stronger as quality content and community connections reinforce each other. This growing synergy is reflected in record engagement and increased commercialization, demonstrating Bilibili's ability to turn cultural relevance into sustainable growth. Average daily time spent hit a new record high of 112 minutes in the third quarter. This is a six-minute increase over the same period of last year. Mid to long-form videos remain our hallmark. Users continue to show high engagement with our more substantial informative content, and watch time for videos over five minutes increased by 20% year over year in the third quarter. Our official members grew to 278 million with ongoing steady twelve-month retention of around 80%, reflecting strong user loyalty. ACG remains the legacy category of our cultural ecosystem. Chinese anime content watch time more than doubled this quarter, led by popular series made by Bilibili, such as A Record of Mortal's Journey to Immortality, The Tales of Hurting Gods, and Link Cage. The success of these Chinese anime drove premium memberships to a record high of 25.4 million. In addition, game content grew solidly with watch time up 22% year over year. This momentum further reinforced games as our largest ad vertical, with Bilibili continuing to provide the ideal community for developers to engage players and strengthen their IP influence. Meanwhile, AI-related content remains one of our fastest-growing categories. Watch time was up nearly 50% year over year, and revenues from AI advertisers rose around 90% in the third quarter, highlighting Bilibili's position at the intersection of tech innovation, user interest, and commercialization. Lifestyle and consumption-related content also grew as our audience matures and their interests diversify. Our mid to long-form creator-led storytelling content is keeping viewers engaged and drawing more interest from advertisers. For example, automobiles stood out in the third quarter, with watch time up nearly 20% and ad spending rising 35%, demonstrating how our community continues to evolve with our users while expanding opportunities for brands. Our creator ecosystem is the key force behind our progress, and creators sit at the center of Bilibili. As a platform, our most important job is to help talented creators build their followers faster and earn more. In the first nine months of 2025, the number of creators with 1,000, 10,000, 100,000, and 1 million followers each grew by over 20% year over year. Over the same period, nearly 2.5 million creators earned income on Bilibili through various advertising and VAS products, and average income per creator increased by 22% year over year. These trends show how creator success and user engagement reinforce each other, strengthening the foundation of Bilibili's content ecosystem. Now let's talk about our commercial businesses and their progress. Our commercial momentum continued in the third quarter as we tapped into more of the value behind our highly engaged and growing user base. Advertisers are increasingly recognizing the strength of Bilibili's influence, and total advertising revenues grew 23% year over year to RMB 2.6 billion. In Q3, we continued advancing our ad infrastructure on multiple fronts. By leveraging our multimodal LLM, we gained a deeper understanding of video content, community interaction, and their interconnection with user intent, improving our ad targeting and recommendation efficiency. Meanwhile, our upgraded smart app placement system automates campaign routing and delivery, maximizing scale, speed, and performance. This drove a 16% year over year increase in the number of advertisers seeking incremental value on Bilibili. Beyond ad algorithms and placement, our AIGC creative tools add another layer of ad efficiency. Advertisers can automatically generate compelling titles and thumbnails, saving production time and cost while improving conversion rates. In the third quarter, over 50% of the performance ads material had the help from our AIGC tools, assisting advertisers in reaching users more effectively with content that resonates with their intended audiences. These infrastructure advancements go beyond efficiency; they are reshaping how advertisers connect with our community. By combining intelligent algorithms with authentic engagement, we are turning creativity into conversion and positioning Bilibili's ad business to capture higher value as we continue to scale. This quarter, our top five advertising verticals were games, Internet services, digital products, home appliances, e-commerce, and automobiles. As our mid to long-form PUGVs deliver more informative content and more real usage scenarios for users, we have become an ideal platform for digital product and home appliance brands to reach and convert young users. Ad revenues from digital products, home appliances, and home decoration both grew by over 60%. As more and more online merchants recognize the commercial value of our unique young user base, they are allocating larger advertising budgets to our platform. In addition to our anchor verticals, we continue to see incremental ad revenue from emerging verticals. In Q3, ad budgets from AI and education both increased meaningfully. Turning to our games business, in the third quarter, game revenues came in at RMB 1.5 billion, down 17% year over year, mainly due to the high base from the same period last year when THEMMO was initially launched. We continue to focus on building a diversified game portfolio, laying a stronger foundation for long-term growth in our gaming business. In the third quarter, Semo maintained its popularity. We further enhanced the user experience by streamlining gameplay and character progression to create a more balanced and enduring title. Building on our success in the domestic market, we plan to launch the traditional Chinese version of SEMMO in Q1 2026 for Hong Kong, Macau, and Taiwan, with additional international versions planned for later next year, opening it up to strategy players worldwide. Besides SEMMO, our legacy titles, SGO and Azure Lane, continue to be welcomed by ACG lovers, maintaining loyal fan communities and consistent engagement. On October 16, we launched Escape from Duckoff, our first single-player extraction shooter game. Developed in-house by a five-man team, the indie game won over millions of users with innovative gameplay and its cute graphics. Over 3 million copies have been sold globally across various platforms, making Escape from Duckoff the number one popular indie game in China this year. This was an encouraging debut for us and a prime example of our expanding game development capabilities across genres and platforms. Leveraging our leading game content platform and influential game creators, we are confident we can expand the IP and bring more franchise titles to players next year. Looking at our pipeline, we are preparing to roll out End Card Sanguo by Jiangpai in early 2026, an asymmetric PVP card game inspired by the Three Kingdoms culture, designed for a broad audience of lightweight players. The game features fast-paced matches that last around three minutes per round, making it well-suited to casual, on-the-go play. As our first step into the casual gaming genre, the title is backed by Bilibili's vibrant gaming community, which provides a strong foundation for player acquisition and long-term engagement. Results from the beta test have been encouraging, and we will continue refining the game to deliver a creative, unique casual card game experience. And finally, let's look at our VAS business. Revenues increased 7% year over year to RMB 3 billion. This quarter, more users joined our live broadcasting universe as we continued expanding content aligned with their interests. Our focus remains on refining operations to ensure steady, sustainable growth while further improving margins. Driven by our popular Chinese anime titles, premium memberships also maintained solid growth, reaching a record high of 25.4 million by the end of the quarter. Around 80% of members are on annual or auto-renewal plans, underscoring their loyalty and deep connection to our community. Other VAS products continue to grow rapidly in the third quarter, led by our fan charging program, which saw its revenue nearly double year over year. This momentum reflects users' willingness to directly support the creators and high-quality content they value most. Beyond the numbers, we remain deeply committed to shaping a healthy culture and community for China's young generation. ESG principles are central to that mission. This year, MSCI ESG reaffirmed Bilibili's A rating, recognizing our ongoing progress in using technology and culture to create meaningful impact. In conclusion, everything we have achieved today comes from more than a decade of staying focused on one thing: building great content and a vibrant community. This long-term focus has created a self-reinforcing cycle where high-quality content attracts younger users, and an engaged community adds ongoing value and monetization follows organically. As we become more profitable, this flywheel will become even more effective. We will stay firmly on this path and continue to create lasting value for all of our stakeholders. With that, I will turn the call over to Sam to share more financial details. Sam, please go ahead. Sam Fan: Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time, on today's call, I will review our third-quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. In the third quarter, we continued to grow revenues and expand our margins and profitability, driven by growth across our commercial businesses, particularly in our high-margin advertising businesses. Total net revenues for the third quarter were RMB 7.7 billion, up 5% year over year. Approximately 39% from VAS, 33% from advertising, 20% from games, and 8% from our IP derivatives and other businesses. Our cost of revenues increased by 2% year over year to RMB 4.9 billion in the third quarter, while our gross profit rose 11% year over year to RMB 2.8 billion. Our gross profit margin reached 36.7% in Q3, compared with 34.9% in the same period last year. Our expanding gross profit and margin show that our model is built to scale. Our total operating expenses were RMB 2.5 billion, down 6% year over year. Sales and marketing expenses decreased 13% year over year to RMB 1.1 billion, mainly due to decreased marketing expenses for our games. G&A and R&D expenses were RMB 509 million and RMB 905 million, respectively, both flat year over year. These efforts allowed us to maintain positive operating results. Our operating profit was RMB 354 million, compared with a loss in Q3 2024. Our adjusted operating profit was RMB 688 million, and our adjusted operating profit margin reached 9% in the third quarter, versus 3.7% in the same period a year ago. Net profit was RMB 469 million, versus a loss in Q3 2024. Our adjusted net profit was RMB 786 million, and our adjusted net profit margin in the third quarter was 10.2%, compared with 3.2% in the same period a year ago. Cash flow-wise, we generated about RMB 2 billion in operating cash flow in the third quarter. As of September 30, 2025, we had cash and cash equivalents, time deposits, and short-term investments of RMB 23.5 billion or USD 3.3 billion. Under our 200 million US dollar share repurchase program, approved by the board in November 2024, we have repurchased a total of 6.4 million shares so far, at a total cost of 116.4 million US dollars, leaving about 83.6 million US dollars available for future buybacks as of September 30, 2025. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1-1 on the telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. The company will provide consecutive interpretations for management statements during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. One moment for the first question. Our first question comes from Alex Liu of Bank of America. Please go ahead. Alex Liu: Thanks, management. I think it's a great quarter. We see DAU, MAU, and time spent are basically all at their highs, and it's growing, accelerating. So I was just wondering if management can share more about what's really driving this and in terms of user engagement, is there any medium-term target? And also for monthly paying users, it's also accelerating in terms of growth. What are the drivers behind this, and how should we think about the future trends in user payments for content? Thank you. Rui Chen: The fundamental reason for our continuous user growth lies within our focus on high-quality content. High-quality content is always a strong and sustainable growth driver. Actually, we think there has been a fundamental change in video content supply. Currently, the video content supply is very much sufficient and in some ways even oversupplied. Every year, there are tens of billions of new videos being created. Riding on the rapid adoption of AI tools, there are going to be tens of thousands, billions, trillions of new videos being made every year. However, we think that the quantity of video and the quality of the video are two different things. High-quality content is still in short supply. Once someone starts to enjoy or start watching high-quality content, it's very hard for them to go back. They become pickier. They wouldn't go back to the low-quality, time-killing type of videos. That's why Bilibili has a long runway for growth because the demand for high-quality content will continue to rise. The population that will be interested in Bilibili content will grow. Apart from our focus on high-quality content, our unique community aspect of our business also helps further strengthen our advantage. This is because our community can help discover high-quality content and also help our talented content creators to continuously focus on their content creation. Content needs to be discovered with the eye of beauty. We have many users who have a passion for high-quality content and the taste to select and promote those high-quality content. Good content creators need a good audience, and Bilibili is where those two parties meet and resonate with each other, especially for content creators before they become popular and earn a good reputation. There's a relatively long fair wait for them to grow in Bilibili's community, and the users' encouragement will accompany them through that process. That's why you see those content creators on Bilibili. They have been creating content on our platform for five years, even ten years long. Let's look at the MPU trend. This quarter, our MPU reached a new high of 35 million, growing by 17% year over year. For the third quarter, the premium membership business was the primary driver of that. On a long-term horizon, we think the 2C business, the user paying for content type of business model, will be a very big growth driver. I'll talk about three reasons that will drive the content consumption-related paying activity. First of all, it's our users. The average age of our user is now 26 years old, a cohort with increasing income and expanding consumption scenarios. They are generating on both the 2B advertising front as well as the 2C, the paying for content or paying for services aspect. The second point is high-quality content. We believe creators who consistently produce over a long period of time can foster their personal IP and drive sustainable monetization. There's a very large group of content creators that have been producing content on Bilibili for a very long time. Through that period, they create their own personal brand and reputation. People will follow their new creations. That's why the fan charging program, whenever they sell their own premium courses or even their personal IP derivatives, their followers, their fans, will pay for that content or services. That is also driving the overall MPUs growth. The last point is that what we have discovered is for the younger generation, consumption is mainly driven by self-gratification. People will pay for things that make them happy. They will pay for people that they love. This trend has become even more clear nowadays with our initiatives on the fan charging program, helping our content creators to monetize their own personal IP. This will be another very important growth factor behind the continuous growth of our MPU. That concludes the answer for this question. Operator, next question, please. Operator: Thank you for the questions. One moment for the next question. Our next question comes from the line of Thomas Chong of Jefferies. Please go ahead. Thomas Chong: Good evening. Thanks, management, for taking my question. My question is about the gaming business. We saw Escape from Duckoff received remarkable results. Can management share about its future business plan? Do we have any plans for developing a mobile game? On the other hand, can management comment about SunBoard and card? With regard to its monetization testing in October, when should we expect it to be released? On the other hand, what are the things in the pipeline to anticipate? For SunMo, did the performance in Q3 meet expectations? How should we think about the performance in the next year? Thank you. Rui Chen: I'll talk about Escape from Duckoff. Truly, this game has been the dark horse of the year in the games market. In less than one month after its debut, it has already sold over 3 million copies across various platforms globally, and the peak concurrent user reached over 300,000. Based on the current momentum, it is safe to say Escape from Duckoff has the potential to become the number two best-selling console game in the history of China. This has been very encouraging. On top of that, besides the sales volume, players have been giving the game extremely high ratings on the Steam platform. There have been tens of thousands of comments, and 96% of them are overwhelmingly positive. Why has it been so successful? I think there are two main reasons as a player myself. First of all, this game is fun to play. There are a lot of games launched every year, but not every one of them is fun to play. We found this game is very carefully designed with different stages and graphics. People will find it's a truly fun game to play. People will enjoy themselves. Secondly, the game has a very light mood. When you play it, you don't feel the stress of PVP. It's just the simple pleasure of collecting and looting. Also, this game doesn't pressure people to spend a lot of time or money. It's just very easy and breezy. At this time of the year, it's very entertaining and fun to play. Those two elements, fun to play and relaxing, are the two main reasons for this game's success. The reason behind that is when we were thinking about setting up a project like this back in 2023, it was just a simple few young developers gathered together who were true fans of Escape from Tarkov-type games, the extraction game fans. They wanted to create something for the young generation, easy to play, relaxing, and with cute graphics. This is a very good example of how we are thinking about our game strategy, reinventing games for the new generation of gamers. It is also an example of how we have been picking niche genres in the game market and making them the best. We think that's the perfect example of how we are executing our game strategy. This is one of many examples of our pipeline, how we are designing it. On the IP expansion question, because the game is currently only on PC, we have already kicked off the console project and the mobile adaptation for Escape from Duckoff. Because on console and mobile projects, there are going to be differences with the gameplay, we will be spending a lot of time fine-tuning the project. While doing so, we will also continue to listen closely to our gamer community, and we will share updates when the time is appropriate. As for the end card game, currently, the closed beta testing has been going very smoothly. We will be focusing on fine-tuning and polishing the game to make it the best and introduce it to the market. It's currently expected to be released in Q1 next year. The end card game is designed to cater to the need of a casual card game user. It will be a very short, on-the-go play for three minutes per round. This is another attempt to cater to the new generation of gamers. There is a lot of innovation within the gameplay. Hopefully, leveraging our very unique and best-of-the-state gamer community, as well as our talented content creators, leveraging our PUGV community as well as the live broadcasting community, we can bring this innovative game to all of the Bilibili users. Because the game has a lot of aspects with great innovation, we are putting a lot of effort into making it the best quality. We will be spending time fine-tuning the game. When the game is launched, the number one goal for this game is DAU growth. Hopefully, this game will become Bilibili's next great evergreen title. As for SunMo, it is one of the most important titles in our portfolio. Overall, the performance in the third quarter is in line with our expectations. We will be focusing on fostering a very balanced and pro-user character progression, and we will be focusing on user satisfaction. The goal for this title, the most important goal, is longevity. We are hoping to make this game operate for at least five years. In the first quarter of next year, we plan to launch the traditional Chinese version of SunMo in Hong Kong, Macau, and Taiwan. In the second half of next year, we will be rolling out additional international versions. Thank you. That concludes this question's answer. Operator, next question, please. Operator: One moment for the next question. The next question comes from Felix Liu of UBS. Please go ahead. Felix Liu: Thank you, management, for taking my question, and congratulations on the very strong results, especially on the advertisement part. How does management see the growth potential in your ad business from here? Can management share more color on the potential improvements in recommendation algorithms and AI on your ad business from here? More on the near term, how does management see the advertisement demand for the recently concluded Double Eleven shopping festival as well as the overall Q4? Thank you. Rui Chen: In Q3, our advertising revenue reached RMB 2.7 billion, up 23% year over year, with our market share continuing to rise. On top of the steady growth for our performance-based ads, we are seeing both brand and sparkle ads grow much faster than the overall market. Based on our complete industry data, the brand ads and sparkle ads growth rate are among the fastest-growing players in the industry. How should we think about the ad revenue growth going forward? I would like to firstly talk about the underlying growth. The underlying logic of Bilibili's ads. As time goes by, more clients are recognizing and tapping into the value of the Bilibili ecosystem and its users. Thanks to the uniqueness of our community, our ad's key advantage is that we can deeply shape and make a big impact on users' purchasing decisions. To put it more simply, Bilibili's advertising business can bring to our advertisers: Number one, it will not be a one-off value hit. Secondly, we are more effective at bringing new users, new customers. Thirdly, we are more likely to drive a sharp increase in repeat purchases from both new and existing users. In other words, we will help our clients achieve both short-term conversion goals and long-term brand-building goals. Yet, anything we haven't fully realized is pure upside for the future. From a client perspective, our top five advertiser verticals in Q3 were gaming, Internet services, consumer electronics and home appliances, e-commerce, and automotive. To better serve our advertising clients, there are three main points. One is to enhance our strategy or service for our super key accounts (SKAs). We will be serving our largest clients with a dedicated service team and a year-round integrated Bilibili marketing solution. Our goal for this team is to achieve over a 90% repurchase rate and keep increasing our share of their spending on Bilibili. Secondly, we hope to replicate our successful model into multiple new verticals. We are using an always-on performance model to better serve our other verticals, especially for those with big spending budgets, such as big FMCG categories like food and beverage, pet and baby, beauty, and apparel. We expect a new wave of clients and budgets to come onto our platform. As the competitive landscape becomes more diversified in the second half of this year and even next year, we are still very confident that by 2026, there is still sub-growth potential in gaming platforms, e-commerce, and content consumption-related advertisers. The third point is we are planning to expand our ad penetration across different community scenarios. This will be another growth driver because Bilibili by itself has many consumption scenarios within our products. Unlike other platforms where most consumption happens in a single video feed, our users are spending a lot of time on more videos within the players, within the commentary section, and also in the bullet chat. They also watch live streams and engage with the live stream content. They do searches, browse trendy topics, and hot searches on our platform, and also consume content across multiple devices, including mobile, PC, OTT, etc. In Q3, ad revenue from these different scenarios all grew by more than 50% year over year. The current penetration is still very behind where we think it can be, which means there's still a lot of room to grow. The fourth point is about your question on AI. We have been intensively discussing internally that AI as a topic can easily make people overly optimistic about the short-term boost to advertising revenue while overlooking its potential to fundamentally reshape the industry over the long term. However, there are still a lot of positive changes we are seeing. First of all, it's on the AIGC creative. Now it accounts for 55% of the total creative volume in the performance-based ads, and it's continuing to rise. We are providing video generation tools to our clients in the Internet service sector. For online novels, we support text-to-video generation, and for short drama advertisers, we support AI highlighting and editing. In this sector, AI-generated video creators already account for over 60% of the creative consumption. This upgrade has freed up a lot of productivity. The second application for our AI is on the smart delivery system. Currently, the automated buying smart delivery advertisement system is already accounting for 45% of the overall performance-based ad spend. Most clients have been seeing their spend scale up through this model. Thirdly, it's on the recommendation efficiency. By combining the multimodal content understanding with the generative recommendation algorithms, we have been lifting our distribution efficiency by more than 10% in total. All of the above are the tangible results and benefits that AI has brought to us this quarter. However, we do think that AI, with a long-term mindset, the real significance lies with the new opportunities and the structural change that will unlock over time. We will be trying a lot of innovation with a long-term mindset, not just the short-term bump in a few metrics and revenue lines. Lastly, on our Double Eleven results, first of all, looking at our users, especially the Gen Z consumers, their spending power is two to three times that of the previous generations. They are used to online consumption as their default shopping mode avenue. They buy when it makes them happy. They buy when they like something or truly need something. They no longer chase the rock-bottom prices in a single promotion time window in a mechanical way. All of this observation is pointing to the huge commercial potential embedded in the Bilibili user profile and our ecosystem. Given that, our Double Eleven report card this year still exceeded our expectations. During this year's Double Eleven, Bilibili's ad revenue grew 30% year over year, and the number of advertisers more than doubled. Over the Double Eleven campaign period, Bilibili delivered an average new customer rate of 55% for all industries, and in categories such as watches and jewelry, household daily goods, food and beverage, and beauty, the new customer rate even exceeded 60%. Lastly, on the outlook for Q4 and next year, we remain upbeat about the advertising business. More importantly, we are hoping to deliver something more meaningful and new breakthroughs and changes within our business. Thank you. Operator, next question, please. Operator: The next question comes from the line of Xueqing Zhang from CICC. Please go ahead. Xueqing Zhang: Management, congratulations on the strong result. My question is regarding your financial outlook. The company's profitability has continued to strengthen. Looking ahead to Q4 and into 2026, how do you expect the gross margin and net margin trend as we maintain a strong cash position? How do you plan to allocate cash in the future? Thank you. Sam Fan: Thank you, this is Sam. I will take your question. Yes, we continue to see strong operational leverage in our business. In Q3, our top line grew by 5%, and our gross profit grew by 11% year over year. Our gross profit margin has improved for thirteen consecutive quarters. We expect this trend to continue this year. We keep our mid-term gross profit margin target of reaching 37% in Q4. That's 40% to 45% unchanged. Additionally, our adjusted operating profit, that's a profit before other income, jumped over 150% year over year, with adjusted operating margin expanding from 3.7% to 9% year over year. We expect that number to further improve to around 10% in Q4 this year, keeping us on a steady path to our mid-term target of up to 15% adjusted operating margin. We already saw the resilience of Bilibili's business model and our strategy of focusing on healthy revenue growth and leveraging scale for sustainable profit expansion. We are confident in reaching our mid to long-term margin targets. Regarding cash usage, we will allocate our resources carefully. Currently, we already turn over one billion free cash flow every quarter. First, we will support our high-quality revenue growth engine like the advertising business. Secondly, we will invest in some new opportunities. For example, to expand our business boundaries, like reinventing some games for new generations, just like Escape from Duckoff. We already announced a plan to explore opportunities in the console game and the mobile game. Last but not least, we will also capture some major industry opportunities. For example, we are also seeking new talent for new areas like AI. Regarding shareholder return, we have repurchased over 100 million US dollars worth of shares this year already, and we have a two-year share buyback plan as approved by our board. We still have around 83 million US dollars left. We expect to fully utilize that amount in the remaining period of the plan. Thank you. That's all for my question. Operator, next question, please. Thank you. Operator: One moment for the next question. Our next question comes from the line of Yuan Zhang from China Renaissance. Please go ahead. Yuan Zhang: Thanks for taking my question. I have a question regarding AI application. You asked to discuss a few AI functions or products you have just launched. What is your thinking and expectation of future AI application on Bilibili? Also, what kind of impact do you think your products like Sora will bring to video production and consumption? Thank you. Rui Chen: Bilibili has the highest AI density among both our content creators and our users. Many of China's best AI-themed content creators and users who are most interested in AI talent are all active and gathered on Bilibili. In the third quarter, nearly 100,000 creators were active on Bilibili every month working on AI-related content. Some of them are doing the latest learning explanations, some of them are breaking down and teaching new AI applications or using AI for video creations. The average daily number of AI-related video uploads in the third quarter increased over 80% year over year. There is a lot of potential for us to further discover because we have gathered over two-thirds of the young generation in China on Bilibili. That is the exact cohort eager to learn about AI or leverage AI technology to create things. When you asked me about Sora, whether Sora will change how people create or consume content, we think personally, I think Sora is a new gamble on both content video creation and user interface. As I said earlier, there is already an oversupply of short video content. The adoption of AI tools will only increase that video supply and will not change how people consume the content. However, on the high-quality video aspect, there is still a scarcity in terms of high-quality content supply. The adoption of these tools will help us increase the supply and improve the talented content creators' efficiency in producing such content. We've seen this in many content categories where AI is becoming the new paradigm. For example, in the AutoTune remix sector, in the music sector, or even the animation sector, there are a lot of very good quality videos made with the help of AI tools. To summarize, we do think that AI will be a fundamental efficiency booster for high-quality video creation, and Bilibili will benefit most from that technology innovation. Based on that observation, we will be very focused on the video pack of AI applications. We want to make AI effective tools to help our content creators produce higher quality videos. You probably already saw some of the functions we have launched lately. For example, there will be multilingual video accessibility features, including dubbing, subtitles, and even lip-syncing. We are also planning to launch AI-enabled text-to-video tools tailored for video podcast-type content. We believe this product will help bring more high-quality content to Bilibili and our users. That concludes the question and answer session. Operator, back to you. Operator: Thank you once again for joining Bilibili's third quarter 2025 financial results and business update conference call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director, or Pierre Santiv Financial Communications. Contact information for IR in both China and the US can be found on today's press release. Thank you, and have a great day.
Operator: Hello, and welcome to the Brookfield Corporation Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference call over to your first speaker, Ms. Katie Battaglia, Vice President, Investor Relations. Please go ahead. Katie Battaglia: Thank you, operator, and good morning. Welcome to Brookfield Corporation's Third Quarter 2025 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; and Nick Goodman, President of Brookfield Corporation. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the quarter. As a reminder, we completed a three-for-two stock split on October 9, 2025. Accordingly, all per share amounts that are discussed during the conference call are on a post-split basis. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we request that you refrain from asking more than 2 questions. I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. security laws. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impact on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. In addition, when we speak about our Wealth Solutions business or Brookfield Solutions, we are referring to Brookfield's investments in this business that supported the acquisition of its underlying operating subsidiaries. With that, I'll turn the call over to Bruce. J. Flatt: Thank you, and welcome, everyone, on the call. We delivered another strong quarter of financial results. Distributable earnings before realizations were $1.3 billion for the quarter, or $0.56 per share and $5.4 billion over the last 12 months. That was $2.27 per share. That was an 18% increase over the same period last year. Our outlook remains strong with each of our underlying businesses continuing to execute their strategic plans, driving strong organic earnings growth. Turning first to markets. Economic activity and corporate earnings remain healthy. Capital markets are open and transaction activity is picking up across most asset classes. For our business, that backdrop is constructive and highly supportive of real assets. So far this year, we financed $140 billion of debt across our operations and closed $75 billion of asset sales at attractive values, including over $35 billion in just the past few months. At the same time, the direction of monetary policy is turning. After an extended period of elevated interest rates, some softness in the labor market has started to prompt policy easing from the Federal Reserve to support growth and maintain balance across the economy. And while the current environment is influencing policy decisions today, it is important to consider the structural forces that shape where policy goes from here. Over the past 15 years, governments have relied on fiscal stimulus offset slowdowns, leading to a buildup of public debt that is difficult to sustain in a higher interest rate environment. Policymakers around the world are now evaluating the tools available to stabilize these debt burdens. The most constructive outcome of that and the one that we hope for is faster economic growth that outpaces debt, which can be helped by AI and innovation. Second, austerity is always possible, but not too many governments have shown the desire to push that. And third, if growth stays modest, policymakers may instead quietly manage rates below inflation to ease debt burdens, lowering short rates and guiding long rates down. If this path is pursued, it would likely lead to a period of declining real yields and low nominal rates. This environment will provide the optimal conditions for real assets we invest into. Our portfolio is built around inflation-linked durable cash flows backed by hard assets that protect real returns. The benefits of real assets are always evident, but in this evolving environment, they are becoming an essential investment product for every portfolio. A suppression of real yields will amplify these benefits and enhance long-term value across the franchise. Turning to the business. We are entering the final quarter of 2025 with strong momentum and a record almost $180 billion of deployable capital, position our business to invest for value in powerful secular trends that define the next chapter of growth in Brookfield, but also the global economy. First, AI innovation is fueling unprecedented demand for large-scale infrastructure. Second, aging populations are reshaping global savings and driving demand for new wealth and retirement products, which is going to last for decades. And third, the real estate recovery is well underway. Nick will cover that and gaining momentum. Each of these trends represent a multi-decade opportunity to invest where our scale and expertise gives us a major advantage. To that end, we advanced a number of strategic transactions during the quarter. In our Wealth Solutions business, we received shareholder approval for our acquisition of Just Group in the U.K., a region where growing retirement market is creating significant opportunities for long-term investment. We also announced a reinsurance agreement with a leading Japanese insurance company, marking our entry into Japan insurance market, the first of many expected opportunities in the region. We agreed to acquire the remaining 26% of Oaktree that we don't own already, which will bring our ownership to 100% upon completion of the transaction. From the outset, our partnership with Oaktree has been grounded on shared principles, including a value-oriented approach to disciplined investing with a focus on compounding capital over time. Our scale and real asset expertise combined with Oaktree's deep credit experience has created one of the most comprehensive and diversified credit platforms globally. Third, we continue to partner with leading institutions, corporates and governments around the world, and this is what makes our business different, combining capital expertise and our global reach to capture opportunities for all. We have several initiatives underway to deliver the next generation of energy transition in AI infrastructure globally, and I'll just mention a few. Through Westinghouse, during the quarter, we partnered with the U.S. government to deliver $80 billion of nuclear reactors. For context, that is the equivalent of 8 large-scale nuclear plants, enough, for example, to power the entire state of Utah. These projects will help rebuild critical supply chains in the U.S. revitalize the domestic nuclear industry and marks an inflection point for the growth of nuclear energy in North America. With Bloom Energy, we are developing 1 gigawatt of behind-the-meter power generation from fuel cells to meet the growing demand from AI data centers and other energy-intensive applications and we think this is just the beginning. And through our strategic partnership with Figure recently announced a leading developer of humanoid robotics, we are providing access to our portfolio of real assets to create the real-world environments needed to develop, train and deploy this technology safely and effectively, positioning us, most importantly, at the forefront of one of the most significant technological advances of the coming decades. Looking ahead, despite our size and scale today, our growth potential is greater than it has ever been. Our investment discipline, operating expertise and access to large-scale capital positions us to deliver another strong phase of growth for shareholders in years to come. As always, thank you for your support. We appreciate your continued interest in Brookfield and over to Nick. Nicholas Goodman: Thank you, Bruce, and good morning, everyone. We delivered strong financial results for the quarter, supported by continued momentum across our core businesses. Distributable Earnings, or DE, before realizations were $1.3 billion for the quarter or $0.56 per share and $5.4 billion over the last 12 months or $2.27 per share, representing an 18% increase over the prior year period. Total DE, including realizations was $1.5 billion or $0.63 per share for the quarter and $6 billion or $2.54 per share over the last 12 months with total net income of $1.7 billion over the same period. Starting with our operating performance, each of our businesses continues to perform well. Our Asset Management business generated distributable earnings of $687 million or $0.29 per share in the quarter and $2.7 billion or $1.14 per share over the last 12 months. Strong fundraising momentum led to $30 billion of inflows during the quarter and included over $6 billion from our retail and wealth clients. Fee-related earnings increased by 17% to a record $754 million as fee-bearing capital grew to $581 billion. During the quarter, we held the final institutional close of our second vintage flagship global transition strategy with total commitments of $20 billion exceeding our target and marking the largest private fund globally dedicated to energy transition. We also launched our seventh vintage flagship private equity fund focused on essential services and industrial businesses and are preparing to launch our inaugural AI infrastructure fund, which together will drive strong fundraising momentum going into 2026. Finally, jointly with Brookfield Asset Management, we announced the acquisition of the remaining interest in Oaktree, of which $1.4 billion will be funded by the corporation. The transaction expands our ownership in Oaktree's carried interest fee-related earnings and balance sheet investments and further strengthens our global credit platform. Transaction is expected to close in the first half of 2026, subject to customary closing conditions and regulatory approvals. Turning to our Wealth Solutions business. We delivered another quarter of strong growth with distributable earnings of $420 million or $0.18 per share in the quarter and $1.7 billion or $0.70 per share over the last 12 months. This represents organic growth of over 15% year-over-year, supported by strong investment performance, robust underwriting across property and casualty lines and disciplined capital deployment. During the quarter, we originated $5 billion of retail and institutional annuities, bringing our total insurance assets to $139 billion. Importantly, we continue to focus on raising long-duration liabilities with approximately 80% of new retail annuities written during the quarter, having durations of 5 years or longer. Our investment portfolio generated an average yield of 5.7%, contributing to spread related earnings that were 1.7% above our average cost of funds. As we continue to reposition the portfolio into higher-yielding real asset investments sourced within Brookfield, we are well positioned to sustain strong spread-related earnings. During the quarter, we deployed $4 billion into Brookfield managed strategies at an average net yield of 9%, which helped support a 15% return on equity, consistent with our long-term target. We also made meaningful progress internationally, expanding across the fast-growing retirement markets in the U.K. and Japan. In the U.K., we received shareholder approval for the acquisition of Just Group, which remains on track to close in the first half of 2026 subject to customary closing conditions and regulatory approvals. Upon closing, our insurance assets are expected to grow by approximately $40 billion to $180 billion. In Japan, we announced our first reinsurance agreement in the region with a leading Japanese insurance company to reinsure annuity policies on a full basis. These initiatives strengthen our position in key international markets and position us to capture the growing global demand for retirement solutions. Our operating businesses continue to deliver growing and resilient cash flows generating distributable earnings of $336 million or $0.15 per share in the quarter and $1.7 billion or $0.72 per share over the last 12 months. These results underscore the strength of our operating performance and the continued momentum across each of the businesses. Our infrastructure and renewable power and transition businesses remain at the forefront of secular trends, reshaping global investment opportunities. Recently, we announced new initiatives to advance next-generation power and AI infrastructure including our partnership with the U.S. government through Westinghouse to deliver $80 billion of new nuclear plants in the United States. In our publicly listed private equity business, we announced plans to simplify its structure into a single listed corporate entity aimed at broadening the investor base and improving trading liquidity. Our real estate business continues to perform well, supported by improving market conditions and strong fundamentals. Leasing activity remains concentrated in high-quality, well-located assets, driving strong operating performance across the portfolio. Our Supercore portfolio continues to outperform with 96% occupancy at the end of the quarter and our Core Plus portfolio, which shares similar high-quality characteristics ended the quarter with 95% occupancy. During the quarter, we signed 3 million square feet of office leases with rents on newly signed leases averaging 15% above those expiring. Notably, at Canary Wharf, leasing activity remains very strong with over 450,000 square feet leased year-to-date putting 2025 on track to be its best leasing year in the past decade. The leasing pipeline is also the strongest it has been in years, underscoring the depth of demand for high-quality space and Canary Wharf positioned as 1 of the world's leading business destinations. Turning to monetizations. Market conditions remain highly favorable for high-quality assets and businesses like the ones we own. To date this year, we have had $75 billion of monetizations across our franchise including $22 billion of real estate assets, $14 billion of infrastructure assets, nearly $11 billion of renewable assets, $7 billion from private equity and $21 billion from credit and other diversified assets. Two recent highlights to note are as follows. In our infrastructure business, we completed the IPO of Rockpoint Gas Storage, one of the largest independent natural gas storage operators in North America. The offering was well received and oversubscribed raising CAD 810 million, the largest IPO on the Toronto Stock Exchange since May 2022. Following the IPO, we have now realized a multiple of capital over 3x for retaining significant ownership interest in the business. And in our real estate business, we advanced the sale of the remaining assets in our U.S. manufactured housing portfolio for $2.5 billion, resulting in a total investment IRR of 25% and a 3.5 multiple on invested capital. Substantially all sales completed this year were at or above carrying values and have crystallized significant value for our clients at attractive returns. Through these monetizations, we realized $154 million of carried interest into income during this quarter. Importantly, because our earnings recognition follows European water for model where carried interest is recognized only after we have returned to funds invest the capital and achieved the preferred return. A number of the realizations have advanced our mature funds closer to that carried interest realization. Shifting to capital allocation. During the quarter, we reinvested excess cash flow back into the business and returned to the $180 million to shareholders through regular dividends and share buybacks. To date this year, we have repurchased over $950 million of shares in the open market at a roughly 50% discount to our view of intrinsic value. Moving on to our balance sheet and liquidity. We continue to maintain a conservatively capitalized balance sheet and high levels of liquidity with record deployable capital of $178 billion at the end of the quarter. We also maintained strong access to the capital markets, executing $140 billion of financing so far this year, including the issuance of $650 million of 10-year senior notes at the corporation during the quarter. Other notable financings include the successful refinancing of a $1.9 billion 5-year loan at a luxury resort in the Bahamas and 2 5-year CMBS issuances at New York trophy office buildings each over $1.25 billion, reinforcing the capital continues to flow to high-quality assets at attractive returns. Bringing it all together, our financial results continue to be very strong, and we expect continued growth in our results over the remainder of the year and into 2026. I am pleased to confirm that our Board of Directors has declared a quarterly dividend of $0.06 per share, payable at the end of December to shareholders of record at the close of business on December 16, 2025. On a post-split basis, the quarterly dividend is consistent with the previous quarter's dividend. Thank you for your time, and I will now hand the call back to the operator for questions. Operator? Operator: [Operator Instructions] And our first question will come from the line of Michael Cyprys with Morgan Stanley. Michael Cyprys: If we think about the pillars of your success over the years, I think it's been your ability to adapt the business and innovate in recent years. You've added wealth solutions, continue to grow that. But recently, you've made some partnerships around AI, humanoid, partnership with Figure as one example. So I was hoping you could talk about how you see humanoid and AI broadly potentially creating another leg of the stool for Brookfield over time. I remember at your Investor Day, I think, embedded in your 2030 DE guide was about $2.6 billion of DE from capital allocation. Maybe you could help unpack the components there and how you think about other different contributors over time. Nicholas Goodman: Good morning Michael and thanks for the question. I would break the answer into 2 parts. I'd say most of the capital deployment and the focus that we have today is around building the backbone infrastructure to support the build-out of AI. The growing demand, the secular trend of the growth of AI, the need for compute capacity and also the need for the power to drive that and be able to supply the electricity for the compute capacity is where we are investing most of our time in our dollars right now. And we have a very unique position around that, given our capability and our global reach and our operating expertise around renewable energy, nuclear and other energy sources and then our data center and AI fund that we're launching soon. So I'd say that, that offers great growth potential for the franchise, and we're very well positioned to participate in that and are investing in a disciplined way to drive really, really impressive results so far. I'd say the second component and the figure transaction that you talked about. Brookfield Corporation, what we're doing is looking to stay ahead of the curve and deploy capital for the benefit of the rest of the organization and for the benefit of our operations. And what we see with the developments in AI in humanoid robotics, we believe that over time, will have a material impact on the way that businesses are run an even broader society. And so I think this is about investing as a defensive investment and an opportunity to make money, but to really learn and be at the forefront for the benefit of the broader organization and we would look to do that, I'd say, over time, we'd look to do that selectively as we see good opportunities to do so. So I don't think of this as necessarily the next leg. I think it's a force and a trend that's driving broad growth across the organization, and we're well positioned to participate in it. Michael Cyprys: Okay. And then just a follow-up question on Wealth Solutions. So you signed the first reinsurance agreement in Japan expanding your global footprint. I was hoping you could talk about that arrangement? How you see that contributing. What's the scope for others in Japan as well as elsewhere around the world. Maybe you could just update us on your global ambitions. Clearly, you have that transaction underway in the U.K. . Nicholas Goodman: Yes. Thanks. My guess, as you mentioned, we made the transaction -- well, we've agreed the transaction in the U.K., and we're working towards closing that transaction in the early part of next year. That's a significant step for us, scaling PRT and giving us access to a long-duration local of low-risk liability -- sorry, long duration pool of low-risk liabilities. And so we're excited to close that. That really sets us up well in the U.K. market. And we identified Asia and Japan as the next market that we look to grow into and doing that in partnership with local players. This reinsurance, it's a flow agreement. So it's really a transaction that will build over time, month-to-month, quarter-to-quarter as we participate in the business that they're writing. So it has the potential to scale and then it also has -- we also have the potential to partner with other local players. So very much about continued growth in both markets. And those are the 2 markets we're predominantly focused on outside of North America today. Operator: One moment for our next question. And that will come from the line of Mario Saric with Scotiabank. . Mario Saric: Coming back to the Wealth Solutions business, Nick, I was wondering how long do you think it may take to get to your approximate 200 basis point target net investment yield spread? And then secondly, how should we think about the evolution of gross versus net insurance lows? I think in this quarter, it was -- the net was about 40% of growth. So just curious on what your thoughts are on those 2 items. Nicholas Goodman: Yes. I mean, listen, the 200 basis points is a long-term -- medium- to long-term target. So it will take time to grow into it. And as you know, as cash comes in, we're very disciplined on the deployment. And we're looking at a sort of barbell approach on deployment sitting in significant short-term liquidity and balancing that with investment into real assets or in credit and equity. So it just takes time for the deployment. But as we work through the plan, we do expect that spread to start to broaden out and work towards it. Importantly, we think about ROE, Mario, as opposed to just spread and the return on equity that we're generating and the capital is compounding at 15% plus, and that is in line with our long-term targets. We're very happy with the performance there. On the gross to net flows, it should stabilize out to about 1/3 outflows versus inflows in a quarter as we move forward. . Mario Saric: Got it. Okay. And then my follow-up, just with respect to the recently announced Oaktree acquisition, has the composition of the $3 billion purchase price between BAM BN shares and cash. Has that been settled? And how do you see the transaction impacting the velocity of BN share repurchases going forward, if at all? Nicholas Goodman: So yes, Mario, we do have the elections finalized. And the end result, what I'd say roughly was $250 million of BN shares elected. The balance will be in cash and almost 100% of the BAM consideration will be in cash. And it will have zero impact on our buyback. We will buy back the 250 million of shares that we issue, but it won't have impact on our broader buyback strategy. . Operator: One moment for our next question, and that will come from the line of Alex Blostein with Goldman Sacs. . Alexander Blostein: Just maybe zoning back to trajectory of the insurance business, so really good growth. So the sales are coming through nicely. On the spread, though, and I hear your comment around the ROE. But the spread, I think in annuities was 165 basis points this quarter. So maybe help us think through kind of the near-term dynamics over the last maybe 12 to 24 months on the trajectory of that spread as you kind of start to earn your way back towards the targets. Nicholas Goodman: Yes. So first of all Alex, welcome to the call. I know it's your first one. It's great to have you. I'd just say that the spread is right 165, and it's really because we're being disciplined in deployment. And you know the way we think about the business. We run it for the long term. And so we're being patient in the deployment. We are sourcing very attractive real asset investment opportunities in the credit and equity side, as I just said, and so as we look forward, we do expect it to work its way back up, but we're not running, as you know, the business quarter-to-quarter. We're running it long term. So we're going to be patient and wait for the right investment opportunities. And as they come in, you'll start to see that spread widen out. But again, what it all comes back to is the ROE. And so we're happy with the performance. . Alexander Blostein: Got you. And then for my follow-up, we will just maybe stay with insurance. Can you spend a couple of minutes maybe on how you're progressing towards closing the Just acquisition? I know there's probably a lot of limitations to what you could say publicly. But as you were to sort of frame the spread-related earnings contribution and then strategically, how you think this could accelerate growth of your presence outside the U.S. and PRT markets in U.K. and Europe broadly, which would be helpful to understand what this deal could mean financially for the business over kind of medium term. Nicholas Goodman: So I do apologize because we are limited in what we can say, and we haven't really talked to date about what the pro forma looks like as we work our way through the regulatory approvals. I would just tell you that we're working through it. We have the shareholder vote. We're working with the regulator. As you know, we previously were licensed under Bluemont in the U.K., so we have a good relationship with PRI, but we're working through that process. . I'd say that Just has got a good track record of issuing PRT on a consistent basis in the U.K., I think in the year before we acquired them about GBP 5 billion of origination. So we would expect to hopefully be able to continue that and scale it with our capital -- but as for performers, it will have to wait until we're further along in the process. Operator: One moment for our next question. And that will come from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Ever since the framework agreement to build new nuclear capacity in the U.S. was announced. The biggest question we've been getting from clients is -- to the extent that Brookfield alongside LPs will invest capital in nuclear project development, what kind of downside protection would you be seeking -- and is that investment likely to occur in a discrete nuclear strategy or in the DGTF strategy? . Nicholas Goodman: Cherilyn, thanks for the question. So I'd say, first of all, I'd say that it's out it's been bought within Westinghouse. So the transaction that is being done is being done between Westinghouse and the U.S. government and the U.S. government is buying as the equity investor, $80 billion of nuclear facilities. Our role within that is to help deliver the facilities and then provide, as you know, the services that we provide, which is the fuel rods, the fuel and then the servicing of the facilities going forward. So the end result will look very much like the Westinghouse business that we have today, which is to service and provide the fuel to the nuclear reactors, and it's really scaling Westinghouse as a global nuclear champion, but it will be done through Westinghouse which is owned by BGTF 1. Cherilyn Radbourne: And maybe just extending that to the plans that are being evaluated in South Carolina, maybe you can elaborate on how that might be structured? Nicholas Goodman: Yes. So again, we're in a process there, and it's very early days. But what I can tell you is, as we think about the growth in the space, we are focused on downside protection. So anything that we would do in the space where we're looking to get involved in either bringing Westinghouse services or Brookfield Capital and would be structured in a way to provide strong downside protection. . Operator: One moment for our next question, and that will come from the line of Kenneth Worthington with JPMorgan. . Kenneth Worthington: You've talked in the past about 2025 being a transition year for carry. You've talked about the improved outlook going through 2030. Given what continues to be -- continues to look like a better M&A environment and a better realization environment with better valuations. Can you talk about how carry generation is shaping up for 2026 -- and then maybe wrapping the follow-up in the same question. As we think about realizations, how are -- how is the outlook developing for realization on balance sheet versus realization in the Brookfield funds as you think about the intermediate term outlook, I guess, I'll be vague like that. Nicholas Goodman: Thanks, Ken. So I'll just say that the outlook for carry hasn't changed. So this year, as we said, would be a bit of a bridge year and it's played out in that direction, largely consistent with last year. And with the monetizations that we have in the pipeline, either those that are progressed or that we plan on launching and through the end of this year or into the early part of next year, therefore, which should close in 2026. We do still see the potential for a step up in carried interest in 2026. So that is still continuing to step up in 2026 and then again into '27 and a strong year in '28. So that's the outlook, the expectation of what we can achieve in the next 3 years really hasn't changed from what we presented at Investor Day and we're still optimistic and we still believe that it is a very healthy transaction market and the strong capital markets is supporting that activity. As it relates to the split between the balance sheet and what's being done in the funds. As you know, we operate completely independently of each other. So we continue to advance the monetizations in the fund. It's a globally diversified portfolio of many assets in many geographies, so it has the ability to be a bit nimble around where assets are ready to trade and where the capital is there and the appetite is strong. On the balance sheet, we're talking about the office and retail assets in the U.S., and I can tell you that the capital markets are stronger now even than when we had our last call when we talked about the strength of the markets. We had very successful financings in the quarter at spreads and all-in rates we couldn't have achieved even a month ago, and that all lends itself very favorably towards increasing transaction activity. We've been able to dispose of a few smaller assets, which don't make a dent in the numbers, but they do show that appetite for acquisition activity is returning. So as that picks up, we expect to see continued activity into next year. Operator: One moment for our next question. And that will come from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: Just wanted to ask on real estate. So within the LP, the NOI really ticked up this quarter. So $465 million versus, I think, last year is about $80 million. So apologies if I missed this in the prepared remarks, but anything to call out there in terms of the drivers of that step up? Nicholas Goodman: Hi, Bart. Yes. So listen, the performance of the LP portfolio is the running returns that we earn plus it's the disposition gains that we earned. So during the quarter, we benefited from disposition gains from monetization and that's what's driving the increase, sorry, in the FFO during the quarter. . Bart Dziarski: Okay. Got it. And then just a follow-up on carry. With regards to target carry framework that you have, could you help us kind of understand if there's a pickup that will -- like will the target carry increase once your Oaktree pickup deal closes? And if so, maybe a rough frame as to how much that could increase. Nicholas Goodman: So we will own more of Oaktree target carries represents the kind of the annualized carry that's compounding for us. On the carry eligible capital that we manage. So yes, when we do acquire Atrium, we have more carry eligible capital, it will pick up, but it won't be material. It won't be a significant adjustment to the numbers that we have today. Operator: One moment for our next question. And that will come from the line of Sohrab Movahedi with BMO . Sohrab Movahedi: Okay. I just wanted to go back to the earlier remarks about broadly speaking, the 3 types of economic environments that could play out. I think Bruce was talking to that. And I understand the implications of those from an investing perspective. Is any one environment of those three better than the others from a fundraising perspective? Nicholas Goodman: Listen, I think, Sohrab, we've been through a pre severe cycle in just the last 5 years, and we've experienced a few environments in a very short period of time. And I think through all of that, demand for alternatives has stayed strong. And I mean specifically real asset alternatives and essential service investing. So I think as it plays out -- the ones that we framed for you should still attract strong demand from the clients into the assets that we have, they've proven their durability the founder place in investment portfolios and investors now appreciate and like the characteristics of the income and the returns that they generate. And so I think that irrespective of where we end up demand for real assets will stay strong. Sohrab Movahedi: Okay. I appreciate that. I just wanted to see if there's a likelihood in a scenario, some of the targets that would have been discussed, let's say, at the Investor Day could actually get upgraded. Nicholas Goodman: Sure. I mean, listen, if you go into the environment of sort of lower nominal yields then I do think real assets have the potential maybe to become even more attractive in that scenario. So maybe it could be an upside. But not to the extent that we've changed our plans today, we continue to drive the business and think that the growth outlook is incredibly strong already. . Operator: And one moment for our next question. That will come from the line of Dean Wilkinson with CIBC World Markets. Dean Wilkinson: Nick, I guess, when you look at growth of the business over time, do you hit a point where you start to worry about the law of large numbers? I mean the ability for you to put out capital is seeming to exceed the rapid rate that you're growing, BN and BAM and everything together, is there a point where that sort of flattens out? Or do you think that those opportunity sets are going to continue to grow quicker than you can actually grow the underlying business? . Nicholas Goodman: I think it's exactly that. When we look today at the trends going on in the market and the amount of capital that is needed to deliver in the areas of the infrastructure renewable power we see that being a significant growth. And I think today, the scale of the opportunities are significant. I say the quality of the opportunities are probably the best we've ever seen. And so the ability to earn returns while deploying large amounts of capital is a great place to be, and I don't think we foresee in the short term any shortage of opportunities to deploy and probably even in the medium and long term. Operator: One moment for our next question. And that will come from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Thanks, and sorry, I jumped on late, so I apologize if this was addressed. But in the Wealth Solutions business, just looking at the annuities distributable earnings from annuities stepped down a little bit quarter-over-quarter, year-over-year. hoping you can kind of talk through a little bit of the moving parts there. and as well as the -- looks like a 10 basis point step down in the yield on investments in that portfolio. Nicholas Goodman: Yes. I would say there's nothing significant. The year-over-year performance. We continue to drive strong earnings. We may have had some one-off small movements in the portfolio of the earnings, but nothing significant. The portfolio continues to perform incredibly well. The drop-down in the spread, which we touched on briefly earlier, is really just a product of capital coming in inflows coming really being parked in cash until we invest them. And the point I made earlier was that we're being very patient and waiting for the right real asset investment opportunities and getting the right time to put the capital to work and it will come. And as we put that capital to work, you'll start to see the spread increase again back towards long-term targets. Operator: That is all the time we have for question and answers today. I would now like to turn the call over to Ms. Katie Battaglia for closing remarks. . Katie Battaglia: Thank you, everybody, for joining us today. And with that, we'll end the call. . Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Steven F. Rossi: Sports quarter three 2025 earnings call. I am Steven Rossi, chief executive officer and founder of Worksport Ltd. With me today is our chief financial officer, Michael Johnston. Today, we will walk through our financial performance, operating progress, liquidity position, and how these results align with our strategy to build a high-margin, scalable platform in truck accessories and clean tech-enabled power solutions. We will be reviewing the financial results for the quarter ended 09/30/2025, which we filed earlier today in our Form 10-Q and can be accessed on our Investors Relation website at investors.worksport.com/#reports. Once again, investors.worksport.com/#reports. At the end of today's call, both our prepared remarks and the accompanying presentation deck will be available for download as well. After these remarks, we will open the line for questions from attending analysts. So on that, let's begin. First, safe harbor statements. We will make forward-looking statements, including statements regarding our financial outlook for the full year 2025 and 2026, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, opportunities, go-to-market initiatives, growth strategy, and business aspirations, our product initiatives, and the expected benefits of such initiatives. These statements are only predictions that are based on our current belief expectations, and assumptions based on forward look because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that may be difficult to predict and many of which are outside of our control. Actual results or events may differ materially. Therefore, you should not rely on any of these forward-looking statements. These forward-looking statements are subject to risk and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC including included in our annual report on our Form 10-K and quarterly reports on Form 10-Q, and other SEC filings. The forward-looking statements made in this earnings call are made only as of today's date. Worksport assumes no obligation to update any forward-looking statements we may make on today's webinar. So here's today's agenda. On today's call, we will cover Q3 2025 key performance outcomes, production scaling and operational execution, tariff environment and cost management, Solis and Core commercial launch roadmap, R&D next steps, including AetherLux, cash and capital strategy, 2025 to 2026 outlook and path to cash flow positivity, and key takeaways as well as some Q&A. With that, let's move into our numbers. Mike will walk us through the Q3 2025 financial highlights. Thanks, Steve. Michael D. Johnston: Q3 was another solid step forward in Worksport's growth journey, the third consecutive quarter of growth. Net sales reached $5 million representing a 61% growth year over year and 22% sequential growth from Q2's net sales of $4.1 million. Gross margin continued to expand. 31.3% this quarter compared to 7.9% in Q3 of last year, and 26.4% in 2025. Demonstrating the impact of operational efficiencies and a stronger product mix. Our net loss of $4.9 million reflects an ongoing expansion of product offerings and commitment to investing in scaling our manufacturing, ahead of commercialization milestones. While revenues and margins are getting stronger, we continue to invest in growth in brand and corporate awareness. We believe it will position us to reflect operational cash flow positivity and profitability in 2026. Ended the quarter with $3.8 million in cash and an additional $3.3 million available on our line of credit. Total working capital was $6.3 million. Importantly, total indebtedness reduced to $2.9 million down from $5.3 million at year-end 2024. Meaningful strengthening of our financial stability. Overall, Q3 demonstrates that our revenue growth and margin expansion are structural with some future-facing expenditures. In Q4, our expenditure profile is projected to begin transitioning from investment mode toward long-term profitability. Worksport's growth is being led by rapid scale-up of our US-made tonneau cover production. Q3 net sales reached $5 million up from $3.1 million a year ago. Year-to-date sales are $11.4 million, more than double the $5.6 million for the nine months ended 09/30/2024. Our strength this quarter came from strong continued growth from the AL4 hardcover, which launched in 2025, expanded relationships with several national distributors and major retail auto chains, continued growth in our dealer, jobber, and e-commerce channels. Our performance this fiscal year represents a recurring and diversified revenue base not a single channel surge. With new product launches and revenue streams entering the mix in the months ahead, we believe Worksport is on a path toward profitability in 2026. More on the upcoming product lines later. Gross margin is one of the clearest proof points of our strategy. Q3 gross profit was $1.6 million a 31.3% margin, up sharply from 7.9% in 2024 and 26.4% in Q2 this year. Year-to-date gross margin is 26.7% compared to 10.5% in 2024. Key drivers of this include higher production throughput and fixed cost absorption in our US production facility, a higher volume higher value product mix maturing and emerging sales channels, and greater operational efficiency as processes mature. We are now operating solidly in the 30% plus margin range, setting the stage for future operating leverage. We expect margins to approach 35% by year-end, continued improvement targeted for 2026. We remain committed to achieving near-term operational cash flow positivity. In Q3, operating expenses totaled $6.4 million compared with $4.2 million in 2024, and $4.7 million in 2025. The increase mainly reflects growth investments and marketing costs tied to the AL4 product launch and our Regulation A offering. We completed our offering in October 2025. Operationally, we supported 60% revenue growth from 2024 to 2025 while increasing G&A expenses only 20%. This shows improved scalability and cost discipline. And this path includes the following factors. Breakdown of the operating expenses for 2025. R&D spend was $300,000, lower year over year as we move past core tonneau cover development. G&A is $3 million. We're supporting which supported higher volumes, compliance, and facilities. Sales and marketing was $2.4 million. The driver of our gross spending. And this is focused on channel activation, brand marketing, and investor awareness. Professional fees were $700,000. And included advisory compliance and stock-based compensation items. Our operating loss was $4.8 million compared with $3.9 million in Q3 2024. And $3.6 million in Q2 2025. This investment in Q3 will partly carry into Q4 before reaching the tail end of our investment phase as we position the company for stronger leverage going forward. For the first nine months of 2025, our cash position reflects disciplined investment and growth financing activities. Our net cash used in operations was $11.2 million compared to $8 million in the same period last year. Our Q3 operating cash burn was approximately $4.3 million slightly higher than Q2 as we completed major production and marketing initiatives. We also incurred one-time expenses related to the Reg A marketing efforts. Our investing cash outflow is $485,000, It was represented mainly spending on machinery tooling and some intangible assets. Our financing inflows $7.1 million. This is from warrant exercises, the issuance of series C preferred stock and warrants connection with the Reg A units offering, net of repayments on revolving credit facility, the issuance of common stock. With respect to long-term debt, we continue to improve our leverage profile while managing our obligations. As of 09/30/2025, our total indebtedness, current and long-term equal $2.9 million. Which is down from $4.8 million on 12/31/2024. Revolving credit facility had a balance of $1.6 million and our other term debt. Had a balance of $1.3 million. Availability on revolving credit facility. We've got $3.3 million unused, which provides additional liquidity and flexibility to support our strategic priorities. Our path to profitability is becoming clearer each quarter supported by stronger unit economics, and upcoming revenue catalysts. Our gross margin is now consistently above 30%, up from under 10 last year, showing true structural improvement in profitability generated from production activities. Our operating leverage, while year-to-date revenue is up more than 60%, G&A expenses have risen only about 20%. Signaling scalability across our product. Offerings. On a revenue scale, applying our current margins to an annualized sales run rate approaching $20 million, positions us meaningfully closer to breakeven. Importantly, much of R&D investment over the last few years is now at the finish line. With the HD3 Tonneau cover line launching in Q4, and the Solis and Core system set for commercial orders in late 2025. Are not cost centers anymore. They are next revenue engines. As these products enter production and sales channels, we expect sustained gross margins in a 35% plus range. Continued expense efficiency and a clear trajectory towards cash flow positivity in 2026. We are building this profitability bridge step by step, product by product. We anticipate Worksport's need for cash provided by financing activities to decrease in 2026 given our projected path to cash flow positivity. Now back to Steven for key insights into business operations. Thanks, Mike. Steven F. Rossi: In Q3, we built a scalable ISO 9001 certified manufacturer base. Q3's 31.3% gross margin is the financial proof of that operational capability. It is expected to only improve from here. We produced 2,499 tonneau covers by hand in a four-week stretch from early to late July 2025, more than double our March 25 total monthly output. In Q4, we expect to increase production by another 50% compared to Q3. An increase in production will benefit our margins and selling the demand we have meticulously invested in creating the market over the last year. We achieved without proportional headcount increase, validating process efficiency. And Q3 margins confirm better utilization of our US production facility, improved fixed cost absorption, continued focus on quality and throughput sufficient to support national distribution and dealers. Let's talk a bit about our Tonneau Cover business, our profit engine. After years of strategic investment, our hard folding tonneau cover division is now Worksport's near-term economic engine. They're made in The USA with rising brand recognition and multi-distribution. We have proven ability to increase margins with scale, 35% plus gross margins at current volumes with margins projected to grow even further. And as production scales, the tonneau cover division can absorb a significant share of fixed cost overhead. Reduce reliance on external capital, and generate cash to fund clean tech initiatives. The tonneau cover product offering provides the financial backbone on which Core and Solis and Aetherlux are being built, giving Worksport a strong and self-funded foundation for growth. Now let's talk a little bit about tariffs and how we're managing them. Continue to operate in a dynamic tariff trade environment. We all know this. While tariffs remain a headwind they are manageable. And in the tonneau cover market, increasingly service a competitive tailwind for Worksport. First, US manufacturing advantage. The majority of tonneau cover production value is US-based, reducing exposure, compared to our import-heavy competitors. Cost containment. Historical 9.5 to 10% material cost pressure has been offset through efficiency gains, scale-driven overhead absorption, and pricing discipline. This is through domestic pricing inflation. Our competitive position. Tariffs often impact imported competing products more severely. While our domestic footprint brand marketing, and product quality is a clear differentiator, especially if trade frictions continue. Core and Solis considerations. While some components are globally sourced for Core and Solis, tariff exposures modeled into our pricing and margin forecast. With flexibility to adjust and mix pricing as needed further. Further to this, the 11/10/2025 tariff suspension provides near-term relief and validates our proactive planning. The thing everyone's been waiting for, talk a little bit about Solis and Core. From investment to revenue pipeline. As of October 2020 10/21/2025, the Worksport HD3 tonneau cover is now in production with initial sales expected to begin to B2B customers in November 2025, followed by sales to online customers later this year. Sorry. I wanted to talk we're gonna talk about Solis and Core. Let's talk about HD3 first. Which we just did for a second. The HD3 is a heavy-duty tonneau cover designed for commercial and fleet applications. Building on the AL3, it features upgraded materials, seals, and latching for maximum durability. While available through all channels, its primary focus is driving growth in our wholesale and B2B channels. Adding a new revenue stream, and completing our US-made tonneau cover lineup. So we're very, very excited about the HD3 and what it's gonna do for our B2B business channels. Innovation pipeline, our Solis and Core, After years of engineering, tooling, certifications, and partnership investments, Solis and Core are now set to be released for orders later this month. What has pure operating and capital expense is expected to become a visible high-margin revenue stream beginning in late Q4 2025 and scaling through 2026 and beyond. Let's highlight some of our most recent announcements. First, the official for the solar tonneau covered core portable power energy system is now 11/28/2025. Customers will be able to place initial orders with expected delivery in late December or early January 2026. The core starter kit is priced at $949 which includes the core inverter hub, as well as one core battery. The solar system starting price is at $1,999 and will go up as high as $2,499 depending on the model size or bed size of your truck. And our initial rollout plan for the core is 1,000 core units plus 900 additional battery packs with a limited Solis release representing a roughly $2.5 million in near-term revenue opportunity with significant scaling plan through 2026. In terms of strategic positioning, Solis is a margin accretive product leveraging our tonneau cover expertise to enter into the premium solar tonneau cover market. Channel. CORE is a modular portable energy system designed as a recurring revenue platform, driving stable cash flow positive sales across work. Overlanding emergency and industrial markets. Together, these two platforms transform Worksport. From a single product channel manufacturer in a somewhat niche market into a multi-market clean tech company with recurring scalable revenue potential. Let's talk a little bit about R&D and our next steps. In 2026, we aim to transition R&D from heavy foundational build to commercial optimization and platform leverage. What this means is we're gonna switch from all the operational expenses relating to heavy R&D and developing new products to perfecting those new products and being able to increase margin and efficiencies. For Solis and Core, we're planning to finalize launch execution and early customer feedback loop. Optimize bill of material and logistics for margin enhancement post-launch, explore rapid scale cost savings, and expand integrations and form factors based on usage data, expanding the core platform for multiple product lines. For Tonneau Covers, we're gonna grow the HT3 product and launch an HT4 equivalent cover labeled internally as the Worksport B2. We expect this B2 cover to be extremely well received in all markets. More details will come on this will come in later in 2026. Incremental product improvements to maintain quality, compatibility, and margin strength. Aetherlux, gonna advance pilots and partnerships, including evaluations with institutions to validate performance and use cases. Finalize and select manufacturing partners, and focus spend on projects with clear commercialization paths and potential for 2026 impacts and beyond. A little bit about operating leverage and the roadmap there. Bringing it together, our operational model priorities for 2025 and 2026 are as follows. First, we're gonna obtain and sustain 35% gross margins. We're gonna get this we're gonna get this by maintaining manufacturing efficiency and pricing discipline. Gonna slow our operational expense OpEx growth as a percentage of net sales, especially in sales and marketing, and we're gonna treat Q3's elevated spending as a peak investment. Not the new baseline. We're gonna improve working capital turns by monetizing existing inventory and further align production scale with growing demand. And we're gonna layer new products into our existing cost-stabilized offerings. Tonneau, Solis, Core, and we're gonna share the infrastructure that we built and we're spending on. And amplify our leverage. Our priority supports our transition from capital-funded mindset to operations-funded growth. A little bit about risk management and mitigation. We are clear-eyed about key risks. Ongoing net loss and going concern language in 10-Q reflect reliance on external capital and execution risks. Tariff and supply chain volatility, particularly for globally sourced components, and launch risks that we see for Core and Solis, timing, adoption, and margin realization. Equity and warrant overhang impacting shareholder perception This is how we're gonna mitigate We're gonna tighten our spend to initiatives with measurable ROI. We're gonna maintain and selectively use diversified capital sources. And we're gonna stage clean tech production and inventory to complement demand signals. Communicate transparently about milestones. And capital deployment. Given the continued growth and healthy margins in our Tonneau Cover business, we are very confident in our ability to manage tariff-related cost inflations while advancing towards near-term cash flow positivity and maintaining our 2020 profitability target. I'm gonna pass it back to Mike with our updated fiscal year 2025 outlook and guidance. Michael D. Johnston: Thanks, Steve. So as far as our 2025 revenue framework concerned, in 2025, we then ARR of $20.4 million, substantively from $8.5 million in 2024. 2025 is expected to benefit from continued tonneau growth and channel expansion, initial Solis and Core orders, commencing 11/28/2025 with early but measured contribution. We project year-end revenues of $17 to $21 million and that depends on when the revenue recognition for the Core and Solis happens. 2026 revenue growth drivers we believe the base case for our U. Tonneau cover net sales will be $27 to $35 million next year. Further, we believe Solis and Core product lines can lead to an additional net sales in the tens of millions. We will update our shareholders on guidance after this product is rolled out later this year. In 2026, we'll have the full year impact of The US-made tonneau platform cover sale of 35% to 40% target gross margins. And first full year commercialization of the Core portable power system and Solis solar tonneau covers. Selective program on AetherLux is as a complimentary Cleantech platform to align with the defined technical and commercial milestones. And our focused OpEx discipline. OpEx growth below revenue growth to unlock operating leverage. And now our path to cash flow positivity. Our target is at operating cash flow becomes positive during Q1 2026. First half. Sorry. The 2026 driven by the stable 35% gross margins, Increasing sales will lead to higher utilization of existing manufacturing and distribution infrastructure with no major step up in fixed costs. Our tighter control of G&A, sales and marketing, professional fees with the spend tied to measurable ROI. And our launch of HD3 Solis and Core product lines. Our new margin sources. And now back to Steve with our concluding remarks. Steven F. Rossi: Thanks, Mike. Michael D. Johnston: Well, Steven F. Rossi: we built a high-margin US manufacturing platform working with rapid revenue growth. We've established national Core and Atherlux on top of that foundation. Our focus now is precise. Disciplined execution towards sustainable cash flow and profitability. We're seeing here on the charts Worksport's revenue growth, Worksport's margin growth, and Worksport's new products set to improve 2026 profitability. Michael D. Johnston: Thanks, everyone. This concludes our prepared remarks. Operator, please open the line for questions. Steven F. Rossi: Tate, I see you have your hand up and Scott, yeah, thanks for joining us today both. You guys are always great to join in, and I love your questions. So I'm gonna start with you, Tate. And, yeah, go ahead. Tate H. Sullivan: Thank you. Thanks, Steven. Can you talk about the tonneau market for tonneau covers in general in The United States? Are you seeing total demand growth in the market versus are you taking share to start, please? Steven F. Rossi: Yeah. So we're seeing you know, we're still seeing or still getting bits of information from the market We're seeing that we're taking we're I don't the market's still very healthy. We're seeing a slight shift into smaller trucks, different SKUs, so we're pivoting, and that's what's really good. As a domestic manufacturer because we could literally make whatever selling the day that we need to sell it, for instance. So in terms of the market, usually, there's difficult times, things start to sell less However, in our market, when we have geopolitical issues and other small issues that are happening or other issues happening within our economy, what we see is we just see a shift of what types of trucks are sold, not the amount of them. So we're still seeing the tonneau cover market in that $3 billion plus range, maybe a bit more. We're just seeing a shift to different applications with that that we make. And in fact, the different applications that are being sold more of are actually higher profit for us. So it's actually quite a benefit. So everything's still healthy as it was. Two or three years ago, and I feel that the market's primed for a strong '26 in terms of growth within the economy in The US specifically. And I think that we're gonna be able to capitalize on Tate H. Sullivan: Thank you. And then I saw on your 10-Q a mention about working with on the OEM sales channel, but related to the Core and Solis too, can you leverage your existing distribution, your sales channels for the tonneau covers for Solis and Core, or will it be different type of distribution, maybe starting more online or can you comment on that, Tanya? Yeah. Yeah. Steven F. Rossi: No. Great question. We're gonna start online. We're gonna start direct to consumer. That way, we get that feedback loop. With no you know, no broken telephone, no other way to say it. So we started with our beta testers. Those are individuals that we work with, and now we're gonna open it up to instead of select individuals, the broad consumer market. And then we have a significant amount of interest on the dealer side. We just presented. We just had a booth. At the SEMA show in Las Vegas. Some of it's available on our socials like Facebook and Instagram where Worksport posts. We used Twitter and LinkedIn more for investor stuff. But anyone that goes follow us on Instagram and Facebook, at Worksport Ltd, and you'll see some videos. We had these booths powered by our new energy products, and there was a significant amount of interest So I think that we could leverage We're just gonna be strategic in when we do so. So that it it's accretive to the target. Tate H. Sullivan: Okay. Thank you very much. Michael D. Johnston: Thanks, Tate. Scott? Steven F. Rossi: Good morning. Good morning, guys. Thanks for taking my questions. Scott Christian Buck: Steven, I was hoping that you might be able to give us a little bit of insight into your visibility on demand for Solis and Core. The language around the opportunity in '26 is pretty robust. So any kind of color you can give us there, I think, would be very helpful. Steven F. Rossi: So I think that the demand for the Solis is gonna be bigger than what I had otherwise believed. So you know, me as the leader of the company, I'll always have to be a blend of optimism and pessimism. So with that in mind, you know, I think that a new product that the likes of which has never existed is always a difficult path. And I believe that that's going to be true. I think that it's gonna be difficult and challenging to market and to attract customers for the Solis. But I also believe that what we've been able to launch in terms of an offering price at $1,900 is almost a no-brainer. And I think that the average consumer, when they look at something as a you know, two, three, or 4% of the cost of the truck expense while offering such measurable amounts of benefit. I think that it becomes a no-brainer. So I think that the Solis is poised to possibly become a trending item something that becomes a trend, almost like a fashion accessory for your truck. Look what my otherwise analog accessory can do. It could power our battery generator, the core, or any battery generator. And when it's only you know, a little bit more than other tonneau covers, other competing tonneau covers are $1,500 for an extra $400 $499, you get a Solis. So I think the demand as we market it and we message what it does and how meaningful that is for individuals, I think that that's gonna be very, very popular for us. The Core is nebulous because the market is so big. What we've been able to do with the Core is tap in from you know, you gotta think, Scott, that the tonneau cover market is a subset of a subset of a subset. It's an individual that has a license that buys a truck that needs a tonneau cover. And then that wants ours. So it's a very, very niche market. And it's still we're seeing massive growth there. But the Core is literally for anybody, anywhere. You know, any demographic on a global scale. So I think that when you look at that, it becomes nebulous because now it's a much broader market to market to, so it could become expensive there. But I think that as we look at explaining how innovative our Core is and integrating the Core into other products that we plan on speaking about more next year. I think that it we know that one of our competitors, which was a foreign company, foreign produced, foreign owned company, did about a billion dollars. So we think that even a percentage of that market without the massive CAGR we're seeing, I think that the Core market could be highly accretive to the balance sheet. And in fact, I think that our clean energy division as of the business could become bigger than the tonneau cover business within a period of time. Scott Christian Buck: Great. I appreciate all that added color, Steve. That was helpful. Then my second question, just on margins. Clearly, you guys have made a ton of progress there. I'm curious what is just volume driven in that improvement versus actual improvements in the manufacturing and production process. Steven F. Rossi: That's a good question. So we have the best well, Worksport is around people, and everybody working at Worksport is beneficial. Our engineering team is a shout out. And our management team our leadership team in general has a lot to do with being able to find cost efficiencies without the phrase we use in the market is thinning the product out. And thinning means, you know, using a thinner aluminum or cheaper plastic or cheaper corrugated. So we haven't we've in fact increased the robustness of our product, but we've been able to find efficiencies through keen purchasing leveraging demand, and volumes. But the biggest, I would say, 60 to 70% of the cost saving is just overhead absorption. We started making our tonneau covers, our hours per unit how many man hours it took to make one unit, ranged between four and six. Hours per unit. Yesterday or on an average day today, we're kissing below two. And when you look at the cost of domestic labor, in the $20-$30 an hour range, you know, that's significant. And we think that we can get that labor component down even more. And then but what we're fighting against, Scott, is domestic inflation. We're significantly US our paint it comes from the 48 states, our aluminum, everything that in our most of what our product is made out of is sourced domestically. And even though the tariffs are for foreign products, we've been seeing a lot of domestic inflation. And once that eases, which it will eventually, whether it's a week, a month, a year, a decade from now, we're gonna see even better bill of material cost savings. Scott Christian Buck: Great. And are we kind of capped out at around 35% on the current product mix, Or when you know, a year from now, are we talking about pushing 40% into '27? Steven F. Rossi: It's gonna be there there's gonna be two different two different things that so first off, we may reduce discounts as the brand becomes more popular. So, you know, right now, we have a Black Friday sale, you know, and that sale is just us reducing our margin in essence. That's what all sales are, to sell more. So we're finding ways of being able to attract customers or there's marketing costs are gonna decrease while our branding increases, our brand recognition increases. Operational efficiencies, And then as we become a more popular brand, well in the marketplace, we could you know, we'll be more selective on sale price because I think that the value will be driven by the product's quality and our name brand to begin with. So all of those in aggregate, think that we could see higher than and in times But it's gonna take a lot of hard work. Scott Christian Buck: Great. Well, I appreciate the added color, guys, and congratulations on all the progress. Michael D. Johnston: Thank you, Scott. Steven F. Rossi: Steve, we have three more questions from the audience C.K. Poe Fratt: in the Q&A bubble. The first question is, if someone was to order the Solis and Core, on the November 28 release date, when would they reasonably expect to receive the product? Steven F. Rossi: Great question. So the Solis is made to order. It's made domestically here within our facilities in The US. It'll be, yeah, mostly made to order. We may stock some So it's all handmade white glove service. And we're thinking that it'll be one or two weeks for us to make the product test the product, package it, and then the concierge service respect to having it delivered to you. So it's not we're not just gonna throw it on a USPS truck and wave it away. It's a concierge white glove experience with the Solis. You have your own dedicated team for support and an install and these types of things even though it's very easy. So the Solis should be a couple of weeks depending on our availability for the photovoltaic panels. And that supply chain there. The Core, our first batch of 1,000 batch of Core units is expected to arrive in December. The reason why we're offering them for sale in late November is just because we expect significant demand, so we want to make sure that we have everyone's name in the hat that wants to be a part of it. And the Core is interesting again because you can buy multiple batteries. It's the only of its kind that offers a fully modular system. So the Solis recap should be a two-week lead time. Handmade. And the Core should be shipping sometime in late December mid to late December depending on the receipt of the products through our contract manufacturer. C.K. Poe Fratt: Thanks, Steve. And then we have another question about sales to the international Are we looking at international markets such as EU or Middle East? Steven F. Rossi: We had recently at the SEMA show in Vegas, the biggest automotive show in North America. We had an unprecedented interest in sales from Latin America. Which we didn't expect. We knew that the market was strong. We didn't know it was that strong. So it looks like we're gonna continue to focus our growth geocentric. What that means is closer to home than further. I think that we're gonna start looking at the Latin American, like Puerto Rican, and Central and South American markets. First, that should be relatively not easy, but it should be quick. Because we know everyone we need to know there. Set up distribution, and then we're gonna look at European Union and The Middle East for mostly the Core products. We feel that portable energy systems and small home power systems are gonna be very, very strong there. And also, we've been looking at over the past years the Australian market, which is big for both all of the product lines we sell. Inclusive of unit of the heat pump. Thank you. C.K. Poe Fratt: Another question on the heat pump. Specifically. When do we expect it to go into production? Steven F. Rossi: So I want to underline the amount of excitement that we all have about the AetherLux because it's so revolutionary, and it's revolutionary within such a large and growing market. I mean, there's really, like, a trident of amazing things that are happening here. It's revolutionary. The market is existingly large, and it's also growing massively for heat pumps. So we're very excited about that. So we have production intent or pre-production intent prototypes working. We're building additional prototypes for additional testing. So that's what November and December looks like. And then we're working with contract manufacturers to start looking at manufacturing the product. I'm broad in my wording because obviously, we can't disclose nonpublic information. But our intention is to begin manufacturing the product as quickly as possible once we've tooled it. Tested it, and certified it. And we, the company, want exactly what the shareholder wants, which is that date to be as close to today as possible. So the answer to the question is as fast as possible. You know, we want the same things as every shareholder and investor does. But there's the UL certification alone could be three to six months. Tooling and supply chain could be significant time drags, but we're much smarter today than we were a year ago, having done this now, executed on similar initiatives like the Core. So we're gonna keep it as tight as possible. C.K. Poe Fratt: Thanks, Steve. And I think it's important to mention that we'll continue to deliver transparent updates to investors as we get better alignment on the timeline and the progression on certification. So stay tuned for that. We have one other question regarding the four battery system. How much extra miles it would enable a truck be charged. The truck is out of the electric truck is out of energy. I can take that question, Steve, and I think the answer to that question is just mathematical calculation. So each battery is about one kilowatt hour of energy. So if you're And you can have easily about four batteries in your truck system. let's say, electric truck is 50 kilowatts, that would provide four out of 50. Almost an 11% range boost. Could be 30 miles, 40 miles, depending. On the efficiency of your truck. So the answer is four kilowatt hours. Steven F. Rossi: Yeah. We also want to be clear to state that the Solis itself is not presently configured to recharge or directly integrate into an electric truck. So the Solis will charge battery systems, and the battery systems can be used for level one charging of the trucks. Which is relatively slow, but it'll get you enough power to get out of a difficult situation where you might be out of energy off the side of the road, for instance. We have not yet integrated the Solis directly with an EV manufacturer, although that is a cog in the wheel for us. C.K. Poe Fratt: Thank you, Steve. There are no other questions in the Q&A box. Any other investor that does want to ask questions about our queue or future progress, please do email us or call us at our line. We thank you very much for attending this call. Steven F. Rossi: Thank you, everyone.
Operator: Greetings, and welcome to the Protalix BioTherapeutics, Inc. Third Quarter Financial and Business Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Moyer, Investor Relations. Thank you, sir. You may begin. Mike Moyer: Thank you. One moment, please. Thank you, operator, and welcome to the Protalix BioTherapeutics, Inc. Third Quarter 2025 Financial Results and Business Update Conference Call. With me today are Dror Bashan, CEO of Protalix BioTherapeutics, Inc., and Gilad Mamluk, Senior Vice President and Chief Financial Officer. A press release announcing the financial results for the quarter and corporate updates was issued this morning and is available now on the Protalix BioTherapeutics, Inc. website. Please take a moment to read the disclaimer regarding forward-looking statements in the press release. The earnings release and teleconference include forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the statements made. Factors that could cause actual results to differ are described in the disclaimer in the Protalix BioTherapeutics, Inc. filings with the US Securities and Exchange Commission. I will now turn the call over to Mr. Bashan. Dror? Dror Bashan: Thank you, Mike. And thank you, everyone, for joining this call. I will begin by reviewing our recent accomplishments. Following my remarks, Gilad will provide a detailed review of our quarterly and year-to-date financial results, and then we will open the line for your questions. We are pleased to report another strong quarter and a solid year-to-date performance. For the first nine months of 2025, total revenues were $46.436 million, representing a 24% increase compared to the same period last year. Our total revenues for the third quarter were $17.9 million, which reflects a decrease of 1% compared to the same period of 2024. We recognize revenues from sales of our products to Chiesi, Pfizer, and Fiocruz in Brazil. Their purchases vary from quarter to quarter as they control their own inventories. Overall, these revenues reflect the continued commercial success of our enzyme replacement therapies and provide a strong foundation to support our research and development efforts. On the regulatory front, as we have announced previously, Chiesi, with our cooperation, has formally requested the reexamination of the negative opinion issued in October by the Committee of Medicinal Products for Human Use (CHMP) regarding the proposed every four weeks dose regimen for Elfabrio in Europe. There should be no misunderstanding. This process has nothing to do with the currently approved every two weeks regimen, and the May 2023 approval of the every two weeks regimen in the EU is unaffected, and Elfabrio remains available to patients in the EU. We remain confident in Elfabrio's long-term potential, and we are working closely with Chiesi to provide additional data and context to support the reexamination of the once in four weeks regimen, which we believe could offer meaningful benefits to patients and caregivers. Turning to our pipeline, we are particularly excited about PRX-115, our recombinant pegylated uricase candidate under development for the potential treatment of uncontrolled gout. Preparation for the phase two clinical trial is well underway. We filed our IND for the phase two clinical trial of PRX-115 in October, and the IND has become effective following the FDA's standard thirty-day review period. We continue our plans to initiate the trial later this year. Based on the encouraging first-in-human data from a phase one clinical trial, PRX-115, we believe it has the potential to be a best-in-class therapy with a long-acting profile that could improve patient compliance and outcomes. If successful, this program represents a significant opportunity in the market with a high unmet need. We look forward to updating you about the trial as data becomes available. Finally, I would emphasize that our operating strategy remains focused on three pillars: driving commercial success with Elfabrio, advancing PRX-115, and other early-stage pipeline programs, and maintaining financial discipline. With a strong cash position and positive quarterly net income, we are well-positioned to execute on these three priorities. Before we turn to the financial results, I want to introduce Gilad Mamluk to this call. Gilad began serving as Protalix BioTherapeutics, Inc. Chief Financial Officer in August, and this is his first earnings call with the company. I'm sure that I speak for everyone on this call when I wish you much success in the new position. Welcome, Gilad. And I'll now turn the call over to you to present a detailed review of our financial results. Gilad, please. Gilad Mamluk: Thank you, Dror, and good morning, everyone. Total revenues from selling goods for the nine months ended September 30, 2025, were $43.1 million, an increase of $8.3 million or 24% compared to the $34.8 million for the same period in 2024. These revenues consist of $18.6 million in sales of Elfabrio to Chiesi, $15.4 million in sales for Elelyso to Pfizer, and $9.1 million in sales of Elelyso to Fiocruz in Brazil. Total revenues from selling goods for the three months ended September 30, 2025, were $17.7 million, a decrease of $100,000 or 1% compared to $17.8 million for the same period in 2024. These revenues consist of $8.8 million in sales of Elfabrio to Chiesi, $2.8 million in sales for Elelyso to Pfizer, and $6.9 million from sales to Fiocruz in Brazil. As Dror mentioned, we recognized revenues from sales of our products to our partners, Chiesi, Pfizer, and Fiocruz in Brazil, and the individual purchases change from quarter to quarter, as each of our partners controls their own inventories. As a result, the orders we receive from our partners may not be timed to the pace of patient acquisition and retention, and accordingly, our product sales to our partners may not reflect patient demand for the product. We recorded revenues from license and R&D services of $550,000 for the nine months ended September 30, 2025, an increase of $100,000 compared to $400,000 for the same period in 2024. For the three months ended September 30, 2025, we recorded revenues from license and R&D services of $200,000, an increase of $100,000 compared to $100,000 for the same period in 2024. Revenues from license and R&D services are comprised mainly of revenues we recognize in connection with our license and supply agreement with Chiesi. Other than potential regulatory milestone payments that may become payable, we expect to generate minimal revenues from licensed R&D services now that we have completed the clinical development of Elfabrio. Cost of goods sold for the nine months ended September 30, 2025, was $22.4 million, up $2 million or 10% from $20.4 million for the same period last year, reflecting increased sales to Chiesi and Pfizer for the nine-month period, partially offset by a decrease in sales to Fiocruz. For the three months ended September 30, 2025, cost of goods sold was $8.3 million, a decrease of $100,000 or 1% from $8.4 million for the same period in 2024. The decrease was mainly the result of the decrease in sales to Chiesi and Pfizer for the quarter, partially offset by the increase in sales to Fiocruz. Research and development expenses for the nine months ended September 30, 2025, totaled $13.9 million, an increase of $5.1 million or 58% compared to $8.8 million for the prior year period. For the three months ended September 30, 2025, total research and development expenses were approximately $4.5 million, an increase of $1.5 million or 50% compared to $3 million for the same period of 2024. The increase for both the three and nine-month periods was mainly due to preparations for our planned phase two clinical trial of PRX-115, which we view as a strategic investment in our pipeline and long-term growth. Selling, general, and administrative expenses for the nine months ended September 30, 2025, were $8.2 million, down $1 million or 11% from $9.2 million for the same period last year. The decrease resulted mainly from lower salary and selling expenses. For the three months ended September 30, 2025, selling, general, and administrative expenses were $2.9 million, an increase of $300,000 or 12% compared to $2.6 million for the same period in 2024. The increase resulted mainly from an increase of $100,000 in salary and related expenses and an increase of $200,000 in selling expenses. Financial income net was $10,000 for the nine months ended September 30, 2025, compared to financial income net of $100,000 for the same period in 2024. The decrease resulted mainly from exchange rate costs and lower interest income on bank deposits, which was partially offset by lower notes interest expenses due to the September 2024 repayment in full of all the outstanding principal and interest payable under our then-outstanding convertible notes, or the 2024 notes. For the three months ended September 30, 2025, financial income net was $100,000 compared to financial expenses net of $100,000 for the same period in 2024. The difference resulted mainly from lower notes interest expenses due to the September 2024 repayment in full of all the outstanding principal and interest payable under the 2024 notes. We recorded tax expenses of approximately $300,000 for the nine months ended September 30, 2025, compared to tax expenses of approximately $400,000 for the same period in 2024. For the three months ended September 30, 2025, we recorded a tax benefit of approximately $100,000 compared to tax expenses of approximately $600,000 for the same period in 2024. Our tax expenses and benefits result mainly from taxes on GILTI income under the US Tax Cuts and Jobs Act of 2017, the US "One Big Beautiful Bill" Act, which was signed into law on July 4, 2025, and includes a restoration of the current deductibility for domestic regional expenditure beginning in 2025, retransmission options for previously capitalized amounts. We recorded a net loss of $1.1 million for the nine months period ended September 30, 2025, or 1¢ per share basic and diluted, compared to a net loss of $3.6 million or 5¢ per share for the same period in 2024. For the three months ended September 30, 2025, net income was approximately $2.4 million or 3¢ per share, basic and diluted, compared to net income of $3.2 million or 4¢ per share basic and 3¢ per share diluted for the same period in 2024. At September 30, 2025, we had $29.4 million in cash and cash equivalents and short-term bank deposits, which we believe are sufficient to satisfy our capital needs for at least twelve months from the date we issue our quarterly report for the quarter ended September 30, 2025. Overall, these results reflect strong execution and financial discipline as we continue to invest in our pipeline while maintaining a solid balance sheet. Dror, back to you. Dror Bashan: Thanks, Gilad. To conclude, we are proud of our progress over the course of 2025 so far. We delivered strong year-to-date financial performance. We advanced PRX-115 towards phase two initiation and continue to strengthen our commercial foundation with Elfabrio. We believe these achievements position Protalix BioTherapeutics, Inc. for long-term growth and value creation. We appreciate your continued support and look forward to updating you on our progress in the coming months. Operator, please open the line for questions. Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Ram Selvaraju with H. C. Wainwright. Please proceed with your question. Ram Selvaraju: Thanks so much for taking my questions, and congratulations on all the recent progress. I first of all wanted to ask if you could provide us with any granularity regarding the timeline for the reexamination of the CHMP opinion on the every four-week dosing regimen of Elfabrio. Secondly, I wanted to see if you had any additional comments on the evolving competitive landscape in treatment-refractory gout and what implications this may have for the ultimate size of the commercial opportunity for PRX-115. And then lastly, with respect to ongoing financial reporting, I was just wondering if you anticipate further predictability of the royalty-based revenue recognition related to Elfabrio sales going forward, or if you anticipate any additional sources of volatility that may impact how you recognize revenue stemming from sales of Elfabrio? Thank you. Dror Bashan: So thank you, Ram. I will answer you one by one if it's okay. On the once every four weeks reexamination request, we expect to have an answer in 2026, and, of course, we will update accordingly. This is one. With regard to the gout, indeed, there are multiple developments mainly uricase-based mechanisms of action. When we look at the gout market, we foresee a significant increase in the overall gout market in the next five to six years. And, we think that within the uricases or the uncontrolled gout patient population that requires uricases will grow as well. And if indeed our phase two will be successful, potentially we have a product that can take a very nice market share from this increased pool. On the third one, you know, we continue to recognize what we sell to Chiesi's inventory. And I'm not aware of any major change. Chiesi does well in the market. We are optimistic when we look into the future. And this is it. Gilad Mamluk: I would just add to that, Ram, that we have good predictability in terms of our revenues, and we do hope to give some more visibility also in our annual report. But as you know, we are limited in what we can say, given our agreement with Chiesi, and Chiesi is a privately held company. Ram Selvaraju: Thank you very much for all of those responses. I just had one other quick one maybe for Gilad. Regarding the cash runway guidance, I just wanted to clarify whether this is based solely on the expenditures, the operating expenditures that you expect, or if this is factoring in the continued receipt of royalty-based revenue on Elfabrio. Gilad Mamluk: It's based on both. And as I said, we have good predictability regarding the revenue stream. Dror Bashan: And this includes, of course, the expenses associated with the phase two trial on PRX-115. Right? Ram Selvaraju: Yeah. That's fine. Yeah. Okay. Gilad Mamluk: Definitely. Ram Selvaraju: Okay. Thank you. Operator: Our next question comes from John Vandermosten with Zacks. Please proceed with your question. John Vandermosten: Thank you. And, hi, Dror, and welcome to the call, Gilad. Regarding the CHMP decision on the every four-week dosing, does it make sense to run a new trial to get the information that the EMA might be looking for to get that different dosing regimen, assuming that they don't find a favorable decision? Dror Bashan: Okay. Right now, you know, Chiesi submitted a request for reexamination. They will put their arguments together in the coming months. And then there will be discussions within the CHMP, and the verdict will be given, of course, as I mentioned, in 2026. If it's positive, great. If it's not positive, Chiesi will decide internally and take a decision. John Vandermosten: Okay. And it sounds like you're still on track for a start of the trial for PRX-115 before the end of the year. What does the timeline look like for that if you get started in the next few weeks in terms of top-line readout and enrollment and everything? Dror Bashan: Yes. Indeed. We plan to start screening patients in a few weeks. In 2027, we expect top-line results. John Vandermosten: Okay. And you've identified that you want to have several different assets in your development pipeline. And I know you have three right now listed. And I was just wondering what's emerging as a follow-on to PRX-115 as another candidate? Dror Bashan: So we hope to update the market soon. You know, PRX-119, I hope that we will be able to, if indeed we'll pass all the models and the tests that we are going through for the final test, we will update about the mechanism of action and the specific indication. John Vandermosten: Okay. And then a last one for me. I know you've been getting a few additional approvals in different geographies for, or Chiesi has, new approvals. Has anything emerged recently since the last update in terms of that? Gilad Mamluk: I'm not aware of anything significant or something I'm aware of. Dror Bashan: There is a long list of markets Chiesi is under submission or planning to submit for in the next few years to come. So we are not concerned on this front. This is part of the further expansion of Elfabrio globally. John Vandermosten: Sounds good. And I guess you'll disclose that as it happens. I know in the past you've disclosed them in the queue. Dror Bashan: Yes. Yes. We will disclose it accordingly and properly. John Vandermosten: Great. Thank you. Ram Selvaraju: You're welcome. Operator: Our next question comes from Ophil Menkes. Please proceed with your question. Ophil Menkes: Hi. I'm just an individual investor, but I have a couple of questions for you. Number one is there seems to be a pattern of basically receivables going up at the end of the year and then being cleaned up at Q1. Now so far, $9.9 million has been basically paid off from the end of Q3 receivables. And, basically, from what I've seen, it looks like the Brazil and the Pfizer amount that we sold this year are basically probably 4% to 5% above the whole of last year. And assuming that they have about 10% growth, that means that they haven't got much, well, a lot of orders to get easier. Now based on these assumptions, I mean, is there any kind of indication of, like, what kind of numbers you could be doing next year? I mean, what is your capacity based on royalties being paid every time that you basically sell a product to Chiesi? Is there any kind of ballpark number or something like that? That would be question number one. Question number two is, do you guys have any kind of anticipated R&D growth during the phase two for PRX-115 because you guys are looking at a pretty sizable phase two, which is actually pretty nice because you can prove your product candidate pretty nicely with that, but that's costing a lot of money. So, I mean, I have a lot of other questions, but I'm gonna stop at that so that you guys can have some questions, some time to think it over and then so. Thank you. Gilad Mamluk: So regarding the first question, Ophil, we are not providing guidance as noted. Also in terms of our revenue, you know, something we mentioned is that we are buying to the inventory. So if you look at the revenues, there is no direct link, there is a link, but there is no direct link between the revenues and the revenues of Chiesi, for example, because if Chiesi is buying to the inventory in 2024, just for the example, then they may buy less in the first quarter and vice versa. So it may be a bit misleading to try to relate that directly. I can tell you that they keep going. That's without providing any guidance in their numbers, which we cannot give, I can say that they are going nicely the way we see that. In terms of the R&D growth, yes, definitely, we take this expense into account for PRX-115. And as we said, we have enough cash for more than twelve months to fund this trial. Operator: Our next question comes from John Vandermosten with Zacks. Please proceed with your question. John Vandermosten: Great. Thanks for letting me ask another one. The last question made me wonder what your thoughts are in terms of cash burn for 2026 and how that might split between R&D and SG&A? Gilad Mamluk: So as I said over this one, we are not, we cannot provide guidance at that stage. John Vandermosten: Okay. Even for your cost? Gilad Mamluk: Correct. But what we did say is that, and I also replied to the previous question, we said that we have enough cash for more than twelve months. And we, of course, have in mind that we are funding the PRX-115 phase two trial. John Vandermosten: Okay. Alright. Thank you. Operator: We have now reached the end of our question and answer session. I would now like to turn the floor back over to Dror for closing comments. Dror Bashan: So thank you, everybody, for the time. And we will keep updating you. And we will connect next quarter, please. Mike Moyer: Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the PDS Biotechnology Corporation's Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. At this time, we will turn the conference over to Tom Johnson with LifeSci Advisors. Tom, you may now begin. Tom Johnson: Thank you, operator. Good morning, everyone, and welcome to PDS Biotechnology Corporation's third quarter 2025 results and Clinical Programs Update Call. I am joined on the call today by the following members of the company's management team: Dr. Frank Bedu-Addo, Chief Executive Officer; Dr. Kirk Shepard, Chief Medical Officer; and Lars Boesgaard, Chief Financial Officer. Dr. Bedu-Addo will begin with an overview of the company's recent progress and its clinical development program. Mr. Boesgaard will review the financial results for the quarter ended September 30, 2025. Dr. Shepard will then join the call to help address questions from covering analysts. As a reminder, during this call, we will make forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any statements should be considered in conjunction with the cautionary statements in our press release and risk factors discussed in our filings with the SEC, including our quarterly reports on Form 10-Q and our annual report on Form 10-Ks. Cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Now I would like to turn the call over to Dr. Bedu-Addo. Frank? Frank Bedu-Addo: Thank you, Tom. And good morning, everyone. It's our pleasure to speak with you again and to provide this brief update on our progress in advancing our clinical programs. During our 2025, and recent weeks, we continued to advance PDS0101 over first-line HPV and HPV16 positive recurrent and/or metastatic head and neck cancer. In August, we announced completion of our VERSATILE-002 trial, with the final data further supporting the durable clinical benefit of PDS0101 in this patient population. The strength of this final data and of the data in subanalysis we announced in September led to our strategic decision to seek an amendment to our VERSATILE-003 trial to include progression-free survival as a primary endpoint in addition to median overall survival. Our rationale for taking this step will be the focus of today's call. Let's begin. Last August, we announced final top-line survival data from the VERSATILE-002 phase two clinical trial. As you will recall, the VERSATILE-002 trial evaluated PDS0101 plus Keytruda or pembrolizumab in patients with HPV16 positive head and neck cancer. The final data showed median overall survival was 39.3 months in patients with a combined positive score or CPS of greater than or equal to one. The lower limit of the 95% confidence interval was 23.9 months, and the upper limit was not yet estimable. Importantly, the progression-free survival was 10.3 months among patients with CPS greater than or equal to one. This PFS result is notable considering the fact that over 62% of patients in the VERSATILE-002 study had low CPS of one to 19. These patients have historically had significantly lower PFS results. A total of 53 patients were enrolled in the VERSATILE-002 trial. Unlike the VERSATILE-003 phase three trial, the primary endpoint for the VERSATILE-002 trial was objective response rate, or ORR. The VERSATILE-002 study included nine sensitive patients who discontinued the study after the primary endpoint of ORR was reached and were therefore lost to follow-up. To understand the potential impact of these nine patients on PFS and MOS, a sensitivity analysis was performed in 2025 prior to our presentation at ASCO. Our statistical experts obtained the survival records and disease progression status for these nine patients. The resulting censoring analysis showed no negative impact on either PFS or MOS. The VERSATILE-002 trial is the first of patients in the recurrent and/or metastatic head and neck cancer population to report a median overall survival of almost 40 months. The PFS and survival results also have important implications for the current design of our phase three VERSATILE-003 trial. In the current trial protocol, median overall survival is the primary endpoint, and progression-free survival is the secondary endpoint. However, even before our final readout of VERSATILE-002, a key concern external to PDS Biotechnology Corporation was the fact that MOS relies on the occurrence of death events. The concern being that if a drug works well enough to prevent patient death, it may take a long time to get to the critical data readout. With the further increased final MOS readout from VERSATILE-002, this concern was further exacerbated. To hopefully address the potential of extended trial duration while also abiding by the FDA's recommendation to use MOS, median overall survival, as a primary endpoint, we have amended the protocol to convert PFS to a surrogate primary endpoint. As announced, we have requested a meeting with the FDA to discuss the described amendment to the current trial protocol to include PFS as a surrogate primary endpoint independent of median overall survival, which will continue to remain as the primary endpoint for full approval. Our request to meet with the FDA to propose an amendment to VERSATILE-003 is based on careful consideration of the final data from VERSATILE-002. We believe the robust PFS data now presents us with an important opportunity to potentially shorten the time to regulatory submission while maintaining median overall survival as the endpoint for full FDA approval. Importantly, we believe this approach may also accelerate the availability of this promising treatment to the rapidly growing population of HPV16 positive patients in dire need of effective treatment. Treatment with PDS0101 currently enrolled patients in our VERSATILE-003 phase three trial will continue during the temporary pause of the trial. We believe that the industry is waking up to the realization that HPV positive head and neck cancer is rapidly becoming a real problem. Several industry publications just in the last few months have reported on this developing situation. Some of you might be familiar with independent market research published by Delvin Insights on the oropharyngeal cancer market published this month. The article states that they performed interviews with KOLs at leading cancer research centers and based on a quote from the publication, with declining rates of head and neck cancers related to alcohol and tobacco, HPV has become the principal etiologic factor in oropharyngeal cancer, redefining prognostic outlooks, and informing the development of tailored therapeutic approaches. End of quote. Based on established research, over 90% of HPV positive oropharyngeal cancers are HPV16 positive. We are therefore confident in the potential of our HPV16 tailored approach and the potential of PDS0101 to ultimately provide a well-tolerated treatment without chemotherapy as an option for the growing population of HPV positive patients who currently have no effective therapies for this deadly disease and who will soon become the majority of head and neck cancer patients. Elsewhere in our pipeline, we announced that the National Cancer Institute or NCI presented new clinical data at the 2025 Society for Immunotherapy of Cancer, SITC, annual meeting. The NCI presented three abstracts highlighting emerging clinical and translation findings from PDS Biotechnology Corporation's novel investigational immunotherapy platforms, including PDS0101, our lead phase three clinical stage HPV targeted immunotherapy, and our tumor targeting IL-12 fused antibody drug conjugate, PDS0101 ADC. The presented translational biomarker studies demonstrated the unique immunological properties of PDS0101 and PDS0101 ADC leading to antitumor immune responses and the predictability of clinical responses. PDS0101 combination immunotherapy was observed to induce broad immune activation and quantitative measurements of various blood analytes predicted clinical benefit with good accuracy. PDS0101 ADC monotherapy in patients with advanced solid malignancies was observed to increase blood frequencies of stem-like memory and effector CD8 and CD4 T cells that had self-renewing properties. We believe the data presented at SITC further validate the scientific underpinnings of our immunotherapy platforms and confirm that our development approach is achieving the intended immunological and clinical effects. These findings provide a deeper understanding of how our immunotherapies are generating such promising results in advanced cancers. Earlier in the quarter, we announced that the colorectal cancer cohort of the phase two clinical trial with PDS0101 ADC met the criteria for expansion to stage two following positive stage one results. This trial is also being led by the National Cancer Institute. Our phase two clinical collaborations with the National Cancer Institute, MD Anderson Cancer Center, the Mayo Clinic, as well as our preclinical collaboration with NIAID allow us to focus our resources on our VERSATILE-003 phase three clinical trial while progressing development of our pipeline via these investigator-led studies. Now I will turn it over to Lars for a review of our results for 2025. Lars? Lars Boesgaard: Thanks, Frank, and good morning, everyone. We reported a net loss of $9 million or $0.19 per basic and diluted share for the three months ended September 30, 2025. That compared to $10.7 million or $0.29 per basic share in the prior year's quarter. The decrease in net loss was primarily due to lower operating expenses. Research and development expenses were $4.6 million for the three months ended September 30, 2025, compared to $6.8 million for the prior year period. The decrease was primarily due to lower manufacturing and clinical expenses and personnel costs. General and administrative expenses were $3.6 million for the three months ended September 30, 2025, compared to $3.4 million for the prior year period. The increase was primarily due to higher professional fees, which were partially offset by lower personnel costs. Total operating expenses were $8.1 million for the three months ended September 30, 2025, compared to $10.2 million for the prior year period. Net interest expense was $900,000 for the three months ended September 30, 2025, compared to $500,000 for the prior year period. The increase was primarily due to lower interest income from our cash deposits. Our cash balance as of September 30, 2025, was $26.2 million, which compared to $41.7 million as of the beginning of the year. Yesterday, we completed the sale of $5.8 million of our common stock or prefunded warrants as well as $5.8 million accompanying warrants for gross proceeds of approximately $5.3 million. And with that, operator, we can open up the call for any questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question at this time, you may press 1 from your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And our first question is from the line of Mayank Mamtani with B. Riley Securities. Please proceed with your questions. Mayank Mamtani: Yes. Good morning, team. Thanks for taking our questions and the update. So on the VERSATILE-003 protocol pause, can you touch on how you plan to handle the patients that are already enrolled and assume that they will make it to this new PFS analysis that now you are going to propose to the agency? If you could just give us an update logistically on how patients enrolled will be included there? And then also, what is the new sample size? I believe you might be having some awareness of what the new protocol size would look like, and I was also curious what the net cost savings would be for you as a result of that? Frank Bedu-Addo: Well, Mayank, thanks a lot for your question. So I think as we mentioned in the script that we just read through, we are going to continue to treat those patients who have already been enrolled on the trial, on the study trial. In terms of incorporating them into the trial as a whole, these are not significant amendments, but these are part of the discussions that we will be having with the FDA. In terms of the new size, we have not disclosed that publicly yet. We do not want to do any of that until we have actually sat down with the FDA. We have made certain proposals to the FDA. But the anticipation and the hope here is that we will address some of those concerns by getting to those clinical trial readouts earlier than the currently designed trial will allow us to get there. Right? But I will hand over to Kirk and see if he has anything to add to that. Kirk Shepard: No. Nothing to add, Frank. As you said, these discussions will take place soon. We think they are very reasonable amendments that we are asking for. We are also very happy that in reviewing these amendments and strategy for the study that the steering committee that we have as well as our investigators are with the program. They believe very much in what we are doing. And the emphasis here, as Frank said, is that these patients will be continued to receive drug on the protocol during the pause. Mayank Mamtani: Thank you. And are you able to share any information on what the expected PFS would be under control, Keytruda? It's obviously much lower than what we see relative to the OS, as you said. But just was curious what you are seeing in, have recently published on PFS control and, obviously, that feeds into your analysis for what you would power the phase three study for. Thanks for taking your patience. Frank Bedu-Addo: So Mayank, I think just I'll just reiterate something that Kirk just mentioned. These amendments and the work that's going into what we have suggested to the FDA is something that has been thoroughly discussed with the experts and principal investigators. And is very strongly supported by those experts in the field. And, also, what we are proposing is nothing unusual in terms of clinical trial design. So the goal here is to make sure that not only is it very well supported by investigators and experts in the field, but also that it is nothing unusual regarding the FDA regulations. Everything we are suggesting should abide by the regulatory guidelines. Right? So we are making sure we stick with that. And in terms of the VERSATILE-003 trial, Mayank, just to make sure I address exactly what you asked, could you just repeat the last part of that section? Mayank Mamtani: The PFS for the control arm that you have incorporated, and if that has changed relative to your prior assumption, you know, when you initially started the study. Frank Bedu-Addo: Correct. So the PFS, as you know, in the KEYNOTE-048 study as well as the LEAP-10 study, it was 3.2 months for CPS greater than one, in the KEYNOTE-048 study, and it was 2.8 months in the LEAP-10 study. Now these studies were predominantly we assume the LEAP-10 study was predominantly HPV negative. That hasn't been published yet, but we know that the KEYNOTE-048 study was predominantly in HPV negative patients. We know that there are two studies that have been published that actually compared HPV16 positive patients with HPV negative and other types of HPV infected head and neck cancer patients. And so we know from those studies that the prognosis if you have HPV16 positive head and neck cancer, appears to be worse than if you have HPV negative or other types of HPV positive head and neck cancer. Right? And so at this point, we are conservatively assuming that the PFS in the control arm is going to be around the three-month range, which has been reported for KEYNOTE-048. And also in the LEAP-10 study, which was 2.8 months. Thank you. That's a big delta. So lastly, there's been a lot of strategic interest in the head and neck cancer space. A lot, obviously, more on the bispecific or ADC side of things. And, you know, including at ESMO. Any thoughts on how you're looking at, you know, the broader landscape, especially, you know, on the HPV positive side where there's not a whole lot going on? Thanks for taking the questions. Frank Bedu-Addo: Right, Mayank. As you mentioned, there is quite a bit of work going on also with ADCs and so forth in head and neck cancer. But as you may know, those are really primarily targeted to HPV negative patients. As I just mentioned, it appears that there is becoming that realization now in the industry that HPV positive head and neck cancer is becoming a really serious medical problem. Right? Just in the last few months, we've had several publications report on the growing incidence of HPV positive head and neck cancer. And this independent market research report I mentioned specifically stated that HPV negative was a traditional head and neck cancer caused by tobacco and alcohol, are on the decline, in the new phase of head and neck cancer is HPV positive head and neck cancer. Right? So as I mentioned, we are very confident in the approach we've taken to focus on HPV16 positive head and neck cancer. Which, again, in oropharyngeal cancer, for example, over 90% of these HPV positive oropharyngeal cancers are HPV16 positive. Right? We've shown on our slide the growing projection from some of the top medical journals, such as Lancet, showing the significant increase in the prevalence of HPV16 positive head and neck cancer. And so we are very encouraged with the results we've seen today. And we are also very encouraged that this growing population of patients will hopefully have a therapy that specifically addresses this growing type of head and neck cancer, which it appears from the expert reports could potentially be the dominant type of HPV. Of head and neck cancer in the next decade. Right? So we continue to be pleased with the approach we've taken to really target and focus on HPV16 positive head and neck cancer. The majority of the majority of studies and drugs being developed in head and neck cancer are not focused on HPV positive head and neck cancer. Operator: Thank you. Our next question is from the line of Joseph Pantginis with H.C. Wainwright. Please proceed with your question. Joseph Pantginis: Hey, guys. Good morning. Thanks for taking the questions. So two questions, if you do not mind. On VERSATILE-002, can you remind us or inform us or what have you the patients that have had such long-term survival, have they seen any additional therapeutic interventions? I do not believe they have. And then second, on VERSATILE-003, since you're looking at PFS, can you tell us about the conduct of that study with regard to physician training and awareness since you obviously have a lot more sites than VERSATILE-002? With regard to being able to adapt to and not make calls early based on potential pseudo progression of the tumors from the cancer immunotherapy? Thanks. Frank Bedu-Addo: Hey, Joe. I'll start, and then I'll hand over to Kirk. Now in terms of what patients may go on after they come off the VERSATILE-002 trial, it is important to remember that at that stage, the patients are checkpoint inhibitor resistant. And in HPV positive disease, this is published. The median overall survival is only three to four months. Right? So we have to bear that in mind in this discussion. Once you become checkpoint inhibitor resistant, in HPV positive disease, your median overall survival is three to four months. And, therefore, if you come off PDS0101, and go on to some other therapy, and all of a sudden, you see prolonged survival, then very likely it's only reasonable to assume that that prolonged survival came from was a result of the therapy, PDS0101 therapy. Right? Because it is very well established that if you're checkpoint resistant, you are not going to have long survival. Right now, if patients come off the VERSATILE-002 trial, there is no FDA approved therapy for checkpoint resistant patients. And so they will very likely go into any investigator choice chemotherapy. And that's the most likely therapy that anybody who comes off PDS0101 will go on to. Right. In terms of the VERSATILE-003 design and investigators being trained, how they look at things like pseudo progression, that's something that's very important in an immunotherapy and some of the discussions that have been had with our steering committee. So I'll hand over to Kirk to address that question. Kirk Shepard: Yes. Thank you, Frank. First of all, just a comment on the answer as far as the subsequent treatment after the protocol. You're correct. I mean, there's really nothing. It's tragic that for those who are ICI resistant, that really there's been nothing really to show that they have any survival benefit, or even a high response rate. So unfortunately, we're comfortable with the fact that after the protocol, most likely any effects would be from our drug, PDS0101. Regarding the PFS, that's a good question because it's very important as we look at these patients that the investigators are trained as far as the response. And, also, this will be reviewed, as you know, by a central review from experts who will be reading the scans, etcetera. We've discussed this a lot, so people are sensitive to the fact that there may be pseudo progression. With patients who are still clinically well, and yet not determined yet as far as a response, we will continue to follow them. This is very important and different than the VERSATILE-002 because in VERSATILE-002, remember, the primary was ORR as far as response rate. And after the patients had a response, some of them were not followed any further. We will be following these patients all along not only for the response, but also for safety. So, we're comfortable now with the training we've had and the discussions we've had with the steering committee that we will be able to properly judge these patients as far as PFS. And also, we're very fortunate that with the current site accruals that we have, a lot of the sites are returning who were on VERSATILE-002. So they've been trained before. They are also familiar with the drug, and we're very happy to know that a number of them want to be a part of now the VERSATILE-003. So we have a good core of sites that have had experience with the drug as well as judging these responses. Thanks for your question. Joseph Pantginis: Appreciate all the feedback. Thanks a lot. Operator: Thank you. At this time, I'll hand the floor back to Frank for further remarks. Frank Bedu-Addo: Thank you, operator. So thank you to all for your time today. We are excited based on the strong VERSATILE-002 results and our Fast Track designation about the potential for PDS0101 in head and neck cancer. Our engagement with multiple leading clinical investigators and oncology institutions has validated our approach and the long-term opportunity that we believe our HPV targeted immunotherapy represents in the HPV16 positive head and neck cancer indication. We look forward to keeping you updated on our progress and thank you very much again. Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to Edgewell Personal Care Company's Fourth Quarter and Fiscal Year 2025 Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead. Good morning, everyone, and thank you for joining us this morning for Edgewell Personal Care Company's fourth quarter and fiscal year 2025 earnings call. Chris Gough: With me this morning are Rod Little, our President and Chief Executive Officer, and Fran Weissman, our Chief Financial Officer. Rod will kick off the call, then hand it over to Fran to discuss our 2025 results and full-year fiscal 2026 outlook. We will then transition to Q&A. This call is being recorded and will be available for replay via our website www.edgewell.com. Also, please refer to our website for a separate press release detailing the company's plan to divest its feminine care business. During this call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, brand investment, organizational and operational structures and models, cost mitigation, and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions and integrations, impacts from tariffs and other recent developments, changes to our working capital metrics, currency fluctuations, commodity costs, inflation, category value, future plans for return of capital to shareholders, our planned disposition of our feminine care business, and more. Any such statements are forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, reflecting our current views with respect to future events, plans, or prospects. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended 09/30/2024, as amended 11/21/2024, and as may be amended in our quarterly reports on Form 10-Q filed with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I'd like to turn the call over to Rod. Rod Little: Thank you, Chris. Good morning, everyone, and thanks for joining us on our fourth quarter and fiscal 2025 year-end earnings call. Before we begin, I would point you to another important press release we issued yesterday afternoon detailing our intent to divest our Feminine Care business. This divestiture is a key step forward as we continue to transform Edgewell Personal Care Company into a more focused, agile, and consumer-driven personal care company. We believe that by focusing our attention and resources on the categories where we have clear competitive advantages and strong momentum—shave, sun and skin care, and grooming—we are positioning Edgewell Personal Care Company to deliver sustainable growth, stronger margins, and long-term value for our shareholders. Together with changes we have made in the US commercial organization, including elevating our talent pool, we are actively strengthening our portfolio, building a better and more durable business. I'll spend most of my time this morning addressing the actions we're taking in our core businesses and provide a clear roadmap for how we are evolving Edgewell Personal Care Company for the future. Now turning to our performance. In Q4, we generated organic net sales growth of 2.5%. This result was in line with our expectations. In both international markets, where we saw expected acceleration, and in North American markets, where relatively flat sales performance demonstrated significant progress towards stabilizing the business. Importantly, we've seen improvements in both consumption and market share performance in North America on a value and a unit basis and are encouraged to see that business begin to stabilize. Although we continue to drive strong productivity savings, earnings were significantly impacted by several transient items related to inventory, trade, and foreign exchange. Fran will discuss this in detail shortly. As we close out fiscal 2025, I want to acknowledge that it's been a difficult year. We faced significant external pressures: tariffs, foreign exchange volatility, geopolitical tensions, and consumer uncertainty that impacted our financial performance and stressed our global supply chain. We faced internal challenges as well, including weaker than expected sun care seasons in North America and parts of Latin America and a slower than expected recovery in fem care. However, we still delivered strong results across several important areas of our business, including international markets, our innovation program, and productivity. We believe this performance is durable and provides a solid foundation moving forward. Let me give you an update on these drivers. First, durable international growth. Our international markets, representing approximately 40% of our global sales, delivered strong growth for the fourth consecutive year, with strengthening share across shave and sun. Europe generated its third straight year of growth, and Greater China delivered double-digit growth. We believe our international markets are poised to deliver mid-single-digit growth again in fiscal 2026. Second, compelling innovation. We are committed to delivering consumer-led, locally designed innovation across our portfolio. In fiscal 2025, we expanded Billy to Australia, Bulldog entered premium skincare across Europe, in Japan, we took Schick into premium skincare with the launch of Progista, and we broadened Cremo's range in The United States and Europe, driving significant sales growth. In sun care, we saw strong growth in Hawaiian Tropic as a result of a successful marketing campaign, updated formulations, and on-trend branding. Across all markets, we're seeing the benefits as approximately 70% of our measured markets in the quarter are now growing or holding market share compared to less than 50% one year ago. We are implementing our learnings from Europe and Asia globally and are excited about our multiyear innovation roadmap. Third, productivity through supply chain optimization. In fiscal 2025, our team delivered over 270 basis points in gross savings, and we expect approximately 310 basis points in fiscal 2026, inclusive of tariff mitigation. Building on our foundation of productivity, efficiency, and service, we are navigating tariffs in a dynamic global environment by reducing complexity, improving customer service, shortening lead times, and lowering inventory across the value chain. In fiscal 2026, we will further optimize our North American Wet Shave business and manufacturing footprint, streamlining operations, reducing duplication, and unlocking working capital. By investing in blade excellence and embracing next-generation automation and digital tools, we are building a more agile, resilient, and customer-focused supply chain. These actions will enable faster responses to consumer demand, drive innovation, and position us for sustained margin improvement. Importantly, these operational enhancements will not only deliver meaningful productivity savings but will also support reinvestment in our core brands and innovation pipeline, strengthening our leadership in a highly competitive market. These increased investments in fiscal '25 and '26 position us to achieve productivity savings in fiscal 2027 and beyond at a pace that exceeds recent years. While we believe these areas of strength are enduring and foundational, it is unlocking the potential of our North America commercial business that represents a significant opportunity for our company. As we shared last quarter, we are executing a bold transformation in The U.S., focused on returning the business to profitable, sustained top-line growth over time. In the last year, we have conducted a thorough strategic review and identified our core strengths as well as key areas that have hindered performance. Our category positions are structurally attractive. We are a leader in sun care, a fast-growing upstart in men's grooming, and have a unique branded and private label position in shave. Our brands have established solid awareness and are backed by robust product delivery capabilities. We have strong technical know-how and capabilities, owned assets, and a deep R&D bench. And we run the business with a commitment to discipline across operations, cost management, and capital deployment. Our transformation plan is based on leveraging our strengths while addressing the three key areas of opportunity identified in the strategic review. First, our portfolio expanded to include a wide variety of SKUs, some of which did not deliver optimal margins or performance. We are now sharpening our focus on our strongest offerings. We are recommitting to our shave business, where we have a differentiated position across branded and private label underpinned by solid brand awareness and excellent product performance. While we recognize that it takes time to rebuild distribution and share, our immediate focus is to begin stabilizing performance and setting the foundation for future growth. Second, our approach to marketing investment prioritized certain tactics that, while effective in the short term, did not fully support sustainable growth and led us to underinvest in core brands. To address this, we are taking decisive action to increase investment in our five focused brands: Schick, Billy, Hawaiian Tropic, Banana Boat, and Cremo. By shifting our strategy towards sustained brand building and a balanced marketing mix, we are committed to restoring brand equity, driving deeper consumer engagement, and positioning our portfolio for durable growth. Third, our U.S. structure was too complex, creating duplication, slow decision-making, and underinvestment in key capabilities. We simplified our structure to enable faster decisions, greater investment in growth capabilities, and increased ownership and accountability. We've implemented significant organizational redesign. We launched a streamlined U.S. commercial organization, bringing together a new, talented, proven leadership team, and we are ramping up new teams dedicated to improving our capabilities in insights and analytics, brand building, and revenue growth management. As we look ahead to fiscal 2026, this is a year of transition and solidifying foundations for longer-term growth. We anticipate that we will begin to realize the benefits of this ongoing work in the form of stabilization of our North America business as we simultaneously set the stage for renewed growth in 2027 and beyond. So this leads me to our outlook for the full year. As we look ahead to fiscal 2026, we believe our plan is balanced and achievable. We also anticipate the macro environment will remain challenging, with muted category growth and the consumer continuing to be cautious around discretionary spending. We also expect increased inflation stemming from the current view of tariffs. Fran will provide all of the details shortly, but I would like to summarize the key pillars of our plan. First, our top-line expectation is for a return to organic net sales growth driven by continued mid-single-digit growth in international markets and a more stable profile in the North America business. Second, gross margin is expected to increase, driven by productivity gains that are partially offset by inflation headwinds, inclusive of $25 million or nearly 55¢ in pretax earnings per share of headwind from tariffs, net of our mitigation efforts. These mitigation efforts have proven to be more challenging as many of the tariff items, like steel, aluminum, and certain chemicals, cannot be sourced elsewhere, at least in the near term. Although we've already implemented pricing in certain international markets, broadly speaking, the U.S. market today has not been conducive to price increases. We will continue to actively pursue further mitigation efforts to lower the impact beyond fiscal 2026. The commercial pricing in The U.S. would have to play a role to fully offset. To be clear, our outlook does not assume this offset, so if it were to occur, it would represent potential upside to this outlook. Third, our plan includes significant investment in both trade spend as well as advertising and promotional dollars to support the changes in The U.S., fuel key brands in international markets, and drive increased household penetration and brand awareness. These investments, in part, are expected to be funded by the gross margin gains I just outlined. Fourth, we will prioritize free cash flow generation through working capital improvements while capital allocation will emphasize debt repayment. Finally, I am truly energized by the outstanding team we have assembled. We have record-high engagement scores across the organization in a dynamic U.S. commercial organization led by a refreshed leadership team that is already executing effectively. This group brings together exceptional talent and proven expertise from leading companies, positioning us for success. Our team is highly motivated, and their achievements, as well as their compensation and mine, are directly tied to the value we create. So to wrap up, fiscal 2025 was a year of challenge and transformation. While both external and internal pressures impacted our results, we exited the year with momentum, a step up in sales and share trends, and a revitalized brand portfolio. We've reshaped our structure, sharpened our strategy, and built a foundation for growth. As we enter fiscal 2026, we're focused on execution, margin recovery, and delivering sustainable shareholder value. And now I'd like to ask Fran to take you through our results and outlook for fiscal 2026. Fran? Fran Weissman: Thank you, Rod, for outlining the significant progress and transformation underway at Edgewell Personal Care Company. Building on the actions and momentum Rod described, I'd like to further provide details on our financial performance and the operational changes that are positioning us for sequential improvement and sustainable growth. Fiscal 2025 was a challenging year, underpinned by both external pressures such as tariffs, currency volatility, and geopolitical uncertainty, and internal headwinds, including a softer than expected sun care season and slower recovery in feminine care. Despite these pressures, we still delivered strong results in key areas. Our international markets continued to expand, innovation gained traction across our portfolio, and our supply chain optimization efforts drove meaningful savings. We also made decisive transformational choices that fundamentally reposition Edgewell Personal Care Company for long-term value creation. By streamlining our portfolio, including the anticipated divestiture of our Feminine Care segment, and simplifying our U.S. commercial organization, we have sharpened our focus on categories and brands where we hold clear competitive advantages. These foundational changes, coupled with a disciplined increase of marketing investment, set the stage for sustainable growth and margin recovery. As we enter fiscal 2026, we are executing a clear roadmap focused on sequential improvement, stabilizing our North America business, continuing to drive growth in our international markets, unlocking margin improvement, and investing behind our strongest brands and capabilities. Building on this, our fourth-quarter results reflect both our progress and some of the challenges we faced. While our top-line performance was in line with expectations, driven by solid growth in international markets and key categories, our bottom-line results fell short, impacted by several transitory headwinds. These included higher than anticipated year-end inventory adjustments in our Mexico plant, higher trade promotions driven by channel and category mix, mainly in Wet Shave and Sun, as well as the unfavorable currency and tariff-related pressures, which together weighed on earnings for the quarter. I'll now walk through the details of our financial performance and the factors that shape these results. Organic net sales increased 2.5% this quarter, as strong performance across international markets and robust growth in sun care, skin care, and grooming offset declines in North America wet shave. International organic net sales grew 6.9%, broad-based across all segments and in line with expectations, driven by both volume and price gains. We delivered growth in all key markets, with Oceana and distributor markets experiencing double-digit growth, while Europe delivered mid-single-digit growth. As Rod mentioned earlier, North America demonstrated sequential improvement with organic net sales declines of 60 basis points, driven by meaningful growth in the quarter in Sun Care, Wet Ones, and grooming, partially offset by Wet Shave. Wet Shave organic net sales declined approximately 1%, as growth in preps, men's and women's systems was more than offset by a decline in disposables. International Wet Shave grew 6% with both price and volume gains, reflecting continued category health, solid distribution outcomes, and strong in-market brand activation. This growth was offset by declines in North America, driven by challenged category and channel dynamics. In The U.S., razor and blades category consumption was down 80 basis points in the quarter. Though our market share improved sequentially, declining 50 basis points overall, our branded value share was flat in the quarter, while unit share increased 90 basis points. The Billy brand achieved 90 basis points of share growth and continues to perform well at retail, now holding a 15 share at Walmart and 13 share at Target. Sun and Skin Care organic net sales increased 11% with robust growth across each business. Wet Ones grew nearly 25% while sun and grooming each grew 9%. While Sun Care Sales In North America increased 10% in the quarter, the combined effect of end-of-season closeout sales and higher than expected adjustments related to trade and returns mix added additional pressure to our gross margin. In The U.S., sun care category consumption grew over 6% in the quarter, as end-of-season weather improved with sales peaking later than a typical season. Final seasonal replenishment orders were boosted by higher online orders and end-of-season closeout performance. Our value share improved sequentially and was essentially flat in the quarter, while unit share increased by 60 basis points. Grooming organic net sales growth of 9% led by over 28% growth in Cremo and over 9% growth in Bulldog were partially offset by declines in Jack Black. Wet Ones organic net sales increased about 25% and our share was approximately 68% as we cycled supply disruption in the prior year and have fully returned to normalized operational levels following the fire in our facility in the prior fiscal year. Fem Care organic net sales increased 1%. We saw continued positive consumption and market share trends across the portfolio. Consumption in the category was up 3.5%, though continues to be mostly driven by 5.5% growth in pads where overall penetration is the lowest. The categories where we compete more heavily, namely tampons and liners, consumption was up 2.7% and 60 basis points, respectively. Overall, the category remains promotional. Our value share improved sequentially and was down 20 basis points, while unit share increased 30 basis points. Now moving down the P&L. Adjusted gross margin rate decreased 330 points or down approximately 210 basis points in constant currency, versus our expectation of only slight declines on a constant currency basis. This shortfall was largely driven by unanticipated year-end transitory items, including higher than anticipated inventory adjustments related to our plant consolidation wind-down procedures in Mexico, increased trade mix including increased closeout sales, and sun care returns, and slightly unfavorable net inflation, tariffs, and pricing. A&P expenses were 9.4% of net sales, up from 8.5% last year, in line with our expectations as we rephased some spending for Sun Care out of Q3 and into Q4. Adjusted SG&A was 19.7% in rate of sale compared to 20.5% last year. This was primarily driven by lower incentive compensation expense, and the favorable sales leverage partly offset by higher people and consulting expenses and unfavorable currency impact. Adjusted operating income was $40.3 million or 7.5% of net sales compared to $56 million or 10.8% of net sales last year, reflecting the impact of lower gross margins, FX headwinds of 100 basis points, and incremental brand investments. GAAP diluted net loss per share was $0.06 compared to income of $0.17 in 2024, driven by the goodwill impairment charge. Adjusted earnings per share were $0.68 compared to $0.72 in the prior year quarter. Currency headwinds drove an unfavorable $0.19 impact on adjusted EPS in the quarter as the unfavorable transactional currency hedge and balance sheet remeasurement impact within our other income and expense were only partially offset by translational currency tailwinds to operating profit. Adjusted EBITDA was $59.4 million inclusive of $11.2 million unfavorable currency impact, compared to $78.9 million in the prior year. Net cash provided by operating activities was $118.4 million for fiscal 2025 compared to $231 million last year, due to the lower earnings and higher working capital build this year. We continued our quarterly dividend payout, declaring a $0.15 per share dividend for the fourth quarter, and we returned approximately $7 million to shareholders via dividend. We had already achieved our target of approximately $90 million in share repurchases for the fiscal year by the end of Q3. Now let me turn briefly to our full-year results. Organic net sales for the year decreased approximately 1.3%. Our right-to-win portfolio grew about 1%, fueled by nearly 13% growth in skincare, and our grooming brands grew over 9% for the year. Sun care, highlighted by a weaker than anticipated core sun care season, declined approximately 4%. Our right-to-play portfolio declined about 2%. International markets' organic net sales increased 3.5%, nearly equally driven by both volume and price gains. North America organic net sales decreased about 4%, driven by both volume declines and increased promotional levels net of pricing. Adjusted gross margin rate decreased 110 basis points year on year or 20 basis points at constant currency. We generated productivity savings of 270 points, which were more than offset by core inflation inclusive of tariffs of approximately 150 basis points, unfavorable mix of approximately 75 basis points, increased promotional level net of pricing of 45 basis points, and 20 basis points of unfavorable absorption. A&P expenses were 11.1% as a rate of sale, an increase of 80 basis points over the prior year as we continue to invest behind our brands. Adjusted operating profit decreased $48 million or approximately 18%, and adjusted operating margin for the year was 9.9%, down approximately 200 basis points in rate of sale. The decrease in adjusted operating margin was attributable to gross margin rate decline, higher brand marketing investments of $15 million, and the unfavorable impact of currency of $21 million. Now turning to our outlook for fiscal 2026. Our fiscal 2026 outlook does not reflect the planned divestiture of our Feminine Care business. Starting in Q1 2026, results from Feminine Care will be reported as discontinued operations. Following the transaction, we also expect to incur certain stranded overhead costs, which for fiscal 2026 will be substantially offset by income from certain services to support the transition of the business following the completion of the transaction. For context, we expect the impact of the Feminine Care business on an annualized basis to be approximately $0.40 to $0.50 in adjusted EPS and $35 million to $45 million in adjusted EBITDA, net of transition income. We will update our outlook to reflect the remaining business after the transaction closes, which is anticipated in 2026. Importantly, as part of our ongoing transformation, we are committed to reducing stranded overhead costs over the longer term. Our ambition is to fully align our cost structure with our streamlined portfolio. As we look forward to fiscal 2026, our expectations include a return to organic top-line growth, gross margin accretion, as well as a step up in investments through higher A&P spend, where we are leaning into focused brand activation. This is expected to result in essentially flat adjusted EBITDA growth at the midpoint of our outlook. This outlook incorporates several headwinds, including a net tariff impact after mitigation efforts of approximately $25 million, higher SG&A spend year over year due to lower bonus and incentive compensation in fiscal 2025, partially offset by favorable currency. We expect EPS to be down versus fiscal 2025, as the annualized effective tax rate returns to more normalized levels. This outlook also contemplates a meaningful improvement to free cash flow, underpinned by favorable working capital management and improved operational efficiency. For the fiscal year, we anticipate organic net sales growth to be in the range of down 1% to up 2%, excluding 150 basis points of currency tailwind. We expect mid-single-digit growth in international markets and flat to slightly down performance in North America. In terms of phasing, we expect Q1 organic sales to be down 1% to 2%, driven by lower international sales due to the impact of sales phasing within our distributor markets in Japan, and for Q3 to be the strongest quarter in the year. As we look to adjusted gross margin, the environment surrounding tariffs continues to evolve and has added significant challenges to the global supply chain. Our outlook for fiscal 2026 assumes current tariff rates hold and there are no material changes in the inbound or outbound flow of materials and finished goods. Our fiscal 2026 outlook reflects the growth impact of tariffs of $37 million or $25 million net of direct mitigation efforts. As we stated earlier, we are not in a position to implement broad-scale price increases to mitigate the full impact of tariffs. However, we have neutralized the impact in gross margin through a combination of core productivity efforts, direct cost mitigation through expanded sourcing efforts, footprint optimization, and vendor negotiations, as well as strategic pricing in key categories. More specifically, we anticipate 60 basis points of year-over-year total gross margin rate accretion or 20 basis points at constant currency. This includes approximately 310 basis points of productivity savings and tariff mitigation, 60 basis points of price gains, and 40 basis points favorable FX, partially offset by approximately 270 basis points of COGS inflation inclusive of tariffs and negative mix and other costs. In terms of phasing, half-two gross margin rate will grow versus prior year, as the full impact of pricing, tariff mitigation, and productivity initiatives will be at run rate. Looking ahead to Q1, we expect gross margin to decline 270 basis points as higher inflation, inclusive of tariffs, trailing absorption charges from 2025, and other transitory operational cost increases are only partially offset by productivity savings and favorable FX. With increased investments in our brands, we expect A&P to increase in both dollars and rate of sales, with the latter increasing by 70 basis points to approximately 11.8%. Adjusted operating profit margin is expected to decrease approximately 50 basis points as gross margin improvement is more than offset by higher A&P and higher SG&A. Adjusted EPS is expected to be in the range of $2.15 to $2.55. This EPS outlook reflects only the impact of expected share repurchases that are needed to offset current dilution and assumes an effective tax rate of 21% to 22%. Adjusted EBITDA for fiscal 2026 is expected to be in the range of $290 million to $310 million, which is approximately flat to prior year at the midpoint. In terms of phasing, we expect to generate about two-thirds of adjusted EBITDA in half two, and three-quarters of our full-year adjusted EPS in half two of the fiscal, primarily reflecting higher taxes and interest expense in half one, with Q1 adjusted EPS below prior year. Free cash flow for the year is expected to be in the range of $115 million to $145 million, including expected improvements in working capital. And finally, we remain committed to a disciplined capital allocation strategy and intend to continue to focus our efforts on reducing debt leverage in the near term. We will continue our dividend and share repurchases primarily as an offset to dilution. In the near term, the net proceeds from the Feminine Care divestiture after taxes and transaction costs will be directed towards strengthening our balance sheet and reducing debt, while also supporting continued investment in our core brands, capital expenditures to drive innovation and productivity, and funding future growth initiatives. Chris Gough: Initiatives. Fran Weissman: Over the longer term, we believe this divestiture creates optionality in pivoting our portfolio to categories where we have a competitive advantage. Our intention is to evaluate targeted M&A to ensure that we continue to add scale that creates sustainable value creation. For more information related to our fiscal 2026 outlook, I would refer you to the press release that we issued earlier this morning. And now, I'd like to turn the call over to the operator for the Q&A session. Operator: We will now begin the question and answer session. Before pressing the keys. The first question comes from Olivia Tong with Raymond James. Please go ahead. Olivia Tong: Great. Thank you. Good morning. I wanted to ask you first about the outlook, which is a wider range than normal, which is logical against the current backdrop and the changes you've made. And it looks like EPS might be at a loss in Q1 might be on the table. And so can you talk about a few things, underlying category growth assumptions, your market share assumptions, and how you think about segment results? Presumably, Sun and Skin should grow, but Wet Shave perhaps not. So that's number one. And then your level of flexibility to maintain appropriate goals that you discussed? Thank you. Rod Little: Good morning, Olivia. Thank you for joining us this morning. Look, I'll say as we look at the 2026 plan, I would say it's balanced and achievable. I think we feel really good and confident in our ability to deliver this plan. It's a strong bottom-up build. It's based on realistic assumptions. So overall, from a category growth perspective, we effectively have the category growth assumption for 2026 in all of the key combinations right around where we've been over about the last six months. So it's a low single-digit rate on average when you aggregate it out across our categories. As we said in the script, we're growing share now in seven growing or holding in 70% of our category country combinations. That's a significant improvement versus a year ago. Don't have that changing. We have our share result assumptions where we are now going forward. So effectively holding share versus where we are today, and I would say we have more flexibility in this plan certainly than we've had in the last couple of years if we face some headwinds. We'll be able to deal with that in how we've built and profiled this plan. Fran, I don't know if you'd add anything else. Fran Weissman: Yeah. I think just to address the phasing question specifically, you know, we expect a stronger half two as we've stated, two-thirds of our EBITDA is expected in the second half. That's well in line with our historical trends. Fiscal 2025 had more unusual flighting as it was more fifty-fifty. So softer performance in Q3 and Q4 at the back end of fiscal 2025. But we're confident, with a number of factors. As Rod has said, you know, the combination in the half '2 of productivity mitigation at run rate, pricing in both international and US markets are more disproportional between Q2 and the second half. We've got innovation and brand investment also coming into the second half. So more specifically, in Q1, yes, we do expect EPS to be at a loss. That's a combination of some of the margin pressures that we're facing as well as some of the rate flighting. But as we look ahead to half two, we're really confident in our run rate productivity and mitigation efforts. And really the sales growth and the investment profile that moves ahead. Rod Little: Yeah. And, Olivia, I would just add to the segment question you asked. One example of what I think is different in this year's plan is how we thought about Sun Care. The season we just finished, I think most people would agree, was not a great Sun season, particularly in the peak of it as we got into Q3. We're not planning on a basis where we expect a great recovery for a sun season next summer. In fact, we're planning for a very similar season, which I think is realistic and more conservative than where we've been. So we've got Sun at low single digits. We've got Shave at flat to slightly growing as a segment, and then grooming is the one leading the way more in line with trend to where we've been. Thank you, Olivia. Thanks. Thanks, Olivia. Operator, next question, please. Operator: The next question comes from Nik Modi with RBC Capital Markets. Please go ahead. Nik Modi: Thank you. Good morning, everyone. Rod, you've been pretty busy making a lot of changes, big changes over the last few years. Obviously, with the FemCare sale. So I just wanted to kind of get your thoughts high level on like what's the North Star here, you know, for the strategy, for the portfolio? I mean, is there intent to maybe look at more maybe M&A as asset values come down in this current environment? So just we'd love to just get through higher-level thoughts on this, where you're really trying to point the arrow here. Rod Little: Nick, Thank you. Yeah. Look. There's a lot going on here. Right? If you try to parse out everything that's happening, there are a lot of moving parts. What I will tell you is in many ways, this is the moment where our strategy execution really comes together in a very different way than where we've been over the last couple of years. We are focused on winning in shave, grooming, sun, and skin. That's the focus from a category perspective. We have global scale, IP know-how, technology, and the right to win and be successful in those four categories. That's where we sit today with the fem sale off to Essity. It's a better portfolio. It's a more efficient, more focused portfolio. So focus on those categories is where we are. We believe those categories are structurally attractive. Shave is the category that is viewed probably most negatively within that set. We don't see it that way. It's a structurally attractive category with high margin and very few players. So strategically, with what we have in place, we have a right to win and be successful in shave, and you've seen us do that internationally. We're now set up to do that domestically here in The U.S. with the new team and the investments we're making. I would say the other part of our strategy that's coming to life here beyond the financial flexibility and the optionality the sale of Femcare and those proceeds give us, we are making a big investment in our shave footprint and basically setting ourselves up for the next ten to twenty years in that category with a new highly automated manufacturing plant. We're consolidating four locations in North America into a single scale, highly automated plant. That will produce better blades than come out of any factory in the world. It's gonna be a best-in-class site. And so this gives us significant financial flexibility as we go forward in addition to the simplification and speed elements that it gives us. So when you put it all together, I've talked about the category focus, we're global in terms of our category plays now. And we've got much better optionality and financial flexibility than at the end of the day, is leading to reinvestment in our brands with a better focus on the consumers we serve, give them better products and better messaging, and just a better experience with our brands. Long-winded answer. But that's what we're up to. And, Fran, I don't know from your perspective what you'd add to that. Fran Weissman: Yeah. I think that's all the right points, Rod. And I think what I'll refine specifically around the Wet Shave optimization, you know, this has been a multistaged approach across North America, and the large portion of these costs and CapEx are already captured in 2025. You know, our decision to expand these efforts in '26 will result in additional investments. But by the end of '26, we're actually almost 90% through those total costs. And as we look ahead, we'll have accelerated productivity and cash flow from that. Nik Modi: Great. Thank you. Rod Little: Thank you, Nick. Operator, next question, please. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead. Chris Carey: Good morning. Rod Little: Good morning, Chris. Just Good morning. The productivity number this year or this quarter, excuse me, was I think the lowest you have ever disclosed. Can you just expand on that a bit? The gross margin for the year came in quite a bit below expectations, laid out only a few months ago. And, you know, you're gonna start gross margins quite negative in the year with hope for some recovery through the year. So I think getting a bit more confidence on your ability to use productivity as an offset would be helpful. And then I think you said that there's some pricing coming in the back half of the year. Relative to the comment that you made around for us? I mean, really, not much pricing in North America. Can you just, you know, square those what I'm trying to do here is, you know, establish some confidence that you know, you can see some improvement in the gross margin. Rod Little: Through the year. Thank you. Thanks. Hey, Chris. Let me just make a broader comment around the profile, and then Fran can get into the gross margin details. We have a second-half oriented plan here as it puts forward. I want you to know, like, we've been through this at great levels of detail, and we're very confident in the profile we put forward. And some of what drives the gross margin delivery and the rate delivery is a higher expected sales growth in the second half of the year. In international, it's more around distributor timing. It's more around how we ship the sun season year over year. With a very specific point in Japan where we've got pricing going in in the spring. There that obviously helps that, you know, that gross margin line. And then in North America, it's a very second-half oriented plan mostly because we know planogram changes that are happening. In total, they're gonna be positive. Additive to us as we get into that spring season when planograms reset. That's also when we launched the new brand campaigns and put most of our incremental A&P spend in, which is significant on the year. In that timing to drive the growth. So some of it is some of the margin improvement is just driven by volume absorption that comes in the second half of the year. But, Fran, I know there's more going on. Fran Weissman: Yeah. So just to reference your first question about productivity specifically in Q4. We anticipated the productivity, it came in line with our expectations. So we knew that Q4 was going to be slightly less than the first half. And some of that is just natural phasing that happens with the initiatives that we put through and implement. But overall, we've 250 basis points of productivity efforts over the last few years. And as we look ahead to '26, we still believe that we will deliver at its core 260 basis points and with mitigation. The core issue is not productivity. I think those elements have come in larger 110 basis points. I think we double click in terms of Q4, as we expected. There were two major factors that really put some headwind into Q4. You know, 50% of that was wind-down procedures around our Mexican plant consolidation where we had larger than expected inventory adjustments. That was transitory. We do not expect that to continue for next year. And the other piece was just higher, you know, trade promotions, and some of that was due to just the closeouts and the mix that we had around and channel dynamics, and that led to, I think, the biggest drivers in terms of Q4 gross margin. But productivity, as we look ahead, will be equally phased, with slightly more in the back half, and that's really driven off of tariff mitigation. Tariffs are going to be disproportionately in the first half. And the mitigation efforts, while we have that all in place, will just come to run rate more towards the second half. Rod Little: Okay. Thank you. Thank you, Chris. Operator, next question please. Operator: The next question comes from Peter Grom with UBS. Please go ahead. Peter Grom: Great. Thank you. Good morning, everyone. So I'll know we'll get more of an update on guidance, excluding fem care the road, and you did provide some helpful context last night and this morning. But just on the proceeds from the transaction, I think you mentioned that it will be used to pay down debt and strengthen the balance sheet. So I'm just curious, like, how quickly do you plan to deploy the proceeds? And then just high level, how could this impact earnings per share once the acquisition closes? Yeah. So good morning. Rod Little: Peter. Look, on the sale, we expect it to close sometime out in early calendar 2026. Have proceeds at that point. We would plan to put everything we get from the sale, the net as well as all the operational cash flow we generate this year towards debt reduction. We're very focused on debt reduction and getting our leverage ultimately down towards that three-time zone. We've talked about two to three being the long-term target. That's important for us. We'll be looking at M&A along the way as Fran said. There's a very high bar for that. Anything we would do would be value-creating. We'll be very disciplined there. We haven't done anything in a couple of years. But in parallel, we'll be doing that. In terms of the timing and the amount of the flow-through, Fran, I don't know if you'd add anything there. Fran Weissman: Yeah, I mean at this point our best estimates after we've netted taxes and transaction fees is that there's about 80% of the proceeds that will be converted into cash. And as Rod mentioned, that will be focused in the near term on debt pay down. Peter Grom: Great. Thank you so much. Thanks, Peter. Rod Little: Operator, next question please. Operator: The next question comes from Susan Anderson with Canaccord Genuity. Please go ahead. Susan Anderson: Hi, good morning. Thanks for taking my questions. I guess maybe just in the sun and skin category, you talked about higher promotions in sun as well. Maybe I guess how are you thinking about category going into next year? How are the inventory levels in the category at retail? And then think it can be healthier next year help the competitive environment, I guess, with some new brands coming in? And then also just curious if you have any new innovation there coming next year. Thanks. Rod Little: Yeah. Hi. Good morning, Susan. Thank you for the sun-focused question. We look at think as we look back to the season just completed, it was not a great season. It was very promotional from the start, as you rightly point out. With some competitors going very deep discounts every day. Across the set. And so it was, I would say, a higher than normal level of promotional intensity all year. The weather was not great. And below average in total. And we ended the year not wanting to take any of that drag into next year. So inventories are clean. The thing that we believe is transitory is just making sure we go into. We landed the and as part of the Q4, year very clean with any inventory positions, any returns, accrual adjustments, that's all in line we're very clean as we go into next year. I can't predict the level of promotional intensity for the year ahead. What I will tell you if the promotional environment remains, we'll match it. We're not gonna be outspent or beat on that front. As I said to a question earlier, we've not planned for a great sun season. So we've been very conservative in planning for a season that looks a little bit like last year. And I will say gives us confidence in the category is Hawaiian Tropic was the fastest-growing brand in the set out of the top 10. Behind an amazing activation and campaign, better product formulations, better innovation, and a new campaign that was put against it. As we look to next year, we're gonna go into year two of that campaign. Very confident in the brand, the distribution we're getting on that brand. And on Banana Boat, which was a laggard for us, we have a new campaign coming. The same team that built the HT campaign is gonna launch a new campaign on Banana Boat, and we're investing more behind both brands as we go into the set. So I think we're set up for a very good sun season here in The U.S. We've been more conservative in our planning and outside The States, you know, we have some growing more to that mid to high single digits. Fran? Fran Weissman: Yeah. I think overall, as Rod stated, we're expecting low single-digit growth in '26. And I think a little bit more context around where that growth is coming from. In international, we expect that to be the growth engine for us. As, you know, we have the combination of higher volumes and pricing, and it's really driven by strong regional execution. In Europe, we're accelerating Hawaiian Tropic. In Latin America, we're expanding distribution and enhancing in-store activation and really focusing on everyday sun protection, especially with Hawaiian Tropic Beauty Care. And in The U.S., as Rod said, we're more in line with the category trends, that's low single-digit growth. And our focus is gonna be on Hawaiian Tropic, with distribution gains and promotional support. Innovation in Banana Boat is ahead, and we've got an enhanced promotional strategy to really capture early season share and drive trial with our products. Susan Anderson: K. Great. Thanks for all the details there. Good luck this year. Fran Weissman: Thanks. Thank you. Rod Little: Thank you, Susan. Operator, next question please. Operator: There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks. Rod Little: All right. Thank you, everybody. We appreciate your time, attention, and for those that invest in us, your continued investment. And we look forward to talking to you in early February. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 2025 Earnings Conference Call. My name is Chuck, and I will be your operator for today. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Winna Huang, Head of Investor Relations at Canadian Solar. Please go ahead. Winna Huang: Thank you, operator, and welcome, everyone, to Canadian Solar's Third Quarter 2025 Conference Call. Please note that today's conference call is accompanied by the company's slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar; Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy, respectively, and Xinbo will go through the financial results. Shawn will conclude the prepared remarks with the business outlook after which we will have time for questions. Before we begin, I would like to remind listeners that management's prepared remarks today as well as their answers to questions will contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Mr. Shawn Qu. Shawn Qu: Thank you for joining our third quarter earnings call. Please turn to Slide three. In the third quarter, we delivered 5.01 gigawatts of solar modules in line with our guidance range. In our energy storage business, we achieved a record quarterly shipment of 2.7 gigawatt hours. Total revenue reached $1.5 billion, landing at the high end of expectations. Gross margin was 17.2%, exceeding guidance, primarily due to strong contribution from energy storage shipments. We also achieved a higher share of module deliveries to the profitable North American market. Our solar module factory in Mesquite, Texas, which has now successfully ramped up, contributed meaningfully to both shipment volume and margin. Absent nonrecurring expenses from the previous quarter, operating expenses normalized and we reported net income attributable to shareholders of $9 million or a net loss of $0.07 per diluted share due to the impact of paid-in-kind of our preferred shareholder of Recurrent. Now please turn to slide four. The solar industry is at an inflection point, and anti-involution policies in China are gradually taking effect. Market conditions have stabilized following the most challenging phase of the solar downturn. A complex macro environment presents both challenges and opportunities. This year, during the anniversary celebration of Canadian Solar's twenty-fourth birthday, I reflected on how we have grown with technology innovation, business model evolution, and global diversification. Today's shifting geopolitical landscape allows us to once again differentiate ourselves through our resilient combination of strategy and execution. Most notably, we are making strong progress in our US manufacturing investments. Phase one of our solar cell factory in Indiana is expected to begin production in 2026, while phase one of our lithium battery and energy storage factory in Kentucky is on track to start production by 2026 year-end. These factories will strengthen our US supply chain, support domestic energy security, and reinforce our long-term commitment to the American market. At the same time, we are planning adjustments to our US business to comply with the One Big Beautiful Bill Act. We are progressing smoothly, and I remain confident we will be able to successfully position ourselves to continue servicing our US customers. The rise of AI-driven data centers is fueling unprecedented global electricity demand. As I have emphasized in my public speeches over the past two years, the most flexible and cost-effective solution for powering data centers is solar plus storage. In contrast, traditional energy sources such as natural gas and nuclear power require long construction cycles and have limited scalability. We are now working closely with multiple data center customers to develop deeply integrated solutions. This requires advanced system engineering where our technical expertise provides a strong competitive advantage. I'm also pleased to share the significant progress we have made in our emerging business segments. Residential energy storage is on track to become profitable in 2025. We have seen strong growth for our residential energy storage product in Japan, Italy, and the US, and we are expanding into new markets like Germany and Australia. This marks a major milestone for our energy storage strategy and demonstrates how we are successfully broadening our revenue base beyond utility-scale applications. Recurrent, our solar and energy storage project developer and operator, will continue to balance the growth of our operational project fleet to generate recurring cash flow and selective sales of project asset ownership to manage near-term cash flow. Given the current market conditions, I have asked our team to check the balance a little bit more toward sales of project assets in order to accelerate cash recycling and reduce debt. With that, I will now turn the call over to Yan Zhuang, who will provide more details of our CSI Solar business. Yan, please go ahead. Yan Zhuang: Thank you, Shawn. Please turn to slide five. In 2025, module shipments totaled 5.1 gigawatts, in line with expectations. Earlier deliveries to two energy storage projects shifted volumes from the fourth quarter into the third. This led to our largest quarter to date, with 2.7 gigawatt hours of storage shipments. Revenue was $1.4 billion, and gross margin decreased by 730 basis points to 15%. The sequential decline was driven by margin changes seen in both the solar and storage businesses. In solar, incremental upstream price increases and underutilization raised unit costs, while module pricing in most global markets remained low. In storage, second-half margins reflect contracts signed at more normalized levels, and the volatile tariff environment drove incremental cost increases. Without last quarter's impairments and benefiting from internal cost controls, operating expenses decreased sequentially from 15.3% of revenue to 12.3%, and we delivered $39 million of operating income. Please turn to slide six for an update on our energy storage businesses. In the third quarter, we recognized revenue on 2.7 gigawatt hours of storage solutions. Our deliveries reached countries across North America, Europe, the Asia Pacific, and Latin America. As of October 31, our contracted backlog, including long-term service agreements, increased to $3.1 billion, supported by newly signed projects in North America and Europe. We continue to build momentum in our established markets while entering new ones. In Canada, we signed supply and twenty-year long-term service agreements with APA Power for the Elora and Hadley projects. Together, they total more than 2.1 gigawatt hours and are among the largest energy storage facilities under development in Ontario. Also in Ontario, we contracted to deliver a fully integrated energy storage solution and turnkey EPC services for the 1.6 gigawatt hour SkyView two energy storage projects. This marks our largest SoftBank delivery to date. Once completed, SkyView two will be one of the largest battery storage facilities in the nation. As a proud Canadian company, we are honored to help drive our country's clean energy transition. Across the Atlantic, we just signed a battery supply agreement and twenty-year long-term service agreement in Germany with KEON Energy, a leading storage developer. As demand expands across both our existing and newly entered markets, we expect to continue scaling our backlog and diversifying its global footprint. In addition to our established utility-scale storage solutions, we continue to expand our offerings and strengthen our capability in both CMI and residential storage. Notably, the residential storage segment is gaining momentum and has turned profitable this year. Building on the strong growth we have already achieved in Japan, Italy, and the UK, we will be launching our new three-phase solution to drive further expansion in markets such as Germany. We also plan to enter Australia in the first half of next year. In the US, we have successfully introduced the second generation of our residential energy storage solution, which better caters to the needs of the market and is demonstrating strong initial performance. In the CMI storage segment, where we see promising market growth potential, we continue to refine and diversify our portfolio to better serve emerging opportunities. Though smaller in scale, these segments have proven to be profitable, and we expect them to contribute more meaningfully next year. With that, I will hand the call over to Ismael Guerrero, who will provide an update on Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead. Ismael Guerrero: Thank you, Yan. Please turn to Slide seven. In the third quarter, we generated $102 million in revenue. We monetized over 500 megawatts of projects, including two high-margin sales: a battery storage project in Italy and a hybrid project in Australia. Gross margin was 46.1%, a sequential increase of 137 basis points, primarily driven by the contribution of more profitable project sales. During the quarter, we closed $825 million in construction financing and tax equity for the 600 megawatt hours Desert Bloom storage and 150 megawatt Apollo solar projects, all parts of our multi-project partnership with Arizona Public Service. These assets are under construction and are expected to begin operations in 2026. In the US, in addition to what we have in construction, we have already safe-harbored 1.5 gigawatt peak of solar and 2.5 gigawatt hours of battery storage projects. By the summer of next year, we expect to have safe-harbored at least 3 gigawatt peak of solar and 7 gigawatt hours of battery storage projects, giving us significant visibility over our execution pipeline for the next four years. Until our IPP business scales further, near-term profitability will continue to depend primarily on global project sales. As maintaining financial discipline remains our top priority, we will balance the growth of our operating portfolio and project assets with selective project ownership sales to prudently manage cash flow and debt levels. Looking ahead to 2026, we expect to increase the level of project ownership sales, enhance cash recycling, and reduce leverage. Now for an update on our pipeline, please turn to Slide eight. As of September 30, we have interconnection rights for approximately 8 gigawatts of solar and 15 gigawatt hours of storage globally, excluding operating projects. Our total development pipeline now includes 25 gigawatts of solar and 81 gigawatt hours of storage capacity. The reduction in the solar pipeline reflects a natural rebalancing. Some projects progress into more advanced stages while others were removed. At our current scale, our focus is increasingly on executing our high-quality pipeline rather than expanding it. For example, in the UK, we recently received government approval for our solar and battery storage projects in Lincolnshire, UK. This project is planned to be an 800 megawatt PV plus a 1,000 megawatt hour battery storage project, making it the largest co-located project in the UK to date. We are proud that Pilbara will connect to the grid through a substation that was previously used by a decommissioned coal plant, continuing to support the UK's decarbonization goals while providing reliable and sustainable energy to the communities it will serve. Over time, energy storage continues to emerge as a key growth driver. Not only are battery energy storage systems becoming increasingly cost-effective, but they are also profoundly reshaping energy markets, from grid stabilization and peak shaving to enabling renewables to integrate at scale. Notably, data centers are now placing ever-greater demands on power infrastructure, requiring round-the-clock reliability and often cleaner integration. In response, the opportunity set for longer-duration, higher-specification battery storage is expanding rapidly. We have started to dip our toes into the data centers business through regional JVs with data center experts, mainly in Spain and the US. We see significant synergies with our core expertise, as land acquisitions, interconnection processes, permitting, and community engagement are four of our core competencies that are crucial to the successful and timely deployment of data centers. Furthermore, powering data centers with clean and reliable electrons is one of the key bottlenecks to data center development, where we have significant expertise to bring to the table. In Spain, we already have 112 megawatts of projects with interconnections and land secured in Barcelona, Bilbao, and Madrid, plus an additional 40 megawatts with interconnections in Madrid waiting to secure land. Finally, our operations and management (O&M) business also continues to grow healthily. This quarter, we earned two internationally recognized certifications from TÜV Rheinland: ISO 9001:2015 and ISO 45001:2018. These certifications affirm that our power services meet globally recognized standards for quality and workplace safety. Today, Recurrent has over 14 gigawatts of solar and storage projects under O&M contracts across 11 countries. Now, I will hand the call to Xinbo Zhu to review our financial results. Xinbo, please go ahead. Xinbo Zhu: Thank you, Ismael. Please turn to Slide nine. In the third quarter, we delivered 5.1 gigawatts of solar modules and 2.7 gigawatt hours of energy storage systems. With contributions from accelerated storage shipments, total revenue reached $1.5 billion. Gross margin was 17.2%. The sequential decline primarily reflected the absence of one-time benefits recorded in the second quarter and the normalizing margins in both solar and storage manufacturing businesses. Operating expenses decreased sequentially to $222 million, reflecting lower shipping costs from reduced module volumes and ongoing internal cost reductions. Net interest expense declined to $29 million, driven by higher interest income. We recorded a net foreign exchange loss of $17 million, primarily driven by the appreciation of the Chinese yuan. Net income attributable to shareholders was $9 million, or a net loss of 7¢ per diluted share. This result included a positive $35 million HLBV impact, equivalent to 51¢ per share, from tax equity arrangements tied to certain US projects. The 20¢ per diluted share preferred dividend impact brought the total diluted loss per share to shareholders to 7¢. Please turn to Slide 10 for cash flow and the balance sheet. Net cash used in operating activities was $1.112 billion, compared with an inflow of $189 million in the second quarter. The difference was primarily driven by changes in working capital, notably a decrease in inventories during the prior quarter. Total assets grew to $15.2 billion, with project assets rising to $1.9 billion. Solar power and battery energy storage systems remain steady at $2 billion, as we pace the construction activity to manage leverage at the group level. Capital expenditures totaled $265 million, primarily related to US manufacturing investments and existing capacity expansions. This implies a larger CapEx outlay in the fourth quarter, and we expect to end the year slightly below our full-year guidance of $1.2 billion. Looking ahead to 2026, we continue to refine CapEx plans amid an uncertain policy environment but currently expect spending to remain at levels similar to this year. Most investments will continue to target the US market. Total debt increased incrementally to $6.4 billion, mainly due to new borrowings tied to project development assets. We closed the quarter with a cash position of $2.2 billion. Now let me turn the call back to Shawn, who will conclude with our guidance and business outlook. Shawn, please go ahead. Shawn Qu: Thank you, Xinbo. Please turn to slide 11. For 2025, we expect module shipments to be in the range of 4.6 to 4.8 gigawatts as we continue to maintain disciplined volume management. For our energy storage business, we expect shipments between 2.1 to 2.3 gigawatt hours, which include approximately 600 megawatt hours delivered to our own project. This guidance reflects the shift of certain volumes from the fourth quarter into the third, with Recurrent delivering its largest quarter of project sales this year. We project fourth-quarter revenue to range between $1.3 to $1.5 billion. We expect the gross margin to be between 14 to 16%. For the full year of 2026, we project total module shipments of 25 to 30 gigawatts, including approximately one gigawatt to our own project. Energy storage shipments are expected to range between 14 to 17 gigawatt hours. We will continue to focus on profitable solar markets and drive growth in our storage business. While we will continue to develop solar and energy storage projects, financial prudence remains our top priority. Accordingly, Recurrent Energy will increase project ownership sales in 2026 to recycle more capital and manage the overall debt level. With that, I would now like to open the floor for questions. Operator? Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And our first question for today will come from Colin Rusch with Oppenheimer. Please go ahead. Colin Rusch: Thanks so much, guys, and congratulations on all the progress. On the project sales, can you talk a little bit about the strategy of timing and leverage that you guys are going to deploy in these sales? You obviously have a great land position, nice interconnection queues, and certainly, potentially can leverage some of those positions into data center deals. And, also, you potentially can monetize these things earlier in the process and generate a little bit better returns in select areas. Just want to get a better sense of where you're coming out in terms of timing and, you know, kind of relationships that are going to come out of some of these sales. Shawn Qu: Yeah. Colin, we are still working on the 2026 AOP. So I don't have the quarter-by-quarter recurring project sales number in my hand right now. We target to get that down by February. So when we talk in March, in the March earnings call, we'll be giving you more details. However, we have enough COD operational projects for sale, so we don't have to sell projects early. I say projects early, I assume you mean sometimes sell at NTP or even before NTP. But before NTP, you don't get the value, right? Or they leave too much money on the table. So if we can sell after COD, we can not only get the value of the project development but also project financing. Because Canadian Solar, especially Recurrent, is also an expert in the tax equity financing deal in the US market. And there's a value there. So we do have enough projects, you know, we have a budget, like, roughly how many projects we will, you know, how many megawatts of project ownership we're going to sell each year. But for next year, I guess, we have enough COD projects for sale. And that's the US. We also sell projects in other markets, for example, in Latin America and also in Australia. Now, Ismael, do you have anything to add? Ismael Guerrero: Just to say it. Great, Shawn. You, Colin. Nice to talk to you. Colin, we have a very strong pipeline and very mature. So we are seeing good opportunities to sell with good margins. We are likely going to take them. That's the overall underlying reason. Colin Rusch: Okay. Perfect, guys. And then, you know, thinking about the battery manufacturing and the supply chain, can you talk a little bit about the maturity of your relationships with suppliers to deliver input materials into the US? You know, obviously, 70% of the supply chain is in China, and, you know, the vast majority is still in Asia. And so shifting things into North America is a pretty substantial effort. I just want to get a sense of, you know, how easily that's coming along for you guys and any sort of risks that we should be thinking about as you start to ramp up that capacity? Shawn Qu: Actually, there are a lot of supply chain, also suppliers outside China these days. So we have good selection, good choice for both solar and for energy storage. So we will, as you know, the OBPBA has some requirements of the material nonmaterial assistance level for both storage and for solar. And there's also the domestic content booster, right? 10% booster for both the energy storage and solar. And we have calculated that. So just pay those, I know, percentage requirements, we think we will be able to meet those requirements in 2026. No problem. I think 2027 the number will go up 5% also. I think it's roughly 5% each year. And we should be able to manage that stack. So we'll be able to meet the OBPBA requirement. And, also, if we do, if we make both cell and module in the US, we will be able to meet the domestic content rule as well. As I said, we will start production of our own solar cell in the US by, we'll ramp up. So by March. So throughout Q2, second half of next year, we should have reasonable volumes already. And those volumes will, you know, will come with the domestic content, the 10% domestic content, the boost. And for solar and for energy storage, our plan is to start the battery cell and pack manufacturing in the US at the same time. So I said, in my speech, that we expect to start production in December. So in 2027, we will have, we'll be able to provide the energy storage project, which also meets the domestic boost requirement, domestic content, you know, requirement, to settle customers, to enjoy the 10% ITC boost. Colin Rusch: Okay. Thanks so much, guys. I'll pass it on. Operator: The next question will come from Philip Shen with ROTH Capital Partners. Please go ahead. Philip Shen: Hi, everyone. Thank you for taking my questions. First one is on margins. I think your A-share subsidiary reported a 7% gross margin in Q3, but you guys reported a 17% gross margin today. So I was wondering if you could help us bridge that gap. Thanks. Shawn Qu: I don't think we reported seven. Oh, do we? No. Okay. Seventeen. Seventeen. Oh, well, 17% is just it's for CSI Q. Together. CSI Q, right? That's all of 15. And the CSI Solar has a different pack, you know, different mix. Yeah. Ismael just commented that the project sales in Q3 were with 46% gross margin. Philip Shen: Okay. So is the project business that really supported and offset the manufacturing 7% gross margin. Is that right? Shawn Qu: From actually, solar may be low, but solar plus the energy storage. 15% for all the manufacturing. But all the manufacturing, the gross margin in Q3 is over 15%. Now if it's only a module, it's low. It's below 10 because the, where we don't get much mark, you know, margin. Philip Shen: Okay. Thank you, Shawn and team. Moving on to the next question. As it relates to your 2026 guide, you gave us some color there, which is great. And you continue to talk about the ramping of US manufacturing. But how and can you give us color on how you're able to do that even though there's still substantial FIAC risk? As it relates to either ownership or just meeting the OBPBA requirements. Could be challenging. Thanks. Shawn Qu: Yeah. Philip, I answered this question in the last earnings call. Philip, we believe we can meet the requirement, the OBPBA requirement, by doing certain adjustments. Philip Shen: Okay. And then as it relates thank you, Shawn. As it relates to the ADCVD reserve or, you know, with the auxin case, there could be meaningful retroactive duties and was wondering, you know, can you quantify how much exposure that might be? And as a result, you know, do you think you know, you might need to reserve for that situation on the balance sheet? Thanks. Shawn Qu: Yes. It could be. I would say also could not be, right? So the court process is still moving along. And there'll be a long it'll be quite a while before there's a final decision. If it goes to the appeal, like, appeal court. And I have discussed it with our external lawyer and also the auditor firm. We don't think we need to book any reserve at this moment. Philip Shen: Great. Really appreciate taking the questions. I know some of them are a little bit touchy, so appreciate it. Thank you. Operator: Thank you. The next question will come from Brian Lee with Goldman Sachs. Brian Lee: Hey, guys. Thanks for taking the questions. Maybe just a follow-up to Phil's question. I know you guys are wanting to see the ADCVD process through the litigation and the case is still pretty early on. But in the event that you did have to, you know, accrue a liability or reserve some amount of funds for a potential, you know, negative decision, can you help to kind of quantify the range? I guess, you know, back of the envelope math suggests it could be well over a billion dollars if we, you know, estimate your US shipments over the past couple of years. I guess, first, is that the right way to think about it? And then second, how would you, again, just playing devil's advocate, hypothetically, if you had to do that, what would be your sort of funding strategy to finance that amount just given, you know, the cash burn and the high degree of net debt you have right now? Shawn Qu: Well, Brian, I guess you're also talking about the auxin case. And as I said, when I answered Philip's question, we don't think that we have to make a reserve. Therefore, there's no, like, no. I just I don't have to do any back-of-the-envelope at this moment. This is what my lawyer told me. This is what my audit firm told me. So I don't want to speculate here. Why don't you ask the petitioner to speculate how much money they can get or how much they will be able to get for the US government? Brian Lee: Yeah. No. I mean, I think there are published research around the potential value of the claim here. I don't know how accurate they are, but I do think there is a published number, which, again, counts into the billions of dollars. But I'll take that offline. I guess maybe just a bigger picture question. You know, we're all just trying to gather more detail. You know, we know there's no finite answer, but it'd just be helpful if you could elaborate, let's say, on the FIAC question as well. You know, you're obviously telling your customers, you know, your actions you contemplate taking to make sure you're FIAC compliant. Is there any insight into those conversations you can provide to give the financial community the same level of confidence around, you know, what steps you may be taking to make sure that, you know, your US manufacturing investments are going to be justified? Shawn Qu: Well, it's OBPBA has very simple and clear rules which say, you know, a big picture, it requires 75% from now from not from the APOC. And no more than 25% from the FPOC if there's two partners, right? If there are if there's only, like, one plus one partner. If there are two partners, two shareholders, from the IPE countries, the two together should take no more than 40%. So there are very clear rules there. So when I said, we will make adjustments to meet the OBPBA, so I think it's quite clear. It's something like a five-year, you know, like, grade five student or no. As long as you are structured yet, with these percentage numbers, then you are OBPBA compliant. What else do I have to tell you? Brian Lee: Okay. No. That's helpful color. And then last question for me, I'll pass it on, is on the asset sales, it sounds like that's definitely going to ramp up in 'twenty-six. Which is a bit of a reverse from the past couple of years as you've been moving toward this IPP model. It sounds like it's focused on cash generation and delevering. Can you quantify kind of what volume, megawatts, megawatt hours you anticipate monetizing through asset sales as opposed to keeping on the balance sheet for '26? And what kind of delevering potential that might result in for the balance sheet next year? Thank you. Shawn Qu: Well, as I said, we'll continue to build the IPP portfolio. However, given the current market condition, we are going to keep the balance a little bit. To be a little bit more cautious. And, also, as I said, when I answered Colin's question, I haven't brought my, you know, I let my board approve my 2026 AOP any operation plan yet. So I will give you more details in March because, typically, our board approves the AOP in February. So what I can say now is that given the current market situation, we are going to be a little bit more cautious. And I also said we have enough operational projects, high-quality projects, which we can, we can, like, cash in. But, see, every year, we always sell some projects. And Ismael mentioned that he sold some high gross margin projects. That helped to boost our gross margin in Q3, right? Overall gross margin. So I don't have the number yet. But I will let you know what I can let you know now is that we will be a little bit more cautious. So we are going to recycle more cash. Brian Lee: Okay. Understood. Thank you, Shawn. I'll pass it on. Operator: The next question will come from Alan Lau with Jefferies. Alan Lau: Thanks, management, for taking my question. This is Alan from Jefferies. Would like to know there's a lot of questions on your priorities already. So we'd like to have a more overview on the market demand in 2026. What do you think the US installation on solar and energy storage separately? Thank you. Shawn Qu: Okay. I will not ask Yan to share his thought. You're asking for the installation demand in the US in 2026, right, on both storage and solar? Yan Zhuang: Yeah. I think so the demand is there, right? And, also, the OBPBA compliant, you know, the safe harbor actually made the storage pipelines there. So I think for 2026, the storage project will be there. And the solar as well, the safe harbor also helped to actually preserve a lot of demand. But on the solar side, I think the cell supply can be a bottleneck for the total demand. So although we have a good solution, but does not mean everybody has that. So I think I hope the US will continue to maintain the similar level compared to this year. That's what I hope. But I do not see any significant growth. But on storage, I think, next year, the US will continue to be strong. That's my view. Alan Lau: Thanks, Yan. So I think the investors' focus is concentrated or overwhelmingly concentrated on ESS. So we'd like to know what type of growth rate are you looking at, like, is it like, 20, 30% growth or 50% or even China? I think people are talking about even more aggressive growth rates. And then with that growth, how much do you think it's coming from AIPC demand? Yan Zhuang: Hello? So you're talking about growth globally or US, China, Sorry. It's mainly US. Mainly US. Mainly US. I think that the data center work, yeah. Worldwide, you talked about data center worldwide, you know, more than half of the data centers built in the US, you know, but I think we see a very strong future demand in our portfolio, data center-related storage demand. But I think in terms of start installation construction, next year, it's not yet. It's not yet. It's gonna be you gotta wait for a little longer time. So for next year, the storage growth will still come from the safe harbor projects. So these are regular storage projects. Solar, as I said, I'm expecting flat. That's my hope. But storage, are you talking about growth rate? I don't have the number, but you can check the industry report. They vary a lot. The industry reports. On average, I think, there's a growth. I know. It's, 10-20% growth. Yeah. I remember I saw some reports number. Alan Lau: I see. So for demand ESS demand related to AIPC, you think can probably ask 2026. Right? And then, like, what type of installation you think will be more relevant? Like, is it like, two to four hours of system that is for clipping the peak demand or you are seeing even longer hours acting as some off-grid solution or, like, the main power supply for the AIPC? Like, what type of backlog do you see from or request from clients that you're seeing? Yan Zhuang: I think for regular storage, to conventional storage projects that you're talking about mostly, in the US is actually ship load shift peak shift. So it's rather like, three, four hours. Around four hours. But for data center, to begin with, I think my knowledge okay, it's more like two, three hours. It's mainly for smoothing out the load. That's what I, you know, our study shows. And so so it's like course of course, the longer term, for longer term, the storage project for data centers will progress into longer and longer periods of storage. The cost is also going up. So the challenge is how do we control cost while increasing the length? The duration. But to begin with, the most important application for data center storage is smoothing out the load, you know, smooth out the curve. So that's the most important starting point. Alan Lau: I see. So to confirm, like, it's more like there are some rules in ERCOT, maybe, like the etcetera, requiring more stability on the load. So the demand you are seeing at least for now, as it starts to cope with that request on the grid. Right? Instead of having long-duration ESS for supplying as the main power supply of the AIPC. Right? Is this understanding correct? Yan Zhuang: Well, I think, as I said, right, for the longer term, you know, it will progress. Right? But to begin with, I told you, it's more like smoothing out the load. So to stabilize the supply. And so so that's my answer. Alan Lau: That's good. That's good. And then finally, we'd like to ask on how much of the fourteen to seventeen gigawatt hours of shipment that's going to be in the US. Actually, we have well diversified our portfolio, our backlog. So I would say around two-thirds will be outside of the US. Out of the total guided volume next year. Yan Zhuang: I see. I see. That's pretty diversified. Thanks a lot for answering my question. Yeah. But also also a small it's small in China. And mostly it's between outside of China, outside of the US. So that's the kind of distribution. Alan Lau: I see. Definitely. Definitely. I'll pass on. Thank you a lot for having that level of clarity on the question. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. Shawn Qu: Well, thank you very much for everyone to come to our call. And also, thanks for, you know, continuing the support. And if you have any questions, I would like to set up a call. Please contact our investor relations team. Take care, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Angelie: Good morning. My name is Angelie, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would like to turn the conference over to Jack Ezzell, Chief Executive Officer and Chief Operating Officer. Please go ahead. Jack Ezzell: Good morning, and welcome to OneWater Marine Inc.'s fiscal fourth quarter and full year 2025 earnings conference call. I am joined on the call today by Austin Singleton, Executive Chairman of the Board, and Anthony Aisquith, Chief Executive Officer. Before we begin, I would like to remind you that certain statements made in this morning's conference call regarding OneWater Marine Inc. and its operations may be considered forward-looking statements under securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, described in the forward-looking statements, which could cause actual results and events to differ materially from those. Factors that might affect future results are discussed in the company's earnings release, which can be found in the Investor Relations section of the company's website and in its filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date they are made, except as required by law. Please note that all comparisons of our fourth quarter or fiscal year 2025 results are made against the fourth quarter or fiscal year 2024 unless otherwise noted. With that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin Singleton: Good morning, everyone, and thank you for joining us today. We finished 2025 with solid results and meaningful progress on our strategic priorities. Industry conditions remain challenging as retail demand continued to normalize from pandemic highs, promotional activity increased, and multiple hurricanes created disruption in key Florida markets. Against that backdrop, our team executed with discipline and focus. We delivered 6% same-store sales growth for the year, outperforming the broader industry in the categories where we compete. New boat sales were strong in the fourth quarter, and pre-owned sales remained a standout throughout the year, contributing to solid full-year results. This performance demonstrates our strength and resilience in our model and the depth of our retail network. We also took thoughtful cost actions and leveraged our flexible operating model to align expenses with demand and protect margins, finishing the year with positive momentum headed into 2026. Maintaining a disciplined approach to inventory has been a top priority, and our teams executed exceptionally well. We exited this year with the cleanest inventory levels we've seen in years, giving us a significant competitive advantage as we enter 2026. This enables us to respond quickly to shifting retail conditions and support a healthier balance between price and volume. We also completed our strategic exit from discontinued brands, allowing us to sharpen our focus on our core portfolio with high-performing brands. While this transition created some margin pain during the year, it laid the groundwork for meaningful long-term margin improvement as we move through 2026 and beyond. Looking ahead, we are encouraged by signs that channel inventories across the industry are returning to healthier levels and OEM production is beginning to normalize. We believe these factors, combined with our flexible operating model and strong customer relationships, position us well to capture demand and drive profitable growth as the industry stabilizes. Early boat show feedback has been positive from our manufacturing partners, highlighting strong customer interest and innovative new features and fresh models. At one of our largest events of the year, the Fort Lauderdale Boat Show, sales were up year over year. Unit sales were lower, reflecting the impact of the brands we exited in 2025 as well as the liquidation of excess inventory in the prior year. The good news is that we are beginning to see improvements in overall new boat gross margins. We are excited to build on this momentum through the winter boat show season. Finally, I want to thank our entire OneWater team for their hard work, resilience, and dedication to our customers throughout the year. I'm confident we have the right people, structure, and strategy in place to continue delivering long-term shareholder value. With that, I will turn it over to Anthony to discuss the business operations. Anthony Aisquith: Thanks, Austin. Good morning, everyone. I'd like to start by echoing Austin's comments and thanking our team for their dedication throughout the year. Despite a challenging marine market, our focus on serving customers drove another year of positive same-store sales growth and continued market share gains. New boat demand normalized after several years of outsized growth, and our team drove strong pre-owned sales by effectively leveraging a rebound in trade-in activity, which reached historic lows during the pandemic. We entered the year focused on rightsizing inventory and exited with one of the cleanest positions we've seen. That disciplined execution allowed us to begin rebuilding inventory in the fourth quarter, slightly ahead of typical seasonal patterns. Our inventory aging has significantly improved compared to a year ago, and early response to the new model year has been encouraging. Finance and insurance penetration remained healthy and continues to be a key strength. Further interest rate cuts should support customer affordability and enhance unit economics for boats financed through OneWater. Service parts and other sales were solid for the year despite modestly lower sales in our distribution segment due to reduced OEM production. As inventory levels reset across the industry and OEM output normalizes, we believe there is growth opportunity heading into 2026. I'd like to turn the call over to Jack to discuss the financials. Jack Ezzell: Thanks, Anthony. Fiscal fourth quarter 2025 revenue increased 22% to $460 million compared to $378 million in the prior year period, which was significantly affected by hurricane-related disruptions along the West Coast of Florida. New boat sales were up 27% to $275 million in the fourth quarter, while pre-owned sales increased 25% to $91 million. Overall, store sales were up 23%. Revenue from service parts and other sales for the quarter increased 7% to $81 million, driven by steady retail service activity in our dealership segment and modest growth in our distribution segment. Finance and insurance revenue increased year over year on a dollar basis but declined slightly as a percentage of total sales. Gross profit increased to $104 million in 2025 compared to $91 million in the prior year, primarily driven by higher new boat volumes as a result of the hurricane-related disruptions on the West Coast of Florida in the prior year. Fourth quarter selling, general, and administrative expenses increased 6% to $84 million, down 270 basis points, primarily driven by higher revenues in the quarter. Fourth quarter operating loss was $130 million, and adjusted EBITDA was $18 million. Net loss for the fiscal fourth quarter totaled $113 million or $6.9 per diluted share compared to a net loss of $10 million or $0.63 per diluted share in the prior year. The decrease was largely due to non-cash goodwill and intangible asset impairments of $146 million, driven principally by the decline in our market capitalization relative to the book value. As a reminder, this adjustment does not impact cash flow, liquidity, or operational flexibility. Adjusted diluted earnings per share was less than $0.1 compared to an adjusted diluted loss per share of $0.36 in the prior year. Turning to our full-year results, total revenue for 2025 increased 6% to $1.9 billion for fiscal year 2025, driven by a slight increase in units as well as an increase in the average selling price of both new and pre-owned boats. Same-store sales increased 6% in 2025, outperforming the industry backdrop where FSI data indicated a decline of over 13% in the categories in which we compete. Additionally, service parts and other revenue increased 2% to $295 million, driven by growth in our dealership segment as we continue to expand this important part of our business and support our customers. This was partially offset by lower sales in our distribution segment, reflecting reduced production levels from boat manufacturers. Full-year 2025 gross profit decreased 2% to $427 million as a result of market dynamics and the impact of select brands the company has exited during the year. Gross profit margin for fiscal year 2025 was 23%. Selling, general, and administrative expenses increased to $343 million or 18% of revenue from $333 million or 19% of revenue in the prior year. The decrease in selling and general administrative expenses as a percentage of revenue was driven by higher revenues in addition to targeted cost actions, which supported the SG&A savings. We will continue to practice proactive expense management and have flexibility to accelerate cost actions as necessary should the need arise. Net loss for fiscal year 2025 was $116 million or $7.22 per diluted share compared to a net loss of $6 million or $0.39 per diluted share in the prior year. The business generated adjusted EBITDA of $70 million and adjusted earnings per diluted share of $0.44. Now turning to the balance sheet, total liquidity was in excess of $67 million, including cash on hand and additional availability under our credit facilities. Total inventory as of September 30, 2025, decreased to $540 million compared to $591 million in the prior year. This decline reflects our ongoing strategic inventory positioning and brand rationalizations throughout the year. Total long-term debt was $412 million, and net of cash resulted in net leverage of 5.1 times trailing twelve months adjusted EBITDA. As we move forward, reducing leverage remains a priority in our capital allocation strategy. Looking ahead to 2026, we are cautiously optimistic, and we expect demand to fluctuate with traditional seasonal cycles. Our outlook is anchored on industry commentary and an expectation that industry unit sales will be flat to this year. Our forecasted sales will be negatively impacted by the impact of brands we exited. However, we also expect to outperform a flat market. Accordingly, we expect these factors to offset, resulting in flat same-store sales for the year. We anticipate total sales to be in a range of $1.83 billion to $1.93 billion. We expect adjusted EBITDA to be in the range of $65 million to $85 million and adjusted diluted earnings per share to be in the range of $0.25 to $0.75. Overall, we remain optimistic about 2026. There are a number of tailwinds, including improved industry inventory levels, reduced discounting, and lower interest rates, which we expect to be tempered by market uncertainty. We will remain focused on maintaining our clean inventory position and disciplined approach to cost management, which we believe provides a clear advantage as market conditions evolve. While fiscal 2025 presented challenges across the industry, the actions we have taken strengthen our foundation and position OneWater Marine Inc. to continue outperforming the industry as the environment stabilizes. This concludes our prepared remarks. Operator, will you please open the line for questions? Angelie: Thank you. At this time, I would like to remind everyone in order to ask a question, your first question comes from the line of Craig Kennison with Baird. Please go ahead. Craig Kennison: Hey, good morning. Thanks for taking my question. Jack, I wanted to follow up on your inventory comment. I'm not sure if you quantified the change year over year in dollars. I think last quarter, it was down 14%. So could you share that figure? Jack Ezzell: Yeah. We're down roughly 8.5%, $50 million year over year. You know, when we had originally said our goal was down 10 to 15, and we had been tracking that throughout the year. However, with the timing of some model year 26 boats, we started that build a little earlier this year because some of our stores were actually getting a little light on inventory. So again, we're really pleased with where the inventory is at. Craig Kennison: Thank you. And given your outlook for flat retail, what's the right assumption for inventory for fiscal 2026? Jack Ezzell: Yeah. I would expect it to be up modestly just with price increases and some things like that. I think just one thing to note is that on that flat retail, we expect that from the exiting brands. We have a headwind of, let's call it, around 5%. And so while we'll look to capture some of that with our continuing brands, those two will kind of offset. So, we think the business, if I pro forma out last year, the exiting brands, we think the business will be up mid-single digits. But when you kind of the two will kind of net out to get you to that flat. Craig Kennison: That's really helpful. That was my next question. Then maybe, Jack, lastly, just on your interest rate expense outlook for 2026, just want to make sure we have a feel for that given the term note and interest rate changes. Jack Ezzell: Yeah. I mean, I'm a little bit scarred from this past year because we had a lot of cuts in our model. And so, I think we have another 50 basis points of cuts in the model going this year, but I'm kind of hesitant on that number. When we think about year over year, I think floor plan interest will be, let's call it, flattish to up slightly. And then, our term interest will be down some just as we continue to make amortization payments, etc., on that. But it's down in the 5 to 10% range. Craig Kennison: Great. Thank you both. Angelie: Thank you. The next question comes from Joe Altobello with Raymond James. Please go ahead. Joe Altobello: Thanks. Hey, guys. Good morning. First question, on interest rates. You mentioned rates coming down could be a tailwind to demand in fiscal 2026. Have you started to see consumer rates come down in a meaningful way yet? Austin Singleton: Yeah. What's meaningful? They've come down. I mean, they haven't dropped a point. But they move with every rate cut, start to move down. So, yeah, we're starting to see that, and a little bit of that interest rate cuts probably led into a good October and a good Fort Lauderdale boat show. Joe Altobello: Got it. Which is where I was going to go next. The optimism that cuts. Right? That we're going in the right direction and that while a 25 basis points doesn't make a difference on someone buying a million-dollar boat, it certainly does a lot for their confidence and their projection of where they see things trending. Austin Singleton: Got it. Okay. And then Austin, you mentioned Fort Lauderdale. Could you kind of quantify how much your sales were up at the show? Austin Singleton: Yeah. I mean, we were almost up 20% for the show, just slightly under that compared to last year, which is really good. But the most important thing, I think, was that we started to see that margin pressure go away, which is exciting. I mean, when you come out of this quarter with the same-store sales comp that we had for the quarter, a little bit of that was due to the hurricane last year. So going into October, it was a nice surprise to see that held up. And October turned out really good, and then the Fort Lauderdale Boat Show continued. November is looking pretty decent right now. So we feel like last quarter, the summer, was kind of like at the bottom, and we started to turn, but it's just it's probably going to be a slow creep up from here, but every little bit helps. Momentum seems to be pretty decent right now. Joe Altobello: And just last question. Go, but I Jack Ezzell: As you know, right, that increase in Fort Lauderdale boat shows don't all hit in the December quarter. Right? Those sales are spread out. Joe Altobello: Oh, yeah. For sure. Yep. Absolutely. Okay. Margin, it's like you guys are a little more optimistic on margin this year. Obviously, last year and liquidating a lot of the smaller brands. But how do you see the promo environment playing out in fiscal 2026? Austin Singleton: Well, I mean, I think the manufacturers are still kind of compressed from a manufacturing standpoint. I mean, they all want to kind of produce more boats. I mean, when you talk to Wells Fargo on the floor plan side, inventory levels for the industry are really low right now. If you kind of see any kind of bump in the spring, you know, we're going to have to really work hard next year to manage, and that's one of the things we've got to do is manage inventory going up because the manufacturers can't just go in one day and increase production 20%. It's a slow grind for them to increase because the majority of that increase is probably going to be based in labor. And so you really got to work on managing your inventory. And it'll be a slow grind for the increase. We're excited about that in a way because that helps with margin. So, I mean, I think the promotional environment is going to stay put until the manufacturers start feeling the industry dealers like us start getting where we're ordering more boats, and I don't know if that comes in January, if that comes in March, or that comes in June. So the same old story we've said many times, I think as we get into the summer season in the back half of the year, you're going to start to see more green shoots take place if the momentum we're seeing today continues. Joe Altobello: Got it. Okay. Thank you. Angelie: Thank you. Again, if you would like to ask a question, press star then the number one on your telephone keypad. The next question comes from Noah Zatzkin with KeyBanc Capital Markets. Please go ahead. Noah Zatzkin: I guess first, on the pre-owned side, obviously really strong results during the quarter. Have you continued to see kind of an increase trade-in dynamic? And how are you thinking about that playing out next year? Thanks. Austin Singleton: Yeah. I mean, that momentum has kind of continued on. I mean, the dynamic of why that dropped during the middle of COVID and on the back end of COVID was just the lead time to get boats from manufacturers. So it gave the consumer a lot more free time or their own time to sell their boat. And so with inventory a little bit more on hand, the ordering cycle because the manufacturers have compressed production right now, and so it doesn't take as long to get a boat. We are seeing more trades than we saw pre-COVID. I wouldn't say there's more trades or there's more used boats out there than there's been. It's just that they're not selling it on their own, and they're running it through the dealerships. Noah Zatzkin: Got it. That's helpful. And then maybe just kind of an update on the M&A side, what you're seeing out there and how you're thinking about that next year? Austin Singleton: Yeah. I mean, we're staying extremely disciplined on that. I mean, we're really focused on the debt right now. And, you know, one of the good things that we have that works for us is time's on our side. So, you know, it's not like the deals are going to somebody else or they're leaving or they're disappearing. So we can be very methodical, very disciplined, and just take them, you know, be very picky as we move forward. But I think for the short term or at least till we get into boat season next year, as we run into the winter months, we'll probably be pretty disciplined and focused mainly on the debt. Noah Zatzkin: Thank you. Austin Singleton: Thanks, Don. Angelie: Thank you. There are no further questions at this time. This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Cellectar Biosciences, Inc. 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. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, November 13, 2025. I would like to turn the call over to Anne Marie Fields. Good morning, and welcome to Cellectar Biosciences, Inc. third quarter 2025 Financial Results and Business Update Conference Call. Anne Marie Fields: Joining us today from Cellectar Biosciences, Inc. are Jim Caruso, President and CEO, who will provide an overview of the company's progress, before turning the call over to Chad Kolean, CFO, for a financial review of the quarter. Following this, Jarrod Longcor, Chief Operating Officer, will give an update on the company's progress and plans for its promising clinical development pipeline of radiopharmaceuticals. Cellectar Biosciences, Inc. issued a press release earlier this morning detailing the content of today's call. A copy can be found on the investor page of Cellectar Biosciences, Inc.'s corporate website. I want to remind callers that the information discussed on the call today is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that management will be making forward-looking statements. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the business. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's press release and in our SEC filings. The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 13, 2025. The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call and webcast. As a reminder, this conference call and webcast are being recorded and archived. We'll begin the call with prepared remarks and then open the call to your questions. I'll now turn the call over to Jim Caruso. Jim? Jim Caruso: Thank you, Anne Marie, and thanks to all participants for joining us this morning as we review Cellectar Biosciences, Inc.'s progress in 2025. I'm pleased to share that we have made significant strides throughout the quarter, marking a period of strong operational execution on key corporate priorities, including the strengthening of our balance sheet, making significant advancements with our global regulatory strategy for iopofosine I-131 and Waldenstrom's macroglobulinemia, or WM, and advancing our clinical and preclinical programs. These achievements underscore our commitment to innovation in oncology and position Cellectar Biosciences, Inc. as a company with transformative potential as we head into the final stretch of the year and prepare for an impactful 2026. Let me begin with our lead asset, iopofosine I-131, which continues to show strong promise as a first-in-class radio conjugate therapy for patients with WM. The third quarter brought exciting developments that further validate its potential and may accelerate its path to market. We've been closely collaborating with the EMA to align on a clear regulatory strategy. Importantly, following a thorough review by the EMA scientific working party, we received confirmation of our eligibility to file for conditional marketing approval in the EU based upon the Clover Wham study. A major milestone that could bring iopofosine to patients as early as 2027. This endorsement not only reflects the strength of our data and the urgency of the unmet need but also carries a high probability of success, with 80% of such filings ultimately receiving approval. Confirmation of our eligibility to file a conditional marketing authorization in the EMA gives us further confidence in our regulatory strategy with the US FDA. As previously reported, the FDA requested twelve-month follow-up data on all patients from the Clover Wham study. With the twelve-month follow-up data now available, we plan to submit an NDA under the accelerated approval pathway upon initiation of a confirmatory phase three trial. As you may be aware, in the second quarter of this year, iopofosine was granted breakthrough designation for WM by the FDA. Data from a recent Jefferies research report showed that 79% of oncology drugs which have been granted breakthrough designation are successfully awarded accelerated approval by the FDA. The momentum provided by the success of our global regulatory strategy in Europe and our strengthened regulatory position in the US significantly enhances the value of iopofosine, potentially reducing time to commercialization and making it an increasingly attractive opportunity for strategic collaborations. To support these efforts, we are in active discussions with potential partners both regional and global, who share our vision for these partnerships are designed to provide iopofosine I-131 to patients as quickly as possible, to secure non-dilutive capital and commercial expertise while preserving long-term value for our shareholders. With our bolus of positive clinical data, a favorable safety profile, expedited review designations in the US and Europe, as well as a compelling commercial market potential, we believe I-131 represents an attractive candidate for potential collaborations or partners seeking impactful innovation and oncology assets with accelerated pathways to the global market. We remain equally excited about the progress from our next-generation radiopharmaceutical pipeline, including our recently initiated phase 1b study of CLR125 or iodine-125, an Auger-emitting agent which targets solid tumors such as triple-negative breast cancer, and CLR225, or actinium alpha-emitting radio conjugate targeting several other solid tumors with significant unmet need, including pancreatic cancer. We have also been extremely active in showcasing data from these programs at medical meetings throughout the quarter, including posters and oral presentations at the American Association for Cancer Research and special conferences in cancer research. We encourage everyone to visit the posters and publications section of our investor website to view our presentations. Operationally, we have raised approximately $12.7 million in recent financings to help strengthen our balance sheet and have also engaged in selective supply and trial support agreements with partners to secure the necessary supply of actinium-225 and to complete our phase 1 study for CLR125 for the treatment of triple-negative breast cancer. In summary, we are closing out 2025 with strong momentum and entering the new year with a clear regulatory path for iopofosine in Europe and the US, and maintain the promise of a unique and robust pipeline addressing challenging solid tumor cancers with significant unmet medical need. As a result, we have several near-term milestones to look forward to that we believe place Cellectar Biosciences, Inc. in a position of rapid growth. We are energized by the opportunities ahead and remain deeply committed to delivering innovative, life-extending therapies to patients with cancers. Chad Kolean: With that overview, I'll now turn the call over to Chad Kolean, our Chief Financial Officer, for a review of our financials. Chad? Thank you, Jim. And good morning, everyone. Here are my comments on our financial results for the third quarter ended September 30, 2025. We ended the quarter with cash and cash equivalents of $12.6 million, which is compared to $23.3 million as of December 31, 2024. In July 2025, we raised a net of $5.8 million through the issuance of common stock, prefunded warrants, and new common warrants. Following the close of the third quarter, we raised an additional $5 million net through investors exercising certain outstanding warrants and the issuance of new common warrants. We now expect that our cash on hand is adequate to fund budgeted operations into the third quarter of 2026. Turning to our results from operations, research and development expenses for the three months ended September 30, 2025, were approximately $2.5 million, compared to approximately $5.5 million for the three months ended September 30, 2024. The overall decrease in research and development was a result of lower costs related to the Clover Wham study, where the patient follow-up effort continues to decline as patients are moving off study. Additionally, manufacturing costs have declined as in 2024, we were investing more heavily in establishing a second manufacturing source for iopofosine, an effort that is now complete. General and administrative expenses for the three months ended September 30, 2025, were $2.3 million, compared to $7.8 million for the same period of 2024. The decrease in G&A was primarily driven by a reduction in pre-commercialization and market assessment efforts and lower personnel costs. Net loss for the three months ended September 30, 2025, was $4.4 million, or $1.41 per basic and diluted common share, as compared with $14.7 million, or $11.18 per basic and $12.13 per diluted common share during the three months ended September 30, 2024. With that, let me turn the call over to Jarrod Longcor for a regulatory and operational update. Jarrod Longcor: Thank you, Chad. And good morning, everyone. As Jim just reviewed, we believe iopofosine I-131 has a high probability of approval in the EU, and pending the initiation of the confirmatory study, its approval in the US. We have had extensive communications with both the EMA and the US FDA throughout 2025 and look forward to continuing these interactions through the approval process. As a reminder, this is a program that has received EMA prime designation, FDA breakthrough therapy designation for the treatment of WM, five rare pediatric disease designations, most recently one for relapsed refractory pediatric high-grade glioma, as well as multiple FDA and EMA orphan drug designations. These rare pediatric disease designations provide eligibility to receive a priority review voucher, which can be used to expedite the review process for future new drug applications or biological licensing applications for any drug, or can be sold or transferred to another party. All of these updates have positioned iopofosine as a major value creator heading into the fourth quarter and early 2026 and underscore its potential in strategic collaborations. Now let's turn to our two exciting earlier-stage radio conjugates, CLR125, our lead Auger emitter, and CLR225, our alpha-emitting actinium-based compound. CLR125 may provide the greatest precision in targeted radiotherapy as the Auger emissions only travel a few nanometers, meaning the isotope has to be delivered within the cell and near the nucleus or the DNA. Our phospholipid delivery mechanism provides this necessary targeting to the tumor entry into the cell and transport to the nucleus as validated through clinical studies. It has been demonstrated that CLR125 has significant tumor uptake and, depending on the dose, results in tumor volume reduction or growth inhibition with no toxicities being noted, including no hematologic toxicities at any of the doses tested across multiple challenging animal models, including triple-negative breast cancer, or TNBC, and metastatic breast cancer. The phase 1b study of CLR125 in relapsed triple-negative breast cancer will utilize dosimetry to determine tumor versus normal tissue uptake and will evaluate the activity of three distinct doses of CLR125. A dose of 32.75 millicuries per dose for four cycles versus 62.5 millicuries per dose for three cycles versus 95 millicuries per dose for two cycles, with four doses per cycle and approximately 15 patients per arm with a planned expansion arm in the proposed phase two dose. The primary endpoint for the study will be to determine the recommended phase two dose and dosing regimen, and we will also evaluate safety and tolerability as well as initial response assessments for RECIST as well as progression-free could have multiple patients dosed by the end of the year. For the phase 1b study, we will be partnering with Avesquia for full CRO services, with the Mayo Clinic Network serving as a treatment center for the trial and Dr. Puja Advani acting as our lead investigator. The initiation of this trial will be a significant milestone for Cellectar Biosciences, Inc., as it brings us closer to being able to evaluate the safety and dosing of CLR125. We expect to have dosimetry data and efficacy data throughout 2026. Moving to CLR225, our lead alpha-emitting radio conjugate product candidate, which also has shown excellent biodistribution and uptake into solid tumors preclinically with demonstrated activity across multiple solid tumor animal models, including challenging-to-treat pancreatic and refractory colorectal cancers. CLR225 has been observed to be well tolerated in these experiments, which we highlighted in our presentation at the AACR Advances in Pancreatic Cancer Research Conference held in Boston in September. Pending the necessary financing, our phase one trial for CLR225 is designed to comprehensively evaluate the compound's biodistribution, safety, and tolerability in patients with pancreatic adenocarcinoma. The study will commence with a dosimetry phase aimed at determining the absorbed dose in both normal and tumor tissues. Following dosimetry, the study will progress to a dose-escalation phase, systematically evaluating increasing doses of CLR225 to establish the maximum tolerated dose. We believe this approach gives us an opportunity to demonstrate proof of concept for our innovative combination of phospholipid ether technology with alpha emitters, potentially showcasing its radio conjugate's unique ability to safely treat large, bulky solid tumors like pancreatic cancer. We also recently announced a partnership with ITM, wherein they will provide actinium-225 to help support our alpha-labeled phospholipid radiopharmaceutical candidates, CLR225. Actinium-225 is a powerful alpha-emitting isotope used in targeted cancer therapies and is a rare and in limited supply isotope. This collaboration further underscores our strategic approach to a diversified supply chain to ensure the supply of key resources and thereby guarantee patient access to these therapies. All of these updates and more reinforce our position as a premier radiopharmaceutical company to watch as we look towards the end of the year. There is incredible value to be found in the iopofosine story that will aid in spurring the development of CLR125 and CLR225. With alignment from US and European agencies, we feel more confident than ever in the position of our programs. With that overview, let me turn the call back to Jim for closing remarks. Jim? Jim Caruso: Alright. Thank you, Jarrod. This has been a very successful quarter for our team. We've maintained consistent dialogue with the appropriate global regulatory authorities and feel that iopofosine now maintains its strongest position for marketing approval and commercialization. With our earlier-stage assets, CLR125 and CLR225, we have made significant progress advancing these radio conjugates and have recently initiated the phase 1b study for CLR125 in triple-negative breast cancer. Additionally, we've strengthened our balance sheet with runway out to 2026 and are positioned to execute across multiple near-term priorities, including filing for iopofosine conditional marketing approval in the EU and initiation of our CLR125 phase 1b clinical trial, with important dosimetry and early efficacy data readouts over 2026. We continue to advance our plans to file for accelerated approval of iopofosine in the US pending funding required to initiate the phase three confirmatory study. We remain committed to achieving these key milestones and are confident that these achievements will create value over time. We look forward to finishing the year and believe we are in a strong position to bring iopofosine I-131 and our pipeline of radiopharmaceutical therapies to the patients who continue to battle cancers with high unmet need. With that, operator, we are ready to open the call to questions. Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one at this time. You'll hear a prompt acknowledging that your hand has been raised. Should you wish to withdraw your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. One moment please for your first question. First question comes from Aydin Huseynov, Luxembourg. Please go ahead. Aydin Huseynov: Hi. Good morning, guys. Congratulations on the significant progress with the EMA application. I have a couple of questions. With the EMA strategy and the decision from the Scientific Advice Working Party, could you help us better understand the specific data they were considering before making a recommendation? Because it sounds like they're allowing you to do it post-BTK, which puts it in the second line, and in your trial, your prior lines, I think the median prior lines were four lines. So could you help us better understand what they were looking for? Jim Caruso: Hi, Aydin. This is Jim. First of all, thanks for your participation in the call today, and certainly appreciate your question. As you are likely aware, we put together very comprehensive data for our friends across the pond. And as you appropriately identified, we have recently received data from Clover Wham relative to post-BTKi, which gives us a high degree of confidence in our capacity to move iopofosine further upstream. And as you suggest, post-BTKi could be as early as the second line. But with that as an opening comment, I'll turn this over to Jarrod to provide some additional detail relative to the package itself and the consumption of that data from the EMA. Jarrod? Jarrod Longcor: Yeah. Thanks, Jim. And thank you, Aydin. Great question. So let me sort of try to unpack that a little bit for you. There are a couple of elements. One, the EU prescribing pattern is a bit different than in the US. In the US, as you just outlined, BTKIs are now generally used in the first-line setting, either in monotherapy or in combination, but predominantly first-line setting anymore. Which would mean a post-BTKi population or post-BTKi approval in the United States is representative of a second line. However, in Europe, at this time, the post-BTKi patient population would still be a third-line setting. Generally, in Europe, they start with a rituximab combination and continue to follow that with BTKi. At this juncture, they are starting to shift to earlier utilization of BTKi, but that hasn't taken over in the vast majority of the 28 member countries at this juncture. So based on that, what the EMA evaluated was the totality of our data. So all patient population. But they did focus in on that in their opinion. In Europe at this juncture, the greatest unmet need that would warrant a conditional market authorization is a post-BTKi. As Jim just alluded to, when we look at that patient population, we have, you know, the vast majority of our patients in our Clover Wham study are post-BTKi. And of those, many of them, you know, obviously, the majority of them responded well to the treatment. Did very well. So we do have statistical significance there. And you know, when we look even deeper into that, into varying subsets of that where we look at combination of refractoriness across those patients, what you see is a continued high response rate and even in some sets, a much higher response rate than that of the general population. And based on that, the agency, the EMA, as the SAWP, felt that the drug warranted or should apply for conditional market approval, focusing in on that post-BTKi patient population at this time. Jim Caruso: Thank you, Jarrod. And, Aydin, as I think you brought to our attention a handful of months back, you know, approximately 80% of all drugs that apply for conditional marketing authorization that have received eligibility to apply for a conditional marketing authorization are granted the CMA. Aydin Huseynov: Right. Yeah. That's great news. And given that I know you don't have to run any trial, you just need to submit. And for the FDA, you only need to initiate a phase three trial. So how much resources do you think you need just to initiate a trial in the US and whether your current balance sheet would be enough just to start it? It's only two to four months. And so can you just start the trial and finish it once you have more resources? Jim Caruso: Yep. That's a very good question, Aydin. Based on our assessment, you know, the total overall cost of the study in totality, including, you know, multiple years of follow-up, is approximately $40 million. Importantly, we're estimating approximately $15 million to full patient enrollment, and it's $10 million to initiate the trial. I'll have Jarrod in a moment talk to, you know, detail around expectations by the FDA for accelerated approval. But the net here is, essentially, it's trial initiation, which would allow us to submit the NDA and then have a study which is ongoing enrolling patients at the time of the FDA assessment of our accelerated approval. And as you know, with breakthrough designation and fast track, that's approximately six months further downstream. Based on the high level of interest in iopofosine, by both patients suffering from WM as well as thought leadership in the area, we would expect the study to enroll very, very quickly. But, Jarrod, I think it's fair to say based on our assessment, approximately $15 million or so to full patient enrollment. Jarrod Longcor: Let me correct that. It's about $28 million for full patient enrollment. It's about $15 million to the point at which we would have sufficient enrollment for the agency to act on an accelerated approval application. So, Aydin, if I back you up a little bit, as Jim said, to initiate the study itself because of CRO cost and the start-up cost, that's approximately about $10 million of the $40 million that Jim outlined as the total. Then what happens is, obviously, you get the study started. The requirement, as you alluded to, is initiation of a confirmatory study. Assuming that would happen, then the statement in the regulations now. The agency also has the obligation or the requirement that the study must be considered ongoing, which they have enunciated as some level of enrollment. They have not specified what level of enrollment. We are estimating that somewhere between 10-25% of patient enrollment will probably be satisfactory. In our calculation, that is somewhere between twenty and fifty patients. In order to achieve that, we think it would take about $15 million including the $10 million start-up to achieve that number. And then obviously, as Jim said, $28 million to get full enrollment, and then $40 million to see out the rest of the study, including all of the long-term follow-up. We do believe that if we were to have enough funding to really launch the study and get to that first metric, I think of having the agency work respond to the submission. We would absolutely want to initiate and go. Aydin Huseynov: Yeah. That's not a lot of money. Jim Caruso: No. I appreciate the question, Aydin. And Jarrod, thank you for the clarification on that. And as I cited in my opening comments, a recent assessment by Jefferies research report identified those oncology drugs that had been awarded breakthrough designation, there's a 79% approval rating for accelerated approvals. Aydin Huseynov: Right. And given that it appears that you will be first launching in Europe then in the US and given the old days MFN discussions. So could you help us understand its pricing potential for iopofosine in Europe and the US, and also whether you would consider different brands maybe given potentially different labels for EMA and FDA? Just curious to hear your thoughts on this. Jim Caruso: Yeah. I'll open. You know, we anticipate submitting our application for the CMA in 2026 if you estimate an approximately twelve-month review by our friends across the pond. You know, that's an approximately 2027 marketing or commercial launch ex-US. And to your point, it's not only Europe, it's 30 major countries except for China, Japan, and the US. That would have the capacity to market iopofosine. So it's a significant market size comparable certainly to that of the US when you look at incidence and prevalence numbers for WM. Now taking a step back before we address the pricing question, and we're not gonna give you specific numbers, but we'll give you, you know, it's clearly a premium-priced opportunity. But as you cited earlier, with the approximate $10 million to initiate our phase three confirmatory study in the US, and with that, as Jarrod cited, approximately six months or so to get to the necessary patient enrollment, that we would believe would satisfy the FDA's requirement for the granting of an accelerated approval, you could actually have a horse race depending on when that study was initiated. So if in fact the study is initiated in the first quarter or second quarter of next year, within six months, you're obviously submitting your application to our friends at the FDA and because of breakthrough and fast track, etcetera, it would be an approximate six-month review. So in reality, you could have access to the US market and approval in the US market prior to that of the EMA. And so from a pricing perspective, that would certainly make pricing both in the US and ex-US a little bit easier. Jarrod, without providing price points, if you could provide any additional detail for Aydin and our call participants, I think that would be helpful. Jarrod Longcor: Absolutely. And I'm gonna go in two directions or to pick this in two steps again. As you mentioned, Aydin, the most favored nation discussion has resulted in some interesting outcomes. I think as I'm sure you are aware, that pharmaceutical pricing nature, that some companies, some of the larger companies, have taken a position of rather than decreasing prices in the US, they've taken a strategy of a more flat universal price globally and thereby negotiating harder in Europe and other places for higher prices. And I think that that is a trend that is going to likely continue. You know, there will likely be some downtick in the US price in order to sort of get them more mirrored. But there's a significant increase in Europe. Now as it relates to iopofosine directly, obviously, one of the processes that we have to go through is now to work through the HTA process, which was recently earlier this year. Announced particularly for oncology drugs, this has to be done sort of in parallel with our CMA. That process has been, you know, I can't as Jim sort of alluded to, we're not positioned at this time yet to give specificity on pricing. We have given what we believe and based off our pricing estimates what we would expect in the US. Traditionally, in Europe, those prices can be anywhere from similar to 50% of that as a whole, but, you know, that really comes down to that discussion. The HTA requirement is for even if you do not have a comparator in your clinical study, or in your initial, in our case, in the initial study for CMA, what it would require is that we would do research to evaluate the potential clinical benefit of iopofosine I-131 over comparative drugs. I think the key takeaway on that is that, obviously, based off of the regulatory, the SAWP, and in general, the EMA process prime and everything else, there is a significant unmet medical need that this drug is meeting. And in their own words, that is essentially driven by the fact that these patients do not have treatment options available to them. So there is a justification for negotiating higher percentages under that, the more, the greater the value to the patient and the patient outcomes, the greater the price point can be. And so our expectation is based off the research we have historically done, recognizing that there is no direct comparator that one utilizes, that we are in a position of strength to negotiate or with a partner, negotiate a stronger price point in Europe. Aydin Huseynov: Yeah. Super helpful. Super helpful. And, you know, for modeling purposes, sounds like 2027 is the launch year for both US and EU, which makes it sort of a global launch perspective. Thank you. Thanks so much, and congratulations on this significant progress this quarter. Jim Caruso: Yeah. Thank you, Aydin. Appreciate your participation. Appreciate the questions. Very helpful. Operator: Okay. Our next question comes from Jeff Jones, Oppenheimer. Please go ahead. Jeff Jones: Good morning, guys, and congrats on the progress and the regulatory wins so far. So great progress. Can you comment at all on how the partnering discussions have evolved since the regulatory update? And how you're thinking about partnering, be it US, Europe, or globally? Jim Caruso: Hi, Jeff. Thank you for the question. Much appreciated. Hope you're doing well on your end. Obviously, when we anticipated a positive outcome with our friends across the pond, and did the necessary work on the costs associated with our clinical trial or confirmatory study for the US, it became apparent to us to slow play corporate development discussions until we had the blessing certainly from the EMA on our capacity to file. Obviously, that becomes now iopofosine as a near-term oncology asset in a very robust US market at a minimum. And then when we also, based on our further communications with the FDA, were able to really drill down in terms of line of sight. And this, you know, $10 to $15 million for an upfront-ish to for us to receive an answer from our friends at the FDA. We felt as if we would be in a much better position with both of those. And so we kind of over the early part of the year here, middle part of the year, really slow-played our discussions. It also allowed a handful of other companies to kind of get up to speed on their diligence. So we have a number of companies all in and around the same spot in terms of their understanding of, you know, where we currently sit certainly from a regulatory perspective. And also, quite frankly, the latest data that we've mined from our clinical trial is also very, very supportive of our regulatory approach. So Jarrod has been overseeing and has done a great job in terms of communication on the corporate development side and making certain that we were in a position of strength to optimize the potential value for our stockholders with iopofosine on a number of different fronts. And I'll turn this over to him to provide some additional detail. Jarrod? Jarrod Longcor: Sure. And I'll put that stress great to talk to you. But I'll confess that I'm not sure that I can add much more detail. Jim did a great job there explaining, you know, exactly where we sit. I would say that we, you know, obviously, as you get closer and closer to a regulatory approval, the interest and activity heats up. Especially when you start to be able to position this sort of as we just talked about with Aydin with the potential, you know, conditional market approval in Europe, potential to negotiate from a position of strength on pricing through the HTA process. They can state the potential to, you know, the potential and our approach to manufacture and cost of goods, all of those things put us in a very positive light with most various partners and opportunities. And so we've seen, as Jim said, an increase in that. I think the second part of your question, which might I can dig into a little bit more, which is the strategy. You know, I think we've talked about this before. And we continue to be in this situation. We have ongoing discussions with parties who I would say are either globally focused or are focused on the two predominant regions right now for radiopharmaceuticals, which are the US and Europe. We do have various regional conversations ongoing that are advancing rapidly. So those are, you know, those might be part of those territories or all of those territories. Said another way, be, you know, solely Europe. It could be solely US, could be other territories outside of that. But as Jim alluded to, we have quite a number of parties right now who have either completed or nearly completed their diligence, who have supplied and moved forward into the next phases of partnering. And we continue to try to drive that to maximize both the return for the organization and to ensure, as Jim said in his opening remarks, ensure that the drug is developed in such a way that it does get the patient actual benefit. Jeff Jones: Great. Really appreciate it, Jarrod. And apologies if I missed this on the call. With respect to CLR225 and the pancreatic program, I know you're moving CLR125 ahead in that trial's taking off. Any gating items on CLR225 to begin that trial, or is that something you would move ahead with absent additional financing? Or is that one pending? Jim Caruso: Yep. I believe the team, Jeff, has put us on the precipice of a phase one ready study there with the pancreatic cancer of CLR225. It is a function essentially of financing as the gating issue there. Jarrod, any additional color you'd like to provide? Jarrod Longcor: No. I would agree with you. I think that I'm quite happy to see Danny. Getting element. And as Jim said, we currently sit in a position to essentially initiate the study as soon as the capital is in hand, so to speak. We have the CRO. We have the submissions. We have sites. We have everything ready to run for that study. And as you can see, part of the reason we have announced the various supply agreements is because particularly around actinium, is because what we've done is make sure that we have a consistent supply of actinium so that we are not delayed in any way, shape, or form as it relates to that. Premium sourcing. And that supply gets us from where we sit today based off our forecasting all the way through into commercialization on the actinium program. And that's exactly why we've done that since there are no hiccups or delays on that front. As we've seen with other parties. And so we expect, you know, again, if pending the capital, we expect to initiate that phase one and I'll call it phase one a study. It's really it is a dose-escalation safety study. With the dosimetry component. So at the end of the day, what we'd be looking at is, you know, clear safety and understanding of the uptake and distribution of the molecule, which we don't expect to be very different than what we've seen historically. Jeff Jones: Got it. Great. I appreciate it. Jim Caruso: No. It's alright. I was just gonna make a comment. No worries. I was just gonna make a comment on how significant we view the trip, you know, as an example, the triple-negative breast cancer study. It's a solid tumor. As Jarrod cited, we believe our drug, our conjugate, will behave in a very similar manner to what we've observed with other isotopes as well. CLR124, CLR125, you know, as well as CLR131. And so this is really, I think, for the company, and for validation of our platform, very significant. And, Jarrod, perhaps you could just expand a little bit for our audience, the imaging and dosimetry data that we, you know, expect to collect very early on in this study, that we believe will be, you know, further validating of our platform and in particular, our capacity to be very effective in challenging solid tumors. Jarrod Longcor: Sure. And so I'm gonna blend this because it's the same whether I'm talking about the actinium program in pancreatic cancer with, you know, CLR225. Or the triple-negative breast cancer program with CLR125. In both cases, we're utilizing dosimetry, and for folks that may not be as familiar with the radiopharmaceutical, radiotherapeutic targeted radiotherapeutic strategies here, the benefit of dosimetry is unlike other therapies where we take blood samples and we use that to sort of calculate and guesstimate the amount of uptake into the tumor, and they are also into other healthy tissues. In this case, what we're able to do is actually image the transit of the drug inside the human body. And we're able to identify exactly where it is at different time points. Utilizing that data, we're then able to calculate both the absorbed dose in the healthy tissue and be able to know when we might achieve a level that would be neurotoxic. And on the other side, we're able to calculate the absorbed dose into the tumor. And thereby calculate the expected dose and dosing regimen necessary to be an active therapy in that tumor type. Utilizing that data, you could get what's called a therapeutic window, and you get the opportunity. That is the difference between your therapeutic dose and when you start to see toxicity. And we expect, as we have seen with iopofosine, that this therapeutic window will be significantly wide enough. Interestingly enough, in the CLR225 program back to the pancreatic, so the piece for a moment. One of the great challenges in pancreatic cancer is not just the nature of the tumor and the late stage in which patients are diagnosed. But it's also there is a, what they call, interstitial pressure in the tumor, which prevents most drugs from actually being able to penetrate the tumor because there's fluid pressure pushing back against anything. And interestingly enough, as what we saw when we did this in the animal studies, our phospholipid ethers again give us a unique ability to actually penetrate through that and actually get inside the tumor and get deep inside the tumor, which is one of the reasons why we think particularly in pancreatic cancer, we have a competitive advantage over other programs in that tumor specifically. Obviously, in triple-negative breast cancer, with the CLR125, we've seen similar sort of results, but that comes at it from a different perspective particularly because you have limited targets now in breast cancer. And being able to overcome that with our targeting mechanism that is based off of needed. Jeff Jones: Greatly appreciated. Thank you, Jarrod. Operator: As a reminder, if there are any further questions, should you have a question at all, please press the star followed by the one at this time. You will hear a prompt acknowledging that your hand has been raised. And should you wish to withdraw your request, please press the star followed by the two. Our next question comes from Jonathan Aschoff, Roth. Please go ahead. Jonathan Aschoff: Hi, guys. Good morning. Congrats on the regulatory progress. I was curious just because the full approval is based on PFS. Can you remind us where you are in Clover WM follow-up and where that PFS last came out or at least what it at least is? Jim Caruso: Of course, Jonathan. So thanks for your participation. We have not updated our data since January relative to PFS. And at that point in time, it was very robust and well beyond what you normally would see with salvage therapies and the lines of therapy that we were treating. So, Jarrod, if you want to provide some detail there, I think it would be helpful for Jonathan and our audience. Jonathan Aschoff: Yeah, Jarrod. Please do that. I had eleven point four months after eight months, but you last said you had follow-up beyond twelve months. I just didn't get any further PFS with that additional follow-up. So I'm kind of just trying to reconcile where it is. Jarrod Longcor: Absolutely. And thank you. Thank you for confirming what I was about to say. What I was about to say is we it was eleven point four months with eight months of follow-up. We now have twelve months of follow-up on all patients. That is correct. That was one of the criteria that the FDA for submission for accelerated approval had requested. We now have that. As you might understand, as I'm sure you are aware, you know, basically, where we are in the process, we have not announced additional data. We do not wish we're not in a position, I only want to say, we do not wish. We're not in a position to announce additional data at this juncture largely in part because we are now in a process of trying to submit this for FDA regulation and we don't want to be caught in a situation where the FDA may view us as being promotional as it relates to this data prior to a submission. So at this juncture, the most recent data is that data from January, and that won't be updated in the near term. Or, you know, it's and I'll say in the near term, based off of the requirements in discussions with them. Jonathan Aschoff: Okay. And by the way, the order for pancreatic is file the IND, get funding, start the trial. Correct? Jarrod Longcor: Sort of. So, frankly sorry, Jim. If I jumped in there too fast. The pancreatic cancer study is one that we're not running in the US, so it will be filing and we have filed ex-US with the appropriate authority. To execute the study and have that accepted already. So we're in a position now where it is await the capital and then initiate the study. Jonathan Aschoff: Excellent. Thank you, guys. Jim Caruso: Yep. No worries. And the only additional information that I'll provide in regards to the PFS question, Jonathan, is that when we did multiple advisory boards with, you know, global thought leadership, before Waldenstrom's macroglobulinemia. And what came across very, very clearly was in the patient population, and just for all participants, this was, you know, iopofosine being used essentially as fifth-line therapy. For this patient population. One, you know, the response rate that we achieved was, you know, that sixty percent range was considered outstanding. And more importantly, they gave us insight that four to six months of PFS for that patient population would be an excellent outcome. And, you know, as you cited yourself, with our initial cut of data, we're at approximately one year of PFS. So almost doubling or greater the expectation of thought leadership in WM in terms of what would be considered, you know, an excellent result for patients. Operator: Okay. There are no further questions at this time. I will now turn the call over to Jim Caruso. Please continue. Jim Caruso: Terrific. Thank you, operator. This concludes our call for today. Certainly appreciate the great questions from our analysts and for your participation. As well as, you know, all participants. Of course, this will be up on our website, and a transcript will be following this call. Thank you all very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the GoHealth Third Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. There will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to John E. Shave, Vice President of Investor Relations. Please go ahead. John E. Shave: Thank you, and good morning. Welcome to GoHealth's third quarter 2025 results call. Joining me today are Vijay Kumar Kotte, Chief Executive Officer, and Brendan Shanahan, Chief Financial Officer. Today's conference call contains forward-looking statements based on our current expectations. Numerous known and unknown risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and the company undertakes no obligation to update or revise any of these statements, whether due to new information, future events, or otherwise. Earlier today, we issued a press release announcing our results for the third quarter of 2025. We have posted the release on the GoHealth website under the Investor Relations tab. In the press release, we have listed certain risk factors that you should consider in conjunction with our forward-looking statements. We encourage you to consider the risk factors described in our Form 10-Q and our Form 10-Ks filed with the Securities and Exchange Commission for additional information. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our press release. You may also refer to the Investor Relations presentation on the Investor Relations section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. I will now turn the call over to GoHealth's CEO, Vijay Kumar Kotte. Vijay Kumar Kotte: Thank you, John, and good morning, everyone. Today, more than 65 million individuals are enrolled in Medicare, and nearly half participate in Medicare Advantage. Each year, beneficiaries are challenged to decide how to access their coverage. They face an overwhelming number of plan options and annually need to sift through changes to benefits, networks, and formularies. Our role is to simplify that decision. GoHealth's platform is built for more than 30 million shopping experiences, giving our agents a data-driven view of which plans best align with each beneficiary's eligibility, doctor's prescriptions, and personalized needs. The foundation of our model remains the same: match beneficiaries to the coverage that serves them best, whether that means enrolling in a new plan or confirming their current one continues to be the right fit. Turning to the current Medicare Advantage landscape, demand for Medicare Advantage remains strong, and we believe the role of a trusted broker is more important than ever. However, the shape of growth this year has been different. Based on our analysis, health plans are prioritizing retention, stable member profiles, and unit economics rather than broad expansion. Health plans tightened plan economics, reduced prefunded marketing, and adjusted broker compensation. In some cases, the most consumer-preferred plans were made noncommissionable or were suppressed, and some health plans eliminated or consolidated low-margin plans entirely. The decision to scale back our MA volume earlier this year began when we saw health plans tightening commissions, eligibility, and benefit structures. So we pulled back intentionally. As we disclosed with our Q2 results, we made a deliberate decision in the second quarter to scale back our Medicare Advantage activity in response to tightening health plan economics. We shifted our capacity into GoHealthProtect during SEP and prioritized retention and stable member profiles rather than pursuing volume. Unit economics did not justify incremental volume. What I can tell you based on my personal experience building and running Medicare Advantage health plans is that none of the actions that health plans are taking now are irrational. Frankly, I believe they are very justified and prudent. We believe that health plans are making good decisions and have been clear about what they want and what they do not want. We have been here before. The industry experienced similar pressures previously. We learned from those cycles, and we used those lessons this year to move early. Rather than chasing volume and declining economics, we focused on three key priorities: one, quality over quantity; two, retention over short-term submissions; and three, cash preservation and strategic flexibility. We retained our highest quality agents, shifted marketing toward retention, and adjusted compensation to reinforce objective guidance, including confirming the consumer's existing plan when appropriate. We have significantly reduced overhead while continuing to invest in AI and automation that improve agent effectiveness, consumer experience, and member retention. We are confident that this will keep our platform efficient today and maintain our strategic optionality moving forward. These decisions preserve the capabilities that matter to us: our member book, our retention and engagement model, our leadership in special needs plans, and our efficient platform. We have continued support from our lenders and have enhanced our governance structure to support this strategy. Last quarter, we obtained a new senior secured super-priority term loan facility, including new capital and covenant relief, and we refreshed our board with new directors aligned with long-term value creation. We believe these actions provide the capacity to operate, invest, and evaluate strategic opportunities, including consolidation in a fragmented broker landscape. Health plans have been very clear about what they want today: retention over new growth, quality over quantity, and focused growth on special needs plans. We are aligning our strategy accordingly. We are protecting the parts of the business that matter to us the most. First, our leadership position in special needs plans, where health plans are increasingly reallocating resources. Total available non-special needs plan products declined for 2026, while special needs plan options increased. This reflects a clear industry priority: targeted growth, value, and continuity of care are highest. Second, our high-quality member book that supports payment quality. And third, our retention and engagement model. The broker landscape remains fragmented, and we believe the current environment supports consolidation. With a stronger balance sheet, lender support, and a refreshed board, we believe that we are positioned to lead integration where it creates value, reducing duplicative costs, improving back book cash flow, stabilizing membership retention, and enhancing the consumer experience. We look forward to continuing to provide you with updates as we progress down this path. Here are the messages I want to make sure are clear. First, our pullback is intentional. We prioritize long-term value creation rather than near-term enrollment volume. Medicare is complex, and choice can be overwhelming. Our role is not simply to move members into new plans; it's to help them understand whether their current plan is still the right fit. That balance between guidance and stability has always been core to how GoHealth serves consumers. Second, we preserve the capabilities that matter to us the most, including our technology platform, our retention and engagement model, our high-quality member base, and our leadership in special needs plans. Third, we believe the industry should consolidate. As others face capital constraints, we are confident that GoHealth is positioned to lead, to integrate, to expand when the environment stabilizes. Let me leave you with one thought. If our interpretation of the market proves early or overly cautious, we believe we have preserved flexibility through the protection of the member base, the platform, and the balance sheet. Alternatively, if we had chased projected volume in deteriorating economics, and that assessment was wrong, the downside would have been significant and lasting. We chose the disciplined path. We also remain optimistic. Medicare Advantage is a durable and important part of the US healthcare system, and we expect the market to rationalize as benefit designs, STAR's performance, and cost structures stabilize. Because we read the market and reacted early, maintained our core capabilities, strengthened our balance sheet, and aligned with health plan priorities, we believe GoHealth is positioned to return to revenue growth consistent with prior years when the market rationalizes, but with a meaningfully stronger margin and cash profile. With that, we will open the line for questions. On your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. You may then rejoin the queue. Please standby while we compile the Q&A roster. Our first question comes from Robert Miles McGuire with Granite Research. Your line is open. Robert Miles McGuire: Good morning and thank you for taking my question. So we've seen slowing and even contraction in parts of the Medicare Advantage market this year. Vijay, can you just give us an idea of your view of the Medicare Advantage growth trajectory over the next twelve to twenty-four months and what catalysts could reaccelerate that growth and what capabilities and investments best position GoHealth as the market stabilizes with retention and value-based plans? Vijay Kumar Kotte: No, Rob. Good morning. Good to hear your voice. Thanks for asking the question. This is an interesting topic. The market is one that has been dynamic for a lot of reasons, as you know. The health plans have been a driving force in that, alongside what the government has been looking at and how they can monitor and manage the program at the same time. As we think about the future, the propensity for membership to be stable and or grow again is going to be dependent upon the health plan's ability to rationalize their cost structure, to really double down on their star scores, and to be able to get appropriate rate adjustments from the federal government to be able to invest in those products. So, yes, I think the CMS numbers are a projection of a decrease in market penetration of Medicare Advantage versus prior years. That is probably, in my mind, more of a short-term item. As the product gets reset, and confidence is rebuilt in those products. That's why we feel it's prudent to have taken the action we did because there is uncertainty as to the stability of the new products that I think are out there this year. As we wait, with anticipation, instead of how the health plans will perform under those products. This is also an interesting period where it's not just is the product good today. As you know, in our business, it's about cash flow, cash generation. We book our revenue on an LTV basis, but there's a presumption in those as you invest cash at time zero, that relies upon a year one renewal. And so understanding which products will be stable for multiple years is really critical. And so we do look forward to an opportunity where over the next twelve to twenty-four months, health plans will have stabilized that cost structure so that they can rightsize or rationalize those products, which, again, is consistent with all the verbiage they put out there. But we do believe Medicare Advantage is here to stay. We think this is a very strategic and valuable tool to consumers who matter the most. This is important for their fixed income to be able to manage their total cost. So a long way to say, over twelve to twenty-four months, we do believe that the health plans, according to their own projections, will have stabilized their cost structures, will be refocused in which geographies and which products make the most sense to them. And then we will be able to align with those needs as we have historically. The last point I will say is that there's been no doubt the majority of the health plans have doubled down on their interest in special needs plans. And we have maintained that capability while we continue to invest in our technology to support those focused needs. As we've been a leader in that space for years. Robert Miles McGuire: Okay. I appreciate that. Thanks. And just to follow-up on growth PROTECT, it looked like continued to grow in the third quarter. Can you give us a deeper discussion on the key drivers of that growth? And you're balancing your focus on Protect during AEP? You know, with a more retention-oriented MA posture? And then lastly, how we should think about Protect's 2026 revenue contributions and which quarters could grow or strongest throughout the year? Vijay Kumar Kotte: No. I'm glad you brought it up. GoHealthProtect has been instrumental in the way we think about continued retention of our business. The more we can bring products that can enhance the peace of mind of our consumers, those that we have served in the past who are existing GoHealth customers, as well as new consumers who didn't even know these products were available. And we were able to test these at scale as we talked about on our Q2 call, really moving most of our floor towards focusing on and to deploy it. Learning how to serve the population with this new product set, in an efficient manner. We've got great partners on the other side of the carriers who support these products. And the strategy had always been to have a portfolio of products that align with how we want to serve consumers both existing and new, while being able to oscillate big based upon the seasonality, the natural seasonality that exists in the Medicare Advantage space. And the GoHealthProtect product set actually is very complementary, meaning the peaks and valleys are offset. So when Medicare Advantage is more peaked, it's actually the lower period of time for the GoHealthProtect or Guaranteed Acceptance products. So as we go through the next year, now we understand the seasonality of both very well. We believe they're very complementary. We will go into 2026 with that same approach. And you know, obviously, in the current AEP, focusing a little bit more on MA during the peak closing part of the AEP period where we're doing mostly MA. And then coming right back into the guaranteed acceptance space. And then oscillating a little bit as we read and react to the marketplace in OEP and beyond. But you should not be surprised that as we think about the MA marketplace, it only really changes when benefit plan cycles change. So now we know the new portfolio of products available on the market for the 2026 plan year. What is is what health plans want to do with those. Will they suppress more? Will they change their compensation for all the products that are out there? So we're going to be very tentative on that as we watch and learn from what we saw last year where there were suppression midstream, there were commission changes midstream, and there were continued changes all the way through OEP and going into SEP. So we want to be very thoughtful, and we're prepared for those changes as they might come through. But we are going to make sure that GoHealthProtect is augmented in there and can be more primed during the SEP and OEP period that you might have otherwise assumed. Robert Miles McGuire: Thank you. Operator: Our next question comes from Patrick Joseph McCann with Noble Capital Markets. Your line is open. Patrick Joseph McCann: Hey, thanks for taking my questions. Yeah. First, if you wouldn't mind, I know you've spoken about it already a little bit, but if you could talk a little bit about some of the more detailed reasons why you decided to pull back on the MA side of things. And then, I guess, if you could look at it from two different perspectives. On the one hand, what are the implications for you if you read the market correctly, but on the other hand, what would the consequences be if your assessment ultimately proves to be incorrect? Vijay Kumar Kotte: Oh, good morning, Pat. Good to hear you. So, look, this is actually a fairly simple answer. We listen to what people were saying. We serve two primary constituents. We serve our consumer, the Medicare beneficiaries, who seek our services to help identify the best plan options for them. And we serve the health plan to be able to engage that population and either enroll or retain or service that consumer base. And both parties have communicated to us that this is the market where we need to pull back on new enrollment and focus on stability. The health plans have explicitly said they value retention, and they're going to do everything they can to drive higher retention to grow their membership as opposed to get aggregate new members. They're trying to balance that, but they have indicated they would trade new members for a retained member nearly every time. So we listen to that. The second piece is we looked at the product landscape. We understand that a number of the products that are some of the best in certain are ones that are not even commissionable. And many of the products that we've written are still stable. They are the best products for the consumers that we saw last year. So when we look at that fact base, and we hear what people are looking for, consumers want stability and peace of mind. Health plans want retention over new enrollment. And they're putting their money where their mouth is. And the consumer relationship to us is a long-term play. So when we assess all that, we said the best use of our capital is not to confuse the market. It is to focus on the consumers who relied on us in the past. To drive retention when there's noise to try to probably take some of those members we've served and put in the right plan before to distract them and confuse them into some other product that may be commissionable by another broker. And to make sure our base is stable and knows they're in the right spot. And we feel confident the majority of our membership that we wrote is. And as we proved a couple of years ago, when we launched the plan fit save program, we built a reputation with our consumers that we were going to tell them what was the right thing was for them regardless of whether we got paid for it. And we've done that in a very concerted way on our current membership base as opposed to burning cash in the general marketing trend and having a lot of consumers come in that we're ultimately going to tell them to do nothing. And we believe that should be the most consistent message delivered this year by anybody speaking to a consumer. And so as we think about that dynamic, you could say, well, hey. There's a lot of messages out there today. How do you know you're right? We don't know for a fact that we're right. But our data says that we're directionally correct. The question is, to the extent we're correct, and what are the places that we're wrong? And I would say we as a leadership team, assess it from what are the risks here. The downside of our approach is that we might have not grown as much as we could have. We might have left an opportunity on the table. But we have retained all of our assets or our capabilities. We've maintained a cash position that gives us strength to move forward. We've retained and continue to invest in our technology to be able to scale back when we're ready. So we might be just a little bit behind if we're wrong. But if we're right, and if we're more right than wrong, then that means if we hadn't made this decision, and we had continued to go into the market like, might have otherwise gone because of the attractiveness of the disruption in the marketplace. Then that would have likely burned a lot of upfront cash that would not have been returned, let alone in the first part of next year. But even within a renewal cycle because there's going to be a lower probability of those room to host. And as you know better than anyone, Pat, this industry, you need that first renewal to do a cash on cash return on traditional agency-based business. So in history, Pat, we have always relied on looking at agency, nonagency. When we could do that, when we didn't think products predictable. This year, we didn't have that option because of the health plans lack of interest in new business. And thus, we think if we are would have gone down the path of trying to lead towards growth, in the traditional manner we would have had a lasting result, which would not have been good. And burning cash without an expectation to get a return on it is not the right way to survive the long game in the Medicare Advantage business. So those are the ways we looked at it. Those are the factors we assessed. And that's how we think about it. If we're wrong, we've just got to reramp and get going. But if we're right, the worst thing we could have done was to deploy a bunch of capital in this market. Patrick Joseph McCann: I appreciate that, Vijay. And then and finally, could you talk a little bit about why you think the industry should consolidate and what specifically positions GoHealth to be a leader in that consolidation? Vijay Kumar Kotte: I think there's been development of specialization within the broker space. But there is some unnecessary duplication of cost. We do know that we all serve consumers the same way. And have different approaches to the way we do it. The consumers are seeking the same thing from everybody. And when you think about the way to efficiently invest cash and capital to serve the most consumers you can, without causing extra noise in the market, we believe that large volume of brokers in the industry, a lot of different constituents marketing at a significant level, introduces additional churn by their natural existence. We do believe there's duplicative expense on the fixed cost side, duplicative investments in enhancements in technology and other type capabilities. That if you were to be able to combine, you could take the power of a strong consumer base in your back books deployed against leaner, more built-for-purpose administrative costs, that can allow self-investment of cash. You generate enough cash to drive your growth. Less dependence on cash and compensation models with health plans, it gives you a lot of independence and capabilities. So the market has grown to a point and you found natural leaders who do it the right way. And we believe that natural leaders with different expertise coming together get scale leverage, and that's why we think this is a prime time to do just that. And we're actively assessing the market for those types of endeavors. Patrick Joseph McCann: Thank you. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is open. Ben Hendrix: Hey. Thanks, guys, for taking the question. You know, we've heard from carriers this quarter with Humana setting forth the most direct messaging about slowing new sales, you know, to protect the economics of their existing members and also, in some cases, suspending broker relationships ahead of AEP. We just wanted to get an idea of how pervasive that kind of mentality is across your carrier base. You know, the degree to which you're seeing that in other carriers. And then if Humana is kind of the more you know, just what that weighting looks like in your book in terms of the importance to your Encompass platform and, you know, and other business. Thanks. Vijay Kumar Kotte: Thanks, Ben. Appreciate the question. This is one where I think, you know, you refer to Humana specifically. But what I would tell you is most of the major health plans have learned the lesson. Right, which is going back to '21, AEP, '22. I said in my prepared remarks that we've seen this story before. Any type of outsized growth either intentional or unintentional, has not been a good move or outcome for the health plan who won that disproportionate growth and share. Why? Well, the health plan has been very specific about the challenges in profitability. But in addition, they've also highlighted the headwind it puts on your star scores. And each of the major health plans has been in that spot over the last three to five years. Where they won more than they thought, it had significant profitability challenges. That onboarding challenge leads to Starz challenges off the bat. That for them to onboard all that membership in Q1. And then hits you on the medical cost side. Especially in the v twenty-eight world. So all of that said, the health plans are trying to be very thoughtful of they'd rather grow slower or less than plan and then be able to try to tweak it up. Than to be in a position where they need to pull it back. And I will tell you that is exactly what the health plans are trying to do. Nobody wants broad-based growth. Everybody wants even more than we've ever seen. Very specific targeted growth, very specific limits on it, but nearly every one of them. Had maintained that they want us to focus on stability, consistency, and retention. And that's exactly what we've done. So I think that's what's been happening in the market. That's what the health plans are doing. And that's how we're serving them because nobody wants to be that big winner that yields a big headwind for them in the first quarter of next year. Ben Hendrix: That makes sense. And also, I appreciate your commentary about maintaining flexibility while also significantly reducing kind of costs related to workforce. Wanted just to talk to you about kind of mechanics of a re-ramp. Like, when you when we need to get back into this, you know, into a kind of a full sales mode, kinda what you know, what are the hurdles and the mechanics of getting re-ramped back to full capacity in the future? Vijay Kumar Kotte: No. It's a great question. Obviously, we had to make sure we scrutinize that to maintain all the capabilities that enable that. We've invested, as we've talked about over the last almost three years, in enhancing our technology to do one thing. When I started here, one of the biggest cash burns was the cost of ramping agents during SEP in advance of AEP. Right? Because ramp is always generally a challenge in any dynamic and positive marketing environment. Ramp has been a challenge. And so what did we do? We focused our efforts to standardize our technology and tool. To really leverage how do you tie in your learning and development function to train and bring on agents faster. To deploy them with high quality, to do it in the shortest time possible. When we first started here, it took up to sixteen weeks to get an agent up to ready to sell as we would call it. And have the right training. As you saw last year, we brought on the TeleQuote team. We did that within two weeks and got them to double their production. And that is what our tool can do. So we're maintaining that capacity. Maintaining that capability, continuing to invest in the AI and automation tools, that standardize the process. That's the key to RAM. Standardize the experience so that a new person who's licensed can easily flow in and let the technology do their work and let the agent do what they're supposed to do on the call. Answer nuanced questions and give peace of mind. They can't they're not there to decipher the 3,000 plan. That's what the tech does. So when we think about identifying that market opportunity where the health plans are starting to lean back into it, they tend to give you a little bit of line of sight into that, and then we begin to ramp. And there are plenty of agents out there. When we've needed them, we can go out and get it. Right now, I think a lot of people are available if you wanted to start a ramp tomorrow. Not saying that's what we're doing, but I will tell you that when you want to, we'll be able to find those agents, we'll be able to put them through our platform and bring them on and ready to sell faster than anything we've seen in the market thus far. Ben Hendrix: Thank you. Operator: Our next question comes from James Philip Sidoti with Sidoti and Co. Your line is open. James Philip Sidoti: Hi, good morning. Thanks for taking the question. So I'm trying to figure out how you navigate the next twelve to twenty-four months until enrollment starts to ramp again. You know, where is your cash balance today? And where do you think the what do you think the cash burn will be over the next few quarters? Vijay Kumar Kotte: Yeah. Let's just start. I mean, I think you'll see in our filing approximately $32 million of cash at the end of the third quarter. And, you know, you've also seen we do have access to the continued draws for the new money that we brought in as part of the super-priority lender deal that we entered into at the end of last quarter. But this is really about making sure that you have a plan. Like I said, this is about cash management. This is about making sure deploying cash in an efficient way that is going to give you the best return on cash on cash return on that. And so when we think about our pro forma, we've got our plans in place to enable us to have sufficient liquidity to run and operate our business to maintain compliance with our covenants, etcetera. But give us the flexibility to come back when we're ready. When the market's ready, for us to do that. We're going to be very thoughtful about how we time it. And as we said in the previous response to Ben's question, it's critically important to have the continued investment in technology. We're not stopping our investments in our capabilities. We're going to enhance them. So we're going to be very thoughtful on how we deploy our cash against it. To ensure that we are going to be even more ready. You can have even a shorter time be re-ramped. That's the key. Is being able to turn it up and turn it off. Quickly and effectively. And that capability is what we've, I think, proven to do well. We're going to continue to develop. And that enables us to have confidence that our current plans allow us the liquidity and the capital structure to be able to still be a leader in serving consumers in this space. James Philip Sidoti: And how much capital is available to you from that super-priority facility? Vijay Kumar Kotte: As you may recall, it was $40 million of new money that had multiple opportunities for draw throughout the third quarter here at different trigger points. Based upon time, date triggers. So the short answer is $40 million of new capital since we entered. We have accessible we entered into that agreement. James Philip Sidoti: So, you know, between the cash you have on hand, the additional cash, you know, do you think that's enough and why? Do you think that's enough? Vijay Kumar Kotte: I mean, if we wanted obviously, we think it's enough. Because we think it maintains our capabilities or stability and still allows us to make investments. It also allows us to continue to pursue the consolidation of the industry, which we think is critical. We think that is a major unlock in the space too. But more importantly, how are we able to do it? We're able to do it because we're doing what we do now. We're reading the market, and we're not trying to hope there's going to be a cash on cash return. We want high confidence, risk-adjusted cash on cash return. And I can't stress that enough. The math isn't just six zero six revenue or LTV to CAC. I need year one cash on cash versus a CAC. And so when we start to see that open up, that's when we'll do it. So that rigor, that discipline, around how we deploy the cash is going to lean conservative. That lean is going to enable us optionality. We're always going to leave some business on the table and not try to shoot to the maximum possible. That's being disciplined and thoughtful. This team, my team, which I'm very proud of all the hard work they've done, not easy to make the moves we have. Gives me the confidence that we can continue to be nimble as the market shifts. James Philip Sidoti: Thank you. Operator: As a reminder, to ask a question, please press 11 on your telephone. Again, that is 11 to ask a question. Our next question comes from David Joseph Storms with Stonegate. Your line is open. David Joseph Storms: Good morning and thank you for taking my questions. I just want to start. There's been a lot of emphasis on retention as a core part of the model for this year. Can you maybe walk through some of the logistics, some of the stuff that you're seeing on the ground to support this retention, thinking between conversation structure, any post-enrollment engagement, support, stuff like that? And then maybe any early indications of success from some of the more recent cohorts that you're applying this to? Vijay Kumar Kotte: No. Thank you, Dave. It's an excellent question. It's so important to not just use words. Everybody's saying retention. The question is, what are you doing to put your money where your mouth is on retention? So, yes, we have not done broad-based. You can go assess. You can see an AEP. We're not doing broad-based marketing to the general population. What we're doing is we're having focused service follow-ups with our consumers that we've had in our back book and continue to serve. We want to make sure that we're focusing our agents and not distracting them. So those of you who have ever been in these types of businesses, you'll realize when an agent is on the phone and he has an option to make a follow-up phone call, or and he's seeing a queue of leads coming in, what does that generate? That means you lean towards the new sale typically when you have those leads in, you see the queue. What we've done is we shut that queue off. The queue is only for existing consumers to make sure we're focusing on service them as AEP begins. And that's a really important part of our strategy. Start there. Don't distract. Well, how are you going to make sure that your agents are really going to do a quality job there? You can put quality metrics. You can put KPIs in place. But you've got to change their compensation model. And that's exactly what we did. We did this years ago. We started the Plan Fit Save model. And we've doubled down on that program now. This is not just for interactions that you have on the phone. This is with our new members with Plan Fit Save was taking leads out of the marketplace, and we put them in, and we them through to. When we're doing it now, we're saying we're giving you a special compensation for servicing the back book. Most brokerages out there aren't paying their agents incremental commissions. And or variable compensation. To support individual members. And that is what we've done. So we've done a concerted marketing effort. Complemented by training, technology, which is enhanced to deliver service in comparison of your current plan, and then doubling down on that by putting your compensation model to reward the right behavior. And discourage bad behavior. And so we've done all those. And the early indications and the first few weeks by some of our carriers has already been our retention rate is better than the field. And that's well ahead of where we were in previous years. And so I will tell you that we are very excited about it. We're very proud of our agents. We've retained the best agent. The highest quality who serve the most consumers of this back book. To be able to do just this. And each one of those tactics so we can always be better, is performing better than we had expected. David Joseph Storms: That's very helpful. Thank you. One more follow-up for me. There's been a lot of focus, and I think we've all noticed this. You know, the focus on the shift into special needs plans. How do you feel about your strategic positioning there? You know, maybe what differentiates GoHealth's ability to serve these SNP members effectively? Any training, positioning, anything you're doing to maybe be ready for that shift there would be very helpful. Thank you. Vijay Kumar Kotte: No. Thanks, Dave. The special needs population is one that is actually very near and dear to my heart. I've been building dual special needs plans for nearly twenty years. I mean, it's been a long haul here, and that's a population that has a very unique set of needs and questions. And for the average broker, it is hard. And it's a complicated conversation. It doesn't give the average broker a confidence that they're going to have a consumer enroll and stay on that product. And so what we've done is we've taken that friction with agents out. How do we do that? We use our proprietary technology. The PLANFit tool helps guide not only a through the shopping process, but an agent through the shopping process. To help support integrations with datasets to verify eligibility, to pull in data to give you, you know, potential eligibility on chronic. Special needs plans as well. And then to give the agent confidence that when that is the highest ranked product, meaning a dual special needs plan or a chronic special needs plan, it's the highest ranked product according to our proprietary tools to facilitate enrolling the consumer in that and helping the agent ask real-time questions via our Plan GPT platform. That helps them get very nuanced answers to the specific questions of special needs population. That requires great technology, as we've described, extensive training, and a lot of experience answering the what-ifs for this population. So when we have a lead come in, that's presumptively likely eligible for a special needs plan, our technology is automatically routing that lead to an agent who has in that geography and with those types of special needs plan. It's not random. It's not first in line. It's not a FIFO type approach. What it is is a very thoughtful, AI logic-driven rating and matching system. That ensures that a very special consumer is getting a trained and knowledgeable agent can help facilitate that. Because of all this complexity, that is why health plans are compensated in a different way. This is why health plans are able to drive different margin profiles. With that population. It's an important but complicated population who requires incremental investment to be made in infrastructure to support. We have that infrastructure. We have a differentially delivered in this space, and that is why it's a strategic alignment with what health plans want. So, hopefully, that was responsive, and I know probably a little bit long-winded, but I'm really proud of this technology and what we're able to do to serve this population. David Joseph Storms: Thank you. Operator: I'm showing no further questions at this time. I would now like to turn it back to Vijay Kumar Kotte, CEO, for closing remarks. Vijay Kumar Kotte: Thank you, Daniel. This is a dynamic marketplace. It has been. The key as we look at it is to ensure that we are taking all the information we're exposed to and really sticking true to one clear statement. Most people tell you what you want. So what they want, what they what you need to do is hear it. And we have heard it. We've listened to it. Seen it. We've anticipated it, and we've taken the deliberate and disciplined actions to react to it to enable ourselves to serve everybody the way they want to be served. Consumers want peace of mind. Health plans want stability and retention. They don't want us just risking the market with a bunch of marketing. They didn't invest. They didn't prefund. They didn't provide MDF the same way they historically did. They want to invest in reinforced retention. That's what the health plans have actually done. They put more incentives in retentions and renewals. And we have been nimble to be able to deliver on those capabilities to support exactly those things. Peace of mind, stability, retention. And I'd be remiss if I didn't thank our team who has been so nimble with us and so showed so much integrity, versatility, resilience to be able to trust what we're doing to understand our goal is to serve, and to pass the temptation of short-term opportunity while we think about long-term cash on cash viability and strategic opportunity. So with that, we will close, and I really do appreciate everybody's participation this morning. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Stratasys Ltd. third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations. Thank you. You may begin. Yonah Lloyd: Good morning, everyone, and thank you for joining us to discuss our 2025 third quarter financial results. On the call with us today are our CEO, Dr. Yoav Zeif, and our CFO, Eitan Zamir. I would like to remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release. In addition, a replay of today's call, including access to the slide presentation, will also be available and can be accessed through the Investor Relations section of our site. Please note that some of the information provided during our discussion today will consist of forward-looking statements, including without limitation those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes, and other future financial performance, and our expectations for our business outlook. All statements that speak to future performance, events, expectations, or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys Ltd.'s annual report on Form 20-F for the 2024 year. Please also refer to that annual report along with our reports filed with or furnished to the SEC throughout 2025 for additional operational and financial details. Reports on Form 6-Ks that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's operating results and material developments concerning our company. Stratasys Ltd. assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. In previous quarters, today's call will include GAAP and non-GAAP financial measures. Non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zeif. Yoav? Yoav Zeif: Thank you, Yonah. Good morning, everyone. And thank you for joining us. Our disciplined approach to cost management enabled us to deliver solid operating cash flow generation and EPS in the third quarter. This continues to demonstrate the underlying strength of our business model. As we work to overcome the macro-driven caution facing capital equipment sales, we remain focused on what we can influence: operational excellence, customer partnerships, and executing on our strategy as we advance additive manufacturing adoption with innovative offerings. Customer engagement remained substantive and strategic as we build the foundational infrastructure to drive growth and scale across key high-value verticals of aerospace and defense, particularly drones, automotive tooling, stent shares, precision machine components, and medical anatomic modeling. We are leaders in these areas where additive is a compelling alternative to conventional manufacturing. As we create durable competitive advantages for years to come, our long-term strategy remained centered on the fundamental trends reshaping manufacturing: supply chain localization, next-generation mobility, sustainability goals, personalization, and the unrelenting corporate focus on efficiency and cost reduction. These secular drivers have not diminished. If anything, they have intensified. The evolving trade and tariff landscape, while creating near-term complexity, ultimately reinforces the strategic value proposition of localized flexible manufacturing, precisely what additive delivers. We continue to engage customers on how our technologies can mitigate supply chain risks, address geopolitical issues, and reduce tariff exposure. And we believe these conversations will increasingly translate into action as companies seek resilient manufacturing strategies. Now turning to updates on customer activities that highlight the traction we are building as well as steps we are taking to strengthen key end-market exposure. Our year-over-year increase in hardware sales included a strong quarter for aerospace and defense, where we see continued progress with new customer purchases across all of our manufacturing-focused systems such as F3300, 770, 450, the new NEO 800 plus, as well as H350 and Origin systems. In commercial aviation, we secured wins with industry leaders such as Boeing, Embraer, and others, all demonstrating their continued confidence in our solutions and the critical role our technology plays in environments for the world's leading aircraft manufacturers. Our defense business also showed strong performance as we continued that sector with notable purchases from Honeywell, TE Connectivity, and L3 Harris. We also participated in Trident Warrior 25, the U.S. Navy's flagship fleet experimentation exercise, where we demonstrated the critical role of distributed advanced manufacturing in enhancing military combat readiness. Together with FleetWorks, a naval postgraduate school, we supported the DoD's largest distributed manufacturing demonstration to date, connecting assets across more than 8,000 miles. This exercise showcased our ability to provide both forward-deployed 3D printing capabilities and reach-back production through Stratasys Direct, creating a comprehensive ecosystem that significantly reduces reliance on traditional logistics chains for mission-critical repair and replacement. During the exercise, seven different sites across the globe leveraged our printer to produce lightweight, corrosion-resistant polymer parts that met U.S. Military specifications, demonstrating faster turnaround times and lower delivered cost compared to conventional supply chains. This demonstration reinforces our position as a trusted partner for defense applications and highlights the scalable, practical solution we provide to enhance mission readiness and operational resilience across thousands of miles of distributed operations. Moving to other areas, we are pleased to share that one of the world's largest U.S.-based technology companies, a leader across social media, AI innovation, and virtual and augmented reality hardware, invested in four of our newest FDM F3300 systems during the quarter. Initially, they will be used for large-scale prototyping for their automation platforms as well as their next-gen robot, after which they plan to use these systems to manufacture production parts for the VR and AR products. Our proven SaaS powder-based technology platform continues its expansion across core verticals such as aerospace, automotive, and government. Notably, the third quarter marked a significant strategic milestone with the adoption of the H350 platform by a global top-three pharmaceutical company, opening the door to exciting new opportunities across medical device and drug development applications. Additionally, our collaboration with FAA, the National Institute for Aviation Research, has launched a comprehensive soft characterization program involving five suppliers across key industries, positioning us to address emerging demands for drone components, aviation parts, tooling, and low-volume production applications while establishing the technical foundations for expanded adoption in this sector. In automotive, we extended our multi-year partnership with Andretti Global as the official 3D printing partner of Andretti Indica, building on a successful collaboration that dates back to 2018 with our F370 and Fotos 450 MC systems have supported their engineering efforts. We are now designing an optimized 3D printing lab within Andretti's new headquarters to significantly enhance their additive manufacturing capabilities. This partnership demonstrates the real-world performance advantages our technology delivers in demanding motorsport environments, where faster turnaround times, complex geometries, and higher quality parts are essential for competitive success. Now turning to dental, we are enthused about the strategic investments we are making in our prudent and related solution to accelerate growth in this important vertical. Most notably, during the quarter, we welcomed Chris Cabot as VP and Global Head of Dental. Chris brings exceptional credentials as one of the world's leaders in digital dentistry and additive manufacturing, combining clinical, technical, and commercial expertise. His recent role at Affordable Care, the largest denture manufacturer in the U.S., along with his track record of driving dental additive leadership, positions us exceptionally well for the opportunities ahead. To enhance our dental portfolio, we launched our SoftRelax post-processing solution, helping dental operators reduce manual labor by 90% while minimizing the use of harmful chemicals. We are also proud to be among the first dental additive companies to proactively remove TPO, a common but controversial toxic chemical, from all our dental resins, reinforcing our commitment to patient safety and sustainability. With that, I will turn the call to Eitan to review our financials. Eitan? Eitan Zamir: Thank you, Yoav, and good morning, everyone. Our third quarter results reflected strong execution by our team to leverage notably improved lower adjusted operating expenses by 440 basis points year over year to deliver solid operating cash flow and positive adjusted earnings per share as we effectively worked to offset the continued top-line and gross margin pressure. For the third quarter, consolidated revenue of $137 million was down 2.1% as compared to the same quarter in 2024, reflecting continued macro-driven capital equipment spending constraint. Product revenue in the third quarter was $94.1 million, flat compared to the same period last year. Service revenue was $42.9 million compared to $45.9 million in the same period last year. Within product revenue, system revenue was $32.1 million, up from $31.7 million we produced in the same period last year. Consumables revenue was $62 million compared to $62.4 million in the same period last year. Within service revenue, customer support revenue was $29.3 million compared to $31 million in the same period last year. Now turning to gross margin, GAAP gross margin was 41% for the quarter, compared to 44.8% for the same period last year. Non-GAAP gross margin was 45.3% for the quarter, compared to 49.6% in the same period last year. The change versus the prior year period was in large part due to the increase in tariff. When we initially discussed our expectations, the tariff rate had been set at 10%. However, subsequent to our comments, it was raised to 15%. During the quarter, we started to implement select price increases to help offset the impact of tariffs and look forward to seeing the full quarterly impact in the fourth quarter to help improve gross margins. In addition, lower revenues, change in mix, as well as higher absorption due to inventory reduction had an effect as well. GAAP operating expenses were $78.8 million, 57.5% of revenue, compared to $88.2 million or 63% of revenue during the same period last year. The improvement in expenses was due to our cost-saving initiative among other items. Non-GAAP operating expenses improved to $62 million, 45.3% of revenue, compared to $69.6 million or 49.7% of revenue during the same period last year, due primarily to lower employee-related costs including benefit from the cost-saving initiatives announced last year. Regarding consolidated earnings, GAAP operating loss for the quarter was $22.7 million compared to a loss of $25.5 million in the same period last year. Non-GAAP operating income for the quarter was $100,000 compared to an operating loss of $100,000 for the same period last year, reflecting the impact of improving operating expenses due to our cost-cutting efforts partially offset by lower gross profit. GAAP net loss for the quarter was $55.6 million or $0.65 per diluted share, compared to a net loss of $26.6 million or $0.37 per diluted share for the same period last year. During the quarter, we took a non-cash, non-recurring impairment charge of $33.9 million or $0.40 per diluted share related to our investment in Ultimaker, a key cause for larger GAAP net loss in the quarter. Non-GAAP net income for the quarter was $1.5 million or $0.02 per diluted share, compared to a net income of $400,000 or $0.01 per diluted share in the same period last year. Adjusted EBITDA was $5 million for the quarter, compared to $5.1 million in the same period last year. From a cash flow perspective, we generated $6.9 million in cash from operating activities, compared to the use of $4.5 million in the third quarter of last year. We continue to expect to generate higher positive operating cash flow for the full year 2025 relative to 2024. We ended the quarter with $255 million in cash, cash equivalents, and short-term deposits, $400,000 higher than at the end of the second quarter, with no debt remaining well-positioned to act on value-enhancing opportunities. Regarding our outlook for 2025, we are reiterating the non-GAAP guidance we provided on the last call and adjusting the GAAP net income and EPS due to the previously mentioned non-cash impairment. Specifically, we expect profitability to benefit from our ongoing efforts to drive cost reductions along with our additional plan to mitigate the impact from higher tariffs with select price increases. We are reaffirming that full-year 2025 revenue will range between $550 million to $560 million with non-GAAP gross margin ranging from 46.7% to 47% and full-year non-GAAP operating margin ranging from 1.5% to 2%. We still expect adjusted earnings per share of $0.13 to $0.16 with adjusted EBITDA ranging from $30 million to $32 million. We also anticipate producing year-over-year growth in operating cash flow. Please see the press release or slide presentation for further details. With that, let me turn the call back over to Yoav for closing remarks. Yoav? Yoav Zeif: Thank you, Eitan. We look to the future, we are seeing encouraging signs in the specific verticals and applications where we are focusing. And the stability of our recurring revenue streams continues to provide an important foundation to build growth. While the timeline for broader adoption is extended, we remain poised to seize opportunities as the industry inevitably improves. Our margin discipline and cost actions are helping us effectively protect profitability, which positions us well to leverage our strengthened balance sheet to maintain our technology leadership through strategic investments. As a technology leader, with a comprehensive portfolio spanning systems, materials, and software, we remain confident in our competitive position. Our continuing penetration into key growth industries where we are building the infrastructure to grow in the key verticals where we lead, such as defense, aerospace parts, and automotive tooling, reinforces our conviction in additive manufacturing's expanding role in production applications. As we look to maximize value for shareholders in the coming years. With that, let's open it up for questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. The first question is from Brian Drab from William Blair. Please go ahead. Brian Drab: Hi, good morning. Thanks for taking my questions. I guess it's not morning for you, so I acknowledge that too. Can you talk about the gross margin, and I know you said that you're putting into place mitigating actions and pricing. Do you expect the trajectory to be for gross margin and how quickly do you think you can get it back maybe to the levels that you were seeing last year, fourth quarter, first quarter, second quarter? Can you talk about that trajectory of gross margin we should model? Yoav Zeif: Thank you, Brian, for the question. We anticipate, so first of all, as you mentioned, the impact of the tariffs and the mix and also the absorption due to inventory reduction, which is a good thing, all had an impact on our Q3 gross margin. As you also mentioned, we introduced a price increase during Q3 and we expect a full impact in Q4. We anticipate the improvement increase in gross margin as early as Q4, so in the coming quarter, and we anticipate this to continue to improve also in 2026. It's hard to at this point to say at which level that you should expect improvement in Q4. Brian Drab: Okay. Thanks. And then Yoav, you mentioned a couple of what sound like pretty significant opportunities with the social media AI company and others. Are any of those something for 2026 where you feel like they move the needle on revenue? What are you most excited about in terms of opportunities, specific opportunities that can maybe add some incremental material incremental revenue in 2026? Thanks. Yoav Zeif: Thank you, Brian, for the question. We have a clear strategy. We are going for manufacturing. Period. And this positions us, you know, I would say better than other players. So if I look relatively at the premium markets, those use cases that we are focusing on, and I will elaborate on them, we are in a better position than we ever have been. Because we are the strongest player now in those premium markets, which are our targets. And I'm talking about use cases that frankly we're just getting started there. Aerospace and defense, dental, medical, tooling, and some industrial machine components. But the main ones are those aerospace and defense and tooling. And also, when you talk about machine components and components for consumer goods, those are the AI and consumer goods company, the media company that we shared. No doubt that we will see growth in those use cases next year. We already have seen significant growth in those use cases, especially in hardware this year. So this is our growth going forward. And this is the direction, and I'm sure you will hear more about it during next year. Operator: The next question is from Greg Palm from Craig Hallum Capital Group. Please go ahead. Greg Palm: Yes, thanks. Kind of following up on that last question, but I know last quarter we were talking a lot about some of these more substantial production applications, longer sales cycles that initially maybe earlier this year potentially could land this year. I know that got pushed out. But can you just maybe give us an update on where some of that lies and just to be clear, on some of the stuff that you talked about, are these the same? Or are these sort of additional opportunities? Yoav Zeif: So those are the same opportunities. Because we are very focused. So those are the same opportunities and talking about our asking about sales cycle, we are not there yet, but it's the first quarter for a long time that we see some light at the end of the tunnel, slight improvement in the sales cycle. Because those sales cycles are long, as you said, it could be between a year to two years, and you need specific capabilities as a company to deliver the sales and to have the ability to enable the customers and our partners to be with those full solutions. So going forward, this is the focus. Those are the use cases that I mentioned. We have great examples. Maybe I'll share a real-world example of how additive manufacturing really addresses real-world problems. And I'm talking about in aerospace, I'm talking about supply chain and logistics problems in commercial aviation. I don't know if you remember, but around eighteen months ago, we announced a strategic investment in collaboration with A.M. Craft. It's a European, I think it's EASA certified aviation part manufacturer. We entered into a commercial agreement with them to extend the certification of 3D printed aviation parts based on our technologies. And only this quarter, they purchased two more F900s, and together the F900 and F3300s reach now 10 machines. 10 machines that consume a significant amount of material because it's reproduction. And aerospace is attractive because there is a real problem that they are solving there. You go to the association, I forgot the I think it's a IATA. Association of the Commercial Aviation. There is a supply chain problem there. And only the cost to the airline because of shortage and supply chain issues will be $11 billion only in 2025. And also there is a backlog of new airplanes. So the two big players, Airbus and Boeing, are not meeting the demand, and there is a huge backlog of 17,000 aircraft. It means that the old fleet is aging and needs more spare parts. And here, the solution of additive is exactly addressing the problem. Because you can print in hubs near the airport and you solve problems. So take, for example, a seat that is broken, and this seat needs to be replaced, and you don't have the part, and if it's a business seat, it could be between $5,000 to $10,000 the airline is losing on one flight. So recently, A.M. Craft certified or qualified our Texas strategy direct manufacturing site to produce those certified parts. And in the short term, we're going to certify also our Arizona site and Minnesota site and effectively it will make Stratasys Ltd.'s direct manufacturing the largest service bureau for certified aviation parts worldwide. Where, of course, the U.S. is the biggest market. And essentially create a distributed network for on-demand production of spare parts. When it takes time to build this infrastructure, but once you are there, it's a new world of production and maintenance. This is our focus, and this is only one example out of five use cases. Greg Palm: Yep. Understood. Okay. And then my second question on consumables, it's trending down a little bit on a year-over-year basis through the first nine months. I know at one point, we were thinking a little bit of growth this year. Is that still the case? Or what's your what's sort of the implied revenue range for Q4 for consumables specifically? Yoav Zeif: Okay. Thank you. Consumables would practically issue a flip. Or stable. And know, and this is despite the challenging environment that we all see around us in terms of constraint on expenses. Because we have a resilient model there, where people are keep buying our material. But there will be a change. Because I'm trying to connect it to our focus on use cases, manufacturing use case. Every manufacturing machine consumes much more than a prototyping machine. It's not a secret that we are not focusing on our installed base in entry-level rapid prototyping, low on rapid prototyping. So we are not focusing there. It means that someone else will sell in the future to this install base. We are focusing on the high end on those use cases that consume sometimes 10 times more in terms of utilization and consumption of material than a rapid prototype machine. And because we are selling more F3300 like to this media company, and more H350 and more FDM and P3 and SLA large machines, real industrial machines, we will see gradually consumption going up. Operator: The next question is from Troy Jensen from Cantor Fitzgerald. Please go ahead. Troy Jensen: Hey, gentlemen. Thanks for taking my questions. Maybe just start with Eitan here. OpEx $62 million on a non-GAAP basis. Do you expect that to like start to grow now on a sequential go-forward basis? Or are we still doing kind of cost cuts and cost controls here? Eitan Zamir: Sure. Thanks, Troy, for the question. As you mentioned, if you compare year over year, we're at $69.6 million Q3 last year, we're down to $62 million. And I believe we shared with you quarter after quarter the tight management of OpEx and continue to do that. Actually, expect Q4 to trend slightly down relative to Q3 in OpEx terms. But we continue to invest, of course. So we're going forward, we will balance between tight cost management and of course securing our growth engine and investing in R&D and sales and marketing. Troy Jensen: Got it. Okay. And maybe for Yoav here. On the production application, I've always been told that it's the material pricing is the biggest variable in the price per part. So can you just talk about like pricing structure? How do you just thoughts on like forward gross margins on materials too with maybe potential pricing structures on material pricing? Yoav Zeif: Thank you, Troy, for the question. Definitely, this is one of the areas we are making investments and making sure that we will differentiate ourselves because we are creating scale and material. So we are acquiring material players, you know it. And we are consolidating the deck operation and making sure that we are creating the scale and coming with more affordable materials. Having said that, the high-performance material in many, most of the applications that we are targeting is not a barrier. So if I take aerospace, high-performance material, the barrier is certifications and not the cost of the material because we are solving such a huge problem in aerospace that we have enough space to charge. But we understand that long term, this is something that we need to work on year over year over year and we are doing it and you will see gradually that we are improving the material prices in order to penetrate more applications. Operator: The next question is from Alek Valero from Loop Capital Markets. Please go ahead. Alek Valero: Thank you for taking my questions. Yes, I wanted to ask, can you speak to how big you view the dental opportunity now and how much you think you can capture there? And additionally, any details on timing? Yoav Zeif: Thank you, Alek, for the question. So, of course, we are not sharing specific numbers around specific applications. But you know I can only share on dental that we lately recruited probably one of the most talented digital dental experts in the world, Chris Cabot. He came from Affordable Care, which are the largest denture player in the U.S. And you just do one by one. He selected us because of the technology and the prospect of our technology going forward. We have a clear plan there. We know exactly what we are doing, where we need to focus. It's about restorative dental, it's about specific use cases that we can win with our two unique technologies, the PolyJet and P3. And as it's being reflected already, we have already two of the leading U.S. providers, Affordable Care and Glidewell, are already our customers. So it's a main focus for us. We are very positive about it. And we believe that we have the most superior offering in terms of color, option, lightweight, cost, and we take it forward. This is for us is this is the way forward. It's personalization. It's customization. It's all the value that with the unique additive brings innovation the strategy is bringing to the table. Alek Valero: Super helpful on that. And just a follow-up. This is a so on the purchase of four of your F3300s by an AI social media company, which sounds like Meta. Do you foresee any future purchases? And additionally, I believe you said that the uses for prototyping with the plan to manufacture production parts. If and when they reach the point of manufacturing, what does that look like for you in terms of incremental products and software purchases? Yoav Zeif: Thank you. Of course, we cannot share the name of the customer. But we can share the prospect of the application. We are very excited about it from two aspects or from two different viewpoints. One, the potential is huge. But the other, we have been chosen from many other competitors after a very long sales cycle, which is a proof point to our capabilities in high-end FDM. So the F3300 is not a story. It went through certification. It went through tests. We printed benchmark the same with aerospace, by the way. And we are talking about those companies want to create capabilities where they start with prototyping, but immediately they can use the same machine for manufacturing, which is a huge advantage in terms of speed and being in the market before their competitors. So this is the main thing business-wise that they see in our technology. Operator: This concludes the question and answer session. I would like to turn the floor back over to Yoav Zeif for closing comments. Yoav Zeif: Thank you for joining us. Looking forward to updating you again next quarter. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome, ladies and gentlemen. Thank you for your patience. You have joined Xunlei Limited's third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to turn the call over to your host, Investor Relations Manager, Ms. Luhan Tang. Please go ahead. Luhan Tang: Good morning, and good evening, everyone. Thank you for joining Xunlei Limited's Q3 2025 Earnings Conference Call. With me today are Jinbo Li, Chairman and CEO, Eric Zhou, CFO, and Lily, Vice President of Finance. Our IR website has our earnings press release to supplement our prepared remarks during the call. Today's agenda includes prepared opening remarks from Chairman and CEO, Jinbo Li, on Q3 operational highlights, followed by CFO Eric Zhou's presentation of financial results details of Q3 2025 and the revenue guidance for Q4 2025 before we open up the floor to your questions. In the Q&A session, Jinbo Li will answer your questions. Please note that this call is recorded and can be replayed on our investor relations website at ir.xunlei.com. Before we get started, I would like to take this opportunity to remind you that the discussion today will contain certain forward-looking statements made under the safe harbor provisions of The US Private Securities Litigation Reform Act of 1995. Such statements are based on our management's current expectations under existing market conditions and are subject to risks and uncertainties that are difficult to predict, which may cause actual results to differ materially from those making forward-looking statements. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. Xunlei Limited assumes no obligation to update any forward-looking statements, except as required under applicable law. On this call, we will be using both GAAP and non-GAAP financial measures. Reconciliation of non-GAAP to comparable GAAP measures can be found in our earnings press release. Please note that all numbers are in US dollars unless otherwise stated. Now the following is the prepared statement by Jinbo Li, the Chairman and CEO of Xunlei Limited. Jinbo Li: Good morning, and good evening, everyone. Thank you for joining us today. We are pleased to report that 2025 continued to demonstrate positive growth momentum supported by solid performance across all of our major business operations. Our top line exceeded the upper end of our expectations, reaching total revenues of $126.4 million, representing a year-over-year increase of 57.7%. This outcome underscores the effectiveness of our initiatives to enhance user experience and deepen community engagement, as well as the further extension of our overseas audio live streaming operation. Our bottom line, on the other hand, continued to benefit significantly from the increased stock price of our investee company, Arashi Vision Inc., during the third quarter following its IPO in June, and reflected a gain of $545.8 million resulting from the fair value changes in our approximately 7.8% equity stake in the company. We believe that future realization of investment gains will drastically strengthen our balance sheet and provide strategic flexibility to pursue opportunities in research and development of new technologies, pursuing industry collaboration, selected investments, as well as more options for shareholder return. Now let me take a moment to walk you through each assessment and share some insights into the key drivers behind this performance. In Q3, our subscription business achieved significant milestones, generating $40.7 million in revenue, a 22.3% increase compared to the same period in 2024. This sustained growth underscored the strength and resilience of our model, as well as increased trust users placed on our product offering. A key highlight was the subscription revenue reaching a record high, reflecting strong market demand for our services. This upward trajectory is attributable to several strategic initiatives driven by continuous product integration and integration of user feedback, which enhance user satisfaction and build organic growth. We developed more refined strategies tailored to various platforms, enabling effective engagement with diverse audience segments across demographics. Furthermore, our live streaming and other services achieved robust year-over-year revenue growth of 127.1% in the third quarter, reaching $49.1 million. The growth was primarily driven by the rapid expansion of our overseas audio streaming operations, which have gained strong traction in multiple international markets. In addition, the acquisition of Hufu significantly contributed to our advertising revenue, bringing in high-quality monetization opportunities through its established platform and audio audience reach. Hufu's strong presence in the sports digital space has allowed us to tap into the highly engaged community of sports enthusiasts, enabling more effective and fast targeting and higher advertiser satisfaction. Finally, our cloud computing business generated $36.6 million in revenue, representing a significant year-over-year increase of 44.9% compared to the same period in 2024. This notable growth reflected a strong recovery from earlier setbacks, with the rebound in client demand, particularly among large enterprise customers. We successfully capitalized on emerging opportunities by enhancing our service offerings to provide more tailored, cost-effective, scalable, and secure solutions. Despite the increased revenues, our cloud computing business still faced challenges and headwinds. Looking ahead, we intend to foster innovation, enhance operational resilience, and capitalize on emerging opportunities to drive long-term growth and deliver enduring value to our shareholders. With that, I will now pass the call over to Eric Zhou. Eric will give a detailed review of our Q3 2025 financial results and provide revenue guidance for 2025. Thank you. Eric Zhou: Thank you, Luhan Tang. Thank you all again for participating in Xunlei Limited's call to discuss the financial results of 2025. In the third quarter, our total revenues were $126.4 million, representing an increase of 57.7% year-over-year. The increase in total revenues was mainly attributable to the increased revenue generated from our major business operations. Revenues from subscribers were $40.7 million, representing an increase of 22.3% year-over-year. The increase in subscription revenues was driven by the increase in the number of subscribers and an increased average revenue per subscriber. The number of subscribers was 6.56 million as of September 30, 2025, compared with 5.51 million as of September 30, 2024. The average revenue per subscriber for the third quarter was RMB 44.2 compared with RMB 40.9 in the same period of last year. The higher average revenue per subscriber was due to the increased portion of premium subscribers, which have higher average revenue per subscriber. Revenues from live streaming and other services were $49.1 million, representing an increase of 127.1% year-over-year. The increase was mainly due to the growth of our overseas audio live streaming business as well as our advertising business. Revenues from cloud computing were $36.6 million, representing an increase of 44.9% year-over-year. The increase in cloud computing revenues was mainly attributable to the increased demand from major customers for cloud computing services. Cost of revenues were $65.4 million, representing 51.7% of our total revenues, compared with $39.4 million or 49.1% of the total revenues in the same period of 2024. The increase in cost of revenues was mainly attributable to the increase in bandwidth costs and revenue sharing expenses in our overseas audio live streaming operation, especially generally in line with the growth in revenues. Bandwidth costs included in cost of revenues were $38.3 million, representing 30.3% of our total revenues, compared with $24.8 million or 31% of the total revenues in the same period of 2024. The increase in bandwidth costs was primarily due to the increased sales of our cloud computing services. Gross profit for 2025 was $60.5 million, representing an increase of 49.6% year-over-year. Gross profit margin was 47.9% in 2025 compared with 51.5% in the same period of 2024. The increase in gross profit was mainly contributed by our online advertising business, overseas audio live streaming business, and subscription business. The decrease in gross profit margin was mainly attributable to the decreased gross profit margin of our cloud computing business and higher proportion of revenues derived from our audio live streaming business, which has a lower gross profit margin. Eric Zhou: Our R&D expenses for 2025 were $21 million, representing 16.6% of our total revenues, compared with $17.7 million or 22.1% of our total revenues in the same period of 2024. The increased expenses were primarily due to the increase in labor costs as compared with the same period of 2024. Sales and marketing expenses for 2025 were $25.8 million, representing 20.4% of total revenues, compared with $11.5 million or 14.3% of our total revenues in the same period of 2024. The increases were primarily due to more marketing expenses incurred during the quarter for our subscription and overseas audio live streaming business as part of our ongoing efforts on user acquisition. G&A expenses for 2025 were $10.9 million, representing 8.6% of our total revenues, compared with $11.4 million or 14.4% of our total revenues in the same period of 2024. The decreased expenses were primarily due to the decrease in labor costs, partially offset by the increase in provision for litigations and the share-based compensation expenses during 2025. Operating income was $2.7 million compared with an operating loss of $200,000 in the same period of 2024. The increase in operating income was primarily attributable to the increase in gross profit, partially offset by the increase in marketing and other operating expenses during the quarter. Other income net was $547.7 million compared with other income net of $4.8 million in the same period of 2024. The increase was primarily due to the fair value changes in the third quarter for our long-term investment in Arashi Vision Inc., which completed its IPO in June 2025. Net income was $550.1 million compared with net income of $4.4 million in the same period of 2024. The increase in net income was primarily due to the increase in other income, as mentioned above. Non-GAAP net income was $5.3 million in 2025, compared with $4.9 million in the same period of 2024. The increase in non-GAAP net income was primarily due to the increase in operating income. Diluted income per ADS in 2025 was $8.60 compared with diluted earnings per ADS of 7¢ in 2024. Non-GAAP diluted earnings per ADS was 9¢ in 2025, compared with non-GAAP diluted earnings per ADS of 8¢ in the same period of 2024. As of September 30, 2025, the company had cash, cash equivalents, and short-term investments of $284.1 million compared with $275.6 million as of June 30, 2025. The increase was mainly due to the increase in net cash inflows from operating activities during the quarter. Turning to our guidance for 2025, Xunlei Limited estimates total revenues to be between $131 million and $139 million. The midpoint of the range represents a quarter-over-quarter increase of approximately 6.8%. These estimates represent management's preliminary view as of the date of this press release, which is subject to change, and any change could be material. Now we conclude prepared remarks for the conference call. Operator, we are ready to take questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Just a moment for our first question, please. The first question comes from Xiaolan Tan from BT Capital. Please go ahead. Luhan Tang: So the investor was asking, Xunlei Limited has not paid any dividend historically. Given the fact that the recent investment in Arashi Vision Inc. and the upcoming expiration of the lockup period next year, does Xunlei Limited plan to consider dividend distribution in the future? So, since we hold more than 5% of the shares, if we want to sell our shares, we have to follow certain regulatory rules and also the regulations. So far, we do not have any plans for the share disposals or the dividend distribution. Operator: Thank you. The next question comes from Xiaolan Tan from BT Capital. Please go ahead. Luhan Tang: So the investor is asking, Xunlei Limited has previously mentioned that we would embrace artificial intelligence. Are there any progress made so far? We are very excited for the future of artificial intelligence. We are actively exploring the opportunities in this field. We look forward to sharing our progress with you in the future. Thank you. Operator: Thank you. As a reminder, to ask a question, please press 11 again. Thank you. I see no further questions at this time. I will now pass back to management. Eric Zhou: Thank you again for your time and participation. If you have any questions, please visit our website at ir.xunlei.com or send emails to our investor relations. Have a good day. We conclude today's conference call. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day and welcome to the Ondas Holdings Inc. Third Quarter 2025 Conference Call. All participants will be in listen-only mode. After today's presentation, before we begin, the company would like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Ondas' best current judgment, they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward-looking statements. These risk factors are discussed in Ondas' periodic SEC filings and in the earnings press release issued today, which are both available on the company's website. Ondas undertakes no obligation to revise or any forward-looking statements to reflect future events or circumstances, except as required by law. During this call, Ondas will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. Please note this event is being recorded. I would now like to turn the presentation over to Eric Brock, Chairman and CEO. Please go ahead. Eric Brock: Well, thank you, operator, and good morning. I want to get started by welcoming everyone to our quarterly conference call. We appreciate you joining us today and for your continued interest in Ondas. I'm happy to be joined this morning by key members of our leadership team, including Neil Laird, our CFO, Oshri Lugasi, the Co-CEO of Ondas Autonomous Systems, Meir Kliner, President of OAS and the Founder of Aerobotics, and Markus Nottelmann, the CEO of Vantas Networks. So let's turn to the agenda. We'll begin the call with a review of our key highlights from 2025. Then I'll hand the call to Neil for a financial review of our Q3 2025 results. After that, we'll provide business updates for our OAS and Ondas Networks business units, we'll ask Oshri, Meir, and Markus to share commentary on current business activity and progress against our plans. During our OAS business review, we will also share some context on the progress of our strategic acquisition program. And we will also hear from Tal Cohen, the Founder and General Manager of Centrix, who's joining the call to share some insight into the Centrix technology platform and business as well as a strategic fit with Ondas. After the operational updates, I will share an outlook for the remainder of 2025 and beyond as we continue to see strong execution on our growth strategy, and further momentum into 2026. Then we will wrap the call and open the floor for investor questions. Let's start by setting the stage for today's discussion. Simply put, Ondas is positioned for success. That positioning wasn't luck. It's the result of years of hard work, discipline, and planning. We've earned it, as have our investors. We've built a strong foundation through talent and perseverance and again, through the support of our investors. And now we find ourselves at the heart of an industry-wide transition. The autonomous and unmanned systems defense and security markets have reached an inflection point, moving from technology development to platform adoption. As we said many times, the market from here will be defined by scaled operating companies, not by those simply introducing new technology platforms. Innovation and technological advancement remain critical, but they're not sufficient on their own to create high returns on capital and equity value. The winners from this point forward will be those who can leverage the extraordinary advancements in autonomy, unmanned systems, and physical AI to build durable, efficient, and scaled businesses. That's exactly what we're doing at Ondas. We're demonstrating platform adoption and validation across both our Optimus and Iron Drone systems and with the new technology platforms we are layering in at OAS. We're benefiting from strong market demand. While seeing firsthand the beginning of what we believe is a major counter-UAS boom where Ondas is extremely well positioned to win. In July, we laid out our core plus strategic growth plan and the response has been tremendous. Truly a mandate from our investors to execute. Immediately demonstrated execution on that plan. We are doing what we said we would do. Because we've been planning for this transition for years. This plan creates value across the board. For our customers, partners, and the incredible talent driving Ondas' growth. It, of course, creates opportunity and long-term value for our investors. A key enabler of that success will be our balance sheet strength. We've raised approximately $855 million since June to support our growth plan. We believe Ondas now has one of the strongest balance sheets in the industry, giving us access to a deep capital pool and a meaningful cost of capital advantage. Access to low-cost capital is a foundation of a true competitive advantage, one that allows us to move decisively, scale efficiently, and lead confidently in the fast-growing markets we are attacking. To support the coming boom in autonomous unmanned technologies, the industry needs scaled leaders, companies capable of operationalizing the technologies that have been validated in the field. Ondas is focused on that exactly. And again, deliberately executing the growth plan that we laid out in July. Now let's turn to the overview. Momentum continues to build at Ondas, and I'm very pleased to report that we delivered another record quarter. Not just financially, but also operationally. In the third quarter, we generated $10.1 million in revenue, a more than six-fold increase year over year, up nearly 60% sequentially from Q2. Our consolidated backlog grew to $23.3 million, more than double where we started the year, and that number reaches over $40 million when including another $18 million related to acquisitions that have closed or pending closure in the fourth quarter. We expect our backlog to grow through 2025 as our pipeline matures, given the strengthened visibility on customer order plans. Given the strength of our execution and our expectations for strong market demand, we are raising our full-year 2025 revenue target to at least $36 million, which means we expect to generate more than $15 million in revenue for Q4. We are also establishing a goal for at least $110 million in revenue for 2026. The outlook for Q4 and 2026 is being driven primarily by OAS, where we continue to expand with existing customers and add new ones. Our customer pipeline is expanding and maturing, and we expect a strong end to 2025 from an order standpoint, which supports our outlook for significant ongoing growth in 2026. The OAS team is building the operating infrastructure to support a multiyear growth outlook. We're scaling production, fuel services, and sustainment capabilities to meet accelerating global demand for our autonomous and unmanned systems. Oshri and Meir will share more details on the investments we are making in scaling operations. At the same time, our strategic growth program is accelerating. This is the evolution we've been planning. Moving from standalone technology platforms towards a system of systems model that unites air, ground sensing, and communications into an integrated autonomy ecosystem. The evolution enables a faster path to operational maturity, and we believe unlocks significant upside to both revenue and profitability. To further maximize the opportunity ahead of us, we established Ondas Capital, which we launched in the third quarter. Ondas Capital is building a technology bridge from Ukraine to The United States and allied European nations. Focused on scaling combat-proven unmanned and dual-use technologies into production and commercialization. This initiative broadens our reach, strengthens our industrial base, and supports the growing alignment between innovation, security, and economic resilience. Meanwhile, Ondas Networks continues the hard work to drive adoption of its point six zero wireless connectivity platform. As Markus will share, the AAR's wireless communications committee formally selected DOT 16 as a wireless roadmap standard for all AAR-owned frequencies. Including the 900, 450, and now 160 megahertz networks. While the hard work will continue, this formal designation validates our long-term strategy and continues to position Ondas Networks as a center of a generational upgrade cycle for railroad communications across North America. Finally, from a financial standpoint, the company remains exceptionally well-capitalized. We raised approximately $855 million in equity in 2025, providing the capital strength to support our business plan, including both our core operations and our strategic initiatives. We are investing this capital to accelerate growth and shareholder value creation as we said we would. To summarize, Ondas is positioned for continued record growth through the balance of 2025 and into 2026, and we continue to build what we believe is an important and valuable defense and security technology company. I want to now provide some context for the critical objectives defined within our long-term business planning. What you see here is a continuation of the strategic roadmap we've been building over the past year. A roadmap that's now delivering real tangible results. Ondas today is no longer just a developer of market-leading technologies. We are building a scaled operating platform that connects world-class talent, technology along with partners, and customers into a unified growth engine. At the center of this effort is Atlas Autonomous Systems, where we continue to build the core OAS operational platform. Under Oshri's leadership, that platform is scaling rapidly, supported by seasoned executives, an impactful cross-functional advisory board, and a growing ecosystem of partners across technology, sales, and production. Oshri and Meir will share more details on the operational infrastructure we are building later in the call. Over the last several months, we've expanded the scope of our capabilities through strategic acquisitions and investments that strengthen our operating foundation and extend our reach across multiple domains. We entered into a definitive agreement with SentriX, which will bring advanced cyber over RF drone detection and mitigation to complement our Iron Drone Raider. We added the Paral Motion, which expands us into unmanned ground systems, robotics, and fiber optic communications. And we acquired Forum Defense, a leader in subsurface intelligence and demining robotics that brings a new dimension to OAS' economy portfolio. Other smaller yet strategic acquisitions that contribute engineering, AI, and optics expertise were added, and that includes SPO, Zico Engineering, and Insight Intelligent Sensors. At the same time, we formed a strategic partnership and made a minority investment in RIF Dynamics, whose attributable drone platform and leadership in European defense markets position us perfectly to capture new opportunities in allied regions. Taken together, these additions create a growing portfolio of capabilities that make Ondas a more complete and competitive company, spanning air, ground sensing, and communications technologies. And as we expand this platform, we're also expanding our talent base, customer reach, and partner ecosystem, each one reinforcing the other. This creates true operating leverage, which we believe will drive faster growth, stronger margins, and higher profitability as we scale. And the speed at which we do this is very important. The key message here is that this is not just a compilation of technologies and corporate entities. We are building a scalable, unified service delivery platform designed to service demanding customers and use cases, importantly, accelerate revenue growth in our path to profitability, building a stronger, more diversified Ondas, one capable of sustained performance, multi-domain leadership, and meaningful long-term value creation. Now let's turn to Ondas Capital. We are very excited to have formally launched Ondas Capital, which represents a powerful new strategic growth platform for the company. Ondas Capital is a multiyear initiative designed to deploy $150 million to accelerate the transition of battle-tested unmanned and dual-use technologies from Ukraine and other allied nations into trusted U.S. and European production. The mission is straightforward, to scale proven technologies in unmanned systems, AI, and dual-use innovation that are already validated in the field and ready for production, whereby Ondas and our partner ecosystem can drive faster, more cost-effective deployment across the major defense and security markets in the U.S. and Europe. Neil Laird: We Eric Brock: This effort is not just about capital. It's about building an industrial bridge between innovation and deployment. By integrating investment, production, and market access, Ondas Capital will help drive commercialization of critical defense and security technologies, strengthen the Allied industrial ecosystem, and create meaningful long-term value for our shareholders. A major strategic benefit of Ondas Capital is its global footprint. We are anchored here in The United States, we now have forward offices and key allied innovation in financial quarters, including Boston, New York, Kiev, Tallinn, London, and Frankfurt. Being on the ground in Eastern Europe and Ukraine is a critical advantage. It allows us to directly access cutting-edge combat-proven technologies while working side by side with our partners and allies at the frontline of innovation. This complements our deep operating experience in Israel, where we've demonstrated how to take advanced defense technologies and scale them successfully through production, global partnerships, and commercialization. We believe Ondas Capital will become a cornerstone for strategic growth, international collaboration, and industrial resilience while creating new pathways for financial and operational expansion across the Ondas Group. And finally, in the interest of time today, keeping my comments brief, but I'm pleased to share that we plan to host a dedicated Ondas Capital investor call in December. James Acuna, who is leading this initiative, will join me along with our leadership team to provide a deep dive into the opportunity, business model, and financial plan for Ondas Capital. We're incredibly proud of the progress to date and I look forward to sharing much more very soon. I will now hand the call to Neil to provide a detailed financial update. Neil? Neil Laird: Thanks. Thank you, Eric. As I get started, I wanted to remind our investors that our financial statements reflect the early stage of platform adoption for our products. And the initial success of our acquisition program. We expect to demonstrate a significant revenue increase over the next few quarters, both from organic growth and from our acquisition pipeline. Revenues increased over 580% to $10.1 million in the third quarter, up from $1.5 million in the third quarter of last year. This increase was driven by OAS revenues, which were $10 million compared to $1 million a year ago. It reflects the ongoing deliveries of Iron Drone and Optimus Systems, and contributions from Apero ground robots related services. Under contracts from military and public safety customers. Gross profit was $2.6 million, representing a 26% gross margin in the third quarter. As compared to a gross profit of $50,000 in 2024. The increase in gross profit year over year results from increased higher margin product revenue at OAS. Compared to lower margin service and subscription revenue in 2024. Gross margins can be volatile on a quarter-to-quarter basis due to revenue levels that reflect the early stages of platform adoption, certain fixed service costs reflected in our cost of goods sold, and shifts in revenue mix between product development, product development, and services revenue. Operating expenses increased to $18.1 million for 2025 as compared to $8.7 million in 2024. An increase of $9.4 million. Our operating expenses increased primarily due to an increase in personnel costs as we are investing in leadership to support our business growth and strategic initiatives. Those operating expenses include an increase of $5 million of noncash items. Cash operating expenses, which exclude non-cash items such as stock-based compensation, depreciation, and amortization, were $11.6 million in 2025. Compared to $7.2 million in 2024. An increase of $4.4 million. The increase in cash operating expenses is due primarily to higher personnel costs. Particularly with the OAS operating infrastructure build-out and similar Ondas Holdings. Similarly, at Ondas Holdings to support expected business expansion in the coming quarters and the company's strategic growth plan. Adjusted EBITDA loss increased $1.7 million to a loss of $8.8 million for the current quarter. The operating loss was $15.5 million compared to $8.7 million in the third quarter of last year. Now let's turn to the cash flow statement. We had cash of $433 million as of 09/30/2025. Compared to $30 million as of 09/31/2024. Cash used in operations for the first nine months remained relatively flat at $26 million compared to $25.4 million for the first nine months of 2024. Cash used in investing activities for the first nine months of 2025 included a handful of strategic investments as indicated on the slide. We find these investments as a good use of cash and expect much higher returns than money market investments. We have discussed in detail the strategic relationship with RIF previously as it relates to investments in companies such as Lightpath, Copen, and Safepro, we believe we have unique expertise to evaluate the opportunity for financial return. And these companies also offer strategic business relationships within our partner ecosystem. We generated cash from finance activities of $448.2 million during the first nine months of 2025. The majority of this came from the equity offerings in June, August, and September. In addition to $24.7 million from the exercise of warrants and stock options. We expect operating cash utilization to continue to improve in the coming quarters. Improved cash efficiency comes from operating expense leverage at our OAS business unit, given our expectation of increased revenue and gross profit growth over the course of 2025, and into 2026. Further, our partnership with Clear, which we expanded in July, will support our revenue growth, including for revenue streams we add through our strategic acquisition program. This working capital is non-dilutive credit facilities to fund certain inventory and accounts receivable balances. Again, we held cash of $433.4 million as of 09/30/2025. Compared to $30 million as of 09/31/2024. We are pleased with the results of our program to improve the structure of the balance sheet. By raising cash and converting debt. Shareholders' equity as of 09/30/2025 was $487.2 million compared to $16.6 million as of 09/31/2024. Furthermore, Ondas' pro forma cash balances were $840.4 million and stockholders' equity was $894 million adjusted for the $47 million in net proceeds raised in an equity offering on 10/07/2025. And before cash used for operations and to finance acquisitions and investments in the fourth quarter. And I'll hand it back to you now, Eric. Eric Brock: Now when we transition to a review of our business units and ask Markus, Oshri, and Meir to provide updates on business development activity and operations at OAS. Start first with Markus who is moving OAS on our DOT 16 platform deeper into the railroad operating groups which will eventually have its rewards. Markus? Markus Nottelmann: Thank you, Eric. It's great to be here and to update you on some of our key initiatives and developments in Q3. To pick up from our last earnings call, support throughout the rail sector continues to build around DOT 16 P, the IEEE standard that Ondas has pioneered and continues to support in advance. In September, the Wireless Communications Committee, a specialized working group within the Association of American Railroads, announced that it has selected DOT 16 for all new developments in the AAR-owned frequencies. This represents the AAR's commitment to 16 not only on the 900 and 450 but also on the 160 megahertz network. Again, this means that all of the AAR-owned frequencies are destined to adopt DOT 16, the DOT 16 wireless platform. As outlined in the Q2 earnings call, the 160 MHz network has characteristics that make it a compelling case for railroad investment. Specifically, the 160 megahertz network is ubiquitous. Where there is rail, there is 160 megahertz coverage. This is the frequency where the railroads through the AAR own and operate 1.3 megahertz of spectrum, making it ideal for larger data-intensive IoT applications. Of the railroad-owned spectrum, the 160 megahertz frequency also has the best propagation characteristics. Making it ideal for difficult terrain and dark territory. Addressing dark territory applications by providing connectivity for railroad applications and staff represents a substantial opportunity for Ondas Networks. I would like to highlight how quickly momentum is building around DOT 16 on the 160 megahertz network. In Q4 and early next year, we are running several separate field trials on Class I and other railroads. Three railroads that in aggregate address long-term industry needs in significant markets. Specifically, these POCs address clear communications, signaling, and connected wayside topics. As well as general connectivity topics for connected railroad workforce. This is significant as it moves Ondas Networks from engaging with railroads on individual use cases to implement true DOT 16 general-purpose networks, which adding safety, and operation-enhancing applications becomes plug and play. On the revenue front, we will be shipping the first Northeast Corridor access production unit at the end of Q4 with further deliveries in 2026. We take pride in the fact that our products will be used for a safety-critical positive train control application in the Northeast Corridor on Amtrak. Our joint development program with Siemens Mobility India for Head of Train Radios has also progressed to deliveries and revenue within the next several months. As many of you may be aware, in July, the Cybersecurity and Infrastructure Security Agency, also known as CISA, issued a notification related to the security issues with the current generation head of train and end of train communications protocol. This has given railroads a significant reason to accelerate the finalization of the HOT EOT generation four point zero specifications. Given that the DOT 16 protocol that Ondas Networks developed for MGAG addresses those relevant security issues. In September, the Wireless Communications Committee announced that the NGHE specifications will be completed in 2026. We continue to engage with the HOT and EOT manufacturers on design and product development tasks to take advantage of the updated WCC timeline. We also continue to engage with the railroads specific 900 megahertz applications. Though timelines of large network deployments remain uncertain. The 900 megahertz timelines are frustrating, though we are creating even more compelling opportunities in addition to the 900 megahertz network with the railroads. And believe the market and financial opportunity for our DOT 16 technology remains significant. Overall, we are pleased with the commitment the industry is making to the adoption of DOT 16. Our direct engagement with railroads and vendors of Wayside and telematics devices is accelerating the build-out of the DOT 16 ecosystem. We expect will lead to accelerated commercialization and believe we will be able to demonstrate the beginning of the adoption curve in 2026. I will now hand the call back to Eric. Eric Brock: Thank you, Markus. I will now ask Oshri Lugasi to take the floor and provide a business update for the OAS business unit. Meir Kliner will also share some context on the progress of the build-out of the OAS operating platform. We will also be joined by Tal Cohen, the Founder and General Manager of Centrix, who will introduce the company, its technology platform, and the strategic fit with Ondas in our IronDrone platform. Oshri, please proceed. Thank you, Eric. During Q3, we made a huge leap forward Oshri Lugasi: in building Ondas Autonomous Systems into a true defense tech and security firm. We are working relentlessly toward our vision of delivering next-generation autonomous and connected solutions for defense, homeland security, and critical missions. OAS is shifting rapidly. We are dramatically expanding our talent base, our partnerships, our customer reach, and our technological capabilities. In the upcoming slides, we will elaborate on how these elements are driving our growth. Our vision is to integrate advanced technology, resilience, and scale to create the autonomous infrastructure that nations and industry will rely on. Our goal is bold and global, to build a powerful global leader that delivers a complete portfolio of defense and security capabilities to the most important customers tasked with keeping the world safe. We are particularly focused on protecting from the surge in threats posed by drones. We are prioritizing combining sensors that can detect and track threats from small UAVs to large ones with effectors capable of neutralizing them safely, protecting the world's most critical assets. We aim to reinforce national borders and forces with cutting-edge technology, enhancing surveillance and intelligence capabilities, protecting civilians in cities, and securing essential infrastructure that sustains modern life. Across all our systems, we integrate advanced AI at multiple levels of autonomy. From prompt-assisted to fully autonomous, powered by some of the most sophisticated robotic technologies in the world. As we promised in our last meeting, we've built real momentum and equipped OAS with much stronger commercial, operational, and technological muscles. During the quarter, we delivered record-high revenues of approximately $10 million, marking the strongest performance in our history. Our backlog grew to $22.2 million at OAS as of September 30. And was more than $40 million when including the announced acquisitions. Further, our customer pipeline remains robust, and we expect to close the year strongly with further backlog expansion. Indeed, we are tracking significant pipeline activity that we hope to share in the near term. This will support accelerating growth momentum into 2026. We advanced our M&A and strategic growth program and completed multiple strategic acquisitions which are adding immediate operational and financial value to Ondas. We established new partnerships and onboarded top talent to strengthen and expand OAS' operational infrastructure. We achieved several important milestones across our portfolio. Optimus was officially listed on the GreenUAS framework with inclusion on the Blue UAS list pending with the US DOD. At the same time, we continued to expand our global pipeline for the Iron Drone Raider, strengthening our position in the fast-growing counter-UAS market. We successfully executed multiple counter-UAS pilots in the US, Europe, and Asia, demonstrating interoperability across our systems. Our Iron Drone Raider was showcased at the Intercom Counter-UAS ID ICE 2025 exercise in San Diego, drawing strong interest from both US and international agencies. We have performed several similar demonstrations for US customers which have been well received. Our Iron Drone Raider was selected by Security Turn Germany, a leading integration partner to the German Armed Forces and other critical security operators. Following successful system integration and demonstrations conducted in Germany by Robotics, we expect this hard work to turn into demand in the coming months given the urgent need to protect critical infrastructure and borders in Europe. Ondas is positioned to lead here. Of course, our market position is even stronger with the addition of SentriX, which opens a tremendous opportunity to market a layered counter-UAS solution suite. Similarly, our US pipeline continues to mature aligned with the growing demand for advanced defense and security solutions. Our marketing partner, Mistral, is helping support a growing and maturing set of pipeline opportunities with defense and homeland security customers. We formed a partnership and made a strategic investment with Rift Dynamics, including an initial order for the WASP FVP drone. Rift is making impressive progress in Europe with the WASP, and we are excited to support the global success, of course, including in the US. On the production side, we launched NDAA-compliant made-in-US fiber optics tools at American Robotics. Strengthening our domestic production base. We have also advanced the required work to prepare the US supply chain for Optimus and Iron Drone and expect to have US-built systems available in Q1 2026. Finally, we continued scaling our operating platform through key leadership additions, most notably the appointment earlier this week of Major General (Retired) Johava Reven, former CEO of Rafael Advanced Defense Systems, to our advisory board. His experience and insight will significantly enhance our strategic depth as we continue expanding OAS globally. I will now pass the call to Meir Kliner, who will share an update on the M&A program and the operational scaling activities at OAS. Meir? Meir Kliner: Thank you, Oshri. During the quarter, we accelerated the execution of our strategic growth program, which drives value creation through accelerated growth and a clear path to profitability. The first start after outlining the plan for investors in July, leveraging the work and the preparation we began earlier in the year. Our acquisition program is off to a fast start after outlining the plan for investors just last July, which is leveraging the work and the preparation we began earlier in the year. Our M&A strategy remains highly focused and disciplined, targeting companies and technologies that expand OAS' commercial reach and strengthen our product ecosystem. Each acquisition we made contributes a unique within our multi-domain architecture, allowing us to integrate aerial, ground, and other critical elements and systems into a unified system of systems. This integration merges ISR, counter-UAS, robotics, communications, and sensing technologies under one interoperable platform. Synergies accelerate customer solution delivery, enhance revenue growth, and increase operational leverage through OAS' scaled infrastructure and position OAS as a next-generation multi-domain defense and security leader. We are building a scaled and interoperable platform by bringing together a group of highly complementary companies, each representing a critical pillar of defense autonomy. In the last several months, we made significant progress in expanding the OAS platform through strategic acquisitions, adding five new companies and bringing critical capabilities, technologies, and customer relationships to our group. These acquisitions strengthen OAS across critical operational domains, including air, ground, and cyber, while expanding our global footprint with Tier one defense and security customers. With SPO, we are now engaged in critical components for missiles and advanced drone systems. Reinforcing our access to the defense supply chain. Vampiro Motion marks our entry into ground robotics and payload systems, a key capability for border defense and maneuvering forces operating in complex terrain. FOREM defense expands our sub-ground and engineering platforms, enabling OAS to participate in land clearance and demining operations. Which are essential to modern defense missions. In the counter-UAS domain, our primary focus area, we added Insight Intelligent Sensors, which delivers electro-optical and AI-driven identification of hostile drones. And SentriX, which we are entered into a definitive agreement with. Whose CyberOver RF technology provides one of the most effective and precise counter-UAS solutions available. Capable of neutralizing threats with minimal collateral impact. And with TCL, which we acquired in July, we have further strengthened our elite engineering team, adding important capabilities valued by our defense customers. Together, these companies significantly enhance OAS' technological depth, operational diversity, and customer reach. Solidifying our position as a next-generation multi-domain technology leader. We don't have time on a quarterly call to do a deep dive into the recently acquired companies. But we will expand on SentriX and ask Tal Cohen, SentriX founder and general manager, to share some thoughts in a few moments. As we continue to scale Ondas Autonomous Systems, we are building a strong operational infrastructure that connects all elements of our business, from our core operations and acquired companies to new talent and an expanding partner ecosystem that supports growth. Our goal is to create a fully integrated operating platform that accelerates execution and enhances efficiency across the group. This integration is being supported by the establishment of a senior leadership layer at OAS, which will manage the integration and growth of the acquired businesses. The expanding OAS leadership runs across the critical disciplines, including sales and marketing, supply chain and field support, HR, legal, and finance and accounting. We are expanding our go-to-market capabilities, aligning our global sales teams, partners, and customer networks under one commercial framework. At the same time, we are strengthening our operational backbone. Unifying manufacturing, distribution, and technology resources to support higher production capacity and faster deployment cycles. We also brought in new leadership and advisory talent to help guide execution and drive collaboration across all subsidiaries. Finally, by connecting our technology platforms, talent, and ecosystem partners, we are establishing the foundation for sustainable scale and long-term value creation as a multi-domain defense and security leader. The integrated structure is transforming OAS into a true multi-domain defense network, where each company strengthens and amplifies the others. Merging aerial, ground, sensing, and cyber into one interoperable, scalable, and autonomous system of systems. Our counter-UAS segment, a key area of focus and growth, will be anchored by the integration of IronOne and SentriX. Together delivering a complete hard and soft kill capabilities under a unified command and control architecture. This system of systems framework is now coming together, with each company contributing a critical capability to the broader OAS defense technology ecosystem. And as we move forward, we will continue adding companies and technologies to complete our portfolio and further strengthen OAS' position as a next-generation defense and security leader. I would like to take a moment to focus on SentriX. SentriX will expand OAS' global reach to tier one defense, public safety, and security agencies. Organizations actively protecting critical infrastructure across more than 25 countries. SentriX Cyber over RF technology represents one of the most advanced counter-UAS solutions in the market today, enabling safe, precise, and regulation-compliant drone neutralizing without jamming or collateral interference. SentriX technology is already field-proven, deployed globally across airports, defense facilities, and public safety operations. Demonstrating extended range, multi-target engagement, and adaptability to evolving radio technologies. This acquisition will position OAS with a unique soft kill capability. Perfectly complementing IronOne's hard kill system. And together, they create a comprehensive counter-UAS architecture unmatched in the market. I will now hand the call over to Tal Cohen, general manager of SentriX, to review the company and this market of counter-UAS. Tal? Tal Cohen: Thank you, Meir, and thank you for having me today. At SentriX, we are truly excited to join Ondas. We believe this partnership will create a significant opportunity to deliver together with Ondas the ideal solution to the evolving drone threat that has rapidly emerged over the past few years. I am pleased to highlight how SentriX is driving a major advancement in our Counter Unmanned Aerial Systems capability through our proprietary CyberOver RF technology or COF in short. COF works differently from a traditional jamming or kinetic solution. Rather than broadly disrupting signals or deploying interceptors, SentriX's system interacts directly with a drone communication protocol, the language between the drone and its controller, enabling us to detect, identify, track, and then assume control of a hostile drone in seconds. Some of the operational advantages stand out. Rapid deployment and simplicity. SentriX system can be deployed in minutes, in a single Pelican case or mobile. Precision and safety. COF ensures zero interference with authorized drones, GPS, or nearby communication systems. Enabling safe mitigation in civilian, critical infrastructure, and defense environments alike. Proven global performance. SentriX is already trusted by 25 countries. By integrating SentriX into the OAS architecture, alongside our aerial platforms, ground systems, and sensor networks, we will be delivering a complete detect-to-defeat CUES ecosystem. SentriX brings the software layer of precise, cyber protocol takeover, which pairs organically with our Kinetic Platforms for hard kill response. As drone threats become more agile, more numerous, and more diverse across borders, critical infrastructure, and contested environments, the COF capability gives us the scalability, agility, and compliance required for today's multi-domain defense posture. In short, with SentriX on board, we are not just reacting to drone threats. We will be proactively controlling them. Safely, reliably, and at scale. SentriX's global footprint is growing rapidly. We have now successfully deployed our solution in more than 25 countries, demonstrating the strong demand and the proven value of our technology for customers across the defense, security, and public safety sectors. SentriX has reached more than 200 global deployments. Reflecting strong and accelerating international adaptation among Tier one defense and security agencies worldwide. In Europe, we are active in 13 countries with 74 deployments, achieving 24% year-to-date growth. In Asia, we have expanded across six countries with 82 deployments, growing 32% year-to-date. And in North America, we have seen the fastest growth, 21% year-to-date, with 34 deployments across three countries. We are also extending our presence in Africa, South America, and Australia. Through new multi-agency programs that highlight the scalability and versatility of our COF COUNTER US technology. Altogether, this demonstrates not only the global scalability and operational readiness of SentriX, but also how this capability will reinforce OAS' position as a trusted provider of field-proven, multi-layered CUES solutions for defense and critical infrastructure protection. A combined solution will allow detection, mitigation, and situational awareness under one coordinated architecture. We start with SentriX. Which provides the first line of defense through its cyber over RF technology. It delivers long-range detection, tracking, and identification of drones and enables safe cyber-based mitigation, taking control of the hostile drone and landing it without jamming or collateral interference. This also gives us critical intelligence, real-time insights, into the drone's identity, behavior, and even its operator's location. Next, we add the Iron Drone Raider. Ondas' autonomous kinetic interception system. It is designed to automatically intercept and defeat any drone threat. Including those that operate without radio control or GPS, completing the full spectrum protection layer. Finally, both systems feed into a unified situational awareness interface. Where data from SentriX and IronDrone are fused into a single automated operational picture. This integration allows operators to detect, track, and neutralize threats in real-time. While reducing the workload and improving decision-making accuracy. Together, these capabilities will deliver comprehensive counter-UAS architecture, one that covers every threat type, across every environment, with precision, safety, and automation. When we look at the broader counter-UAS market, the opportunity ahead of us is extremely significant. Global demand for counter-drone technologies is projected to grow from roughly $2.4 billion in 2024 to over $10.5 billion by 2030. Representing a 27% compound annual growth rate. This growth is driven by the rapid escalation of drone threats across defense, homeland security, and critical infrastructure sectors. And by increasing government funding and regulation worldwide, as we are seeing strong momentum across all regions. SentriX is already well-positioned in each of these markets, with active deployments and a proven track record supporting tier one defense and security agencies. If we move to the revenue outlook, SentriX continues to demonstrate exceptional growth, maintaining a triple-digit compound annual growth rate. With bookings expected to more than triple over the next few years. The company also sustains a strong gross margin in the upper 70% range, underscoring the scalability and efficiency of its technology platform. Demand continues to increase across Europe, The United States, and Southeast Asia. Fueled by both the rising number of drone incidents and the urgent need for compliant, effective, and automated defense solutions. Our Cyber Over RF approach provides exactly that. A simple, safe, and proven method to detect, identify, and neutralize drones without causing collateral interference. Positioning SentriX and OAS to capture a meaningful share of this rapidly expanding $10 billion market. That will conclude my remarks. Thank you for having me here today. We are excited about what's ahead of us and look forward to sharing more great news with you soon. With that, I'll hand the call back over to Eric. Eric, Eric Brock: Thank you, Tal. As you know, we are thrilled to have SentriX join the Ondas team. We see exceptional talent at SentriX combined with market-leading technology, which we believe is extremely well-positioned for the massive addressable market opportunity we have outlined. We believe Ondas is building a very strong position in front of a coming boom in CUES infrastructure deployments globally. We'll now turn to the outlook for Q4 and take a quick look into 2026 as well. As we highlighted throughout the year, our programmatic M&A effort remains very productive. And we believe it will continue to be highly accretive for our investors. We'll continue to build our corporate development team, and as we expand our capabilities, we're seeing the pipeline mature rapidly. Just as importantly, we're seeing significant inbound interest from potential partners, investors, and acquisition candidates who view Ondas as a strategic home for their technologies and businesses. The pipeline isn't just maturing, it's broadening. We're now seeing more established and operationally mature companies emerge as relevant targets, and that's exciting. It speaks to the strength of our reputation and the scale of opportunity we're creating for 2026 and beyond. At present, we have over 20 companies in the active M&A pipeline, with advanced activity with seven potential targets. Collectively, these opportunities represent more than $500 million in potential additional revenue, highlighting the material impact our strategic growth program can have as we continue to execute. We believe this momentum positions us for a very strong 2026, one where our acquisitions and partnerships will not only add scale and capability but also drive higher operating leverage, faster growth, and sustained profitability. Ondas is building a platform designed for expansion. We are confident that the next phase of our M&A program will continue to strengthen both our business and long-term shareholder value. Let's turn to the financial and operational outlook. As we have highlighted, Ondas continues to build momentum, and we expect to see strong growth across all areas of the business led by OAS, as we move through the balance of 2025 and into 2026. We believe we can comfortably meet the financial and operational objectives we outlined earlier this year. And today, we're updating those targets to reflect our progress and visibility. For the full year 2025, we are now raising our revenue target to at least $36 million, which puts our Q4 revenue target north of $15 million. Looking ahead, we're also providing our first formal view into 2026. Based on the visibility we have today, we are targeting at least $110 million in revenue for 2026, and I would note that this number may in fact prove conservative given our expanding customer base, backlog, and maturing customer pipeline as well as our expanded M&A opportunity set. We also expect to announce additional acquisitions during Q4, continuing to execute our strategic growth program. As we stated previously, we continue to target the addition of a U.S. DoD or DHS customer in 2025, which will represent another major milestone for the company. Of course, acquisitions would be accretive to our 2026 outlook. As it relates to Ondas Networks, we are heartened by the AAR's expanding commitment to DOT 16, with three major private wireless networks now formally designated for upgrade with 16 technology. Neil Laird: However, Eric Brock: We do believe we will see meaningful adoption by the railroads in 2026, and this will help reward our investors for the strategic value we are creating with Ondas Networks. Until we see the orders, our outlook today reflects only modest revenue expectations from Ondas Networks relative to the OAS business. We will also continue to be as communicative as possible with our investors. To that front, we plan to host two dedicated events: an Ondas Capital Investor Day in December, where we will dive into that business unit's strategy and investment roadmap, and an OAS Investor Day in January, which will update our business plan from last July and focus on our plans to scale our operating platform, capture new customers, as well as share our technology roadmap and a detailed financial plan for 2026. In summary, Ondas is executing on all fronts. We're growing, scaling, and expanding strategically. We built an exceptionally strong foundation, and we're positioned to deliver a year in 2025, setting the stage for even greater performance in 2026. Before we wrap the call and take investor questions, I want to briefly revisit how our financial and operating models are designed to accelerate shareholder value creation. Of course, that's the bottom line for me and our leadership team, and also the bottom line for you. The formula here is straightforward. And it's working. Our core growth plan is delivering momentum in massive end markets that are still in the early stages of a ten-plus-year adoption cycle. We're driving revenue acceleration, and as we continue to scale, we're generating operating leverage across the platform. That combination with sustained growth and capital efficiency gives us visibility into increasingly profitable growth over time, which we believe will support a premium valuation for Ondas. On top of that is our strategic growth plan, which amplifies those returns leveraging our access to low-cost capital. With a premium-valued operating platform, we're able to acquire premium capabilities and do so in a way that's highly accretive to both earnings and long-term value. Together, these models, our core operations, and strategic expansion create a powerful cycle. We deploy growth capital, we drive operating scale, and we expand platform solutions that open new customer and market opportunities. This is how we intend to continue building shareholder value. Execution, scalability, and disciplined capital deployment that compounds over time. I'm really excited to wrap up 2025 strongly and further excited to continue to leverage our momentum into 2026. With that said, operator, we will now move to take investor questions. Operator: Thank you. We will now begin the question and answer session. And the first question will come from Amit Dayal from H. C. Wainwright. Please go ahead. Amit Dayal: Good morning, everyone. Thank you for taking my questions. Eric, very impressive, the speed at which you are executing. Just along those lines, you highlighted that you are pursuing seven deals that you are at advanced stages from an M&A perspective. Just to clarify, if you do close all those seven deals, are you saying annual revenues at least the run rate could exceed $500 million per year? Eric Brock: No, I'm not saying that. Specifically to the seven targets. We're talking more broadly about the pipeline we outlined. Amit Dayal: Okay. Understood. And then Eric Brock: let me just add that that's incremental to it is incremental to the revenue targets we gave for 2026. Amit Dayal: Okay. So that's where potential upside could come from outside of any other organic developments for you? Eric Brock: Right. We think it's going to be both paths. Amit Dayal: Understood. And then as we think about future OAS revenues, how should we think about one-time product to system sales versus any recurring revenue components from those sales? Eric Brock: I think you're going to see the bulk of what we're doing in the next twelve to eighteen months be the platform sales, so system sales and infrastructure build-outs. As we outlined in the July Investor Day, that's going to look and feel like recurring revenue because we've got this ten-year cycle. And as we build that installed base, we'll be increasingly putting services behind that. I'd also add that early here, we're seeing significant demand from defense markets. Those tend to be purchases. As you see us build the pipeline and start to pull that through, on the commercial side that lends itself to as drone and data as a service model. So you see that mix start to shift as well when commercial starts to grow. Amit Dayal: Got it. Thank you. Just one more for me and then I'll get back in queue. With all of this M&A activity, how quickly can you eliminate sort of overlapping overheads from these recent acquisitions? Eric Brock: Well, we really took some great pains today to outline that leadership team and that OAS operating platform layer that we're establishing. And that's going to be a significant leverage point for us. At the same time, the companies we're acquiring are growing quite a bit themselves. So what we're hoping to do and believe we can do with this operating platform layer I described is accelerate revenue growth but also the capital efficiency. And I don't think that means that we're going to have to be reducing costs with acquired companies. We're bringing on talent I think we're going to be growing that talent as well. Got it. That's all I have there. Thank you so much. Amit Dayal: Sure. Operator: And the next question will be from Mike Latimore from Northland Capital Markets. Please go ahead. Mike Latimore: All right, great. Yes, congrats. Many exciting developments here. I guess as you look at the guidance for 26, does that get you to EBITDA positive? Eric Brock: We still believe that the operating businesses will be EBITDA positive by the second half of next year. And I think that case is even stronger as we're building the scale through the revenue additions. And let's stay tuned. We did say we're going to have a conference call in the first half of January to lay out the business plan and then the financial model for 2026. And there, we'll give you a sense as to when we can cover the holding company costs. Mike Latimore: Got it. And then the SentriX acquisition sounds very positive. I guess as you think about the counter-UAS or counter-drone market, do you expect most of your prospects to buy both SentriX and Iron Drone? Is that going to be a logical fail? Or would you have a big tranche in one category versus the other? Eric Brock: I think it depends on where these systems are going to be deployed. As you know, these are layered technologies. In many places, having the soft and hard kill will be appropriate. In certain locations, having one may be more appropriate. So we'll have to see how that plays out. But we do feel like we're in a very strong position as subject matter experts and the technology we can bring that are operational best in class that we can have a great deal of efficiency and guidance value in guiding our customers to what those layers look like at specific locations. Mike Latimore: And just last for me. In terms of The U.S. Market, which sort of product categories seem most promising for The U.S? And maybe which type of government or government agencies seem most promising? Eric Brock: I'd say they're all promising for sure. We do see quite a demand signal here from the Department of Defense as well as DHS. A critical infrastructure market even for in public safety, for the counter-drone. So as we look into 2026, we expect the counter-drone to likely lead the charge. However, we're going to see growth really across the board. Mike Latimore: Okay, great. Thanks a lot. All right, great. Thanks, Mike. Operator: And the next question is from Tim Horan from Oppenheimer. Please go ahead. Timothy Horan: Thanks. I got about 20 questions, but I'll keep it to three. Eric, it doesn't seem like Europe has much in the way of near air defenses at this point, but it sounds like it has been deployed in the locations. But is that pretty accurate? And I guess do you have the platform now to kind of go protect or sense and protect the nuclear facilities and other facilities coming? Can that be up and running relatively quickly? Eric Brock: So, yes, you're right. I think Europe and it's really true globally that the counter-drone infrastructure build-out really is just in its infancy. The batter is just coming for the first pitch. So we see a lot of greenfield here. At the same time, Europe is likely uniquely pressured here because of the war in Ukraine is on their doorstep, and you're seeing many reports consistently of drone threats emerging in Europe. So we think there's urgency across Europe to protect critical infrastructure, you mentioned power plants for sure, airports, other critical assets, bases, borders. We see a significant demand there. So I do think this is going to be a place that's going to be very fruitful for us. Timothy Horan: And it sounds like SentriX is deployed in a bunch of locations. Is there any evidence that their technology works to protect these locations? Yes. Eric Brock: Oh, yeah. There's tons of evidence and you can see it in the customer expansion. So this is a very robust proven technology and capability and we think that growth curve is going to be sustained. Timothy Horan: So on Mike's question of integrating Iron Drone with SentriX, when will that actually be accomplished? When can you start deploying the platform, yeah? Eric Brock: Let's I'm going to defer that to our call in January. I don't want to put the timelines on that. I will add that the detection piece of what SentriX does is critical for the hard kill. You have to identify the threat to go mitigate. In Iron Drone, we have been integrating many different detection technology platforms. And we think that's going to be pretty straightforward for us to do with SentriX as well. But we'll give more specifics on that in January. Timothy Horan: Great. So I guess lastly, how much does it cost to protect an airport or a site? Do you think both the upfront cost for the customer and the ongoing annual cost? Eric Brock: Like always, it depends, Tim. It depends on how many, you know, are they deploying a detection technology? Are they doing the soft kill? Are they adding hard kill, so it depends. But it can run into the millions of dollars per airport, sure. Timothy Horan: And is that an annual recurring fee, do you think? Or how does it come about like the upfront for annual recurring? Eric Brock: There are recurring fees on that, but yes, it again depends on what's being deployed. And I think we'll be able to lay that out in January, the financial models around this. Timothy Horan: Thank you. Eric Brock: Thank you. Operator: And the next question is from Austin Delhaig from Needham. Please go ahead. Austin Delhaig: Hey guys, thanks for taking my question and congrats on the great results. First question, guys, is kind of on the new 2025 guide. The $11 million in uptick, it sounds like some of this organic success that's higher than your expectations or is the majority of this uptick coming from the recent acquisitions? Eric Brock: It's both. I mean, we're going to be just to be clear, run the businesses that OAS is one unit and we have two business units on this that works in OAS. And that's what we're going to be presenting to you on a go-forward basis. But the from the acquisitions, and the core business as well. In terms of contribution in Q3, we did highlight that Apero was additive, but we're seeing strength. Austin Delhaig: Okay. And then looking at kind of your guys' 2026 guide, how much additional M&A is baked into that $110 million number? Eric Brock: There's no additional M&A. It's only the acquisitions we have announced. It does include the SentriX acquisition, which we expect to close soon. Austin Delhaig: Okay. Okay. And then last question. Like understanding gross margins can kind of bounce quarter to quarter, but maybe like on an annual basis, how are you guys thinking about those trending next year? Obviously, with the SentriX 70%, that's to be very accretive. But just trying to get a sense from a modeling perspective. Eric Brock: Yes. So you'll see gross margins improve certainly into 2026. We've talked about 50% as our target. I still want to keep it there. However, let's see when we meet in January. We'll have a more precise outlook on that. But I do think 50% is a very comfortable number. And from there, I think we can see upside. Austin Delhaig: All righty. Well, thank you guys again and keep up all the great work. Eric Brock: Great. Thanks, Austin. Operator: And the next question will come from Glenn Mattson from Ladenburg. Please go ahead. Glenn Mattson: Yes. Hi. Thanks for taking my call. Another one on SentriX. For me, you don't mind. Can you just talk about the obviously, there's EV capabilities because it can integrate it with all the other counter-UAS and technology that you have. But can you help us understand how unique it is versus what other people have out there in terms of other soft kill solutions or drone capture takeover just kind of help us understand that a little bit. Eric Brock: Sure. Maybe, I'll ask Meir or Tal to, Tal you're probably equipped to take this. Tal Cohen: I'm trying to assist. So just to make sure I understood the question correctly was what is the difference between general or additional or other effect also soft capabilities to temporary capability? Glenn Mattson: Yeah, the correct What was the question? Tal Cohen: Yes. So our question is based is excellent during the presentation on the cost Cyber Overhead capability. Meaning we can first detect and track and identify the drone in a passive manner. So we are not emitting or creating any interference whatsoever. And I think the most important part is for the mitigation we assume control over the drone with starting to communicate quite fine while communicating with the drone and not by doing any jamming or inflicting any other communication collateral damage. So it's a very short, very safe, very limited, and precise surgical and soft kill technology. Glenn Mattson: Appreciate that. And to your knowledge, there's no one else doing something similar in terms of being able to do drone capture such as like that without interfering with other communication technologies. Tal Cohen: Yeah. Our other capabilities that are doing and that are trying to do the same or to use the same technology. But currently, the technology is quite rare and very effective. Glenn Mattson: Great. Very I'll add I'll add, Glenn, if I Eric Brock: if I could say in our assessment of the market, the SentriX solution was hands down the most robust. And I'd also contrast this just to be make sure it's clear. We're not talking about jamming or spoofing radio links or GPS, we're talking about the cyber over RF. Which has significant benefits in performance. This is the taking control of the drone and then landing it. So it's the threat to mitigate it. Glenn Mattson: Very helpful. The last question I have is just on the guidance for 26. You talked about margins a little bit. That must give you some sense of like the mix that you anticipate from all these different products that you now have. Can you just give us some like the confidence level in that mix and in that guidance just kind of I think you talked about tracking the pipeline activity just is it a portfolio various Yes. On the margin side, Eric Brock: yes, I get the question. On the margin side, we're quite confident that margins will trend higher from these levels in 2026 as we get scale and the mix certainly is going to improve as well. Glenn Mattson: Great. Okay. Thanks, guys. Eric Brock: Thanks, Glenn. Operator: And the next question is from Matthew Galinko from Maxim Group. Please go ahead. Matthew Galinko: Hey, thanks for taking my question and congratulations on the quarter. I wanted to ask about just working capital, particularly inventory as we kind of see revenue scale pretty quickly. Is there should we expect a pretty significant buildup in inventory and critical components? And maybe as a follow-up to that, just how you feel on production capacity and any bottlenecks there that could limit the ramp? Thanks. Eric Brock: All right. So I'll take the latter first. We believe we have ample capacity to meet this plan in our planning. So I'm not too concerned about that. Of course, it's going to be hard work. Oshri did highlight that we're making a lot of progress in The U.S. in terms of production on the drone platform. Platforms, IronDrone and Optimus. So we do believe that in Q1, we'll start to add systems here and that's going to be able to meet demand we see here. So I feel pretty good about it. In terms of working capital, we'll probably be building a bit of inventory, but I don't find that too challenging. Obviously, we're well-capitalized. We will focus at the same time on our cash conversion cycle. So we'll probably be able to give you more details on at that meeting in January. Matthew Galinko: Great. Thank you. Eric Brock: Sure. Thanks, Matt. Operator: And the next question is from Jonathan Sigman from Stifel. Please go ahead. Jonathan Sigman: Good morning, Ondas team. Thank you for taking my question. And congratulations on all the progress. Just the operating platform that you're putting together is really pretty unique and I don't recall anyone having so much rapid success with acquiring businesses in a new industry like you are. I would love to hear how you're thinking about putting in incentive systems for your teams. Understand you'll give us more metrics in January. Just would like to hear a little bit about how you're thinking about the philosophy and how you measure performance and balancing the individual units and driving towards success the integrated whole. Thank you. Eric Brock: Yes. Thanks, John. So you first mentioned that the speed of the M&A, and that is I think that observation is spot on. We've articulated this really as an opportunity, probably a once-in-a-generation opportunity to provide a scaled platform for these important technologies, and I won't belabor that. But yes, we're moving fast and putting together the leadership team and incentivizing that team is really critical. And I think what we're doing is building a situation where we'll participate in the upside. So as we grow the business, certainly going to be able to increase cash compensation. But at the same time, we're also using incentives, and we find those to be very, very successful. The team that we're putting together believes in the mission, there's a lot of excitement about the success we're having. So that certainly helps reinforce the performance even in our productivity. So I like that flywheel. And I guess that's really the answer. It's we're not doing anything unique on that front, would say. But I think our team and I think the perspective management teams that we're talking to on the M&A side are excited about building a big company because, of course, they're looking at it as an opportunity to build substantial equity value. So I think that's kind of worked out well for us. Jonathan Sigman: Thank you. Eric Brock: Thanks, John. Operator: And ladies and gentlemen, this concludes today's question and answer session. I would like to turn the call back to Eric Brock for any closing remarks. Eric Brock: Okay. Well, thank you, operator. As we wrap the call, I want to thank you again for spending time with us today. As we outlined, we're expecting a strong finish to 2025, and we're focused on sustaining that momentum into 2026. We, as always, look forward to providing more updates along the way, and I think that's probably going to be sooner rather than later. We do have a lot going on. And from here, enjoy the rest of the day. We're going to get back to the important work of building the company. So thank you for attending. Operator: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.